LLM Group 2 Business Law Fundamental Principles of Law of Contract and Allied Laws 2022 Question Paper with Solutions

The second limb is where inadequacy does work. It is evidence on the separate question of free consent under section 14. A grossly inadequate consideration may support an inference of coercion under section 15 or undue influence under section 16, and where the transaction appears unconscionable and one party was in a position to dominate the will of the other, section 16(3) places the burden of proving that the contract was not induced by undue influence on the dominant party. Illustration (g) to section 25 puts the two limbs together: A agrees to sell a horse worth a thousand rupees for ten rupees, and A denies that his consent was freely given; the inadequacy of the consideration is a fact which the Court should take into account in considering whether or not A's consent was freely given.

Conclusion. Inadequacy of consideration does not by itself affect the validity of an agreement, because section 25 requires consideration and not equivalence. Its only effect is evidential: it is a circumstance the Court weighs in deciding whether consent was free, and where the transaction is unconscionable and the parties unequal it can shift the burden of proof under section 16(3).

The exception in the section itself is the sale of goodwill: a seller may agree not to carry on a similar business within specified local limits, so long as the buyer or a person deriving title from him carries on a like business there, provided the limits appear reasonable to the Court having regard to the nature of the business. Sections 11(2), 36(2) and 54 of the Indian Partnership Act, 1932 add three more, each subject to reasonableness.

The distinction that decides the modern cases is temporal. A negative covenant operating during the subsistence of a contract is not a restraint of trade: Niranjan Shankar Golikari v. Century Spinning and Manufacturing Co. Ltd., AIR 1967 SC 1098. One operating after it ends is void: Percept D'Mark (India) (P) Ltd. v. Zaheer Khan, (2006) 4 SCC 227.

Conclusion. An agreement in restraint of trade is one that restrains a person from exercising a lawful profession, trade or business, and section 27 makes it void to the extent of the restraint without any inquiry into whether it is reasonable. Only the sale of goodwill and the three Partnership Act provisions are excepted, and only a covenant operating during a subsisting relationship escapes the section altogether.

The duties follow from that analogy. He must take as much care of the goods as a person of ordinary prudence would take of his own goods of the same bulk, quality and value, which is the standard in section 151. He must not make any inconsistent use of them, under section 154, and must not mix them with his own goods, under sections 155 to 157. He must take reasonable steps to find the true owner and must not appropriate the goods to himself, and until he has made such efforts he is exposed to the charge of criminal misappropriation under the Bharatiya Nyaya Sanhita, 2023. He must return the goods to the owner on demand, together with any increase or profit which has accrued, under section 168's companion rule in section 163.

The rights are two and both are statutory. Section 168 gives him a lien: he may retain the goods against the owner until he receives compensation for trouble and expense voluntarily incurred to preserve them and to find the owner, though he may not sue the owner for that compensation; and where the owner has offered a specific reward for the return of the goods, the finder may sue for the reward and may retain the goods until he receives it.

For full marks, cover: the second paragraph of section 56, the point that India has a statutory rule and not an implied term, Satyabrata Ghose, and section 65.

Frustration is the discharge of a contract by a supervening event which makes performance impossible or unlawful, and in India its home is the second paragraph of section 56 of the Indian Contract Act, 1872: a contract to do an act which, after the contract is made, becomes impossible, or by reason of some event which the promisor could not prevent becomes unlawful, becomes void when the act becomes impossible or unlawful.

The first paragraph of the same section deals with a different thing and the two must not be confused: an agreement to do an act impossible in itself is void from the outset, which is initial and not supervening impossibility.

Conclusion. Frustration is the automatic discharge of a contract by a supervening event making performance impossible or unlawful, and it operates in India under the second paragraph of section 56 as a positive statutory rule rather than as an implied term, Satyabrata Ghose holding that impossibility is to be read practically and that the event must strike at the root of the contract. Its effect is that the contract becomes void from that moment and section 65 requires restoration of benefits already received.

Harvey v. Facey, [1893] Appeal Cases 552, is the standard authority. A telegram asked "Will you sell us Bumper Hall Pen? Telegraph lowest cash price". The reply "Lowest price for Bumper Hall Pen 900 pounds" was held to be a mere statement of price and not an offer, so the third telegram purporting to accept created no contract.

The recognised categories are worth listing. Goods displayed in a shop window or on a self service shelf, on the authority of Pharmaceutical Society of Great Britain v. Boots Cash Chemists (Southern) Ltd., [1953] 1 Queen's Bench 401, where the customer's offer is made at the cash desk. Advertisements, catalogues and price lists. An invitation to tender, the tender being the offer. An announcement of an auction, where the bid is the offer and acceptance is the fall of the hammer, a rule now in section 64 of the Sale of Goods Act, 1930. A prospectus inviting applications for shares.

The exception is the general offer. In Carlill v. Carbolic Smoke Ball Co., [1893] 1 Queen's Bench 256, an advertisement promising a reward to anyone who used the product as directed and still caught influenza was held to be an offer to the world at large, because it was expressed in terms of a definite promise conditional on performance and the deposit of a thousand pounds showed it was seriously meant.

For full marks, cover: section 2(b) and then sections 7, 8, 4 and 5; each essential named with its section and, where possible, a case.

Section 2(b) of the Indian Contract Act, 1872 provides that when the person to whom the proposal is made signifies his assent thereto, the proposal is said to be accepted, and a proposal when accepted becomes a promise. The essentials of a valid acceptance follow from that definition and from the sections that qualify it.

First, the acceptance must be absolute and unqualified. Section 7(1) so requires. A conditional acceptance or a counter-offer is not an acceptance; it rejects the original proposal and puts an end to it: Hyde v. Wrench, (1840) 3 Beavan 334.

Second, it must be expressed in some usual and reasonable manner, unless the proposal prescribes the manner. Section 7(2) provides that if the proposal prescribes a manner and the acceptance is not made in that manner, the proposer may within a reasonable time after the acceptance is communicated insist that his proposal be accepted in the prescribed manner, and if he fails to do so he accepts the acceptance.

Seventh, acceptance may be by performance. Section 8 provides that performance of the conditions of a proposal, or the acceptance of any consideration for a reciprocal promise which may be offered with a proposal, is an acceptance of the proposal, which is what made the plaintiff's use of the smoke ball an acceptance in Carlill v. Carbolic Smoke Ball Co., [1893] 1 Queen's Bench 256.

Conclusion. A valid acceptance under section 2(b) must be absolute and unqualified under section 7(1), expressed in a usual and reasonable manner or in any manner prescribed under section 7(2), given by the offeree with knowledge of the proposal, communicated so as to be complete under section 4, made while the proposal is still open, and it may be given by performance under section 8. Failure of any one of these leaves the proposal unaccepted and no promise comes into existence.

The whole topic therefore turns on intention, and a stipulation that time shall be of the essence is evidence and not conclusive. The courts apply two presumptions. In mercantile and commercial contracts, especially for the sale of goods, time is ordinarily of the essence, because prices move against a market. In contracts for the sale of immovable property, time is presumed not to be of the essence.

Chand Rani v. Kamal Rani, (1993) 1 SCC 519, is the Constitution Bench authority. It held that in the case of a sale of immovable property there is no presumption that time is of the essence; it may be made so by express stipulation, but even then the court will look at the real intention gathered from the express words, the nature of the property, the surrounding circumstances and the conduct of the parties. Hind Construction Contractors v. State of Maharashtra, (1979) 2 SCC 70, holds that a completion schedule in a building contract that also provides for extension of time and liquidated damages does not make time of the essence, since those provisions show the parties contemplated delay.

Where time is not of the essence, a party who is himself ready and willing may make it of the essence by giving reasonable notice fixing a date, after which continued default entitles him to treat the contract as at an end.

For full marks, cover: the four powers that matter, each with its section, and the one thing the tribunal cannot do.

The arbitral tribunal, defined by section 2(1)(d) of the Arbitration and Conciliation Act, 1996 as a sole arbitrator or a panel of arbitrators, has four powers that make private adjudication workable.

First, the power to rule on its own jurisdiction. Section 16 enacts competence-competence: the tribunal may rule on its own jurisdiction, including on any objection with respect to the existence or validity of the arbitration agreement. Section 16(1) adds separability, providing that an arbitration clause forming part of a contract is to be treated as an agreement independent of the other terms, and that a decision that the contract is null and void does not entail ipso jure the invalidity of the clause. The seven-judge decision In Re: Interplay Between Arbitration Agreements under the Arbitration and Conciliation Act 1996 and the Indian Stamp Act 1899, decided 13 December 2023, applied that principle to hold that an unstamped instrument is inadmissible but not void and that the objection is for the tribunal.

What it cannot do defines the powers. It cannot compel a stranger to attend or produce documents, and must apply to the Court under section 27 for assistance in taking evidence; it cannot punish for contempt; and it cannot enforce its own final award, enforcement being under section 36.

Conclusion. The tribunal's powers are to decide its own jurisdiction under section 16 on the separability principle, to grant interim measures enforceable as orders of the court under section 17, to control procedure and evidence free of the Code and the law of evidence under section 19, and to make a reasoned award with interest and costs under sections 31 and 31A. Its coercive power over strangers is borrowed from the Court under section 27, and enforcement of the award is under section 36.

The real question, and the one worth the marks, is which disputes may be referred at all. Section 2(3) provides that Part I shall not affect any other law by virtue of which certain disputes may not be submitted to arbitration, and section 34(2)(b)(i) makes non-arbitrability a ground for setting aside.

Booz Allen and Hamilton Inc. v. SBI Home Finance Ltd., (2011) 5 SCC 532, drew the line between rights in rem and rights in personam and listed the categories generally reserved to the courts: disputes relating to rights and liabilities giving rise to or arising out of criminal offences; matrimonial disputes relating to divorce, judicial separation, restitution of conjugal rights and child custody; guardianship matters; insolvency and winding up; testamentary matters such as the grant of probate, letters of administration and succession certificates; and eviction or tenancy matters governed by special statutes where the tenant enjoys statutory protection.

For full marks, cover: section 2(1)(f) with its four limbs, the point that it turns on the party and not the seat, and the four consequences of the label.

Section 2(1)(f) of the Arbitration and Conciliation Act, 1996 defines international commercial arbitration as arbitration relating to disputes arising out of legal relationships, whether contractual or not, considered as commercial under the law in force in India, where at least one of the parties is: an individual who is a national of, or habitually resident in, any country other than India; a body corporate incorporated in any country other than India; an association or a body of individuals whose central management and control is exercised in any country other than India; or the Government of a foreign country.

Four consequences follow from the label and they are the reason it matters. The court that appoints under section 11 is the Supreme Court, not the High Court. Under section 28(1)(b) the parties may choose the rules of law applicable to the substance of the dispute, while a domestic arbitration must be decided under Indian substantive law. Under section 34(2A) the ground of patent illegality on the face of the award is not available. And the twelve month deadline in section 29A does not bind, its proviso being hortatory only.

Conclusion. International commercial arbitration under section 2(1)(f) is arbitration of a commercial dispute in which at least one party is a foreign national or resident, a foreign incorporated body, a body centrally managed abroad, or a foreign Government. It is defined by the foreignness of a party rather than by the seat, and the classification determines the appointing court, the choice of substantive law, the availability of the patent illegality ground and the operation of the section 29A timetable.

Section 67(1) and (2) defined the role: the conciliator shall assist the parties in an independent and impartial manner in their attempt to reach an amicable settlement, and shall be guided by principles of objectivity, fairness and justice, giving consideration to the rights and obligations of the parties, the usages of the trade concerned and the circumstances surrounding the dispute, including any previous business practices between the parties.

