Introduction
Standard terms contracts are pre-drafted agreements in which the party making the contract sets the terms and conditions, and the other party has little to no room for negotiation. These contracts are also called “boilerplate contracts.” They are routine in modern transactions, ranging from your daily online purchases to your employment contract.
They have a similar degree of standardisation and are very efficient and economical because they do not require any subjective assessment. However, such contracts raise grave concerns about equity, fairness and power dynamics, as in such contracts, usually the party who frames the contract holds significantly more power than the one who enters into such a contract. This blog post examines whether standard contracts can ensure fairness in unequal relationships.
Legal Framework in India regarding standard contracts
The Indian legal system has various laws like the Indian Contract Act(ICA), 1872, the Consumer Protection Act, 2019, etc., which provide a lot of provisions against exploitation in standard contracts. Section 23 of the ICA declares agreements void if they are against public policy. This has also come to include unconscionable contracts which have unequal bargaining power. The Contra proferentem rule also interprets ambiguous contract terms against the drafter. Sections 10 and 14 require free consent, which helps ensure fairness in the contracts.
Through a lot of case law, Indian courts have consistently demonstrated vigilance in protecting weaker parties from exploitative standard form contracts. In Central Inland Water Transport Corp. Ltd. v. Brojo Nath Ganguly (1986), the Supreme Court dealt with an employment contract that allowed one party to terminate the agreement without notice, thereby exploiting the other party in a weaker position. This clause was declared unfair and against public policy by the court, emphasising the need to redress unequal bargaining positions. Likewise, in Pioneer Urban Land & Infrastructure Ltd. v. Govindan Raghavan (2019), the Supreme Court was in favour of a flat purchaser who was forced to accept one-sided terms without negotiation.
Such terms were hold-not-final, thus protecting the buyer against an unfair real estate contract. In Superintendence Company of India (P) Ltd v. Sh. Krishan Murgai (1981), an employment contract which worked in favour of the employer was examined, with the court emphasising the necessity of scrutiny in such cases, considering that the employer has an advantage inherently (AIR 1981 SC 1825). These cases collectively illustrate the judiciary’s commitment to safeguarding weaker parties from unfair standard form contracts.
Furthermore, the Consumer Protection Act, 2019, stands as a cornerstone development in protecting weaker parties against unfair contracts. Section 2(46) defines an “unfair contract” as one that:
- Requires excessive security deposits.
- Imposes disproportionate penalties for breach.
- Allows unilateral termination without reasonable cause.
- Permits one party to assign the contract without consent.
- Causes a significant change in consumer rights
Consumer Protection Act, 2019
The Consumer Protection Act, 2019, marks a significant advancement in addressing unfair contracts. Section 2(46) defines an “unfair contract” as one that:
- Requires excessive security deposits.
- Imposes disproportionate penalties for breach.
- Allows unilateral termination without reasonable cause.
- Permits one party to assign the contract without consent.
- Causes a significant change in consumer rights.
In Sections 49(2) and 59(2) of the Act, the State and National Consumer Commissions, respectively, have been empowered to give, through their respective orders, the status of nullities to the unfair terms. To safeguard consumer interests in sphere transactions, such as in e-commerce, the Act establishes the Central Consumer Protection Authority (CCPA) to investigate and act on violations, including unfair contracts.
Analysis: Can Fairness Be Ensured?
Fairness is protected under Indian law, but generally, the standard form contracts, owing to their non-negotiable nature, carry with them the risk of unfairness. The main strengths and weaknesses include the following:
In practice, standard form contracts work mostly in favour of the party with the heavier purse, in fields such as banking, insurance, and e-commerce. There are some protections in the law, but these are dependent on whether the consumer knows about them, is able to access justice laboratories, or if there is sufficient enforcement action against such contracts. The 103rd Report (1984) and 199th Report (2006) of the Law Commission of India had underlined the need for legislation reforms to address these issues, suggesting a new chapter on unconscionable contracts.
Conclusion
Standard form contracts in these unequal transactions can realise fairness through the already strong legal framework existing in India: the Indian Contract Act, 1872, envisages this, as well as the Consumer Protection Act, 2019. The courts have, from time to time, come to the rescue of the weaker sections, a few landmark cases bearing testimony to this fact. Yet, things are not easy for these weaker sections concerning factors such as consumer awareness, language of the contract, and burden of proof.
To bestow fairness, India could undertake an even further legislative reform, such as the UK model of the Unfair Contract Terms Act, 1977, and strengthen consumer education to empower these weaker parties. While standard form contracts are not central to fairness, the growing fusion of legal tools provides a great deal towards the mitigation of their hazards.