An Appraisal of the Indian Contract Act: Loopholes, Ambiguities, and Reform Imperatives

Abstract

The Indian Contract Act, 1872 has long served as the foundational statute governing contractual relations in India, providing a comprehensive and meticulously drafted framework that has effectively regulated contractual obligations for over a century. Owing to its detailed and principled structure, the Act has required minimal substantive amendments and has successfully governed contracts across the Indian corporate and commercial sectors for an exceptionally prolonged period. Its enduring relevance reflects the foresight of the legislative drafters and the robustness of its underlying legal principles. However, the rapid evolution of technology, particularly the emergence of blockchain technology and digitally driven business models, has significantly altered the contours of contractual relationships in the twenty-first century. In light of these transformative developments, it has become imperative to re-examine and modernize the Indian Contract Act to ensure that it adequately reflects contemporary commercial realities. From the perspective of modern corporate governance and global trade practices, targeted reforms within the existing statutory framework are essential to facilitate innovation, certainty, and efficiency in contractual dealings. This paper critically examines the necessity of incorporating smart contracts founded on blockchain technology within the ambit of the Indian Contract Act. It further explores the need for contractual reform in emerging and sensitive sectors such as medical surrogacy, where traditional principles of consideration and contract formation pose unique legal and ethical challenges. Additionally, the study revisits evolving interpretations of Article 11 and Article 27 of the Act in the context of contractual capacity and restraint of trade, particularly in an era marked by digital platforms, gig economies, and cross-border engagements. The paper also emphasizes the need for explicit statutory recognition of digital and electronic contracts, alongside a critical reassessment of Section 74 of the Act concerning liquidated damages and penalty clauses, to address ambiguities that frequently arise in modern commercial disputes. These areas represent significant legal gaps within the century-old legislation that warrant timely amendment to ensure legal certainty and to prevent misuse or misinterpretation. The paper offers pragmatic suggestions for statutory reform aimed at aligning the Indian Contract Act with global contractual standards, thereby making India a more attractive jurisdiction for both domestic and international enterprises seeking to enter into diverse commercial arrangements with Indian entities and individuals. Finally, this research provides a comprehensive overview of the Indian Contract Act while highlighting persistent difficulties in the interpretation and application of certain provisions within the Act. It is argued that progressive reforms—particularly those accommodating smart contracts enabled by blockchain technology—represent the most viable path forward. In addition to addressing technological advancements, the paper delves into the complexities surrounding consideration and contract formation in surrogacy agreements and advocates for a systematic revamp of existing provisions. Overall, the study underscores the tangible benefits of updating the archaic framework of the Indian Contract Act, 1872, to ensure its continued relevance, adaptability, and effectiveness in an increasingly digital and globalized contractual landscape.

Introduction

The text critically examines the Indian Contract Act, 1872, arguing that despite its foundational role in governing contracts in India, the Act has become outdated and requires significant reforms to align with modern business practices, technological advancements, and evolving social realities. The literature review highlights scholarly concerns regarding restrictive trade practices under Section 27, inconsistencies between Indian and English contract law, limitations in addressing e-contracts, and inadequacies in dealing with minors and emerging forms of contracts.

The study identifies major gaps in the Act, particularly in relation to restraint of trade (Section 27), liquidated damages and penalties (Section 74), contracts involving minors (Section 11), surrogacy contracts, and the absence of clear provisions for smart contracts based on blockchain technology. Through case law analysis—especially in sports contracts, government contracts, and modern commercial dealings—the text demonstrates how unequal bargaining power, ambiguity in damages, and technological illiteracy create unfair outcomes and legal uncertainty.

It further argues that surrogacy contracts lack clear remedies and consent safeguards, minors are inadequately regulated despite their increasing participation in digital and commercial activities, and smart contracts are insufficiently recognized within the current legal framework. The analysis concludes that without legislative updates, these loopholes may encourage exploitation, fraud, and inefficiency.

Overall, the text advocates for a comprehensive modernization of the Indian Contract Act, 1872, recommending clearer statutory provisions, incorporation of technological innovations, protection of weaker parties, and a balanced approach to damages and restraints of trade to ensure fairness, efficiency, and global compatibility in the 21st-century contractual landscape.

Conclusion

It is quite certain from the recent scenarios that some major amendments should be underway for the Indian Contract Act, 1872 to bring it at par with 21st century. It is high time for the legislature to break the monotony of the Act and incorporate some must have changes in the Act. Although the Indian Contract (Amendment) Bill of 2017 makes the first step towards amendment, it is limited to contractual farming agreements and does not account for the changes analysedinthestudy. Hence,thetimeforchangeis ‘Now’.

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Copyright

Copyright © 2025 BY Simon Raj, Bhavya Rathore. This is an open access article distributed under the Creative Commons Attribution License, which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.