Section 74 was what gave conciliation its practical force: the settlement agreement drawn up and signed by the parties and authenticated by the conciliator under section 73 shall have the same status and effect as if it were an arbitral award on agreed terms under section 30, and is therefore enforceable under section 36 as a decree without a fresh suit. Sections 75, 80 and 81 supplied confidentiality, the bar on the conciliator acting as arbitrator or counsel in the same dispute, and the inadmissibility of the parties' proposals in later proceedings.

For full marks, cover: the four principal modes on a spectrum from facilitative to adjudicatory, the hybrids, and the Indian statutory homes of each.

The internationally accepted modes are best presented on a spectrum running from the wholly consensual to the fully adjudicatory.

Negotiation is the parties dealing directly with each other without a third person. It is the base of every other mode and has no statutory form.

Mediation is assisted negotiation: a neutral facilitates communication and helps the parties construct their own settlement, without deciding anything and, in the pure facilitative model, without proposing terms. In India it now has its own statute, the Mediation Act, 2023, under which a mediated settlement agreement is enforceable as a judgment or decree of a court.

Conciliation is the same process with the neutral empowered to propose terms. It was governed by Part III of the Arbitration and Conciliation Act, 1996, whose sections 61 to 81 the Mediation Act, 2023 has substituted so that conciliation is now read as mediation.

India has two modes of its own that have no exact international counterpart. The Lok Adalat under sections 19 to 22 of the Legal Services Authorities Act, 1987, whose award section 21 deems a decree of a civil court with no appeal; and the Permanent Lok Adalat under Chapter VIA of that Act, which by section 22C(8) may decide a public utility dispute where conciliation fails. Section 89 of the Code of Civil Procedure, 1908 requires a court to consider referring a dispute to arbitration, conciliation, judicial settlement including Lok Adalat, or mediation, and Afcons Infrastructure Ltd. v. Cherian Varkey Construction Co. (P) Ltd., (2010) 8 SCC 24, worked out how that section operates.

Conclusion. The internationally accepted modes run from negotiation through mediation and conciliation to arbitration, with hybrids such as med-arb, early neutral evaluation, mini-trial, dispute boards and expert determination in between, and they are distinguished by how much decision-making power the neutral holds. In India, arbitration is governed by the Act of 1996, mediation now by the Mediation Act, 2023, and the country has added the Lok Adalat and the Permanent Lok Adalat under the Legal Services Authorities Act, 1987 as statutory modes with no exact counterpart abroad.

A settlement is a further mode and it operates through section 30. If during the proceedings the parties settle the dispute, the tribunal shall terminate the proceedings and, if requested by the parties and not objected to by the tribunal, record the settlement in the form of an arbitral award on agreed terms, which has the same status and effect as any other award on the merits.

Default by the claimant terminates the proceedings too. Section 25(a) provides that where the claimant fails, without showing sufficient cause, to communicate his statement of claim in accordance with section 23(1), the tribunal shall terminate the proceedings. Default by the respondent does not: under section 25(b) the tribunal continues without treating the failure as an admission.

Expiry of the mandate is the fifth route, and it was added in 2015. Section 29A(4) provides that if the award is not made within the twelve month period, or the extended period of six months, the mandate of the arbitrator shall terminate unless the Court has, either prior to or after the expiry, extended the period.

For full marks, cover: section 2(1)(c), what the Act does not define, the requirements of section 31, and the effect under sections 35 and 36.

Section 2(1)(c) of the Arbitration and Conciliation Act, 1996 provides only that "arbitral award" includes an interim award. It is an inclusive definition and not a complete one, so the content has to be gathered from section 31 and from the case law.

An arbitral award is the final determination by an arbitral tribunal of a claim, part of a claim or a counterclaim referred to it, made in the exercise of its adjudicatory function and intended to be binding. The distinguishing feature is finality on the issue decided: a procedural order does not become an award merely because it is called one, and an award does not lose that character because it is called an order.

The effect of an award is given by two sections. Section 35: an arbitral award shall be final and binding on the parties and persons claiming under them. Section 36: where the time for making an application under section 34 has expired, the award shall be enforced in accordance with the Code of Civil Procedure, 1908, in the same manner as if it were a decree of the court, no separate suit or filing being needed.

Conclusion. An arbitral award is the tribunal's binding determination of the matters referred to it, defined in section 2(1)(c) only inclusively, and given content by section 31, which requires writing, signature by the majority with reasons for any omission, reasons for the decision unless dispensed with or the award is on agreed terms, and a stated date and place. By sections 35 and 36 it is final and binding on the parties and enforceable as a decree of the civil court.

First, limitation. Section 43(1) provides that the Limitation Act, 1963 shall apply to arbitrations as it applies to proceedings in court, and section 43(2) provides that for the purposes of that Act an arbitration shall be deemed to have commenced on the date referred to in section 21. Limitation therefore stops running when the respondent receives the request, and a claim already time barred on that date cannot be revived by referring it. Section 43(3) empowers the Court, where an arbitration agreement provides that a claim shall be barred unless notice is given or some step taken within a fixed time, and undue hardship would otherwise be caused, to extend the time.

Second, the timetable for the appointment machinery. The thirty day periods in section 11(4) and 11(5), within which a party must appoint an arbitrator or the two appointed arbitrators must agree on the third, run from a request that follows commencement.

M/s Arif Azim Co. Ltd. v. M/s Aptech Ltd., decided 3 January 2024, is the current authority on the related limitation point, holding that Article 137 of the Limitation Act, 1963 governs an application under section 11(6), so it must be filed within three years of the accrual of the right to apply, and that at that stage the court may refuse a reference only where the claim is ex facie time barred.

Sections 3 to 9 are a machinery for locating the moment at which two wills coincided. Section 4 fixes when communication of a proposal and of an acceptance is complete; section 5 permits revocation until that moment; section 7 requires the acceptance to be absolute and unqualified, because a qualified acceptance shows the wills have not met.

Section 14 defines free consent negatively, by excluding coercion, undue influence, fraud, misrepresentation and mistake, on the reasoning that a will which has been forced or deceived is not truly a will at all.

Section 20 is the clearest expression of the theory. Where both parties to an agreement are under a mistake as to a matter of fact essential to the agreement, the agreement is void. Not voidable: void. That consequence is intelligible only on the premise that there never was an agreement, because the two minds were never on the same thing.

Section 22, by contrast, provides that a contract is not voidable merely because it was caused by one of the parties being under a mistake as to a matter of fact, which shows that the theory operates on the shared and not the individual state of mind.

First, the standard form contract. Where one party writes every word of an insurance policy, a bank form or a software licence, the other's consent is genuine as to the transaction and fictional as to the terms. Indian law has responded not by denying the contract but by controlling it: section 16(3) shifts the burden of disproving undue influence where a transaction is unconscionable and one party could dominate the will of the other, and the section 23 public policy jurisdiction was used in Central Inland Water Transport Corporation Ltd. v. Brojo Nath Ganguly, (1986) 3 SCC 156, to strike down a service rule permitting termination without reason, the Supreme Court holding that a court will not enforce an unfair and unreasonable clause in a contract between parties of unequal bargaining power.

Second, the obligations that arise without any agreement at all. Sections 68 to 72, headed "Of certain relations resembling those created by contract", impose liability for necessaries supplied to an incapable person, for payment by an interested person, for a non-gratuitous act whose benefit was enjoyed, for the responsibilities of a finder, and for money paid by mistake or under coercion. In none of these did the parties agree to anything. State of West Bengal v. B.K. Mondal and Sons, AIR 1962 SC 779, applied section 70 precisely because there was no valid contract.

For full marks, cover: the definition in section 2(e), then section 10's conditions one by one with the sections and one case each, and close on the different consequences of failure.

Section 2(e) of the Indian Contract Act, 1872 defines an agreement as every promise and every set of promises forming the consideration for each other, and section 2(h) provides that an agreement enforceable by law is a contract. The essentials of a valid agreement, that is, one the law will enforce, are stated by section 10: all agreements are contracts if they are made by the free consent of parties competent to contract, for a lawful consideration and with a lawful object, and are not hereby expressly declared to be void.

First, an offer and an acceptance producing consensus ad idem. Sections 3 to 9 govern. The proposal must be distinguished from an invitation to offer: Harvey v. Facey, [1893] Appeal Cases 552. The acceptance must be absolute and unqualified under section 7 and communicated under section 4, and must be made in knowledge of the proposal: Lalman Shukla v. Gauri Datt, (1913) 11 Allahabad Law Journal 489.

Fourth, capacity. Section 11 requires majority under the Indian Majority Act, 1875, soundness of mind as defined in section 12, and the absence of statutory disqualification. Mohori Bibee v. Dharmodas Ghose, (1903) 30 Indian Appeals 114, holds that a minor's agreement is void ab initio, so it cannot be ratified, supports no estoppel, and is outside sections 64 and 65; the supplier of necessaries is relegated to section 68, which charges the minor's property and not his person.

Fifth, free consent. Section 14 defines it by excluding coercion (section 15), undue influence (section 16), fraud (section 17), misrepresentation (section 18) and mistake (sections 20 to 22). The consequences differ, and the difference is examinable: the first four make the agreement voidable under sections 19 and 19A, while bilateral mistake as to a matter of fact essential to the agreement makes it void under section 20. Derry v. Peek, (1889) 14 Appeal Cases 337, marks the line between fraud and innocent misrepresentation, requiring for fraud a false statement made knowingly, or without belief in its truth, or recklessly.

Conclusion. A valid agreement requires an offer and an acceptance producing consensus ad idem under sections 3 to 13, an intention to create legal relations supplied by the courts, lawful consideration under sections 2(d), 24 and 25, capacity under sections 11 and 12, free consent under sections 14 to 22, a lawful object under section 23, the absence of any express statutory avoidance under sections 26 to 30 and section 56, and compliance with any form another statute prescribes. The elements are cumulative, but their failure does not produce the same result: incapacity, unlawful object, want of consideration and bilateral mistake make the agreement void, while coercion, undue influence, fraud and misrepresentation make it voidable, and want of a prescribed form generally makes it merely unenforceable.

Section 20: agreements made under a bilateral mistake of fact. Where both parties are under a mistake as to a matter of fact essential to the agreement, it is void. The Explanation provides that an erroneous opinion as to the value of the subject matter is not such a mistake.

Section 23 and section 24: agreements with an unlawful consideration or object, and agreements in which any part of a single consideration, or any one of several considerations for a single object, is unlawful.

Section 25: agreements made without consideration, subject to the three exceptions of a registered promise on account of natural love and affection between near relations, a promise to compensate past voluntary service, and a written and signed promise to pay a time barred debt.

Section 26: agreements in restraint of the marriage of any person other than a minor. There is no exception, and the section covers a partial as well as a total restraint. Lowe v. Peers, (1768) 4 Burrow 2225, supplies the principle; Rao Rani v. Gulab Rani, AIR 1942 Allahabad 351, its limit, holding that a forfeiture of property on remarriage restrains nobody from marrying.

Section 30: agreements by way of wager. No suit shall be brought for recovering anything alleged to be won on any wager, or entrusted to any person to abide the result of any game or other uncertain event on which a wager is made. The section saves a subscription or contribution towards a prize of five hundred rupees or upwards to be awarded to the winner of a horse race, and does not legalise a transaction that is itself illegal.

Section 36: agreements contingent on an impossible event. Contingent agreements to do or not to do anything if an impossible event happens are void, whether or not the impossibility of the event is known to the parties at the time of the agreement.

Section 56, first paragraph: agreements to do an act impossible in itself, which is initial impossibility, as distinct from the second paragraph, under which a contract that becomes impossible or unlawful becomes void.

Two further categories complete the list. Section 57, where reciprocal promises consist of a legal set and an illegal set, the second set being void. And an agreement to enter into an agreement in future, which fails under section 29 for uncertainty.

