NATIONAL UNIVERSITY OF STUDY AND RESEARCH IN LAW

RANCHI

CONTRACT PROJECT

COMPARISION OF THE NATURE & SCOPE OF

CONTRACT IN PRE & POST ERA OF INDIAN CONTRACT
ACT

SUBMITTED TO: SUBMITTED BY:

MS. ATIBHA VIJAYA SINGH NAME: PREKSHI BAIRATHI

ASSISTANT PROFESSOR ROLL NO: 1125

SEMESTER: I
SECTION: A

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ABSTRACT
The law of contracts is the one of the most important branches of the legal system. It
regulates the circumstances under which the contracting parties shall be legally bound to
their promises. It helps in determining the remedies available in the case of a breach of
contract or when a person fails to perform the contract. It defines the conditions under which
remedies shall be available to a part to the contract. Most importantly the law ensures that
a party can bring a case to the court when it faces any injustice.

Contracts, in some form or the other, have existed in the society from the very beginning.
However, the origin of the law of contracts is generally traced from the development of
common law and it is also alleged to be an offspring of the law of torts, as both contracts
and torts give rise to obligation. The difference between them lies in the fact that tort
obligations are imposed by law; on the other hand, contracts are a medium through which
people willingly create commitment between themselves.

The law of contracts has evolved since the Vedic period and still hold great importance in
today’s world. Every small to big transaction done comes under the purview of the
contract act. Though it dates back to 1872 when it was drafted yet today it holds a strong
base and ensure that there is no difficulty in everyday contracts. The Indian Contract Act
of 1872 holds great importance to ensure a better legal functioning nation.

This research paper aimed at to understand the origin of Indian contract act and its
importance over various time periods. Focus is also given to how contracts were
accomplished in the pre- and post-Indian contract era. This paper also tries to understand
what led to the growth or contracts. Through this report, a clear understanding of the
status of contracts act and contracts in India can be understood. This paper also tries to get
a clarity of the contract rules in India through various time period. Attention is also given
to the development of contracts in India and how it has changed over the period of time.
Lastly, this research is also dedicated to understand why contracts and the Indian Contract
Act of 1872 are important and the status they hold. For as though the times might changes
but humans will always continue to engross in different form of promises for business
transactions, delegation and services and other forms of contracts.

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INTRODUCTION
“Every man… is left perfectly free to pursue his own interest in his own way…”- Adam
Smith1.

Progress of any society in the present-day world is measured by the freedom of exchange
in a market place at each and every level. However, this freedom is linked to
accountability and self-restraint. It is the law of contracts that ensures this effectual
application in case of freedom of exchange. Exchanges in the market place always depend
upon voluntary agreements between individuals or other legal persons. Such voluntary
agreements could never work without contract law. Contract law makes these agreements
enforceable and without it, these agreements would instantly become impractical and
unworkable.

Contracts, in some form or the other, have existed in the society from the very beginning.
However, the origin of the law of contracts is generally traced from the development of
common law and it is also alleged to be an offspring of the law of torts, as both contracts
and torts give rise to obligation. The difference between them lies in the fact that tort
obligations are imposed by law; on the other hand, contracts are a medium through which
people willingly create commitment between themselves.

Contract law is based on a number of Latin legal principles. ‘Consensus ad idem’ is one of
the most important legal principles. The meaning of this maxim is, the meeting of the
minds between the parties, that is, an agreement between them. It forms part of the private
law because it does not bind the state or any other third person. Thus, contracts are
voluntary and require an exercise of the will of the parties.

Therefore, the importance of the law of contracts in the field of law cannot be denied. In
the Indian context, contract law gains much more significance because the technological
and scientific advancements are still taking place or are yet to be introduced in comparison
to some of the western and eastern counterparts. New modes of exchange such as e-
commerce, mobile services, cloud computing, etc., are still in their nascent stage in India.
Due to this it becomes important to understand develop the contract laws so that it can be
applied not only to the normal cases of written contracts, but also to completely different
and new situations.

