An unfair contract is a contract where the terms and conditions under the contract are unfair or one-sided. These types of contracts are also known as unconscionable contracts. In these types of contracts, the terms and conditions are frequently set so that one party is significantly disadvantaged relative to the other. This can result in situations in which one party has no meaningful choice except to join into the agreement, or where the contract provisions are so one-sided that they are effectively unenforceable.
If the contract contains unfair terms then that contract can be declared illegal. The court will review the terms of a contract that are grossly unfair. If the court finds the presence of such clauses then the court will declare the contract as void and unenforceable.
What is unfair contract
In the case of an unfair contract, the object and consideration are mainly take into consideration. The contract should not be without consideration and the object of the contract should be valid. Humanistic emotions are what cause a lot of disruptions to the sanctity of the promise, which is at the heart of the contract.
When the promise is violate, there is no reason for the participants to adhere to it, so they will find ways to satisfy their needs even if it means causing or having an unfair advantage over the other party. Because these were highly widespread issues, the Indian legislature investigated and brought to light The Consumer Protection Act, which was the gradual consequence of the ‘consumer rights movement’.
Due to this movement, the Protection of Consumer Rights Act was enacted in 1986. This act focuses mainly on the protection of consumers. The unfair trade practices, which were prejudicial to the interest of consumers, were recognized and prohibited under Monopolies and the Restrictive Trade Practices Act of 1969. MRTP Act defined the term unfair trade practices. The simultaneous execution of two legislations (the MRTP Act and the Consumer Protection Act) caused misunderstanding about their operation and authority. This resulted in the revision of the MRTP Act and the establishment of the Competition Act of 2002.
In many cases, inadequacies in law were highlight. Despite the Contract Act of 1872 and the Specific Relief Act of 1963, there are no specific safeguards to protect consumers, especially from the widespread use of standard phrases. To address this issue, the Law Commission of India considered including further procedures for redressing unfair contract conditions in its 199th Report.
How Can You Challenge an Unfair Contract under Indian Law
- Indian Contract Act: Section 23 of the Act makes the contract void if it is contrary to public policy or contains unfair terms. If the unreasonable condition has been impose on one party then this section declares the contract as conscionable. You can file a complaint in cases of unconscionable contract. You should collect the documents and evidence in support of your claim. You can approach the civil court in such cases.
- Consumer Protection Act of 2019: This Act made unfair contracts a ground for filing complaints. We can see the unfairness in such terms, which causes major changes in the rights of consumers. These include: Excessive deposit as a security for performance of obligations, the penalty imposed on consumers is disproportionate to the real loss, unilateral termination of contract without reasonable reasons; and imposing any unreasonable charge or conditions on the consumer which are disadvantageous to the consumer.Â
- The consumer can immediately challenge any specific term in the contract as unfair before the State or National Commission. This provision grants the State and National Commission the authority to assess a contractual clause. Base on the remedies request, the Commission may give relief in relation to such contracts if it believes the contract was unjust when it was make. The consumer can directly take up the action in their territorial jurisdiction.
Case Laws
- In the case of Central Inland Water Transport Corporation v. Brojo Nath Ganguly, 1986, The court held that the principles formulated in this case do not apply to the types of contracts that are full of illegality but to those contracts that have terms that are so unfair and unreasonable shocking the conscience of the Court. They are oppose to public policy and should be declare void.
- In the case of New India Assurance Company Limited v. Rajeshwar Sharma and Others, (2019), the court held that due to the disparity in bargaining power between consumers and large enterprises (both private and public), consumers are frequently subjected to terms that are unfair in their application and exempt the enterprise presenting the document, either entirely or partially, from its just liability under the contract. The court state that if the clauses are too harsh and oppressive then contracts can be declare as unconscionable.
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