A

Research Project Report

On

“THE INDIAN CONTRACT ACT 1872 ”

Submitted By

Mr. Chandorkar Yash Vilas

[PGDM] Semester I

In Partial Fulfilment for the Degree of

MASTER OF MANAGEMENT STUDIES

Batch: 2020 – 22

Under the Guidance of

Prof. Varsha P. Raut

(Program Manager) (14 FS)

Oriental Institute of Management

Plot No 149, Sector-12, Vashi, Navi Mumbai, - 400703

2021

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SR. NO. TABLE OF CONTENTS. PAGE NO

1 Front page 1
2 Table of contents 2
3 Declaration 3
4 Acknowledgement 4
5 Executive summary 5
6 Introduction 6
7 Significance of the project 7
8 Objective 8
9 Research methodology 33
10 Types of research 34
11 Data collection methods 35
12 Data analysis and interpretation 37
13 Suggestions 40
14 Conclusion 41
15 Bibliography 42

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 ACKNOWLEDGEMENT

I am sincerely thankful to oriental school of Business , for providing me with the

opportunity to write a research project on the topic” The Indian contract Act 1872 “.

History of all great works into witness that no great work was ever done without either
active or passive support of a person *surrounding and one’s close quarters. Thus is it not
hard to conclude how active assistance from senior could positively impact the execution of
a project .I am highly thankful to our learned faculty Prof Varsha P. Raut for her active
guidance throughout the completion of project .

Last but not least, I would also want to extend my appreciation to those who could not be
mentioned here but have well played their role to inspire me behind the certain.

. Yash Chandorkar

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 EXECUTIVE SUMMARY

Indian Contract Act 1872 is the main source of law regulating contracts in Indian law.

It determines the circumstances in which promise made by the parties to a contract shall be
legally binding on them. All of us enter into a number of contracts everyday knowingly or
unknowingly. Each contract creates some right and duties upon the contracting parties.
Indian contract deals with the enforcement of these rights and duties upon the parties.

The Indian Contract Act 1872 sections 1-75 came into force on 1 September 1872. It applies
to the whole of India except the state of Jammu and Kashmir. It is not a complete and
exhaustive law on all types of contracts.

Indian Contract Act really codifies the way we enter into a contract, execute a contract,
implement provisions of a contract and effects of breach of a contract. Basically, a person is
free to contract on any terms he chooses. The Contract Act consists of limiting factors
subject to which contract may be entered into, executed and breach enforced. It only
provides a framework of rules and regulations which govern formation and performance of
contract. The rights and duties of parties and terms of agreement are decided by the
contracting parties themselves.

Contract Act provides that any usage or custom or trade or any incident of contract is not
affected as long as it is not inconsistent with provisions of the Act.

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 INTRODUCTION

• Law of contract – Foundation upon which the superstructure of modern business is

built

• Business – promise made between parties – performance follows later

• Breaking of a promise – without incurring liability – endless complications

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 SIGNIFICANCE OF PROJECT REPORT

“An Objective without a Plan is a Dream”

The Preparation of a Project Report is of great significance for the Entrepreneur in his
business.

There is a variety of purposes which a Project Report or a Business Plan will fulfill. Hence,
its need in Modern Business.

These purposes of report are as follows :

Importance of Indian Contract Act, 1872

It determines the circumstances under which promises made by the contracting parties
shall be legally binding on them. It specifies the remedies that are available against a
person who fails to perform the contract entered into by him, in a Court of law.

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 OBJECTIVES

INDIAN CONTRACT ACT

• Law of contract lays down legal rules relating to promises , their formation,
performance and enforcement.

• These rules are not only applicable to business community but others

CONTRACT

• Sec 2(h)

“AN AGREEMENT ENFORCEABLE BY LAW IS A CONTRACT .

PROPOSAL

• When one person signifies to another his willingness to do or abstain

from doing anything with a view to obtain his assent on such act or
abstinence, he is making proposal.

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 • A goes to a hotel and orders tea. He is makingproposal.

