Exclusion clauses under the Indian contract law: A need to nccount for unreasonableness

Abstract

The Indian contract law continues to follow the classical contract law model under which parties may, in exercise of their autonomy, limit or exclude their liability for breach of contract. As long as parties have freely contracted, an exclusion clause remains effective. Because of this, parties have started drafting wide exclusion clauses, highlighting creeping unreasonableness in contracting practices. In the absence of any statutory law governing the same the only way by which a party could be relieved from the performance of an onerous contract in India is by arguing procedural unconscionability. This paper comprehensively traces the development and understanding of exclusion clauses as they have evolved under the Indian Contract law and through the adoption of common law by the courts. This being a time series study, we examine all the Indian Supreme Court and High Court decisions reported until early 2020 and find that courts have attempted to instil just- contracting by adopting ad-hoc mechanism against the unfair use of the exclusion clauses. However, uncertainty continues to prevail regarding the enforceability of unconscionable exclusion clauses. Therefore, taking a comparative approach, we argue in favour of adopting certain legislative reforms in the Indian contract law towards empowering the court to adjudicate on claims based on substantive unconscionability. A first step in this direction, specifically for consumer contracts, is the statutory recognition of ‘unfair contract terms’ under the new Consumer Protection Act, 2019.