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Historical Background Of Indian Contract Act 1872

The Indian Contract Act brings within its ambit the contractual rights that have been granted to the citizens of India. It endows rights, duties and obligations on the contracting parties to help them to successfully conclude business- from everyday life transactions to evidencing the businesses of multi-national companies. The Indian Contract Act, 1872 was enacted on 25th April, 1872 and subsequently came into force on the first day of September 1872.

The essence of the India Contract Act has been modeled on that of the English Common Law. It 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.

Before the act was enacted , the contractual relationship was governed by the personal laws of different religious communities like different laws for Hindu and Muslims. Now, to understand the contract act in its present form we have to analyze the historical evolution of contract law taking into account the practices that were prevalent before the enactment came.

Evolution of contract law different time periods

  1. Vedic and Medeival period:

    During the entire ancient and medieval periods of human history in India, there was no general code covering contracts. Principles were thus derived from numerous references- the sources of Hindu law, namely the Vedas, the Dhramshatras, Smritis, and the Shrutis give a vivid description of the law similar to contracts in those times. The rules governing contracts form a part of the law called Vyavaharmayukha.

    During Chandragupta's reign, contract existed in the form of "bilateral transactions" between two individuals of group of individuals. The essential elements of these transactions were free consent and consensus on all the terms and conditions involved. It was an open contract openly arrived at.

    It was laid down that the following contracts were void:
    • Contracts formed during the night.
    • Contracts entered into the interior compartment of the house.
    • Contracts made in a forest
    • Contracts made in any other secret place
    • There were certain exceptions to clandestine contracts such as
    • Contracts made to ward off violence, attack and affray
    • Contracts made in celebration of marriage
    • Contracts made under orders of government
    • Contracts made by traders, hunters, spies and others who would roam in the forest frequently.
    Also, the rights and duties (of a Bailee) in a Bailment, as we know it today in the form of sections 151 and 152 of the Indian Contract Act, 1872, has its root to the Katyaynasmriti containing a special provision called the silpinyasa dealing with the deposit of raw materials with an artisan- talking about the degree of care attached. The text laid down that "if an artisan does not return the things deposited with him during the stipulated time, he should be made to pay its price even in the cases, where the loss is due to acts of God or King.

    The artisan, however, is not responsible for the loss of an article which was defective at the very time of bailment, unless the loss is due to his own fault.

    It is also interesting to note that there was no limitation for bringing a suit for money lent. This was because of the rule of 'damdupat' which laid down that 'the amount of principle and interest recoverable at one time in a lump sum cannot be more than double the money lent.'

    It took into consideration the fact that debts were not necessarily recoverable from a man himself, his descendents were also liable. Thus there was no concept of a 'limitation period' for filing a suit. The rule of 'damdupat' is still prevalent in Calcutta and Bombay as it has been upheld to be a valid custom and thus enjoys enforceability under the savings clause, Section 1.
  2. Roman period:

    In early Rome, the law of contracts developed with the recognition of a number of categories of promises to be enforced rather than creation of any general criteria for enforcing promises. Thus, the notion that promise itself may give rise to an enforceable duty was an achievement of Roman law.
    1. Stipulation (stipulatio):
      It put into force formalities and dates from a very early time in Roman law. A party could make a binding promise called "stipulation" in which the party observed a prescribed form of question and answer. Though the participation of both parties was required, only one party was bound.
    2. Real Contracts:
      These were those that suited to executory exchange of promises. For example, the contract of loan, in which the recipient's promise to restore the subject matter was binding.
    3. Consensual Contracts:
      These were more flexible and did not hold a legal basis for enforcing purely executory exchanges of promises. They deviated from the formalities in "stipulation" and in agreement alone, without delivery, sufficed to make the promises binding. Although they were limited to four important types of contracts- sale, hire, partnership and mandate.
    4. Innominate Contracts:
      These were agreements under which one party was promised to give or do something in exchange for a similar promise by the other party. Unlike both real and consensual contracts they were not limited to specified classes of transactions and were therefore called in nominate.

