India and the UNCISG: Time for a Change?

Introduction –

All Contracts are agreements, but all Agreements are not Contracts.[1] Similarly, all Conventions are Treaties, but not all Treaties are Conventions. As the CISG is a well-known Convention across multiple nations that have adopted and ratified it, its main purpose is to enhance international trade. Historically, trading started around 6000 BCE through the Barter System. Barter System was the exchange of goods for goods. Though Trade and Commerce are interrelated, trade has a narrow scope, whereas commerce has a broad scope. Out of the 195 countries recognized by the UN, only 97 countries, as of 2025 i.e. 2/3^rd (two-thirds) of all world trade, have ratified the Convention. Through the CISG, multiple sectors of the trading industry will provide a rapid boost to the nation. To illustrate, the IMEX industry, MSME industry, M&S industry etc. The M & S industry runs on the rules of Incoterms. On a primary level, Incoterms are three-letter trade rules published by the ICC that are broadly classified into the C, D, E & F group. Group C has multiple categories that are further classified into four sub-categories: CIF, CIP, CFR & CPT. Subsequently, the D group has three sub-categories. DAP, DPU, DDP. Regarding the E group only Ex Works is formulated as it symbolizes Departure of the container that carries goods. Lastly, group F includes FCA, FAS & FOB. All these 11 terms play a key role in international trade as they are important for logistics. From the Port to the buyer’s place, only one incoterm is used during the transaction. With the above, CISG plays an important role for further analysis as every industry is equally crucial for the in-depth consideration of the ratification of the Convention.      

Main Body – About the UN CISG.

1930-1964 – The International Institute of Unification of Private Law (UNIDROIT) began working on the law of international sales.

1939-1945 – Although a draft was produced, World War II forced the project to stall.

1951 – The Netherlands conference resumed the ongoing work & hence from UNIDROIT, two (2) conventions emanated successfully as (A) The Convention on Uniform Law of International Sales (ULIS) and (B) the Convention on the Formation of Contracts for the International Sales of Goods (FCILS).

December 17^th 1966 – UNCITRAL was established by the UN GA

1970-1977 – UNCITRAL began working on the framework of uniform sales law.

April 11^th 1980 – After a prolonged struggle by multiple bodies of the UN, the UN CISG was adopted by a diplomatic conference in Vienna, Austria.

January 1^st 1988 – Original 11 states adopted the Convention – Argentina, China, Egypt, France, Italy, Hungary, Lesotho, United States (Partially), Yugoslavia, Syria and Zambia. The Convention covers a total of 101 articles in the CISG, wherein it is further classified into four (4) parts: 1) UNCISG Preamble, Part I – Sphere of Application and General Provisions, Part II – Formation of the Contracts, Part III – Sale of Goods, Part IV – Final Provisions. Explanatory note by the UNCITRAL Secretariat on the UNCISG, Part I – Scope of Application and General Provisions, Part II – Formation of Contracts, Part III – Sale of Goods, Part IV – Final Clauses. The United Nations Convention on the International Sale of Goods is a widely recognized multilateral treaty that has become a convention across the world that regulates the Trade Sector. It mainly governs international sales contracts between two different countries and excludes service contracts. It is unclear and doesn’t have a valid reason why the Convention excludes service contracts. In addition, the CISG is designed to primarily connect businesses with businesses (B2B). Though the CISG has been rendered in six (6) languages: Arabic, Chinese, French, Russian & Spanish, various interpretations might take a toll on the lawyers and the Arbitral tribunals as well for dispute resolution. On the other hand, as abbreviations prove to be fruitful, definitions are also considered one of the pillars of a specific contract. One major drawback of the CISG is that it doesn’t quite define all the definitions that are supposed to be stated. As interpretations can be and are different, every term ought to be explained properly with correct words that are readable and understandable to the one who is referring to that particular text and for a better analysis. For illustration, the term “good faith” is not defined in a Statute. Though it has only stated the concept but the literal meanings should also be taken into consideration whereas neither the Article nor the Convention has described the term good faith. Hence, whenever any dispute occurs between the parties, it is left to the Courts to interpret from the three golden rules of interpretation. Post-adoption, after a few years the experience of multiple nations is positive regarding the Convention. The list of the Contracting States is as above:

