The Indian Contract Act brings within its ambit the
contractual rights that have been granted to the citizens of India. It endows
rights, duties and obligations on the contracting parties to help them to
successfully conclude business- from everyday life transactions to evidencing
the businesses of multi-national companies. The Indian Contract Act, 1872 was
enacted on 25th April, 1872 and subsequently came into force on the first day of
The essence of the India Contract Act has been modeled on that
of the English Common Law. It is one of the most important legislation ever
drafted by Britishers and the principles enacted therein are nothing but the
codification of the general principle governing transactional relationship
because of which it has seen seldom amendments.
Before the act was enacted , the
contractual relationship was governed by the personal laws of different
religious communities like different laws for Hindu and Muslims. Now, to
understand the contract act in its present form we have to analyze the
historical evolution of contract law taking into account the practices that were
prevalent before the enactment came.
Evolution of contract law different time periods
Vedic and Medeival period:During the entire ancient and medieval periods of human history in India, there
was no general code covering contracts. Principles were thus derived from
numerous references- the sources of Hindu law, namely the Vedas, the
Dhramshatras, Smritis, and the Shrutis give a vivid description of the law
similar to contracts in those times. The rules governing contracts form a part
of the law called Vyavaharmayukha.
During Chandragupta's reign, contract existed in the form of "bilateral
transactions" between two individuals of group of individuals. The essential
elements of these transactions were free consent and consensus on all the terms
and conditions involved. It was an open contract openly arrived at.
It was laid
down that the following contracts were void:
Also, the rights and duties (of a Bailee) in a Bailment, as we know it today in
the form of sections 151 and 152 of the Indian Contract Act, 1872, has its root
to the Katyaynasmriti containing a special provision called the silpinyasa
dealing with the deposit of raw materials with an artisan- talking about the
degree of care attached. The text laid down that "if an artisan does not return
the things deposited with him during the stipulated time, he should be made to
pay its price even in the cases, where the loss is due to acts of God or King.
- Contracts formed during the night.
- Contracts entered into the interior compartment of the house.
- Contracts made in a forest
- Contracts made in any other secret place
- There were certain exceptions to clandestine contracts such as
- Contracts made to ward off violence, attack and affray
- Contracts made in celebration of marriage
- Contracts made under orders of government
- Contracts made by traders, hunters, spies and others who would roam in
the forest frequently.
The artisan, however, is not responsible for the loss of an article which was
defective at the very time of bailment, unless the loss is due to his own fault.
It is also interesting to note that there was no limitation for bringing a
suit for money lent. This was because of the rule of 'damdupat' which laid down
that 'the amount of principle and interest recoverable at one time in a lump sum
cannot be more than double the money lent.'
It took into consideration the fact
that debts were not necessarily recoverable from a man himself, his descendents
were also liable. Thus there was no concept of a 'limitation period' for filing
a suit. The rule of 'damdupat' is still prevalent in Calcutta and Bombay as it
has been upheld to be a valid custom and thus enjoys enforceability under the
savings clause, Section 1.
Roman period:In early Rome, the law of contracts developed with the recognition of a number
of categories of promises to be enforced rather than creation of any general
criteria for enforcing promises. Thus, the notion that promise itself may give
rise to an enforceable duty was an achievement of Roman law.
- Stipulation (stipulatio):
It put into force formalities and dates from a very early time in Roman law.
A party could make a binding promise called "stipulation" in which the party
observed a prescribed form of question and answer. Though the participation
of both parties was required, only one party was bound.
- Real Contracts:
These were those that suited to executory exchange of
promises. For example, the contract of loan, in which the recipient's promise to
restore the subject matter was binding.
- Consensual Contracts:
These were more flexible and did not hold a legal
basis for enforcing purely executory exchanges of promises. They deviated from
the formalities in "stipulation" and in agreement alone, without delivery,
sufficed to make the promises binding. Although they were limited to four
important types of contracts- sale, hire, partnership and mandate.
- Innominate Contracts:
These were agreements under which one party was promised to give or do
something in exchange for a similar promise by the other party. Unlike both
real and consensual contracts they were not limited to specified classes of
transactions and were therefore called in nominate.
The enforceability of the promise required some performance given in
exchange and was called quid pro quo (i.e. the modern concept of consideration of the
contract). But these contracts were limited because they were binding only when
one of the parties had completed performance and until that happened either
party could escape liability.
- Dotis dictio:
This was related to dowry agreement between bride and groom.
In this contract, the father of the bride or the bride herself set forth amount
and nature of dowry to be governed to be groom and its declared in presence of
the groom. Since this was a social agreement. There was not any punishment in
case of breach of contract, the only remedy that the groom family has in case of
breach is to compel the bride`s family in fulfilling the contract.
- Lex Mancipi:
This contract was equivalent to the modern day's contract of
transfer of property.
It was an ancillary contract to the above form of contract.
This contract was similar to today`s contract of guarantee.
Islamic periodDuring the Muslim rule in India, all matters relating to contract were governed
under the Mohammedan Law of Contract. The word contract in Arabic is Aqd meaning
a conjunction. It connotes conjunction of proposal (Ijab) and acceptance which
A contract requires that there should be two parties to it one party
should make a proposal and the other accept it, the minds of both must agree
that is there declaration must relate to the same matter and the object of
contract must be to produce a legal result.
The unlawful transactions were considered void beginning under Muslim laws:
Another type of transaction that was prohibited under Muslim laws and the same
stance was taken under the Indian Contract Act were the contract related to
gambling, contingent contract or wagering contract.
- Riba Al-Fadl:
In this case it's a contract which produced unlawful excess
in exchange of counter values in a contemporaneous transaction.
- Riba Al-Nasi`a:
Which means contract which produced unlawful gain without
completing the exchange of counter values.
