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Report No. 199

In Irrawady Flotilla Co. vs. ILR 18 Cal. 620 (PC), the Privy Council observed:

"But there is nothing to show that the legislature intended to deal exhaustively with any particular chapter of subdivision relating to the law of contracts."

But, it has been also held that "to the extent it deals with a subject, it is exhaustive upon the same and it is not permissible to import the principles of English law or the statutory provisions". (Satyabrata Ghose vs. Mugneeram Bangur & Co.: AIR 1954 SC 44), unless the statute is such that it cannot be understood without the aid of English Law (State of West Bengal vs. B.K.Mondal AIR 1962 SC 779).

(b) Likewise, if we take up the procedural unfairness provision of the Specific Relief Act, 1963, as pointed again in Mulla's Commentary on the Contract Act and Specific Relief Act in the preliminary Chapter, the Specific Relief Act, 1963 is also not exhaustive.

Immediately after the passage referred to above from that treatise, it was further stated therein

"The same view was taken if the similarity worded preamble of the Specific Relief Act (Act 1 of 1877) Ramdas Khaitan & Co. vs. Atlas Mills Ltd AIR 1931 Bom 151; Meghu Mian vs. Kishan Ram AIR (1954) pat 477".

The provisions of the Specific Relief Act, 1963 are, therefore, not again exhaustive. In fact, dealing with section 20 of that Act, the Supreme Court in Sardar Singh vs. Krishna Dev 1994(4) SCC, it stated that the circumstances specified in section 20 are only 'illustrative and not exhaustive. The Court would take into consideration the circumstances in each case, the conduct of the parties and the respective interest under the Contract Act.

If the provisions of the Contract Act, 1872 are not exhaustive on 'procedurally unfairness', it follows that the provisions of the Specific Relief Act, 1963 are equally not exhaustive.

(c) 'General procedural unfairness' to be defined in the Bill and Guidelines be given:

Therefore, while we propose that the law relating to voidable contracts under the Contract Act, 1872 and the Specific Relief Act, 1963, need not be disturbed, it will be necessary and will be permissible to add new provisions for purpose of 'general procedural unfairness' referred to in the situations stated in Chapter VII.

We have referred to he meaning of 'procedural fairness' in the earlier chapters. In addition we shall refer to Blake's Law Dictionary, 7 th Ed. (1999). It defines 'procedure unconscionability' as follows:

"procedural unconscionability" as 'unconscionability by resulting from improprieties in Contract formation (such as oral misrepresentations or disparities in bargaining position) rather than from the terms of the contract itself. This type of unconscionability suggests that there was no meeting of the minds.

(d) The general provision as to 'procedural unfairness' will give a general definition of 'procedural unfairness'.

(e) To supplement that new provision, we propose to add another section which will give a non-exhaustive list of guidelines drawn from Chapter VII which may help in deciding whether a particular contract or term is vitiated on account of 'procedural unfairness'.

We propose to define 'general procedural unfairness' (without prejudice to the specific provisions of the Contract Act, 1872 and Specific Relief Act, 1963, referred to above), in the following words:

"a contract or a term is procedurally unfair if it has resulted in an unjust advantage or unjust disadvantage to one party on account of the conduct of the other party, or the manner in which or the circumstances under which the contract has been entered into or the term thereof has been arrived at by the parties"

(d) Existing 'substantive' provisions of the Contract Act, 1872 and Specific Relief Act, 1963 are not exhaustive:

Several sections of the Contract Act, 1872 are substantive in nature and they refer to 'void' contracts. These are to be listed in the Bill. They are:

(a) sections 10, 23, 24: Under which the consideration or objects of a contract are not lawful or the parties are not competent to contract.

(b) Section 20: under which an agreement can be void where both parties to an agreement are under a mistake.

(c) Section 25: under which an agreement is without consideration.

(d) Section 26: under which an agreement is in restraint of marriage of any person, other than a minor.

(e) Section 27: under which an agreement is in restraint of trade.

(f) Section 28: under which an agreement is in restraint of legal proceedings.

(g) Section 29: under which an agreement is uncertain.

(h) Section 30: under which an agreement is by way of wager.

(i) Section56: under which an agreement to do an act impossible in itself is void and a contract to do acts after becoming impossible or unlawful becomes void.

We propose,- without modifying these provisions, - to just "list" them as examples of the class of contracts which are substantive.

Likewise, in the Specific Relief Act, 1963, there is again need, without disturbing the provisions, to classify certain provisions as relating to the class of contracts which are substantive. These are:

(a) under section 18, certain terms have come into the contract which were not agreed to:

(b) the first part of clause (a) of subsection (2) of section 20, of the Specific Relief Act, 1963 where the terms of a contract give the plaintiff an unfair advantage over the defendant.

(c) Where, as stated in clause (b) of sub section (2) of section 20 of the same Act, the performance of the contract would involve some hardships on the defendant which he had not foreseen, where its non-performance would involve no such hardships on the plaintiff.

(e) General 'substantive' unfairness to be defined in the Bill and guidelines be given:

We shall refer to what we mean by 'substantive unfairness' in earlier chapters. Here we shall refer to Black's Law Dictionary. It defines 'substantive unconscionability' as unconscionability resulting from actual contract terms that are unduly harsh, commercially unreasonable, and grossly unfair given the existing circumstances.

We have referred to various other situations in Chapter VIII - 'Comparative Law - Substantive Unfairness' which makes a contract 'substantively unfair'. We do not again propose to repeat all those circumstances referred to in Chapter VIII, namely, the provisions of the statutes or Bills in UK, Canada, Australia, New Zealand and South Africa and so on. Such circumstances are equally in existence in contracts in India.

We propose to list existing substantive provisions of the two Acts, Contract Act, 1872 and Specific Relief Act, 1963 merely as "substantive provisions".

We also propose to have a new and separate provision - which deals with 'general substantive unfairness'. To supplement the same we propose another section which will give guidelines which have to be considered for deciding if a contract or term is 'substantively unfair'.

We propose to define 'general substantive unfairness' as referring, - (without prejudice to the specific provisions of the Contract Act, 1872 and the Specific Relief Act, 1963) - in the following words:

"a contract or a term thereof is substantively unfair if such contract or the term thereof is in itself harsh, oppressive or unconscionable to one of the parties."

In the next chapter, we shall give our recommendations along with the corresponding provisions of the Bill.



Unfair (Procedural and Substantive) Terms in Contract Back




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