CHAPTER 2

CONTRACT LAWS

INDIAN CONTRACT ACT, 1872

Definition of Contract

A contract is an agreement made between two or more parties which the law will enforce.

Sec 2(h) defines contract “as an agreement enforceable by law”.

Contract=Agreement + Enforceability at law.

Agreement

Agreement is defined as “every promise and every set of promises, forming consideration for
each other”.

Promise= a proposal when accepted becomes a promise.

Agreement = Offer+ Acceptance

Consensus Ad Idem

The parties to the agreement must have agreed about the subject matter of the agreement in
the same sense and at the same time.

Unless there is consensus ad idem, there can be no contract.

Enforceable by law

An agreement, to become a contract, must give rise to a legal obligation or duty.

An agreement may be social agreement or legal agreement.

But only those agreements which are enforceable in a court of law are contracts.

“All contracts are agreements, but all agreements are not necessarily contract”

Essential elements of a Valid Contract

1. Offers and Acceptance
2. Legal Relationship
3. Lawful Consideration
4. Capacity of Parties
5. Free Consent
6. Lawful Objects
7. Writing and Registration
8. Certainty
9. Possibility of Performance
10. Not Expressly Declared Void
1. Offers and Acceptance
It is one of the essentials of valid contract. There must an offer and acceptance of the same.

2. Legal Relationship
The parties to an agreement must create legal relationship. Agreements of a social or
domestic nature do not create legal relations and as such cannot give rise to a contract
Example, X invited Y to a dinner Y accepted the invitation. It is a social agreement. If X fails
to serve dinner to Y, Y cannot go to the courts of law for enforcing the agreement.

3. Lawful Consideration

Consideration is “something in return.” Consideration has been defined as the price paid by
one party for the promise of the other.
Example,: X agrees to sell his motor bike to Y for Rs. 1,00,000. Here Y’s promise to pay Rs.
1, 00,000 is the consideration for X’s promise to sell the motor bike and X’s promise to sell
the motor bike is the consideration for Y’s promise to pay 1, 00,000.

4. Capacity of Parties
It means that the parities to an agreement must be competent to contract. A contract by a
person of unsound mind is void ab-initio. Thus, a contract entered into by a minor
or by a lunatic is void.
Example: X a minor borrowed Rs 8,000 from Y and executed mortgage of his property in
favour of the lender. This was not a valid contract because X is not competent to contract.

5. Free Consent
For a valid contract it is necessary that the consent of parties to the contact must be free.
Example: X threatens to kill Y if he does not sell his car to X. Y agrees to sell his car to X.
In this case, Y’s consent has been obtained by coercion and therefore, it cannot be regarded
as free.

6. Lawful Objects
It is also necessary that agreement should be made for a lawful object. Every agreement of
which the object or consideration is unlawful is illegal and the therefore void.

7. Writing and Registration

According to Contract Act, a contract may be oral or in writing. Although in practice, it is
always in the interest of the parties that the contract should be made in writing so that it may
be convenient to prove in the court.

8. Certainty
For a valid contract, the terms and conditions of an agreement must be clear and certain.

9. Possibility of Performance
If the act is legally or physically impossible to perform, the agreement cannot be enforced at
law.
Example: A agrees with B to discover treasure by magic and B agrees to pay Rs 1,000 to A.
This agreement is void because it is an agreement to do an impossible act.
10. Not Expressly Declared Void
An agreement must not be one of those, which have been expressly declared to be void by the
Act.

Kinds of Contracts
Contracts may be classified as follows:
1. On the basis of enforceability
(a) Valid Contracts.
(b) Void Contracts.
(c) Voidable Contracts.
(d) Illegal Contracts.
(e) Unenforceable Contracts.

2. On the basis of mode of creation

(a) Express Contracts.
(b) Implied Contracts.

3. On the basis of the extent of execution.

(a) Executed Contracts.
(b) Executory Contracts.

Valid contract: The Contracts which are enforceable in a court of law are called Valid
Contracts.

Voidable Contract: If one party to the contract has the option of enforcing a contract by law,
but not at the option of the other or others, it is a voidable contract.

Void contract: An agreement may be enforceable at the time when it was entered
into but later on,due to certain reasons, for example impossibility or illegality of the
contract, it may become void and unenforceable.

Illegal contract: If the contract has unlawful object it is called Illegal Contract.

Example: There is a contract between X and Z according to which Z has to murder Y for a
consideration of Rs. 10000/- from X. It is illegal contract.

Unenforceable contract: A contract which has not properly fulfilled legal formalities is
called unenforceable contract. That means unenforceable contract suffers from some
technical defect like insufficient stamp etc. After rectification of that technical defect, it
becomes enforceable or valid contract.

Example: A and B have drafted their agreement on Rs. 10/- stamp where it is to be written
actually on Rs. 100/- stamp. It is unenforceable contract.

All illegal Contracts are void, but all void contracts are not illegal
Express contract – Where the offer or acceptance of any promise is made in words, the
promise is said to be express. For example: A has offered to sell his house and B has given
acceptance. It is Express Contract.

Implied contract – An implied contract is one which is inferred from the acts of the parties
or course of dealings between them. Sitting in a Bus can be taken as example to implied
contract between passenger and owner of the bus.

