Published On: 25th May 2025
Authored By: Devanshi Singh
Bharati Vidyapeeth University New Law College Pune
Abstract
The concept of Standard Form Contract is quite an interesting one. Although in the Indian Contract Act 1872 the concept of Standard form contract is not explicitly mentioned however, it lays certain parameters for Standard Form Contract which has been a major foundation for modern day commercial transactions and various kinds of business agreements. This paper examines the legal background, the interpretation of Hon’ble Courts and the emerging trends in the field. Along with this the paper also highlights the major regulatory guidelines, international context in relation to the topic, suggestions and certain reforming steps that can be taken to eliminate the loopholes. The study to compare the concept and trend existing in India regarding Standard form of contract with that of countries across the globe.
Keywords:
Standard Form Contract, commercial transaction, terms and conditions, industrialization and undue advantage.
Introduction
The concept of Standard Form Contract was not so prevalent earlier with expanding horizons of commercial transactions, rapid industrialization and globalization resulted in need for uniform and pre drafted contracts that are known as Standard Form Contract in legal language. However, it does came associated with unequal bargaining power between the consumer and the gigantic companies holding a stern influence over the normal layman. There also existed the problem of no proper framework to govern the same as the Indian Contract Act 1872 does not mention about the concept of Standard Form Contract creating a grey arena regarding the same giving a free lease to the corporate companies to impose certain unreasonable clauses in the agreement to resolve this issue the Courts from time to time have given interpretation regarding the same.
In the infamous case of Lily White v. R. Munuswamy, the major issue regarding exemption clause included by the laundry was in question where the Hon’ble Court contended that even when the service provider has included the exemption clause in the terms of the agreement such clause cannot be an excuse for avoiding liability created out of gross negligence of the service provider.
While the Indian Contract Act 1872 does not explicitly mention about Standard Form Contract but the important books on Contract Law like Pollock & Mulla – The Indian Contract Act & Specific Relief Act, 1872, Avtar Singh – Law of Contract & Specific Relief Act and Anson Law of Contract discusses about the topic through different dimensions. Another way through which the standard Form Contract gained imperative attention was Commentaries on Consumer
Protection Act 2019, legislative and regulatory sources, The Competition Act 2002, Ecommerce and IT Act, 2000. The Law Commission Reports, publication in NLU law journal, Havard law Review, and Oxford Journal of Legal Studies played a pivotal role in breaking the cast of ambiguities around the topic of Standard Form Contract.
The Standard Form Contract initially were built for the convenience of trade transaction but later on the corporate houses started taking an undue advantage of the same creating a trade environment with subsistence of unfair practices and exploitation of customer henceforth necessitating the interpretation of courts to build transparency and accountability of the service provider. The essential element that gives a broad access to the companies to insert any clause they want is the existence of pre drafted terms and conditions in the form of exemption clause sometimes these might be quite difficult for a layman to understand the implications of the terms clearly unknowingly making them sign to certain unreasonable and exploitive terms.
The judiciary plays an important role in the interpretation of such terms and conditions mentioned in the Standard form of Contract the intervention in such cases the judiciary laid emphasis on the close scrutinization of unfair terms and bargaining powers and imposing strict actions in cases the service provider just put the exemption clause to escape any sort of liability arising out in the future. The courts time and again in cases like LIC v. Consumer Education & Research Centre reiterated the need for valid reasonable terms to be imposed on the consumers regarding Standard Form Contract and on the non-adherence to the same stringent punishment be imposed upon the service providers.
The concept is now no longer new to the field of business and law but is in fact used and followed by almost all big companies and service providers which has led to evolution of the topic of Standard Form Contract.
Review of Literature
This section examines the historical evolution, background, social factors and global perspective regarding the subject matter of Standard Form Contracts, the new trends in the field as well as the Court’s interpretation regarding the same and it also refers to the contrast between the applicability in India and across the globe.