For full marks, cover: what a standard form contract is and why it exists; what an exception clause is; then the four controls Indian law applies, notice, construction, section 23 unconscionability with Brojo Nath Ganguly, and statute, ending on the Consumer Protection Act, 2019.

A standard form contract is one whose terms are settled in advance by one party and offered to the other on a take it or leave it basis. The French term, contract of adhesion, is more accurate: the weaker party adheres to terms rather than agreeing to them. The insurance policy, the bank account form, the bill of lading, the airline ticket, the electricity supply agreement, the software licence and the terms of use of a website are all of this kind.

They exist because they are efficient, and an answer that treats them only as an abuse is incomplete. A supplier dealing with a million customers cannot negotiate a million contracts. Standardisation lowers transaction cost, makes risk calculable and therefore insurable, and permits the price to be fixed by reference to a known allocation of liability. The saving is real and is reflected in the price.

First, a rule of notice. A term is not part of the contract unless reasonable steps were taken to bring it to the other party's attention before or at the time of contracting. Olley v. Marlborough Court Ltd., [1949] 1 King's Bench 532, is the illustration: a notice in a hotel bedroom disclaiming liability for valuables came too late, the contract having been made at the reception desk. Thornton v. Shoe Lane Parking Ltd., [1971] 2 Queen's Bench 163, holds that the more unusual or onerous the clause, the greater the notice required. Where the document is signed the rule is stricter: L'Estrange v. F. Graucob Ltd., [1934] 2 King's Bench 394, holds a signatory bound whether or not he read it, subject to fraud or misrepresentation.

Second, a rule of construction. An exception clause is read contra proferentem, against the party who put it forward, and clear words are required to exclude liability for negligence. The doctrine of fundamental breach, once treated as a rule of law under which no clause could exclude liability for a breach going to the root of the contract, was reduced in Photo Production Ltd. v. Securicor Transport Ltd., [1980] Appeal Cases 827, to a rule of construction, but the practical requirement of clear words survives.

Fourth, statute, which is now the most important control. The Consumer Protection Act, 2019 defines an unfair contract in section 2(46) as a contract between a manufacturer, trader or service provider and a consumer having such terms as cause a significant change in the rights of the consumer, and includes terms requiring manifestly excessive security deposits, imposing a disproportionate penalty for breach, refusing early repayment of debts, entitling a party to terminate unilaterally without reasonable cause, permitting assignment to the detriment of the other party, or imposing unreasonable charges. The State and National Commissions may declare such terms null and void. The Act also introduced product liability in Chapter VI and rules for e-commerce.

Sectoral regulation supplies the rest: the Insurance Regulatory and Development Authority prescribes policy wordings, the Reserve Bank of India regulates bank charges through the fair practices code, and the Real Estate (Regulation and Development) Act, 2016 prescribes the agreement between promoter and allottee. Section 10A of the Information Technology Act, 2000 gives legal recognition to contracts formed by electronic means, which is what makes click-wrap terms enforceable at all.

For full marks, cover: the five remedies with the statute for each; damages in most detail with sections 73, 74 and 75 and the leading cases; specific performance as changed in 2018; injunction, rescission and quantum meruit; and a word on election.

Section 37 of the Indian Contract Act, 1872 imposes the obligation to perform, and a breach is the failure to perform when performance is due, or the disabling of oneself from performing. Section 39 covers anticipatory breach: where a party has refused to perform or disabled himself from performing his promise in its entirety, the promisee may put an end to the contract unless he has signified acquiescence in its continuance. Five remedies follow.

Section 74 governs a stipulated sum, and it abolishes the English penalty distinction. Where a sum is named in the contract as payable on breach, or the contract contains any other stipulation by way of penalty, the injured party is entitled, whether or not actual damage or loss is proved, to reasonable compensation not exceeding the amount so named. The named sum is a ceiling, not an entitlement. Fateh Chand v. Balkishan Das, AIR 1963 SC 1405, holds that the section applies to a forfeiture clause and that the court's jurisdiction is to award reasonable compensation. Maula Bux v. Union of India, (1969) 2 SCC 554, adds that where the loss is of a kind that cannot be proved, the named sum may be taken as a reasonable measure. Kailash Nath Associates v. Delhi Development Authority, (2015) 4 SCC 136, is the modern restatement, holding among other things that damage or loss is a sine qua non for the application of the section.

Section 75 entitles a person who rightly rescinds a contract to compensation for any damage sustained through the non-fulfilment of the contract.

Third, injunction under sections 36 to 42 of the same Act. A temporary injunction is governed by Order XXXIX of the Code of Civil Procedure, 1908; a perpetual injunction is granted by the decree under section 37; a mandatory injunction under section 39. Section 42 is the provision that matters for negative covenants: where a contract comprises an affirmative agreement coupled with a negative one, the court's inability to compel the affirmative does not preclude an injunction to enforce the negative, which is how the injunction was granted in Niranjan Shankar Golikari v. Century Spinning and Manufacturing Co. Ltd., AIR 1967 SC 1098.

Fourth, rescission under sections 27 to 30 of the Specific Relief Act, 1963, with restoration under section 64 of the Contract Act where a voidable contract is rescinded, and under section 65 where an agreement is discovered to be void or a contract becomes void.

Fifth, quantum meruit. Where a contract is discharged before complete performance, a party who has done work may claim the value of what he has done, under section 65 or section 70. State of West Bengal v. B.K. Mondal and Sons, AIR 1962 SC 779, applied section 70 to construction work done for the State under an arrangement that failed the constitutional requirements for a government contract.

For full marks, cover: the definitions, section 30 and sections 31 to 36; the points of resemblance; then the six points of difference set out one by one; and the Indian statutory position including the Bombay position.

A wagering agreement is one in which two parties, holding opposite views on an uncertain event, agree that on the determination of that event one shall pay a sum to the other, neither party having any interest other than the sum he stands to win or lose. The Indian Contract Act, 1872 does not define it; section 30 simply provides that agreements by way of wager are void, and that no suit shall be brought for recovering anything alleged to be won on any wager, or entrusted to any person to abide the result of any game or other uncertain event on which any wager is made.

The essentials, drawn from the case law, are four: an uncertain event; mutually opposite views on it; reciprocal chances of gain and loss, so that each party stands to win or lose on the determination; and no interest in the event other than the stake. The last is what distinguishes a wager from insurance, where the insured has an insurable interest in the subject matter.

The points of resemblance are two, and they are why the question is set. Both depend upon an uncertain future event, and in both the promisor's obligation arises only if the event occurs. A wager, in that limited sense, has the outward form of a contingent contract.

The differences are six and should be set out in order.

First, validity. A wagering agreement is void under section 30 and unenforceable in every part. A contingent contract is valid and enforceable once the contingency occurs.

Second, the nature of the interest. In a wager neither party has any interest in the event apart from the stake he stands to win or lose. In a contingent contract at least one party has a real interest in the event: the owner in Illustration to section 31 has an interest in his house not burning.

Third, reciprocity of gain and loss. A wager requires mutual chances of gain and loss to both parties on the determination of the event. In a contingent contract the event may result in gain to one party without any corresponding loss to the other, and often only one party promises.

Two further Indian provisions complete the picture. The exception in section 30 itself saves a subscription or contribution, or an agreement to subscribe or contribute, made or entered into for or towards any plate, prize or sum of money of the value or amount of five hundred rupees or upwards, to be awarded to the winner of any horse race. And the section expressly provides that nothing in it shall be deemed to legalise any transaction connected with horse racing to which section 294A of the Indian Penal Code applies, a section now carried into the Bharatiya Nyaya Sanhita, 2023.

Insurance is the standard illustration of the distinction. A contract of insurance is a contingent contract and not a wager, because the assured has an insurable interest in the subject matter; a life or fire policy taken out by a person with no interest in the life or the property would be a wager and void.

The line between the two in practice: insurance, and where the courts have drawn it

The practical test that separates a wager from a contingent contract is the presence of an insurable interest, and the point is best made through the contract of insurance.

Carlill v. Carbolic Smoke Ball Co., [1893] 1 Queen's Bench 256, is where an English court had to draw both lines at once, and it is worth citing here rather than only in the law of offer. The company argued, among other defences, that its promise of a hundred pounds to anyone who used the smoke ball and still caught influenza was void as a wager, and, in the alternative, that it was a policy of insurance which was void for want of the statutory form. The Court of Appeal rejected both. It was not a wager, because the transaction was not one in which two parties held opposite views on an uncertain event with reciprocal chances of gain and loss and no other interest: the company was selling a product and the promise was made to induce purchases, so it had a real commercial interest in the outcome beyond any stake. And it was not insurance, because the promise was not the main object of the transaction but an inducement to buy.

The distinction the Court drew is exactly the one section 30 and section 31 require. Ask what the parties' interest in the event is. If the only interest either has is the sum that changes hands on the outcome, the agreement is a wager and void. If at least one of them has an interest in the event itself, and the event merely conditions an obligation created for another purpose, the agreement is a contingent contract and good.

For full marks, cover: the two rules and their statutory homes in sections 12, 18 and 24(3); the consequence of breach through sections 34 and 48; the ineligibility regime of section 12(5) and the Seventh Schedule with TRF and Perkins Eastman; the 2024 Constitution Bench decision; and Ssangyong as the worked example of a hearing failure.

The two rules of natural justice are nemo judex in causa sua, that no one may be a judge in his own cause, and audi alteram partem, that both sides must be heard. A private tribunal whose award is enforceable as a decree of the court under section 36 must observe both, and the Arbitration and Conciliation Act, 1996 gives each a statutory form.

The hearing rule is enacted by section 18: the parties shall be treated with equality and each party shall be given a full opportunity to present his case. The section is mandatory, cannot be excluded by agreement, and is the source of every natural justice objection in Indian arbitration.

The bias rule is enacted by section 12, and the 2015 amendment made it far stronger. Section 12(1) requires a person approached in connection with a possible appointment to disclose in writing, in the form of the Sixth Schedule, any circumstances such as those in the Fifth Schedule likely to give rise to justifiable doubts as to his independence or impartiality. The duty is continuing under section 12(2). Section 12(3) makes justifiable doubts, or the absence of agreed qualifications, grounds of challenge, and section 13 provides that the challenge is decided in the first instance by the tribunal itself, the unsuccessful challenger's remedy being a section 34 application after the award.

Section 12(5) goes further and creates ineligibility rather than challengeability. Notwithstanding any prior agreement to the contrary, a person whose relationship with the parties, counsel or the subject matter falls within the Seventh Schedule is ineligible to be appointed, and only an express written agreement made after the dispute has arisen can waive it. The Seventh Schedule, drawn from the IBA Guidelines on Conflicts of Interest in International Arbitration, covers among others an employee, consultant or adviser of a party, a person with a business relationship with a party, a manager or director of a party, and a person with a close family relationship with a party or counsel.

The consequence of a breach is a ground for setting aside or refusing enforcement, and this is where the two rules produce a remedy. Section 34(2)(a)(iii) makes it a ground that the party making the application was not given proper notice of the appointment of an arbitrator or of the arbitral proceedings, or was otherwise unable to present his case. The identical ground appears in section 48(1)(b) for a foreign award. And Explanation 1 to section 34(2)(b), as substituted in 2015, retains as a head of public policy that the award is in conflict with the most basic notions of morality or justice, which is the residual home of a natural justice complaint that does not fit sub-clause (iii).

Ssangyong Engineering and Construction Co. Ltd. v. National Highways Authority of India, (2019) 15 SCC 131, is the worked example and should be given. The majority of the tribunal had applied a circular and a linking formula to revise rates, and had done so on material that had not been shown to the other party. The Supreme Court held that this offended the most basic notions of justice, set aside the majority award on that narrow ground, and, exercising its power under Article 142, upheld the minority award. The case is important precisely because the Court had just finished narrowing the public policy ground, and it shows what survives that narrowing: a decision reached on undisclosed material.