      The enforceability of the promise required some performance given in exchange and was called quid pro quo (i.e. the modern concept of consideration of the contract). But these contracts were limited because they were binding only when one of the parties had completed performance and until that happened either party could escape liability.
    5. Dotis dictio:
      This was related to dowry agreement between bride and groom. In this contract, the father of the bride or the bride herself set forth amount and nature of dowry to be governed to be groom and its declared in presence of the groom. Since this was a social agreement. There was not 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.
    6. Lex Mancipi:
      This contract was equivalent to the modern day's contract of transfer of property.
    7. Fiducia:
      It was an ancillary contract to the above form of contract.
    8. Uadimonium:
      This contract was similar to today`s contract of guarantee.
  3. Islamic period

    During the Muslim rule in India, all matters relating to contract were governed under the Mohammedan Law of Contract. The word contract in Arabic is Aqd meaning a conjunction. It connotes conjunction of proposal (Ijab) and acceptance which is Qabul.

    A contract requires that there should be two parties to it one party should make a proposal and the other accept it, the minds of both must agree that is there declaration must relate to the same matter and the object of contract must be to produce a legal result.

    The unlawful transactions were considered void beginning under Muslim laws:
    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 contract which produced unlawful gain without completing the exchange of counter values.
    3. Riba Al-Jahilya:
      Its 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 contract.

    The formation of a contract according to Islamic law does not 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.furthermore, the Islamic classifies as per their special features and following are the type of contract. Alienation of property:
    1. for an exchange like sale
    2. without exchange like giving a simple gift
    3. to create succession namely request
    Alienation of usufruct:
    1. In exchange for property, namely Ijara, where the movable and immovable things are given for hire, contracts for giving service like carriage for goods, safe custody of property.
    2. Not being exchange of property like an accommodate loan(ariat) and deposit (wadiyut)
    Islamic laws provide two modes for invalidation of contracts, first 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 ground of dissolution of contracts are as follow:
    1. Invalidation of mutual agreement
    2. Cancellation of contract by death of either party or destruction of subject matter or expiry of time period.
    3. Cancellation by termination by either party
    4. Dissolution by termination of the contract
    Another thing to be noted is that under Islamic Law even marriages (Nikah) were treated as contracts and till date the situation remains the same. Either of the parties to the marriage makes a proposal to the other party and if the other party accepts, it becomes a contract and the husband either at the time of marriage or after it has to pay an amount to the wife as a symbol of respect known as Mahr.

    Also the Mahommedans were the firsts to recognize the concept of divorce. This way, a party to marriage could absolve itself of the contractual obligations under marriage. Muslim marriages are thus considered contracts for these reasons.
  4. Hindu period

    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. 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 valid contract.Regarding the contract by 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 stage of majority to enter into a contract is 16 years, 2 years less than what has been prescribed under The Indian Contract Act.
  5. British period

    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 to the East India Company. Now, since no system can afford to make all promises enforceable, the English tried out two assumptions:
    1. One, the assumption that promises are generally enforceable, and then create exceptions for promises considered undesirable to enforce.

      Secondly the assumption that promises are generally unenforceable, and then create exceptions for promises thought desirable to enforce.

      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. 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 judgment in respect to the contract cases.
    2. 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 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. once a person 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. The drafter of the bill knew that different religious people followed personal laws and for them it will be difficult to abide the new rules so that the special customs of the personal laws governing any aspect of the contractual realationship would not be affected by new rules, unless or until they are nit contrary to the new rules.

      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.

By analyzing the development of the contract through different time periods ranging from Roman period to Muslim period to Hindu period and then to legal sanctions in, it can be concluded that though the technicality and the modes and means of punishment. 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 intoxicate, 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 different ways in different communities, but general principles unchanged and no attempt has been made to change it.

  • Contract-1 Dr. R.K. Bangia
  • Indian High Court Act 1861,

    Award Winning Article Is Written By: Mr.Sujoy Paul
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