The document summarizes key aspects of commercial agreements and contracts under Indian law. It discusses how to make a contract binding and enforceable, defines void and voidable contracts, explains liquidated damages and when time is considered the essence of a contract. It also outlines legal positions regarding damages, bank guarantees, and injunctions restraining the invocation of guarantees.

1. National Workshop on Drafting of Commercial
Agreements
Organised by : ASSOCHAM
3rd September 2016 New Delhi
Presented by
S. Ravi Shankar, Arbitration lawyer & Senior Partner
Law Senate Law Firm – New Delhi, Mumbai
ravi@lawsenate.com
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2. Binding and Enforceable Contracts
 To bind a party fully a contract is required to be neither void or
voidable
 Void Contracts are not enforceable
 A contract signed by an unauthorised person is void
 A contract with no consideration is void (S.25)
 A contract for an illegal activity is void
 A contract which prohibits a Doctor from practising as Doctor for
three years, if he resigns from the hospital (S.27)
 A contract which restricts the legal rights of a party (S.28) (BSNL Vs
Motorola 2009 (2) SCC 337
 A contract with uncertainty is Void (S.29)
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3. Voidable Contracts
 If an agreement is enforceable by law at the option of one party
and not at the option of the other is voidable contract (S.2.i)
 Means contract is enforceable until repudiated by one party
 Example is a contract, after the period mentioned in the contract
and where time is the essence (S.55)
 A Contract entered into by coercion S.19
 A Contract entered by undue influence S.19A.
 Impossibility created by one party S.53
 Refusal of Party refusing to perform. S.39
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4. Damages - Features
 Damages is a compensation for an injury (S.73)
 Damages is not a Penalty (Subramania Satri Vs KS Raghavan 1987(2)
SCC 424)
 So Damages have to be reasonable ONGC Vs SAW pipes (2003) 5
SCC 705
 Damages is a compensation for Loss
 Loss is a pre condition for claiming damages
 Damages can not be determined by a party
 Damages have to be determined in an Adjudication
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5. Liquidated Damages S.74
 Pre-estimated loss can be quantified and incorporated into a contract, as
liquidated damages (BSNL Vs Reliance Communication (2011) 1 SCC 394))
 Liquidated Damage amount is the maximum damage which can not be
granted since it is in the contract (BSNL Vs Reliance)
 Parties claiming liquidated Damages also have to prove that they incurred
loss (Kailash nath Associates Vs Delhi Development Authority 2015 SCC
 Liquidated Damages specified in the contract must be granted when it is
not possible to ascertain the actual damages Chunilal Vs Century Spinning
1962 Supp (3) SCR 549
 Damages/ Liquidated damages is not a debt. Union of India Vs Ramon Iron
Foundary 1974(2) SCC 231
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6. Time is the Essence of the Contract &
Liquidated Damages
 Specifying a date of completion in a contract does not mean “ Time is the
essence”
 Contract stating many times “ Time is the essence of the contract” is not
sufficient to make time the essence of the contract
 Time is the Essence means parties wanted to complete the contract on a
particular date
 If the contract is not completed on the date specified in the contract, then
it is voidable (S.55)
 If the contract work is allowed to be completed after the said date
mentioned in the contract, then time is not the essence of the contract
 If time is not the essence of the contract then contract can be completed
within a reasonable time so Liquidated Damages does not apply
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7. Time is the Essence of the Contract &
Liquidated Damages
 If time is not the essence of the contract, then liquidated damages can not be
claimed
 Even in contracts where time is not the essence and Liquidated damages are
prescribed – Damages can be claimed for the delay
 If Liquidated Damages are prescribed for delay of one day, delay of one week,
delay of one month etc., then the parties did not have the intention to
complete the contract on a particular date hence time is not the essence.
 In the contracts where time is not the essence, time can be made as the
essence of the contract by issuing a notice fixing the revised date for
completion Hind Construction Vs State of Maharashtra (1979) 2 SCC 70
 If the owner waives a right to impose Liquidated Damages, then even when
time is essence the liquidated damages are not payable J G Engineers Vs Union
of India (2011) 5 SCC 758
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8. Bank Guarantee & Legal Position
 Bank Guarantee can be Conditional & Unconditional
 Bank Guarantee is an independent contract between the beneficiary
and the Bank
 The Beneficiary (Alone) can invoke the Bank Guarantee (Hindustan
Construction Vs State of Bihar (1999) 8SCC 436)
 Injunction restraining invocation of an Unconditional Bank Guarantee
can be granted only on the grounds of fraud and irreparable loss to one
party Mahatma Gandhi Shakra Vs National Heavy Eng Corporation 2007
(6) SCC 470
 Injunction restraining invocation of a Conditional Bank Guarantee can
be granted, if conditions are not fulfilled by the beneficiary (Hindustan
Construction Vs State of Bihar (1999) 8SCC 436)
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9. THANKS
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