“Take It or Leave It”: A Detailed Analysis of Indian Legal Framework on Standard Form Contracts

Introduction

Standard form contracts have become ubiquitous in modern commercial transactions. They allow businesses to efficiently conduct high volumes of transactions using pre-drafted terms and conditions[1]. However, standard form contracts tend to favor the interests of the drafting party, usually a business entity, over the other party, often an individual consumer or small business[2]. The paper will analyze standard form contracts under Indian contract law, examining their legal enforceability, potential for abuse and unfairness, and available doctrinal controls.

Standard Form Contracts

A standard form contract is a pre-drafted contract containing set terms and conditions, offered by one party on a “take it or leave it” basis, without negotiation or customization to the transaction or parties involved[3]. They are also known as contracts of adhesion, signifying the weaker party simply adheres to the terms presented with little choice, or boilerplate contracts, containing standard boilerplate terms[4]. Businesses use standard forms to maximize efficiency in mass contracting. However, they limit the free exercise of contracting powers and are prone to overreach.

Characteristics and Concerns Surrounding Standard Form Contracts

Standard forms share several key characteristics that give rise to legal concerns[5]:

1. No negotiation – The terms are not negotiated but imposed on the weaker party.
2. Take it or leave it – The weaker party must adhere completely or forgo the transaction.
3. Unequal bargaining power – One party possesses stronger economic power to dictate terms.
4. Inconspicuous terms – Onerous terms are often hidden in fine print or complex legalese.
5. Little consumer choice – The consumer needs the goods/services and has few alternatives.

These dynamics undermine the usual safeguards in contracting – consent, knowledge, volition and negotiation. Clauses may exclude business liabilities even for breaches, limiting consumer redress [6]. The principles of fairness and good faith require additional doctrinal controls over such contracts.

Enforceability of Standard Form Contracts Under Contract Law

Under section 10 of the Indian Contract Act, 1872, standard forms constitute valid contracts [7]. The parties objectively manifest assent through signature or conduct. However, additional requirements may apply:

1. Reasonable notice of terms – Unexpected or surprising terms may be unenforceable if the adherent lacks reasonable notice [8].
2. Incorporation into contract – Terms must be incorporated into the contract rather than merely stated on an ancillary document like a receipt [9].
3. Absence of misrepresentation/fraud – Misleading the adherent regarding applicable terms vitiates consent [10].
4. Fundamental breach – Exclusion clauses may not protect a party committing a fundamental breach [11].
5. Contra proferentem – Ambiguities in exclusion clauses are interpreted against the drafter [12].
6. Contemporaneous notice – Notice of terms must be given at the time of contract formation [13].

These requirements flowing from fairness and public policy principles can limit oppressive terms in standard form contracts under Indian law.

Unfair Terms and Abuse of Standard Form Contracts

Despite the above controls, standard forms remain prone to overreach. Businesses exploit superior bargaining power and use fine print and complex legalese to impose unfair terms on consumers, employees and small businesses [14]. Some potentially abusive practices include:

1. Broad exclusion clauses immunizing the drafter from core contractual breaches and negligence liability [15].
2. Rights to unilaterally vary the contract to the detriment of the weaker party [16].
3. Rights to terminate without cause combined with restraints on the weaker party [17].
4. Disproportionate penalties on the weaker party but not vice versa [18].
5. Mandatory arbitration clauses stacked against the adherent [19].

Such clauses, even if ostensibly agreed to, undermine free contracting and fair allocation of rights and risks. Additional safeguards are required against such overreach.

Protection Under Indian Law

Indian law recognizes that standard form contracts warrant additional oversight against unfairness. Some key principles include:

1. Contra proferentem construction against the drafter [20].
2. Limits on exclusion clauses under fundamental breach doctrine [21].
3. Public policy control under section 23 to void unreasonable/oppressive terms [22].
4. Requirement of voluntariness and consent under sections 10 and 14 [23].
5. Control on exemption clauses under section 15[24].
6. Doctrine of unconscionability to void grossly unfair bargains [25].
7. Requirement of reasonableness under section 38(2)[26].

