The Doctrine of Privity of Contract under the Indian Contract Act

One key idea in contract law is privity of contract, which is also a fundamental tenet of Indian contract law. The relationship that results in legally enforceable rights and responsibilities between the parties to a contract is known as privity of contract. Anyone entering into a contract must be aware of the ramifications of the Indian Contract Act, 1872, also known as the Indian Contract Act, as it outlines the guidelines and laws pertaining to a contract’s privity. A contract is defined by the Indian Contract Act as an arrangement that establishes legally binding duties between two or more parties. The “parties to the contract” are the parties to a contract; in order for them to assert their rights and responsibilities, they must be related to one another. According to the contract’s privity principle, only the parties to the agreement may pursue their respective rights and responsibilities. This implies that, with rare exceptions, a third party cannot bring or be sued under the terms of the contract. The idea that a contract is a private arrangement between two or more parties and is not the business of any third party is the foundation of the notion of privity of contract. Consequently, neither the acquisition of rights under the contract nor liability for any breach thereof by a third party is permitted. In order to safeguard the rights of contract parties, courts in India and other common law nations have developed the notion of privity of contract over time.
In MC Chacko v. State of Travancore AIR 1970 SC 504, the Hon’ble Supreme Court ruled that, with a few acknowledged exceptions, an entity that is not a party to a contract cannot enforce its terms.
For instance, A promises to bring the car to B’s location at a specific time. Essentials of Privity of Contract: 1. Valid Contract: First and foremost, a legally binding contract is necessary. According to the Indian Contract Act, there must be a legitimate consideration in the contract and the parties entering into it must be competent. 2. Breach of Contract:There must be a breach of contract by either party. 3. Only parties can sue each other: Under the privity of contract, only the parties to the agreement may bring legal action against one another; unless the parties fall under one of the exceptions listed in the article’s subsequent sections, no third party may bring legal action against the parties to the agreement. What are the different exceptions to the doctrine of privity of contract? Under Indian law, the notion of privity of contract has some exceptions. Over time, courts have established several exceptions to handle circumstances in which applying the principle of privity of contract strictly might result in an unreasonable or unfair decision. Tortious Interference: According to this theory, a third party who violates one of the parties’ contractual rights may be held accountable. For example, C might be held accountable for tortiously interfering with B’s contractual rights if C convinces A not to sell the car to B. Beneficiary rights: According to this idea, a third party may have rights under a contract if it is evident from the conditions that the parties intended for the third party to receive such rights. For instance, if A and B agree to exchange a certain amount of money to be kept in trust for C, then C will become a beneficiary of the agreement. The court held in Pandurang V. Vishwanath AIR 1939 Nag 20 that the party to whom a contract grants benefits may file a lawsuit even if they are not parties to the actual transaction. In conclusion, everyone entering into a contract must be aware of the ramifications of the privity of contract, which is a fundamental premise of Indian contract law. According to the contract’s privity of purpose, only the parties to the agreement may pursue their respective rights and responsibilities. Nonetheless, courts have established a number of exceptions to this rule throughout the years in order to deal with circumstances in which a strict application of the privity of contract concept would result in an unfair or unjust result.