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Report No. 199

Provisions of Indian Contract Act, 1872 and other existing laws referred to above are not sufficient to meet the problems of today

The Commission in its 103 rd Report opined that the existing sections of the Indian Contract Act, do not seem to be capable of meeting the mischief caused by unfair terms incorporated in contracts. It was stated that "the Indian Contract Act" as it stands today cannot come to the protection of a consumer who is clearly with big business. Further, the ad hoc solutions given by courts in response to their innate sense of justice without reference to a proper yardstick in the form of a specific provision of statute law or known legal principle of law only produce uncertainty and ambiguity.'

The recommendations given by the Law Commission in its 103 rd Report is for the incorporation of the following provision in Chapter IVA. That section reads as follows:-

"Section 67A : (1) Where the court, on the terms of the contract or on the evidence adduced by the parties, comes to the conclusion that the contract or any part of it is unconscionable, it may refuse to enforce the contract or the part that it holds to be unconscionable.

(2) Without prejudice to the generality of the provisions of this section, a contract or part of it is deemed to be unconscionable if it exempts any party thereto from- (a) the liability for willful breach of the contract, or (b) the consequences of negligence."

While section 67(A)(1) is general in nature, dealing with 'unconscionability', section 67(2) refers to two particular situations in which the law deems the provisions to be unconscionable. Section 67(1) is not restricted to the cases referred to in section 67(2). It does not deal with unfair contracts except those that are unconscionable. It does not provide any guidelines which a Court has to consider to judge unconscionability. Several States in other countries list a number of guidelines to judge 'unfairness'.

Although the recommendation made by the Law Commission in the Report on Unfair Terms in Contract in the 103rd Report (1984), was concerned with standard form contracts imposing unfair and unreasonable terms upon unwilling consumers or persons who had no bargaining power, the recommendation was wide, and did not restrict itself to any particular type of contract. The Commission recommended the addition of a new chapter IV-A with a single section into the Indian Contract Act, 1872. Before making the recommendations, the Commission had invited public comments on its proposal to insert a new section 67A into the Indian Contract Act, 1872.

The Commission received replies from the Registrar, Judges of High Courts, Law Departments, etc. The Commission felt that it was better to go step by step and the only step that could be taken in our country to remedy the evils of unfair terms in standard form of contracts was to enact a provisions into the Indian Contract Act, 1872 which would combine the advantages of English Law of Unfair Contract Terms Act and section 2.302 of Uniform Commercial Code of USA. The Commission did not think it proper to enact a separate law as in U.K.

We agree with the 103 rd Report that the provisions of the Indian Contract Act, 1872 and other laws are not sufficient to meet the problems of today. Not only that, we feel further that we have to introduce more provisions than were contemplated in the 103 rd Report.

Unfair (Procedural and Substantive) Terms in Contract Back

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