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Report No. 199

Judicial Review of contracts entered by an authority which is a 'State' within Article 12 of the Constitution and application of Art 14.

We have referred to this aspect in Chapter III. Apart from sections 16, 23, 27 and 28 of the Indian Contract Act, the High Courts and the Apex Court have invoked Article 14 to strike down certain unreasonable terms of contract entered into by the Government or Public Sector Undertakings or Statutory bodies which fall within the meaning of the word a 'State' in Article 12 of the Constitution of India.

Here these Courts are exercising power of judicial review under articles 226 and 32 of the Constitution of India. The courts have confined the exercise of such power to strike down clauses in public service employment contracts. However, the courts have declared that they would not extend this principle to strike down clauses in commercial contracts. (See Inland Land Water case: AIR 1986 SC 1571 and DTC case: AIR 1991 SC 101)

It has to be noted that the abovesaid method of invoking article 14 in the last two decades by the Supreme Court was not available when the 103rd Law Commission Report was submitted in 1984. The question naturally arises as to why a similar wider beneficial statutory provision should not be treated as necessary to protect parties those who enter into commercial contracts with "non-State" entities though Art. 14 is not applicable.

We may, however, point out that there are certain legislations, apart from the Indian Contract Act, 1872, which prevent one party to a contract from taking undue or unfair advantage of the other.

Instances of this type of legislation are the Usurious Loans Act, 1918, Industrial Disputes Act, 1947, the Monopolies and Restrictive Trade Practices Act, 1969, the Consumer (Protection) Act, 1986, the Competition Act, 2002 and the Specific Relief Act, 1963, but as explained latter in this chapter, they deal with specific situation or special types of contracts whereas, in this Report, we are considering the need for general provisions covering all types of contracts relating to unfairness.



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