Conclusion. Natural justice enters Indian arbitration through two mandatory provisions. The hearing rule is section 18, supported by the notice and disclosure requirements of section 24 and by the default rules in section 25, and its breach is a ground under section 34(2)(a)(iii) or, residually, under the basic notions of morality or justice limb of Explanation 1. The bias rule is section 12, with disclosure under the Fifth and Sixth Schedules, challenge under sections 12(3) and 13, and outright ineligibility under section 12(5) and the Seventh Schedule, enforced in TRF Ltd. and Perkins Eastman and extended to the appointment stage itself by Central Organisation for Railway Electrification in November 2024. Ssangyong Engineering shows the hearing rule doing real work after the 2015 narrowing of public policy, while section 19 and Explanation 2 mark the limits: informality is not unfairness, and an error is not a denial of justice.

First, scope and structure. The 1940 Act covered only domestic arbitration, in three situations: without the intervention of a court, with the intervention of a court where no suit is pending, and in suits. The 1996 Act has four Parts: Part I for arbitration seated in India, Part II for the enforcement of foreign awards under the New York and Geneva Convention chapters, Part III for conciliation, and Part IV for supplementary provisions.

Second, and most important, the extent of court intervention. Under the 1940 Act an award had to be filed in court under section 14; the court could modify or correct it under section 15, remit it under section 16 and supersede the arbitration under section 19; and a decree in terms of the award followed under section 17. Nothing operated until the court acted. The 1996 Act reverses this. Section 5 provides that in matters governed by Part I no judicial authority shall intervene except where so provided; section 35 makes the award final and binding without any order; and section 36 makes it enforceable as if it were a decree, with no filing and no judgment on the award.

Third, the number of arbitrators. The First Schedule to the 1940 Act permitted an even number with an umpire, whose entry on disagreement was a standing source of delay. Section 10 of the 1996 Act requires the number to be odd, with a sole arbitrator by default.

Sixth, grounds of challenge. Section 30 of the 1940 Act allowed an award to be set aside for misconduct of the arbitrator or the proceedings, and "legal misconduct" was read to include an error of law apparent on the face of the award, so merits challenges were routine. Section 34 of the 1996 Act confines the grounds to those drawn from Article 34 of the Model Law, and the substituted Explanation 1 confines public policy to fraud or corruption, contravention with the fundamental policy of Indian law, and conflict with the most basic notions of morality or justice, Explanation 2 expressly excluding a review on the merits. Ssangyong Engineering and Construction Co. Ltd. v. National Highways Authority of India, (2019) 15 SCC 131, is the authoritative post-2015 statement.

Seventh, foreign awards and conciliation. The 1940 Act said nothing about either. Part II of the 1996 Act consolidates both convention regimes, and Part III supplied a complete law of conciliation. That Part was substituted in its entirety by the Sixth Schedule to the Mediation Act, 2023, so that every statutory reference to conciliation under the 1996 Act is now read as a reference to mediation. A candidate distinguishing the two Acts today must say so, because "the 1996 Act provides for conciliation" is no longer complete.

Conclusion. The 1940 Act made arbitration a preliminary to litigation: the award had to be filed, could be modified, remitted or superseded, required a decree, needed no reasons, permitted an even-numbered tribunal with an umpire, and was open to challenge for error of law on its face. The 1996 Act reversed each of those through sections 5, 10, 16, 31(3), 34, 35 and 36, and added Part II for foreign awards and Part III for conciliation. The contrast should not be drawn as a bad Act replaced by a good one: the 1996 Act has been amended in 2015, 2019 and 2021, one of its own insertions was struck down in Hindustan Construction Company, and the Mediation Act, 2023 has since removed conciliation from it altogether.

This question must be answered with a statement of what has happened to the Part it names. Sections 61 to 81 of the Arbitration and Conciliation Act, 1996, which constituted Part III and governed conciliation, were substituted in their entirety by the Sixth Schedule to the Mediation Act, 2023 (Act 32 of 2023, assented to on 14 September 2023). The substituted section 61 provides that any provision in any other enactment for the time being in force providing for resolution of disputes through conciliation shall be construed as a reference to mediation under the Mediation Act, 2023, and the substituted section 62 saves conciliation proceedings already initiated. The scheme described below is the scheme the syllabus and the textbooks contain, it survives in institutional rules and in contracts drafted before that date, and it is what the equivalent provisions of the Mediation Act now reproduce.

The role is defined by section 67(1) and (2). The conciliator shall assist the parties in an independent and impartial manner in their attempt to reach an amicable settlement of their dispute. He shall be guided by principles of objectivity, fairness and justice, giving consideration to, among other things, the rights and obligations of the parties, the usages of the trade concerned and the circumstances surrounding the dispute, including any previous business practices between the parties.

Second, and distinctively, the power to propose terms. Section 67(4) provides that the conciliator may, at any stage of the conciliation proceedings, make proposals for a settlement, and that such proposals need not be in writing and need not be accompanied by a statement of the reasons therefor. This is the power that separated a conciliator from a mediator in the classical account, and it is why the process could produce a result where facilitation alone would not.

Third, the power to meet the parties separately. Section 69(1) permits him to invite the parties to meet him, and to communicate with them orally or in writing, together or with each of them separately. Section 69(2) provides that the place of meeting is as agreed or as he determines.

Fourth, the power to formulate the settlement. Section 73(1) provides that when it appears to the conciliator that there exist elements of a settlement which may be acceptable to the parties, he shall formulate the terms of a possible settlement and submit them to the parties for their observations, and after receiving those observations he may reformulate the terms in the light of them.

Confidentiality. Section 75 obliges the conciliator and the parties to keep confidential all matters relating to the conciliation proceedings, including the settlement agreement except where disclosure is necessary for its implementation and enforcement.

Disqualification. Section 80 provides that unless otherwise agreed the conciliator shall not act as an arbitrator or as a representative or counsel of a party in any arbitral or judicial proceeding in respect of a dispute that is the subject of the conciliation, and shall not be presented by the parties as a witness in any such proceeding. Section 81 makes the parties' admissions, proposals and views expressed in the conciliation inadmissible in later arbitral or judicial proceedings.

Section 74 supplies the practical force of the whole scheme. The settlement agreement drawn up and signed by the parties and authenticated by the conciliator under section 73 shall have the same status and effect as if it were an arbitral award on agreed terms under section 30, and is therefore enforceable under section 36 as a decree of the court without a fresh suit. Without section 74 a conciliated settlement would be a mere contract requiring a suit to enforce.

The principle the Court applied is a general one and it is worth stating in the words used: where a statute prescribes a procedure for doing a thing, the thing has to be done in accordance with that procedure. The consequence for practice is that the conciliator's authority is entirely persuasive: he may propose, formulate and reformulate under section 67(4) and section 73(1), and he can convert nothing into a binding obligation without the parties' signatures.

Afcons Infrastructure Ltd. v. Cherian Varkey Construction Co. (P) Ltd., (2010) 8 SCC 24, supplies the other half of the picture, distinguishing the processes to which a court may refer a dispute under section 89 of the Code of Civil Procedure, 1908. The Supreme Court there explained that arbitration and conciliation lead to a binding decision or a binding settlement, whereas judicial settlement and mediation are means of assisting the parties, and it listed the categories of case unsuitable for reference at all, including representative suits, election disputes, prosecutions for criminal offences, cases of grave fraud and matters involving the protection of courts as of minors and persons of unsound mind. That classification is what a court applies when deciding whether to send a dispute to conciliation in the first place.

For full marks, cover: the Preamble and the Statement of Objects and Reasons; then the objectives one by one, each tied to the section that implements it; and a closing assessment of which have been achieved.

The objectives are stated in the Act's own Preamble, which recites that the United Nations Commission on International Trade Law adopted the UNCITRAL Model Law on International Commercial Arbitration in 1985 and the UNCITRAL Conciliation Rules in 1980, that the General Assembly recommended that all countries give due consideration to them in view of the desirability of uniformity of the law of arbitral procedures, and that it is expedient to make law respecting arbitration and conciliation taking into account those Model Law and Rules.

The Statement of Objects and Reasons of the Bill listed the main objectives, and they are the enumeration this question asks for.

Fourth, to ensure that the arbitral tribunal remains within the limits of its jurisdiction. Section 16 allows the tribunal to rule on its own jurisdiction, with a plea to be raised not later than the statement of defence, and section 34(2)(a)(iv) makes an award beyond the submission liable to be set aside.

Fifth, to minimise the supervisory role of courts in the arbitral process. This is the objective the papers in this folder ask about most often. Section 5 provides that notwithstanding anything in any other law, in matters governed by Part I no judicial authority shall intervene except where so provided in that Part. Section 8 requires a judicial authority to refer parties to arbitration unless it finds that prima facie no valid arbitration agreement exists. Section 35 makes the award final and binding without any court order, and section 36 makes it enforceable as a decree without filing or a judgment on the award.

Sixth, to permit an arbitral tribunal to use mediation, conciliation or other procedures during the arbitral proceedings to encourage settlement. Section 30 does exactly that, and allows a settlement to be recorded as an award on agreed terms with the same status and effect as an award on the merits.

Two further objectives were added by the amendments and belong in a current answer. The 2015 Amendment, following the Law Commission's 246th Report, added the objectives of timeliness through section 29A and section 29B, of impartiality through section 12(5) and the Fifth and Seventh Schedules, and of enforceability pending challenge through the substituted section 36. The 2019 Amendment added the objective of institutional arbitration through Part IA and section 11(3A).

The ninth and newest objective has not been achieved, and an honest answer says so. The Arbitration Council of India has never been constituted: the commencement notification S.O. 3154(E) of 30 August 2019 brought into force only section 1, sections 4 to 9, sections 11 to 13 and section 15 of the 2019 Amendment Act, leaving out sections 2, 3, 10 and 14, which are the provisions amending section 11, creating the Council and inserting the Eighth Schedule.

Conclusion. The objectives of the Act are those recited in its Preamble and Statement of Objects and Reasons: to consolidate the law of domestic and international arbitration and of conciliation in one statute; to provide a fair and efficient procedure under sections 18 and 19; to require reasoned awards under section 31(3); to keep the tribunal within its jurisdiction under sections 16 and 34; to minimise court intervention under sections 5, 8, 35 and 36; to encourage settlement during arbitration under section 30; to make awards enforceable as decrees under section 36; to give conciliated settlements the status of awards under section 74; and to give effect to the New York and Geneva Conventions under Part II. The amendments of 2015, 2019 and 2021 added timeliness, impartiality, enforceability pending challenge and institutional arbitration, and of those the last has not been brought into force at all.

Two, invalidity of the arbitration agreement, under the law to which the parties have subjected it or, failing any indication, under the law for the time being in force.

Three, want of notice or inability to present the case. The party making the application was not given proper notice of the appointment of an arbitrator or of the arbitral proceedings, or was otherwise unable to present his case. This is the natural justice ground, and Ssangyong Engineering and Construction Co. Ltd. v. National Highways Authority of India, (2019) 15 SCC 131, is the leading modern instance, the tribunal having relied on material not shown to one party.

Four, excess of jurisdiction. The award deals with a dispute not contemplated by or not falling within the terms of the submission, or contains decisions on matters beyond its scope, with a proviso permitting severance where the decisions on matters submitted can be separated from those not submitted.

Five, irregular composition or procedure. The composition of the arbitral tribunal or the arbitral procedure was not in accordance with the agreement of the parties, unless that agreement was in conflict with a provision of Part I from which the parties cannot derogate, or, failing agreement, was not in accordance with Part I.

