History of the Indian Contract Act, 1872
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History of the Indian Contract Act, 1872

History of Indian Contract Act, 1872, Indian Contract act notes,

History of the Indian Contract Act, 1872: An Introduction

The Contract Act is one of the principal acts governing all commercial relations not only in the commercial world but also in our daily routine life. History of the Indian Contract Act, 1872 was mainly intended to secure the reasonable fulfilment of expectations which are promised by the parties with each other and also enforcement of the duties and responsibilities which are prescribed by an agreement between them.

It is one of the most important enactments drafted by the Britishers and the principles enacted within are nothing but the codification of the general principles governing the trade relationship between the parties.

The basic principle of contract law persevered the same throughout the world only certain technicalities are different. Before the India Contract Act was enacted, the contractual relationship was administered by the personal laws of different religious communities.

The Indian Contract Act classifies the system that we enter into a contractual relationship, execute a contract, implement provisions of contractual obligations, and effects of breach of a contract. The contractual capacity is limited in certain situations otherwise it is the prerogative of the individual to contract. 

There are specific areas that deal with the property, whether immovable or movable, goods and services, and specific performance such as the Transfer of Property Act, The Sale of Goods Act, and The Specific Relief Act.

Some of these acts were basically a part of the Indian Contract Act, 1872 but were later codified as separate laws. Furthermore, the Act is not retrospective in nature. Therefore, the contract which was made before 1st September 1872, even though to be performed after enactment of this Act.

The history of the Indian Contract Act guides to knowledge the very source of the commercial processes and in this regard, the importance of contracting to conduct one's business in our daily life. The prevalent system was the barter system in ancient times and it was based on the mutual principle of giving and take. 

The Indian Contract Act, 1872 was enacted on 25th April 1872 [Act 9 of 1872] and the act came into force on the 1st day of September 1872. The nature of the India Contract Act has been modelled on that of the English Common Law. 

Now, to understand the Indian Contract Act in its present form we have to analyze the historical evolution of contract law taking into account the practices that were prevalent before the enactment came into practice. We shall be mainly analyzing the Vedic and Medieval Period, Muslim Period, Hindu Period, British Regime.

Evolution of Contract Law in Different periods

I. Vedic and Medieval Period

During the whole Vedic and Medieval periods, the history of humans in India, there was no general code covering commercial transactions of money. Principles were derived from various references - this is like - the sources of Hindu law, namely the Vedas, the Dhramshatras, Smritis, and the Shrutis give a vigorous classification of the law similar to the contracts in those ancient times. The rules administering contracts form a part of the law called Vyavaharmayukha.

The origin of contract law and the concept of contractual relations originated in the Vedic period itself which was led down in the studies of smritis. Moreover, the origin of contract law from the Vedic period evolved due to customs and traditions. We know the topics like debt deposit and pledges sale without any ownership, mortgage, and gifts, which are all contracts in nature, are specified there.

The general rule of the contract is a striking similarity to the modern law of contract. For e.g. as discussed in the Manusmriti, the first and the essential requirement for a process of a valid contract to start is the competence of the parties who are willing to enter into a contract. 

This pattern laid down for competence resembles the provisions of Section 11 of the Indian Contract Act, 1872 namely, dependents, minors, sanyasis, persons without limbs, those addicted to vices were incompetent to enter into a valid contract. The Narad Smriti describes competent persons into three; the king, the Vedic teacher, and the head of the household.

During the region of Chandragupta, commercial transactions have existed in the form of "bilateral transactions" between two parties. The essential ingredients of these businesses were free consent and agreed upon the same thing in the same sense that is agreed on all the terms and conditions involved in the contract. It was laid down that the following contracts were void:

  • Contracts formed after the evening period were void that is contracts made at night were null and void.
  • Contracts entered into the anterior chamber of the house.
  • Contracts made in hills, old places, forests, or any other secret place were void.

II. Mahomedan period

During the Mahomedan period in India, all matters relating to the contract were governed under the Mohammedan Law of Contract. The word contract in Arabic is Aqd meaning conjunction. It indicates the conjunction of the proposal (ijab) and the acceptance which is Kabul. The valid contract requires that there should be at least two parties, one party should make an offer and the other party accept it, the minds of both must agree upon the same thing and in the same sense that is there, the declaration must relate to the same matter and the object of the valid contract.

It also provided rules to administer specific contracts to commercial, mercantile, and exclusive nature like agency (vakalat), guarantee and indemnity (zamaanat and tamin), partnership (shirkat), one person’s money and another's work (muzarabat), bailment (kafalat). All transactions relating to all types of disputes of property and succession matters were treated as secular contracts.

