Historical Evolution of Contract Law in India

By | July 29, 2019
Void Agreements

To understand the contract act in its present form we have to analyze its evolution taking into account the practices that were prevalent before the enactment came into practice.

Introduction

Contract act is one of the principal acts governing all the contractual relations not only in the business world but also from day to day life. Contract act is one of the most important legislation ever drafted by Britishers and the principles enacted therein are nothing but the codification of the general principle governing transactional relationship because of which it has seen seldom amendments. The basic principle of contract law remained the same throughout the world only certain technicalities remain different.

Before the contact act was enacted, the contractual relationship was governed by the personal laws of different religious communities like different laws for Hindus and Muslims. Also at that time, Britishers had their own law to govern to, but because of the presence of so many divergent laws, it created confusion in implementation of the contract & in case if any dispute arises between the parties. So to promote business transactions, contract act was enacted to make business transactions more convenient.

Now, to understand the contract act in its present form we have to analyze its evolution taking into account the practices that were prevalent before the enactment came into practice. We shall be mainly analyzing the Rome Period (to understand Common Law Principle), Muslim Period, Hindu Period, British Regime and the Present Enactment.

I. Different time periods

  1. Roman period

The earliest common law principle to contract law can be traced back during the Roman Empire, where twelve tables were the law. At that time there exist 5 types of the contract governing contractual relations which were[1]:-

  1. Ivsivrandum: – is derived from Iouisiurandum, which indicate that Jupiter was the god which people generally swore. As per this contract, the promisor has to call upon the gods to declare verbally that he will bind by the rules of the contract and if he violates it, he shall be punished. The sanctions imposed on the promisor include withdrawal of divine protection, which means any person can kill him.
  2. Sponsor: – this form of contract was similar to that of the previous one, but was different in regard to stages in which the contract was developed:-
  • At the first stage, the wine was sacrificed to indicate the compact of alliance or peace made under the oath of gods
  • In this stage, the sacrifice is used as an appeal to the gods in compact not made under oath.
  • Lastly, it’s the verbal agreement implying the accomplishment of wine sacrifice, but at the making of the contract, no such act is undertaken.

The punishments for breach of performance were decided by the priests and were abided by the parties of the contract.

  1. Nexum: – this type of contract is mainly related to loans and sales. In loan agreement, the borrower has to declare himself indebted to the other party for the sum he is taking as a loan. In the sales agreement, the sale can take place only in the presence of 5 people and the amount to be paid is decided by the official weigher. In case there is a breach of contract, the creditor has the option to invoke any of the violent measures as inscribed in the law. It’s a debt bondage contract which was abolished by the Lex Poetelia Papiria in 326 BC.[2]
  2. Dotis dictio: – this contract was related to dowry agreement between bride and groom. In this contract, the father of the bride, or the bride herself set forth the amount and nature of dowry to be governed to the groom and it’s declared in presence of the groom. Since this was a social agreement, there wasn’t any punishment in case of breach of contract. The only remedy that the groom family has in case of breach is to compel the bride’s family in fulfilling the contract.

Apart from the above-mentioned forms of contract, there are also other types of contracts that were prevalent in the Roman period, which were,[3]

  1. Lex Mancipi:- this contract was equivalent to the modern day’s contract of transfer of property
  2. Fiducia:- it was an ancillary contract to the above form of contract
  3. Uadimonium: – this contract was similar to today’s contract of guarantee.

Though the taxonomy & characteristics of all the forms of contract may be different, it still was governed by the basic principle of contract law which was[4]:-

  1. Intentions of the parties have to be communicated to both the parties unequivocally
  2. The roman law followed the unilateral principle of contract law, as per which promisor was bound by the contract but wasn’t entitled to anything from the other parties
  3. The consent of the parties was based on divine approval.

Mohammedan period

In India, during the British regime, the two prevalent religion having separate personal laws were Hindus and Muslims and each had a separate idea as to what constitutes contractual agreement and when shall breach takes place and what were the sanctions.

