The clause containing termination without cause is valid in nature and parties are binding to such

clause since they have agreed to such clause voluntarily, freely and such clause is balance clause

since it gave both the parties same unconditional right to terminate the contract. Parties to such

contract later cannot plead such clause to be arbitrary and unreasonable, since they have earlier

freely accepted to it.

ISSUE 1: WHETHER THE TERMINATION WITHOUT CAUSE IS VALID IN NATURE?

Yes the clause of no cause termination in contract is very much valid in nature. It can be fortified

through various national and international judgements as mention below:

It has been said that the clause containing termination without cause is valid in nature.

There was agreement between two parties and termination clause provided that

termination can be effected without providing any cause and after providing thirty days

notice. The honourable Supreme Court after considering the award made by arbitrator

observed that, contract can be validly terminated under the termination clause and the

termination clause is valid in nature. The only relief which can be granted is

compensation, that too, if the notice has not been provided on time as stipulated in

contract1.

In this case, the Delhi High Court held the termination without cause clause to be valid.

Clause 21 of the contract was related to termination of contract and provided that,

contract can be terminated without assigning any cause and providing a notice before 90

days from termination. This clause was challenged as it restricts the parties and is

arbitrary in nature. The honourable court held that this clause is very much valid and

observed that agreement are not indented to be permanent and are bound to terminate as

per conditions provided in clause2.

Corenswet had an exclusive wholesale dealership which Amana wanted to terminate

based upon a clause which provided that, “any party could terminate the contract at any

time for no reason but providing 10 days notice”. This termination contract was challenge

1 Indian Oil Corporation Ltd. v. Amritsar Gas Service and Ors.(1991)1SCC5332 Classic Motors Ltd. v. Maruti udyog Ltd., 1(1997)CLT65

as being "arbitrary and capricious." the court held that an arbitrary termination was

permissible under both the contract and the law of Iowa. Both parties were given equal

ability to "cut the knot" should the relationship turn sour. "What public policy does abhor

is economic overreaching—the use of superior bargaining power to secure grossly unfair

advantage." That's different from the "good faith" provision3.

There existed distribution agreement between the parties. The termination clause

provided that, “This agreement may be terminated at any time by either party without

cause by giving at least 60 days written notice to the other party of such decision to

terminate the agreement.” It was this provision upon which termination was relied. This

clause was challenged. Court held such clause to be valid since it was unambiguous. Nor

did the court consider the termination without cause provision unfair, unreasonable or in

bad faith, since it gave both parties the same unconditional right to terminate the

relationship without cause4.

ISSUE 2: WHEN THE PARTIES ENTER INTO CONTRACT VOLUNTARILY, LATER THEY CANNOT WITHDRAW FROM DISCHARGING THEIR OBLIGATION.

The honourable Supreme Court through various cases has held that when one party

knowingly, deliberately, intentionally and mutually come into agreement, he must abide

by the agreement, no matter he suffer some loss while discharging his obligation. While

suffering loss due to fulfilling his obligation under the contract court held that, “While

those who contract with open eyes must accept the burdens of the contract along with its

benefits. Reciprocal rights and obligations.. arising out of contract do not depend for their

enforceability upon whether a contracting party finds it prudent to abide by the terms of

the contract. By such a test no contract could ever have a binding force.”5

Court in this case, relied on Har Shankar & Ors. case6 and held that when the terms of

tender are duly and freely accepted by the parties, later court cannot come to alter the

terms of contract, once accepted freely by the parties. Court held that the tender forms are

3 Corenswet, Inc. v. Amana Refrigeration, Inc., 594 F.2d 129 (1979)4

Cromeen, Holloman, Sibert Inc. et al. v. AB Volvo, 349 F.3d 376 (7th Cir. 2003)5 Har Shankar & Ors. Etc. Etc vs The Dy. Excise & Taxation Commr., [1975]3SCR2546 ibid

contractual in nature and once it is accepted by parties than court can not come to alter

the rights and obligation of parties under the contract7.

If two parties have entered into contract voluntarily, freely, later while performing their

obligation they cannot claim the excuse of hardship. Party, a sophisticated multinational

enterprise well advised by competent counsel, entered into these arrangements with its

corporate eyes open. Later while performing their part, if there is any difficulty, they

cannot escape form performing their duty claiming performance of their duty is difficult8.

ISSUE 3: WHETHER THE TERMINATION WITHOUT CAUSE IS BALANCED CAUSE?

The termination without clause is very much balanced, since both the parties in the agreement

were parties with equal bargaining power. Both the parties are businessmen and are well aware

of the contract fundamentals and principles.

While discussing the contract with unequal bargaining power, court held that, “This principle is

that the courts will not enforce and will, when called upon to do so, strike down an unfair and

unreasonable contract, or an unfair and unreasonable clause in a contract, entered into between

parties who are not equal in bargaining power. It is difficult to give an exhaustive list of all

bargains of this type. This principle may not apply where both parties are businessmen and the

contract is a commercial transaction9. 

7 M/S Puravankara Projects Ltd. Ã ... vs M/S Hotel Venus International, (2007)10SCC338 American Bell International, Inc., v. The Islamic Republic Of Iran, 474 F.Supp. 420 (1979)9Central Inland Water Transport Corporation Limited and Anr.v. Brojo Nath Ganguly and Anr, AIR1986SC1571