• ACCEPTANCE

• When one person signifies his assent thereto on the proposal made he is
said to accept the proposal.

• When A orders tea and B supplies tea it is understood that the proposal
made by A is accepted by B

PROMISE

• When a person to whom proposal is made signifies his assent thereto,

the proposalissaid to be accepted. An accepted proposal is known as a
promise.

• When A asks B to lend him a book and B gives his assent to lend him a
book . This is a promise i.e. Proposal by A to lend the book

• Acceptance by B by lending the book

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CONSIDERATION

• Something in return.

• A offers B to sell his car at Rs. 1,00,000 / - B accepts the same. Now for
A consideration is Rs. 1,00,000/- and for B consideration is a Car.

• Until and unless there is no consideration there cannot be an agreement.

AGREEMENT

• When the proposal is accepted it becomes promise and the promise,

when accompanied with consideration it becomes agreement.

• A offers to sell his car for Rs. 1,00,000/- to B. B accepts his offer. This
offer after acceptance becomes promise and this promiseis treated as an
agreement between A & B.

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ENFORCEABILITY

• An agreement is said to be enforceable by law if it creates legal

obligation.

• Obligation is a legal tie which imposes upon determinate person or

persons the necessity of doing or abstaining from doing a definite act or
acts

• If an agreement is incapable of creating a dutv enforceable by law, it is

not a contract.

CONTRACT

• Proposal + Acceptance = Promise.

• Promise + Consideration = Agreement.

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 • Agreement + Enforceability = CONTRACT.

CONTRACT ACT

• “All contracts are agreement but all agreements are not contracts”.

• .Agreements of moral, religious or social nature are not contracts

they are not likely to create a duty enforceable by law parties never
intend to create a legal obligation.

Contd –

Ex;

. X invites his friend Y to a dinner and Y accepts the invitation. fails to turn
up for the dinner. Can he take his friend to Court????

X cannot go to the court to claim his loss.

. A father promises to pay his daughter Rs 1000 as pocket allowance. Later

he refuses to pay. Can the daughter recover the Amount???

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The daughter cannot recover as its is a domestic agreement and there is no
intention on the part of the parties to create legal relations

CASE

Balfour vs Balfour [(1919) 2 K.B. 571]

A promise by the husband to pay his wife 30 pounds every month . Later
Husbandrefuses to pay. Wife goes to court.

Held: unenforceable as parties never intended it to be bound by legal

obligations.

CONTD

In commercial or business agreements an intention to create legal relations

is presumed. Thus, an agreement to buy and sell goods intends to create
legal relationship, hence is a contract, provided other requisites of a valid
contract are present. But if the parties have expressly declared their

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 resolve is not to create a legal obligation, even a business agreement does
not amount to a contract.

CASE

Rose&Frank Co. vs Corruption Bros [1925 AC 445]

There was an agreement between R company and C company by means of

which the former was appointed as the agent of the latter. One clause in the
agreement was: “This agreement is not entered into …. As a formal or
legal agreement and shall not be subject to legal jurisdiction in the law
courts.”

HELD – There was no binding contract as there was no intention to create

legal relationship

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DISTINCTION BETWEEN AN AGREEMENT AND A CONTRACT

Agreement

• Offer and its acceptance constitute an agreement

• . An agreement may or may not create a legal obligation Every

agreement need not necessarily be a contract Agreement is not
concluded or binding contract

CONTRACT

• Agreement and its enforceability constitute a contract

• A contract necessarily create a legal obligation All contracts are

necessarily agreements.

• Contract is concluded and binding on the concerned parties

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CLASSIFICATION OF CONTRACT

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CONTRACTS ON THE BASIS OF CREATION

EXPRESS CONTRACT

• Express contract is one which is made by the words spoken or

written.

