Index

Sr. Topic Page #

I CONTRACT ACT, 1872
History of commercial laws and Sources of Law in India 2
Contract Act: Essentials of Formation of Contracts 4
Difference between Agreement and Contract, Types of Contracts 6,
Offer & Acceptance, Classification of offer 9-11
Difference between offer and invitation, 11
Essentials of a proposal/offer 11
Consideration 14
Memorandum of Understanding 21
Competency (Capacity) to contract 22
E-Contract, Types of E-contracts 27-28
Partnership Agreement 29
Free Consent 31
Void Agreement 34
Formation and Legality of AI based contracts 35

II The Sale of Goods Act, 1930 and Consumer Protection Act 2019
2.1 Formation of Contract of Sale Agreement to Sell and Hire Purchase 37
Difference between Sale and Agreement to Sell 38
Effect of Perishing of goods 38
Conditions and Warrantees 39
Implied Warrantees and Implied Conditions 40
CAVEAT EMPTOR 42
Meaning and Importance of Movable Property in formation of Sale. 43
Rights and duties of an Unpaid Seller 44
Consumers Law in India 2019 – Salient features 46
Main Features of Consumer Protection Act 2019 47
Mediation 51
Offences and penalties under Consumer Protection Act, 2019 51
Benefit from Consumer Protection Act, 2019 52
Product Liability 54
Consumer Protection Councils 55
Central Consumer Protection Authority 56

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 Module 1 – INDIAN CONTRACT ACT 1872

Understanding Business concept and legalities of Contract

Business Laws
Study of Business Laws made easy for Commerce students.
Studying business laws can be challenging for commerce students due to the complexity and
technical nature of legal concepts. However, with the right approach and resources, learning business
laws can become more accessible and comprehensible. Here's a brief handbook on easy pathway in
studying Business Laws. The handbook will help the students in their journey of studying laws
related to commerce. This binder is a source to understand how to utilize reference books, study
guides, and online resources specifically designed to simplify complex legal concepts. This refers
to the materials that break down legal terminology, provide practical examples, and offer clear
explanations of key principles.

Importance of Business Law

The importance of business laws in India cannot be overstated, as they serve as the backbone of the
country's economic framework, providing a regulatory structure that governs commercial activities
and transactions. These laws play a pivotal role in fostering trust and confidence among businesses,
investors, and consumers by establishing clear rules and standards for conducting business ethically
and responsibly. Business laws in India ensure fair competition, protect the rights of stakeholders,
and safeguard against fraudulent practices, thereby promoting a level playing field and contributing
to a healthy business environment. Additionally, these laws facilitate economic development and
growth by providing legal mechanisms for contract enforcement, dispute resolution, and protection
of intellectual property rights. Compliance with business laws is not only essential for businesses to
operate lawfully but also critical for attracting investment, fostering innovation, and sustaining long-
term prosperity in India's dynamic and rapidly evolving business landscape.

1.1 Contract Act: Essentials of Formation of Contract

Question: Can an Agreement be Verbal

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Yes, A verbal agreement is as correspondingly binding. The authenticity of a verbal agreement is not
questionable if it falls underneath the ambit of the essentials in section 10 of Indian Contract Act
1872.

In the stern intellect, it is not indispensable that a contract must be in words. Unless it is need of the
prevailing or the parties, the agreement need not be changed.
The same judgment was restated by the Supreme Court in a dispute between ALKA BOSE VS
PARAMATMA DEVI and ORS whereby the Court held that a sale agreement can be verbal and
have the same requisite value and enforceability, as a written agreement.
The agreement should be consistent with the essentials under section 10 of the Indian Contract Act.
Consequently, it will have the equivalent power of evidentiary worth, like the one in words.

Are Social Promises Agreements?

Legal Obligation- The parties entering a Contract must have the intention of entering into a legal
obligation. Social agreements and obligations are not considered a Contract as they do not create
any legal obligations on any party.

Kalai Haldar Vs Sheikh

In this case, Kalai Haldar and Sheikh were very Good Friends. One day kalai Haldar invited Sheikh
for dinner. Sheikh had accepted the invitation. Due to certain reasons, the Sheikh failed to attend
dinner. Kalai Haladar sued for the price of unconsumed food.
The Court held that, invitation to dinner is mere a social promise based on social agreement. There
is no Legal Obligation in respect to that and for non-consumed food.

Agreement as Defined
Agreement - Section 2(e) “every promise and every set of promises, forming the consideration for
each other”.
Section 2 (b) defines promise as-“when the person to whom the proposal is made signifies his assent
there to, the proposal is said to be accepted. Proposal when accepted, becomes a promise”.

The following points emerge from the above definition:

• when the person to whom the proposal is made
• signifies his assent on that proposal which is made to him
• the proposal becomes accepted
• accepted proposal becomes promise

Agreement = Offer/Proposal + Acceptance

Contracts as Defined
Section 2(h) of the Indian Contract Act, 1872 as- “an agreement enforceable by law”.
“Every agreement and promise enforceable at law is a contract.” – Pollock

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In terms of Section 10 of the Act, “all agreements are contracts if they are made by the free consent
of the parties competent to contract, for a lawful consideration and with a lawful object and are not
expressly declared to be void”.

Enforceability by law – An agreement to become a contract must give rise to a legal obligation which
means a duly enforceable by law.

Contract = Accepted proposal/Agreement + Enforceability by law

Example : A agrees with B to sell car for Rs. 2 lacs to B. Here A is under an obligation to give car
to B and B has the right to receive the car on payment of Rs. 2 lacs and also B is under an obligation
to pay Rs. 2 lacs to A and A has a right to receive Rs. 2 lacs.

Example : Father promises his son to pay him pocket allowance of Rs. 500 every month. But he
refuses to pay later. The son cannot recover the same in court of law as this is a social agreement.
This is not created with an intention to create legal relationship and hence it is not a contract. Some
obligations are outside the purview of the law of contract, and not enforceable by law

Essentials of Valid Contract

As given by Section 10 of Indian Not given by Section 10 but are also considered
Contract Act, 1872 essential

1 Agreement Two parties

2 Free consent Intention to create legal relationship

3 Competency of the parties Fulfilments of legal formalities

4 Lawful consideration Certainty of meaning

5 Legal object Possibility of performance

6 Not expressly declared to be void [as

per Section 24 to 30 and 56]

1) Two Parties: One cannot contract with himself. A contract involves at least two parties- one party
making the offer and the other party accepting it. To constitute a contract of sale, there must be

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 two parties- seller and buyer. The seller and buyer must be two different persons, because a person
cannot buy his own goods.
Case - In State of Gujarat vs. Ramanlal S & Co. when on dissolution of a partnership, the assets of
the firm were divided among the partners, the sales tax officer wanted to tax this transaction. It was
held that it was not a sale. The partners being joint owner of those assets cannot be both buyer and
seller.

2) Certainty of meaning - The agreement must be certain and not vague or indefinite.
Example: A agrees to sell to B a hundred tons of oil. There is nothing certain in order to show what
kind of oil was intended for.
Example: XYZ Ltd. agreed to lease the land to Mr. A for indefinite years. The contract is not valid
as the period of lease is not mentioned.

3) Proper offer – There must a proper offer to made. It can be expressed or implied.

4) Proper acceptance – There must a proper acceptance. It can be expressed or implied.

5) Intention to create legal relationship - In case of social agreement there is no intention to create
legal relationship and there is no contract (Balfour v. Balfour).
Case: A husband agreed to pay to his wife certain amount as maintenance every month while he was
abroad. Husband failed to pay the promised amount. Wife sued him for the recovery of the amount.
Here, in this case, wife could not recover as it was a social agreement and the parties did not intend
to create any legal relations

6) Lawful consideration: - consideration must not be unlawful, immoral or opposed to the public
policy.
Example:- A agrees to sell his house to B against 100 kgs of cocaine (drugs). Such agreement is
illegal as the consideration is unlawful.

7) Capacity:- The parties to a contract must have capacity (legal ability) to make valid contract.
Minor, Unsound mind, Lunatic.
• is of the age of majority (Age 18) according to the law to which he is subject and
• is of sound mind (should be in his senses) and
• is not otherwise disqualified from contracting by any law to which he is subject.

8) Free consent: - consent of the parties must be genuine consent means agreed upon same thing in
the same sense i.e. there should be consensus – ad – idem. Consent is said to be free when it is
not caused by coercion, undue influence, fraud, misrepresentation or mistake.
Example - if A says B “Will you buy my red car for Rs. 30000? “and B says “yes” to it. There is said
to be consensus ad idem i.e. the meaning is taken in same sense by both the parties.
Example: A threatened to shoot B if he (B) does not lend him `2000 and B agreed to it. Here the
agreement is entered into under coercion and hence not a valid contract.

9) Lawful object - The object of agreement should be lawful and legal.

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10) Possibility of performance: The terms of the agreement should be capable of performance.
An agreements to do act, impossible in itself cannot be enforced.

11) Not declared Void - The agreement should be such that it should be capable or being enforced
by law. Certain agreements have been expressly declared illegal or void by the law.
Example: Threat to commit murder or making/publishing defamatory statements or entering into
agreements which are opposed to public policy are illegal in nature. Similarly, any agreement in
restraint of trade, marriage, legal proceedings, etc. are classic examples of void agreements.
11) Necessary legal formalities where a particular type of contract is required by law to be in
writing and registered, it must comply with necessary formalities as to writing, registration and
attestation.

Difference between Agreement and Contract.

BASIS FOR
AGREEMENT CONTRACT
COMPARISON

Meaning When a proposal is accepted by the When an agreement is

person to whom it is made, with requisite enforceable by law, it becomes a
consideration, it is an agreement. contract.

Elements Offer and Acceptance Agreement and Enforceability

Defined in Section 2 (e) Section 2 (h)

In writing Not necessarily Normally written and registered

Legal obligation Does not create legal obligation Creates legal obligation

One in other Every agreement need not be a contract. All contracts are agreement

Scope Wide Narrow

Types of Contracts

On the basis of the validity

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1) Valid Contract: An agreement which is binding and enforceable is a valid contract. It contains
all the essential elements of a valid contract.
Example: A ask B if he wants to buy his bike for Rs.10,000. B agrees to buy bike. It is agreement
which is enforceable by law. Hence, it is a valid contract.

2) Void Contract: Section 2 (j) states as follows: “A contract which ceases to be enforceable by
law becomes void when it ceases to be enforceable”. Thus a void contract is one which cannot be
enforced by a court of law.
Example: A contracts with B (owner of the factory) for the supply of 10 tons of sugar, but before the
supply is effected, the fire caught in the factory and everything was destroyed. Here the contract
becomes void.

3) Voidable Contract: Section 2(i) defines that “an agreement which is enforceable by law at
the option of one or more parties thereto, but not at the option of the other or others is a voidable
contract”.
Example: X promise to sell his scooter to Y for Rs. 1 Lac. However, the consent of X has been
procured by Y at a gun point. X is an aggrieved party and the contract is voidable at his option but
not on the option of Y. It means if X accepts the contract, the contract becomes a valid contract then
Y has no option of rescinding the contract.

4) Illegal Contract: It is a contract which the law forbids to be made. The court will not enforce
such a contract but also the connected contracts. All illegal agreements are void but all void
agreements are not necessarily illegal. Despite this, there is similarity between them is that in both
cases they are void ab initio and cannot be enforced by law.
Example: Contract that is immoral or opposed to public policy are illegal in nature. Similarly, if R
agrees with S, to purchase brown sugar, it is an illegal agreement.

5) Unenforceable Contract: Where a contract is good in substance but because of some technical
defect i.e. absence in writing, barred by limitation etc. one or both the parties cannot sue upon it, it
is described as an unenforceable contract.
Example: A bought goods from B in 2015. But no payment was made till 2019. B cannot sue A for
the payment in 2019 as it has crossed three years and barred by Limitation Act. A good debt becomes
unenforceable after the period of three years as barred by Limitation Act.

On the basis of the formation of contract

1) Express Contracts: A contract would be an express contract if the terms are expressed by
words or in writing. Section 9 of the Act provides that if a proposal or acceptance of any promise is
made in words, the promise is said to be express.
Example : A tells B on telephone that he offers to sell his house for Rs. 2 lacs and B in reply informs
A that he accepts the offer, this is an express contract.

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2) Implied Contracts: Implied contracts in contrast come into existence by implication. Most
often the implication is by action or conduct of parties or course of dealings between them. Section
9 - Such proposal or acceptance is made otherwise than in words, the promise is said to be implied.
Example : Where a coolie in uniform picks up the luggage of A to be carried out of the railway
station without being asked by A and A allows him to do so, it is an implied contract and A must pay
for the services of the coolie detailed by him.
Tacit Contracts: The word Tacit means silent.

Quasi-Contract: A quasi-contract is not an actual contract but it resembles a contract. It is created by

law under certain circumstances. The law creates and enforces legal rights and obligations when no
real contract exists. Such obligations are known as quasi-contracts. In other words, it is a contract in
which there is no intention on part of either party to make a contract but law imposes a contract upon
the parties.
Example: Obligation of finder of lost goods to return them to the true owner or liability of person
to whom money is paid under mistake to repay it back cannot be said to arise out of a contract
even in its remotest sense, as there is neither offer and acceptance nor consent. These are said to be
quasicontracts.

E-Contracts: When a contract is entered into by two or more parties using electronics means, such
as e-mails is known as e-commerce contracts. In electronic commerce, different parties/persons
create networks which are linked to other networks through ED1 - Electronic Data Inter change.
This helps in doing business transactions using electronic mode. These are known as EDI contracts
or Cyber contracts or mouse click contracts.
On the basis of the performance of the contract

Executed Contract: The consideration in a given contract could be an act or forbearance. When the
act is done or executed or the forbearance is brought on record, then the contract is an executed
contract.
Example: When a grocer sells a sugar on cash payment it is an executed contract because both the
parties have done what they were to do under the contract.

Executory Contract: In an executory contract the consideration is reciprocal promise or obligation.

Such consideration is to be performed in future only and therefore these contracts are described as
executory contracts.
Example: Where G agrees to take the tuition of H, a pre-engineering student, from the next month
and H in consideration promises to pay G Rs. 1,000 per month, the contract is executory because it
is yet to be carried out.

A) Unilateral Executory Contracts

Unilateral Contract: Unilateral contract is a one sided contract in which one party has performed
his duty or obligation and the other party’s obligation is outstanding.
Example : M advertises payment of award of Rs 5000 to any one who finds his missing boy and
brings him.

B) Bilateral Executory Contracts

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 Bilateral Contract: A Bilateral contract is one where the obligation or promise is outstanding on
the part of both the parties.
Example : A promises to sell his plot to B for Rs. 1 lacs cash down, but B pays only Rs. 25,000
as earnest money and promises to pay the balance on next Sunday.

