In order to carry out business operations, parties are required to enter into an arrangement which has the effect of creating binding obligations on them. A contract is an agreement, the terms of which are enforceable by law. Governed under the provisions of the Indian Contract Act, 1872 (hereinafter referred to as the "Act"), failure to fulfil the duties set out under the contract entails liability on the party causing the breach.
Events of termination
Some of the circumstances which result in termination of a contract between the parties are listed as below:
- Coercion – A contract can be terminated on the account that a party has exercised coercion by committing or threatening or detaining tactics to obtain the consent of the other party (Section 15 of the Act).
- Undue Influence – Where a party is in a position to dominate the will of another and exercises such position to obtain unfair advantage over the other party by obtaining their consent, such party has the option to terminate such contract (Section 16 of the Act).
- Fraud – A contract may be terminated by a party in the event where the other party has committed a fraudulent activity to obtain the consent of the innocent party by deceiving them (Section 17 of the Act).
- Misrepresentation – Where consent of a party is obtained on account of false statement made by party which believed it to be true, the innocent party has the option to terminate the contract (Section 18 of the Act).
- Mistake – A contract becomes void from its conception if either or both parties are mistaken in regards to a matter of fact (Section 20 of the Act).
- Frustration of contract – Attributable to supervening event that was beyond the control of either party making the performance of the contract impossible, discharges both the parties from performance of the duties enumerated thereunder (Section 56 of the Act).
- Breach of obligations – A party may commit breach of their obligations under the contract by renouncing their liability, by making the performance impossible owing to own acts or totally or partially failing to fulfil the requisite duties.
- Terms in termination clause – Parties may terminate the contract subject to the terms stated therein which may include expiry of the duration or termination at will by issuance of notice or any incapacity or change of circumstances hampering the performance of the obligations.
Consequences of termination
In the event where the contract between the parties is terminated, payment of consideration should be made in respect of the fulfilment of the promises by the other party in terms of delivery of goods or services. Even if the contract is discharged and the other party has fulfilled their obligations as stated in the original contract which have been accepted by the first party, payment of consideration is required to be made on Qunatum Meruit basis.
In the case of breach of the conditions of the contract committed by either party, the other party may be made liable for compensation in terms of recession, liquidated/ unliquidated damages, injunction or specific performance subject to the terms of the contract.
In the news...
One of the country's largest multiplex chain Inox Leisure (hereinafter referred to as "Inox") terminated its contract with online ticketing platform BookMyShow (hereinafter referred to as "BMS"), after a disagreement over payments being demanded by Inox. While BMS challenged the said termination in the High Court of Bombay, the judicial authority referred the matter for arbitration vide its order dated September 18, 2018. 1
It has been contended by BMS that the difference between the parties arose in respect of payments hike sought by Inox arises for the rights to sell tickets through the booking partner.
However, Inox alleged breach of the terms of the contract between parties by BMS. Only after careful scrutiny of the terms and conditions of the contract governing the parties, can the issue between them be resolved. The arbitration proceedings ordered will delve into the depth of the matter to understand the nature and intent of the parties involved while formulating the terms of the contract between themselves before identifying the violation of the same and providing available relief to the innocent party.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.