In the general terms or in popular belief the term ‘contract’ signifies some kind of
business transaction creating obligations backed by law. The oxford dictionary defines the

1
Adam smith, The Wealth of Nations, Book IV, Chapter IX, p. 687

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same as ‘written or spoken agreement intended to be legally binding’. Contrary to the
complexity the definition sounds to convey, contracts mean all relationships which are
binding in character; from complex process of buying a house to the simplicity of buying
a candy, from acquiring a stake in an MNC to exchanging notes with one’s batchmates are
all examples of contract in one form or the other.

The main source of law regulating contracts in India is the Indian Contract Act, 1872. The
Indian contract ac was enacted by the British but is still applicable in India though with
necessary amendments. Also, all the laws and enactments which were applicable in India
before independence continue to be in force after independence unless repealed or
amended by the parliament.

Indian Contract Act, 1872 is the main source of law regulating contracts in India as
subsequently amended. It determines the circumstances in which promise made by the
parties to a contract shall be legally binding on them. Individuals enter into a number of
contracts every day, knowingly or unknowingly. Each contract creates some rights and
duties upon the contracting parties. Indian contract act deals with the enforcement of these
rights and duties upon the parties.

The Indian Contract Act 1872 came into force on 1 st 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.

Section 2(h) of the act defines the term contract as “any agreement enforceable by law” 2.
According to Section 103, “All agreements are contracts, if they are made by the free
consent of the parties, competent to contract, for a lawful consideration with a lawful
object, and not hereby expressly declared to be void.”

HISTORY AND EVOLUTION OF THE INDIAN CONTRACT

ACT
The theory of the law of contracts has gone through multiple developments since 1872.
The Indian contract act is based on the common law of England which has its roots in the
real property law. During the earlier times, land was considered to be the most important

2
Section 2(h), Indian Contract Act, 1872
3
Section 10, Indian Contract Act, 1872

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kind of property. Due to this, the law makers were intensively absorbed in the land
problems and therefore approached other problems in the same frame of mind. Their main
aim was certainty and justice came at the second place. According to their point of view,
contracts became a technical and rigid law. In the nineteenth century freedom of contract
became the governing principle. But with the change in time, contract law was amended
so that it reflects the aspirations of society in rapid transition.

The Indian contract act deals with the contractual rights that have been granted to the
citizens of India. It provides with rights, duties, and obligations on the contracting parties
to help them successfully conclude business. The act has been modified time to time as
per the conditions of the Indian subcontinent and to make it adaptable to the ever-
changing Indian economy. Even still the act of 1872 still stands good and is pertinent to
today’s India. The history of this act, highlights the origin of the economic processes and
the importance of forming contracts to conduct one’s business in everyday life. As the
initial transaction was done through barter system, it is essential to develop rules that
ensure no one has been wronged. The act of 1872 codifies the legality of the contract,
how to enter a contract, how to execute a contract and provisions of a contract and effects
of breach of a contract. Though many separate acts have been established but the basic
framework of contracting in India is covered in this act.

Throughout the ancient and medieval periods of human history in India, there was no
general contract code. Principles have thus been derived from numerous references-the
sources of Hindu law, namely the Vedas, the Dhramshatras, the Smritis, and the Shrutis,
which give a vivid description of the law similar to the contracts of that time. The rules
governing contracts are part of the law called Vyavaharmayukha 4.

Study and research of the smritis have revealed that the concept of contracts has originated
in the Vedic period only. Various topic which are contractual in nature are mentioned in
these texts. The general rules mentioned resemble with the modern law of contracts. For
example, in the manusmriti an essential requirement for the contract process is stated to be
the competence of the persons who are willing to enter into a contract. This norm
resembles with the present-day law mentioned in section 11 of the Indian Contract Act,
which talks about minor and who are incompetent to contract.

