April 1, 2023

Impact of termination of Agreement on a Business Deal

This article has been written by Ms. Khushi Patel, a 3-year BBA LLB, a student from Auro University


When the agreement between the two parties to the contract, is ended by one party before the obligation is performed by either of the parties, the contract is said to be terminated. The termination agreement is one of the most crucial agreements between the parties to the contract, The termination provision provides the opportunity for the party to the contract to walk away from the contractual liability, in other words, parties can exist from their contractual liability if the contract does not fit as per their expectation. the termination agreement set the bar for walking away from the liability at just the right height, party, who terminates the contract has to pay compensation to the other party, in case of business deals between the two companies, the one who suffers the loss due to the termination by the other party, it’s an obligation on the part of the party who terminates the contract, pay the compensation. Indian contract Act governs the termination of the contract.  The termination agreement includes the benefit, rights, and responsibilities of the party to the contract. Even when the contract is terminated by one party that doesn’t mean that one party has committed a violation of the agreement. 

Reason For Terminating The Contract 

  1. A contract can be terminated on the account that the party threatens or detaining tactics to obtain the consent of the other party as per the provision of the Act. 
  2. The contract can be terminated by the party in such an event where the other parties use the fraudulent document for obtaining their consent.
  3. The said contract can be terminated by the mutual decision of the party when the party is not able to perform the duties due to uncertain circumstances.
  4. The contract can be terminated if there is a breach of contract by either party to the contract. 
  5. Another reason for the termination of the contract is if the party involved in the contract is not able to pay the debts when such a situation arises, it is possible to terminate the contract for insolvency. 
  6.  When a legal order is passed that prohibits the agreement and performing will be illegal. 
  7. In such a situation where performing the agreement will cause a great loss, or performing the contract is not possible. 

In all the above-mentioned situation, the parties to the contract use the termination clause present in the agreement to terminate the contract, if no such a clause is given then one party send the notice to the other party expressing the intention and reason for the termination of such contract. 

Effect Of Termination Agreement In The Business Deals   

Businesses enter into many contracts for the fulfillment of certain business goals during the term of the contract, but no business enters the contract with the intent to terminate the contract, however, some uncertain circumstances force the business to terminate the contract. But the party cannot terminate the contract for any reason, a party has a right to terminate the contract only for the reason agreed upon at the time of entering into the contract, such as Consider that the supplier has the right to terminate the contract for the customer’s assignment of right or obligation in violation of the agreement, and the only remedy is the recovery of fees due along with interest, what if in case the customer fails to pay expenses, under this circumstance the only remedy is available to the supplier, is the recovery of fees due along with the agreed rate, Termination of the contract, each party shall return or destroy confidential information of other parties. Termination of the agreement shall not relieve the party from its payment obligation to the other party, obligations to clear all payment dues at the point of termination within such period as agreed by parties from the termination date of the contract, In the case of licensing, upon the termination of the agreement, all license rights granted to the Customer under this agreement will automatically terminate, and the customer agrees to immediately cease using all software. 

The right to terminate the contract may arise pursuant to an implied term allowing termination by reasonable notice or in response to a repudiatory breach. However, the contract can be terminated by claiming injury of the sort listed above, that is, willful breach for the advantage of the offending party. Active termination is contentious due to economic issues, and the defaulting party may be liable for compensation in liquidated damages, injunctions, or specific performance subject to the terms of the contract and the penalties thereof. Wrongful termination of the contract can lead to a repudiatory breach of contract, giving the offender party the right to claim damages as appropriate. The Country’s largest multiplex chain inox Leisure terminated its contract with online ticket platform BookMyShow, after the disagreement over payments being demanded by inox. While BMS challenged the said termination in the High Court of Bombay, the judicial authority referred the matter for arbitration vide its order date of September 18, 2018.  The differences between BMS and Inox arise from the right to sell tickets through the booking partner. Inox alleged a breach of contract by BMS, arbitration proceeding was ordered to identify the violation and provide relief.   


Termination of the agreement does not put the end to the business relationship, it only protects the rights and duties of the party which will survive beyond the contract termination. A termination agreement allows the parties to withdraw from the contract as they see fit, with the other parties needing to compensate. The contract may be terminated as appropriate by the parties, with other names such as termination of the contract, a notice of contract, a notice of contract cancellation, and notice of contract rescission. A termination clause must fulfill the obligation to be fulfilled but does not relieve the other party of liability arising from the violation. 



Aishwarya Says:

Law students often face problems, which they cannot share with their friends and families. We have started a column on our website Student’s Corner. In this column we are talking to several law students about the challenges that they face. Students who are interested in participating in the same, can fill this Google Form.


The copyright of this Article belongs exclusively to Ms. Aishwarya Sandeep. Reproduction of the same, without permission will amount to Copyright Infringement. Appropriate Legal Action under the Indian Laws will be taken.

If you would also like to contribute to my website, then do share your articles or poems to aishwarya@aishwaryasandeep.com

Join our  Whatsapp Group for latest Job Opening

Related articles