Indian courts deploy these principles to invalidate unfair terms imposed on weaker parties through standard form contracts [27]. Additional legislative controls have also been recommended, including provisions modelled on the UK Unfair Contract Terms Act 1977[28]. While Indian law provides protection, further evolution is needed to address standard form abuses.

Conclusion

Standard form contracts deliver efficiencies but also risks to the weaker contracting party. While Indian courts recognize this and have evolved protections, additional vigilance is warranted against unfair clauses until legislative reforms materialize. As Chief Justice Bhagwati noted, courts must respond when imbalance of bargaining power is exploited to impose unreasonable constraints on weaker parties through standard forms [29]. With rapidly expanding consumer markets and digitization enabling more sophisticated standard contracting practices, the law must continue to evolve to promote fair terms and meaningful consent.

References

[1] Hugh Collins, ‘Standard Contract Terms in Europe: A Basis for and a Challenge to European Contract Law’ (2004) 1 ERPL 529, 529.

[2] W David Slawson, ‘Standard Form Contracts and Democratic Control of Lawmaking Power’ (1971) 84 Harvard Law Review 529, 529.

[3] P.S. Atiyah, ‘Contracts of Adhesion and the Concept of Fairness’ (1971) 35 The Modern Law Review 431.

[4] Edwin W. Patterson, ‘The Delivery of a Life-Insurance Policy’ (1919) 33 Harvard Law Review 198, 222.

[5] Friedrich Kessler, ‘Contracts of Adhesion–Some Thoughts About Freedom of Contract’ (1943) 43(5) Columbia Law Review 629-642.

[6] M.P. Jain, ‘Abuse of Dominant Position in Drafting Standard Form Contracts’ (2016) XLIII(2) The Indian Journal of Industrial Relations 259.

[7] Indian Contract Act 1872, s 10.

[8] L’Estrange v F Graucob Ltd [1934] 2 KB 394.

[9] Thornton v Shoe Lane Parking Ltd [1971] 2 QB 163.

[10] Curtis v Chemical Cleaning and Dyeing Co [1951] 1 KB 805.

[11] Karsales (Harrow) Ltd v Wallis [1956] 1 WLR 936.

[12] Central Inland Water Transport Corporation Ltd v Brojo Nath Ganguly AIR 1986 SC 1571.

[13] Olley v Marlborough Court Ltd [1949] 1 KB 532.

[14] A.I. Ogus, ‘The Regulation of Standard Form Contracts’ (1976) 24 International and Comparative Law Quarterly 32.

[15] Hunter v Walters (1871) LR 6 Ch App 93.

[16] Schroeder Music Publishing Co Ltd v Macaulay [1974] 1 WLR 1308.

[17] Central Inland Water Transport Corporation v Brojo Nath Ganguly AIR 1986 SC 1571.

[18] Kuala Lumpur v Wearne Brothers [1975] AC 774.

[19] Rajesh Chavda v Amit Popat [2018] 198 DRJ 426.

[20] Central Inland Water Transport Corporation v Brojo Nath Ganguly AIR 1986 SC 1571.

[21] Devi Das v General Manager, Food Corporation of India [1987] 3 SCC 684.

[22] Gherulal Parakh v Mahadeodas Maiya AIR 1959 SC 781.

[23] Indian Contract Act 1872, ss 10 and 14.

[24] Indian Contract Act 1872, s 15.

[25] Murlidhar Aggarwal v State of Uttar Pradesh AIR 1974 SC 1832.

[26] Indian Contract Act 1872, s 38(2).

[27] Rajasthan Suppliers v Cement and Steel Suppliers 2020 SCC OnLine Raj 1465.

[28] Law Commission of India, Unfair Terms in Contract, 103rd Report (May 1984).

[29] Central Inland Water Transport Corporation v Brojo Nath Ganguly AIR 1986 SC 1571, 1582.