1.2 Offer & Acceptance

Definition of Offer/Proposal:
According to Section 2(a) of the Indian Contract Act, 1872, “when one person signifies to another
his willingness to do or to abstain from doing anything with a view to obtaining the assent of that
other to such act or abstinence, he is said to make a proposal”.

- M/S. Padia Timber Co. P. Ltd. vs The Board Of Trustees Of ... on 5 January, 2021.
- Bhagwan Das Govardhan das Kedia Vs. Girdhar Lal Purshottam &Co

Classification of offer
1) Express offer - When the offeror expressly communicates the offer, is said to be an express
offer. It may be made by Spoken / Written word. (By Letter, Email, Verbal etc.)

2) Implied offer – when the offer is not communicated expressly. An offer may be implied form.
The conduct of the parties or the circumstances of the case. (By action or custom).

3) General offer: It is an offer made to public at large and hence anyone can accept and do the
desired act. Until the general offer is retracted or withdrawn, it can be accepted by anyone at any
time as it is a continuing offer.

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Case Law: Carlill Vs. Carbolic Smoke Ball Co. (1893)
Facts: In this famous case, Carbolic smoke Ball Co. advertised in several newspapers that a reward
of £100 would be given to any person who contracted influenza after using the smoke balls produced
by the Carbolic Smoke Ball Co. according to printed directions. One lady, Mrs. Carlill, used the
smoke balls as per the directions of company and even then, suffered from influenza. Held, she
could recover the amount as by using the smoke balls she had accepted the offer.

4) Special/specific offer: When the offer is made to a specific or an ascertained person, it is

known as a specific offer. Specific offer can be accepted only by that specified person to whom the
offer has been made. [Boulton v. Jones]
Example 36: ‘A’ offers to sell his car to ‘B’ at a certain cost. This is a specific offer.

5) Cross offer: When two parties exchange identical offers in ignorance at the time of each
other’s offer, the offers are called cross offers. There is no binding contract in such a case because
offer made by a person cannot be construed as acceptance of the another’s offer.
Example 37: If A makes a proposal to B to sell his car for Rs. 2 lacs and B, without knowing the
proposal of A, makes an offer to purchase the same car at Rs. 2 lacs from A, it is not an acceptance,
as B was not aware of proposal made by A. It is only cross proposal (cross offer). And when two
persons make offer to each other, it cannot be treated as mutual acceptance. There is no binding
contract in such a case.

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6) Counter offer: When the offeree offers to qualified acceptance of the offer subject to
modifications and variations in the terms of original offer, he is said to have made a counter offer.
Counter-offer amounts to rejection of the original offer. It is also called as Conditional Acceptance.
Example 38: ‘A’ offers to sell his plot to ‘B’ for Rs.10 lakhs. ’B’ agrees to buy it for Rs. Rs. 8 lakhs.
It amounts to counter offer. It will result in the termination of the offer of ’A’. If later on ‘B’ agrees
to buy the plot for Rs. 10 lakhs, ’A’ may refuse.

7) Standing / continuing / open offer: An offer which is allowed to remain open for acceptance
over a period of time is known as standing or continuing or open offer. Tenders that are invited for
supply of goods is a kind of standing offer.

Case Laws :
Hyde V/s. Wrench (1840) –
Wrench willing to sell farmland and Hyde wants a land for business
Wrench agent offers 1200 pounds to Hyde’s agent and Hyde’s agent rejected the offer.
Wrench agent revised the offer 1000 pounds, Hyde gave counter offer of 950 pound.
Wrench rejected the counter offer of 950 pound. Now Hyde accepted earlier offer of 1000 pound.
Wrench rejected to accept 1000 pound, which was offered earier.

Harvey V/s Facey (1890)

Harvey send telegraph to Facey, and asked “1) Will you sell us bumper hall pen (Land) and 2) What
is lowest price?
Facey said lowest offer is 900 pounds,
Harvey agreed to buy at 900 and send telegram for acceptance of offer.
Facey then stated, he didn’t want to sell.
Harvey filed a case against Facey, stating by quoting lowest price Facey has offered to sell.
Court ruled in favor of Facey, saying Facey only reply to second question. Giving price is not an
offer. There is no answer to first question, that he is ready to sell.

Whether tender is an offer?

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Case Law - Spencer V. Harding
Facts:
Harding advertised that they would sell stock by tender, with payment in cash. The advertisement
stated the stock would be sold at a discount and tenders were to be received and opened at a specified
time. Spencer & Co. submitted the highest tender, but Harding refused to sell them the stock.

Issue:
The main issue was whether the advertisement constituted a binding offer that Spencer & Co. could
accept by submitting the highest tender, or if it was merely an invitation to treat, allowing Harding
to choose whether or not to accept any of the tenders received.

Decision:
The court held that the advertisement was an invitation to treat, not a binding offer. Therefore,
Harding was not obligated to sell the stock to Spencer & Co.

Reasoning:
The court emphasized that the advertisement did not contain specific wording indicating an intention
to be bound by the highest tender. The absence of such wording, such as a clause stating they would
sell to the highest bidder, indicated it was an invitation for others to make offers.

Case Law 2 - Harris v. Nickerson

Nickerson advertised for tender to supply a furniture.
Harries fly to reach Auction venue.
Action gets cancelled
Harries files a suit against Nickerson for reimbursement of travelling cost
Court ruled in the favour of Nickerson

Difference between offer and invitation to make an offer

Basis Offer Invitation to offer

Meaning Section 2(a) of the Act, an offer is the Where a party without expressing his
final expression of willingness by the final willingness proposes certain
offeror to be bound by the offer terms on which he is willing to
should the other party chooses to negotiate he does not make an offer,
accept it. but only invites the other party to make
an offer on those terms.

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 Intention of If a person has the intention of
If a person who makes the statement
the parties negotiating on terms it is called
has the intention to be bound by it as
invitation to offer
soon as the other accepts, he is
making an offer.

Sequence An offer cannot be an act precedent to An invitation to offer is always an act

invitation to offer precedent to offer

Essentials of a proposal/offer are

- There must be two parties.
- The offer must be communicated to the offeree.
- The offer must show the willingness of offeror. Mere telling the plan is not offer.
- The offer must be made with a view to obtaining the assent of the offeree.
- A statement made jokingly does not amount to an offer.
- An offer may involve a positive act or abstinence (restraining oneself) by the offeree. - Mere
expression of willingness does not constitute an offer.
1) It must be capable of creating legal relations: Offer must be such as in law is capable of being
accepted and giving rise to legal relationship. A social invitation, even if it is accepted, does not
create legal relations because it is not so intended.

2) It must be certain, definite and not vague: If the terms of an offer are vague or indefinite, its
acceptance cannot create any contractual relationship.

3) It must be communicated to the offeree: An offer, to be complete, must be communicated to the

person to whom it is made, otherwise there can be no acceptance of it. Unless an offer is
communicated, there can be no acceptance by it.
case of Lalman Shukla v. GauriDutt - Facts: G (Gauridutt) sent his servant L (Lalman) to trace his
missing nephew. He then announced that anybody who traced his nephew would be entitled to a
certain reward. L traced the boy in ignorance of this announcement. Subsequently when he came to
know of the reward, he claimed it. Held, he was not entitled to the reward, as he did not know the
offer.

4) It must be made with a view to obtaining the assent of the other party: Offer must be made with
a view to obtaining the assent of the other party addressed and not merely with a view to
disclosing the intention of making an offer.
Example : Where ‘A’ tells ‘B’ that he desires to marry by the end of 2019, it does not constitute an
offer of marriage by ‘A’ to ‘B’. Therefore, to constitute a valid offer expression of willingness must
be made to obtain the assent (acceptance) of the other. Thus, if in the above example, ‘A’ further
adds, ‘Will you marry me’, it will constitute an offer.

5) It may be conditional: An offer can be made subject to any terms and conditions by the offeror.
Example : Offeror may ask for payment by RTGS, NEFT etc. The offeree will have to accept
all the terms of the offer otherwise the contract will be treated as invalid.

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6) Offer should not contain a term the non-compliance of which would amount to acceptance:
Thus, one cannot say that if acceptance is not communicated by a certain time the offer would
be considered as accepted.
Example : A proposes B to purchase his android mobile for Rs. 5000 and if no reply by him in a
week, it would be assumed that B had accepted the proposal. This would not result into contract.

7) For a valid offer, the party making it must express his willingness ‘to do’ or ‘not to do’
something: There must be an expression of willingness to do or not to do some act by the offeror.
Example : A willing to sell his good at certain price to B.
Example : A is willing to not to dance in a competition if B pays him certain sum of money.

8) An offer can be positive as well as negative: Thus “doing” is a positive act and “not doing”, or
“abstinence” is a negative act; nonetheless both these acts have the same effect in the eyes of
law. Example : A offers to sell his car to B for 3 lacs is an act of doing. So, in this case, A is
making an offer to B.
Example : When A ask B after his car meets with an accident with B’s scooter not to go to Court
and he will pay the repair charges to B for the damage to B’s scooter; it is an act of not doing or
abstinence.

9) The offer may be either specific or general: Any offer can be made to either public at large or to
the any specific person.

10) The offer may be express or implied: An offer may be made either by words or by conduct.
Example : A boy starts cleaning the car as it stops on the traffic signal without being asked to
do so, in such circumstances any reasonable man could guess that he expects to be paid for this,
here boy makes an implied offer.

11) Offer must be distinguished from invitation to offer.

Example : Menu card of restaurant is an invitation to put an offer.
Example : Price – tags attached with the goods displayed in any showroom or supermarket is also
an invitation to proposal. If the salesman or the cashier does not accept the price, the interested
buyer cannot compel him to sell, if he wants to buy it, he must make a proposal.
- An invitation by a company to the public to subscribe for its shares.
- Display of goods for sale in shop windows.
- Advertising auction sales and
- Quotation of prices sent in reply to a query regarding price.

12 Different from mere declaration of intention: Offer is different from mere declaration. Example
- A tells B, “I think I should sell my old bike, and buy new one”.

Lapse / Revocation of an offer

An offer should be accepted before it lapses (i.e. comes to an end). An offer may come to an end in
any of the following ways stated in Section 6 of the Indian Contract Act:

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1) By communication of notice of revocation: An offer may come to an end by communication
of notice of revocation by the offeror. It may be noted that an offer can be revoked only before its
acceptance is complete for the offeror. In other words, an offeror can revoke his offer at any time
before he becomes before bound by it. Thus, the communication of revocation of offer should reach
the offeree before the acceptance is communicated.

2) By lapse of time; Where time is fixed for the acceptance of the offer, and it is not acceptance
within the fixed time, the offer comes to an end automatically on the expiry of fixed time. Where
no time for acceptance is prescribed, the offer has to be accepted within reasonable time. The offer
lapses if it is not accepted within that time. The term ‘reasonable time’ will depend upon the facts
and circumstances of each case.

3) By failure to accept condition precedent: Where, the offer requires that some condition must,
be fulfilled before the acceptance of the offer, the offer lapses, if it is accepted without fulfilling the
condition.

4) By the death or insanity of the offeror: Where, the offeror dies or becomes, insane, the offer
comes to an end if the fact of his death or insanity comes to the knowledge of the acceptor before
he makes his acceptance. But if the offer is accepted in ignorance of the fact of death or insanity of
the offeror, the acceptance is valid. This will result in a valid contract, and legal representatives of
the deceased offeror shall be bound by the contract.
On the death of offeree before acceptance, the offer also comes to an end by operation of law.

5) By counter offer by the offeree: Where, a counter offer is made by the offeree, the original
offer automatically comes to an end, as the counter offer amounts to rejections of the original offer.

6) By not accepting the offer, according to the prescribed or usual mode: Where some manner
of acceptance is prescribed in the offer, the offeror can revoke the offer if it is not accepted according
to the prescribed manner.

7) By rejection of offer by the offeree: Where, the offeree rejects the offer, the offer comes to
an end. Once the offeree rejects the offer, he cannot revive the offer by subsequently attempting to
accept it. The rejection of offer may be express or implied.
8) By change in law: Sometimes, there is a change in law which makes the offer illegal or
incapable of performance. In such cases also, the offer comes to an end.

Case Laws

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 • Harbhajan Law Vs Harcharan Lal
• Hyde Vs Wrench
• Balfour Vs Balfour
• Harvey Vs Facey
• Lalman Shukla Vs Gauri Datta
• Neel Vs Meruit
• UP Rajkiya Nigam Nirman Vs Indure
• Brogden Vs. Metro Railway
• Hinderson V/s Stevenson

1.3

What is consideration
Section 2(d) of the Indian Contract Act, 1872, defines “consideration” as follows:
“When at the desire of the promisor, the promisee or any other person has done or abstained from
doing, or does or abstains from doing, or promises to do or to abstain from doing something, such
act or abstinence or promise is called a consideration for the promise.”
Further, Pollock defined consideration as “the price for which the promise of the other is bought,
and the promise thus given for value is enforceable.”
In simple terms, “consideration” refers to something of value that is given or promised in exchange
for a promise. It is the quid pro quo or the exchange of something of value between the parties
involved in a contract. For a contract to be considered valid, it must have consideration. In other
words, there must be something that the parties are giving or promising in exchange for something
else.
For example, if A promises to sell a car to B for a certain price, the price that B pays is the
consideration for A’s promise to sell the car.
It’s worth noting that consideration can be either a benefit to the promisor or a detriment to the
promisee. It doesn’t have to be monetary or tangible; it can also be a promise, an activity, or even
an abstention from doing something.
Section 1(a) Consideration is a quid pro quo i,e something in return it may be some benefit right,
interest, loss or profit that may accrue to one party or, some forbearance, detriment, loss or
responsibility suffered on undertaken by the other party [currie V mussa]

Definition [Sec 2(d)]:- when at the desire of the Promisor, the promise or any other person.
has done or abstained from doing , or [Past consideration] does
or abstains from doing, or [Present consideration]
promises to do or abstain from doing something [Future consideration ] such
act or abstinence or promise is called a consideration for the promise.

Legal Rules for valid (Quid Pro Quo) consideration

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1) Consideration must move at the desire of the promisor.
An act done at the desire of a third party is not a consideration.
Example: R saves S’s goods from fire without being asked to do so. R cannot demand any reward
for his services, as the act being done voluntary.

2) Consideration may move from the promisee or any other person who is not a party to the contract.
There can be a stranger to a consideration but not stranger to a contract.
Example: An old lady made a gift of her property to her daughter with a direction to pay a certain
sum of money to the maternal uncle by way of annuity. On the same day, the daughter executed a
writing in favor of the brother agreeing to pay annuity. The daughter did not, however, pay the
annuity and the uncle sued to recover it. It was held that there was sufficient consideration for the
uncle to recover the money from the daughter. [Chinnaya’s Vs Ramayya]

3) Executed and executory consideration: A consideration which consists in the performance of an

act is said to be executed. When it consists in a promise, it is said to be executory.