Quasi Contract: In case of Quasi Contract there will be no offer and acceptance so, actually
there will be no Contractual relations between the partners. Such a Contract which is created
by Virtue of law is called Quasi Contract.

Executed contract - In a contract where both the parties have performed their obligation.

Unilateral contract - In a contract one party has performed his obligation and other person is
yet to perform his obligation.
Bilateral contract – It is a contract where both the parties are yet to perform their obligation.
Bilateral & Executory are same and inter - changeable.
OFFER

Definition of Offer
When a person signifies to another his willingness to do or to abstain from doing anything,
with a view to obtaining the ascent of that other to such act or abstinence he is said to make a
proposal. - Section 2 (a) of Indian Contract act.

Legal Rules Regarding Valid Offer

A valid offer must be in conformity with the following rules:

The offer must be capable of creating legal relationship: If the offer does not intend to give
rise to legal consequences, it is not a valid offer in the eyes of law.

2. The terms of the offer must be clear, definite and certain and not loose or vague: An offer
must be definite and certain.

3. An offer must be distinguished from a mere declaration of intention: Sometimes there may
be preliminary discussion or an invitation by one party to the other to negotiate terms or
simply declaration of intention. Such declaration merely indicates that an offer will be made
in future.
4. An invitation to offer is not an offer: An offer must be distinguished from an ‘invitation to
receive offer’. The offeror should, express his willingness to do or abstain from doing
something with such finality that the only thing wanted is the assent of the other party. But
where a party proposes certain terms on which he is willing to negotiate, he is not making an
offer but only inviting others to make offer on those terms.

5. An offer must be communicated to the offer: An offer must be communicated to the person
to whom the same is addressed.

6. An offer should not contain such a term the non-compliance of which would amount to
acceptance: The offeror cannot say that if the offer does not communicate acceptance by a
certain time the offer would have been deemed to be accepted. The burden of communication
of rejection of offer cannot be imposed on the offeree. If the offeree sends no reply, there is
no contract.

7. Two identical cross - Where two parties make identical offers to each other, in ignorance
of each other’s offer, the offers are known as cross offers. ‘Cross offers’ do not constitute
acceptance of one’s offer by the other and as such there is no completed agreement.
ACCEPTANCE

Definition of Acceptance

When the person to whom the proposal is made, signifies his ascent there to, the proposal
(offer) is said to be accepted. A proposal (offer) when accepted becomes a Promise.

Essentials of Valid Acceptance

1. Acceptance must be given by that person only to whom the offer is made:

An acceptance to be valid must be given only by a person to whom offer has been given. In
other words, acceptance must move from the offeree and no one else.

2. Acceptance must be communicated:

Offeree has to communicate his acceptance to offerer.

3. The acceptance must be given within the time prescribed or within a reasonable time:

Sometimes, the time limit is fixed within which an acceptance is to be given. In such cases,
the acceptance must be given within the fixed time limit. In case, no time is prescribed, the
acceptance should be given within a reasonable time. The term ‘reasonable time’ depends
upon the facts and circumstances of each case.

4. Acceptance must be Un-Conditional:

It is another important essential element of a valid acceptance. A valid contract arises only if
the acceptance is absolute and unconditional. It means that the acceptance should be in total
and without any condition.

6. Acceptance must be communicated in the method specified by offerer:

When an offer is made for the same, acceptance must be communicated in the method
specified by offerer.

7. The acceptance must be given before the lapse of offer:

A valid contract can arise only when the acceptance is given before the offer has elapsed or
withdrawn. An acceptance which is made after the withdrawal of the offer is invalid, and
does not create any legal relationship

8. The acceptance must be communicated:

It is an important and essential element of a valid acceptance.

CONSIDERATION

When a party to an agreement promises to do something, he must get

“something” in return .This “something” is defined as consideration.
The essentials or legal rules of a valid consideration are as under:-

1. It must move at the desire of the promisor:

In order to constitute legal consideration the act or abstinence forming the consideration for
the promise must be done at the desire or request of the promisor.

Example:

X saves Y’s house from the fire without being asked to do so. X cannot demand payment for
his services because X performed this act voluntarily and not at the desire of Y.

2. It may move from the Promisee or any other person:

The second essential of a valid consideration is that consideration may move from the
promisee or from a third person on his behalf.

[Chinnaya v. Ramayya ]

3. It may be past, present or future:

Consideration may be past present or future.

A) Past Consideration:

When the consideration for a present promise was given before the date of the promise it is
called a past consideration. It is not a valid consideration.

B) Present Consideration:

When consideration is given simultaneously by one party to another at the time of contract, it
is called Present Consideration. The act constituting the consideration is wholly or
completely performed.

Example:

A sells a book to B and B pay its price immediately it is a case of present consideration.

C) Future Consideration:
When the consideration on both sides is to be given at a future date, it s called future
consideration or executory consideration. It consists of promises and each promise is a
consideration for the other.

4. It need not be Adequate:

It is not necessary that consideration should be adequate to the value of the promise. The law
only insists on the presence of consideration and not on its adequacy. It is for the parties to
the contract to consider the adequacy of consideration and the courts are not concerned about
it.

Example:

A agrees to sell his car worth Rs.20000 for Rs.5000 only and his consent is free. The
agreement is valid contract.

5. It must be real:

It is necessary that consideration must be real and competent.