Even the concept of liability has its roots in the Vedic period. During that time, spirituality
had great importance, because of which failure to fulfil the conditions or to pay meant
rebirth as a slave or a beast. By the end of the medieval age, contract law was majorly
governed by two factors; the moral factor and the economic factor. Activities of transfer
of property or performance of service etc. were governed with rules and unfulfillment of

4
https://www.legalbites.in/historical-evolution-of-contract-law-in-india/

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which was punished. Not to forget, Arthashastra by Kautilya, is considered as the most
important existing written text on politics and governments.

In Chandragupta’s reign, contracts existed in the form of bilateral transactions between

two individuals or between groups of individuals. The essential terms of such transactions
were free consent and consensus on all terms and conditions involved. Certain types of
contracts were made void like contracts formed at night, or made in forest, or made to
create violence etc. various regions has their own terms and conditions for contracts which
the people residing in that area had to follow. During that era, contracts were considered
void if there was undue influence or entered during insanity or in state of intoxication.
Such rules can be seen to prevail in the modern India as well.

Also, the rights and duties attached to the rule of bailment, as mentioned in section 151
and 152 of the Indian Contract Act, 1872 ha its roots in the Katyaynasmriti which used to
deal with the laws regarding deposit of law materials with artisans. In those times, there
was no limitations for bringing a suit for the money lent to someone. When someone
failed to perform their duties, it was taken as a wrong and punished accordingly.

With the beginning of Muslim rule in India, contracts were also beginning to be governed
under the Mohammedan Law of Contract. According to it, to enforce a contract there
should be two parties where one makes the proposal and other accepts it. The minds of
both the parties have to agree and establish in the consensus that there is declaration which
refers to some matter and object to produce a legal result.

During this era, contract laws were given high importance and rules were made to ensure
easy transactions. All transactions were taken as secular contracts and rules were
written/established for the settlement of different types of disputes.

Another point of importance is that under the Islamic law marriages were also treated as
contracts and till date such a situation exists. Marriage is considered as a contract where
one party makes the proposal and the other party accepts it. The husband is supposed to
pay an amount at the time of marriage known as ‘mahr’. Mahommedans were the first to
consider the concept of divorce. Through this, a party to party could absolve from the
contractual obligations under marriage.

In the time period of the Hindu law prevalence jurisprudential aspect was fundamentally
different from that of other eras. Hindu law is taken as a result of various customs. The
works and statues of smritikaras interpreted and analyzed the matter of the Vedas to
develop the various aspects of Hindu law. The manusmriti laid down multiple principles
in the contract law which are still prevailing.

The status of a contract entered by a minor during a state of intoxication, fraudulent aspect
of contracts, contracts between people of blood relation, disqualified persons to contract,

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are some of the many concepts developed through the Hindu law and still hold importance
in the Indian contract act.

When the British came to India in around the 1600s, they started to govern this nation
through the medium of charters and regulations. By the Regulating Act of 1773, the
Supreme Court of Judicature was founded in Calcutta, this replaced the mayor’s court and
began to be the highest court of British India from 1774 to 1862 5.

Before the advent of the contract act of 1872, the English was applied and has maximum
importance. It was put to force to various presidency towns by the East India Company.
Additional to this, due to the unrestraint application of English law in all spheres of life,
contracts were also formed with the base of English rule to make legal system convenient.
Along with that, to avoid a state of confusion or hatred parties were asked to follow the
rules of either the Hindu or the Muslim law, according to their personal rules, law and
beliefs. But in situations where neither of the parties were from the Hindu or the Muslim
religion, the rules of the land were followed. Also, in situations where one part was Hindu
and the other was Muslim, the law of the defendant was to be applied. This procedure was
followed till the Indian Contract Act was implemented.

ADVENT OF THE INDIAN CONTRACT ACT

The Indian Contract Act was originally drafted by the third Indian Law Commission in the
year of 1861 in England. The contract bill of India attempted to define laws of various
concepts. The bill was expected to bring the Indian contract act in accordance with the
English law. At that time, though the bill wasn’t a complete and intensive law of contract,
its main aim was to satisfy the needs of the country for that period of time and the time to
come. Judges and the courts were taking aid of the English law in reciting judgements in
the cases where justice and good conscience weren’t enough to provide legally correct
final decision.