Mohammedans followed Islamic laws which are considered as the divine origin and are believed as the revelations of the god/Allah. According to Islamic law, every aspect of their civil law revolves around the contract, like their contract for marriage, or their contract for the inheritance of property. The source of Islamic contract law is Surah Al-Maidah, Ayah[5].

The word “contract” in Arabic is Aqd which means conjunction. It denotes the conjunction of the proposal (ijab) and acceptance (Qabul). The basic principle which the law-governed was that there should be a presence of two parties, one should make the offer and other should accept it and both must agree to the same thing in the same sense and the object of the contract should be to produce a legally valid result.[6] Transaction related to any matter was treated as secular contracts and provisions for there to settle the disputes to every type of contract even property and succession.

The unlawful transactions were considered void from the beginning under Muslim laws. These types of transactions were divided into two categories under Muslim laws[7]:-

  1. Riba Al-fadl:- in this case, it’s a contract which produced unlawful excess in exchange of counter values in a contemporaneous transaction.
  2. Riba Al-Nasi’a:- which means a contract which produced unlawful gain without completing the exchange of counter values.
  3. Riba al-jahilya:- it’s also called pre-historic riba, where the lender asks the borrower whether he will settle the debt or increase the debt,

Another type of transaction that was prohibited under Muslim Laws and the same stance was taken under the Indian Contract Act were the contract related to gambling, contingent contract or wagering contracts. These types of contracts were called gharar and were strictly prohibited in the Quran in the verse Sura 2 Al- Baqarah Ayah 219 and Sura 5 Al- Maida Ayah 93 & 94. These types of contracts were also applied to speculative and aleatory contracts. The basic principle which is followed and which is also retained in the Indian Contract Act is that of a contract is entered into where the consideration is dependent on the future performance of a certain event or if the consideration is not determined then it’s not allowed as per law.

The formation of a contract according to Islamic law doesn’t require any kind of formality; the only requirement is that the express consent of both parties. The proposal and acceptance must be made of the same thing in the same sense (mujlis). Furthermore, the Islamic law classifies as per their special features and following are the type of contracts[8]:-

  1. Alienation of Property:-
  2. for an exchange like sale or
  3. without exchange like giving a simple gift, or
  4. To create succession namely bequest.
  5. Alienation of usufruct:-
  6. In exchange for property, namely ijara, where the movable and immovable things are given for hire, contracts for giving service like a carriage for goods, safe custody of property.
  7. Not being in exchange of property like an accommodate loan (a’riat) and deposit (wadiyut)
  8. Alienation of marital services
  9. Contracts for securing discharge of obligations like a pledge, suretyship.

Islamic laws provide two modes for invalidation of contracts, first is the right of either party to rescind the contract unilaterally without any legal cause and the second one is to terminate the contract on the ground of frustration. The grounds of dissolution of contracts are as follows[9]:-

  1. Invalidation by mutual agreement
  2. Cancellation of the contract by the death of either party or destruction of subject matter or expiry of the time- period
  3. Cancellation by termination by either party
  4. Dissolution by the termination of the contract
  5. Hindu law

The Jurisprudential aspect of the Hindu law is fundamentally different from that of English law’s jurisprudence. Hindu law is the result of the compilation of numerous customs and works of Smritikaras, who interpreted and analyzed Vedas to develop the various aspect of Hindu law. The Hindu law dealt with contract law through titles.

Manusmriti in regarding the contract law dealt with the incompetence to enter to contract. It laid down the principle which is also followed in the Indian Contract Act, states that a contract entered by a minor, or intoxicated person or an old man or the cripple is not a valid contract.[10]  The famous India philosopher Kautilya added to the list of disqualified persons who are not allowed to enter into the contract and included a contract between husband and wife or between parents and son or between brothers or brother and sister or between slave and hired labour.