Example:

A promise to put life in X’s dead body on B’s promise to pay him Rs.1000. It is not real.
 CAPACITY TO CONTRACT

Section 10 requires that the parties shall be competent to contract.

Section 11- Who are competent to contract.-

Every person is competent to contract who is of the age of majority according to the law to
which he is subject, and

• Who is of sound mind, and is not disqualified from contracting by any law to which he is
subject.

Person’s incompetent to contract

• Minor

• Persons of unsound mind

MINORS

According to Indian Majority Act, 1875, a person attains majority on completion of 18 years
of his age. But when a guardian of a minor person or property has been appointed by the
court, he attains majority on completion of 21 years of age.

Mohoribibi v. Dharmadas Ghose

HELD: Minor’s agreement is void ab initio

The position of Minor’s agreement and effect thereof is as under;

(a) An agreement with a minor is void ab-initio.

(b) The law of estoppels does not apply against a minor. It means a minor can always his
plead his minority despite earlier misrepresenting to be a major. In other words he cannot be
held liable on an agreement on the ground that since earlier he had asserted that he had
attained majority.
(c) Doctrine of Restitution does not apply against a minor i.e., As per section 70 Obligation of
person enjoying benefit of non-gratuitous act does not apply.
(d) Ratification of agreement is not permitted: Ratification means approval or confirmation.
A minor cannot confirm an agreement made by him during minority on attaining majority. If
he wants to ratify the agreement, a fresh agreement and fresh consideration for the new
agreement is required.
(e) Contract beneficial to Minor; A minor is entitled to enforce a contract which is of some
benefit to him. Minority is a personal privilege and a minor can take advantage of it and bind
other parties.
(f) Minor as an agent. A minor can be appointed an agent, but he is not personally liable for
any of his acts.
(g) Minor’s liability for necessities: “Any person supplying necessaries of life to persons who
are incapable of contracting is entitled to claim the price from the other’s property”.
 SOUND MIND FOR THE PURPOSES OF CONTRACTING: (Section 12)

A person is said to be of sound mind for the purposes of making a contract if, at the time
when he makes it, he is capable of understanding it and of forming a rational judgment as to
its effect upon his interests.
• A person, who is usually of unsound mind, but occasionally of sound mind, may make a
contract when he is of sound mind.
• A person, who is usually of sound mind, but occasionally of unsound mind, may not make a
contract when he is of unsound mind.

Other Disqualified Persons

The persons who are disqualified from entering into contract due to certain other reasons may
be from legal status, political status or corporate status. Some of such categories of persons
are given below;
1. Alien Enemy: An agreement with an Alien Enemy is void.
2. Foreign Sovereign and Ambassadors: Foreign sovereigns and their representatives enjoy
certain privileges and immunities in every country. They cannot enter into contract except
through their agents residing in India.
3. Convicts: A convict cannot enter into a contract while he is undergoing imprisonment.
4. Insolvents: An insolvent person is one who is unable to discharge his liabilities and therefore
has applied for being adjudged insolvent or such proceedings have been initiated by any of
his creditors. An insolvent person cannot enter into any contract relating to his property.
5. Company or Statutory bodies: A contract entered into by a corporate body or statutory
body will be valid only to the extent it is within its Memorandum of Association
FREE CONSENT

According to Sec 10 of the Indian Contract Act one of the essentials of a valid contract is
“Free Consent”

Sec 13 defines “consent” as “Two or more persons are said to consent when they agree
upon the same thing in the same sense”. According to Sec 14, consent is said to be free when
it is not caused by:

1. Coercion

2. Undue influence

3. Fraud

4. Misrepresentation

5. Mistake

COERCION

According to Sec 15 coercion means “Committing or threaten to commit any act forbidden by
Indian Penal Code or unlawful detaining or threatening to detain any other persons property
with a view to enter into an agreement.

Effect of Coercion- When the consent of a party to an agreement is obtained by coercion; the
contract becomes voidable at the option of the party, whose consent is so obtained. The
burden of proving that the consent was obtained through coercion shall be upon the party
who wants to set aside the contract on the plea of contract.

UNDUE INFLUENCE
Sometimes a party is compelled to enter into a contract against his will as a result of unfair
persuasion by the other party.
Section 16 defines undue influence as follows
A contract is said to be induced by “undue influence”, where the relations subsisting between
the parties are such that one of the parties is in a position to dominate the will of the other and
uses that position to obtain an unfair advantage over the other.

Analyzing the provision of Section 16(1), we get the following essential features –

i) A relation subsists between the parties whereby one of them is in a position

to dominate the will of the other,

ii) The dominant party uses his superior position to obtain an unfair advantage over the
other.

FRAUD
Misrepresentation of facts may be intentional or innocent. Intentional misrepresentation has
been termed as Fraud and innocent misrepresentation has been termed simply as
‘misrepresentation’ in the contract act.

The essentials of fraud are:

1. There must be a representation or assertion and it must be false
2.The representation must relate to a fact
3.The representation must have been made with the intention of inducing the other party to
act upon it
4.the representation must have been made with a knowledge of its falsity
5.the other party must have subsequently suffered some loss

MISREPRESENTATION

Misrepresentation is a false representation made innocently without any intention of

deceiving the other party. It may include two things:

(a) Wrong statement of a material fact not known to be false

(b) Non-disclosure of facts where there is a legal duty to disclose without intention to deceive

MISTAKE

Mistake

Mistake are of two type

(a) Mistake of law

(b) Mistake of fact

Mistake of law

Mistake of law is further divided into three categories

(a) Mistake of Indian law

(b) Mistake of foreign law

(C) Mistake as to private rights of the parties – treated as mistake of fact. Here, the agreement
will be void in case of bilateral mistake only.