4) Consideration may be past, present, Future:

Example: ’A’ performed some services to ‘B’ at his desire. After a week, ‘B’ promises to compensate
‘A’ for the work done by him. It is said to be past consideration and A can sue B for recovering the
promised money.

5) Consideration should be real and not illusory. Illusory consideration renders the transaction void
consideration is not valid if it is physically impossible, legally not permissible, Uncertain and
illusory.
Examples: A man promises to discover treasure by magic, bringing the dead person to live again.
This transaction can be said to be void as it is illusory.

In the case of Chidambara Iyer v. P.S. Renga Iyer (1966), the Supreme Court of India dealt with the
issue of consideration in contract law. In this case, Chidambara Iyer and P.S. Renga Iyer entered
into an agreement for the sale of some property. However, the sale did not go through, and
Chidambara Iyer sued Renga Iyer for breach of contract.
The Supreme Court held that consideration must have some value in the eyes of the law, but it need
not necessarily be of commercial value. The Court found that the consideration offered by Renga
Iyer (the promise to transfer the property) was sufficient and that Chidambara Iyer was entitled to
recover the amount paid for the property.
This case is considered an important precedent in Indian contract law and clarifies the principle that
consideration need not necessarily be of commercial value but must have some value in the eyes of
the law. It has also been used to iterate that a promise made without consideration is not enforceable.

6) Must be legal:- Consideration must not be unlawful, immoral or opposed to public policy.
Example: ABC Ltd. promises to give job to Mr. X in a Government bank against payment of
50,000 is void as the promise is opposed to public policy.

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7) Consideration need not be adequate. Something in return need not be equal to something given.
A contract is not void merely became of the fact that the consideration is inadequate. The law
simply requires that contract should be supported by consideration.
But as an exception if it is shockingly less and the other party alleges that his consent was not free
than this inadequate consideration can be taken as an evidence in support of this allegation.
Example : X promises to sell a house worth `6 lacs for `1 lacs only, the adequacy of the price in
itself shall not render the transaction void, unless the party pleads that transaction takes place under
coercion, undue influence or fraud.

8) The performance of an act what one is legally bound to perform is not consideration for the
contract mean’s something other than the promisor’s existing obligation. The performance of an
act by a person who is legally bound to perform the same cannot be consideration for a contract.
Hence, a promise to pay money to a witness is void.

9) A contract without consideration is void .

Importance of Consideration
Consideration is the foundation of ever contract. The law insists on the existence of consideration if
a promise is to be enforced as creating legal obligations. A promise without consideration is null
and void.
Consideration is a fundamental principle in contract law. It refers to something of value that one
party promises to give or do for another party, in exchange for the other party’s promise to do
something in return. Without consideration, a contract would be mere wishful thinking and
unenforceable.
In essence, consideration ensures that both parties have made a bargain and are getting something
out of the deal. This means that each party must receive some benefit from the agreement they have
entered into. In other words, there must be an exchange of value between the two parties for a
contract to be valid.
The importance of consideration lies in its ability to uphold fairness and prevent one-sided
agreements. It prevents parties from making empty promises or taking advantage of others by
ensuring that both sides receive something valuable from entering into the agreement.
Moreover, without consideration, contracts could not achieve their primary purpose – creating
legally binding obligations between parties. Consideration acts as evidence that each person has
agreed to enter into the contract voluntarily and with full understanding of what is expected from
them.
Therefore, it goes without saying that any procurement process should always include
considerations when drafting any form of contractual agreement since it’s vital towards protecting
both parties’ interests involved throughout their business dealings.

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Principle of no consideration, no contract
The principle “no consideration, no contract” means that for a contract to be valid and enforceable,
there must be an exchange of something of value between the parties involved. This exchange is
known as “consideration.”
Consideration is an essential element of a contract, and it can take many forms. It can be money,
goods, services, or a promise to do or not do something. Essentially, consideration is something that
one party gives or promises to the other party in exchange for something else. Without consideration,
there is no contract.
For example, if a person promises to paint a house for free without receiving anything in return,
there is no contract because there is no consideration. However, if the same person agrees to paint
the house in exchange for payment, a contract is formed because there is a consideration (the
payment) exchanged between the parties.
It’s worth noting that consideration does not need to be of equal value between the parties, but it
must be something of value. Also, past consideration or moral consideration is not valid in Indian
Contract Law.
In short, consideration is an important element of a contract and is what makes a contract legally
binding. Without consideration, there is no contract, and any promises made by the parties will not
be enforceable in court.

Exceptions to the principle of no consideration, no contract

The principle “no consideration, no contract” is a fundamental principle of contract law, which states
that for a contract to be valid and enforceable, there must be an exchange of something of value
between the parties involved. However, there are a few exceptions to this principle. These have been
discussed below.

Section 25
Section 25 of the Indian Contract Act, 1872, provides for the rule that “agreements without
consideration are void unless they are in writing and registered, are a promise to compensate for
something done, or are a promise to pay a debt barred by limitation law.”

This Section states that an agreement without consideration is void unless it satisfies certain
conditions. For example, an agreement to compensate for something done in the past or an
agreement to pay a debt that is barred by the Limitation Act are exceptions to the rule of no
consideration, no contract.

Here are some examples of how Section 25 might apply:

• A promises to pay B a sum of money that B lent to A 10 years ago. Even though the loan
was made 10 years ago and is barred by the Limitation Act, A’s promise to pay is still enforceable
under Section 25.
• C, a shopkeeper, promises to pay D, a customer, for goods that D had bought from C’s
shop a month ago. Even though the goods were bought a month ago and D has not done any act or
provided any service in return, C’s promise is still enforceable under Section 25.

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It’s worth noting that for an agreement without consideration to be enforceable under Section 25, it
must be in writing and registered. This requirement is intended to ensure that there is a written record
of the agreement, which can be used as evidence in case of a dispute.
In summary, Section 25 of the Indian Contract Act, 1872, states that an agreement without
consideration is void unless it satisfies certain conditions, such as being in writing and registered, is
a promise to compensate for something done, or is a promise to pay a debt barred by limitation law.

Natural love and affection

The principle “no consideration, no contract” states that for a contract to be valid and enforceable,
there must be an exchange of something of value between the parties involved. However, there are
a few exceptions to this principle, one of them is “natural love and affection,” which is an exception
to the rule of no consideration, no contract.
Natural love and affection refer to the emotional bond between family members, such as parents
and children, siblings, and spouses. When a contract is entered into based on natural love and
affection, it is considered binding even if there is no consideration.
For example, if A promises to transfer a piece of land to B, A’s child, as a gift based on natural love
and affection, there is no consideration, but it is still a valid contract.
It’s worth noting that for an agreement based on natural love and affection to be enforceable, it must
be in writing and registered. This requirement is intended to ensure that there is a written record of
the agreement, which can be used as evidence in case of a dispute.
It’s also worth noting that the Indian Contract Act 1872, which governs contract law in India, does
not specifically mention natural love and affection as an exception to the rule of no consideration,
no contract. However, courts have recognised the exception in certain cases.
In conclusion, love and affection are exceptions to the rule that if there is no consideration, there is
no contract. This means that agreements between family members can be binding even if there is
no consideration. It’s important to note that the agreement should be in writing and registered for
enforceability.

Promissory estoppel
This doctrine holds that a promise, although not supported by consideration, can be enforced if the
promisor should reasonably expect the promisee to rely on the promise and if the promisee does, in
fact, rely on the promise to his detriment. For example, if A promises to B that he will transfer a
piece of land to B and B, in reliance on that promise, incurs expenses to improve the land, A may
be estopped from denying the existence of consideration for the promise.

Contracts under seal

Contracts under seal, also known as formal contracts or speciality contracts, are contracts that are
executed under seal and are considered binding without consideration. For example, a contract
executed under seal between A and B would be considered binding even if there was no
consideration.

Past voluntary services

Past voluntary services refer to services that were performed voluntarily and gratuitously in the past
and for which a promise of compensation was made subsequently. When a contract is entered into

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based on past voluntary services, it is considered binding even if there was no consideration at the
time the services were rendered.
For example, if A voluntarily takes care of B’s elderly parent for a year and B subsequently promises
to pay A a sum of money as compensation, there was no consideration when the services were
rendered, but the contract is still valid because of the promise to pay.
It’s worth noting that for an agreement based on past voluntary services to be enforceable, it must
be in writing and registered. This requirement is intended to ensure that there is a written record of
the agreement, which can be used as evidence in case of a dispute.
It’s also worth noting that the Indian Contract Act, 1872, which governs contract law in India, does
not specifically mention past voluntary services as an exception to the rule of no consideration, no
contract. However, courts have recognised the exception in certain cases.
Central Inland Water Transport Corporation Limited v. Brojo Nath Ganguly (1986) – dealt with the
issue of past voluntary services and the principle of promissory estoppel. The Supreme Court held
that past voluntary services can be a valid consideration for a contract and that the principle of
promissory estoppel can be applied to hold the promisor to the terms of the contract.

Promise to pay a time-barred debt as an exception to no consideration, no contract

A time-barred debt refers to a debt that is past the statute of limitations set by the Limitation Act,
1963, and thus cannot be enforced through legal action. However, if the debtor voluntarily promises
to pay such a debt, it can be enforceable.
For example, if A borrowed money from B 10 years ago and the statute of limitations for the debt
has expired, B cannot legally enforce the debt. But if A voluntarily promises to pay the debt, a
contract is formed even though there is no consideration.
Section 25 of the Indian Contract Act, 1872, provides for this exception and states that an agreement
without consideration to pay a time-barred debt is not void but enforceable.

Creation of an agency
An agency is a relationship between two parties in which one party (the principal) authorises another
party (the agent) to act on its behalf. In an agency agreement, the agent is appointed to perform
certain tasks on behalf of the principal, and the principal is bound by the actions of the agent. For
example, A, the principal, appoints B, the agent, to sell A’s property. Even though there is no
consideration when the agency agreement is made, the contract is still binding because the agent is
authorised to act on the principal’s behalf, and the principal is bound by the actions of the agent. It’s
worth noting that for an agency agreement to be enforceable, it must be in writing and registered.
This requirement is intended to ensure that there is a written record of the agreement, which can be
used as evidence in case of a dispute.
Gift
A gift is a voluntary transfer of property from one person to another without any consideration. In
other words, when a person makes a gift, they do so freely, without receiving anything in return.
Even though there is no consideration, a gift is still considered a valid contract.
For example, if A gives B a car as a gift, there is no consideration, but it is still a valid contract. It’s
worth noting that for a gift to be enforceable, it must be made voluntarily and without any coercion
or undue influence. Also, there must be an intention to make a gift, and the gift must be accepted by
the donee.

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It’s also worth noting that under the Indian Contract Act 1872, gifts are not considered contracts.
However, gifts are considered a transfer of property and are governed by the Indian Transfer of
Property Act, 1882.
Note: Gifts are governed by Section 122 of the Transfer of Property Act, 1882. This Section lays
down the requirements and formalities for a valid gift of property. The Section requires that a gift
be made voluntarily and without consideration and must be accepted by the donee. The gift must be
in writing, signed by or on behalf of the donor, and attested by at least two witnesses. The Section
also provides that a gift may be revoked by the donor at any time before the donee takes possession
of the property.

Bailment
Bailment is the legal relationship created when one party (the bailee) is entrusted with the possession
and control of property owned by another party (the bailor) for a specific purpose. In a bailment,
there is no exchange of consideration, but it is still considered a valid contract.
For example, if A entrusts B with possession and control of A’s car for the purpose of repairing it,
there is no consideration, but the contract is still valid.
It’s worth noting that for a bailment to be enforceable, it must be made voluntarily and without any
coercion or undue influence. Also, there must be an intention to create a bailment, and the bailment
must be accepted by the bailee.
It’s also worth noting that under the Indian Contract Act 1872, a bailment is considered a special
contract and is governed by the Indian Contract Act 1872, under Sections 148 – 181.

Charity
Charity refers to the act of giving money, goods, or services to organisations or individuals in need
without receiving anything in return. In other words, when a person makes a charitable donation,
they do so freely, without receiving any consideration. Even though there is no consideration, a
charitable donation is still considered a valid contract.
For example, if A gives money to a charitable organisation, there is no consideration, but it is still a
valid contract. It’s worth noting that for a charity to be enforceable, it must be made voluntarily and
without any coercion or undue influence. Also, there must be an intention to make a charitable
donation, and the donation must be accepted by the donee.
It’s also worth noting that under the Indian Contract Act 1872, charitable donations are not
considered contracts. However, charitable donations are considered a form of gift and are governed
by the Indian Transfer of Property Act, 1882.

Conclusion
Consideration is a key factor in ensuring the integrity of contracts and the legal certainty of
contractual obligations. In conclusion, the rule of “no consideration, no contract” is a fundamental
principle of contract law, which holds that a contract must have consideration in order to be legally
enforceable. Consideration refers to something of value that is exchanged between the parties to a
contract. The requirement of consideration ensures that both parties have given something of value
in exchange for the contract and provides a legal foundation for the contract. The absence of
consideration can render a contract void and unenforceable. However, there are exceptions to this
rule, and those have already been elaborated on above.

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Concept of Memorandum of Understanding
A memorandum of understanding, or MOU, is defined as an agreement between parties and can be
bilateral (two) or multilateral (more than two parties). The MOU serves as an expression of aligned
will between the parties in question and depicts the intent of a common line of action.
The MOU can be seen as the starting point for negotiations as it defines the scope and purpose of
the talks. Such memoranda are most often seen in international treaty negotiations but may also be
used in high-stakes business dealings such as merger talks. MOUs communicate the mutually
accepted expectations of the people, organizations, or governments involved. They are most often
used in international relations because, unlike treaties, they can be produced relatively quickly and
in secret.

The MOU, although a formal document, is not legally binding. It merely shows the willingness of
each concerned party to take action to move the contract forward. In addition, an MOU brings about
the definition of the purposes and scope of negotiations.
Although an MOU is not necessarily legally binding, it allows parties to prepare for signing a
contract by explaining the broad concepts and expectations of their agreement. Communicating in
clear terms what each party hopes to gain from an agreement can be essential to the smooth
execution of signing a legal contract in the future.
They may include a clause that can be legally binding, and violations of the clauses may result in
the guilty party being liable.

