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International Commercial Contract in India: Challenges and Solutions

A contract[1] is a formal agreement established between two or more parties, which holds legal enforceability and creates a set of obligations and responsibilities for each party involved. This agreement can encompass various aspects, such as goods, services, or rights, and it outlines the terms and conditions under which the parties agree to operate. By defining the rights and duties of each party, a contract provides clarity and protection in business transactions or other interactions, ensuring that all parties understand their roles and responsibilities and are held accountable for fulfilling them.

International instruments categorise contracts as "international" when they involve parties from two or more different States, as outlined in conventions such as the United Nations Convention on Contracts for the International Sale of Goods (Vienna, 1980) (CISG) and the Principles on Choice of Law in International Commercial Contracts (2015)[2] (Hague Principles). That said, more flexible definitions are possible, such as contracts with 'significant connections with more than one State', 'involving a choice between the laws of different States', or 'affecting the interests of international trade'. These broader criteria reflect the diverse nature of international contracts and the complex legal frameworks governing them.

One method of determining a contract as "commercial"[3] is when "each party is acting in the exercise of its trade or profession," as stated in the Hague Principles (Article 1(1)). Another approach, as seen in the CISG, involves defining commercial matters and excluding contracts related to consumer goods intended for personal, family, or household use (CISG, Article 2(a)).

These distinctions help differentiate between contracts primarily for business purposes and those involving consumer transactions.

In 1971, the Governing Council of UNIDROIT[4] initiated the project, initially named "Progressive Codification of International Trade Law" and later renamed "Preparation of Principles for International Commercial Contracts." However, due to prior commitments, the project did not gain priority status until 1980, when a special Working Group was established to draft the Principles. The Group comprises leading experts in comparative law and international trade law, including academics, judges, and civil servants. The Rapporteurs, appointed from within the Group, were tasked with drafting and revising chapters of the Principles based on discussions and feedback from the entire Group.

The ongoing phase involves the Group's meticulous examination of the final draft chapters of the Principles. Subsequent to this meticulous review, the draft Principles will undergo formal submission to the Governing Council of UNIDROIT for authoritative validation. Concurrently, the detailed text of each individual draft chapter, accompanied by a compilation of the most contentious matters, is circulated among a diverse network of over 100 collaborators associated with the Institute. Additionally, the draft documents are distributed to governmental bodies to solicit their considered responses and perspectives on the proposed Principles.

UNIDROIT International Commercial Contract principles advocate the freedom of parties to decide the terms and conditions of the contract. That implies that the parties can decide the jurisdiction of the dispute(in case there is a dispute between the parties).

Importance of ICC
In the realm of international commercial contracts[5], two primary question hold significant importance: First, determining the jurisdiction for resolving disputes arising from the contract involves selecting a suitable legal forum or arbitration tribunal based on factors like convenience, expertise, enforceability, and procedural fairness. Second, identifying the applicable law or rules means choosing the legal system or framework that will govern the contract's interpretation and enforcement, which impacts rights, obligations, remedies, and liability allocation. These decisions require careful consideration and negotiation among parties to ensure clarity, fairness, and enforceability of contractual terms, especially in dispute scenarios.

In business contracts, parties often include choice-of-forum and choice-of-law clauses. The choice-of-forum clause determines where disputes will be resolved, ensuring clarity and efficiency in legal proceedings. Meanwhile, the choice-of-law clause specifies which laws govern the contract's interpretation, promoting consistency and reducing legal uncertainties. These clauses enhance the contract's reliability, protect parties' interests, and facilitate smoother business transactions.

However, many times, parties fail to include choice-of-forum and choice-of-law clauses while drafting. Which could lead to ambiguity in contract and in case of dispute there will be no apt forum to deal with such cases. Therefore UNIDROIT Principles becomes very important as they provide systematic way to deal with these situation. The UNIDROIT Principles of International Commercial Contracts provide valuable guidance and standardisation in international business dealings.

These principles serve as a reference point for parties entering into contracts across different jurisdictions, offering a common framework for contract interpretation and application. By aligning with these principles, parties can promote legal certainty, fairness, and efficiency in their contractual relationships. Additionally, the UNIDROIT Principles contribute to harmonising international contract law and facilitate the resolution of disputes by providing clear rules and principles that transcend national legal systems. Overall, they play a crucial role in promoting international trade and fostering trust and cooperation among business entities worldwide.

Applicability in the Indian Context
Contract enforcement is vital to ensure that trade and commerce flourish in any society. In the absence of contract enforcement, private parties may resort to self-help and seize goods from a seller or use private means to coerce performance[6]. The 2018 Amendment to specific relief act[7] can be viewed as a notable departure, particularly regarding the application of the UNIDROIT Principles of International Commercial Contracts (PICC).