Manu also dealt with the fraudulent aspect of the contract and it stated that any contract dealing with mortgage, sale, fraudulent gift or any contract which is motivated with fraudulent aspect shall be declared null and void. Also, he held that any consent given for any transaction under the pressure of threat or coercion shall also be declared void.[11]

Regarding the contract by a minor, under Narada Smriti an infant is considered is someone who is between in the stage of an embryo to up to 8 years. After that, from 8 years to 16 years the child is considered as boyhood and after 16 years the person is competent to enter into a contract. So it can be concluded that the age of majority to enter into a contract is 16 years, 2 years less than what has been prescribed under the Indian Contract Act.

The ancient priest katyanana propounded a principle which still holds good is that when a contract has been entered and earnest money has been taken in that respect and when that person is not able to perform that contract then the King should make the other party pay double the earnest money as a form of punishment. The purpose of it is that the person should suffer the loss for not fulfilling the contract.[12]

This leads to the fundamental aspect of the contract which is the same for both the Muslim law and Hindu law and the same principle is there in contract act is that when any agreement is entered into which is contrary to the law then it shall have no legal force.[13]

  1. British regime

 Britishers came to India around 1600 and they started governing India through the medium of charters and different regulations. By the Regulating Act of 1773, the Supreme Court of Judicature was founded in Calcutta replacing the Mayor’s court and it served as the highest court of British India from 1774 to 1862 till the time High Court of Calcutta was established under Indian High Courts Act.[14] It had jurisdiction over every person residing in Bengal, Bihar, and Orissa and had the power to exercise jurisdiction over civil, criminal, admiralty cases.

Now, before the advent of the Indian Contract Act, the English Law was applied in the Presidency Towns of Madras, Bombay, and Calcutta under the Charter of 1726 issued by King George I to the East India Company.

Now with the indiscriminate application of English law in governing the contracts formed as per their personal laws that it formed quite inconvenience to govern the jural relationships. So to remove the legal barrier the Settlement Act of 1781 as passed by the Britishers provided that matters concerning the inheritance, succession, and contracts between the parties in the case of Hindu and Muslims where to be followed their respective personal laws. But in the case where one of the parties is from either of the religion like if one party is Hindu and other is Muslim then, in that case, the law of the defendant is to be used. This was followed in the presidency towns, but in cities outside the presidency towns, the matter was governed by justice, equity and good conscience. This procedure was followed until the time the Indian Contract Act was implemented in India[15].

In the years 1862, the introduction of the High Courts took place in the town of Bombay, Calcutta, and Madras and the charter of these High Courts also contained the same provision as pervious law that High Courts to apply the personal laws of the respective religions before rendering any judgments in respect to the contract cases. But this was all subject to the legislative powers of the ‘Governor-General in Council’ as described in clause 44 of the charter of 1865. But still, high courts were still bound to exercise their jurisdiction in applying the personal laws of the Hindus and Muslims as prescribed clause 19 of the charter of 1865 in the expression ‘law and equity’.[16]

 III. The advent of the Indian contract act

The Indian Contract Act as applied today’s was drafted originally by the third Indian Law Commission in the year 1861 in England. The Indian Contract Bill tried to defined laws relating to Contracts, Sale of movable properties, Indemnity, Guarantee, Agency, Partnership, and Bailment.

The scope of the bill was to bring in the Indian Contract Act in consonance with the English law on the same subject as established by the recognized practice, statute and judicial decisions.

The bill was not the complete law of contract, but the aim of the bill was to suffice the need of the country for a considerable period of time and during that period, judges of the courts were taking the help of English laws in determining the case when they failed to arrive at the judgments by considering the justice, equip and good conscience. And it was decided that even if some deficiency is found in the bill, it could be added as new chapters, so the bill was drafted to concise the law of contracts to suit the needs of the people.