1. Historical Background and Evolution
The concept of Standard Form Contract though is not clearly mentioned in the Indian Contract Act 1872 but still with expanding industrialization and growth in commercial and trade transaction the Standard Form Contract which is basically a pre drafted contract came into existence. These were already created by the big companies to come in contract with large no. of customers though with this came an undue advantage for the companies to insert any unreasonable term and conditions in the form of exemption clause creating a exploitative kind of situation for the general customers also providing for escape mechanism for the companies to waive off their liability arising out of any negligence on the part of the service providers and leaving the consumers with no other recourse than to adhere to unreasonable terms and conditions mentioned by the service providers in the form of exemption clause.
The judiciary taking a surveillance about the situation in various cases held the service provider liable and stated that the service provider cannot waive off their liability in case gross negligence is committed on part of the service provider. The Hon’ble Court also contended that the exemption clause does not exist to waive off liability or to exploit the customers but to provide uniformity in trade and commercial transactions. As the Indian Contract Act 1872 is based on the British Contract Act with minute differences amongst the two laws even in the British Law the concept of standard form of contract is not explicitly mentioned henceforth the Indian Contract Act also lacks the explicit mentioning of the Standard form Contract but the components creating the Standard Form Contract remain the same as mentioned in Section 10 of The Indian Contract Act 1872.
2. Current Trends
The Standard Form Contracts are quite unique in itself as one party pre drafts the terms and conditions in accordance to themselves creating no room for negotiation but only adherence to the terms and conditions set up. In the contemporary world the Standard Form Contracts are Prevalent and their implications have a extremely wide ambit creating an imperative impact on the market a vast number of commercial agreements are based on these type of contract though their application is exploitative as the general public lacks the knowledge to question certain terms and conditions mentioned in such kinds of contract which again is a grey area in the subject concerning standard form contracts. The hon’ble Court has laid down various guidelines and parameters regarding the interpretation of the clauses inserted in Standard Form Contract by giant companies to skip liability if it arises in the future.
In the case of M/S. Inox Wind Ltd. v. M/S Thermocables Ltd. (2018) the Hon’ble Supreme Court laid down that the understanding of referenced documents in an contractual agreement is very essential part of the agreement henceforth cannot be neglected at any cost. The same was also established in the case of Giriraj Garg v. Coal India the case went into the applicability of Standard form of contract laying down guidelines regarding the same and also questioning the enforceability of such contracts.
International Perspective Regarding Standard form of Contract
The Standard Form Contract is widely used in various industries and by various companies worldwide in order to come in contract with its customers. They are widely used as Commercial and Business Contract like in International Chamber of Commerce Model Contracts, UNIDROIT Principles of International Commercial Contract, United Nations Convention on Contracts for the International Sale of Goods and many more international organizations use these kind of Contracts as they are quite effective and budget friendly for the organizations. In this way industries can also incorporate the legal framework best suited for their own needs.
Method
This study will focus on qualitative approach towards the subject matter i.e. Standard Form Contract evaluating and analyzing the effectiveness, loopholes and implications of the topic. The research is based on integrated legal data, comparative research and the data collected from various sources to provide insights regarding the whole framework of Standard From of contract.
1. Case Analysis
- The study analyses the various case laws regarding the Standard Form Contract also the interpretation of the court is taken into consideration for the better clarity on the topic.
- The landmark case of Lily White v. R. Munuswamy where the Hon’ble Court laid down that exemption clause included in the terms and conditions of an agreement does not give the service provider a way to escape the liability in case of negligence.
- Certain other reports based on the analysis of these cases are also taken as a source of consideration for better research and drawing conclusion regarding the same.
2. Comparative Research
The research paper is also concerned with the comparative analysis and contrast between the applicability of Standard Form Contract in India and countries across the globe creating a distinguish between the two perspectives. The references taken from international context are also quits relevant and have been incorporated in the present research paper so that the various dimension concerning the topic of Standard Form Contract can be highlighted. The international reports, conventions and research papers play a major role in the study about the subject concern.