- Riba Al-Jahilya:
Its also called pre-historic riba. Where the lender asks
the borrower whether he will settle the debt or increase the debt.
The formation of a contract according to Islamic law does not require any kind
of formality, the only requirement is that the express consent of both parties,
the proposal and acceptance must be made of the same thing in the same
sense.furthermore, the Islamic classifies as per their special features and
following are the type of contract.
Alienation of property:
Alienation of usufruct:
- for an exchange like sale
- without exchange like giving a simple gift
- to create succession namely request
Islamic laws provide two modes for invalidation of contracts, first the
right of either party to rescind the contract unilaterally without any legal
cause and the second one is to terminate the contract on the ground of
- In exchange for property, namely Ijara, where the movable and immovable things
are given for hire, contracts for giving service like carriage for goods, safe
custody of property.
- Not being exchange of property like an accommodate loan(ariat) and deposit
The ground of dissolution of contracts are as follow:
Another thing to be noted is that under Islamic Law even marriages (Nikah) were
treated as contracts and till date the situation remains the same. Either of the
parties to the marriage makes a proposal to the other party and if the other
party accepts, it becomes a contract and the husband either at the time of
marriage or after it has to pay an amount to the wife as a symbol of respect
known as Mahr.
- Invalidation of mutual agreement
- Cancellation of contract by death of either party or destruction of
subject matter or expiry of time period.
- Cancellation by termination by either party
- Dissolution by termination of the contract
Also the Mahommedans were the firsts to recognize the concept of
divorce. This way, a party to marriage could absolve itself of the contractual
obligations under marriage. Muslim marriages are thus considered contracts for
Hindu periodThe Jurisprudential aspect of the Hindu law is fundamentally different from that
of English law's jurisprudence. Hindu law is the result of the compilation of
numerous customs and works of Smritikaras, who interpreted and analyzed Vedas to
develop the various aspect of Hindu law. Manusmriti in regarding the contract
law dealt with the incompetence to enter to contract.
It laid down the principle
which is also followed in the Indian Contract Act, states that a contract
entered by a minor, or intoxicated person or an old man or the cripple is not
valid contract.Regarding the contract by minor, under Narada smriti an infant is
considered is someone who is between in the stage of an embryo to up to 8 years.
After that from 8 years to 16 years the child is considered as boyhood and after
16 years the person is competent to enter into a contract. So it can be
concluded that the stage of majority to enter into a contract is 16 years, 2
years less than what has been prescribed under The Indian Contract Act.
British periodBefore the advent of the Indian Contract Act, The English Law was applied in the
Presidency Towns of Madras, Bombay and Calcutta under the Charter of 1726 issued
by king George to the East India Company. Now, since no system can afford to
make all promises enforceable, the English tried out two assumptions:
- One, the assumption that promises are generally enforceable, and then create
exceptions for promises considered undesirable to enforce.
Secondly the assumption that promises are generally unenforceable, and then
create exceptions for promises thought desirable to enforce.
But in the case where one of the parties is from either of the religion like if
one party is Hindu and other is Muslim then, in that case, the law of the
defendant is to be used. This was followed in the presidency towns, but in
cities outside the presidency towns, the matter was governed by justice, equity
and good conscience.
This procedure was followed until the time the Indian
Contract Act was implemented in India. In the years 1862, the introduction of
the High Courts took place in the town of Bombay, Calcutta, and Madras and the
charter of these High Courts also contained the same provision as pervious law
that High Courts to apply the personal laws of the respective religions before
rendering any judgment in respect to the contract cases.
- The Advent of The Indian Contract Act
The Indian Contract Act as applied today's was drafted originally by the third
Indian Law Commission in the year 1861 in England. The Indian Contract Bill
tried to defined laws relating to Contracts, Sale of movable properties,
Indemnity, Guarantee, Agency, Partnership and bailment.
The bill was not the
complete law of contract, but the aim of the bill was to suffice the need of the
country for a considerable period of time and during that period, judges of the
courts were taking the help of English laws in determining the case when they
failed to arrive at the judgments by considering the justice, equip and good
conscience. once a person made a promise he has to perform it the last day of
Though it may seem that a rigid principle like this would make sense,
some exceptions have to be provided or else it would be a gross injustice to the
community. Even with the vice-like this, the contract law came into effect. The
drafter of the bill knew that different religious people followed personal
laws and for them it will be difficult to abide the new rules so that the
special customs of the personal laws governing any aspect of the contractual realationship would not be affected by new rules, unless or until they are nit
contrary to the new rules.
The act came into effect in 1872 but soon afterwards amendments were made in
that regard, which repealed section 76 to 123 dealing with the sales of goods
act and separate legislations were enacted called Sales of Goods Act 1930' to
govern that area. Also, section 239 to 266 dealing with partnership was repealed
and new legislation was enacted called Indian Partnership Act 1932.
By analyzing the development of the contract through different time periods
ranging from Roman period to Muslim period to Hindu period and then to legal
sanctions in, it can be concluded that though the technicality and the modes and
means of punishment. Even the applicability of the law may vary, but the
underlying principle of all the laws remained the same, that minor cannot
contract, consent should be given by both the parties for the same manner and
same sense and that certain person is disqualified from contracting like
intoxicate, old person cannot contract.
It can be further concluded that Britishers tried to codify the law to bring in uniformity but they also tried to
incorporate the personal laws of the different religious groups unless they are
in contrary to the main law, as they realized that underlying principle for
personal law is similar to that of the contract act.
So it can be said that through different time period the contract law has been
amended and interpreted in different ways in different communities, but general
principles unchanged and no attempt has been made to change it.
- Contract-1 Dr. R.K. Bangia
- Indian High Court Act 1861,
Award Winning Article Is Written By: Mr.Sujoy Paul
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