ONGC Ltd. v. Western Geco International Ltd., (2014) 9 SCC 263, widened it further by reading three juristic principles into the fundamental policy of Indian law: a judicial approach, the observance of natural justice, and the absence of Wednesbury perversity.

The Law Commission's 246th Report of August 2014 recommended reversal, and the 2015 amendment enacted it. The substituted Explanation 1 to section 34(2)(b) now confines public policy to three heads: the making of the award was induced or affected by fraud or corruption or was in violation of section 75 or section 81; the award is in contravention with the fundamental policy of Indian law; or it is in conflict with the most basic notions of morality or justice. Explanation 2 provides that the test whether there is a contravention with the fundamental policy of Indian law shall not entail a review on the merits.

Patent illegality was removed from public policy and given its own sub-section. Section 34(2A) provides that an award arising out of arbitrations other than international commercial arbitrations may be set aside if the Court finds that it is vitiated by patent illegality appearing on the face of the award, with the proviso that an award shall not be set aside merely on the ground of an erroneous application of the law or by reappreciation of evidence.

Section 34(4) is the limited remedial power, permitting the Court on a party's request to adjourn the proceedings so that the tribunal may resume them or take such other action as will eliminate the grounds for setting aside.

Gayatri Balasamy v. ISG Novasoft Technologies Ltd., 2025 INSC 605, decided 30 April 2025, added a power the statute does not contain. Five judges held by four to one that a court under sections 34 and 37 may modify an award where the invalid portion is severable, to correct clerical, computational or typographical errors apparent on the face of the record, in relation to post-award interest, and, in the case of the Supreme Court, under Article 142. Khanna C.J. wrote for the majority and Viswanathan J. dissented, the objection being that a power to modify is inconsistent with sections 5 and 34(1) and with the finality declared by section 35.

For a foreign award the grounds are in section 48 and the procedure differs: the award is not set aside but its enforcement is refused, the burden lies on the party resisting, and Shri Lal Mahal Ltd. v. Progetto Grano SpA, (2014) 2 SCC 433, held that the wider Saw Pipes test has no application there.

For full marks, cover: section 25 and section 2(d); the three Indian departures from English law; the three statutory exceptions with their conditions; the exceptions outside section 25; and a short critical closing.

Section 25 of the Indian Contract Act, 1872 opens with the words "An agreement made without consideration is void", and section 10 requires a lawful consideration for every contract. The maxim "no consideration, no contract" is therefore in India a statutory rule and not a judicial doctrine, which is why its exceptions are statutory too.

Section 2(d) defines consideration: when, at the desire of the promisor, the promisee or any other person has done or abstained from doing, or does or abstains from doing, or promises to do or to abstain from doing, something, such act or abstinence or promise is called a consideration for the promise.

Three features distinguish the Indian rule from the English one and each removes a standard criticism.

A fourth requirement is Indian too and is often missed: the act or abstinence must be at the desire of the promisor. Durga Prasad v. Baldeo, (1880) Indian Law Reports 3 Allahabad 221, is the case: shops were built in a market at the order of the Collector, and the shopkeepers' later promise of a commission failed for want of consideration, the expenditure having been made at the Collector's desire and not theirs.

The three exceptions in section 25 must be stated with their conditions, because the conditions are cumulative.

Section 25(1): natural love and affection. The agreement must be expressed in writing, registered under the law for the time being in force for the registration of documents, made on account of natural love and affection, and between parties standing in a near relation to each other. Rajlukhy Dabee v. Bhootnath Mookerjee, (1900) 4 Calcutta Weekly Notes 488, shows how strictly the third condition is read: a husband's registered promise of maintenance to his wife failed because the deed's own recital of quarrels showed there was no natural love and affection between them.

The exceptions outside section 25 complete the answer. Explanation 1 preserves a completed gift as between donor and donee. Section 185 provides that no consideration is necessary to create an agency. Sections 148 and following contemplate gratuitous bailment. Section 63 allows a promisee to dispense with or remit performance, extend the time, or accept any satisfaction he thinks fit, without consideration, which avoids the English tangle of Pinnel's Case and Foakes v. Beer, (1884) 9 Appeal Cases 605. Section 118(a) of the Negotiable Instruments Act, 1881 presumes consideration for every negotiable instrument. And the charitable subscription cases enforce a promise once the promisee has incurred a liability on the faith of it: Kedar Nath Bhattacharji v. Gorie Mahomed, (1886) Indian Law Reports 14 Calcutta 64.

Conclusion. "No consideration, no contract" is a statutory rule in section 25, softened in India by three departures from English law: consideration may move from a stranger under section 2(d), it may be past, and inadequacy is irrelevant under Explanation 2, though it must always move at the promisor's desire, as Durga Prasad v. Baldeo shows. The statutory exceptions are a registered promise made on account of natural love and affection between near relations, a promise to compensate past voluntary service, and a written signed promise to pay a time barred debt, and the Act elsewhere dispenses with consideration for completed gifts, agency, gratuitous bailment and remission under section 63. The rule survives, but promissory estoppel and the unreformed privity rule between them show that it no longer does all the work section 25 assigns to it.

For full marks, cover: the definition and the constitutional foundation; then follow a case through the institution stage by stage, reference, sitting, award, enforcement and challenge, putting the statutory provision and the criticism at each stage; the Permanent Lok Adalat as a different institution; the current figures; and a reasoned verdict on effectiveness, which is the third limb of the question and carries a third of the marks.

What a Lok Adalat is

A Lok Adalat, literally a people's court, is a forum constituted under the Legal Services Authorities Act, 1987 in which a dispute pending before a court, or one not yet brought to court, is settled by compromise between the parties with the assistance of a panel, and the settlement is then given the force of a decree. It is not a court. It does not try issues, take evidence on oath in the ordinary sense, or decide who is right.

The class of dispute a Lok Adalat is designed for is the dispute about quantum rather than about liability or law: motor accident claims, cheque dishonour matters, bank recovery suits, matrimonial maintenance, labour disputes, consumer complaints, land acquisition compensation and traffic challans. These occupy an enormous share of the docket and settle readily once the parties are in one room with a neutral who knows the going rate.

Stage one: organisation and jurisdiction

Section 19(1) of the Legal Services Authorities Act, 1987 empowers every State Authority, District Authority, Supreme Court Legal Services Committee, High Court Legal Services Committee and Taluk Legal Services Committee to organise Lok Adalats at such intervals and places and for exercising such jurisdiction and for such areas as it thinks fit. Section 19(2) provides that every Lok Adalat organised for an area shall consist of such number of serving or retired judicial officers and other persons of the area as may be specified. In practice the panel is a judicial officer, an advocate and a social worker.

A pending case may be referred in three situations. Where the parties agree to refer it. Where one of the parties applies and the court is prima facie satisfied that there are chances of settlement. Or where the court is satisfied that the matter is an appropriate one to be taken cognizance of by the Lok Adalat, in which case the court must first give the parties a reasonable opportunity of being heard.

A pre-litigation matter may be referred on the application of any one of the parties, under section 20(2), and the Authority or Committee shall refer it if it is satisfied that the matter is appropriate.

Section 20(3) states what the Lok Adalat then does: it shall proceed to dispose of the case or matter and arrive at a compromise or settlement between the parties, and shall be guided by the principles of justice, equity, fair play and other legal principles.

Section 20(5) is the crucial safeguard: where no award is made on the ground that no compromise or settlement could be arrived at, the record of the case shall be returned to the court from which the reference was received, and that court shall proceed to deal with the case from the stage which was reached before the reference, as if no reference had been made.

Stage four: the award

State of Punjab v. Jalour Singh, (2008) 2 SCC 660, defines what a Lok Adalat award may and may not be, and it is the most important case on the subject. A Lok Adalat had enhanced compensation in a motor accident claim without any compromise between the parties. The Supreme Court set the order aside and held in terms that a Lok Adalat has no adjudicatory or judicial function; its functions relate purely to conciliation; it cannot decide a matter on merits; and where no compromise or settlement is arrived at the case must be returned under section 20(5). An award recording no genuine consent is a nullity.

Section 21 gives the award its force. Every award of a Lok Adalat shall be deemed to be a decree of a civil court or, as the case may be, an order of any other court; and where a compromise has been arrived at in a case referred by a court, the court fee paid shall be refunded in the manner provided under the Court Fees Act, 1870. Section 21(2): every award made by a Lok Adalat shall be final and binding on all the parties to the dispute, and no appeal shall lie to any court against the award.

Section 22A defines public utility service to include transport of passengers or goods by air, road or water; postal, telegraph or telephone service; supply of power, light or water to the public; systems of public conservancy or sanitation; service in a hospital or dispensary; and insurance service, with power in the Government to add others by notification.

Section 22B requires the establishment of Permanent Lok Adalats consisting of a person who is or has been a district judge or additional district judge or has held a judicial office higher in rank, as Chairman, and two persons having adequate experience in public utility service.

Section 22C contains the differences that matter. An application may be made before the dispute is brought before any court, and after such application is made no party shall invoke jurisdiction of any court in the same dispute. The pecuniary jurisdiction is capped, the ceiling having been raised to one crore rupees. Non-compoundable offences are excluded. And section 22C(8) provides that where the parties fail to reach an agreement, the Permanent Lok Adalat shall, if the dispute does not relate to any offence, decide the dispute.

That is an adjudicatory power and the ordinary Lok Adalat has none. Section 22E makes the award final, binding, deemed a decree, and not appealable.

The composition of those figures is the first qualification. The overwhelming majority are pre-litigation matters, and a large share of those are traffic challans, utility bill defaults and bank recovery notices that would never have become contested suits. Counting them beside contested motor accident claims makes the aggregate a poor measure of the burden actually lifted from the courts.

Five reasons the institution is effective. It costs the litigant nothing and refunds the court fee under section 21(1). It produces an executable decree the same day, which no private settlement does. It reaches classes of dispute the formal system handles badly, above all quantum disputes. It is available at the taluk level, which brings it geographically within reach. And its finality is real: there is no appeal to prolong the matter.

Conclusion. A Lok Adalat is a statutory forum under Chapter VI of the Legal Services Authorities Act, 1987, which settles a dispute by compromise and, under section 21, converts the settlement into a decree of the civil court that is final, unappealable and free of court fee. It helps as a measure of alternative dispute resolution because it is free, quick, geographically accessible, and produces an executable result the same day in exactly the classes of case, quantum disputes, that clog the district courts. Its jurisdiction under section 19(5) is confined to matters admitting of compromise and excludes non-compoundable offences, and section 20(5) returns the case to the court where no compromise is reached.

Its effectiveness is genuine and it is overstated. The scale is real: 2.84 crore cases in a single day in March 2026. But the bulk of that figure is pre-litigation challans and recovery notices, and the institution's legitimacy rests entirely on a consent that years of delay make difficult to call free. State of Punjab v. Jalour Singh holds that it has no adjudicatory function and that an award without a compromise is a nullity, but it cannot reach the settlement that is formally consensual and substantively compelled. The honest verdict is that the Lok Adalat is an indispensable relief valve for a court system that cannot cope, and not a substitute for making that system work.

The thinness is deliberate and it follows from the Act's model. The Act adopts the UNCITRAL Model Law of 1985, whose premise is that an arbitral tribunal is a creature of the parties' agreement rather than an organ of the State. A court exists whether or not anyone invokes it; a tribunal comes into existence because two parties agreed it should, decides only what they referred to it, and ceases to exist when it has decided. Everything of substance about the tribunal therefore comes from the arbitration agreement, from the mandatory provisions of the Act, and from the court that supplies what a private body cannot obtain for itself.

Composition: who sits, and can they be removed

How many? Section 10. The parties are free to determine the number of arbitrators, provided that such number shall not be an even number; failing determination, the tribunal shall consist of a sole arbitrator. The bar on an even number exists because the First Schedule to the Arbitration Act, 1940 permitted an even number with an umpire, whose entry upon disagreement generated its own litigation.

