Companies many times have to deal with contractual conflicts with clients, suppliers, contractors or any other commercial parties. The legal notification can include demand for damages, specific performance, refund, termination or compliance with a contract. The receipt of such notification doesn’t mean that the recipient is responsible but calls for immediate action. The business should check the contract and elements. The Indian Contract Act of 1872 covers issues regarding the consequences of breach in Sections 73, 74 and 75.
Why a Legal Notice Should Not Be Ignored
The business should not simply ignore legal notice because it believes that the allegations are mostly incorrect.
Ignoring the notice may create the practical difficulties, particularly where contract contains:
- A specified period for responding to notices;
- An arbitration clause;
- A contractual cure period;
- A termination mechanism;
- A requirement for raising disputes within a particular period; or
- Pre-litigation or dispute-resolution requirements.
A prompt legal review helps the business determine whether the allegations have any contractual or factual basis.
The response should not get prepared merely to deny each and every allegation. It should address relevant facts and the contractual provisions accurately and preserve business’s legal position.
What is a Breach of Contract?
In general, the Breach Of Contract takes place when one party fails to carry out the responsibility specified in the contract, declines to do so, executes duty incorrectly, or does something that is fully contrary to the agreement.
The provisions related to the performance of contracts and the consequences of non-performance are provided in Indian Contract Act, 1872. The responsibilities or obligations to perform the promises are dealt with in Section 37, while Section 39 specifically deals with instances of refusal or inability of any party to perform its promise. Section 55 concerns itself with cases of non-performance when time is of the essence. Examples may include:
- Failure to supply goods within the agreed period;
- Non-payment of contractual consideration;
- Delivery of defective or non-conforming goods;
- Failure to provide agreed services;
- Unauthorized termination of an agreement;
- Failure to meet agreed specifications;
- Violation of confidentiality obligations; or
- Failure to perform any other material contractual obligation.
However, whether a particular act actually amounts to the breach depends upon the wording of agreement and surrounding circumstances.
What Should a Business Check After Receiving a Legal Notice?
The first step is to obtain and examine the complete contract. The business should carefully check:
- The date and parties to the agreement;
- Scope of work and contractual obligations;
- Payment terms;
- Timelines and milestones;
- Representations and warranties;
- Conditions precedent;
- Force majeure provisions;
- Termination clauses;
- Indemnity provisions;
- Limitation of liability clauses;
- Liquidated damages or penalty clauses;
- Notice provisions;
- Dispute-resolution mechanism;
- Jurisdiction clause; and
- Governing law.
The business should then compare these provisions with the allegations contained in the notice.
It is also important to determine whether the contract was subsequently modified through amendments, purchase orders, emails, work orders, minutes of meetings, settlement arrangements, or other written communications.
Documents and Evidence to Collect
Before preparing for the reply, the business should preserve all of the documents relevant to dispute. These may include:
- Original contract and amendments;
- Purchase orders and work orders;
- Invoices and payment records;
- Delivery challans and acknowledgment receipts;
- Inspection reports;
- Emails and letters;
- WhatsApp or other business communications where relevant;
- Meeting minutes;
- Technical reports;
- Photographs or videos;
- Bank statements;
- Internal approvals;
- Correspondence concerning delays or deficiencies; and
- Previous notices and replies.
The business should also identify the employees or representatives who handled the transaction.
Electronic records which are relevant to the matter are to be kept rather than deleted or changed. A clear chronological record of the events can be the key evidence if the matter ends up in arbitration or litigation.
How to Assess the Alleged Breach
The business should prepare a point-by-point comparison between the allegations in the notice and the actual contractual record. For example:
| Allegation | Contractual Provision | Business Position | Supporting Evidence |
| Delay in delivery | Delivery clause | Delay caused by approved extension | Emails, revised schedule |
| Non-payment | Payment clause | Payment already made | Bank statement |
| Defective goods | Quality clause | Goods passed inspection | Inspection report |
| Failure to perform | Scope clause | Obligation was outside agreed scope | Contract/work order |
This exercise helps distinguish genuine contractual issues from incorrect or exaggerated allegations.
The business should also determine whether its own contractual obligations were duly performed. In contracts involving reciprocal promises, the conduct of both parties may be relevant.
Understanding the Financial Claim and Damages
A legal notice may demand a substantial amount as compensation. The business should not assume that the amount claimed is automatically payable.
Section 73 of the Indian Contract Act deals with compensation for loss or damage caused by breach of contract, while Section 74 addresses compensation where a sum is stipulated in the contract as a penalty or similar provision. The actual recoverability of a claimed amount depends on the contract, facts, applicable law and evidence.
- The business should therefore examine:
- The principal amount claimed;
- Contractual interest;
- Alleged consequential losses;
- Liquidated damages;
- Penalties;
- Actual financial loss;
- Mitigation of loss; and
- Whether the claimed amount has been properly calculated.
A contractual clause specifying a particular amount does not necessarily mean that every amount demanded in a notice will automatically be recoverable.
Check the Dispute Resolution and Arbitration Clause
The most important steps are checking whether a contract contains the arbitration clause.
If the agreement provides for the arbitration, then the business should identify:
- The existence of the arbitration agreement;
- Appointment mechanism for the arbitrator;
- Seat and venue of arbitration;
- Governing procedural provisions;
- Notice requirements; and
- Pre-arbitration negotiation or mediation requirements.
