Legal Complexities for UK and US Businesses Regarding Breach of Contract and its Enforcement-1 | Indian Laws | Precedents | Power of Indian Courts | Ways for Dispute Resolutions Mechanism
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When there is a breach of contractual terms in International contracts where Indian Entities are involved. Foreign Businesses find themselves in a very Inconvenient position as they are not familiar with the Indian Legal system and various transactions. As I am currently working as a legal consultant for foreign businesses, specifically businesses based in the UK, I have 15 years of experience. I encountered a certain client who was usually frustrated and perplexed when commercial relationships unravel across borders. Last month, I consulted a London-based tech company whose software development contract collapsed with the Bangalore-based tech partner, resulting in unfinished code and financial losses to the company. Such issues can be rectified by seeking mindful and proper contractual protection.
Interplay between the Indian Contract Act, 1872 and Cross-Border Transactions
In India, contracts are usually governed by the Contract Act, 1872. Despite having a colonial legacy, the said act remains remarkably efficient and adaptable in commercial transactions based in India. What I have experienced in the last 15 years, that certain foreign businesses are not familiar with the legal principles followed in India, despite some alignment with Common law, but some potential differences in nuances of procedural aspects of commercial transactions.
In Indian law, breach of contract means failure to perform duties as agreed under the contract. Nonetheless, foreign businesses are not aware that Indian Contract Jurisprudence categorises several types of breaches:
● Actual Breach: Failure to perform duties under the agreement as prescribed.
● Anticipatory Breach: When parties or either party to the agreement, through conduct or otherwise, communicate their intention not to perform their duties.
● Material breach: Material breach means when either party or parties fail to perform core aspects of their obligations, or one can say breach of material terms under the Contract.
● Minor Breach: It means any breach which does not alter the terms or substantially affect the rights of the parties under the agreement.
Recently, one of my foreign clients received some goods which lacked specifications. Despite having the right to terminate the agreement, I suggested my client opt for appropriate compensation.
Power Indian Courts to enforce foreign Judgements
One of the glaring issues with foreign businesses is whether their country’s precedents are enforceable in India. As India lacks a formal treaty with the UK and the USA regarding reciprocal Enforcement. However, the Code of Civil Procedure allows enforcement in certain cases. Recently, I advised my client based in New York on a dispute with their Mumbai-based distributor. As Indian Courts may recognise a foreign judgment in certain cases. The requisites underlined in section 13 of the Code of Civil Procedure, 1908, are as follows:
Precedents which Embarked Cross-Border Disputes
Recently, the apex court of India emphasised on strict form of evidence regarding Non-performance and collectively observed that mere allegation of Non-performance is not sufficient. Moreover, the apex court in NBCC (India) Ltd. vs Zillion Infra. Projects, 2025, observed that arbitration clauses under such contracts must show a clear intent of the parties to incorporate them.
Recently, the High Court of Delhi in Hare Ram Singh Vs RBI, 2022, established the liability standards of banks in fraudulent transactions. This judgment is the knowledge footprint for businesses based in the UK and the US.
Consequently, the apex court in the Sahakar Maharshi Bhausaheb Thorat Case, while glaring interplay of the Contract Act, 1872, observed that parties’ claim for compensation should be in adherence and stipulation with the contract, and also the damage claim must be in conformity with the Indian Contract Act, 1872.
- Passed by a competent court;
- Passed on merits;
- Does not violate the Principles of International Law or public policy;
- No fraudulent motive
I always suggest to my foreign clients to include arbitration clauses under the agreement with neutral jurisdictions like Mumbai or Delhi for efficiency and reliability.
Ways for Effective Dispute Resolution
There are several ways to resolve disputes in Cross-border transactions, as some of them are herein below:
- Opting for Alternative Dispute Resolution
Generally, the litigation process in India is time-consuming process. I have personally witnessed that the resolution of contractual disputes in India is time-consuming, as such matters languish in courts for decades. Conversely, through arbitration, it can be resolved within 12-18 months. Recently, one of our Boston clients has been facing some contractual disputes with an Indian software company. Simply by incorporating arbitration as a dispute resolution mechanism under the agreement, we can secure the arbitral award within 11 months. - Meticulous Documentation
Maintaining written documents is essential for any business to maintain its legal position if there is any scope of dispute in future. Oral contracts in India are enforceable, but the standard of proof is quite different. Recently, I represented a manufacturing unit in the UK, which had some verbal modifications in the agreement, and consequently, my client was in a weak position during the dispute resolution process. So it is highly recommended to always reduce verbal negotiations and terms to written documents. - Exhaustive Force Majeure Clause
Post-COVID-19 pandemic, the view of Indian Courts, including the Supreme Court, has changed drastically, as currently ruled that only events specified under the Force Majeure clause could excuse Non-performance of Contractual obligations. Mere use of broad terms like ‘disruption’ could not excuse such Non-performance.
How to protect and safeguard UK and US Businesses
From my years of experience, I want to share some insights and the internal workings of cross-border transactions. Some of them are herein below: - Identify the Governing law and Jurisdiction
Always be specific and explicit about the laws which govern contracts, and also the place where any dispute under the agreement is going to be resolved. - Elaborate on the contract breach and remedial terms
An elaborate clarification of Material breach and Minor breach under the agreement is crucial for the segregation of liabilities of the defaulting party. It is always crucial for Indian lawyers while assisting NRI-USA clients to incorporate the explicit and concise definition of what constitutes a breach of payment terms under the agreement and consequent remedies for such delayed payments. - The arbitration clause must be exhaustive and inclusive
In case both parties agree to arbitration as the dispute resolution mechanism, then it is crucial to ensure specifications here below:
● Specifications of the Arbitral Institution
● Specify the seat where the arbitration will occur
● Specify the Quantum of arbitrators.
● Specify the language in which arbitral proceedings shall be convened.
Recently, I suggested to one client based in California, USA, to relocate his place for dispute resolution under the arbitration clause from Mumbai to Singapore for a more neutral jurisdiction. - Detailed & Comprehensive Force Majeure Provisions
It is highly suggested by practitioners that one has to be very vigilant, clear and specific while drafting force majeure clauses. Always list the events which amount to force majeure events; otherwise, it could not excuse the Non-performance of Contractual obligations. In this regard, placing reliance upon Gujarat Pottling Company Ltd. Vs Coca-Cola Co., wherein the apex court observed that only the occurrence of expressly stated events can trigger the force majeure protection under Indian laws.
Authored by: Adv. Anant Sharma
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