Two things must be said about section 11 that most textbooks get wrong. First, the section has not spoken of the Chief Justice since the 2015 amendment, which substituted the Court itself and inserted section 11(6A) confining the examination to the existence of an arbitration agreement. Second, the 2019 scheme under which appointments would be made by arbitral institutions designated by the Court and graded by the Arbitration Council of India has never been brought into force: the commencement notification S.O. 3154(E) of 30 August 2019 brought into force section 1, sections 4 to 9, sections 11 to 13 and section 15 of the 2019 Amendment Act and left out sections 2, 3, 10 and 14, of which section 3 amends section 11 and section 10 creates the Council. The Council has never been constituted.

When must a party apply? M/s Arif Azim Co. Ltd. v. M/s Aptech Ltd., decided 3 January 2024, holds that Article 137 of the Limitation Act, 1963 governs a section 11(6) application, so it must be brought within three years of the accrual of the right to apply, and that the court may refuse a reference only where the claim is ex facie time barred.

Central Organisation for Railway Electrification v. ECI-SPIC-SMO-MCML (JV), 2024 INSC 857, decided 8 November 2024, is the Constitution Bench conclusion. Five judges held by three to two that the equal treatment obligation in section 18 applies at the appointment stage, so a clause permitting one party to appoint a sole arbitrator, or requiring the other to select from a panel it has curated, is impermissible however clearly agreed. The Court set aside its own 2019 decision of the same name, approved TRF and Perkins Eastman, and applied the ruling prospectively under Article 142 to three-member tribunal appointments made after the decision. Panel-based clauses of the kind struck down are the industry standard in public sector contracts, so the practical consequence is very large.

Powers: what the tribunal can order

To decide its own jurisdiction. Section 16 enacts competence-competence and separability: the tribunal may rule on any objection to the existence or validity of the arbitration agreement; an arbitration clause forming part of a contract is treated as an agreement independent of the other terms; and a decision that the contract is null and void does not entail ipso jure the invalidity of the clause. The plea must be raised not later than the statement of defence, and appointing or participating in appointing an arbitrator does not preclude it.

In Re: Interplay Between Arbitration Agreements under the Arbitration and Conciliation Act 1996 and the Indian Stamp Act 1899, decided 13 December 2023 by seven judges, applied separability to hold that an unstamped or insufficiently stamped instrument is inadmissible in evidence but not void or void ab initio, that the defect is curable, and that the objection is for the tribunal and not the referral court. It overruled N.N. Global Mercantile (P) Ltd. v. Indo Unique Flame Ltd. and SMS Tea Estates (P) Ltd. v. Chandmari Tea Co. (P) Ltd.

To encourage settlement and to award costs. Section 30 permits the tribunal, with the parties' agreement, to use mediation, conciliation or other procedures during the proceedings and to record a settlement as an award on agreed terms with the same status and effect as an award on the merits. Section 31A, inserted in 2015, codifies costs on the principle that the unsuccessful party pays.

Functions: the life of a reference

Commencement. Section 21: unless otherwise agreed, proceedings in respect of a particular dispute commence on the date the request for reference is received by the respondent, a date that also stops limitation under section 43(2).

Settling the frame. Section 20, the place of arbitration, agreed or determined by the tribunal, with the seat determining supervisory jurisdiction as Bharat Aluminium Co. v. Kaiser Aluminium Technical Services Inc., (2012) 9 SCC 552, established and BGS SGS Soma JV v. NHPC Ltd., (2020) 4 SCC 234, refined. Section 22, the language.

Timetable. Section 29A requires the award in a domestic arbitration within twelve months of the completion of pleadings, extendable by six months by consent and thereafter only by the Court, which may reduce fees by up to five per cent per month of attributable delay. Section 29B offers a fast track on written material with an award in six months.

The award and after. Section 31: writing, signature by the majority with reasons for any omission, reasons unless dispensed with or on agreed terms, date and place, and interest under section 31(7) at two per cent above the current rate from the date of the award. Section 32 terminates the proceedings and the mandate, subject to section 33, which allows correction of computational, clerical or typographical errors, interpretation where agreed, and an additional award for omitted claims, and subject to section 34(4), under which the Court may remit to let the tribunal cure a defect.

Conclusion. An arbitral tribunal is defined by section 2(1)(d) as a sole arbitrator or a panel of arbitrators, and the definition is thin because everything of substance comes from elsewhere. Its composition is governed by sections 10 to 15: an odd number under section 10; appointment by agreement or, failing that, by the Supreme Court or High Court under section 11, whose 2019 institutional scheme has never been notified; ineligibility under section 12(5) and the Seventh Schedule, enforced in TRF Ltd. and Perkins Eastman and extended to the appointment mechanism itself by Central Organisation for Railway Electrification in November 2024; challenge before the tribunal under section 13; and termination and substitution under sections 14 and 15.

Its powers are to rule on its own jurisdiction under section 16 on the separability principle confirmed by In Re: Interplay in December 2023, to grant interim measures enforceable as court orders under section 17, to control procedure and evidence free of the Code and the law of evidence under section 19, to borrow the court's coercive power over witnesses under section 27, to record settlements under section 30 and to award costs under section 31A.

For full marks, cover: the inclusive definition and the content supplied by section 31; the distinction between an award, an interim award and a procedural order; then the grounds, organised as procedural and substantive, which is a clearer division than the sub-clause order; the full public policy arc; the limitation bar; and the 2025 decision.

Defining the award

Section 2(1)(c) of the Arbitration and Conciliation Act, 1996 provides only that "arbitral award" includes an interim award. The definition is inclusive and incomplete, so content must be gathered from section 31 and from the case law.

Section 31(6) permits an interim award at any time during the proceedings on any matter with respect to which a final award may be made, and such an interim award is an award for all purposes, including challenge. Section 31(7) governs interest, and section 31A costs.

Section 35 states the effect: the award is final and binding on the parties and persons claiming under them. Section 36 makes it enforceable, once the time for a section 34 application has expired, in accordance with the Code of Civil Procedure, 1908, as if it were a decree of the court.

The grounds, organised as procedural and substantive

Section 34(1) provides that recourse to a Court against an arbitral award may be made only by an application for setting aside in accordance with sub-sections (2) and (3). There is no appeal on the merits, and section 5 excludes every other route.

Since the 2015 amendment the grounds in section 34(2)(a) must be established "on the basis of the record of the arbitral tribunal", which replaced the earlier requirement that the party "furnishes proof" and rules out fresh evidence.

Want of notice or inability to present the case, section 34(2)(a)(iii). The party was not given proper notice of the appointment of an arbitrator or of the arbitral proceedings, or was otherwise unable to present his case. This is the audi alteram partem ground, and it is supported by the mandatory equality provision in section 18 and by the disclosure requirement in section 24(3). Ssangyong Engineering and Construction Co. Ltd. v. National Highways Authority of India, (2019) 15 SCC 131, is the leading modern illustration: the majority had relied on a circular and a linking formula not shown to one party, and the award was set aside.

Excess of jurisdiction, section 34(2)(a)(iv). The award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration, or contains decisions on matters beyond its scope, with a proviso permitting severance where the decisions on matters submitted can be separated from those not submitted. This is the counterpart of section 16.

Conflict with the public policy of India, section 34(2)(b)(ii). This is the ground on which most challenges are brought and it has the longest history.

Renusagar Power Co. Ltd. v. General Electric Co., 1994 Supplement (1) SCC 644, construing the predecessor of section 48, held that public policy meant the fundamental policy of Indian law, the interests of India, or justice or morality, and that a mere contravention of Indian law is not enough.

ONGC Ltd. v. Saw Pipes Ltd., (2003) 5 SCC 705, held that public policy bears a wider meaning where a domestic award is challenged under section 34, and added patent illegality as a fourth head, so that an award contrary to the substantive provisions of law, to the provisions of the Act, or to the terms of the contract could be set aside. The decision was criticised for reopening the merits, and it produced a decade of challenges on the ground that the tribunal had misconstrued the contract.

ONGC Ltd. v. Western Geco International Ltd., (2014) 9 SCC 263, widened it further by holding that the fundamental policy of Indian law imports three juristic principles: a judicial approach, the observance of natural justice, and freedom from Wednesbury perversity.

Ssangyong Engineering is the authoritative post-2015 statement, holding that Western Geco no longer survives and that the Renusagar understanding governs. Delhi Airport Metro Express (P) Ltd. v. Delhi Metro Rail Corporation Ltd., (2022) 1 SCC 131, restated the discipline of restraint, holding that a court does not sit in appeal, must not interfere merely because another view is possible, and that patent illegality means an illegality going to the root of the matter and apparent on the face of the award. That judgment was itself set aside on a curative petition in Delhi Metro Rail Corporation Ltd. v. Delhi Airport Metro Express (P) Ltd., 2024 INSC 292, decided 10 April 2024, where a three judge Bench held that the restoration of the award had resulted in a miscarriage of justice; the statement of principle on restraint survives and is routinely applied, but the decision must never be cited without that history.

Time, procedure and what happens next

Section 34(3) bars an application after three months from receipt of the award or from the disposal of a section 33 request, with a further thirty days on sufficient cause "but not thereafter", words held to exclude section 5 of the Limitation Act, 1963. Sections 34(5) and (6) require prior notice with an affidavit of compliance and disposal within one year of that notice.

Gayatri Balasamy v. ISG Novasoft Technologies Ltd., 2025 INSC 605, decided 30 April 2025, added a power the statute does not contain. Five judges held by four to one that a court under sections 34 and 37 may modify an award: where the invalid portion is severable; to correct clerical, computational or typographical errors apparent on the face of the record; in relation to post-award interest; and, in the case of the Supreme Court, under Article 142. Khanna C.J. wrote for the majority; Viswanathan J. dissented. The objection, which should be stated, is that a power to modify is inconsistent with the word "only" in section 34(1), with section 5, and with the finality declared by section 35.

Conclusion. An arbitral award, defined inclusively by section 2(1)(c) and given content by section 31, is the tribunal's binding determination of a matter referred to it, which must be in writing, signed by the majority with reasons for any omission, reasoned unless dispensed with, dated and placed, and delivered to the parties; by sections 35 and 36 it is final and enforceable as a decree.

For full marks, cover: the definition in section 2(g) and the three-way distinction from voidable and from a contract that becomes void; then enumerate the void agreements grouped by the reason the law avoids them, which is what "in detail" invites at this level; and close on restoration under section 65.

The definition, and the two things it is not

Section 2(g) of the Indian Contract Act, 1872 defines a void agreement as an agreement not enforceable by law. It is a nullity from the beginning: it creates no rights, imposes no obligations, cannot be ratified, and no third party can take under it.

Mohori Bibee v. Dharmodas Ghose, (1903) 30 Indian Appeals 114, settled that a minor's agreement is void ab initio and not merely voidable. A minor mortgaged his house to a lender whose attorney had written notice of the minority. The Privy Council held that sections 10 and 11 make competence a precondition; that section 64 could not assist the lender because it applies to a voidable contract; that section 65 could not assist him because it speaks of an agreement "discovered to be void" and nothing was discovered where the lender knew throughout; and that estoppel cannot be used to validate what the statute makes void.

Three consequences follow. A minor's agreement cannot be ratified on majority, because there is nothing to ratify. A minor may nevertheless be a promisee or beneficiary and enforce a contract made in his favour. And section 68 permits a supplier of necessaries to be reimbursed from the minor's property, the liability being on the estate and not personal.

Section 29: uncertainty. Agreements the meaning of which is not certain, or capable of being made certain, are void. Illustration (a): A agrees to sell to B "a hundred tons of oil", and there is nothing to show what kind of oil was intended, so the agreement is void. Illustration (b) shows the qualification: where A is a dealer in coconut oil only, the nature of his trade makes the meaning certain. An agreement to enter into an agreement in future fails on the same ground.