In India, during the British administration, the two widespread religions having separate personal laws were Hindus and Muslims and each had a separate idea as to what composes a contractual agreement and when shall breach of contract takes place, and what were the assents.

Mahomedans supported Islamic laws which are considered as the holy origin and are believed as the revelations of the god/Allah. According to Islamic law, every aspect of their civil law revolves around the contract, like their marriage contract, or their contract for the inheritance of property. The source of Islamic contract law is Surah Al-Maidah, Ayah.

The unlawful transactions were considered null and void from the beginning under Muslim laws. These types of transactions were divided into three categories under Muslim laws: -

Riba Al-Fadl:– in this case, it’s a contract that produced unlawful excess in exchange for counter values in a contemporaneous transaction.

Riba Al-Nasi’a:- which means a contract that produced unlawful gain without completing the exchange of counter values.

Riba al-jahilya:- it’s also called pre-historic riba, where the lender asks the borrower whether he will settle the debt or increase the debt.

Islamic laws provide two modes for invalidation of contracts, first is the right of either party to rescind the contract unilaterally without any legal cause and the second one is to terminate the contract on the ground of frustration. 

The grounds of dissolution of contracts are as follows:-

  • Invalidation by mutual agreement
  • Cancellation of the contract by the death of either party to the contract or destruction of the subject matter or lapse of the time- period
  • Cancellation by termination by either party

III. Hindu law

Though Roman notions of contract law have not been directly included under the Indian law of contracts. However, the framers of the Indian Contract Act, the English, were aware of the developments in the field of law of contracts in Rome. Thus, Roman Contract notions have helped in the development of English law, thus affecting the Indian Contract Act. The introduction to the next chapter deals with the same discussion.

The Jurisprudential aspect of Hindu law is fundamentally different from that of English law’s jurisprudence. Hindu law is the result of the compilation of numerous customs and works of Smritikaras, who interpreted and analyzed Vedas to develop the various aspect of Hindu law. The Hindu law dealt with contract law through titles.

Manusmriti in regarding the contract law dealt with the incompetence to enter into a contract. It laid down the principle which is also followed in the Indian Contract Act, states that a contract entered by a minor, or intoxicated person or an old man or the cripple is not a valid contract.

Manu also dealt with the fraudulent aspect of the contract and it stated that any contract dealing with mortgage, sale, fraudulent gift, or any contract which is motivated with fraudulent aspect shall be declared null and void. Also, he held that any consent given for any transaction under the pressure of threat or coercion shall also be declared void.

Regarding the contract by a minor, under Narada Smriti, an infant is considered to be someone who is between in the stage of an embryo to up to 8 years. After that, from 8 years to 16 years the child is considered as boyhood and after 16 years the person is competent to enter into a contract.

This leads to the fundamental aspect of the contract which is the same for both the Muslim law and Hindu law and the same principle is there in the contract act is that when any agreement is entered into which is contrary to the law then it shall have no legal force.

IV. British Regime

Britishers came to India around 1600 and they started governing India through the medium of charters and different regulations. By the Regulating Act of 1773, the Supreme Court of Judicature was founded in Calcutta replacing the Mayor’s court and it served as the highest court of British India from 1774 to 1862 till the time the High Court of Calcutta was established under the Indian High Courts Act.

The English common and statute law in force at that time came into India by the Charters of the eighteenth century which established the Courts of justice [34] in the three presidency towns of Calcutta, Madras, and Bombay, so far it applied to Indian circumstances. 

It is a matter of controversy whether English law was introduced by the Charter of 1726 by which the statutes up to that date would be enforced in India with the same amount of force as in England, or subsequently by the Charters of 1753-74 to embrace statutes up to 1774.

Now, before the advent of the Indian Contract Act, the English Law was applied in the Presidency Towns of Madras, Bombay, and Calcutta under the Charter of 1726 issued by King George I to the East India Company.


By analyzing the development of the contract through different time periods ranging from Roman law to Muslim Law to Hindu law and then to legal sanctions in British Regime, it can be concluded that though the technicality and the modes and means of punishment may vary, even the applicability of the law may vary, but the underlying principle of all the laws remained the same, that minor cannot contract, consent should be given by both the parties for the same manner and same sense and that certain person is disqualified from contracting like intoxicated, an old person cannot contract.

So it can be said that through different time periods the contract law has been amended and interpreted in different ways in different communities, but general principles are unchanged and no attempt has been made to change it.

Referred Books:

Akash is a YouTuber by Hobbie and Blogger by Passion. He Loves to spread information that helps others to live in this legal world.

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