Position of the UNCISG in India and ors. –

India has historically been delaying in adopting and ratifying the Convention. The question arises – Why should a country drop its own domestic sales law i.e., the ICA, 1872 & SOGA, 1930? If India’s adoption of the Convention is rightly undertaken, its’ impact will be huge and beneficial to the Buyers and Sellers/Vendors and Purchasers, provided that the advantages must outweigh the disadvantages of the Convention. On the other hand, the uniformity of the rules will also promote the development of international trade in India by increasing the GDP. If the GDP remains stagnant or scales up and down at a minimal level without the Convention, India will be less progressive from the perspective of Trade. Trade is the most important pillar of contemporary economics, allowing individuals to acquire necessities produced by others. Additionally, foreign buyers will invest on a greater scale hence attracting the improvement of the export industry & foreign direct investment would rise much higher. As they state Time is Money, it would reduce transactional costs by speeding up the performance of the contractual obligations that are supposed to be performed by the parties. India is still not a signatory to the Convention because it treats the Convention as incompetent and believes that it is not yet feasible to be fully implemented in the legal ecosystem. Issues regarding the validity of the contracts are a major concern. Being in the opinion that merging or amending both the Statutes – SOGA, 1930 & the Convention together, combining them as one Statute- would rule out a new set of discrepancies that might create additional hurdles to overcome by the nation. ICA along with the SOGA is an archaic Law and absolutely has outdated provisions to apply in the commercial transactions of a particular contract and hence should not be completely considered in the 21^st century. For ages, India has been dealing with the ICA, 1872 and SOGA, 1930 for cross-border commercial transactions. Under Section 10 of the ICA, 1872, the Act clearly states ‘lawful consideration’ as a valid reason to complete the transaction between the Parties whereas the CISG lacks this important feature and allows the parties to transact without the above-mentioned. For India to adopt the CISG, some aspects of the Law should be duly amended for the smooth process of the CISG framework. Example – Determinable Contracts of the SRA, 1963. In every single contract, the opt-in and opt-out notion remains questionable between the parties during forming the contract in different nations regarding the sale transaction of commodities. For both countries that are signatories to the Convention, the CISG automatically applies to their Contracts unless explicitly chosen to disregard the Convention. Post-ratification, the opting-out conflict will be mitigated. Furthermore, for example, if an Indian Company chooses the CISG, then Courts occasionally refer the Statute for further resolution of the subject matter the parties have faced during disputes. The largest number of cases of the CISG were and are still being produced in Germany. The country studies the provisions and comprehends the advantages and disadvantages of the Convention. Though it has a massive number of cases held by the German courts, they also respect the Convention, as it leads their database & at the same time, it is also highly maintainable in the Country. The good news to remain on top of the CISG in Germany is that the parties agree to the terms and conditions of the contracts mutually & hence, the battle or the conflict of conflicting clauses drops out. Switzerland is the second most common country to refer to the CISG. A 2008 study on the CISG in Swiss legal practice reports that more than 40% of members of the Swiss Bar Association systematically exclude the CISG from contracts they draft, while only 6% systematically include it.[2]Advantages & Disadvantages of the Convention can be drawn with careful analysis of the Convention. To begin with, the Convention will provide a major boost to the GDP growth of the nation which is very much essential in today’s era. It will not only strengthen India’s relations with other countries of the world but also prove it as a developing nation to a developed nation. As stated earlier in the article, many nations have already adopted/ratified the Convention that undeniably holds global acceptance. The CISG lets parties choose their own domestic laws or opt for the Convention in their contracts. This is also known as Party Autonomy. Regarding clarity, practicality & simplicity, it clearly sets out the formation of contracts, obligations of the Buyer & Seller & remedies for the breach of the contracts. Efficiency is another factor that is appreciable. Subsequently, CISG reduces legal barriers by promoting fairness and avoiding potential conflicts. Most CISG cases are resolved through arbitration rather than litigation, providing an easier dispute resolution process making it quick for the parties, hence saving their resources; time & energy being the most crucial of all. It also reduces uncertainty between the parties and builds trust, hence facilitating trade and investment while strengthening the relations between the parties in the long run. The major disadvantage is the incompleteness of the Convention, which by itself is a major drawback to be taken into consideration. Another major issue that should be highlighted is the lack of familiarity with the Convention among lawyers. Even with the SMEs, there is a lack of awareness of the Convention as they are still stuck in the ICA & SOGA framework for the execution of import-export contracts/sale of commodities contracts. The UN CISG can make a great impact if adopted efficiently and thoughtfully with multiple rounds of discussions by the Parliament of India making it a successful achievement for the Trade industry. It should also be discussed more among legal professionals, business professionals, traders & investors, founders’, co-founders’ because the more the Convention gets recognized, the easier it will be for the policymakers to understand the importance of the same and subsequently implement it. India follows a hybrid legal system[3] – a civil as well as common law system. In a common law system, consideration is viewed as the most important factor of contracts, whereas the CISG is drafted by taking the civil law system into consideration. As India has not yet ratified or signed the convention, the relationship between Make in India, Digital India, International Arbitration etc. & the CISG highlights a critical legal gap that needs to be addressed. Concerning Make in India, India wants to be established as the global manufacturing hub, hence the supply chain should flourish on a large scale. As the initiative by Mr. Narendra Modi for Make in India is one of the top goals, the CISG should be considered ratified and acceded to in the next one to five years of the decade. Article 39 of the CISG states that electronic communications go hand-in-hand with international sales contracts & the contracts are still enforceable and treated as 100% valid as the age of digitization is rapidly evolving.[4] [5]