Group three: avoided for want of a price

Section 25: agreements made without consideration are void, subject to three exceptions: a promise in writing and registered made on account of natural love and affection between parties standing in a near relation; a promise to compensate a person who has already voluntarily done something for the promisor; and a promise in writing and signed to pay a time-barred debt. Explanation 1 preserves a completed gift, and Explanation 2 provides that inadequacy alone does not void the agreement though it is evidence on free consent.

Rajlukhy Dabee v. Bhootnath Mookerjee, (1900) 4 Calcutta Weekly Notes 488, shows how strictly the first exception is read: a registered promise of maintenance from husband to wife failed because the deed's own recital of quarrels showed no natural love and affection.

Section 24 governs severability: if any part of a single consideration for one or more objects, or any one or any part of any one of several considerations for a single object, is unlawful, the agreement is void. Where the lawful and unlawful parts are genuinely separable, the courts have enforced the lawful part.

Group five: avoided by an express declaration of public policy

Section 26: restraint of marriage. Every agreement in restraint of the marriage of any person other than a minor is void. There is no exception, and no distinction between total and partial restraints. Lowe v. Peers, (1768) 4 Burrow 2225, supplies the principle; Rao Rani v. Gulab Rani, AIR 1942 Allahabad 351, its limit, holding that a forfeiture of property on remarriage restrains nobody from marrying and is outside the section. A marriage brokerage agreement is void under section 23, not section 26: Gopi Tihadi v. Gokhei Panda, AIR 1954 Orissa 17.

Section 28: restraint of legal proceedings. In the form it has taken since the amendments of 1997 and 2013, the section voids an agreement which absolutely restricts a party from enforcing his rights by usual legal proceedings; which limits the time within which he may do so; or which extinguishes the rights of a party or discharges a party from liability on the expiry of a specified period. Two exceptions are expressly saved: an agreement to refer a future dispute to arbitration, and an agreement to refer an existing question to arbitration. A third exception, inserted in 2013, saves a guarantee agreement of a bank or financial institution.

Section 30: wagering agreements. Agreements by way of wager are void, and no suit shall be brought for recovering anything alleged to be won on any wager, or entrusted to any person to abide the result of any game or other uncertain event on which any wager is made. The section excepts a subscription or contribution towards any plate, prize or sum of money of the value of five hundred rupees or upwards to be awarded to the winner of a horse race, and expressly does not legalise any transaction connected with horse racing to which the penal law applies.

Section 57 completes the list: where persons reciprocally promise, firstly to do certain things which are legal, and secondly under specified circumstances to do certain other things which are illegal, the first set of promises is a contract and the second is a void agreement.

Restoration

Section 65 is the only route by which a benefit passed under a void agreement can be recovered: when an agreement is discovered to be void, or when a contract becomes void, any person who has received any advantage under it is bound to restore it, or to make compensation for it, to the person from whom he received it. Mohori Bibee marks the limit of the section, and State of West Bengal v. B.K. Mondal and Sons, AIR 1962 SC 779, shows section 70 doing similar work where a person has lawfully done something for another not intending to do it gratuitously and that other has enjoyed the benefit.

Conclusion. A void agreement under section 2(g) is one not enforceable by law, and it is a nullity from inception, distinct both from the voidable contract of section 2(i), which is good until avoided and protects a bona fide third party, and from the contract that becomes void under section 2(j).

For full marks, cover: sections 13 and 14 as the frame; then each of the five vitiating factors in turn with its definition, its ingredients, a worked case and its consequence; the crucial difference in consequence between mistake and the other four; and the remedies in sections 19, 19A, 64, 65 and 75.

The frame

Section 10 of the Indian Contract Act, 1872 requires that a contract be made by the free consent of parties competent to contract. Two sections define what that means.

Section 13 defines consent: two or more persons are said to consent when they agree upon the same thing in the same sense. That is consensus ad idem, and its absence means there is no agreement at all.

Section 14 defines free consent negatively: consent is said to be free when it is not caused by coercion as defined in section 15, undue influence as defined in section 16, fraud as defined in section 17, misrepresentation as defined in section 18, or mistake subject to the provisions of sections 20, 21 and 22.

Three features of the section repay attention. The Explanation provides that it is immaterial whether the Penal Code was or was not in force in the place where the coercion is employed, so a threat made abroad is coercion for the purpose of an Indian contract. The threat may be directed at any person whatever and not only at the contracting party, so a threat to a stranger will do. And the act need only be forbidden by the penal law; an actual prosecution is unnecessary.

Ranganayakamma v. Alwar Setti, (1889) Indian Law Reports 13 Madras 214, is the classical illustration. A widow of thirteen was prevented from removing her husband's corpse for cremation until she consented to adopt a boy. The adoption was set aside, the consent having been caused by coercion.

Chikkam Ammiraju v. Chikkam Seshamma, (1917) Indian Law Reports 41 Madras 33, extends the section to a threat of suicide, a Full Bench of the Madras High Court holding that a threat by a husband to commit suicide unless his wife and son released property in his brother's favour amounted to coercion, since attempted suicide was then forbidden by the Penal Code.

Section 72 completes the remedy: a person to whom money has been paid, or anything delivered, by mistake or under coercion, must repay or return it.

The two elements must both be shown before the burden shifts: a relationship of domination, and a transaction that is unconscionable. Mere inequality of bargaining power is not enough, and neither is an improvident bargain between equals.

The illustrations to section 16 are the Act's own examples and are worth using. Illustration (a): A, having advanced money to his son B during his minority, upon B coming of age obtains, by misuse of parental influence, a bond from B for a greater amount than the sum due; A employs undue influence. Illustration (c): A, being in debt to B, the moneylender of his village, contracts a fresh loan on terms which appear to be unconscionable; it lies on B to prove that the contract was not induced by undue influence.

Lakshmi Amma v. Talengala Narayana Bhatta, AIR 1970 SC 1367, applies the section: a deed executed by a man in hospital in favour of one son to the exclusion of the others was set aside for undue influence, the relationship and the circumstances placing the burden on the beneficiary.

The duty to speak arises in three situations and they are the examinable content: where the parties stand in a fiduciary relationship, as between agent and principal or trustee and beneficiary; in contracts uberrimae fidei, of the utmost good faith, of which insurance is the standard example, where the assured must disclose every material fact; and where a half truth is told, since a statement true so far as it goes but misleading by omission is itself a misrepresentation.

Derry v. Peek, (1889) 14 Appeal Cases 337, supplies the mental element and is the case to cite. A tramway company's prospectus stated that it had the right to use steam power, the directors believing that the Board of Trade's consent was a formality. The consent was refused. The House of Lords held there was no fraud, because fraud requires a false representation made knowingly, or without belief in its truth, or recklessly, careless whether it be true or false. An honest belief, however unreasonable, negatives fraud. Section 17 adopts substantially the same test in the words "by one who does not believe it to be true".

The Explanation to section 19 provides that a fraud or misrepresentation which did not cause the consent to a contract of the party on whom it was practised does not render the contract voidable, so inducement must be proved.

Mistake, sections 20, 21 and 22, and the crucial difference

Section 20: where both the parties to an agreement are under a mistake as to a matter of fact essential to the agreement, the agreement is void. The Explanation provides that an erroneous opinion as to the value of the thing which forms the subject matter of the agreement is not to be deemed a mistake as to a matter of fact.

This is the point on which most marks turn. Coercion, undue influence, fraud and misrepresentation make the agreement voidable; a bilateral mistake of fact makes it void. The reason is the consensus theory: where both parties are mistaken about something essential, they never agreed upon the same thing in the same sense, so section 13 is not satisfied and there is nothing to avoid.

Money paid under a mistake of law is nevertheless recoverable under section 72, and Sales Tax Officer, Banaras v. Kanhaiya Lal Mukundlal Saraf, AIR 1959 SC 135, so held, the word "mistake" in section 72 being unqualified. Section 21 governs the validity of the contract; section 72 governs the recovery of money. The two must not be confused, and Mafatlal Industries Ltd. v. Union of India, (1997) 5 SCC 536, has since confined the practical operation of section 72 in tax matters by requiring the statutory machinery to be used and by applying the doctrine of unjust enrichment against the claimant.

The remedies

Section 19: where consent to an agreement is caused by coercion, fraud or misrepresentation, the agreement is a contract voidable at the option of the party whose consent was so caused. The party may insist that the contract be performed and that he be put in the position in which he would have been if the representations made had been true.

Two limits on avoidance complete the answer. A voidable contract may be affirmed, expressly or by conduct, after the vitiating factor has ceased, and affirmation is irrevocable. And avoidance is barred once third party rights have intervened: the proviso to section 19 protects a transferee for value in good faith and without notice, which is the practical reason why the void and voidable distinction matters commercially.

Conclusion. Free consent under section 14 is consent within the meaning of section 13, that is agreement upon the same thing in the same sense, which has not been caused by coercion, undue influence, fraud, misrepresentation or mistake. Coercion under section 15 is force or a threat of an act forbidden by the penal law, now the Bharatiya Nyaya Sanhita, 2023, and it may be directed at any person whatever. Undue influence under section 16 is the abuse of a relationship of domination, and section 16(3) shifts the burden to the dominant party where the transaction is unconscionable. Fraud under section 17 requires a statement made without belief in its truth, as Derry v. Peek holds, and silence is fraud only where there is a duty to speak, as in insurance and fiduciary relations. Misrepresentation under section 18 is the same conduct without the guilty mind, and section 19's second exception denies avoidance where the truth was discoverable with ordinary diligence.

For full marks, cover: the three questions any theory of contract must answer, and then test each theory against all three; that structure is what turns a list of theories into a discussion; anchor every theory to sections of the Indian Contract Act; and close on the fact that the Act answers the three questions from different theories.

The three questions

Any theory of contract has to answer three questions, and the theories differ because they answer them differently.

Why should the State enforce a private promise at all? This is the question of justification.

Which promises should it enforce, and which should it leave to conscience? This is the question of the filter, and it is where doctrines like consideration live.

What should the State give the injured party when a promise is broken? This is the question of remedy, and it is the question by which a theory is most easily tested, because the remedy the law actually gives is a fact.

Answer to the third question, and this is where it fails. If the obligation is the promisor's own will, the remedy should be to compel him to do what he willed, that is, specific performance. Indian law did not do that until recently: before the Specific Relief (Amendment) Act, 2018, section 10 of the Specific Relief Act, 1963 made specific performance discretionary and exceptional, damages being the primary remedy. The 2018 substitution of section 10, making specific performance enforceable as of right, has ironically moved Indian law closer to the will theory than it was when the Contract Act was drafted.

Two further failures should be stated. The law applies an objective test, asking what a reasonable person would have understood, not what the promisor privately intended: Smith v. Hughes, (1871) Law Reports 6 Queen's Bench 597. And the theory has no purchase on the standard form contract, where one party writes every word. Indian law's answer has been to control the terms rather than to deny the contract, through section 16(3) and through the section 23 public policy jurisdiction used in Central Inland Water Transport Corporation Ltd. v. Brojo Nath Ganguly, (1986) 3 SCC 156, and in Life Insurance Corporation of India v. Consumer Education and Research Centre, (1995) 5 SCC 482.

Its failure is at the second question, and it is a serious one. The theory cannot explain its own exceptions. If exchange is the reason for enforcement, nothing explains why a registered promise made out of natural love and affection binds under section 25(1), why no consideration is needed to create an agency under section 185, why a gratuitous bailment creates duties under sections 148 and 151, or why a creditor may remit a debt for nothing under section 63. Nor can it explain why a nominal consideration suffices, since ten rupees for a horse is not an exchange in economic terms. Once that is admitted, consideration is revealed as a formality, a way of marking a promise as seriously meant, and the argument moves to whether it is a good formality.