IMPLIED CONTRACT

• An implied contract is one which is inferred from the conduct

of a person or circumstances of a particular case

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EXECUTED CONTRACT

• It is contract where both the parties to the contract have fulfilled their respective
obligation under the contract

EXECUTORY CONTRACT

• It is a contract where both the parties to the contract have still to perform their
respective obligation

PARTLY EXECUTED AND EXECUTORY CONTRACT

• It is a contract where one of the parties to the contract has fulfilled his obligation
and the Obligation and the other party has still to perform his obligation

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CONTRACT ON THE BASIS OF ENFORCEABILITY

Valid Contract A contract which satisfies all the conditions prescribed by law is a valid
contract

Void Contract A contract which ceases to be enforceable by law becomes void when
it ceases to be enforceable

Void Agreements An agreement not enforceable by law is said to be void

Voidable Contract A voidable contract is one which can be set aside or repudiated or
avoided at the option of the aggrieved party

Illegal Agreement An illegal agreement is one the object of which is unlawful

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Unenforceable Contract The contract which is actually valid but cannot be enforced
due to technical defect

Essential elements of a valid contract

• Proper offer and its proper acceptance

• Intention to create legal relationship

• Free Consent

• Capacity to contract

• Lawful consideration

• Lawful object

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• Agreement not expressly declared void

• Certainty of meaning

• Possibility of performance

• Legal formalities

Offer / PROPOSAL

• When one person signifies to another his willingness to do or abstain from doing
anything with a view to obtain his assent on such act or abstinence, he is making
proposal.

Contd

Offeror-The person making the proposal is called the ‘offeror’ or proposer’.

Offeree -The person to whom the proposal is made is called the ‘offeree’ or the
‘proposee’.

ACCEPTANCE

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 Acceptance means giving consent to the offer.

It is an expression by the offeree of his willingness to be bound by the terms of the

offer.

Sec 2(b) – “ A proposal is said to be accepted when the person to whom the proposal is
made signifies his assent thereto. A proposal when accepted becomes a promise.”

Acceptance is the consent given to offer.

Contd-

Who can accept

In case of a specific offer –

To be accepted by that definite person or that particular group of persons to whom it

has been made and non else.

In case of general offer –

An offer made to the world at large or public in general canbeaccepted by any person
having the knowledge of the offer by fulfilling the terms of the offer. (Carlil v. Carbolic
Smoke Ball Co.)

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 CAPACITY OF PARTIES

Sec. 11 says

“Every person is competent to contract who is of age of majority

according to the law to which he is subject,

And who is of sound mind,

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And who is not disqualified from contracting by any law to which
he is subject. “

Thus, allthe three testsmust be applied to determine whethera

person is competent to contractor not

Who is a MINOR?

A minor is a person who has not attained majority.

According to Section 3 of the Indian Majority Act, 1875, a person

is deemed to have attained majority as under: On completion of
21 years

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Where a guardian of a minor’s person or property is appointed
under the Guardian and Wards Act On completion of 21 years

Where minor’s property has passed under the superintendence of

the court of wards

In other cases. On completion of 18 years

Who is a Person of Unsound Mind?

According to Sec 12 of the Indian Contract Act,

• “A person is said to be of sound mind for the purpose of

making contract, if at the time when he makes it, is capable
• To understand terms of contract

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 • To form rational judgment to its effect upon his interests”

PERSON DISQUALIFIED BY LAW

• Alien Enemy
• Foreign sovereigns and ambassadors
• Joint stock companies
• Insolvent
• Convicts

CONSIDERATION

Sec. 2(d) of the Indian Contract Act defines consideration as under :

“when at the desire of promisor, the promisee or any other person has done or abstained
from doing, or does or abstains from doing , or promises to do or abstain from doing
something, such act or abstainence or promise is called a consideration for the promise”

Essential elements of valid Consideration

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i. It must move at the desire of promisor
ii. It may move from any person
iii. It may be past, or present, or future
iv. It must be of some value
v. It must be real and not illusory vi. Something other than promisor’s existing
Obligation

CONSENT

Sec.13 says “Two or more persons are said to consent when they agree on same thing in
same sense”

In English Law, this is called

‘consensus-ad-adem’

FREE CONSENT

According to Sec. 14 consent is said to be free when it is caused by

a) Coercion, or
b) Undue influence, or
c) )Fraud, or

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d) Misrepresentation, or
e) mistake

COERCION

Coercion means compelling a person to enter into a contract under a pressure or a

threat.

