How to Enforce International Contracts in India: Legal Remedies for Breach

The rise of international trade, driven by globalization, has resulted in a sharp increase in cross-border commercial contracts between companies from different jurisdictions, often involving complex contractual arrangements. When disputes arise over terms of a contract, either a Court of Law or an Arbitral Tribunal step in to resolve the issue. However, enforcing the legal remedies provided in such contracts can be challenging. This article explores the legal remedies available for enforcing international contracts in India when a breach occurs.

In order to enforce an International Contract in India, it is pertinent that the said Contract incorporates a well-defined jurisdiction clause[1] which stipulates that the Indian Court or an Arbitral Tribunal having its seat[2] in India will have the jurisdiction to try and adjudicate the disputes arising out of it. The value of the contract further determines the Court which will have the jurisdiction to try the suit or have the  proceeding exclusive authority to supervise the arbitration proceeding. The  enforcement of the jurisdiction clause is indispensable to uphold the integrity of contractual arrangements. Permitting parties to sidestep their contractual obligations by pursuing remedies in foreign courts would undermine the intent of such clauses.

Further, to ensure the enforceability of an international contract, a governing law must be selected to interpret its terms, determine the rights and obligations of the parties, and provide a legal framework for dispute resolution. Given the diverse legal systems in international transactions, parties to an international contract have the autonomy to choose the governing law. In India,  the legal framework for international contracts is primarily governed by the Indian Contract Act, 1872 (hereinafter referred to as “ICA”) . However, the other relevant statutes such as the Specific Relief Act, 1963 (hereinafter referred to as “SRA”) and the Arbitration and Conciliation Act, 1996 also play a significant role. It is crucial for International businesses to rely on and adopt Indian laws as governing laws in contracts involving sale of goods involving Indian Parties, since India is not a signatory to the United Nations Convention on Contracts for the International Sale of Goods (hereinafter referred to as “CISG”)[3].

Section 37 of the ICA imposes a general obligation on contracting parties to either perform or offer to perform their contractual promises unless the contract has been lawfully terminated or rescinded. A breach of the contract is an undesirable event for any contracting party which can significantly disadvantage the non-breaching party. In order to mitigate the resultant harm and restore the non-breaching party to its pre-breach position, the law provides a range of remedies. These remedies, which are enforceable against the breaching party, are designed to compensate for losses incurred or to restore the non-breaching party to its original position prior to the breach of contract or in certain circumstances, to compel specific performance of the contractual obligations. To determine the appropriate remedy in a particular case, the factors like nature of breach, contract stipulations should be taken into account. The common legal remedies for breach of contracts:

Compensation and Damages: Section 73 of the ICA addresses the specific issue of compensation for the losses incurred by the non-breaching party as a result of a breach of contract is prescribed. This provision ensures that the aggrieved party is compensated for any direct loss or damage that arises naturally from the breach. This aims to restore the non-breaching party to its original position they would have been in if the contract had been performed.

Specific Performance: As an equitable remedy, specific performance is granted by Indian Courts under Section 10 of the SRA, to compel parties to fulfil their contractual obligations. The fundamental principle which governs the said remedy is that a creditor is entitled to receive a precise performance promised by the debtor. Unlike damages, which provides monetary compensation for breach of the contractual stipulations, specific performance enforces the terms agreed between the parties, ensuring that the aggrieved party receives the promised performance.

Rescission- When one of the parties fails to fulfil its contractual obligations, the aggrieved party may seek rescission, a remedy that terminates the contract and releases both parties from their remaining obligations. The right to rescind a contract for breach depends on the gravity of the breach. However, as per Section 65 of the ICA, the rescinding party is obligated to restore any benefits received under the contract to the other party. This requirement aligns with the equitable principle of restitution, which seeks to prevent unjust enrichment. Rescission, much like specific performance is a discretionary remedy, and courts may decline to grant it if it would cause undue hardship to the breaching party or if other remedies, such as damages, are more appropriate and adequate to compensate the non-breaching party.

Injunction- Where a party breaches its contractual obligations or acts without the express consent of the other party, the aggrieved party may seek injunctive relief. An injunction, whether temporary or permanent, is a court order that restrains a party from performing or continuing a specific act. This equitable remedy is often sought to prevent irreparable harm and to maintain the status quo until the underlying dispute can be resolved.

Conclusion

In conclusion, the enforcement of international contracts in India relies heavily on the inclusion of a well-defined jurisdiction clause and the selection of appropriate governing law. These provisions uphold the integrity of contractual arrangements, ensuring disputes are resolved within the legal framework agreed upon by the parties. Remedies such as compensation, specific performance, rescission, and injunctions offer a comprehensive bouquet of remedies for addressing breaches, tailored to the unique circumstances of each case. By recognizing the interplay of the ICA, the SRA, and the Arbitration and Conciliation Act, 1996, businesses can navigate the complexities of cross-border transactions effectively. Adopting meticulous drafting practices and aligning contractual terms with Indian legal principles ensures enforceability and provides a robust safeguard for parties engaged in international trade.

[1] designates a specific jurisdiction as the exclusive venue for resolving disputes arising from the contract.

[2] The "seat of arbitration jurisdiction" refers to the legal jurisdiction where an arbitration is considered to take place, essentially determining the court that has exclusive authority to supervise the arbitration proceedings and enforce the resulting award; it is the location chosen by the parties in their arbitration agreement, which impacts the procedural rules and legal framework governing the arbitration process.

[3] CISG provides a uniform legal framework governing aspect of contract of international sale of goods including formation, performance, remedies, and dispute resolution. However, since India is not a party to the CISG, its provisions do not apply to international sales contracts involving Indian parties.