A contract is an essential part of commercial transactions and the founding stone of a commercial agreement. The obligations of performance of a contract would be rendered useless in the absence of legal provisions for its enforcement. Therefore, Chapter VI of the Indian Contract Act, 18721 [hereinafter, "the Indian Contract Act"] deals with the consequences of a breach of contract to protect the rights and interests of parties aggrieved due to the action or inaction on the part of the other party to the contract.
The Hon'ble High Court of Delhi in the case of NHAI vs. Afcons APIL (JV)2 held that it is a settled law that where a party is liable for breach of contract, either express or implied, the plaintiff is in general, entitled to nominal damages, although, no actual damages is proved.
Reciprocal Promises are defined under Section 2(f) of the Indian Contract Act as promises that form the consideration or part of the consideration for each other. Reciprocal promises is often integral to government contracts such as for energy, infrastructure, etcetera, where the government entity and the other party (the Contractor) have certain critical obligations to fulfill which may or may not be demarcated in the agreement. Sections 51 to 58 of the Indian Contract Act deal with the performance of the Reciprocal Promises.
Kinds of Reciprocal Promises
- Mutual and Independent Promises are the
promises where the involved contracting parties undertake to fulfil
certain obligations which are independent of each other the
performance of an obligation by one party is not contingent upon
the performance of an obligation by the other party. However, the
performance of such reciprocal promises is mandatory under
contract. It was in the case of Mrs. Saradamani
Kandappan vs. Mrs. S. Rajalakshmi and
Ors3, that the Hon'ble Supreme Court
upheld the terms of the contract and recognized them as mutual and
- Conditional Promises are the most common type
of reciprocal promises that stipulate that where the performance of
a contract requires the obligations to be fulfilled in a sequence,
then that sequence needs to be upheld and therefore, where
reciprocal promises are dependent upon each other i.e., counter
obligations, one party cannot insist on performance of promise if
that party has not performed its corresponding
- Concurrent Promises are the promises that the
parties have agreed to fulfil simultaneously. In such a case, the
party willing to perform its set of obligations is exempted from
doing so in the situation where the other party is not
"ready" and "willing" to perform its
obligations. The terms "readiness" and
"willingness" have been held to mean financial capacity
and the conduct of the aggrieved party wanting performance
respectively and generally, "readiness" is backed by
There exist certain situations where the obligations of both parties may or may not be demarcated in the agreement. The Hon'ble Supreme Court referred to the case of Muhammed vs Pushpalata6 wherein the Supreme Court interpreted Section 51 and Section 52 of the Indian Contract Act and stated that reciprocal promises are to be performed in the manner stipulated in the contract, and if not specified as per usual industry practice. The Hon'ble Court referred to the case of Nathulal vs. Phoolchand7 wherein the Apex Court had held that full payment of the property would only be effected when the seller changed the land records in favour of the purchaser, that being as per Section 52 of the Indian Contract Act, and the natural course of business transaction.
Interpretation of Reciprocal Promises in Arbitration of Commercial Disputes
In Arbitration, while dealing with contractual disputes the Arbitral Tribunal interprets the underlying contract to adjudicate the claims before the parties. These contracts often contain counter obligations, that is to say one promise cannot be performed without the performance by the other party. The present article discusses the manner reciprocal promises are interpreted and their effect in ruling of the arbitral tribunal.
- The case of Ram Chandra Narayan Nayak vs. Karnataka
Neeravari Nigam8 dealt with the importance
of Reciprocal promises. The Petitioner/contractor in lieu of
contract to build irrigation canals in Belgaum, Karnataka,
mobilized men & machinery. In order to complete construction
work, the required cement was not provided due to which the
contractor could not fulfill his obligations of the contract. The
Respondent forfeited the earnest money, subsequent to which the
Petitioner invoked the arbitration clause. The matter of Unlawful
termination and award of damages was appealed to the Supreme Court
of India. The Hon'ble Court referred to Section 51 of the
Indian Contract Act and held that the contractor was not bound to
complete his end of the work, unless and until the Respondent
supplied the raw materials to them.
The Hon'ble Supreme Court referred to the case of Muhammed vs Pushpalata9 wherein the Supreme Court interpreted Section 51 and Section 52 of the Indian Contract Act and stated that reciprocal promises are to be performed in the manner stipulated in the contract, and if not specified as per usual industry practice. The Hon'ble Court referred to the case of Nathulal vs. Phoolchand10 wherein the Apex Court had held that full payment of the property would only be effected when the seller changed the land records in favour of the purchaser, that being as per Section 52 of the Indian Contract Act, and the natural course of business transaction.
- In MMTC Ltd. vs. Anglo American Metallurgical Society11, a dispute arose between the parties on the ground of non-delivery of the coal by the Appellant to the Respondent. The Appellant submitted that though the obligation of delivery of coal laid on the Appellant, the onus to provide for the cargo ships was on the Respondent, who, despite numerous requests of the Appellant, failed to arrange for the cargo ships. In an Appeal under Section 37 of the Arbitration and Conciliation Act, 1996 ("the Arbitration and Conciliation Act"), the Division Bench of the High Court held that the contract between the parties constituted Reciprocal Promises that need to be simultaneously performed, and therefore, held that the Appellant is not bound to deliver coal until the Respondent has nominated the cargo ship. In holding this, the Court reiterated the provisions under Section 51 and 54 of the Indian Contract Act stating that in reciprocal promises, if one party prevents the other from performing their contract, the contract becomes voidable at the instance of the party prevented from performing their obligations under the contract and therefore, the promisor need not perform his promise, unless the promisee is ready and willing to perform his part of the contract.
Reliance is also placed on the judgement of the Delhi High Court in the matter of I.C.M. Airport Technics vs. International Airport Authority of India12, wherein, the High Court held that a party could not be expected to perform its promises until and unless the other party to the contract is willing to perform its reciprocal promises.
Reciprocal promises are a very common element in commercial contracts, especially, those involving the government entities such as contracts pertaining to energy, infrastructure, etcetera. Courts often grapple with the contracts containing reciprocal promises and have set aside arbitral awards under Section 34 of the Arbitration and Conciliation Act citing patent illegality, on the grounds of erroneous interpretation of the reciprocity of contracts, highlighting its seminal importance. Therefore, it becomes prudent to understand the intricacies of the interpretation and implications of such reciprocal promises and the quantum of onus lying with each party involved in such reciprocal promises.
1. The Indian Contract Act, 1872, No. 9, 1872.
3. AIR 2011 SC 3234.
4. M/s Shanti Builders vs. CIBA Industrial Workers' Co-Operative Housing Society Ltd., (2012) 4 Mah LJ 614.
5. J.P. Builders vs. A. Ramadas Rao, (2011) 1 SCC 429.
6. Civil Appeal No.4581 of 2008.
7. (1970) AIR SC 546.
8. (2013) 15 SCC 140.
9. Civil Appeal No.4581 of 2008.
10. (1970) AIR SC 546.
11. FAO (OS) 532/2015.
12. 2006 (1) ARBLR 146 (Delhi).
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.