According to Section 15, a contract is said to be caused by coercion when it is obtained

by-

Committing an act which is forbidden by the Indian Penal Code; or

Threatening to commit any act which is forbidden by Indian Penal Code; or

iii.Unlawful detaining of any property; or

iv. Threatening to detain any property.

Undue Influence

The term ‘undue influence’ means dominating the will of other person to obtain an
unfair advantage over the other

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Sec 16(1) says a contract is influence by undue influence

a) Where the relations subsisting between the parties are such that one of the is in
position to dominate the will of another, and

b)The dominant party uses that position to obtain an unfair advantage over the other

Fraud

The term fraud means a false representation of fact made willfully with a view to
deceive the other party.

Essential elements of fraud

• By a party to a contract
False representation
• . Representation as to fact
• Actually deceived
• Suffered loss

Misrepresentation

• The term ‘misrepresentation’ means a false representation of fact made

innocently or non-disclosure of a material fact without any intention to deceive
the other party.

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 MISTAKE

• A mistake is said to have occurred where the parties intending to do one thing by
error do something else.

Void Agreements

• According to Sec2(g) of Indian Contract Act, 1872, a void agreement is an

agreement which is not enforceable by law.

• The agreements which are not enforceable by law right from the time when they
are made, are void -ab-initio

Types of agreements expressly declared void

1. Agreements by or with persons incompetent to contract

2. Agreements entered into through a mutual mistake of fact between the parties.

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 3. Agreement, the object or consideration of which is unlawful

4. Agreement, the consideration or object of which is partly unlawful

5. Agreement made without consideration.

6. Agreement in restraint of marriage

7. Agreement in restraint of trade

8. Agreements in restraint of legal proceedings

9. Wagering agreements

10. Impossible agreements

. 11. An agreement to enter into an agreement in the future

Wagering agreements

• An agreement between two persons under which money or money’s worth is

payable, by one person to another on the happening or non-happening of a future
uncertain event is called a wagering event.

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 • Such agreements are chance oriented and therefore, completely uncertain

Contigent contracts

• Contigent contracts is a contract to do or not to do something if some events

collateral to such contract, does or does not happen

• Insurance contract provides best example of contigent contract

Breach of contract

• A breach of contract occurs if any party refuses or fails to perform his part of
contract or by his act makes it impossible to perform his obligation under the
contract.

• In case of breach, the aggrieved party(i.e. the party not at fault) is relived from
performing his obligation and gets a right to proceed against the party at fault.

Quasi contract

• A quasi contract is not a contract at all because one or other essential for the
formation of a contract is absent It is a law upon a person for the benefit of another
even in the absence of a contract.

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 • It is based on the principle of equity, which means no personshall be allowed to
unjustly enrich himself at the expense of another such obligations are called quasi
contracts or implied contracts because the outcome of such obligation resemble
those created by a contract.

Kinds of quasi contracts

• Right to recover the price of the necessaries supplied

• Right to recover money paid for another person

• Right to recover for non-gratutious act

• Responsibility of finder of goods

• Right to recover from person to whom money is paid or thing is delivered, by

mistake or under coercion

RESEARCH METHODOLOGY

About my research

The Indian Contract Act, 1872[1] prescribes the law relating to contracts in India and is
the key act regulating Indian contract law. The Act is based on the principles of English
Common Law. It is applicable to all the states of India. It determines the circumstances in
which promises made by the parties to a contract shall be legally binding. Under Section

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2(h), the Indian Contract Act defines a contract as an agreement which is enforceable by
law.

Problem statement

Fraud and loop hole in Indian contract act 1872

NEED TO STUDY

It provides the ultimate understanding of the agreement between the

owners of a company or its investors, about the services rendered by a

third party, or payment obligations you need to comply with your hired

workers. All these things should be stated in the written contract as legal

proof.