Mistake of fact

i) Bilateral mistake

ii) Unilateral mistake

DISCHARGE OF CONTRACT

Discharge by Performance

Discharge by Agreement or Consent

Discharge by Impossibility of Performance

Discharge by Lapse of Time

Discharge by Operation of Law

Discharge By Breach Of Contract

DISCHARGE BY PERFORMANCE

ACTUAL PERFORMANCE

When both the parties perform their promises.

ATTEMPTED PERFORMANCE

When the promisor offers to perform his obligation, but promisee refuses to accept the
performance. It is also known as tender.

DISCHARGE BY AGREEMENT OR CONSENT

NOVATION (Sec 62): New contract substituted for old contract with the same or different
parties.

RESCISSION (Sec 62) : When some or all terms of a contract are cancelled

ALTERATION (Sec 62): When one or more terms of a contract is/are altered by the mutual
consent of the parties to the contract

REMISSION (Sec 63) :Acceptance of a lesser fulfillment of the promise made.

WAIVER: Mutual abandonment of the right by the parties to contract

MERGER: When an inferior right accruing to a party to contract merges into a superior right
accruing to the same party

DISCHARGE BY IMPOSSIBILITY OF PERFORMANCE

➢ Known To Parties
➢ Unknown To Parties
➢ Subsequent Impossibility
➢ Supervening Impossibility (Sec 56)
 • Destruction of subject matter
• Non-existence of state of things
• Death or incapacity of personal services
• Change of law
• Outbreak of war

DISCHARGE BY LAPSE OF TIME

The limitation act 1963, clearly states that a contract should be performed within a specified
time called period of limitation

If it is not performed and if the promisee takes no action within the limitation time, then he is
deprived of his remedy at law.

DISCHARGE BY OPERATION OF LAW

• Death

• Merger

• Insolvency

• Unauthorized Alteration Of The Terms Of A Written Agreement

• Rights & Liabilities Vesting In The Same Person

DISHARGE BY BREACH OF CONTRACT

ACTUAL BREACH:

▪ At the time of performance

▪ During the performance

ANTICIPATORY BREACH

▪ By the act of promisor (implied repudation)

▪ By renunciation of obligation (express repudation)

REMEDIES OF INJURED PARTY

A remedy is a means given by law for the enforcement of a right

Following are the remedies

[1] Rescission

[2] Suit upon damages

[3] Suit upon quantum meruit

[4] Suit for specific performance

[5]Suit for injunction

Rescission

When a contract is broken by one party, the other party may sue to treat the contract as
rescinded and refuse further performance.

In such a case, he is absolved of all his obligations under the contract.

The court may give rescission due to

1) Contract is voidable

2) Contract is unlawful

Damages

Damages are monetary compensation allowed to the injured party by the court for the loss or
injury suffered by him by the breach of a contract.

Types of Damages:

1. Ordinary Damages

2. Special Damages

3. Vindictive Damages

4. Nominal Damages

5. Liquidated Damages

Suit upon quantum meruit

The phrase quantum meruit literally means ‘as much as earned’. A right to sue on a quantum
meruit arises when a contract, partly performed by one party, has been discharged by breach
of contract by the other party. This right is performed not on original contract but on implied
promise by other party for what has been done.

Suit for specific performance

In certain cases of breach of contract damages are not an adequate remedy. The court may, in
such cases, direct the party in breach to carry out his promise according to terms of the
contract. This is a direction by the court for specific performance of the contract at the suit of
the party not in breach.
Suit for injunction

When a party is in breach of a negative term of contract the court may, by issuing an order,
restrain him by doing what he promised him not to do. Such an order of the court is called
injunction.
 THE COMPETITION ACT, 2002

Objective of the Competition Act, 2002

An Act, keeping in view of the economic development of the country, was laid
down to provide for an establishment of a commission with the following object:
-to prevent practices having adverse effect on competition,
-to promote and sustain competition in markets,
-to protect the interests of consumers,
-to ensure freedom of trade carried on by other participants in markets in India and
-for matters connected therewith or incidental thereto.

Features of Competition Act, 2002

The focus of the new law is towards the following areas affecting competition namely:
1. Prohibition of certain agreements, which are considered to be anti-
competitive in nature. Such agreements [namely tie in arrangements, exclusive
dealings (supply and distribution), refusal to deal and resale price maintenance] shall
be presumed as anti- competitive if they cause or are likely to cause an appreciable
adverse effect on competition within India.
2.Prohibition of Abuse of dominant position- If an enterprise by imposing unfair
or discriminatory conditions or limiting and restricting production of goods or
services or indulging in practices resulting in denial of market access or through in
any other mode are prohibited.
3. Regulation of combinations which cause or are likely to cause an appreciable
adverse affect on competition within the relevant market in India is also considered
to be void.
4. Entrust Competition Commission of India the responsibility of undertaking
competition advocacy, awareness and training about competition issues.

