Unfair contract
Also called: Unfair terms of contract, Unconscionable contract
A contract between a manufacturer, trader or service provider and a consumer whose terms cause significant change in the consumer's rights, such as excessive deposits or one sided termination. Section 2(46) of the CPA, 2019.
Explained
Section 2(46) of the Consumer Protection Act, 2019 defines an unfair contract as a contract between a manufacturer or trader or service provider on one hand, and a consumer on the other, having such terms which cause significant change in the rights of such consumer. The concept was new in the 2019 Act; the Consumer Protection Act, 1986 did not provide for it.
The definition lists six kinds of terms, inclusively: requiring manifestly excessive security deposits for performance of contractual obligations; imposing a penalty for breach wholly disproportionate to the loss caused to the other party; refusing to accept early repayment of debts on payment of the applicable penalty; entitling a party to terminate the contract unilaterally without reasonable cause; permitting one party to assign the contract to the detriment of the consumer without his consent; and imposing any unreasonable charge, obligation or condition which puts the consumer to disadvantage. Because the list is inclusive, other terms causing significant change in the consumer's rights can also qualify.
Adopting an unfair contract is a ground of complaint under Section 2(6)(i). Jurisdiction lies only with the State Commission and the National Commission, not the District Commission. Under Section 47(1)(a)(ii) the State Commission hears complaints against unfair contracts where the consideration paid does not exceed ten crore rupees, and under Section 58(1)(a)(ii) the National Commission hears those above ten crore rupees. Under Sections 49(2) and 59(2) these Commissions may declare any unfair term to be null and void.
The term must be distinguished from an unfair trade practice under Section 2(47), which concerns methods of promoting sales or services, such as false representations. Under the Indian Contract Act, 1872 there is no general unfair terms provision, but the Supreme Court in Central Inland Water Transport Corporation v. Brojo Nath Ganguly (1986) held that an unconscionable term in a contract between parties of grossly unequal bargaining power may be void under Section 23 as opposed to public policy. Examiners test the six listed terms and which Commissions have jurisdiction.
What the law says
Section 2, Consumer Protection Act
(46) “unfair contract” means a contract between a manufacturer or trader or service provider on one hand, and a consumer on the other, having such terms which cause significant change in the rights of such consumer, including the following, namely:—
(i) requiring manifestly excessive security deposits to be given by a consumer for the performance of contractual obligations; or
(ii) imposing any penalty on the consumer, for the breach of contract thereof which is wholly disproportionate to the loss occurred due to such breach to the other party to the contract; or
(iii) refusing to accept early repayment of debts on payment of applicable penalty; or
(iv) entitling a party to the contract to terminate such contract unilaterally, without reasonable cause; or
(v) permitting or has the effect of permitting one party to assign the contract to the detriment of the other party who is a consumer, without his consent; or
Section 2(46) defines unfair contract; 2(6)(i) makes it a ground of complaint
Section 47, Consumer Protection Act
(ii) complaints against unfair contracts, where the value of goods or services paid as consideration does not exceed ten crore rupees;
(iii) appeals against the orders of any District Commission within the State; and
(b) to call for the records and pass appropriate orders in any consumer dispute which is pending before or has been decided by any District Commission within the State, where it appears to the State Commission that such District Commission has exercised a jurisdiction not vested in it by law, or has failed to exercise a jurisdiction so vested or has acted in exercise of its jurisdiction illegally or with material irregularity.
State Commission jurisdiction over unfair contracts
Section 58, Consumer Protection Act
(ii) complaints against unfair contracts, where the value of goods or services paid as consideration exceeds ten crore rupees;
(iii) appeals against the orders of any State Commission;
(iv) appeals against the orders of the Central Authority; and
National Commission jurisdiction over unfair contracts
Section 49, Consumer Protection Act
(1) The provisions relating to complaints under sections 35, 36, 37, 38 and 39 shall, with such modifications as may be necessary, be applicable to the disposal of complaints by the State Commission.
(2) Without prejudice to the provisions of sub-section (1), the State Commission may also declare any terms of contract, which is unfair to any consumer, to be null and void.
State Commission may declare unfair terms null and void
Section 59, Consumer Protection Act
(1) The provisions relating to complaints under sections 35, 36, 37, 38 and 39 shall, with such modifications as may be considered necessary, be applicable to the disposal of complaints by the National Commission.
(2) Without prejudice to sub-section (1), the National Commission may also declare any terms of contract, which is unfair to any consumer to be null and void.
National Commission may declare unfair terms null and void
Example
For example, a builder's flat buyer agreement lets the builder cancel the allotment at will but charges the buyer a forfeiture far above any loss if he withdraws. The buyer may ask the State Commission to declare these terms null and void.
For the exam
- Defined in Section 2(46) CPA 2019; it was not part of the 1986 Act.
- Six listed terms, including excessive deposits and unilateral termination without reasonable cause.
- Only the State and National Commissions entertain complaints against unfair contracts.
- State Commission up to Rs 10 crore of consideration; National Commission above Rs 10 crore.
- Commissions may declare unfair terms null and void (Sections 49(2) and 59(2)).
20 questions in the Law Maker question bank use this term. Practise Consumer Protection Act, 2019 questions
Related terms
- ConsumerUnder Section 2(7) of the Consumer Protection Act, 2019, a person who buys goods or hires or avails of services for consideration, including approved users and beneficiaries, but not for resale or commercial purpose.
- Unfair trade practiceA trade practice that, to promote the sale, use or supply of goods or services, adopts an unfair method or an unfair or deceptive practice, including those listed in Section 2(47) of the Consumer Protection Act, 2019.
- DeficiencyAny fault, imperfection, shortcoming or inadequacy in the quality, nature and manner of performance of a service, including negligence and deliberate withholding of relevant information (Section 2(11) CPA 2019).
- ContractUnder Section 2(h) of the Contract Act, an agreement enforceable by law. Section 10 lists what makes an agreement a contract.
- Consensus ad idemThe parties must agree upon the same thing in the same sense. Without such identity of minds there is no consent and no valid agreement (Section 13, Contract Act).
Further reading
Checked 6 November 2026. Statutory text is quoted from the Bare Acts library, taken from India Code. See the full glossary.