It was ascertained that though there might be mistakes and inaccuracy in bill but those
could be resolved by adding new chapters as required with change in time and the needs
of the people.

The drafters of the bill were aware about the fact that individuals of different religions
followed different personal laws because of which it might be difficult for them to abide
by the new rules. Hence, provisions were made so that the customs of these personals laws
governing any special aspect of contractual relationships were not to be affected by the
new laws, until and unless they were contrary to the new rules. Importance was also given

5
Ibid.

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to ensure that rules were drafted according to the situation and circumstances of the India
of that time and be in accordance to the common practice. Though the drafters couldn’t
possibly keep track and draft rules in accordance to all the rules of the Indian society they
tried their level best to ensure an accurate bill for better contractual relationships.

The act come into force from 1872 and soon afterwards amendments were made to enact
better functioning laws with change in time. In today’s India the act of 1872 still prevails
with the foundation base remaining the same and new acts being added time to time when
required.

IMPORTANCE OF CONTRACTS
The law of contracts is the one of the most important branches of the legal system. It
regulates the circumstances under which the contracting parties shall be legally bound to
their promises. It helps in determining the remedies available in the case of a breach of
contract or when a person fails to perform the contract. It defines the conditions under which
remedies shall be available to a part to the contract. Most importantly the law ensures that
a party can bring a case to the court when it faces any injustice.

The contract law is also essential to carry trade and commercial activities smoothly, as it
brings in definiteness in business transactions. As the laws are written and codified one can
easily go to a court to receive remedies. It isn’t limited only to the business sphere but affects
the whole society. As every individual enters numerous contracts in its everyday life from
buying a movie ticket to buying a house, a law is required to ensure smooth and accurate
functioning of transactions and no one is cheated or left unsatisfied.

The act provides the general principles governing contracts, where all transactions and
obligations of the contracting parties are mentioned. It allows all day-to-day contracts
entered by a person to come under its purview. As the act is not exhaustive in nature,
principles of Hindu law or Mohammedan law are applied where required in the cases of the
parties belonging to such religions.

Contracts are also important as they provide a written document that provides with ana
outline for full and effective understanding of business relations and avoid any future
misunderstanding that might lead to losses. It specifies the rights an individual hold before,
while and after entering into a a contract. The most important fact is that it is binding and
legally enforceable, hence a party can’t deny to fulfil its promise and can be taken to court
if it does so. They minimize risks and protect the parties to the contracts.

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Hence it can be said that contracts are an essential part of the world today. In Indian legal
system contracts have developed and evolved since a long period of time. With being open
to changes and the developing nature of human requirements, this act has been updated to
process accurate contracts. Since the Vedic period an importance of contracts and rules
availing it can be seen. This form of law has also taken rules of various religions to not
contrast the practices of people of different believes.

The Indian contract act and contracts have high importance as they ensure legality and
enforceability of the agreements entered by people. With defined rules and regulations, it
helps to understand the terms and conditions to enter and perform one’s duties. Today, as
the world is developing new forms of transactions are taking place through various modes.
The Indian contract act ensures they are done accurately and follow the rules of the law.
Even today, new laws are being added to this branch to keep it up with the changing time.
Contract act has come a long way from the pre to the post Indian contract era and still holds
equal importance as it did years back. This law is certainly required to ensure a happy and
smooth life for everyone.

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http://businessofillustration.com/the-importance-of-contracts/

http://www.barcouncilofindia.org/about/about-the-legal-profession/legal-education-in-the-
united-kingdom/

https://www.lawteacher.net/free-law-essays/contract-law/history-of-the-indian-contract-
act-1872-contract-law-
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aw%20of%20Contract.&text=This%20way%2C%20a%20party%20to,considered%20con
tracts%20for%20these%20reasons.

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