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
NATURE ?

THE TERMINATION WITHOUT CAUSE IS VALID IN

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

1 Indian Oil Corporation Ltd. v. Amritsar Gas Service and Ors.(1991)1SCC533

2 Classic Motors Ltd. v. Maruti udyog Ltd., 1(1997)CLT65

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

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]3SCR254

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
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
CAUSE?

THE TERMINATION WITHOUT CAUSE IS BALANCED

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.

6 ibid
7 M/S Puravankara Projects Ltd. ... vs M/S Hotel Venus International, (2007)10SCC33
8 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