This amendment introduces the concept of specific performance, a norm recognised by the PICC, despite the Indian Contract Act, 1872, not explicitly mentioning the notion of 'good faith', which is fundamental to the PICC. This shift towards principles aligned with international standards like the PICC signifies a move towards harmonisation and modernisation of India's commercial contract laws.

However, while this amendment aims to bring India's legal framework in line with international practices, there are areas of inconsistency and lacunae when compared directly with the PICC and the CISG. This nuanced approach necessitates a comprehensive analysis of the impacts, benefits, and potential challenges associated with the integration of PICC principles into Indian contract law through the 2018 Amendment.

As India continues to globalize, adopting ICC principles can significantly benefit its international transactions. The International Chamber of Commerce (ICC) offers essential services like arbitration and dispute resolution through the ICC International Court of Arbitration, advocates for trade-friendly policies, establishes global standards, engages in policy advocacy for business- friendly regulations, and fosters networking opportunities. These ICC principles contribute to 7

India's integration into the global economy, enhancing the credibility of Indian businesses and facilitating smoother international trade and investment processes.

In the case of Modi Entertainment Network v. WSG Cricket Pte. Ltd[8]., the Supreme Court provided further clarity on Indian private international commercial law. It emphasized that parties in commercial contracts have the freedom to choose any legal system, even if that legal system is unrelated to the specific contractual obligation under consideration. This ruling underscores the principle of party autonomy in international commercial transactions, highlighting India's commitment to facilitating flexibility and autonomy in contractual arrangements within the global business landscape.

Therefore, the Indian legal system recognises the PICC or International Commercial contract as an instrument to resolve disputes that might occur in international trade and commerce. India, being the fastest-growing major economy, is required to make numerous international trade- related contracts, which is why this principle is important.

In conclusion, the analysis of international commercial contracts within the context of India's globalizing economy reveals a dynamic landscape shaped by legal frameworks, principles, and practical considerations. The adoption of UNIDROIT Principles of International Commercial Contracts (PICC) and the 2018 Amendment to the Specific Relief Act reflects India's proactive approach to harmonizing its commercial laws with international standards. This alignment not only enhances legal certainty but also promotes fairness and transparency in business transactions, thereby fostering trust and confidence among stakeholders.

The role of institutions like the International Chamber of Commerce (ICC) is paramount in providing effective dispute resolution mechanisms and advocating for business-friendly policies. The ICC's arbitration platforms, such as the ICC International Court of Arbitration, play a crucial role in resolving commercial disputes efficiently and impartially, contributing to a conducive environment for international trade and investment.

Furthermore, the analysis underscores the significance of party autonomy in international commercial contracts. The freedom granted to parties in choosing applicable laws, dispute resolution forums, and contractual terms reflects India's commitment to facilitating flexible and autonomous business arrangements. This approach not only facilitates smoother business operations but also enhances India's attractiveness as a preferred destination for international business activities.

Overall, the analysis highlights the transformative potential of international commercial contracts in driving India's global engagement and economic growth. By embracing best practices, legal harmonisation, and effective dispute-resolution mechanisms, India can position itself as a reliable and competitive player in the global marketplace, fostering sustainable development and mutually beneficial partnerships with global counterparts.

  1. S, S. (2020, January 24). "Contract. Business Jargons Accessed 5 Apr. 2024.
  2., The Netherlands. (2015, March 19). HCCH | #40 - Full text. The World Organisation for Cross-border Co-operation in Civil and Commercial Matters, from Accessed April 5, 2024.
  3. Emery, C. (2016, March). International Commercial Contracts - GlobaLex. Globalex 2015. Accessed April 5, 2024.
  4. Bonell, M. J. "Unification of Law by Non-Legislative Means: The UNIDROIT Draft Principles for International Commercial Contracts." The American Journal of Comparative Law, vol. 40, no. 3, 1992, pp. 617�33. JSTOR, Accessed 3 Apr. 2024.
  5. Emery, C. (2016, March). International Commercial Contracts - GlobaLex. Globalex 2015. Accessed April 5, 2024.
  6. Edward A Tomlinson, 'Performance Obligations of the Aggrieved Contractant: The French Experience' (1989) (12) LLICLJ 139 188-192; Subha Narasimhan, 'Modification: The Self-Help Specific Performance Remedy' (1987) (97) YLJ 61, 91
  7. Parliament of India. (2018). The Specific Relief (Amendment) Bill, 2018. In The Specific Relief Act, 1963.
  8. Modi Entertainment Network v. W.S.G. Cricket. PTE. LTD, (2003) 4 SCC 341
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