The following key elements may render an MOU to be legally binding;

1. An offer
2. Acceptance of the offer
3. Legally binding intention
4. Consideration

Advantages of MOUs
• An MOU allows for the establishment of a mutual intention. It enables each party’s goals
and objectives to be clear.
• The finalization of an MOU allows for having a paper trail or records of the terms that have
been in the negotiations leading towards finalization.
• MOUs reduce the levels of uncertainty between the involved parties because the document
usually highlights the expectations and objectives and prevents possible future
disagreements.
• An MOU provides ease of exit, as any party that finds the objectives and goals not being
met can easily end the agreement.
• Because the MOU already outlines objectives and terms, the document can serve as the
foundation for a possible future contract.

Disadvantages of MOUs

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 • The concept that MOUs are not legally binding allows for either party to exit the agreement
or not meet the requirements outlined in the agreement without consequences.

Uses of MOUs
• Private Sector or Private Enterprises
In business and private enterprise dealings, the MOU normally serves as a non-binding
agreement that encompasses the responsibilities and requirements for each party and the
terms and details pertaining to the agreement. It is done without establishing a formal
contract or legally enforceable contract.
• Government and Public Affairs
MOUs can be used within government departments; for example, in the United Kingdom,
the document serves as an agreement between parts of The Crown.
• Public International Law
On an international level, MOUs fall under the treaties category, and they must be registered
in the United Nations Treaty Collection. In order to determine whether or not the agreement
is legally binding (especially for treaties), the intent of the parties and the positions of the
signatories must be presented. The wording used in the agreement also plays a role in
determining the legal nature of the document.

1.5 Competency (Capacity) to contract

Who is competent to make a contract?

Section 11. Every person is competent to contract who is of age of majority according to the Law
to which he is subject, who is of sound mind and not is disqualified from contracting by any Law
to which he is subject.

Who are not competent to make a contract:-

- Minor
- Unsound Mind (Lunatic, Drunker, Idiot)
- Person disqualified from statute. (Insolvent, Alien Enemy, Convicted to imprisonment)

Age of majority:- According to section 3 of Indian majority Act-1875 every person domiciled in
Indian attains majority on the completion of 18 years of age.
Exception: -21 years- in the following cases.
a. Where a guardian of a minor’s person or property is appointed under the Guardian and wards Act,
1890.
b. Where minor’s property has passed under the superintendence of the court of words.

A) MINOR
A) Position and effects of Agreements by Minor:-

1) A contract made with or by a minor is void ab-initio:

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Validity: - An agreement with a minor is void-ab-initio [Mohoribibee v. Dharmodas Ghose]
Example: “A, a minor borrowed Rs. 20,000 from B and as a security for the same executed
a mortgage in his favour.
He became a major a few months later and filed a suit for the declaration that the mortgage executed
by him during his minority was void and should be cancelled.
It was held that a mortgage by a minor was void and B was not entitled to repayment of money.
Further money lender’s request for repayment of amount advanced to the minor as part of
consideration for the mortgage was also not accepted.

2. No ratification after attaining majority: A minor cannot ratify (approve) the agreement on
attaining majority as the original agreement is void ab initio and a void agreement can never be
ratified.
Example : X, a minor makes a promissory note in the name of Y. On attaining majority, he cannot
ratify it and if he makes a new promissory note in place of old one, here the new promissory note
which he executed after attaining majority is also void being without consideration.

3. Minor can be a beneficiary or can take benefit out of a contract: Though a minor is not
competent to contract, nothing in the Contract Act prevents the minor from making the other party
bound to him r. Thus, a promissory note duly executed in favour of a minor is not void and can be
sued upon by him, because he though incompetent to contract, may yet accept a benefit.
A minor cannot become partner in a partnership firm. However, he may with the consent of all the
partners, be admitted to the benefits of partnership (Section 30 of the Indian Partnership Act, 1932).

4. A minor can always plead minority: A minor can always plead minority and is not stopped
to do so even where he has taken any loan or entered into any contract by falsely representing that
he was major. Rule of estoppel cannot be applied against a minor. It means he can be allowed to
plea his minority in defence.
Example: A, a minor has falsely induced himself as major and contracted with Mr. X for loan of
`20,000. When Mr. X asked for the repayment A denied to pay. He pleaded that he was a minor so
cannot enter into any contract. Held, A cannot be held liable for repayment of amount.

5. Liability for necessaries: The case of necessaries supplied to a minor or to any other person
whom such minor is legally bound to support is governed by section 68 of the Indian Contract Act.
A claim for necessaries supplied to a minor is enforceable by law. But a minor is not liable for any
price that he may promise and never for more than the value of the necessaries. There is no personal
liability of the minor, but only his property is liable.
Example 4: Shruti being a minor purchased a laptop for her online classes of `70,000 on credit from
a shop. But her assets could pay only `20,000. The shop keeper could not hold Shruti personally
liable and could recover only amount recoverable through her assets i.e. upto ` 20,000.

6. Contract by guardian - how far enforceable: Though a minor’s agreement is void, his
guardian can, under certain circumstances enter into a valid contract on minor’s behalf.
Where the guardian makes a contract for the minor, which is within his competence and which is
for the benefit of the minor, there will be valid contract which the minor can enforce.

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But all contracts made by guardian on behalf of a minor are not valid. For instance, the guardian of
a minor has no power to bind the minor by a contact for the purchase of immovable Property. But a
contract entered into by a certified guardian (appointed by the Court) of a minor, with the sanction
of the court for the sale of the minor’s property, may be enforced by either party to the contract.

7. No specific performance: A minor’s agreement being absolutely void, there can be no

question of the specific performance of such an agreement.

8. No insolvency: A minor cannot be declared insolvent as he is incapable of contracting debts

and dues are payable from the personal properties of minor and he shall never be held personally
liable.

9. Partnership: A minor being incompetent to contract cannot be a partner in a partnership firm,

but under Section 30 of the Indian Partnership Act, he can be admitted to the benefits of partnership.

10. Minor can be an agent: A minor can act as an agent. But he will not be liable to his principal
for his acts. A minor can draw, deliver and endorse negotiable instruments without himself being
liable.

11. Minor cannot bind parent or guardian: In the absence of authority, express or implied, an
infant is not capable of binding his parent or guardian, even for necessaries. The parents will be held
liable only when the child is acting as an agent for parents.
Example: Richa a minor entered into contract of buying a scooty from the dealer and mentioned that
her parents will be liable for the payment of scooty. The dealer sent a letter to her parents for money.
The parents will not be liable for such payment as the contract was entered by a minor in their
absence and out of their knowledge.

12 Joint contract by minor and adult: In such a case, the adult will be liable on the contract and
not the minor. In Sain Das vs. Ram Chand, where there was a joint purchase by two purchasers, one
of them was a minor, it was held that the vendor could enforce the contract against the major
purchaser and not the minor.

13 Surety for a minor: In a contract of guarantee when an adult stands surety for a minor then
he (adult) is liable to third party as there is direct contract between the surety and the third party.
Example 7: Mr. X guaranteed for the purchase of a mobile phone by Krish, a minor. In case of
failure for payment by Krish, Mr. X will be liable to make the payment.

14 Minor as Shareholder: A minor, being incompetent to contract cannot be a shareholder of

the company. If by mistake he becomes a member, the company can rescind the transaction and
remove his name from register. But, a minor may, acting though his lawful guardian become a
shareholder by transfer or transmission of fully paid shares to him.

15 Liability for torts: A tort (offence) is a civil wrong. A minor is liable in tort unless the tort in
reality is a breach of contract. Thus, where a minor borrowed a horse for riding only he was held
liable when he lent the horse to one of his friends who jumped and killed the horse.

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Similarly, a minor was held liable for his failure to return certain instruments which he had hired
and then passed on to a friend.

EXCEPTION – Minor’s Contracts enforceable by law

1) Contract for the benefit of a minor.
Contract by Guardian – Contract for benefit of a minor by his guardian or manager of his estate.

2) Contract for supply of Necessaries.

Example: Food, clothes, bed, shelter, shoes, medicines and similar other things required for the
maintenance of his life or for the life of his dependents, expenses for instruction in grade or arts;
expenses for moral religions or intellectual education, funeral expenses of his deceased family
members, marriage expenses of a dependent female member in the family; expenses incurred in the
protection of his property or personal liberty, Diwali pooja expenses, etc. have been held by courts
to be necessaries of life. However, the things like earrings for a male, spectacles for a blind person
or a wild animal cannot be considered as necessaries.

3) Liability for tort: A minor is liable for a tort, i.e., civil wrong committed by him.
Example : A, a 14 year old boy drives a car carelessly and injures B. He is liable for the accident
i.e., tort.

B) UNSOUND MIND
According to Section 12 of Indian Contract Act, “a person is said to be of sound mind for the
purposes of making a contract if, at the time when he makes it is capable of understanding it and
of forming a rational judgment as to its effect upon his interests.”

Person of Unsound Mind

A person who is usually of unsound mind, but occasionally of sound mind can make a contract
when he is of sound mind. Similarly, a person who is usually of sound mind, but occasionally of
unsound mind, may not make a contract when he is of unsound mind.
At time of entering into a contract, a person must be sound mind. Law presumes that every person
is of sound mind unless otherwise it is proved before court. An agreement by a person of unsound
mind is void.

The following are categories of a person considered as person of a unsound mind.

An idiot - An idiot is a person who is congenital (by birth) unsound mind. His incapacity is
permanent and therefore he can never understand contract and make a rational judgment as to
its effects upon his interest. Consequently, the agreement of an idiot is absolutely void ab initio.
Hypnotized persons - Hypnotism produces temporary incapacity till a person is under the
effect of artificial induced sleep.

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 Mental decay - There may be mental decay or senile mind the old age or poor health.
When such person is not capable of understanding the contract and its effect upon his interest,
he cannot enter into contract.
Lunatic is not permanently of unsound mind. He can enter into contract during lucid intervals
i.e., during period when he is of sound mind.
Drunken person - An agreement made by intoxicated person is void.
C) PERSON DISQUALIFIED BY LAW
Body corporate or company or corporation - Contractual capacity of company is determined by
object clause of its memorandum of association. Any act done in excess of power given is ultra –
virus and hence void.

Alien enemy - An ‘alien’ is a person who is a foreigner to the land. He may be either an ‘alien friend’
or an ‘alien enemy. If the sovereign or state of the alien is at peace with the country of his stay, he
is an alien friend. If a war is declared between the two countries he is termed as an alien enemy.
During the war, contract can be entered into with alien enemy with the permission of central
government.

Convict – Convict can’t enter into a contract while he is undergoing imprisonment. But he can enter
into a contract with permission of central government while undergoing imprisonment. After the
imprisonment is over, be becomes capable of entering into contract. Thus the incapacity is only
during the period of sentence.

Insolvent - When any person is declared as an insolvent, his property vests in receiver and therefore,
he can’t enter into contract relating to his property. Again he becomes capable to enter into contract
when he is discharged by court.

Foreign sovereigns, diplomatic staff and representative of foreign staff - can enter into valid contract.
However, a suit cannot be filed against them, in the Indian counts without the prior sanction of the
central Government.

D) STRANGER (Third party to a contract) cannot sue or a suit.

“Doctrine of privities of contract.” - Only those persons, who are parties to a contract, can sue and
be sued upon the contract.

Stranger to consideration:- “Stranger to contract” must be distinguished from a stranger to

consideration need not necessarily be provided by the promises if may flow from a third party also
such a person is ‘stranger to consideration,. (Chinnaya Vs Ramayya). Exception to the law.

1) Trust:- In case of trust a beneficiary can sue upon the contract.

Example: -A transferred certain properties to B to be held by him in trust for the benefit of C. In this
case, C although not a party to the trust, can sue for the benefits available to him under the trust.
Case of khwaja Mohd. Khan v. Hussaini Begum (1910) 32 All 410.

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2. Family settlement / Marriage contract:- In case of family settlement members who were not
originally party to the contract can also sue upon it. A female members cone force a provision for
marriage expenses made on partition of HUF.
Example: Two brothers, on partition of family joint properties, agreed to invest in equal shares for
their mother’s maintenance. Held, the mother was entitled to require her sons to make the
investment.
3. Acknowledgement of liability:- Where a person admits his Liability thereafter if he refused be
will be stopped from denying his liability.
Example - X receives money from Y for paying it to Z. X admits the receipt of that amount to Z.
Z can recover the amount from X, even though the money is due from Y.

4. Assignment of contract. Assignee (the person to whom benefits of contract are assigned) can
enforce upon the contract..

5. Contract entered into through an agent.

E-Contract
In law, an e-contract, or electronic contract, is a legally binding agreement created and signed using
electronic means. It's essentially a contract that's formed, negotiated, and executed digitally, just like
a traditional paper contract but without the need for physical signatures or paper documentation.
Electronic contracts(e-contracts) are those contracts which are not paper based and are electronic in
nature. E-contracts are also an agreement which is enforceable by law and that is entirely created,
negotiated, and executed digitally.
E-Contracts are the most convenient method to make a contract without being physical contact .

What is the validity of an e-contract?

According to section 10A of the Information Technology Act, 2000 gives legislative authority to
econtracts. It says that, “ where in a formation of contract, the communication of proposals, the
acceptance of proposals, revocation of proposals and acceptance, as the case may be expressed in
electronic form or by means of an electronic record, such contract shall not be deemed to be
unenforceable solely on the ground that such electronic form or means used for that purpose”.

The essential elements of a valid E-contract requires these essentials, they are:-
1. There must be a proposal/offer.
2. There must be an acceptance.
3. Legal consideration must be there.
4. Parties must be able to contract.
5. Free consent by the parties.
6. Lawful object.
7. Acknowledgement of an offer is necessary.
8. Possibility of performance.

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Types of E-contracts are:
The E-contracts are common in today’s world, everyone using E-contracts in day to day life. Ex:-
buying any product in the market and signed digitally and saves their time. An E-contract is created
by combining traditional contracts with technological proficiency.

There are few main important types of E-contracts are commonly used, they are:-
1. Shrink wrap agreement.
2. Click wrap agreement.
3. Browse wrap agreement.
4. Scroll wrap agreement.
5. Sign-in wrap agreement.

Shrink wrap agreements:- shrink wrap agreement are the end user license Agreement or the shrink
wrap agreement refers to the purchase agreement attached to shipped products, usually bound by
shrink wrap( plastic wrapping) that contains terms and conditions like right to use, licenses,
warranties.

Click wrap agreements:- Click wrap agreements are basically click based agreement which requires
assent of parties by way of clicking “ I agree” or “ I accept” button. Click wrap agreements are also
a form of agreement if it is used for software licensing any other electronic media and websites. The
party first read the terms and conditions, private policies of that particular website and then only to
enter or login in the website. Ex:- Amazon user agreement, Flipkart user agreement.

Browse wrap agreements:- Browse wrap agreements are online contracts or license agreements are
generally found in a website or downloadable product. These contracts are published in a particular
webpage and used have to find these terms and conditions by browsing that particular page.

