 Example/Situation: You attend a job interview of a reputed

company

 The company selects you, offers a job and provides an

employment agreement

 You sign the employment agreement

 What does employment agreement contain? Is it a contract?

 Contract- Agreement enforceable by law

 Employment agreement is a contract

• Example/Situation: Husband promised to take his wife for a vacation

to Singapore, but later refused.

• Agreement between brothers regarding division of the family

business

• Are these contracts?

 Social agreements are not enforceable by contract law

 Contract law is primarily dealing with commercial/business

agreements

 Hence 1st example- Not within the realm of contract law

 Hence 2nd example- Within the realm of contract law

 A founder member of the team allege that there was a contract
regarding allotment of shares

 Paytm refutes stating that it is just a letter of intent and no

definite contract was entered into place.

 What parameter law uses to understand this situation?

 Binding v Non-binding agreement: https://www.youtube.com/watch?v=JdsJmk5-5z0

 For forming a contract, parties should have intention to create

binding legal relationship

 Courts usually presumes that people want to enter into legally

binding agreement.

 As a best practice it is recommended to clarify the arrangement

is non-binding in the document itself. This helps parties to keep

the options open.

 Force Motors Ltd entered into a non-binding term
sheet with Rolls-Royce Power Systems to form an
Indian Joint Venture for producing engines
Bringing some certainty to months of discussions,
Softbank-backed e-commerce firm Snapdeal has
finally agreed to a non-binding letter of intent (LoI)
for a merger with rival Flipkart, according to a
source privy to the development.
 Not the name/nomenclature of document that matter but
whether the intention of parties is clear or not

 Non-binding agreement provide flexibility to business

 To continue the agreement

 No unwanted legal dispute and cost

 Test compatibility with the business partner and market condition

 Agreement = Offer + Acceptance

 Offer, acceptance and consideration are essential for a

contract

 Example: Gayatri offers to sell her luxury flat for Rs. 2 crore
to Hema. Hema agrees to buy it
 Ravi calls the toll free number of Jumbo Pizza and asks for 1

Cheese Burst Pizza for Rs.500/-.

 Jumbo Pizza employee confirm 1 Cheese Burst Pizza for Rs.

500/-

 When pizza was delivered Ravi denied to collect and pay for it
 Jumbo Pizza mentions that the recorded telephone
conversation is a contract. Is it correct?
 Contracts formed through spoken offers and acceptances, are

as valid as contracts formed through a written offer and

acceptance.
Points to Ponder

 Which are the contracts relevant for start-ups?

 Which are the contracts relevant for JV?

 Which are other contracts usually used by corporate organizations?

 “Comprehensive contracts for CEOs become the new norm” - Times

of India
 Trimex International v. Vedanata (SC)
 Trimex submitted a commercial offer through e-mail for the supply
of Bauxite to the Vedanta.

 After several exchanges of e-mails and after agreeing on the

material terms of the contract, the respondent conveyed their
acceptance of the offer through e-mail

 Information Technology Act also allows contracts to be formed over

internet
• Ex. Sharukh bought a mobile phone on
Flipkart

• Is this contract?

• Who are the parties to the contract?

 “The Website is a platform that Users utilize
to meet and interact with one another for
their transactions. Flipkart is not and cannot
be a party to or control in any manner any
transaction between the Website's Users.”
 “Hence forward: All commercial/contractual terms are
offered by and agreed to between Buyers and Sellers
alone.
 The commercial/contractual terms include without
limitation price, shipping costs, payment methods,
payment terms, date, period and mode of delivery,
warranties related to products and services and after
sales services related to products and services.
 Flipkart does not have any control or does
not determine or advise or in any way involve itself in
the offering or acceptance of such
commercial/contractual terms between the Buyers and
Sellers.”
 E- commerce transaction are also contracts

 Flipkart is just a platform for transactions between buyers and

sellers (as per Flipkart terms and condition)

 Contract is between Sharukh and the seller selling on Flipkart

 Are all e-commerce website platforms?

 Does it mean that Flipkart have no contractual obligation?