Definitions
Acquisition [Section 2(a)]
"Acquisition" means, directly or indirectly, acquiring or agreeing to acquire—
(i) shares, voting rights or assets of any enterprise; or
(ii) control over management or control over assets of any enterprise;
Agreement [Section 2(b)]
"Agreement" includes any arrangement or understanding or action in concert,—
(i) whether or not, such arrangement, understanding or action is formal or in
writing; or
(ii) whether or not such arrangement, understanding or action is intended to be
enforceable by legal proceedings;
Cartel [Section 2(c)]
"Cartel" includes an association of producers, sellers, distributors, traders or service
providers who, by agreement amongst themselves, limit, control or attempt to control
the production, distribution, sale or price of, or, trade in goods or provision of services.
Enterprise [Section 2(h)]
"Enterprise" means a person or a department of the Government, who or which is, or
has been, engaged in any activity, relating to the production, storage, supply,
distribution, acquisition or control of articles or goods, or the provision of services.
Goods [Section 2(i)]
"Goods" means goods as defined in the Sale of Goods Act, 1930 and includes—
(A) products manufactured, processed or mined;
(B) debentures, stocks and shares after allotment;
(C) in relation to goods supplied, distributed or controlled in India, goods
imported into India;
Person [Section 2(l)]
"Person" includes—
(i) an individual;
(ii) a Hindu undivided family;
(iii) a company;
(iv) a firm;
(v) an association of persons or a body of individuals, whether incorporated
or not, in India or outside India;
(vi) any corporation established by or under any Central, State
(vii) anybody corporate incorporated
(viii) a co-operative society

PROHIBITION OF CERTAIN AGREEMENTS, ABUSE OF DOMINANT

POSITION AND REGULATION OF COMBINATIONS
1. Anti competitive agreements (Section 3)
It shall not be lawful for any enterprise or association of enterprises or person or
association of persons to 'enter' into an agreement in respect of production, supply
of goods or provision of services, which causes or is likely to cause an appreciable
adverse effect on competition within India. All such agreements entered into in
contravention of the aforesaid prohibition shall be void.
Any agreement entered into between enterprises or associations of enterprises
or persons or associations of persons or between any person and enterprise or
practice carried on, or decision taken by, any association of enterprises or
association of persons, including cartels, engaged in identical or similar trade of
goods or provision of services, shall be presumed to have an appreciable
adverse effect on competition, which—
(a) directly or indirectly determines purchase or sale prices;
(b) limits or controls production, supply, markets, technical development,
investment or provision of services;
(c) shares the market or source of production or provision of services by way
of allocation of geographical area of market, or type of goods or services, or
 number of customers in the market or any other similar way;
(d) directly or indirectly results in bid rigging or collusive bidding.
However, any agreement entered into by way of joint ventures, if such
agreement increases efficiency in production, supply, distribution, storage,
acquisition or control of goods or provision of services, shall not be considered
to be an anti-competitive agreement.
Bid-rigging
"Bid rigging" means any agreement, between enterprises or persons engaged in
identical or similar production or trading of goods or provision of services,
which has the effect of eliminating or reducing competition for bids or
adversely affecting or manipulating the process for bidding.
Agreement at different stages in different markets
Any agreement amongst enterprises or persons at different stages or levels of
the production chain in different markets, in respect of production, supply,
distribution, storage, sale or price of, or trade in goods or provision of services
shall be a void agreement if it causes or is likely to cause an appreciable
adverse effect on competition in India including—
(a) tie-in arrangement - includes any agreement requiring a purchaser of goods,
as a condition of such purchase, to purchase some other goods;
(b) exclusive supply agreement - includes any agreement restricting in any
manner the purchaser in the course of his trade from acquiring or otherwise
dealing in any goods other than those of the seller or any other person;
(c) exclusive distribution agreement- includes any agreement to limit, restrict
or withhold the output or supply of any goods or allocate any area or
market for the disposal or sale of the goods;
(d) refusal to deal - includes any agreement which restricts, or is likely to
restrict, by any method the persons or classes of persons to whom goods are
sold or from whom goods are bought;
(e) resale price maintenance - includes any agreement to sell goods on
condition that the prices to be charged on the resale by the purchaser shall
be the prices stipulated by the seller unless it is clearly stated that prices
lower than those prices may be charged.

2. Abuse of dominant position (Section 4)

Sub-section (1), prohibits abuse of dominant position by any enterprise or
group. There shall be abuse of dominant position if an enterprise or a group, -
(a) directly or indirectly, imposes unfair or discriminatory—
(i) condition in purchase or sale of goods or services; or
(ii) price in purchase or sale (including predatory price) of goods or service,
or
["predatory price" means the sale of goods or provision of services, at a
price which is below the cost, as may be determined by regulations, of
production of the goods or provision of services, with a view to reduce
competition or eliminate the competitors.]
The unfair or discriminatory condition in purchase or sale of goods or
 service referred to in sub-clause (i) and unfair or discriminatory price in
purchase or sale of goods (including predatory price) or service referred to
in sub-clause (ii) shall not include such discriminatory condition or price
which may be adopted to meet the competition; or
(b) limits or restricts—
(i) production of goods or provision of services or market therefor; or
(ii) technical or scientific development relating to goods or services to the
prejudice of consumers; or
(c) indulges in practice or practices resulting in denial of market access in any
manner; or
(d) makes conclusion of contracts subject to acceptance by other parties of
supplementary obligations which, by their nature or according to
commercial usage, have no connection with the subject of such contracts;
or
(e) uses its dominant position in one relevant market to enter into, or protect,
other relevant market. Dominant position means a position of strength,
enjoyed by an enterprise, in the relevant market, in India, which enables it
to—