Scroll wrap agreements:- The scroll wrap agreements requires the user scroll the license agreement,
the user must scrolling down the terms and conditions before giving the consent or rejection.

Sign-in wrap agreements:- The sign-wrap agreement is a type of E-contract i.e., if once the enduser
has signed in online services to buy a product, the acceptance is required.

E-CONTRACTS AND INDIAN LAWS:

There is no law particularly relating to E-contracts, there are many other acts which combines and
enforce the E-contracts properly. They are:-
Indian Contract Act 1872:

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In the Indian Contract Act 1872 the essential elements are to be fulfilled then only the contract will
be legally enforceable, or otherwise the contract will be breached. Same in E-contract must be
fulfilled the essentials mentioned in the Act or otherwise the E-contract declared as void or unlawful
according to the law.

The Information Technology Act 2000:

There is no particular law for E-contract, so according to section 10A of the Information Technology
Act of 2000 gives legislative recognition to E-contracts. According to section 3 of the Information
Technology Act says about the verification of E-contracts signed by both the parties.

The Indian Evidence Act 1872:

In this digital era, keeping records stored on electronic media are likewise admissible. In court
evidence can be provided via computerized cameras, audio notes, video conferencing, and
sophisticated camcorders the Indian Evidence Act has numerous sections including 65B, 85B, 88A,
90A and 85C all these sections deals with Electronic Evidence.

Validity of E-Contract made by Minor in India

Under Sect. 3 of the Indian Majority Act, 1875, one attains majority at the age of 18 years (or at the
age of 21 years if a guardian has been appointed by the state for the individual).
The minor is incompetent to contract and thus their agreement is void, or that h/she is not bound
by the contract, while the other major contracting party is, which results in a voidable contract.
Several Indian courts followed English common law and held that minors’ contracts were voidable
at the option of the minor.

Partnership Agreement.
A partnership is a formal arrangement by two or more parties to manage and operate a business and
share its profits.
A partnership agreement is a legal document that outlines the terms and conditions governing the
relationship between partners in a partnership business. It serves as a foundational document that
clarifies the rights, responsibilities, obligations, and expectations of each partner, as well as the
overall management and operation of the partnership.

Position of a minor in partnership.

A minor (under 18) cannot be a partner in a partnership firm in India. However, a minor can be
admitted to the benefits of a partnership with the consent of all the partners. As a minor, they can
have a share in the firm's property and profits, and can access the firm's accounts. They cannot
participate in the management of the firm and are not liable for the firm's losses.
The Indian Partnership Act governs the admittance of a minor into the partnership in Section 30.
This section deals with the rights and liabilities of a minor who is admitted un the partnership. A
deeper reading of the provision, specifically section 30(1) makes it very clear that a minor cannot
be admitted in the partnership as a full-fledged partner, but with the consent of the other partners, a
minor can be admitted in the partnership to the benefits of the partnership.
1. Minor may not be a partner in the firm but may be admitted to the firm for the benefits of the
partnership (with the consent of all the partners).

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 2. Minor can have a share in the property and of the profits of the firm. He may also have access
to the accounts of the firm.
3. Minor’s share is liable for the acts of the firm (section 2a), but liability shall not be personal.
[not the unlimited liability like that of partners (section 25 of the Partnership Act, 1932)]

Minors Admitted Only For Benefits

The general principle has been laid down by Section 11 of The Indian Contract Act, 1872, where it
is discussed that who is competent to a contract and thereby stating that a minor doesn’t have the
ability to contract. The same was supported in the Andhra Pradesh High judgement of Addepally
Nageshwar Rao.

Rights And Liability of A Minor

Section 30(2) of the Indian Partnership Act states that a minor is entitled to share of profits and the
property of the firm which may have decided at the time the minor was admitted to the benefits of
the partnership. Under this provision, a minor has the right to inspect the accounts of the partnership
but to that fact does not have any right to inspect other documents of the partnership.
Even in Section 30(3) of the Indian Partnership Act a minor can only be liable to the extent of his
share in the partnership and can't be liable personally to the partnership for the losses of the firm.
Even the same notion was taken in a Calcutta High Court judgement where it was stated that the
creditors can only recover the amount from a minor to the extent of his share in the firm, but they
can't sue the minor personally, this benefit is not enjoyed by the major member in the firm.
The Supreme Court went a step ahead when it adjudged that a minor can't be declared insolvent
even if the major partners of the firm are declared insolvent. The apex court also came out with the
same view as to when can a minor sue the other full-fledged partner in the partnership.
Section 30(4) of The Indian Partnership Act states that a minor can sue the other partners of the firm
for his benefits in the firm but the same right is not available to the full-fledged partners of the firm.
The provision also states that in the case the minor severs all ties with the firm then valuation of his
share is to be done according to Section 48 of The Indian Partnership Act as far as possible.

Position of Minor Attaining Majority

According to section 30(5) of The Indian Partnership Act, a minor has two options after attaining
majority, either he can sever the connection with the firm or become a full-fledged partner in the
firm. The minor has to make dis decision within six months of his attaining majority. The minor has
to furnish a public notice specified under Section 72 on The Indian Partnership Act if he chooses to
become a full-fledged partner. The minor continues to enjoy the rights as a minor till he makes his
final decision as to he will join the partnership as a full-fledged partner or sever the connection from
the partnership.
Section 7(a) of The Indian Partnership Act also states that after a minor partner has been admitted
in the partnership as a full-fledged partner then he will be liable not only for the future liabilities of
the firm but also the past liability from the date of his admission in the partnership.
Section 7(b) states that a the share of the minor after he attains majority will be the same which was
given to him when he was a minor as because when a minor chooses to become a full-fledged

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member of the partnership, there is no break in the partnership and it continues as it is just that the
liabilities of being a full-fledged partner are now upon him.
Section 8 of The Indian Partnership Act states that if the minor declines to continue as a full-fledged
member of the partnership he will be liable for all the liabilities of the partnership till he furnishes
the public notice as per Section 72 of The Indian Partnership Act. After serving the ties with the
partnership, the minor may file a suit as to recover the benefits he was entitled to.
Case Law
According to Section 11 of The Indian Contract Act, a minor is not competent to a contract. Even
in the Dwarkadas Khetan case the Supreme Court of the country declares that a minor cannot be a
full-fledged partner in the firm. The apex court in Shah Mohandas Case stated that a minor may be
admitted in the firm only for its benefits.
the S. C. Mandal case. It was observed that under Section 4 of The Indian Partnership Act, a firm
means a group of people who has entered into a contract of partnership among themselves and
reading it with Section 11 of the Indian Contract Act, it can be interpreted that a minor cannot be a
part of a partnership contract.
In the Guwahati High Court judgement of Commissioner of Income Tax vs. Kedarmall Keshardeo
the court held that a contract deed is valid when a guardian enters into a partnership on behalf of
the minor but again no liability should be imposed on the minor, even the income of a minor from
the firm should not be considered for the purpose of income tax.

1.6 Free Consent

According to Sec.13, ‘When two or more persons agree on same thing in the same sense, they are
said to consent.’ ‘Consensus Ad Idem’ means people agree on the same thing in the same sense at
the same time.
Consent is considered free if it is not caused by the following factors:
(i) Coercion
(ii) Undue Influence
(iii) Fraud
(iv) Misrepresentation (v) Mistake

I. Coercion (Sec. 15)

It means threatening or use of physical force against a person to compel him to enter into a contract.
E.g. Alia Slapped Bhim & dislocated some of his teeth & threatens to repeat the same if Bhim does
not lend him Rs. 30,000. The contract is caused by coercion.

Essential Elements:-
• Committing or threatening to commit any act forbidden by Indian Penal Code;- E.g. murder,
theft, physical compulsion.
• Threat of suicide is coercion. Unlawful detaining of any property or unlawful threatening to
detain any property.
• The intention must be to compel the other person to enter into a contract. E.g. A beats B to
take revenge for his insult. This is not coercion.

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 • Coercion may be from the party or from any other person/stranger.

Effects:
• Contract becomes voidable, at the option of the party whose consent is taken by coercion.
• Restitution: Aggrieved party can restore the benefits given.

II. Undue Influence (Sec. 16)

It is a kind of moral coercion. When relation between parties are such that one party is in a position
to dominate the will of the other & use that position to obtain advantage over the other. This is undue
influence

Essential Elements: -
• There must be close relation between the parties.
• One party should be in the position to dominate the will. It includes following situations:
Real authority over the other like master & servant, doctor & patient.
When relation of trust & confidence exist between parties. E.g. father & son, husband &
wife.
Undue influence can be used against the person whose mental capacity is affected by old
age, illness etc.
• The intention should be to take undue advantage.
• Misuse of position to take advantage.

Effects:
• Contract is voidable at the option of aggrieved party. Benefit received is restored to
the aggrieved party.

III. Fraud (Sec. 17)

Fraud means willful misrepresentation or concealment of material facts. The intention is to deceive
(cheat) the other party & induce him to enter into an agreement. It include the following acts:
i) Suggestion of that which is not true i.e. given by person who does not believe it to be true.
ii) Concealment of fact by one who has knowledge of it. iii) Promise made without any
intention of performing it.
iv) Such act which law declares to be fraudulent.

Essential Elements:-
1) Fraud may be done by a party to the contract or his agent.
2) There must be representation which is false. E.g. A intends to deceive B & falsely represents
that the car which he offers for sale is imported but actually it is Indian.
3) False representation must be of material fact, not an opinion.
4) A promise made without intention to perform is a fraud.
5) The intention must be to induce the other party to act upon false representation.

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6) The other party must have been relied upon the statement & must have been deceived &
suffered some loss.

Effects:
(1) Aggrieved party has the right to rescind (declare invalid) the contract (voidable).
(2) Sue for damages or loss suffered.
(3) Benefit received is restored.
(4) Aggrieved party can insist for performance & ask to put him in a position in which he would
have been if representation made had been true.

IV. Misrepresentation (Sec. 18)

Any innocent or unintentional false statement of fact made by one party to the other during
negotiation of contract is called misrepresentation. It includes:
1) When a person positively says that a fact is true when his information does not justify it,
although he believes to be true.
2) When there is breach of duty by a person (no intention to deceive) which brings advantage to
him & loss to the other.

Essential Elements:
1) Misrepresentation must be of fact & not mere opinion.
2) It must be made to induce other party to contract.
3) Intention should not be to deceive the other party.

Effects:
1) Contract is voidable at the option of aggrieved party.
2) Aggrieved party may insist on performance which will put him in the position if the
representation made had been true.
3) Benefits may be restored.
4) Claim for damages except in following cases: -
a. When aggrieved party has means of discovering the truth.
b. If aggrieved party gave consent in ignorance of misrepresentation
c. If party has not rescinded the contract within reasonable time.

V. Mistake (Sec. 20, 21 & 22)

Mistake means a wrong belief or misunderstanding about something. Generally, mistake does not
affect the validity of the contract. According to Sec.20, where both the parties are under a mistake,
the agreement is void.

Essential Elements:
(1) Both parties can be at mistake (bilateral mistake).
(2) Mistake can be of two types: Mistake of fact and Mistake of law. Mistake of fact is related to
the subject matter of the contract. It may be a bilateral or unilateral mistake. If there is

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 mistake of law, the contract is valid because everyone is assumed to have knowledge of it. &
ignorance of law is no excuse.

Effects:
1) Acc. To Sec. 22., Contract is not voidable due to unilateral mistake of facts.
2) Agreement made on bilateral mistake is void.
3) Mistake as to foreign law is treated as a mistake of fact & is excusable.

Case Laws for Free Consent

1. Banwari Lal v. Sukhdarshan Dayal (1973)1 SCC 294: This case emphasized the crucial role
of intention to create legal relations in forming a contract. The court stated that an agreement is not
a contract unless there is a clear intention on the part of the parties to create a legally binding
obligation.
2. Mohori Bibi v. Dharmodas Ghosh (1881) ILR 8 Cal 109: This landmark case established the
principle of a minor's incapacity to contract. The court held that any contract entered into by a minor
is void ab initio and cannot be enforced.
3. Raffles v. Wichelhaus (1864) 2 F & F 977: This case illustrates the concept of a "meeting of
the minds" (consensus ad idem), a crucial element of free consent. The case involved a contract for
the sale of cotton, but there were two ships with the same name, leading to a misunderstanding
about the specific ship in question. The court found that there was no meeting of the minds, and
therefore no valid contract.
4. Inder Singh Vs Dayal Singh (1974) 2 SCC 372: This case dealt with undue influence, where
one party exploited the mental distress of another to obtain an unfair advantage. The court held that
undue influence renders the contract voidable at the option of the aggrieved party.
5. Chikkam Ammiraju v. (1998) 2 SCC 135: This case illustrated the concept of coercion,
where a threat of suicide was used to compel someone to sign a release deed. The court held that
such a threat constituted coercion and rendered the agreement voidable.

1.7 Void Agreement

Legality of Object and Consideration

The word object is used distinctly to mean ‘purpose or design’ of the agreement. The word
‘consideration’ is different from the object. Consideration means the benefit received or suffered
under an agreement.
Sec.10 implies that an agreement enforceable by law must be for a lawful consideration and with a
lawful object. Every agreement of which the object or consideration is unlawful is void.

Unlawful Consideration or object:

Object or consideration is considered as unlawful in following cases:
1) If the act is forbidden by law. E.g. X promised Y to pay Rs.3 lakh for murder of Z. It is unlawful.

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2) If it defeats the provisions of any law: The act may not be forbidden by law. But, if it is
permitted, it will defeat the provisions of any law. E.g. P & Q married under Mohammedan law
but agreed before marriage that wife would be allowed to live with her parents after marriage.
This agreement is void because it defeats the provisions of Mohammedan law.
3) If it is Fraudulent in nature.
4) If it involves injury to the person or property of another.
5) If Court considers it immoral: E.g. An agreement between husband and wife for future
separation is immoral.
6) If court considers it opposed to public policy: It means no person can lawfully do something
which can cause injury to public welfare. E.g. agreement to sell seat in medical or engineering
college, agreement for getting votes in election for consideration, agreement to get a public title
like ‘Bharat Ratna’ for consideration.
7) Agreement interfering with parental rights & duties.
8) Agreements which restrict personal liberty.
9) Agreements which restricts marriage or interfere with marital duties.
10) Agreements creating monopoly.
11) Agreements not to bid in auction sale.

Formation and Legality of AI based contracts

AI-based contracts refer to agreements that are created, executed, or enforced (wholly or partly) by
Artificial Intelligence systems, including smart contracts, algorithmic agreements, or contracts
generated through AI platforms.
With growing use of AI in sectors like fintech, e-commerce, legal tech, and logistics, AI-generated
contracts are becoming more prevalent in India.