 “The rules have also introduced the concept of “fall-back
liability”, which says that e-commerce firms will be held liable in
case a seller on their platform fails to deliver goods or services
due to negligent conduct, which causes loss to the customer.
 In several cases, when problems arise with goods purchased from
their marketplaces, e-commerce platforms direct the consumers
to the respective sellers to solve any grievance. With fall-back
liability, consumers will be able to reach out to the platform
itself”.
 Example: Sachin walks into LIC office and expresses interest in

joining an insurance policy

 The officer pulls out a 10 page long policy agreement and asks

Sachin to sign on it

 Sachin states that he want to change the policy agreement

 The contract terms are already written by the LIC and officer said it

can’t be changed-‘Take it or leave it’ contracts

 Provides convenience to business organisations

 Reduce burden of negotiating and forming a new contract for

each customer

 Prevalent in all form of business/commercial activities

 BK Ltd. sent important original documents relating to an export

consignment to a party in Germany with DHL.

 Only the original documents would have enabled the party in

receiving the consignment.

 DHL lost the courier, causing losses to BK Ltd.

 BK Ltd. was demanding the actual losses suffered by them.

 DHL made all its customers sign a standard form containing a term

that limited the liability of the DHL in the event of loss of courier to
Rs.1000

 Are standard form contract and limited liability clause

enforceable?

 Are limited liability clauses significant for business?

 Court held: A person who signed a document containing contract

and terms is normally bound by them even though he has not

read them, and even though he is ignorant of their precise legal
effect

 Standard form contract and limited liability clauses are usually

enforceable
 Standard contracts are criticised for being only advantageous

for business organisations- One sided contracts

 What about consumer’s interest?

“A typical contract for the purchase of house from a developer is so
one-sided as to be a joke, except that the joke is on you, when you are
the home-buyer.

Take some typical clauses. If the buyer delays an instalment by fifteen

days, he pays a penal interest at the rate of 18% per annum; but when
a builder delays on his promise by a year, he rarely pays more than
1% per annum on the buyer payments! And these payments could
well amount to a lifetime savings of an average professional.”
(Dealing with one-sided contracts, ET 2008)
 Are standard form contract a business necessity?

 Should consumer interest be incorporated in standard

contracts? If yes, how?
 Regarding B2C contract-

 Consumer courts intervene to determine unfairness of contract

 Regulatory bodies also look at unfairness issue in contract

 Unfair contract is defined to include –
 requiring manifestly excessive security deposit
 refusing to accept early repayment of debts on payment of
applicable penalty;
 imposing on the consumer any unreasonable charge, obligation
or condition which puts such consumer to disadvantage
 Real Estate Regulatory Authority-
 A default on the possession timeline by JNC Construction
prompted the Uttar Pradesh RERA authority to order a refund
with 24 percent interest and a compensation of Rs 2.5 lakh for
mental distress

 RERA can strike down the one sided clauses

 Insurance Regulatory and Development Authority- Mandatory
grace period of 15 days to cancel the insurance contract to be
provided by all insurance companies - Free look period

 SEBI

 TRAI
 The terms of a signed contract bind the parties to the contract

even if they have not read the terms or are not aware of them.

 Standard Form Contracts are pre-printed forms containing the

terms on which a corporation does business with its customers.

 Y entered into an agreement with X for betting on a cricket

match

 X entered into an agreement with Y for influencing and in case

needed bribing for business needs

 Are these agreements valid contract?

 Sports betting is not legal in India

 Bribing is illegal
 Agreement entered into by a minor (below 18 )is not a valid

contract
 What happens if a minor attempts to buy a product online?

 How can e-commerce companies deal with this issue?

