Your 2025 Guide to Contingent Contracts in India: How to Manage Risk
A contingent contract is a powerful tool in uncertain times. It is an agreement that depends on a future event that may or may not happen. In India, such contracts fall under Sections 31–36 of the Indian Contract Act, 1872. Businesses, real estate investors, and startups often use them to share risk and protect interests.
If you’re searching for corporate lawyer near me or company lawyers near me, understanding how contingent contracts work and how courts interpret them will help you get the right advice and avoid disputes.
Legal Framework: Indian Contract Act, 1872
The Act provides a clear structure:
- Section 31: Defines a contingent contract as one where the obligation depends on an uncertain future event collateral to the contract. Example: a land purchase agreement that activates only if a municipal body approves land use change.
- Section 32: States that a contingent contract becomes enforceable only if the uncertain event occurs. If the event becomes impossible, the contract becomes void.
- Sections 33–36: Cover other situations contracts based on an event not happening, contracts linked to time frames, and contracts that depend on impossible events.
Recent Case Law & Legal Clarifications (Up to 2025)
Though the law is old, courts continue to refine its application:
- Urmila Devi Jain & Ors. v. Ashok Kumar & Ors. (Patna High Court, 2024)
The Court ruled that a contract with a contingency clause is unenforceable until the condition is fulfilled. This reinforces that no party can claim enforcement before the event occurs. - Nandkishore Lalbhai v. New Era Fabrics Pvt. Ltd. & Ors. (Supreme Court, 2015)
A land sale was contingent on union approval and land-use change. Since neither occurred, the Court refused enforcement. This case remains the benchmark, placing the burden of proof on the party seeking enforcement.
These rulings confirm that courts will strictly check if the contingency has been met before enforcing obligations.
Contingent Contracts vs. Contingency Agreements
The two terms sound similar but differ in scope:
- Contingent Contract: Defined under the Act. Its enforceability depends on one uncertain event.
- Contingency Agreement: Broader usage. It can mean clauses that adjust obligations if events occur for instance, a lawyer charging fees only if a case succeeds.
Clarity matters. Lawyers must define whether a clause is a condition precedent (event must occur before obligations arise) or a trigger clause (event modifies existing obligations).
Real-World Applications & Regional Context
- Mumbai Real Estate: Many sale agreements depend on building permits or title clearance. Buyers gain protection against investing in properties without approvals.
- M&A Transactions: “Earn-out” clauses link payments to revenue targets. If the target company meets a set goal, the seller gets extra compensation.
- Kolkata Startups: Partnership deals often depend on securing funding or regulatory approval before obligations kick in.
- Local Laws: Even contingent contracts may need stamping or registration under state laws like the Maharashtra Stamp Act.
Drafting a Strong Contingent Contract
Avoid disputes with these best practices:
- Define Events Clearly: Use measurable terms. Example: “if the company raises at least ₹5 crore from a SEBI-registered fund by 31 Dec 2025.”
- Set Time Frames: State deadlines to prevent indefinite uncertainty.
- Plan for Impossibility: Spell out next steps refunds, termination, or renegotiation.
- Assign Proof Burden: Clarify which party must prove the event occurred.
- Get Expert Help: A corporate lawyer ensures enforceability and compliance with state laws.
Common Questions
Q1. Can a contingent contract be partially performed?
No. Obligations arise only when the event occurs.
Q2. What if government approval never comes?
The contract usually becomes void. Courts require clear definition of such approvals.
Q3. Can parties waive a contingency?
Yes, but only through a new written agreement.
Q4. How do courts treat vague contingencies?
They refuse enforcement. Vague wording can void the entire agreement.
Conclusion
A contingent contract helps businesses manage risk and protect themselves in uncertain markets. Its enforceability, however, depends strictly on Sections 31–36 of the Indian Contract Act. Recent judgments show that courts will not bend rules for vague or unfulfilled contingencies.
For secure agreements whether in real estate, M&A, or startups consult a specialist. LawCrust provides expert guidance on contingent contracts, ensuring your deals are both flexible and legally sound.
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