The drafters of the bill knew that different religious people followed personal laws and for them it will be difficult to abide by the new rules, so provisions were made so that the special customs of the personal laws governing any aspect of the contractual relationships would not be affected by the new law, unless and until they are not in contrary to the new rules[17].

Though the drafters tried their best to imbibe the regular practices which were followed in India in the bill, they failed to do so. One particular instance is that in case of a dispute regarding the peculiarities of the contract, the Indian Courts refused to take into account the English law in deciding the case, but took help of broader and safer law in determining the case where the usual principle is that whatever man promises he must perform. But this aspect was not included in the draft bill. This would be mean that a man whoever the compelling situation maybe for not abiding by his promise, once he made a promise he has to perform it the last day of your life. Though it may seem that a rigid principle like this would make sense, some exceptions have to be provided or else it would be a gross injustice to the community. Even with the vice-like this, the contract law came into effect[18].

The act came into effect in 1872 but soon afterwards amendments were made in that regard, which repealed section 76 to 123 dealing with the sales of goods act and separate legislations were enacted called ‘Sales of Goods Act 1930’ to govern that area. Also, section 239 to 266 dealing with partnership was repealed and new legislation was enacted called ‘Indian Partnership Act 1932’.

IV. Conclusion

By Analysing the development of the contract through different time periods ranging from Roman law to Muslim Law to Hindu law and then to legal sanctions in British Regime, it can be concluded that though the technicality and the modes and means of punishment may vary, even the applicability of the law may vary, but the underlying principle of all the laws remained the same, that minor cannot contract, consent should be given by both the parties for the same manner and same sense and that certain person is disqualified from contracting like intoxicated, old person cannot contract. It can be further concluded that Britishers tried to codify the law to bring in uniformity but they also tried to incorporate the personal laws of the different religious groups unless they are in contrary to the main law, as they realized that underlying principle for personal law is similar to that of the contract act. So it can be said that through different time period the contract law has been amended and interpreted in a different way in different communities, but general principles unchanged and no attempt has been made to change it.


[1] WH Buckler, The Origin and History of Contract in Roman Law, (CJ Clays & Sons London, 1985)

[2] Maine, Henry Ancient Law, Its Connection with the Early History of Society, and Its Relation to Modern Ideas (1st Edn, London: John Murray, 1908).

[3] Id.

[4] Id.

[5] Al-Quran Translation Yusuf Ali, < http://www.islam101.com/quran/yusufAli/> accessed 10 July 2019.

[6] Noor Mohammed, ‘Principles of Islamic Contract Law’ 6 Journal of Law and Religion (1988)

< https://www.jstor.org/stable/pdf/1051062.pdf?refreqid=excelsior%3A0375b6390152b6c5a708d84c8a09b05f > accessed 10 July 2019.

[7] Id.

[8] Abdur Rahim, The Principles of Muhammdan Jurisprudence (Luzac & Co 1911) p 282.

[9] Noel J Coulson, Commercial laws in Gulf States: the Islamic Legal Traditions’ (Graham & Trotman, 1984) p75

[10] Patrick Olivelle, Manu’s Code of Law, (Oxford Press 2005) p 14.

[11] Jagannatha tarcapanchanana, Digest of Hindu Law on Contracts and Succession: A Commentary, (4th edn, Higginbotham & Co 1875)

[12] Id.

[13] Culla, Institute Of Hindu Law Ordinance of Manu (WH Allen & Co 1869).

[14] Indian High Courts Act 1861.

[15] MP Jain, Outlines of Indian Legal and Constitutional History (7th edn, LexisNexis 2018).

[16] Id.

[17] Atul Chandra Patra, ‘Historical Background of the Indian Contract ACT 1872’ 4  ILI (1962) p 373-400.

[18] Id.

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Author: Sagnik Sarkar

Sagnik Sarkar is currently studying BBA LLB in National law University, Odisha and is in his 3rd year. He is interested in mooting, writing a research paper and has publications in his name. Writing a research paper and mooting has helped him in his editing and formatting ability.

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