MANAGING LEGAL ASPECTS

OF CONTRACTS

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 Why Execute a Contract
Contract to be within parameters of law: while it gives
flexibility, it has to be within the parameters of law
Why execute a contract: to clearly define and outline the heads of
agreement, the commercial, technical and all other understandings
of the parties to it so that there is no ambiguity, misinterpretation or
scope for equivocation and hence contract execution, management
and dispute resolution become more certain and definite. Law
recognises the performance of contract as a duty and gives a
remedy in case of breach. The contract establishes the obligations
and inter se role and responsibilities of the parties and reconciles
interests of the parties. Thus language should be crystal clear,
unambiguous and all conditions should be spelt out.

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 Applicable Law-Indian Contract
Act, 1872
A binding agreement enforceable under law is
called a contract. This involves an offer,
acceptance and consideration. To be legally
binding it is necessary that:
Parties should be competent to contract, have free
consent, consideration should be lawful, object of
contract should be lawful lawful, compliances of
writing, if required, registration, stamping,
attestation etc, need to be met.
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 Essentials of Contract
Invitation to Treat: RFP is only an invitation to treat or a
request inviting offer. It is not an offer.
Offer: The proposal submitted pursuant to RFP is an offer
wherein a person signifies a willingness to do or to abstain
from doing anything, with a view to obtaining the ascent of
that other.
Acceptance: When the person to whom the offer is made,
gives his assent thereto, the proposal is said to be accepted.
Acceptance of the offer must be absolute and unconditional
else it will become a counter-offer requiring consent of the
original offeror. This is relevant when bids have a deviation
clause.

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 Consideration
Consideration: Consideration is essential for
validity of contract. It is a price for a promise, a
quid pro quo moving from the promisee (person
accepting the proposal) or any other person. When
at the desire of the promisor, the promisee or any
other person has done or abstained from doing
something, such act, abstinence or promise is
called consideration.
Adequacy of consideration is for the parties to
decide and bargain and the courts usually do not
look into adequacy.
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 When contract is constituted
A contract without consideration is void under Indian law except: if in
writing and registered and made due to natural love between related
parties; there has been past voluntary service; written
acknowledgement to pay for time-barred debt.
When is contract constituted? The date on which the promisees
acceptance of the offer is posted- the proposer becomes bound. The
acceptor is bound on the date on which the acceptance is received by
the proposer.
Issue of LOA to the preferred bidder constitutes the formation of a
contract, particularly if all the terms have been pre-agreed and outlined
in the Conditions of Contract.

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 Impossibility of
Performance/Frustration
An agreement to do an an impossible act is void i.e to
discover treasure by magic
Subsequent impossibility of an act may make it void.
Examples are: Destruction of subject matter i.e. destruction
of crop; change of circumstances that make performance
impossible or hazardous i.e. sudden out of proportion
depreciation of currency or price escalation owing to
factors out of control i.e. 400% rise in price due to war;
death or incapacity of party; Government or legislative
intervention i.e. ban on exports.

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 Adjustment of Rights on
Frustration
Law provides for adjustment of rights.
Under Sec 65 of the Act, a party that has
received benefits under a contract that was
valid when made but becomes void later,
must restore such benefits to the other party.
Law allows Quantum Meruit claims i.e.
compensation and restitution for the work
done
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 Novation, Rescission, Waiver
Parties may agree to novate the contract by change
of parties, substitute a new contract or to rescind
or to alter the existing contract.
In such a case the original contract is discharged
and need not be performed.
A party may dispense with or waive performance
of contract in full or part or extend time or accept
some other satisfaction i.e. a lesser sum

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 Breach of Contract
A breach occurs when a party renounces its
liability under the contract or fails to
perform its obligations there under.
Usually project contracts-concessions,
construction or O&M contracts outline the
EODs in detail.

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 Damages for Breach
Section 73 provides for payment of damages for
breach of contract. No provision of payment of
remote or indirect loss or damage
Compensation to be payable for loss or damage
that (a) arises naturally in the usual course of
things from such breach or (n) which the parties
knew at the time of contract as a likely result from
the breach.

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 Penalty Vs. Damage
Damage is paid to place the plaintiff in the same position as if the
contract had been performed.
Penalty or payment of disproportionate to the damages which
could be anticipated from the breach of contract are not allowed
by the courts. It is intended to be imposed as a punishment and as
a deterrent act and in terrorem
Liquidated damages are a sum fixed by the parties as an estimate
at the time of entering into the contract. It is a fixed and pre-
agreed sum as a genuine estimate of damage. The same is
permitted. Courts do not go by terminology but to the transaction.
Forfeiture of earnest money or security deposit has been withheld
by the courts.

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 Specific Performance
Court has discretion to allow specific performance
of a contract i.e. require a party to carry out its
legally binding contractual obligation.
However, where damages will adequately
compensate the aggrieved party, courts generally
do not grant relief of specific performance. If
money compensation is adequate relief, specific
performance is generally not given.

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 Variation/Change of Scope
During Construction: Up to specified value (Rs. ___)
allowed through a change of scope order
During O&M : In case of capacity augmentation etc. invite
fresh bids with provision of termination payments to the
existing contractor and a right of first refusal.

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 Other Provisions
Assignment
Force Majeure
Termination Payments
Confidentiality and IPRs
General Miscellaneous Provisions amendment,
waiver, other remedies, part invalidity, relationship
of parties, survival, insurance etc.
Conditions Precedent

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 Dispute Resolution
Conciliation- designated or ex-officio individuals
or committees of the parties meet to resolve and
settle by discussion
Arbitration- dispute resolution by consent of
parties by a tribunal other than that provided by
law. It is quicker resolution of dispute and has
greater flexibility . Parties can decide the venue,
rules of procedure, constitution of the arbitral
tribunal, language of arbitration, time within
which award to be made etc.
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Arbitration and Conciliation Act,
1996
The 1940 Act amended on the basis of UNCITRAL (UN
Commission on International Trade Law) Model Law and
Rules so as to consolidate and amend the law relating to
domestic arbitration, international commercial arbitration,
enforcement of foreign award and to define law relating to
conciliation and ADR.
The 1996 Act minimises the supervisory role of the courts;
provides for enforcement of of final arbitral award as if it
is a decree of the court; settlement by conciliation
proceedings to have same effect as an arbitral award and
enforcement of foreign awards

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 BOT Contracts for PPP in
Infrastructure Projects
Legal Due Diligence
Enabling Legal Environment
Transaction Documents Concession,
Financing (Lenders Step in Rights) and
Security Documents
Procurement Process
Technical and Financial Close
Project Implementation
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 Conclusion
As economy gets more commercialised, as
big deals get executed, the significance of
contracts increases.
Giver parties freedom to determine their inter
se relationship within the bounds of the law
Courts are also discouraging unnecessary
PILs or injunctions and stays

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