The equivalent theory

Answer to the first question: the State enforces the promise because something of equivalent value was given for it. The theory is close to the civilian doctrine of cause and to the canonists' just price.

Answer to the second: it enforces exchanges that are fair, and refuses those that are not.

The injurious reliance theory

Answer to the first question: the State enforces the promise because the promisee has relied on it to his detriment, and it would be unjust to leave that reliance uncompensated. Grant Gilmore's The Death of Contract (1974) is the best known statement.

Answer to the second: it enforces promises that have been acted upon, whether or not there was an exchange. It explains what the other theories cannot. It explains the subscription cases, of which Kedar Nath Bhattacharji v. Gorie Mahomed, (1886) Indian Law Reports 14 Calcutta 64, is the Indian instance, where a promise to subscribe to a town hall fund became binding once the Municipal Commissioners had incurred a building liability on the faith of it. It explains section 25(2), the promise to compensate a past voluntary service. And above all it explains promissory estoppel, which Indian law has developed further than English law: Union of India v. Anglo Afghan Agencies, AIR 1968 SC 718, and Motilal Padampat Sugar Mills Co. Ltd. v. State of Uttar Pradesh, (1979) 2 SCC 409, where Bhagwati J. held the doctrine available without consideration, available as a cause of action and not merely as a defence, and available against the Government subject to a defence of overriding public interest which the Government must establish.

Its weakness is that it cannot explain the provisions that are frankly moral, such as section 25(2) or the courts' refusal in Brojo Nath Ganguly to enforce a bargain that was efficient for the employer.

The relational account

Ian Macneil's relational theory answers the second question differently: most contracting is not a discrete exchange but an episode in a continuing relationship, in which the parties adjust, forbear and rely on trust more than on terms, and the document is a framework rather than a complete statement.

Its Indian resonance is procedural. It explains why long term commercial arrangements contain arbitration clauses, price revision clauses and force majeure clauses rather than complete specifications; why section 30 of the Arbitration and Conciliation Act, 1996 lets a tribunal use mediation or conciliation during a reference and record the result as an award; why the Mediation Act, 2023 and section 12A of the Commercial Courts Act, 2015 have put settlement machinery inside the dispute; and why Gujarat Bottling Co. Ltd. v. Coca Cola Co., (1995) 5 SCC 545, upheld a franchise exclusivity clause as being in furtherance of the trade rather than in restraint of it.

Conclusion. Tested against the three questions, no single theory accounts for the Indian Contract Act. The will or consensus theory answers the first two questions in the way the Act's own sections 13, 14, 20 and 22 assume, and it fails the third, because the remedy the Act gives is compensation and not compulsion, and it fails against the objective test in Smith v. Hughes and against the standard form contract. The bargain theory answers the second question through section 25 and is the only theory whose predicted remedy, the expectation measure in section 73, is the one Indian law actually gives, but it cannot explain its own exceptions or the sufficiency of a nominal consideration.

The equivalent theory is expressly rejected by Explanation 2 to section 25 and readmitted through sections 16(3), 23 and 74 and the Consumer Protection Act, 2019. The injurious reliance theory explains the subscription cases, section 25(2) and the Indian law of promissory estoppel in Motilal Padampat Sugar Mills, and predicts the wrong remedy. The economic account explains sections 73 and 74 as risk allocation devices, and the relational account explains why modern contracts build settlement machinery into themselves.

For full marks, cover: all five notes are written below though only three are required, because the three chosen differ. Each carries about eight marks by the paper's own arithmetic if three are attempted, and each should be a compressed essay: the provision, the leading case and the point of difficulty.

a. Appeal against arbitral award

There is no appeal against an arbitral award, and the first mark is for saying so. Section 34(1) of the Arbitration and Conciliation Act, 1996 provides that recourse to a Court against an arbitral award may be made only by an application for setting aside, and section 5 excludes every other route of judicial intervention in matters governed by Part I.

Section 37 is where the word "appeal" properly belongs. An appeal lies from an order refusing to refer parties to arbitration under section 8, granting or refusing an interim measure under section 9, setting aside or refusing to set aside an award under section 34, accepting a plea under section 16(2) or (3), and granting or refusing an interim measure under section 17. No second appeal lies from an order passed in appeal, though the right to appeal to the Supreme Court under Article 136 is saved. The scope is narrower than an ordinary first appeal because the court is reviewing a decision which was itself not a review on the merits: MMTC Ltd. v. Vedanta Ltd., (2019) 4 SCC 163.

Gayatri Balasamy v. ISG Novasoft Technologies Ltd., 2025 INSC 605, decided 30 April 2025, changed the position. Five judges held by four to one that a court under sections 34 and 37 has a limited power to modify an award: where the invalid portion is severable; to correct clerical, computational or typographical errors apparent on the face of the record; in relation to post-award interest; and, in the case of the Supreme Court, under Article 142. Khanna C.J. wrote for the majority, Viswanathan J. dissented, and the objection is that a power to modify is inconsistent with the word "only" in section 34(1) and with the finality declared by section 35.

The consequence is that the appointment is void, not merely challengeable. TRF Ltd. v. Energo Engineering Projects Ltd., (2017) 8 SCC 377, held that where the contract named the Managing Director of one party as arbitrator or his nominee, the Managing Director being himself ineligible could not nominate another: "once the infrastructure collapses, the superstructure is bound to collapse". Perkins Eastman Architects DPC v. HSCC (India) Ltd., (2020) 20 SCC 760, extended the reasoning to any clause giving a person interested in the outcome the sole power to appoint.

Central Organisation for Railway Electrification v. ECI-SPIC-SMO-MCML (JV), 2024 INSC 857, decided 8 November 2024, is the Constitution Bench conclusion of that line. Five judges held by three to two that the equal treatment obligation in section 18 applies at the appointment stage, so a party may not unilaterally appoint a sole arbitrator nor compel the other to select from a panel it has curated. It set aside its own 2019 decision of the same name and applied the ruling prospectively under Article 142.

Layer three, termination of mandate. Section 14 terminates the mandate where the arbitrator becomes de jure or de facto unable to perform or fails to act without undue delay, with an application to the Court where a controversy remains. Section 15 covers withdrawal, agreed termination and the appointment of a substitute by the rules applicable to the appointment replaced. Because a person within the Seventh Schedule is ineligible de jure, the correct route in such a case is a section 14 application and not a section 13 challenge, which has been the settled practice since TRF Ltd.

c. Doctrine of Privity of contract

The doctrine has two limbs, and Indian law accepts only one. That is the whole of this note.

The exceptions are the practical content and each needs an authority.

Trust or charge on property. Khwaja Muhammad Khan v. Husaini Begum, (1910) 37 Indian Appeals 152: a father in law agreed with the bride's father to pay her an allowance and charged specific immovable property with it; she was held entitled to enforce it though a stranger to the contract.

Marriage settlement, partition and family arrangement. A provision made for a family member in a partition or family arrangement may be enforced by that member, such arrangements being treated as creating an interest.

Acknowledgement or estoppel. Where a party to a contract, by conduct or express acknowledgement, constitutes himself the agent or debtor of a third person, that person may sue.

Covenants running with land. Tulk v. Moxhay, (1848) 2 Phillips 774, permits a restrictive covenant to be enforced against a subsequent purchaser with notice; section 40 of the Transfer of Property Act, 1882 recognises the corresponding obligation in India.

Agency. A principal may sue on a contract made by his agent, including an undisclosed principal under sections 231 to 234 of the Contract Act.

Second paragraph. If time was not of the essence, the contract does not become voidable by the failure, but the promisee is entitled to compensation for any loss occasioned by it.

Third paragraph. If, time being of the essence, the promisee accepts performance at a time other than that agreed, he cannot claim compensation for the loss occasioned by the delay unless, at the time of acceptance, he gives notice to the promisor of his intention to do so.

The whole topic turns on intention, and a clause stating that time shall be of the essence is evidence, not proof. Conversely its absence does not settle the matter.

Two presumptions do most of the work. In mercantile and commercial contracts, especially for the sale of goods, time is ordinarily of the essence, because the parties contract against a moving market. In contracts for the sale of immovable property, time is presumed not to be of the essence.

Section 11 of the Sale of Goods Act, 1930 adds a refinement worth a line: unless a different intention appears from the terms of the contract, stipulations as to time of payment are not deemed to be of the essence of a contract of sale, and whether any other stipulation as to time is of the essence depends on the terms. So even in a mercantile contract the time for payment is presumptively not of the essence while the time for delivery ordinarily is.

The doctrine matters most for specific performance. Section 16(c) of the Specific Relief Act, 1963 requires the plaintiff to plead and prove that he has performed or has always been ready and willing to perform, and delay coupled with a rising market has often defeated a claim even where time was not of the essence. The Specific Relief (Amendment) Act, 2018, by substituting section 10 so that specific performance is enforceable as of right rather than in the court's discretion, has narrowed the room in which a defendant may resist on the plaintiff's delay alone.

Section 7(5) governs incorporation by reference: a reference in a contract to a document containing an arbitration clause constitutes an arbitration agreement if the contract is in writing and the reference is such as to make that clause part of the contract. M.R. Engineers and Contractors (P) Ltd. v. Som Datt Builders Ltd., (2009) 7 SCC 696, distinguishes a general reference to another document, which does not incorporate its arbitration clause, from a specific reference to the clause, which does.

The essential ingredients are those in K.K. Modi v. K.N. Modi, (1998) 3 SCC 573: an agreement in writing; an intention that the tribunal's decision be binding; that the parties' rights be determined in an impartial and judicial manner after an opportunity to present the case; and that the parties intended the decision to be enforceable in law. A clause providing for valuation, certification or expert determination is not an arbitration clause, whatever it is called. Jagdish Chander v. Ramesh Chander, (2007) 5 SCC 719, adds that a clause saying disputes "may be referred" to arbitration, or shall be referred if the parties then agree, lacks the present intention to be bound.

Three further points complete the note. Section 8 gives the clause its defensive effect, requiring a judicial authority to refer the parties unless it finds that prima facie no valid arbitration agreement exists, on the standard stated in Vidya Drolia v. Durga Trading Corporation, (2021) 2 SCC 1. Section 28 of the Indian Contract Act, 1872 expressly saves an arbitration agreement from the rule voiding restraints on legal proceedings. And section 40 of the 1996 Act provides that an arbitration agreement is not discharged by the death of a party and is enforceable by or against the legal representative.

One drafting point is where clauses fail in practice. A clause must identify the disputes covered, the seat, the number of arbitrators and the appointment mechanism, and after Central Organisation for Railway Electrification v. ECI-SPIC-SMO-MCML (JV), 2024 INSC 857, decided 8 November 2024, a mechanism permitting one party to appoint the sole arbitrator, or requiring the other to select from a panel it has curated, is impermissible, section 18 applying at the appointment stage. Clauses of that kind are the standard form in public sector contracts, so a very large number of them now require redrafting.

On the contract side, privity in India is half the English rule: section 2(d) permits consideration to move from a stranger, as Chinnaya v. Ramayya holds, but M.C. Chacko accepts that only a party may sue, subject to exceptions for trusts and charges, family arrangements, acknowledgement and covenants running with land, and the Law Commission's 1958 recommendation to reform it remains unimplemented. Time is of the essence only if the parties so intended, section 55 making the consequence the difference between rescission and compensation, with the presumption against essentiality in sales of immovable property settled by Chand Rani v. Kamal Rani. And an arbitration clause under section 7(2) must be in writing, is separable under section 16(1), survives want of stamp after In Re: Interplay, and must now carry an appointment mechanism that treats both parties equally.