This article on ‘The Validity of Oral Agreements in India: All You Need to Know’ was written by Shruti Pandey, an intern at Legal Upanishad.
In the realm of legal contracts, a complex and intricate framework governs the interactions and obligations between parties. Contracts, whether formal or informal, shape the foundation of commercial, personal, and professional relationships. While written contracts are commonly regarded as the benchmark of legality and enforceability, the Indian legal system recognizes the validity of oral contracts as well. An oral contract, often referred to as a verbal contract, is a binding agreement reached through spoken communication and gestures without the need for written documentation.
This aspect of contract law opens a compelling discourse on the extent to which oral contracts hold legal weight, the circumstances under which they are upheld, and the challenges associated with their proof and enforcement within the Indian legal landscape. As we delve into the intricacies of the validity of oral contracts in India, we unravel a dynamic and multifaceted dimension of contract law that has far-reaching implications for businesses, individuals, and the broader legal framework.
WHAT IS AN AGREEMENT?
The Indian Contract Act of 1872, under section 2(e), defines an agreement as a combination of promises that serve as consideration for each other. A promise, essentially an offer or proposal, extended by one party to another, forms the core of an agreement. The acceptance of this proposal leads to the creation of an agreement.
Within this framework, a valid agreement encompasses the essential components of a valid contract, which include:
- Lawful Object
- Lawful Consideration
- Capacity to Contract
It is important to distinguish that while all contracts are valid agreements, not all agreements qualify as valid contracts. Therefore, a valid and enforceable agreement constitutes a thorough integration of necessary elements crucial to its validity and existence.
Primarily, agreements can be classified into two categories:
- Written Agreements: These are agreements documented in writing in a specific format. They encapsulate promises and terms in a textual form, holding an express nature. Written agreements, when valid, offer stronger evidentiary support in legal proceedings, given their clarity and ease of interpretation. Consequently, they have a higher degree of enforceability in legal disputes.
- Oral Agreements: These agreements rely on verbal communication, gestures, or symbols to convey promises between parties. Valid oral agreements, upon acceptance by the other party, become legally enforceable. They can be either express or implied. While they hold legal standing, their evidentiary value is comparatively lower due to the reliance on verbal communication and second-hand knowledge. This becomes a challenge in disputes, as courts struggle to ascertain the agreement’s true nature without tangible written evidence.
VALIDITY OF ORAL AGREEMENTS
An oral agreement carries the same legal validity as a written one, as long as it adheres to the requirements laid out in Section 10 of the Indian Contract Act, 1872. This point was established in the Delhi High Court case of Nanak Builders and Investors Pvt. Ltd. vs. Vinod Kumar Alag (AIR 1991 Delhi 315), affirming that an oral agreement can indeed be enforceable.
The Supreme Court further reinforced this notion in the case of Alka Bose vs. Parmatma Devi & Ors (CIVIL APPEAL NO(s). 6197 OF 2000), clarifying that an oral agreement, if aligned with the essentials listed in section 10, holds the same binding value and evidentiary force as a written one.
ADMISSIBILITY OF ORAL AGREEMENTS AS EVIDENCE
As per the 1872 Act, a valid oral agreement is admissible and enforceable in court. However, proving its existence or the precise terms during disputes can be challenging.
Furthermore, Section 48 of the Registration Act, 1908, stipulates that registered non-testamentary documents relating to movable or immovable property take precedence over any oral agreement or declaration related to such property.
In addition, Section 92 of the Indian Evidence Act specifies that when the terms of a contract or disposition of property required to be documented are proven according to the Act, no evidence of oral agreements can be used to contradict, vary, add to, or subtract from the terms. Exceptions are made for separate oral agreements that are silent in the document or constitute a condition precedent.
In the case of S.V. Narayanaswamy vs. Savithramma 2013R.F.A. No. 1163 of 2002 c/w R.F.A.No.1164 of 2002 Karnataka High Court, the existence of an oral agreement regarding the sale of the property was successfully established through circumstantial evidence like cheques for the property’s consideration.
The terrain of contract law in India upholds the legal sanctity of oral agreements, even as they pose challenges in terms of proof and evidence. As the legal landscape continually evolves, understanding the nuances and implications of oral agreements becomes paramount, allowing individuals and entities to navigate this intricate arena while safeguarding their interests and obligations. While oral agreements offer a legitimate avenue for contractual arrangements, the recommendation to reduce agreements to written form stands as a prudent approach to ensure clarity, enforceability and enhanced legal standing.
LIST OF REFERENCES
- Indian Contract Act, 1872 (Act 09 of 1872)
- Himanshu Sharma, Enforceability of Oral Agreement under the Indian Law, iPleaders Blog, 2 May 2018, available at: https://blog.ipleaders.in/oral-agreement-under-the-indian-law/
- Sharmeen Shaikh, Enforceability Of Oral Agreement In India, Mondaq, 2 January 2019, available at: https://www.mondaq.com/india/contracts-and-commercial-law/768278/enforceability-of-oral-agreement-in-india#:~:text=An%20oral%20agreement%20is%20as,Ltd.