The Arbitration and Conciliation Act of 1996 acknowledges the concept of written arbitration agreements, and Section 8 of the Act mentions the legal provision for referencing arbitration in suitable cases where a valid arbitration agreement is present and other conditions as required by law are met.
Thus, the response has to be drafted in accordance with the mechanism for resolving disputes provided in the contract.
Limitation and Time-Sensitive Considerations
Businesses should not delay taking legal advice merely because the claimant has issued only a notice.
Limitation periods can become important in contractual disputes. Under the Limitation Act, different types of contractual claims may have different limitation rules, and the starting point can depend upon the nature of the claim and the relevant facts.
For example, the limitation framework contains provisions concerning suits for compensation for breach of contract and suits for specific performance.
The precise limitation period should therefore be determined from the nature of the claim, the contract, the date of breach, subsequent acknowledgments or other legally relevant events.
A legal notice should never be treated as automatically extending every applicable limitation period.
Should the Business Admit or Deny the Allegations?
A business should avoid making casual admissions before the facts and legal position have been reviewed.
The reply should distinguish between:
- Facts that are admitted;
- Facts that are denied;
- Facts that require clarification;
- Contractual provisions relied upon by the claimant; and
- Matters requiring documentary proof.
Where an allegation is incorrect, the response should explain why it is incorrect and refer to supporting contractual or documentary evidence.
Where there has been an actual contractual difficulty, the business may consider whether negotiation, rectification, performance, settlement, or another commercial solution is appropriate.
The objective should be to protect the business’s legal position while keeping open commercially sensible options where appropriate.
How Should the Reply to the Legal Notice Be Prepared?
A professional legal reply generally includes:
- Identification of the notice and date;
- Preliminary response to the allegations;
- Relevant contractual background;
- Point-by-point response to allegations;
- Factual and documentary clarification;
- Legal position of the business;
- Response to monetary demands;
- Reference to arbitration or other dispute-resolution provisions, where applicable;
- Denial of incorrect allegations; and
- Appropriate concluding position.
The reply should be more precise, professional as well as based on available evidence.
It should avoid the emotional language, personal accusations, unnecessary allegations, or the statements that cannot be supported by the documents.
Common Mistakes Businesses Should Avoid
The businesses frequently make the mistakes while responding to the contractual legal notices. Common mistakes include:
- Ignoring the notice;
- Responding without reading the complete contract;
- Admitting liability casually;
- Making unsupported allegations against the claimant;
- Deleting relevant emails or records;
- Relying only on oral discussions;
- Overlooking an arbitration clause;
- Failing to verify the amount claimed;
- Sending a reply without checking limitation issues;
- Allowing several employees to send inconsistent responses; and
- Making settlement offers without considering their legal implications.
Practical Steps Before Sending the Reply
Before sending the response, the business should consider following checklist:
- Obtain the complete signed contract and all amendments.
- Read the legal notice carefully and identify every allegation.
- Prepare a chronology of events.
- Collect all relevant correspondence and documents.
- Verify invoices, payments and outstanding amounts.
- Identify the exact contractual provisions involved.
- Check termination, indemnity and damages clauses.
- Check the arbitration and jurisdiction provisions.
- Examine applicable limitation issues.
- Obtain legal advice before making significant admissions.
- Ensure that only an authorized person approves the final response.
- Preserve all relevant records.
- Consider negotiation or settlement where commercially appropriate.
- Keep proof of dispatch and delivery of the reply.
For commercial disputes, the Code of Civil Procedure also contains specific procedures, including provisions concerning summary suits and summary judgment in appropriate commercial disputes.
Conclusion
Getting the proper notice for the violation of contract does not mean that the party is guilty. Before responding, it is very much necessary to review the contract, check assertion, gather information, calculate the claim, analyse provisions for resolving conflict and think about all of the limitations. The reply should be based on the facts, the law, and the evidence. A good response can help a great deal in protecting legal rights and resolving the conflict in an efficient way.
One can talk to lawyer from Lead India for any kind of legal support. In India, free legal advice online can be obtained at Lead India. Along with receiving free legal advice online, one can also ask questions to the experts online free through Lead India.
FAQs
1. Is it true that receiving a legal notice indicates that the business is at fault in the case?
Not necessarily. Legal notice just indicates what allegations have been made by the party who sent it and what it demands, and it alone does not determine liability. The business needs to analyse the allegations and react accordingly.
2. Should a company respond to all legal notices?
A company should never ignore the legal notice or decide on its specific response until and unless it analyses the agreement, facts of case, applicable regulations as well as the dispute resolution procedures.
3. Is it very much possible to respond to legal notice without a lawyer?
A business may reply on its own but it is much better to hire an experienced attorney if there is the risk of losing a lot of money, being imposed for an immediate termination or if the arbitration seems to be inevitable.
4. Which documents have to be looked through before responding?
The company has to review the contract, any of the amendments, orders, invoices, payments, correspondence, reports, meeting records as well as any other documents needed for dispute.
5. Can claimants demand the damages for breach of contract?
The claimant may make the demand for damages, but whether amount is legally recoverable depends upon contract, applicable law, nature of loss, evidence as well as any other relevant circumstances. Sections 73 and 74 of Indian Contract Act of 1872 are particularly relevant to the contractual compensation.
Talk to a Lawyer