3. Combination (Section 5)
Section 5 deals with combination of enterprises and persons. The acquisition of
one or more enterprises by one or more persons or merger or amalgamation of
enterprises shall be a combination of such enterprises and persons or
enterprises, if—
(a) any acquisition where—
(i) the parties to the acquisition, being the acquirer and the enterprise,
whose control, shares, voting rights or assets have been acquired or are
being acquired jointly have,—
(A) either, in India, the assets of the value of more than rupees one
thousand crores or turnover more than rupees three thousand
crores; or
(B) in India or outside India, in aggregate, the assets of the value of
more than five hundred million US dollars, including at least
rupees five hundred crores in India, or turnover more than fifteen
hundred million US dollars, including atleast rupees fifteen
hundred crores in India; or
(ii) the group, to which the enterprise whose control, shares, assets or
voting rights have been acquired or are being acquired, would belong
after the acquisition, jointly have or would jointly have,—
(A) either in India, the assets of the value of more than rupees four
thousand crores or turnover more than rupees twelve thousand
crores; or
(B) in India or outside India, in aggregate, the assets of the value of
more than two billion US dollars, including at least rupees five
hundred crores in India or turnover more than six billion US
 dollars including at least rupees fifteen hundred crores in India; or
(b) acquiring of control by a person over an enterprise when such person has
already direct or indirect control over another enterprise engaged in
production, distribution or trading of a similar or identical or substitutable
service, if:-
(i) the enterprise over which control has been acquired along with the
enterprise over which the acquirer already has direct or indirect control
jointly have,-
(A) either in India, the assets of the value of more than rupees one
thousand crores or turnover more than rupees three thousand
crores; or
(B) in India or outside India, in aggregate, the assets of the value of
more than five hundred million US dollars including at least
rupees five hundred crores in India or turnover more than fifteen
hundred million dollars, including at least rupees fifteen hundred
crores in India; or
(ii) the group, to which enterprise whose control has been acquired, or is
being acquired, would belong after the acquisition, jointly have or
would jointly have,-

(A) either in India, the assets of the value of more than rupees four
thousand crores or turnover more than rupees twelve thousand
crores; or
(B) in India or outside India, in aggregate, the assets of the value of
more than two billion US dollars, including at least rupees five
hundred crores in India or turnover more than six billion US
dollars, including at least rupees fifteen hundred crores in India; or
(c) any merger or amalgamation in which—
(i) the enterprise remaining after merger or the enterprise created as a
result of the amalgamation, as the case may be, have,—
(A) either in India, the assets of the value of more than rupees one
thousand crores or turnover more than rupees three thousand
crores; or
(B) in India or outside India, in aggregate, the assets of the value of
more than five hundred million US dollars, including at least
rupees five hundred crores in India or turnover more than fifteen
hundred million US dollars, including at least rupees fifteen
hundred crores in India; or
(ii) the group, to which the enterprise remaining after the merger or the
enterprise created as a result of the amalgamation, would belong after
the merger or the amalgamation, as the case may be, have or would
have,—
(A) either in India, the assets of the value of more than rupees four-
thousand crores or turnover more than rupees twelve thousand
crores; or
 (B) in India or outside India, the assets of the value of more than two
billion US dollars, including at least rupees fifteen hundred crores
in India or turnover more than six billion US dollars, including at
least rupees fifteen hundred crores in India.
4. Regulation of combinations (Section 6)
As per this section, no person or enterprise shall enter into a combination which
causes or is likely to cause an appreciable adverse effect on competition within the
relevant market in India and such a combination shall be void.

Competition Commission of India

Establishment of Commission (Section 7)
Section 7 provides for the establishment of the Competition Commission of India.
The Commission shall be a body corporate by the aforesaid name having perpetual
succession and a common seal with power to acquire, hold and dispose of property
and to contract and shall sue or be sued. The place of head office of the Commission
shall be decided by the Central Government. Further, the Commission may
establishment offices at other places in India.
Composition of Commission (Section 8)
The Commission shall consist of the Chairperson and not less than two and not more
than six other Members, to be appointed by the Central Government. The Chairperson
and every other Member shall be a person of ability, integrity and standing and who
has special knowledge of, and such professional experience of not less then 15 years in
international trade, economics, business, commerce, law, finance, accounting,
management, industry, public affairs or competition matters, including competition law
and policy, which in the opinion of the Central Government, may be useful to the
Commission. The Chairperson and other members shall be whole time members.
Selection Committee for Chairperson and other Members of the commission
(Section 9)
The Chairperson and other Members of the Commission shall be appointed by the
Central Government from a panel of names recommended by a Selection Committee
consisting of –

(a) the Chief Justice of India or his nominee --- Chairperson;

(b) the Secretary in the Ministry of Corporate - Member;
(c) Affairs the Secretary in the Ministry of --- Member;
(d) Law and Justice - Members.
two experts of repute who have special ---
knowledge of, and professional -
experience in international trade, ---
economics, business, commerce, law, -
finance, accountancy, management,
industry, public affairs or competition
matters including competition law
and policy.
The term of the Selection Committee and the manner of selection of panel of names
shall be such as may be prescribed.
Term of office of Chairperson and other Members (Section 10)
The Chairperson and every other Member shall hold office for a term of five years
from the date on which he enters upon his office and shall be eligible for re-
appointment. However, no Chairperson or other Member shall hold office as such after
he has attained the age of sixty-five years.

