Some agreements are unenforceable in court because they are contrary to public policy and the public interest. Such agreements are not illegal, they can still be concluded, but they are unenforceable in court. In other words, if one of the parties to the agreement does not fulfil its obligations in such an agreement, the injured party cannot bring the case before a court of competent jurisdiction to assert its rights. Agreements to restrict trade, marriage and legal proceedings are examples of such agreements. The delegitimization of a trade restriction agreement is explained by the history of the conflict between free markets and freedom of treaties. Guaranteeing freedom of contract would be tantamount to legitimize trade restriction agreements, which would lead the parties to agree to curb competition. According to the Common Law, the current position stems from the case – Certain conditions validate a restriction of negotiation during the sale of goods, which are: 28. Agreements limiting legal proceedings, except exception 1: the storage of the contract for the settlement of arbitration disputes that may arise. This section does not result in an unlawful contract wherein two or more persons agree that all disputes that may arise between them with respect to a subject or class of subjects are subject to arbitration proceedings and that only the amount awarded in such arbitration proceedings is eligible in respect of the so-called dispute. Exception 2: Storage of the contract to refer to matters that have already arisen – This section also does not make illegal a written contract by which two or more persons undertake to refer to an arbitration procedure that has already occurred or to affect a provision of a law in force in arbitration. 3 One of the essential conditions for the conclusion of the contract is that it is not void.
Section 10 of the Indian Contract Act states that “all agreements are contracts. which are not expressly cancelled”. A contract can be cancelled for several reasons, for example: the original text of section 28 of the Indian Contract Act, 1872, which annuls agreements to limit legal proceedings (or contain clauses), has undergon numerous changes over the years. Indeed, in 1997, the original section 28 was replaced by a new one, after the recommendations of the 97th report of the Indian Commission were taken into consideration. The changes introduced by the 1997 amendment caused great dissatisfaction among banking and financial institutions, as the amendment prevented them from including clauses, for example in a bank guarantee (or similar agreement) that destroyed a party`s right to assert a right against them. An attempt to address this issue was undertaken in 2013 when the Banking Laws (Amendment) Act, 2012, Exception 3 in Section 28, was introduced as a savings clause for a guarantee contract of a bank or financial institution. . . .