AI Involvement in Contracts
Artificial intelligence is playing an increasingly important role in the field of contract law,
revolutionizing the various aspects of contract management, analysis, and drafting. Advanced
capabilities for streamlining and enhancing the conventional contract processes are offered by
artificial intelligence technologies such as machine learning and natural language processing.
Contract management is one area where AI has proven its potential. Contract workflows, such as
the creation of contracts, negotiation, and monitoring, can be automated and optimized by an AI
enabled contract management system.
Artificial intelligence can analyse and interpret natural language, which enables it to obtain valuable
information on contracts. Natural language processing algorithms can extract provisions, clauses,
and obligations from contracts and categorize them for easier reference and analysis. This capability
allows legal practitioners to quickly search, compare, and review the terms of the contract, saving
time and improving the accuracy of the interpretation of the contract.

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In addition, the drafting of contracts can be helped by artificial intelligence technologies. Artificial
Intelligence Contract drafting tools, which can generate standardised clauses, templates, and
customized provisions based on redrafted rules and guidelines, may be helpful for lawyers in
negotiating contracts. Quality checks may also be carried out with these tools to ensure that contracts
are in conformity with the law and reduce the risk of error or omission. In addition, the analysis of
contracts and due diligence processes can be supported by artificial intelligence. With the use of
machine learning algorithms, AI can review contracts for potential risks, inconsistencies, or failure
to comply with legal requirements. This technology can help to identify potential risks and provide
advice on mitigating them, allowing legal practitioners to make more informed decisions.

AI-assisted Contract Drafting

• Human inputs data, AI drafts the contract.
• Legally valid if signed/consented by humans.

AI-executed Contracts (Smart Contracts)

• Blockchain-based contracts that execute automatically when conditions are met.
• Recognized in some jurisdictions but Indian law is still evolving.

AI-negotiated Contracts
• Two AI systems negotiate and finalize terms.
• Raises concerns about consent, intention, and capacity.

Legal perspective of AI based contracts in India

While smart contracts are binding under Indian law, since the legal system does not have an
extensive framework for regulation of smart contracts, it is necessary to pay penalties in respect of
failed transactions even if care has been taken when entering a contract with another party.

Challenges faced with respect to AI based contracts

It is important to note that AI is not infallible and may have limitations.
The quality and relevance of the data to be exploited for training, as well as the complexity of the
legal environment under examination, determine the accuracy and efficiency of artificial
intelligence algorithms. To ensure the proper use and interpretation of AI generated insights, human
oversight and legal expertise remain essential.
Ethical considerations are also raised in the application of AI to contractual law. In the area of
contract formation, negotiation and enforcement, bias in AI algorithms may lead to existing
inequalities or discriminatory practices that are not properly addressed. To maintain trust and to
respect the principles of contract law, it is essential to ensure fairness and accountability in artificial
intelligence systems.

Can this offer or acceptance or Contract be considered valid if the AI system makes an offer or
accepts an offer on behalf of the organisation, without the organisation having any knowledge of
the exact content of such a contract?

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Offer and Acceptance: When a valid offer is absolutely accepted, an agreement is formed between
the parties. AI software merely acts as a medium of contract, and not the party.

Legal Intentionality: Human beings can form intentions; intentions lead to action. There is
no ability to establish an intent in contracts drawn up by AI.

Liability and accountability: The use of artificial intelligence in contract law raises the issue of
liability and accountability for decisions or errors resulting from it.

Module 2 – The Sale of Goods Act, 1930 and Consumer Protection Act 2019

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2.1 Formation of Contract of Sale Agreement to Sell and Hire Purchase
Group work- Distinguish between Agreement to sell- Hire purchase agreements, on the basis of
situation-based problems
It is one of the special types of contracts. Initially, it was the part of the Indian Contract Act, 1872.
It came into force on 1st July, 1930.
As per Section 4(i) of the Sale of Goods Act, 1930, Contract of sale of Goods is a contract whereby
the seller transfers or agrees to transfer the property in goods to the buyer for a price.

Essential Elements:
- There must be atleast two parties. (Bilateral Contracts) - The subject matter of the contract
must be goods.
- A price in money should be paid or promised.
- A transfer of property in goods from seller to the buyer must take place.
- It must be absolute or conditional.
- All other essentials of a valid contract must be present.

Goods
As per Sec 2(7), it means every kind of movable property other than actionable claims and money;
and includes stock and shares, growing crops, grass and things attached to or forming part of the
land which are agreed to be severed before sale or under the contact of sale.
- Money means current money and it includes rare and old coins.
- Actionable claim means what a person cannot make a present use of or enjoy, but can recover
it by means of a suit or an action. Thus, a debt due to a man from another is an actionable claim
and cannot be sold as goods, although it can be assigned. Under the provisions of the Transfer
of Property Act, 1882, goodwill, trademarks, copyrights, patents are all goods, so is a ship. As
regards water, gas, electricity, it is doubtful whether they are goods

Types of Goods
• Existing Goods: It means such goods which are in existence at the time of the contract of
sale i.e. owned or possessed by the seller.
• Specific or Ascertained Goods: It means goods identified and agreed upon at the time the
contract of sale has been made.
• Generic / Unascertained Goods: It means the goods which are not specifically identified but
are indicated by description.
• Future Goods: It means goods to be manufactured or produced or acquired by the seller after
making the contract of sale.
• Contingent Goods: It means the goods the acquisition of which by the seller depends upon
a contingency which may or may not happen.

DIFFERENCES BETWEEN SALE AND AGREEMENT OF SELLIFFERENCES

BETWEEN SALE AND AGREEMENT OF SE

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 Sale Agreement of Sell
1. It is an executed contract. It is an executory contract.

2. Property in goods are transferred from Transfer of property in goods takes place
seller to buyer when the contract is made. at some future date.

3. Seller cannot resell the goods as the Seller can further resell the goods as the
property is with the buyer. property in good remains with him.

4. Risks passes to the buyer, as he becomes Risks is with the seller as he remains the
the owner. owner.

5. Breach on part of buyer, seller can sue for Breach on part of buyer, seller can sue for
the price and damages both. damages only and not for the price.

6. Sale is contract plus conveyance. It is pure and simple agreement.

7. In this, if goods are destroyed then loss In this, if goods are destroyed by
will be of Buyer. accident, loss will fall on seller.

Sale Hire Purchase Agreement

1. Property in goods is transferred to the The goods passes to the hirer upon
buyer immediately at the time of payment of the last installment.
contract.
2. Position of buyer is that of owner of Position of hirer is that of a bailee till he
goods. pays the last installment.
3. Buyer cannot terminate the contract and Hirer may terminate the contract by
is bound to pay the price of the goods. returning the goods to owner without
any liability to pay the remaining
installments.
4. Seller takes the risk of any loss resulting Owner takes no such risk for if hirer
from the buyer’s insolvency. fails to pay the installment, he has the
right to take back the goods. '

Effect of Perishing of goods

Goods perishing before making a contract
- Where in a contract of sale of specific goods, the goods without the knowledge of the seller
have perished at the time of making the contract, the contract is void.

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 - If the seller was aware of the destruction and still entered into the contract, he is estopped from
disputing the contract. Moreover, perishing of goods not only includes loss by theft but also
where the goods have lost their commercial value
Goods perishing after agreement to sell
- Where there is an agreement to sell specific goods, and subsequently the goods without any
fault of any party perish before the risk passes to the buyer, the agreement is thereby avoided.
The provision applies only to sale of specific goods.
- If the sale is of unascertained goods, the perishing of the whole quantity of such goods in the
possession of the seller will not relieve him of his obligation to deliver.

Price is money consideration for the sale of goods and it constitutes the essence for a contract of
sale. The price may be fixed:
(i) at the time of contract by the parties themselves, or
(ii) may be left to be determined by the course of dealings between the parties, or
(iii) may be left to be fixed in some way stipulated in the contract, or
(iv) may be left to be fixed by some third-party.

2.2 CONDITIONS and WARANTEES

Condition
- If the stipulation forms the very basis of the contract or is essential to the main purpose of the
contract, it is a condition.
- The breach of the condition gives the suffering party a right to treat the contract as repudiated
(cancelled). Thus, if the seller fails to fulfil a condition, the buyer may treat the contract as
repudiated, refuse the goods and, if he has already paid for them, recover the price. He can
also claim damages for the breach of contract

Warranties
- If the stipulation is collateral to the main purpose of the contract, i.e., is a subsidiary promise,
it is a warranty.
- The effect of a breach of a warranty is that the suffering party cannot repudiate (cancel) the
contract but can only claim damages.
- Thus, if the seller does not fulfil a warranty, the buyer must accept the goods and claim
damages.
- Stipulation (condition) as to time of payment are not to be deemed conditions (and hence not
to be of the essence of a contract of sale) unless such an intention appears from the contract.
- Whether any other stipulation as to time (e.g., time of delivery) is of the essence of the contract
or not depends on the terms of the contract

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WHEN A CONDITION MAY BE TREATED AS WARRANTY
In the following cases, a breach of a condition is treated as a breach of a warranty:

Waiver by the The buyer may waive a condition. Once the buyer waives a condition, he
Buyer cannot insist on its fulfillment.

Compulsory Where the contract is indivisible and the buyer has accepted the goods or
treatment by buyer part thereof, the breach of condition can only be treated as breach of
warranty. Thus, the buyer cannot terminate the contract but can only claim
damages from the seller.

IMPLIED WARRANTIES
Implied warranties are those which the law presumes to have been incorporated in the contract of
sale inspite of the fact that the parties have not expressly included them in a contract of sale.

The following are the implied warranties in the contract of sale:

Warranty as to There is an implied warranty that the buyer shall have and enjoy quiet
possession possession of the goods. If the buyer’s possession is disturbed by
anyone having superior title than that of the seller, the buyer may sue
the seller for the breach of warranty.

Warranty as to There is an implied warranty that the goods shall be so free from any
freedom from charge or encumbrances in favor of any third party. If the goods are
encumbrances found subject to some charge in favor of third party, the buyer may
sue the seller for damages. However, this warranty is not applicable
where the buyer has been informed of such charge or has notice of the
same.
Warranty to disclose If the goods are inherently dangerous or likely to be dangerous to the
dangerous nature of buyer, it is the duty of the seller to warn the buyer of the probable
goods danger which may arise out of its use.
Warranty as to There is an implied warranty as to quality of fitness for a particular
Quality or fitness by purpose may be annexed by the usage of trade.
usage of trade

ONDITIONS
IMPLIED CONDITIONS

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The implied conditions are those which are presumed by law to present in the contract.
However, an implied condition may be negated or waived by an express agreement. The
following conditions are implied in a contract of sale of goods unless the circumstances of
the contract show a different intention:

Condition as to In every contract of sale, there is an implied condition on part of the seller
title that:
a. In case of sale, he has ownership and right to sell the goods, and
b. In an agreement to sell, he will have a right to sell the goods at the
time when the property is to pass.

Sale by Where there is a contract of sale of goods by description, there is an

Description implied condition that goods delivered by seller shall correspond with
such description. If the goods does not correspond with the description,
the buyer is not bound to accept and pay for the goods.
Sale by sample In a contract of sale by sample, there is an implied condition that:
• The bulk should correspond with the sample in quality;
• The buyer shall have reasonable opportunity of comparing the
bulk with the sample; and
• The goods shall be free from any defect rendering them un-
merchantable, which would not be apparent on reasonable examination
of the sample.

Sale by sample as Where the goods are sold by sample as well as by description the implied
well as by condition is that the bulk of the goods supplied must correspond both
description with the sample and the description. In case the goods correspond with
the sample but do not tally with the description or vice versa, the buyer
can repudiate the contract.

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Condition as to There is no implied condition as to the quality or fitness for any particular
quality or fitness purpose of goods supplied under a contract of sale. There is an implied
condition as to the reasonable quality or fitness of goods if:

a) The particular purpose for which goods are required must have
been disclosed by the buyer to the seller.
b) The buyer must have relied upon the seller’s skill or judgment of
the seller to select the best goods and
c) The seller has ordinarily been dealing in those goods. However,
there is no implied condition where:
a) The buyer has not disclosed to the seller any abnormal
circumstances or
b) The buyer buys a specified article under its patent or other trade
name and
c) Buyer has not relied upon the skill and judgment of seller.

Condition as to Merchantable quality means that the goods should be resalable in the
merchantable market under the particular description by which they are known. They
quality are not merchantable if they have defects which make them unfit for
ordinary use, or are such that a reasonable person knowing of their
condition would not buy them.
Where the goods are bought be description from a seller who deals in that
type of goods, there is an implied condition that the goods shall be
merchantable quality.

Condition as to In a contract of sale of provisions and eatables, there is an implied

wholesomeness condition that the goods shall be wholesome or sound, i.e. goods should
be fit for human consumption.

CAVEAT EMPTOR
- The term caveat emptor is a Latin word which means “let the buyer beware”.
- It implies that while purchasing the goods, the buyer must be cautious. This principle states
that, at the time of buying goods, the buyer must make reasonable examination of the goods to
satisfy himself that the goods are suitable for his purpose.
- Section 6 provides that there is no implied warranty or condition as to the quality or fitness for
any particular purpose for which the goods are supplied under a contract of sale.
- In simple words, it is not the seller’s duty to give to the buyer the goods which are fit for a
suitable purpose of the buyer. It is up to the buyer to make proper selection of goods according
to his needs. If he makes a wrong selection, he cannot blame the seller if the goods turn out to
be defective or do not serve his purpose.

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Exceptions to the Doctrine of Caveat Emptor
(1) Where the seller makes a false representation and the buyer relies on it.
(2) When the seller actively conceals a defect in the goods which is not visible on a reasonable
examination of the same.
(3) When the buyer, relying upon the skill and judgement of the seller, has expressly or impliedly
communicated to him the purpose for which the goods are required.
(4) Where goods are bought by description from a seller who deals in goods of that description.
(a) Risk follows the ownership, whether the delivery has been made or not. If the goods are lost
or damaged by accident, then the loss falls on the owner of the goods at the time they are lost
or damaged.
(b) When there is a danger of the goods being damaged by the action of third parties, it is generally
the owner who can take action.
(c) In case of insolvency of either the seller or the buyer, it is necessary to know whether the
goods can be taken over by the official assignee or the official receiver. It will depend upon
whether the property in the goods was with the party adjudged insolvent.