Resignation, removal and suspension of Chairperson and other members (Section

11)
The Chairperson or any other Member may, by notice in writing under his hand
addressed to the Central Government, resign his office.

Restriction on employment of Chairperson and other Members in certain cases

(Section 12)
The Chairperson and other Members shall not, for a period of two years from the
date on which they cease to hold office, accept any employment in, or be connected
with the management or administration of, any enterprise which has been a party to a
proceeding before the Commission.

Administrative powers of Chairperson (Section 13)

The Chairperson shall have the powers of general superintendence, direction and
control in respect of all administrative matters of the Commission. The Chairperson
may also delegate such of his powers relating to administrative matters of the
Commission, as he may think fit, to any other Member or officer of the Commission.
Salary and allowances and other terms and conditions of service of Chairperson
and other Members
(Section 14)
The salary, and the other terms and conditions of service, of the Chairperson and other
Members, including travelling expenses, house rent allowance and conveyance facilities,
sumptuary allowance (expenses of living) and medical facilities.

Vacancy, etc. not to invalidate proceedings of Commission (Section 15)

Appointment of Director General, etc. (Section 16)

The Central Government may, by notification, appoint a Director General for the
purposes of assisting the Commission in conducting inquiry into contravention of
any of the provisions of this Act and for performing such other functions as are, or
may be, provided by or under this Act.
The number of other Additional, Joint, Deputy or Assistant Directors General or
such officers or other employees in the office of Director General and the manner of
appointment of such Additional, Joint, Deputy or Assistant Directors General or
such officers or other employees shall be such as may be prescribed.
Duties
Duties of Commission (Section 18)
This section provides that it shall be the duty of the Commission to eliminate
practices having adverse effect on competition, to promote and sustain competition
in markets in India, to protect the interests of consumers and to ensure freedom of
trade carried on by other participants in markets in India. The Commission may for
the purpose of discharging its duties or performing its functions under this Act, enter
into any memorandum or arrangement, with the prior approval of the Central
Government, with any agency of any foreign country.

COMPETITION APPELATE TRIBUNAL

The Tribunal is-

• to hear the appeals against any direction issued or decision made or order passed
by the Commission;
• to adjudicate on claim for compensation that may arise from the findings of the
Commission or the orders of the Appellate Tribunal in an appeal against the
finding of the Commission or and pass orders for the recovery of compensation
under Section 53N of the Act.

COMPOSITION OF TRIBUNAL:

The Tribunal shall consist of a Chairperson and not more than two other
members to be appointed by the Central Government.

Qualification:

The Chairperson of the Tribunal shall be a person, who is or has been a Judge of the
Supreme Court or the Chief Justice of a High Court. A member of the Tribunal shall be a
person of ability, integrity and standing having special knowledge of, and professional
experience of not less than twenty five years in experience.

The Chairperson and members of the Tribunal shall be appointed by the Central
Government from a panel of names recommended by the Selection Committee.

Tenure:

The Chairperson or a Member of the Tribunal shall hold office as such for
a term of five years from the date on which he enters upon his office and shall be eligible
for reappointment. No Chairperson or other member of the Tribunal shall hold office as
such after he has attained-

• in the case of the Chairperson, the age of sixty eight years;

• in the case of any other member the age of sixty five years

Disqualification:

Sec. 53K of the Act deals with the disqualification of the Chairperson and
the members. The Central Government may, in consultation with the Chief Justice of
India, remove from office of the Chairperson or any other member of the Tribunal who-

a) has been adjudged an insolvent; or

b) has engaged at any time, during his term of office, in any paid employment; or
Penalty for contravention of orders of Competition Commission

Section 42 provides penalty for contravention of orders of Competition Commission.

The Commission may cause an inquiry to be made into compliance of the orders or
directions made in exercise of its powers under this Act. If any person fails to comply
with the orders or directions of the Commission issued under-

• Section 27 – Orders by Commission after inquiry into agreements or abuse of

dominant position;
• Section 28 – Division of enterprise enjoying dominant position;
• Section 31 – Orders of Commission on certain combinations;
• Section 32 – Acts take place outside India but having an effect on competition in
India;
• Section 33 – Interim orders issued by Commission;
• Section 42A – Compensation in case of contravention of order of Commission;
• Section 43A – Order for penalty for non furnishing of information on
combination.

of the Act, he shall be punishable with fine which may extend to ₹ 1 lakh for each day
during which such non compliance occurs, subject to a maximum of ₹ 10 crore, as the
Commission may determine.

If any person does not comply with the orders or directions issued, or fails to pay the fine
imposed under this section, he shall be punishable with imprisonment for a term which
will extend to three years, or with fine which may extend to ₹ 25 cores or with both, as
the Chief Metropolitan Magistrate, Delhi may deem fit. This action is without prejudice
to any proceedings to be taken under Section 39, which deals with execution of orders of
Commission imposing monetary penalty.

