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Aditya Marwah
in Contracts Law
Asked March 19, 2014

termination of Contract

  • 1 Answer
  • 274 Views

A and B entered into a contract. As per the contract, A was to supply services to B. B could terminate the contract at his own will, by giving a prior 30 day notice to A, that he is terminating the contract. A as such cannot terminate the contract. The issue in this case is, whether the contract between A & B is valid? Secondly, can there exist a clause in a contract as per which the contract can be terminated only by one party unilaterally, while there exists no right with the other party to terminate the contract. I need case laws for this question, preferably Supreme Court cases.

Answer 1

Yes, a contract can be terminated unilaterally if it has an existing mechanism for exiting or terminating the contract by either of the parties.

The termination clause is basically of two kinds, a) termination with cause and b) termination without cause. The ‘termination without cause’ is also called as termination for convenience clause as the party has an option of exiting the contract after expiration of a pre- determined notice period, without providing any reason.

Section 14 (1) (c) of the The Specific Relief Act, 1963  uses the term ‘determinable’, which means the contracts which are by nature revocable. A contract providing for a termination for convenience clause, allowing a defendant to terminate the contract without notice and without assigning any reason, has been held as determinable in nature and therefore not specifically enforceable. Dharam Veer v. Union of India[1].

In a 1991 judgment of Indian Oil Corporation Limited v. Amritsar Gas Service and Ors[2], Supreme Court elaborated upon what determinable means. The distributorship agreement between the parties contained a clause ‘termination for convenience’ clause, which empowered the parties to terminate the agreement by giving 30 days notice to either party without providing reason.  Supreme Court held that such a clause falls within the category of determinable and hence specific performance cannot be granted under Section 14 of the Specific Relief Act, 1963. It was further noted by the Supreme Court that the relief that could be granted in such cases was compensation for loss of earning during the notice period. In another judgment of Her Highness Maharani Shantidevi P. Gaikwad v. Savijbhai Haribhai Patel[3], the Supreme Court further reaffirmed this view. They held that a contract unilaterally terminable before delivery of possession is ‘determinable’ in nature.

 

[1] AIR 1989 Del 227

[2] (1991)1 SCC 533

[3] AIR 2001 SC 1462,

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