2.3 Meaning and Importance of Movable Property in formation of Sale.

Passing of Property in Specific / Ascertained Goods
1. Where there is an unconditional contract for the sale of specific goods in a deliverable state,
the property in the goods passes to the buyer when the contract is made.
2. Where there is a contract for the sale of specific goods not in a deliverable state, i.e. the seller
has to do something to the goods to put them in a deliverable state, the property does not
pass until that thing is done by seller and buyer has notice of it. (Sec. 21)
3. When there is a sale of specific goods in a deliverable state, but seller is bound to weigh,
measure, test or do something with reference to the goods for the purpose of ascertaining the
price, the property to the goods for the purpose of ascertaining the price does not pass until
such act or thing is done and the buyer has notice of it. (Sec. 22)
4. If goods are delivered to the buyer “on approval” or “on sale of return” basis then the
property passes to the buyer when he signifies his approval or acceptance to the seller or he
does not signify his approval or acceptance to the seller but retains goods beyond a
reasonable time.

Passing of property in Unascertained Goods

- The property in unascertained or future goods does not pass until the goods are ascertained.
- The property in unascertained or future goods sold by description passes to the buyer when
goods of that description and in a deliverable state are unconditionally appropriated.
- If there is a sale of a quantity of goods out of a large quantity, for example, 50 quintals of rice
out of a heap in B’s godown, the property will pass on the appropriation of the specified
quantity by one party with the assent of the other.

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- Delivery by the seller of the goods to a carrier or other buyer is sufficient to pass the property
in the goods
- The general rule is that unless otherwise agreed the goods remain at the seller’s risk until the
property is transferred to the buyer, but when the property is transferred to the buyer, the goods
are at the buyer’s risk whether delivery has been made or not.
- Rule is known as Resperit Demino i.e. the loss falls on the owner.
- But the parties may agree that risk will pass at the time different from the time when ownership
is passed, e.g. the seller may agree to be responsible for the goods even after the ownership is
passed to the buyer or vice versa.

Exceptions to the above general rule:

(i) If there is agreement between the parties.
(ii) If the delivery of goods are delayed either due to buyer’s or seller’s default, goods are at risk
of party in default.
(iii) Trade customs.

Relevant Case Laws:

- Consolidated Coffee Ltd. V. Coffee Board -
Multanmal Champalal V. Shah & Co.
2.4 Rights and duties of an Unpaid Seller

Unpaid Seller
Seller is deemed to be an unpaid seller, when:
- Whole of the price has not been paid or tendered and seller had an immediate right of action
for the price.
- bill of exchange or other negotiable instrument was given as payment, but the same has been
dishonoured, unless this payment was an absolute and not a conditional payment.

Rights of Unpaid Seller against Goods

• Right of lien or retention.
• Right of stoppage in transit.
• Right of resale.
• Right to withhold delivery.

Right of Lien or Retention (Sec. 47 - 49 & 54)

It can be exercised on the goods for the price while he is in possession until the payment of price of
such goods. It can be exercised in following cases:
(a) Where goods have been sold without any stipulation as to credit.
(ii) Where goods have been sold on credit but the term of credit has expired.
(iii) Where buyer becomes insolvent.

This right depends upon physical possession. It can only be exercised for the non- payment of price.

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This right is terminated under following circumstances:
a. Where he delivers goods to carrier or bailee for the purpose of transmission to buyer without
reserving the disposal right.
b. Where buyer or his agent lawfully obtains possession of goods.
c. Where seller has waived the right of lien.
d. By estoppel.

Right of Stoppage in Transit (Sec. 50 - 52)

It means right to stop the further transit of goods, to resume possession and to hold the same till the
price is paid.

It can be exercised in following cases:

(i) Seller must be unpaid.
(ii) He must have parted with the possession of goods.
(iii) Goods are in transit.
(iv) Buyer has become insolvent.
(v) Right is subject to provisions of the Act.

Goods are deemed to be in transit from the time they are delivered to carrier or other bailee- for
transmission, until buyer or his agent takes delivery of them.

This right is lost under following cases: (i)

Buyer taking delivery
(ii) Acknowledgment by carrier
(iii) Delivery to ship
(iv) Wrong denial to deliver by carrier
(v) Sub sale
(vi) Goods in possession of ship’s master acting as buyer’s agent.

Right of Resale (Sec. 54)

It can be exercised in following cases:
a. Where the goods are of perishable nature, buyer need not be informed of the intention of
resale.
b. Where he gives notice to the buyer of his intention to resell the goods, the buyer does not
within a reasonable time pay or tender the price.
c. Where the right is expressly reserved in the contract.
If no notice has been given to the buyer of intention to re-sell, unpaid seller cannot claim any
damages and buyer will be entitled for all profits.
Unpaid seller can recover from buyer the balance amount (if any) on resale.

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If notice has been given to buyer, then profits origin out of sale of goods won’t be shared with buyer.
Only seller will hold the samples.

Rights to Withhold Delivery

- It is exercised if the property in goods has not passed to the buyer.
- It is in additions to above 3 rights.
- However if the property has not been passed the unpaid seller has a right of withholding
delivery similar to and co-extensive with his rights of lien and stoppage in transit.

Rights of Unpaid Seller against Buyer Suit for Price (Sec. 55) Seller
may sue —
(a) Where the property has passed to the buyer and he wrongfully neglects or refuses to pay for
goods.

(b) Where the property has not passed and price is payable on a certain day Irrespective of
delivery and buyer wrongfully neglects or refuses to pay such price.

2.5 Consumers Law in India 2019

The Consumer Protection Bill 2019 was passed by Lok Sabha on 30th July, 2019 and by Rajya Sabha
on 6th August 2019 respectively.
Consumer Protection Act, 2019 received the assent of the President on the 9th August, 2019. The
Consumer Protection Act, 2019 replaced the old Consumer Protection Act, 1986.

Preamble of the Act

Protection of the interest of consumers and for the said purpose, to established authorities for timely
and effective administration and settlement of consumers’ disputes and for matters connected
therewith or incidental thereto.
The Consumer Protection Act, 2019 was enacted to replace the older Consumer Protection Act,
1986. It came into force on July 20, 2020, aiming to better address the modern needs of Indian
consumers in a rapidly digitizing and globalizing economy. This Act enhances consumer rights and
provides a robust mechanism for their protection through simplified dispute resolution, wider
definitions, and regulatory bodies. It introduces critical provisions related to e-commerce, product
liability, and misleading advertisements, reflecting the changing dynamics of consumer markets.
The law empowers consumers by making manufacturers, sellers, and service providers accountable
and liable for defective goods, deficient services, or unfair practices. Notably, it establishes the
Central Consumer Protection Authority (CCPA) to enforce consumer rights and conduct
investigations. It also introduces an alternative dispute resolution mechanism through mediation and
simplifies the jurisdiction of consumer disputes based on purchase value, enabling faster and easier
resolution of complaints.

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Changes incorporated in Consumer Protection Act, 2019
The changes that were incorporated with the enactment of the Consumer Protection Act, 2019 are:
1. The District Commissions will have the jurisdiction to entertain complaints where the value of
the goods, services or products paid as consideration to the seller does not exceed 50 lakh
rupees.
2. State Commissions will have the jurisdiction to entertain complaints where the value of the
goods, services or products paid as consideration to the seller exceeds 50 lakh rupees but does
not exceed two crore rupees.
3. The National Commission will have the jurisdiction to entertain complaints where the value of
the goods, services or products paid as consideration to the seller exceeds two crore rupees.
4. The Act further states that every complaint concerning consumer dispute shall be disposed of
as expeditiously as possible. A complaint filed under this Act shall be decided within the period
of three months from the date of receipt of notice by the opposite party in the cases the
complaint does not require analysis or testing of the goods and services and within a period of
5 months, if it requires analysis or testing of the goods and services.
5. The Consumer Protection Act, 2019 also facilitates the consumers to file complaints online. In
this regard, the Central Government has set up the E-Daakhil Portal, which provides a
convenient, speedy and inexpensive facility to the consumers all over India so that they are able
to approach the relevant consumer forums in case of any dispute arises.
6. The Act lays down the scope for e-commerce and direct selling.
7. The Consumer Protection Act, 2019 lays down provisions for mediation and alternative dispute
resolution so that the parties are able to dispose of the case conveniently without going through
the trouble of litigation.
8. The Consumer Protection Act, 2019 contains provisions for product liability, unfair contracts
and it also includes three new unfair trade practices. In contrast, the old Act just stated six types
of unfair trade practices.
9. The Act of 2019 acts as the advisory body for the promotion and protection of consumer rights.
10. Under the Consumer Protection Act, 2019 there is no scope for selection committees, the Act
authorises the Central Government to appoint the members.
Therefore, with the changes in the digital era, the Indian Parliament enacted and brought the
Consumer Protection Act, 2019 in force to include the provisions for e-commerce as digitalization
has facilitated convenient payment mechanisms, variety of choices, improved services, etc.

Salient Features of Consumer Protection Act, 2019

1. Establishment of CCPA
A regulatory body to promote, protect, and enforce consumer rights and penalize violations.
2. Enhanced Consumer Rights

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 Includes protection against unfair trade practices, right to seek redressal, and right to be
informed, heard, and assured of safety.
3. Inclusion of E-Commerce
The Act specifically covers online transactions and defines responsibilities of e-commerce
platforms.
4. Product Liability
Consumers can claim compensation for harm caused by defective products or deficient
services, even from manufacturers and service providers.
5. Penalties for Misleading Advertisements
Celebrities endorsing false claims can be penalized, and misleading ads can be banned.
6. Introduction of Mediation
A mediation cell is established in consumer commissions to enable out-of-court settlements.
7. Simplified Consumer Dispute Redressal Forum
Jurisdiction is now based on the purchase value rather than the seller's location.
8. E-Filing of Complaints
Consumers can file complaints online, including from their place of residence, making the
process more accessible.
9. Unfair Contracts
The Act addresses and empowers forums to nullify contracts that are unfair to consumers.
10. Offenses and Penalties
Clear provisions for punishment, including jail terms and fines, for misleading ads and selling
unsafe goods.
Definitions
Advertisement
Advertisement means any audio or visual publicity, representation, endorsement or pronouncement
made by means of light, sound, smoke, gas, print, electronic media, internet or website and includes
any notice, circular, label, wrapper, invoice or such other documents. [Section 2(1)]

Complainant
Complainant means– (i)
a consumer; or
(ii) any voluntary consumer association registered under any law for the time being in force; or
(iii) the Central Government or any State Government; or
(iv) the Central Authority; or
(v) one or more consumers, where there are numerous consumers having the same interest; or
(vi) in case of death of a consumer, his legal heir or legal representative; or
(vii) in case of a consumer being a minor, his parent or legal guardian. [Section 2(5)]

Complaint
Complaint means any allegation in writing, made by a complainant for obtaining any relief provided
by or under this Act, that–

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(i) an unfair contract or unfair trade practice or a restrictive trade practice has been adopted by any
trader or service provider;
(ii) the goods bought by him or agreed to be bought by him suffer from one or more defects;
(iii) the services hired or availed of or agreed to be hired or availed of by him suffer from any
deficiency;
(iv) a trader or a service provider, as the case may be, has charged for the goods or for the services
mentioned in the complaint, a price in excess of the price– (a) fixed by or under any law for the
time being in force; or
(b) displayed on the goods or any package containing such goods; or
(c) displayed on the price list exhibited by him by or under any law for the time being in force;
or
(d) agreed between the parties;
(v) the goods, which are hazardous to life and safety when used, are being offered for sale to the
public–
(a) in contravention of standards relating to safety of such goods as required to be complied
with, by or under any law for the time being in force;
(b) where the trader knows that the goods so offered are unsafe to the public;
(vi) the services which are hazardous or likely to be hazardous to life and safety of the public when
used, are being offered by a person who provides any service and who knows it to be injurious
to life and safety;
(vii) a claim for product liability action lies against the product manufacturer, product seller or
product service provider, as the case may be. [Section 2(6)]

Consumer
Consumer means any person who–
(i) buys any goods for a consideration which has been paid or promised or partly paid and partly
promised, or under any system of deferred payment and includes any user of such goods other than
the person who buys such goods for consideration paid or promised or partly paid or partly
promised, or under any system of deferred payment, when such use is made with the approval of
such person, but does not include a person who obtains such goods for resale or for any commercial
purpose; or

(ii) hires or avails of any service for a consideration which has been paid or promised or partly
paid and partly promised, or under any system of deferred payment and includes any beneficiary of
such service other than the person who hires or avails of the services for consideration paid or
promised, or partly paid and partly promised, or under any system of deferred payment, when such
services are availed of with the approval of the first mentioned person, but does not include a person
who avails of such service for any commercial purpose.
A purchase of goods can be said to be for a ‘commercial purpose only if the goods have been
purchased for being used in some profit-making activity on a large-scale, and there is close and

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direct nexus between the purchase of goods and the profit-making activity. It observed that whether
the purpose for which a person has bought goods is a ‘commercial purpose’ is always a question of
facts and to be decided in the facts and circumstances of each case.

The Supreme Court further observed that,

- If a person purchased a machine to operate it himself for earning his livelihood, he would be a
consumer.
- If such person took the assistance of one or two persons to assist him in operating the machine, he
would still be a consumer.
- But if a person purchases a machine and appoint or engage another person exclusively to operate
the machine, then such person would not be a consumer

The State Commission held that as the term ‘consumer’ includes any beneficiary of service other
than the person who hires the services for consideration, the widow being the beneficiary of services
is a ‘consumer’ under the Act entitled to be compensated for the loss suffered by her due to
negligence of the LIC. Case- A Narasamma vs. LIC of India.In Laxmiben Laxmichand Shah v.
Sakerben Kanji Chandan and others 2001 CTJ 401 (Supreme Court) (CP), the Supreme Court held
that the tenant entering into lease agreement with the landlord cannot be considered as consumer.

Who is a not a consumer?

• A person who obtains;
• goods or services free of charge
• who obtains goods for resale or for any commercial purposes
• who avails services for any commercial purposes
• who avails services under contract of service
As per the provisions of the Act, commercial purpose does not include use by a person of goods
bought and used by him exclusively for the purposes of earning his livelihood by means of
selfemployment.

Consumers Rights (As per Consumer Protection Act, 2019)

1. Right to Safety
Consumers have the right to be protected against goods and services that are hazardous to
life, health, and property.
2. Right to Information
Consumers must be informed about the quality, quantity, potency, purity, standard, and price
of goods/services to protect against unfair trade practices.
3. Right to Choose
Consumers have access to a variety of goods and services at competitive prices, and cannot
be forced to buy a particular product.
4. Right to be Heard
Consumers’ interests will be considered at appropriate forums, ensuring their voices are
heard in policy making and grievance redressal.

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 5. Right to Redressal
Consumers are entitled to fair settlement of genuine grievances against defective goods,
deficient services, or unfair trade practices.
6. Right to Consumer Education
The Act ensures the right to acquire knowledge and skills to make informed purchasing
decisions.

