Indian Position with regards to Convention on International Sale of Goods
Updated: Jun 24
The United Nations Convention on International Sale of Goods (CISG) is popularly known as the Vienna Convention. This Convention works for the establishment of a uniform framework in the field of international trade, commerce, and sales of goods. It became effective on 1st January 1988 and has been ratified by 94 countries by the year 2020 including the Countries like the United States, Chilli, Ecuador, Japan, etc. This convention is also considered the major source for several international as well as national laws. It primarily focuses on developing a consistent regime on contracts that are entered into by the parties involved in international commerce. The convention focuses on important aspects of an international contract like the process of formation of a contract, obligations of the parties, the process of delivering the laws applicable, and the remedies that should be provided to the parties in case the contract is breached by the other party. This convention is considered one of the successful treaties in the field of Public International Law.
Though several countries have ratified the Convention on International Sale of Goods, India has neither signed nor adopted the convention. But the Indian Courts have time to time referred to the convention while dealing with the cases involving the parties of two different nations. In Bottero S.P.A v. Euro Glass, the case was regarding breach of contract between the parties and the parties used the Convention on International Sale of Goods as rule governing the arbitration between the parties. In the case of Sideralba S.P.A. v. Shree Precoated Steels Ltd., Article 45,74, and 75 of the United Nations Convention on International Sale of Goods was used for declaring Arbitral award as enforceable on the court.
The major acts governing the contracts, commercial transactions, and sale of goods are the Sales of Goods Act, 1930, and the Indian Contract Act,1872. The two acts were formulated a long time back and hence they are not in accordance with the situation in the current times. The provisions contained in these two acts are out dated and irreverent and do not cater to the needs of modern-day sales and contacts involving several sophisticated elements. Thus, the first reason the Convention on International Sale of Goods should be adopted is that it was formed recently, and would help India to cater to the needs of the modern-day contracts as well as sales of goods. The convention would also help India perform international sales of goods, involving international parties in a more uniform and efficient manner. CISG would be extremely helpful in filling the shortcomings and gaps which are present in the domestic laws of the concerned country. The aspects like cross-border contracts, which are not covered in the domestic Sale of Goods Act, will be covered by this uniform law convention. The Convention contains several provisions that are extremely useful in day-to-day trade practices.
There are a few negative aspects also which India should also consider before it decides to adopt the Convention on International Sale of Goods. The convention talks about the term ‘Fundamental Breach of Contract’ and states that it is that kind of breach in which one of the parties deprives the other party of what he was he expected when he/she entered into the contract. Thus, after looking at the arbitrary definition of the term, it would be extremely difficult for the parties to find out when the breach of contract would be considered as a ‘fundamental breach’. The Indian Courts have also dealt with the aspect of a fundamental breach like in the case of B. V. Nagaraju v. M/s. Oriental Insurance Co. Ltd., Divisional Officer, Hassan. The principal question before the Supreme Court was whether liability could be avoided on the breach of the insurance policy being so fundamental in its nature. But the court denied stating that it was not a fundamental breach since the accident had occurred due to the driver’s negligence and thus the company cannot escape its liability.
The convention has also stated the concept of “good faith” under Article 7 of the Convention. But neither the Article nor the Convention has defined or described what is meant by the term ‘good faith’. Thus, the interpretation of the term ‘good faith’ is left in the hands of the courts which would be dealing with the disputes involving the subject matter of the convention. The Indian Contract Act has not recognized the term ‘good faith in relation to performance and enforceability of the commercial contracts and thus this Article would not be in accordance with the provisions of the domestic laws of India. Though the Indian courts have applied the doctrine of good faith in the cases involving the commercial contracts, for example in the case of Association of Unified Telecom Service Providers of India v. Union of India, held that there is a presence of implied covenant of good faith as well as fair dealing in each and every contract which is entered between the parties. But the Supreme Court rejected the application of the doctrine of good faith in the appeal.
The convention only talks about three kinds of breaches of contract in terms of sales of goods, which are: fundamental breach, breach of contract due to non-performance of a contract, and breach of contract due to late performance of a contract. Thus, the convention takes the right of the buyer to reject the goods, in case the goods are not of the desired quality or are of a very extremely quality. This right of the buyer to reject the goods has been expressly provided under the Indian domestic law that is the Indian Contract Act,1972.
India being a non-signatory, has a destitute position with regard to the Convention on International Sale of Goods. With the development of science and technology, several international contracts have been entered by several Indians as well as by the Indian Companies. India’s contracts with the other countries are non-uniform and non-consistent since India has not ratified the Convention on International Sale of Goods. The Indian laws related to commercial transactions are outdated and thus cannot be used in the present-day contracts involving the use of several technical terms. And due to this major reason, there has been an urgent need for such a convention or treaty which serves the requirement of the present-day commercial transactions. The Indian Courts as well as the parties involved in commercial disputes have also time in again refereed the Convention on International Sale of Goods
There are some negative aspects involved in the Convention on International Sale of Goods like the use of the concept of Fundamental Breach of Contract, and good faith; but the pros of the convention are undoubtedly outweighing the cons. It is extremely important for India to be at pace with the growth of technology and at the same time, there is a need for making the contracts involving commercial transactions uniform and consistent. Therefore, signing and ratifying the Convention on International Sale of Goods would be advantageous for India.
The article first published on Lexology.com and the same can be accessed here.