Principles Of Equity And Fairness Do Not Apply To Contracts: Maruti Traders v Itron India Pvt Ltd1
The Delhi High Court has held that for disputes arising from contracts, the courts cannot be guided by the principles of equity and fairness. The terms of the contract have pre-eminence and there is no compulsion on parties to act fairly.
Background
Maruti was a non-exclusive dealer for Itron's manufactured goods. After conclusion of its contractual relationship with Maruti, Itron appointed other entities for sale of its goods. Maruti commenced arbitration against Itron for loss of commission. In the subsequent Award, the Tribunal held that the contract between parties had expired prior to the dispute and there was no contractual relationship between them.
Decision
The Delhi High Court has upheld the Award passed by the Tribunal on the following grounds:
- Courts / Tribunals cannot impel parties to a contract to act fairly and equitably. Principles of universal brotherhood cannot be applied to commercial transactions.
- While a certain limited duty to act fairly may, in certain circumstances, be read into the contract, the actual wording of the contract must always be given pre-eminence over any consideration of equity.
- Any relief granted must comply with the Contract Act 1872, regardless of how unfair the consequences may be. A party is entitled to relief only if it can prove that a corresponding right exists in the contract.
- Considering that the contract had expired, Maruti had no right to enforce it.
Conclusion
The Court has reiterated the principle that the terms of a contract are to be interpreted strictly. It would be interesting to see how this judgment applies to circumstances where the parties to a contract do not have equal bargaining power.
Footnote
1. 2024 SCC OnLine Del 4897
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