Protections Afforded under the 2019 Act

1. Protection from Unfair Trade Practices
The law prohibits false advertising, deceptive pricing, fake endorsements, and coercive sales
tactics.
2. Product Liability
Consumers can claim compensation from manufacturers, service providers, or sellers for
harm caused by defective products or poor services.
3. Central Consumer Protection Authority (CCPA)
CCPA can investigate violations, conduct searches, order product recalls, and impose
penalties on misleading ads and unfair practices.
4. E-Commerce Protection
Specific rules for online shopping ensure that e-commerce entities are accountable and
transparent in dealings with consumers.
5. Class Action Lawsuits
Consumers can collectively seek redressal for a common grievance, strengthening their
bargaining power.
6. Mediation Mechanism
Establishment of mediation cells enables fast, cost-effective, and amicable dispute
resolution.
7. Jurisdictional Ease and E-filing
Consumers can file complaints from their residence and at lower forums based on the value
of the claim, making justice more accessible.
8. Strict Penalties
The Act provides for imprisonment and fines for sellers or advertisers who engage in
misleading or harmful practices.

Appropriate Laboratory (Section 2(2) :

An Appropriate Laboratory is:
1. A laboratory recognized by the Central or State Government, or 2.
Established by or under any law for testing or analysis of goods, or
3. Notified by the government for this purpose.

What are unfair trade practices under Consumer Protection Act, 2019
Section 2(47) of the Consumer Protection Act, 2019 defines the term ‘unfair trade practices’ which
include:
1. Manufacturing spurious goods or providing defective services.

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2. Not issuing cash memos or bills for the goods purchased or services rendered.
3. Refusing to take back or withdraw the goods or services and not refunding the consideration
taken for the purchase of the goods or services.
4. Disclosing the personal information of the consumer.

2.6 Mediation
Chapter 5 Section 74 of the Consumer Protection Act, 2019 states that a Consumer Mediation Cell
shall be established by the Central Government at the national level and every state government
shall establish Consumer Mediation Cell exercising within the jurisdiction of that state. The
mediator nominated to carry out the mediation shall conduct it within such time and in such manner
as may be specified by regulations.
Section 75 of the Act talks about the empanelment of the mediators. It states the qualifications, terms
and conditions of service, the procedure for appointing, and the fee payable to the empanelled
mediators.
It is the duty of the mediator to disclose certain facts such as; any personal, financial or professional
in the result of the consumer dispute, the circumstances giving rise to their independence or
impartiality and any other necessary information for the protection of consumer rights.

Offences and penalties under Consumer Protection Act, 2019

The offences and penalties listed under this Act are mentioned as follows.

1. Punishment for false and misleading advertisements: Under Section 89 of the Act any
manufacturer or service provider who promotes false or misleading advertisements will be punished
with imprisonment for a term that may extend to two years and with fine that may extend to ten
lakh rupees.

2. Punishment for manufacturing, selling, distributing products containing adulterants: Under

Section 90 of the Consumer Protection Act, 2019 any person who sells, manufactures, distributes
products containing adulterants shall be penalised in case of the following circumstances;
• If the adulterated product does not cause any injury to the consumer, then the term for
imprisonment will extend to a period of six months and fine which may extend to one lakh
rupees,
• If the product containing adulterant causes injury not amounting to grievous hurt, then the term
for imprisonment will extend to a period of one year and fine which may extend to three lakh
rupees,
• If the product containing adulterant causes injury amounting to grievous hurt, then the term for
imprisonment will extend to a period of seven years and fine which may extend to five lakh
rupees,
• If the product results in causing death to the consumer, then the term for imprisonment will be
for a period of seven years which may extend to life imprisonment and fine not less than ten
lakh rupees.

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3. Punishment for manufacturing, selling, and distributing spurious products: Section 91 states that
any person who sells, manufactures, or distributes spurious products shall be punished for such acts.

How do consumers benefit from Consumer Protection Act, 2019

The Consumer Protection Act, 2019 is a significant piece of legislation brought as it is beneficial
for the consumers. The Act widens the scope of protection regarding the rights and interests of
consumers.
1. Unfair contracts: The Act introduced ‘unfair contract’ under Section 2(46) of the Act, which
includes contracts requiring excessive security deposits to be given by the consumer for the
performance of contractual obligations. However, the inclusion of unfair contracts in the Act
would enable the consumer to file complaints in such cases and would also keep the fraudulent
businesses in check.
2. Territorial jurisdiction: The Act enables the consumers to file complaints where the complainant
resides or personally works for gain thus it would benefit the consumers in seeking redressal
for their grievances when their rights have been violated.
3. False and misleading advertisements: The Act defines the term ‘false and misleading
advertisements’ and also lays down strict penalties for such acts or omissions.
4. Product liability: The term ‘product liability’ has been defined by this Act, which states that it
is the duty of the product manufacturer, service provider or seller to compensate for any harm
caused to a consumer by such defective product manufactured or service provided to the
consumer.
5. Mediation and alternative dispute resolution: The Act enables the consumer to opt for mediation
and alternative dispute resolution mechanisms for speedy and effective settlement of consumer
disputes.
6. E-filing of complaints: The Act also facilitates e-filling of the complaints and seeking video
conference hearings by the Commission. Thus, providing convenient means for the consumers
to voice their grievances.

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Landmark case laws
Horlicks Ltd. v. Zydus Wellness Products Ltd. (2020)
In this case, both parties are manufacturers of nutritional drinks, however, Zydus advertised a
television commercial trivialising the products of Horlicks Ltd. The commercial was being
telecasted in various languages including English, Tamil and Bengali. Therefore, the Delhi High
Court relied on various judgments on misleading advertisements, disparagement and law governing
the publication of advertisements on television and held that the advertisement is disparaging as it
does not provide any concrete proof regarding the quality of the product. Further, electronic media
leaves an impression on the minds of the viewers thus, these types of advertisements would not only
be detrimental to the consumers but also the complainant would suffer irreparable damage. A
famous judgement relied on by Delhi High Court while deciding this case is Pepsi Co. Inc. v.
Hindustan Coca Cola Ltd., 2003 where the Delhi High Court held that there are certain important
factors that are to be kept in mind in case of disparagement which are; manner of the commercial,
intent of the commercial and storyline of the commercial.

Veena Khanna v. Ansal Properties & Industries Ltd, NCDRC (2007)

In this case, the complainant offered to purchase a flat from the respondent which the respondent
agreed to deliver on 1.6.1999 through a letter. However, the flat was not constructed within the
specified date and hence it was not delivered. For such deficiency in services, the complainant
demanded the refund of the deposited amount with interest at the rate of 18% pa which was refused
by the opposite party.

The National Commission observed that due to delays in construction and delivery of possession it
is quite difficult for a consumer to purchase a flat at market price. The National Commission stated
that it is the duty of the State Commission to direct the builders to deliver the possession of the flat
as soon as it is completed and the complainant should be awarded suitable compensation for the
delay in construction. The complainant just claimed the refund amount before the State
Commission, but the case was pending before the commission for five years and during that time
there was a tremendous rise in the market prices of the immovable property. The National
Commission further stated that it was the duty of the State Commission to direct the respondents to
deliver the possession of the flat or any other flat of equivalent size to the complainant with
appropriate compensation, due to the delay in delivering the possession within the specified time.
Or, adequate compensation ought to have been provided to the complainant so that they could
purchase a new flat of the same size at the prevailing market rate in that same locality.

Sapient Corporation Employees v. HDFC Bank Ltd. & Ors. (2012)

In this case, a consumer complaint was filed by Sapient Corporation Employees Provident Fund
Trust against HDFC bank Ltd. The complainant claimed that OP-Bank has committed deficiency
of services by debiting the account of the Complainant. The court in this case held that there was
no deficiency of service on the part of OP-bank and the arguments contented by the complainant
are baseless. A behaviour that conforms to the direction of regulatory authority cannot be said to be
negligence or service deficiency.

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2.7 Product Liability
Under Section 83 of the Act, a product liability action may be brought by a complainant against a
product manufacturer, product service provider or product seller.

Liability of product manufacturer

A product manufacturer will be held liable in a product liability action under the following
circumstances:
• The product contains manufacturing defects.
• The product is defective.
• There is a deviation from manufacturing specifications.
• The product does not conform to the express warranty.
• The product fails to contain adequate information for proper usage.

Liability of product service provider

A product service provider will be held liable in a product liability action under the following
circumstances:
• The service provider will be responsible when the service provided by them is faulty or
imperfect.
• There was an act of negligence on their part.
• The service provider failed to issue adequate instructions and warnings for the services.
• The service provider failed to conform to the express warranty or terms and conditions of
the contract.

Liability of product seller

A product seller will be held liable in a product liability action under the following circumstances:
They altered or modified the product which resulted in being detrimental to the consumer.
They failed to exercise reasonable care in assembling, inspecting or maintaining such product
They exercised substantial control over the product which resulted in causing harm to the
consumer.

Exceptions to product liability

There are certain exceptions to product liability action mentioned in Section 87 of the Act, such as;
The product was altered, modified or misused by the consumer,
• A consumer cannot bring product liability action when the manufacturer has given adequate
warnings and instructions for the use of the product,
• The manufacturer would not be liable in case of a product liability action for not warning
about any danger that is commonly known to the general public.

Case Laws
The principles of strict liability and negligence in tort for manufacturers evolved in the famous
English case of Winterbottom v Wright wherein the privity requirements were upheld.
In another case Escola v Coca Cola Bottling Co.14 while discussing the product liability claims under
negligence and strict liability, Justice Traynor held that a manufacturer incurs absolute
liability when an article he has placed on the market, with the knowledge that it is to be used without
inspection, proves to have a fault that causes damage to human beings. The court also applied the

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doctrine of "res ipsa loquitur" which means "the thing speaks for itself" to reduce the onus of proof
on the plaintiff.
In the case of Henningsen v Bloomfield Motors, Inc15 the court recognized the concept of implied
warranty and held that such warranty extended to every foreseeable user of the product, thereby
removing the requirement of privity to move a product liability claim.
In the Indian context, the case of Airbus Industrie v Laura Howell Linton16 is a landmark decision
where the court applied the principles of causation and negligence to fix the liability of the
appellants. In addition, it also held that merely an absence of a strict product liability regime will
not empower the parties to go remediless

2.8

Essential provisions of Consumer Protection Act, 2019

The essential provisions of the Consumer Protection Act, 2019 are:

The Act establishes consumer protection councils to protect the rights of the consumers at both the
national and state levels.

Central Consumer Protection Council

Under Chapter 2 Section 3 of the Consumer Protection Act, 2019 the Central Government shall
establish the Central Consumer Protection Council which is known as the Central Council. It is an
advisory body and the Central Council must consist of the following members;
1. The Minister-in-charge of the Department of Consumer Affairs in the Central Government
will be appointed as the chairperson of the council, and
2. Any number of official or non-official members representing necessary interests under the
Act.
The Central Council may meet as and when necessary, however, they must hold at least one meeting
every year. The purpose of the Central Council is to protect and promote the interests of the
consumers under the Act.

State Consumer Protection Councils

Every state government shall establish a State Consumer Protection Council known as the State
Council having jurisdiction over that particular state. The State Council acts as an advisory body.
The members of the State Council are:
1. The Minister-in-charge of the Consumer Affairs in the State Government will be appointed as
the chairperson of the council,
2. Any number of official or non-official members representing necessary interests under the Act,
and
3. The Central Government may also appoint not less than ten members for the purposes of this
Act.
The State Councils must hold at least two meetings every year.

District Consumer Protection Council

Under Section 8 of the Act, the state government shall establish a District Consumer Protection
Council for every district known as the District Council. The members of the District Council are:
1. The collector of that district will be appointed as the Chairperson of the District Council, and
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2. Any other members representing necessary interests under the Act.

Consumer Disputes Redressal Commission

The state government shall establish a District Consumer Disputes Redressal Commission, known
as the District Commission in each district of the state under the Consumer Protection Act, 2019.
The District Commission shall comprise of a President and not less than two members prescribed
by the Central Government.
Section 34 of the Act authorises the District Commission to entertain complaints where the value of
the goods or services paid as consideration does not exceed one crore rupees. The complaint relating
to goods and services can be filed to the District Commission by the consumer, recognized consumer
association, Central Government, Central Authority, State Government, etc.
Section 36 states that all the proceedings before the District Commission shall be conducted by the
President and at least one member of the commission.

Central Consumer Protection Authority

The Central Government shall establish a Central Consumer Protection Authority which is known
as the Central Authority under Section 10 of the Consumer Protection Act, 2019, to regulate matters
relating to violation of the rights of consumers, unfair trade practices and false or misleading
advertisements which are prejudicial to the interests of the public and consumers and to promote,
protect and enforce the rights of consumers. The Central Government will appoint the Chief
Commissioner and the other Commissioners of the Central Authority as required under the Act. The
Central Authority must have an ‘Investigative Wing’ under Section 15 of the Act to conduct an
inquiry or investigation. The investigative wing must comprise of the Director-General and the
required number of Additional Director-General, Director, Joint Director, Deputy Director and
Assistant Director possessing the required experience and qualifications to carry out the functions
under this Act.

Functions and duties of the Central Authority

The functions and responsibilities of the Central Authority are laid down in Section 18 of the Act
which includes;
1. To protect and promote the rights of the consumers as a class and to prevent violation of
consumer rights,
2. To prevent unfair trade practices,
3. To ensure no false or misleading advertisements regarding any goods or services are promoted,
4. To ensure no person takes part in false or misleading advertisements,
5. Inquire or investigate in cases of violation of consumer rights or unfair trade practices.
6. File complaints before the National, State or District Commission as the case may be,
7. To review matters relating to the factors hindering the enjoyment of consumer rights.
8. To recommend the adoption of international covenants and best international practices
concerning consumer rights
9. Promote research and awareness of consumer rights.

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10. Lay down necessary guidelines to prevent unfair trade practices and protect the interests of the
consumers.

Furthermore, the Central Authority also has the power to investigate after receiving any complaint
or directions from the Central Government or of its own motion in cases where there is an
infringement of consumer rights or unfair trade practices are carried out. And if the Central
Authority is satisfied that infringement of consumer rights or unfair trade practices has occurred
then it may:
• Recall the goods or services which are hazardous and detrimental to the consumers,
• Reimburse the prices of the goods and services to the consumers, and
• Discontinue the practices that are prejudicial and harmful to the consumers.

Under Section 21 of the Act, the Central Authority is authorised to issue directions to false and
misleading advertisements which may extend to ten lakh rupees. While determining the penalty of
the offence the Central Authority must keep in mind factors such as; the population affected by the
offence, frequency of the offence and gross revenue from the sales of such product. The Central
Authority can also direct search and seizure for the purposes of this Act and in that case the
provisions of the Criminal Procedure Code, 1973 will apply.

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