Contracts form an indispensable part of both our personal and professional
lives. The sheer volume of transaction that entails in our daily lives calls for
a regulating code that can govern these transactions and ensure that none of the
party takes unfair advantage at the cost of another party. Accordingly, law
commission of India, 1861 forms the basis of the Indian Contract Act, 1872
(hereinafter ICA) which prescribe the law for making and executing contracts in
Apart from ICA, there are other legislations that ensure that parties to
a contract like consumers are not exploited by other parties of a contract like
producers and sellers. One such legislation is the Consumer Protection Act, 2019
(hereinafter COPRA). It imposes various restrictions to protect consumers from
the deceptive or unfair methods adopted by the seller to deceive them. One such
restriction is on refusing to refund after delivering defective goods to consumers.[i]
Before the researcher further delves into the topic No refund policy and its
, it is important to understand the fundamental principle that
regulates the notion of No refund clause. Legal rules, principally ICA, had
developed a systematic body of rules and regulations, to promote justice and
fairness in Contracts. However, because of the essential nature of society,
often contracts are of nature, where contracting parties do not have equality in
As ruled by Supreme Court, in a contract where parties are not
at equal footing concerning bargaining power, and if terms and conditions of
contracts seem unreasonable and are inclined more towards one party, the
contract is considered against the public interest.[ii]
The paper aims to delve deep into rules and policies related to No-refund clause
and its enforceability in Indian jurisdiction and outside Indian jurisdiction.
However, at the same time it is necessary to note, that as there is no
particular law that exclusively forbids no-refund clause (unless there is
certain circumstance like delivery of defective goods) or makes contracts void,
judgements in these cases primarily depend on the discretion of court and
circumstances of the particular case.
No refund clause and its prominence
The fundamental principle of a legally enforceable contract is that both parties
should enter with free consent and should have consensus ad idem which means
‘Meeting of the minds'.[iii] The absence of the same can lead to a declaration
of contract as void. Thus, from this it can be interpreted that if one party
conceals an important fact or term of contract, it means that both parties are
not agreeing on the same thing in the same sense.
Accordingly, it could lead to
the declaration of contract as void. Conclusively, if there is a no-refund
clause or forfeiture clause in a contract, it should be in the knowledge of both
parties. In the recent judgement, Supreme Court ruled that, in case of
forfeiture of amount, the party need to prove that he has incurred loss and
forfeiture of the amount is necessary.[iv]
Thus, it is becoming largely apparent
that the party that denies refund has the onus to prove that the clause is
indispensable for the contract and to protect its legitimate interest. And if it
can't prove the same, then the contract may deem to be void and this will
possibly have potential commercial ramifications.
It is a very common practice of having a force majeure clause in the standard
forms of contract. Under this clause, party majorly denies refunding or any
guarantee to refund due to happening of some unforeseeable event, that can't be
controlled by parties to contract. And although no-refund clause due to force
majeure may seem unfair to the party, whose claim for refund has been denied,
but it is accepted part of mostly all the standard form of contracts.
One of the
examples could be travel agencies. They usually have a clause that relieves the
agency from any obligation to refund the amount. In the standard form of
contracts, most companies have a policy related to refunding of the amount
depending on the time, the refund is claimed and cancellation of the goods or
services has brought to the notice of seller or service provider. Therefore,
they follow the policy of part-payment which is adjusted according to the time.
For example, air services provide refunds due to cancellation depending on the
time cancellation is done.[v]
However, in the event of a customer misses flight
they do not have a refund policy and only pays airport taxes back. In case of
missing a flight a customer only gates statutory taxes back.[vi] Thus, usually
the amount of refund is calculated by considering acknowledged risk.
No refund clause and standard forms of contract
When a party signs contract, it is bound by its terms and conditions. However,
more often the contract in the form of some ticket, document or receipt is made
available to a party just before signing the contract. These are standard forms
The party to which such contracts are supplied often don't read
terms and conditions because of lack of time or they might not consider it of
much importance. Yet the standard form of contracts often has terms and
conditions of nature, that explicitly exclude the liability of supplier of the
document. Hence it is extremely important to determine whether these contracts
are valid or not.
When the contract is made, it is essential for the party signing it, that terms
and conditions have been notified to them. If they were not notified to them,
until the contract was made, it will have no effect. In Olley v Marlborough
[vii] property of complainant was stolen from a hotel bedroom because
of negligence of hotel staff.
When he had arrived in the hotel, he had signed a
contract but it did not mention any exemption clause. But in the hotel bedroom,
there was a notice that discharge liability of hotel staff from any articles
stolen or lost. In this case, it was held that the notice will be ineffective
and hotel owners will be liable for their negligent actions.
Some of the conditions have been established by the court in order to determine
when a party to the contract would be bound by the terms and conditions of the
- If the receiver of the document had no knowledge regarding printing or
writing on the document, he will be not bound by the contract.
- If the receiver knew that printing or writing referred to conditions of
the contract, the supplier would be bound by it.
- If the supplier claims that he had done reasonably enough to give
receiver notice of conditions and if the receiver knew that there is writing
or printing in the document but did not have the knowledge that these
writing or printing refers to conditions, these conditions will be regarded
as terms of the contract. And thus, the receiver would be bound by them.