 Flipkart Membership Eligibility:
 “Use of the Website is available only to persons who can form
legally binding contracts under Indian Contract Act, 1872. Persons
who are "incompetent to contract" within the meaning of the
Indian Contract Act, 1872 including minors, un-discharged
insolvents etc. are not eligible to use the Website.
 “If you are a minor i.e. under the age of 18 years, you shall not
register as a User of the Flipkart website and shall not transact on
or use the website. As a minor if you wish to use or transact on
website, such use or transaction may be made by your legal
guardian or parents on the Website”
 “Flipkart reserves the right to terminate your membership and /
or refuse to provide you with access to the Website if it is brought
to Flipkart's notice or if it is discovered that you are under the age
of 18 years.”
 Example: Mahajan took a policy with the LIC. Despite his

treatment by a doctor for serious ailments just a year back, he

made a false statement in the policy to the effect that he had
not been treated by any doctor

 Insurance agreement affected by fraud

 What are the important clauses in a
standard business contract document?
 Preamble
 Interpretation & definitions
 Scope & specifications
 Price
 Timelines for performance
 Terms of payment
 Price variation
 Taxes & duties
 Force majeure
 Defaults & liquidated damages
 Inspection & acceptance
 Warranty
 Patents, copyrights (IPR clauses)
 Indemnities
 Spares
 Termination
 Resolution of disputes
 Confidentiality
 Survival
 Amendments
 Applicable Laws
 Effective Date
 Notices
 Contract Signatures
 Example/ Situation

 Tata-Docomo Dispute: Tata expressed inability to buy back

DoCoMo’s 26 per cent share in the joint venture (JV) as per the JV
Agreement

 Failure of Tata to perform the term in the JV Agreement led to

dispute

 $ 1.18 billion damage to be paid to Docomo

 In case of breach of contract terms parties can claim for
Damages

 Damages- The suffering party’s right to compensation

 Example/Situation: Mega Builders Ltd entered into a contract with

Great Steel Ltd to procure steel required for construction

 Great Steel Ltd is to provide steel by 15th December, 2020

 As per the contract, if Great Steel Ltd fails to do so, they have to pay

damages of Rs. 5 lakh per day

 Eg. Pizza within 30 minutes

 Pre-determined amount for damages to be paid is mentioned

in the contract
 What is the benefit of pre-determining the damages to be
paid?
 Avoid dispute and court proceedings

 Clarity on the amount to be paid

 Caps the maximum damage to be paid in case of default

 “In the event of the CONTRACTOR’s failure to submit the Bonds,
Guarantees and Documents, supply the stores/services and
conduct trials, installation of equipment, training, etc as specified in
this contract, the BARC may, at his discretion, withhold any payment
until the completion of the contract.

 The BARC may also deduct from the CONTRACTOR as agreed,

liquidated damages to the sum of 0.5% of the contract price of the
delayed/undelivered stores/services mentioned above for every
week of delay or part of a week, subject to the maximum value of
the Liquidated Damages being not higher than 5% of the value of
delayed stores/services.”
 Example/Situation: Great Steel Ltd was supposed to provide
10,000 kg of steel to Best Infrastructure Ltd by 1st October, 2020

 Due to heavy flooding and cyclone the Great Steel is not in a

position to honour the contractual obligation

 Great Steel Ltd informed Best Infrastructure that flooding and

cyclone are events beyond their control
 Force Majeure- Impossibility of performance of contract due to

situation beyond the control of the parties

 Releases both the parties from contractual obligation

 Also referred to ‘Act of God’

 Is riot, act of terrorism a force majeure event?

 Force Majeure- Impossibility of performance of contract due to

situation beyond the control of the parties/unforeseen event

 Releases both the parties from contractual obligation

 Also referred to ‘Act of God’

 What events should a Force Majeure clause include?

Force majeure and terrorism
 The unfortunate new reality post 9/11 and 26/11 is that terrorism is a
very real threat and may unfortunately no longer be considered as an
unforeseen possibility, thereby making it more difficult for parties to
claim Force Majeure. This needs to be considered by parties entering
into agreements.
 Thus, contracting parties may now consider amending standard force
majeure provisions by including “acts of terrorism” as an enumerated
Force Majeure event
 Force majeure events should be defined in the contract

 In case force majeure events are not defined, it could lead to

legal dispute
 “India’s Reliance Industries has declared force majeure on
gasoline exports from its Jamnagar site
 The force majeure follows an unspecified issue at a gasoline-
producing plant
 Force majeure is typically declared when matters deemed
beyond a refinery’s control disrupt supplies, allowing it to void
some of its contractual obligations to customers.”