Can the Adoption of the CISG Save the Commercial Relationship of Parties in India?

Commerce cannot thrive if contractual bargains are not enforced by law. Such enforcement has to be predictable, consistent and accessible. The parties need to be reassured that the law will protect the ‘benefit of their bargain’ or, in the alternative, provide suitable remedies. In a move affirming the ‘civil’ approach towards enforcement of contracts, the Government of India enacted the Specific Relief (Amendment) Act (Act) on August 1, 2018, to make specific relief effective and conducive for doing business in India. It rejected the common law approach of damages as being the primary remedy for breach of contracts, and has instead made specific performance of contracts mandatory in India.  

This rejection of the common law approach puts India closer to the philosophy of the United Nations Convention on International Sale of Goods (CISG) and the UNIDROIT Principles of International Commercial Contracts (UNIDROIT). The initial hesitation for not adopting the CISG may now be addressed. The adoption of specific performance indicates that the regime is embracing the good faith performance of contracts. The Expert Committee on the Specific Relief Act, 1963 refers explicitly to including the ‘moral obligation’ to perform contracts. It also moves away from notions such as ‘efficient breach’. Therefore, the traditional understanding of Indian contracts is now outdated. This presents a fresh opportunity to re-look at the adoption of the CISG. 

The argument that the CISG does not acknowledge that the invalidity of contracts was misdirected from the beginning. Questions of invalidity even under the Sale of Goods Act (SOGA) are governed by the Indian Contract Act, 1872 (ICA) and the CISG would primarily replace this SOGA, not the ICA. Another common law jurisdiction which understood this distinction is Singapore. It rejected its SOGA which was also based on the English 1979 SOGA, just like India. Hence, the notion that the CISG cannot respond adequately to Indian jurisprudence can no longer be the justification of rejecting the adoption of the CISG.

At present, India has no statute dealing with the issues of choice of law in cases of international transactions, especially where the agreement of the parties is silent to that effect. The emerging trade and frequent international commercial transactions require statutory support for issues relating to the choice of law. Therefore, adopting the CISG would bring in the in-built choice of law provision (Article 1 CISG). This relieves the parties from uninvited confusion, furthers consistency and predictability, and aids in preventing unnecessary litigation. 

Moreover, in light of the recent pandemic, the lacunae in the SOGA and ICA have resurfaced. The SOGA and ICA broadly provide for the remedy of lien on goods for payment of the price, a suit for price and damages for non-acceptance of goods or non-delivery. The remedy of specific performance is subject to the Act. Therefore, there are very few remedies which can cater to saving the relationship of the parties, which is the need of the hour because of the worldwide ‘lockdowns’.

In contrast, the CISG provides for several other remedies such as demand for delivery of substitute goods, exemption of performance due to hardship, price reduction or adjustment, curing defectives by repair, and fixing of additional time for fulfilment of contractual obligations. Such remedies are commercially sympathetic and can save the relationship of the parties by offering alternatives to the termination of contracts and recovery of damages. 

Given the far-reaching effects of the lockdowns, commercially reasonable parties would want to hold on to existing relationships. Without suitable remedies being provided by the law, parties have little choice but to renegotiate or ‘settle’. Therefore, adopting the CISG may offer a broader range of remedies to cater to circumstances that may remedy minor breaches of contracts without destroying the relationship of the parties. The adoption of the CISG would also send a signal to the world that India is serious about its commitment to the ‘Make in India’ campaign. The alignment of law with internationally accepted standards would provide a fillip to domestic jurisprudence and provide predictability and consistency with respect to applicable law. Investors are more likely to invest in a regime which they understand and are confident about at the time of investment. 

Moreover, the misgivings with respect to the CISG and the damages-based restitution regime have been deliberately overthrown by the Expert Committee. The current regime now provides for the same enforcement regime of specific performance and substituted performance as contemplated under the CISG, albeit without the promise of additional remedies. When the most fundamental notion of contract enforcement has been brought in-line with the philosophy of the CISG, there stands little reason to not adopt it completely.

As new technologies and new unforeseen circumstances emerge, the adoption of a universally recognised convention would cater to the future in a much more consistent and efficient manner. The CISG’s enactment would disentangle this dilemma by inducing the spirit of adaptation, which runs through the Convention. Even the Expert Committee had recommended the adoption of article 7.2.2 of the UNIDROIT and article 9:102 of the Principles of European Contract Law, which provide for hardship. Unfortunately, the same was not incorporated in the Act. Similarly, the right to provide additional time for performance might be the most appropriate remedy in the current situation, given the slow and cumbersome dispute resolution mechanisms in India. 

In essence, the current regime of contract enforcement has already been aligned with the CISG. However, existing misgivings and illogical imitation of the English approach continue to hinder the adoption of the CISG in India. If India is genuinely determined to delivering robust and speedy contract enforcement to attract investments and international trade, it is about time it opened its doors to a convention that boasts of being adopted by 93 countries across the world. Most importantly, it is time remedies under the Indian contract law regime foster commercial relationships instead of litigation for damages. 

Ajar Rab is a Partner at Rab & Rab Associates LLP, and a Visiting Professor at the National Law School of India University, Bangalore and the National University of Juridical Sciences, Kolkata.

Siddharth Jain is a law student at the National Law University, Odisha.