It is the third rule that is most considered by courts in order to determine
whether parties are bound by the contract. Cases in which there is an inadequate
notice to parties for example when the terms are printed or written on the back
of the receipt or document or ticket and there is no notice is given in front
about the conditions mentioned in back, then it is not considered as adequate
Thus, it can be concluded, that in the standard form of contracts
it is important that parties had knowledge regarding terms and conditions agreed
upon. And, as often standard form of contracts has a no-refund clause, thus
parties should have knowledge about any such clause. If the receiver had no
knowledge regarding the existence of such clause and if it was not notified by
the supplier, the receiver can challenge the contract.
Applicability of No-refund clause in foreign jurisdiction
Like India, Australia also has provisions to protect its citizen from any sort
of exploitation. It introduced unfair terms and thus cast doubt upon the
validity of no refundable clause.[ix] Therefore, it essentially depends on the
discretion of the court. However, usually such cases where there is a no-refundability
clause and there are very fewer chances that claim for refund would be
successful unless it is blatantly unfair.
The relatively recent authority that had declared no-refund clauses as void is Ferme
& Ors v Kimberley Discovery Cruises Pty Ltd
[x]. Kimberley cruise was in a
business that offers trips of the coast in Western Australia, in the Kimberley
region. In March 2012, nine tourists contracted with Kimberley cruise and booked
a cruise. However, the cruise got cancelled at short notice due to a cyclone. At
that particular time, no one criticised Kimberley cruise's decisions as they
performed according to their terms and conditions.
All the tourist had an insurance policy and thus were compensated by the
insurer. However, later the insurer filed a claim against Kimberley cruise
claiming it is ‘unfair' under Australian Common Law (hereinafter referred to as
ACL). The insurer claimed for restoration for all the fares disbursed to the
tourists by the insurer and also additionally claimed damages.
Following are the observations that were made in the above judgement after
considering the appropriate rule:
- Section 27 of ACL refers to the standard form of contract and it does
not refer to a standard form of terms. Thus, it was ruled that the whole
contract need to be identified. The contract will consist of a brochure, a
form for booking purposes and terms and conditions on that form.
- It was established through the facts that tourists were not given enough
opportunities to negotiate over the terms and conditions. Also, the
contract's terms and conditions were not adjusted according to each tourist.
There was a single contract for each of the tourists. The terms and
condition were provided for tourists were offer like take it or leave it.
Lemon Laws- Singapore, USA
Consumer Protection Act (Fair Trading) (CPFTA) of Singapore includes a provision
of ‘lemon law' which provides rights to all its consumers against non-conforming
goods. This law ensures consumers a hundred per cent refund when the goods are
not of satisfactory standards at the time of delivery.
This act covers all the purchase of physical goods (purchased both offline and
online), Goods and vehicles purchased second hand, Sale items which are
indicated as non-refundable
. However, this
act did not include Services, Rental or leased goods and Real estate property.[xi] Therefore, it can be said that this law will invalidate any non-
refund clause for transactions covered under this Law, if the consumer is not
satisfied by the quality of goods.
Similarly, In the USA the word lemon
is generally used in relation to
defective vehicles, however, there are other lemon laws that cover a variety of
products. Various states in US have their own lemon laws and thus every state
covers different goods. However, federal lemon law covers mainly mechanical
defects. As contracts could be called as an express warranty, lemon laws are
implied warranty that protects the buyer.[xii]
Some of the important revelations could be ascertained from this research paper.
Firstly, for a contract to be valid in India, consensus ad idem is essential.
Thus, if there is presence of No-refund clause in a contract, it has to be in
knowledge of both the parties. Lack of knowledge of the same to a party would
render the contract void.
Secondly, as a huge proportion of contracts are made by consumers on daily
basis, and they primarily are exposed to the perils posed by producers and
sellers, COPRA protects them. It obliges the seller to refund the payment to the
consumer, if defective goods are delivered. Apart from it, COPRA also contains
provisions against the unfairness of contract.
Thus, given the subjective nature of the meaning of the term, it majorly depends
on the facts of the case. Thirdly, No-refund clause in the form of force majeure is
often present in most of the standard forms of contract. Courts, across the
jurisdictions, had ruled regarding the standard form of contracts in favour of
party possessing low bargaining power.
Lastly, the researcher has delved into the applicability of No-refund clause
into foreign jurisdictions like Australia, USA, Singapore. In Australia, a
recent authority ruled against no-refund clause and ordered to refund of the
payments by the service provider. Similarly, in US and Singapore, there is a
concept called Lemon Laws
, that nullifies no-refund clause if good
delivered is not of appropriate standard of quality.
Conclusively, given that there is no particular law or section in ICA, that
exclusively forbids no-refund clause, it would be a great step forward in legal
context if an amendment would be introduced in ICA that could codify the same.
This would ensure that parties enjoying more bargaining power, would not be able
to exploit parties that have less bargaining power.
- Consumer Protection Act 2019, s 2 (47) (viii).
- Central Inland Water Transport Corporation Limited and others v. Brojo
Nath Ganguly and others, 1986 AIR 1571.
- The Indian Contract Act 1872, s 13.
- Kailash Nath Associates v Delhi Development authority, (2015) 4 SCC 136.
- Indigo last accessed on 11th April 2020.
- Indigo last accessed on 12th April 2020.
-  1 KB 532.
- Sweet and Maxwell, Chitty on contracts, Chapter 12, (30th edn, 2008).
- Are No-refund and force Majeure Clauses unfair,< https://www.millsoakley.com.au/thinking/are-non-refund-cancellation-and-force-majeure-clauses-unfair/>
accessed on 12th April 2020.
-  FCCA 2384
- What is the Lemon Law' last accessed on 13th April 2020.
- What is a lemon law' last accessed on 14th April 2020.