CA-Foundation > Business Laws > The Indian Contract Act, 1872 - Capacity to Contract (Old & New)

Who are the persons disqualified to entered into contract?



The third type of incompetent persons, as per Section 11, is those who are "disqualified from contracting by any law to which they are subject." These are:

1. Alien enemies

An alien (a person of a foreign country) living in India can enter into contracts with citizens of India during peace time only, and that too subject to any restrictions imposed by the Government in that respect. On the declaration of a war between his country and India, he becomes an alien enemy and cannot enter into contracts. Alien friend can contract but an alien enemy can't contract.

A contract entered into with an alien enemy before the declaration of war shall be suspended until the war is over. However, the existing contract can be revived after the completion of war or with the approval of the central government.

2. Foreign sovereigns and ambassadors

One has to be cautious while entering into contracts with foreign sovereigns and ambassadors, because whereas they can sue others to enforce the contracts. They cannot be sued in the Indian Courts, except in the following two cases:

a. Where they voluntarily submit themselves to the Court.

b. Where the person intending to sue them obtains the approval of the Central Government.

Thus they are in privileged position and are ordinarily considered incompetent to contract.

3. Convict

A convict is one who is found guilty and is imprisoned. During the period of imprisonment, a convict is incompetent (a) to enter into contracts, and (b) to sue on contracts made before conviction. On the expiry of the sentence, he is at liberty to institute a suit and the Law of Limitation is held in abeyance during the period of his sentence.

4. Insolvent

An adjudged insolvent (before an 'order of discharge') is competent to enter into certain types of contracts i.e. he can incur debts, purchase property or be an employee but he cannot sell his property which vests in the Official Receiver. Before 'discharge' he also suffers from certain disqualifications e.g., he cannot be a magistrate or a director of a company or a member of local body but he has the contractual capacity except with respect to his property. After the 'order of discharge', he is just like an ordinary citizen.

5. Joint-stock company and corporation (Example: LIC, RBI, SEBI, etc.)

A company/Corporation is an artificial person created by law. It cannot enter into contracts outside the powers conferred upon it by its Memorandum of Association or by the provisions of its special Act, as the case may be. Again, being an artificial person (and not a natural person) it cannot enter into contracts of strictly personal nature e.g., marriage.


Notes of The Indian Contract Act, 1872 - Capacity to Contract (Old & New)

  1. Who are the persons disqualified to entered into contract?
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  2. Wamika is the wife of Habib, who is lunatic, purchases a diamond set of ₹ 10 lacs from Beauty Jeweller on credit. Referring to the provisions of the Indian Contract Act, 1872, decide whether the Beauty Jeweller is entitled to claim the above amount from the property of Habib.
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  3. Xavier, a minor was studying in M.Com in a college. On 1st July, 2005 he took a loan of ₹ 10,000 from Baadal for payment of his college fees and to purchase books and agreed to repay by 31st December, 2005, Xavier possesses assets worth ₹ 2 lakhs. On due date Xavier fails to pay back the loan to Baadal . Baadal now wants to recover the loan from Xavier out of his (Xavier's) assets. Referring to the provisions of the Indian Contract Act, 1872 decide whether Baadal would succeed.
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  4. Maadhav supplied necessaries of life to the wife and children of a lunatic. Can Maadhav recover the payment? If so, from, whom?
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  5. "Even if a minor is not competent to a contract, nothing in the Contract Act prevents him from making the other party bound to the minor". Comment.
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