Sampling Method :

The sampling method was Judgment Sampling (only those respondents

were chosen who had some knowledge about Indian contract act )

Data Collection :

Data collection is the process to gather information about the relevant

topic research , which is be Data Collection usually takes place early in an

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improvement project , and is often formalized through data collection

plan which often contains the following activity :

Pre collection activity on goals , target data , definitions and methods.

Collection of Data.

Presenting findings involving some form of sorting analysis.

For accomplishing the the objective of study, both Primary and

Secondary data have been used.Data Collection through the Primary

Data as well as Secondary Data Sources.

Classification of Data :

The correct information is the key to success. Data information is of two

types ; Primary Data and Secondary Data. Primary data is information

collected by researcher or person himself where is secondary data is

collected by other but utilized or used by researcher . Data can be

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classified under two categories depending upon source utilized . These

categories are :

PRIMARY DATA SECONDARY DATA

:Thesis.

News Papers

Govt Gazettes.

Magazines etc.

For this study Primary Data and Secondary data both has been used for
research topic.

RESEARCH INSTRUMENTS :

➢ QUESTIONNAIRE

A questionnaire is a research instrument consisting of a series of questions

and other prompts for the purpose of gathering information from

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respondents . Although they are often designed for Statistical Analysis of the
responses.

RESEARCH PLAN :

Data Source. Primary Data

Research Approach. Survey

Research Instrument. Questionnaire

Method of Contact. Personal

Sample Size. Respondents

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DATA ANALYSIS AND INTERPRETATION

• Among 10 out 10 people thinks making a contract is beneficial

for them

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CONTD..
• 70% people thinks they maybe get justice
• 20% people thinks they get justice surely

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CONTD

5. There are various contracts done in various fields like

insurance policy, land, leave and license, dealerships, business,
every now and then some fraud happen can you give suggestions
to stop this?

• Through this question we had get know the people suggestions

• Like 50 %peoples want some change in law and 30 %are okay
with previous and 20 % don’t know anything about it
We also received suggestions like :
• We cannot stop this but if injustice is done we can approach
court for breach of contract or whatever the case is than it
can be civil or criminal
• Yes by ending up the agreement with these legal Acts such
as,Transfer of property act of 1882,India Easement act 1882,
• Indian contract act 1872Follow rules and compliances
properly.

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 SUGGESTIONS
Many legal experts feel that the time has come to take a hard look at The Indian Contract
Act to bring it in sync with the changing business environment.

“Good corporate governance demands well-defined and executed contracts, where the
Indian Contract Act plays a crucial role,” said Ramesh Vaidyanathan, managing partner,
Advaya Legal.

Most legal experts say The Indian Contract Act is a relevant and comprehensive piece of
legislation. The concepts under the contract law are based on the contract law of the United
Kingdom. However, the Act contains certain provisions which are different.

Also we have received the suggestion to improve the law system regarding contracts and
agreements

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 CONCLUSION
Four main conclusions can be drawn from the aforegoing brief excursion into this evolving
area of law:

Firstly, the acquis communautaire provides a solid foundation for the formation of
contract by the principle of freedom of contract and the principle that the agreement is
crucial for the binding of the parties.

Secondly, existing EC law recognises the pattern of formation of contract by offer and
acceptance (even if the details of this mechanism are not to be seen precisely within the
acquis).

Thirdly, within the acquis a new instrument has developed to protect weaker parties in
special situations: the right of withdrawal.

Finally, the acquis permits taking into account the important role of advertising, labeling
and similar public statements in due to contracting its concept of the binding effect of
precontractual statements. This concept can be extended to other types of contract within a
future more coherent European contract law.

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 BIBLIOGRAPHY

Business Law, The Institute of Cost and Works Accountant of India

Simpson,A.W.B (1985). “Quackery and Contract Law: The Case of

the Carbolic Smoke Ball”. Journal of Legal

Studies 14(2): 345-389

Westlaw India, Manupatra.in

Wikipedia.com

OnlineResearch

Manupatra.com

Westlaw.com

LexisNexisIndia.in

Shareyouressay.com

Judicial

Indiankanoon.org

Slideshare.net

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