Waiving the right accrued and releasing the defaulting party by willingly abandoning the right that the affected party otherwise enjoys is called Waiver. This is one of the most rational ways to keep business relationships intact, particularly where the effect on performance is not substantially detrimental.
It is important to weigh the nuances of the Doctrine of Waiver in their application to the particular fact-conspectus, before deciding on whether or not to waive a right.
Indian Law on the Doctrine of Waiver
S. 63 of the Indian Contract Act, 1872 provides the framework for the doctrine of waiver in India. It recognises the right of the promisee to dispense with, extend the time for or accept any satisfaction in lieu of the contractually agreed performance.
Although the provision does not expressly refer to “waiver”, the principle has been repeatedly interpreted as such by the Indian courts. The Supreme Court has described waiver as an intentional relinquishment of a known right or advantage, benefit, claim or privilege which except for such waiver the party would have enjoyed. A person is required to be fully cognizant of his rights before waiving them. Voluntary intention is the essence of waiver. Even the slightest indication of waiver being involuntary may render it invalid.
A law which is made for individual benefit can be waived by an individual, but when such law includes an element of public interest / policy, such rights arising from the law cannot be waived because the same becomes a matter of public interest / policy as held by the Apex Court. Accordingly, sections 73 and 55 of the Indian Contract Act, 1872 cannot be contractually waived because such power will amount to an absolute destruction of the sanctity of contracts.
Waiver may be deduced from acquiescence or may be implied. However, a waiver cannot be used to enforce an illegality.
In a nutshell, the following are requisites of the Doctrine of Waiver in India:
- Knowledge of right and intention to waive.
- Once intention to waive has been communicated to and acted upon by the other party, the waiving party cannot then retract the waiver.
- Only when a right exists can it be waived. It is important to assess the existence of the right prior to exercising waiver.
· Waiver has to be mutually consented. So long as mutual consent can be established, there is no requirement for consideration or a written agreement.
- A statutory right may be waived only if it can be materially proved that the right relates to a private benefit.
- Fundamental rights cannot be waived.
Drafting the Waiver Clause
The waiver clause in a contract should be within the afore-briefed boundaries for it to be legally enforceable. The following best practices should be observed while drafting the clause:
Contractual Rights: The parties can decide on the modalities of waiver of contractual rights after considering the object and purpose of the contract. In order to reduce uncertainty and confusion, it is advisable to make it mandatory for any waiver to be in writing and subject to the mutual agreement of the parties. This serves threefold purposes:
- It reduces the possibility of waiver by conduct or implied waiver and therefore eliminates any scope for prospective dispute.
- A mutual consent requirement ensures that all parties are on the same page and are fully aware of the particulars of the right that has been waived.
- It ensures proper written record of any and all waivers that are admissible and valid under the contract.
Although this may seem to be onerous from a compliance point of view, it serves the larger purpose of ensuring clarity and reducing scope for interpretation in the event of any dispute.
Another good practice is to contemplate beforehand any circumstances that won’t be allowed to be waived. This ensures that any critical scenarios are not protected by the possibility of a waiver.
Parties can also prescribe a contractual procedure regarding the intimation and acknowledgement of waiver to ensure that there are no operational glitches.
It is also advisable to clearly specify in the language of the clause that waiver of a certain right is a one-time activity and cannot be implied as a perpetual waiver. This ensures that all subsequent actions are under independent scrutiny. Where there are circumstances frequently requiring waiver, it is appropriate to include a time-bound resolution and settlement mechanism in the event of any dispute to reduce cost of resolution and encourage settlement.
Statutory Rights: A statutory right can be waived so long as it is of a personal nature. In this context, the evaluation of whether the concerned right confers a personal benefit needs to be made very carefully, particularly in reference to the statute.
For instance, certain statutes in India, such as those on maternity benefits, gratuity and the author’s moral rights in case of copyright, expressly state that they supersede any provision contained in an instrument or contract. The burden of proof lies on the party pleading the waiver to prove that a waiver of such rights was, in fact, made. Therefore, an exhaustive legal analysis of the concerned statute needs to be made before waiving a statutory right through a contract.
A waiver is permissible only to the extent that such waiver does not involve the infringement of morals or public policy and, most importantly, fundamental rights cannot be waived.
It emerges thus that it is in the best interest of the parties to carefully evaluate the waiver clause in any contract. Due consideration must be given to the nature of the contract and the specific right that is being waived. Unlike the English Law wherein waiver is contractual or based on estoppel, the Indian laws permit a broader scope through permitting implied waiver. This makes waiver by conduct alone sufficient to attribute validity to the waiver. A cautiously drafted clause is, thus, all the more necessary in India.
Views are personal.
The Authors are Advocates.