3. Data Analysis
The study analyses the data from various national as well as international sources creating an overview regarding the concept.
The key sources that play pivotal role in the study conducted include:
- 103rd Reports of Law Commission, 199th Law Commission Report and 97th Law Commission Report.
- International Chamber of Commerce Model Contracts, UNIDROIT Principles of International Commercial Contract, United Nations Convention on Contracts for the International Sale of Goods and many more international organizations.
- The key sources also include the journal and publications of various authentic and renounced organizations. Articles published on the topic regarding the role of Standard Form Contract regarding its advantages, the loopholes regarding the same along with the suggestions to resolve the issue.
Suggestion For Reform
- To create a more effective, balanced and transparent practice regarding the topic concerning Standard Form Contract the most important aspect concerned is building up transparency in the terms and conditions of the contract so formed between the customer and the service provider.
- Fairness principles need to be adhered to also stringent actions to be taken by the courts on the non-adherence to the same as the service providers actually exert pressure over the general public to comply with the unreasonable clause in certain cases.
- Transparency should be prioritized over profit as the main aim is to build a smooth flow of information between the parties signing the contract for that its important that transparency must not be compromised.
- Technological steps can also be considered as the Standard Form Contract also is quite prevalent in online format henceforth steps should be taken in that direction as well to ensure overall security and scrutinization.
- Adoption of international standards would also amount to an imperative step in this direction as these standards would amount to better surveillance over such kinds of contracts creating a proper framework for designing of such contracts.
Conclusion
The legal landscape of Standard Form Contracts plays an imperative role in smooth flow and conduct of commercial transactions and signing of various kinds of agreements with the customers. The research paper has highlighted the various aspects of Standard Form Contract along with that it has also discussed the loopholes in the law regarding the governance of the same and hence certain suggestive measures to ensure that these loopholes do not take away the essence of transparency, accountability, fairness and balance in negotiating power from the contract so formed between the parties. Evolution of Standard Form of Contract and building up alignment along with the market concerns and the changing business environment requires a more organized framework.
Standard Form contracts are one of the most essential elements of any business. Multinational companies have their complete business agreements based on certain standard form of contract these kinds of contracts are extremely beneficial for the companies as they are cost efficient certain clauses can be specifically designed for the companies own policies and framework creating a balance in the organization but a major loophole of this is that sometimes this may lead to practicing of unfair trade practices maximizing profit over the satisfaction of customers, Exploitation of customer and making them comply with unfair demands of the service provider creating a environment where undue influence is exercised over the customer by the service provider in order to resolve this issue the Hon’ble Court from time to time has given guidelines regarding the same in various cases the court also laid down that not every time the question of exemption clause is raised it will qualify as exploitative but in certain cases where actually the terms and conditions are ambiguous and unreasonable according to a reasonable prudent man the service provider cannot waive off his liability in case of standard form contract. The learned scholars like Sir Pollock and Winfeild though have not mentioned about the concept of standard form contract but the whole structure of the modern day standard form contract is based on the general principles defined in Section 10 of the Indian Contract Act 1872 henceforth even though not explicitly mentioned in the codified law the principle governing the Standard Form Contract remain the same.
References
- Books
- “FIDIC Contract: Law and Practice” – Ellis Baker, Ben Mellors, Scott Chalmers, Anthony Lavers
- “The JCT Standard Building Contract” – Peter Barners, Matthew Davies
- “Keating on Construction Contracts”- Stephen Furst, Sir Vivian Ramsey
- Pollock & Mulla on the Indian Contract Act
- The Indian Contract Act 1872
- Websites
- Journals and publications
- Journal of Legal Analysis (2022)
- “Fixing standard form of contract” – SSRN Electronic journal
- International Journal of Law in the Built Environment
- Construction Law journal (sweet & Maxwell)
- Journal of Contract Law
- Business Law Review (Wolters Kluwer)
- Lloyd’s Maritime and Commercial Law Quarterly
