M.C. Chacko v. State Bank of Travancore
Rule established
A person who is not a party to a contract cannot sue upon it, even where the contract purports to confer a benefit or impose an obligation affecting them, reaffirming the general privity rule.
Facts
- A bank guarantee arrangement included specific terms intended to affect a person who was not a signatory to the particular guarantee document in question
- A dispute arose over whether this non-signatory could be held to, or could invoke, the specific term
- The matter turned on the scope of privity of contract under Indian law
Issue
- Whether a person who is not a party to a contract can be bound by, or can enforce, a term of that contract purporting to affect them.
Held
- The Supreme Court reaffirmed that a person who is not a party to a contract generally cannot sue upon it or be bound by its specific terms
- This applies even where the contract's terms purport to directly affect the non-party's interests
- The privity rule, subject to its recognised exceptions, governs Indian contract law in the same manner as English law
Ratio Decidendi
Privity of contract confines contractual rights and obligations to the parties who made the agreement; a non-party cannot generally sue to enforce, or be bound by, its terms, absent the specific recognised exceptions to this rule.
How to use it in an exam
- Part A: Indian Supreme Court's reaffirmation of the privity rule.
- Part B: Contrast with the recognised exceptions (beneficiary under trust, family arrangements) addressed in Khwaja Muhammad Khan v Husaini Begum (1910).
- Key line: "A non-party to a contract cannot sue upon it, applying the privity rule in the Indian banking guarantee context."
Source
Source: AIR 1970 SC 504
This is an educational summary, not the judgment itself. Cite the reported version in professional or academic work.