The Chief Metropolitan Magistrate, Delhi shall not take cognizance of any offence under
this section save on a complaint filed by the Commission or any of its officers authorized
by it.

Compensation in case of contravention of orders of Commission

Section 42A of the Act provides that any person may file an application to the Appellate
Tribunal for an order for the recovery of compensation from any enterprise for any loss or
damage caused for the contravention of the orders of the Commission issued under
Sections 27, 28, 31, 32 and 33 or any condition or restriction subject to which any
approval, sanction, direction or exemption in relation to any matter has been accorded,
given, made or granted under this Act or delaying in carrying out such orders or
directions of the Commission.

Penalty for failure to comply with directions of Commission and Director General

Section 36 (2) provides that the Commission shall have, for the purposes of discharging
its functions of this Act, the same powers as are vested in a Civil Court under the Code of
Civil Procedure, 1908 while trying a suit, in respect of the following matters, namely:-

• summoning and enforcing the attendance of any person and examining him on
oath;
• requiring the discovery and production of documents;
 • receiving evidence on affidavit;
• issuing commission for the examination of witnesses or documents;
• requisitioning, subject to the provisions of Sections 123 and 124 of the Indian
Evidence Act, 1872 any public record or document or copy of such record or
document from any office.

Section 36(4) provides that the Commission may direct any person-

• to produce before the Director General or the Secretary or an officer authorized by

it, such books or other documents in the custody or under the control of such
person so directed as may be specified or described in the direction, being
documents relating to any trade, the examination of which may be required for the
purpose of this Act;
• to furnish to the Director General or the Secretary or any other officer authorized
by it, as respects the trade or such other information as may be in his possession in
relation to the trade carried on by such person, as may be required for the
purposes of this Act.

Section 41(2) provides that the Director General shall have all the powers as are
conferred upon the Commission under Section 36(2) of the Act.

Section 43 provides that if any person fails to comply without reasonable cause, with a
direction by the Commissioner under Section 36(2) and Section 36(4) and the directions
of the Director General while exercising his powers under Section 41(2), such person
shall be punishable with fine which may extend to ₹ 1 lakh for each day during which
such failure continues subject to a maximum of ₹ 1 crore as may be determined by the
Commission.

Penalty for non furnishing of information on combination

Section 43A provides that if any person or enterprise who fails to give notice to the
Commission under Section 6(2) of the Act, the Commission shall impose on such person
or enterprise a penalty which may extend to 1% of the total turnover or the assets,
whichever is higher, of such a combination.

Penalty for making false statement or omission to furnish material information

Section 44 provides that if any person, being a party to a combination makes a statement
which is false in any material particular or knowing it to be false or omits to state any
material particular knowing it to be material, such person shall be liable to a penalty
which shall not be less than ₹ 50 lakhs but which may extend to ₹ 1 crore, as may be
determined by the Commission.

Penalty for offences in relation to furnishing of information

Section 45 provides that without prejudice of the provisions of Section 44, if a person,
who furnishes or required to furnish any particulars, documents or any information-

• makes any statement or furnishes any document which he knows or has reason to
believe to be false in any material particular; or
• omits to state any material fact knowing it to be material; or
 • willfully alters, suppresses or destroys any document which is required to be
furnished as aforesaid,

such person shall be punishable with fine up to ₹ 1 crore as may be determined by the
Commission. Further the Commission pass such order as it deems fit.

Power to impose lesser penalty

Section 46 gives powers to the Commission to impose lesser penalty than specified in the
provisions meant for imposing penalties. The said section provides that the Commission
may, if it is satisfied that any producer, seller, distributer, trader or service provider
included in any cartel, which is alleged to have violated Section 3, has made a full and
true disclosure in respect of the alleged violations and such disclosure is a vital, impose
upon such producer, seller, distributor, trader or service provider a lesser penalty as it
may deem fit, than leviable under this Act or rules or the regulation.

The lesser penalty shall not be imposed by the Commission in case where the report of
investigation has been received before making such disclosure. The lesser penalty shall
not be imposed if the person making the disclosure does not continue to co-operate with
the Commission till the completion of the proceedings before the Commission.

The lesser penalty shall be imposed only in respect of a producer, seller, distributor,
trader or service provider including in the cartel who has made the full, true and vital
disclosures under this Section. If the Commission is satisfied that such producer, seller,
distributor, trader or service provider included in the cartel had in the course of
proceedings-

• not complied with the condition on which the lesser penalty was imposed by the
Commission; or
• had given false evidence; or
• the disclosure made is not vital and thereupon such producer, seller, distributor,
trader or service provider may be tried for the offence with respect to which the
lesser penalty was imposed and shall also be liable to the imposition of penalty to
which such person have been liable,

lesser penalty not been imposed.

Contravention by companies

Section 48 provides that where a person committing contravention of any of the

provisions of this Act or of any rule, regulation, order made or direction issued there
under is a company, every person who at the time of the contravention was committed,
was in charge of and was responsible to the company for the conduct of the business of
the company, as well as the company, shall be deemed to be guilty of the contravention
and shall be liable to be preceded against and punished accordingly. If such person
proves that the contravention was committed without his knowledge or that he had
exercised all due diligence to prevent the commission of such contravention then he will
not be punishable.