Conclusion –

As more than 95% of trade is carried out between the nations that have acceded to the Convention, and as Trade is interrelated & interconnected with the Convention, India must consider ratifying the Convention for the multiple benefits of the nation. The types of trade being bilateral and multilateral trade, various sectors will expand and pave their way. As our trading partners have also duly accepted the Convention, it becomes an added advantage for ratification. This Convention is a successful instrument of Private International Law. Consistency and uniformity are required in the daily transactions of Sales of Goods contracts & hence, India needs to get hands-on with working and ratifying the CISG along with dissolving the SOGA completely. If the Convention gets ratified, from manual/paperless Trade Agreements/Contracts, digital/AI contracts would shape the entire legal ecosystem. As the above-mentioned aspects would be analysed, the Convention might further expand on a larger scale hence making it easier for the upcoming generations to execute and upgrade international contracts along with adapting to the current trends. Other Acts that are related to Trade are equally important and non-negotiable for the ratification of the CISG. Example – ICA, SOGA, CPA, SRA, etc.

Bibliography:

1. https://academy.iccwbo.org/incoterms/article/incoterms-2020-c-or-d-rules/
2. https://www.acerislaw.com/the-united-nations-convention-on-contracts-for-the-international-sale-of-goods-cisg/
3. https://blog.ipleaders.in/contracts-agreements-difference/
4. https://cisg-online.org/files/commentFiles/Martin_16_TulJIntl&CompL_2008_467.pdf
5. https://cisg-online.org/files/commentFiles/Negi_Mishra_3_6_IJLSI_2021_373.pdf
6. https://docs.manupatra.in/newsline/articles/Upload/0ae992cb-6e31-4692-8636-aa2f2b334644.pdf
7. https://iicl.law.pace.edu/cisg/page/cisg-table-contracting-states
8. https://iicl.law.pace.edu/cisg/page/use-united-nations-convention-use-electronic-communications-international-contracts
9. https://www.jiclt.com/article/un-convention-on-contracts-for-the-international-sale-of-goods-cisg-challenges-and-opportunities-2/
10. https://www.mea.gov.in/
11. https://www.lorenz-partners.com/newsletter-no-102-en/
12. https://uncitral.un.org/en/texts/salegoods/conventions/sale_of_goods/cisg
13. https://uncitral.un.org/sites/default/files/media-documents/uncitral/en/19-09951_e_ebook.pdf

Books:

Vilas B Kulkarni and others, Economics XII, 2014, 96

Table of Legislation:

1. INCOTERMS Rules 2020
2. Indian Contract Act, 1872, s 10
3. Sales of Goods Act, 1930
4. United Nations Convention on Contracts for the International Sale of Goods
5. United Nations Convention on Use of Electronic Communications in International Contracts, 2005

List of Abbreviations:

• BCE – Before Common Era
• UN – United Nations
• GA – General Assembly
• ICA – Indian Contract Act
• SOGA – Sale of Goods Act
• CPA – Consumer Protection Act
• SRA – Specific Relief Act
• CISG – Convention on Contracts for the International Sale of Goods.
• UNCITRAL – United Nations Convention on International Trade Law
• IN – India
• Rep. – Dominican Republic
• MSME – Micro, Small and Medium Enterprises
• IMEX – Import & Export
• M&S – Maritime and Shipping
• INCOTERMS – International Commercial Terms
• CIF – Cost, Insurance & Freight
• CPT – Carriage Paid To
• CFR – Cost & Freight
• CIP – Carriage & Insurance Paid To
• DAP – Delivered at Place
• DPU – Delivered at Place Unloaded
• DDP – Delivered Duty Paid
• FCA – Free Carrier
• FAS – Free Alongside Ship
• FOB – Free on Board
• ICC – International Chamber of Commerce
• GDP – Gross Domestic Product
• – Others

[1] https://blog.ipleaders.in/contracts-agreements-difference/

[2] https://cisg-online.org/files/commentFiles/Chappuis_Geissbuehler_NationalReport_Switzerland_2018_423.pdf

[3] https://www.lloydlawcollege.edu.in/blog/common-law-definition-origins-development-examples.html

[4] https://uncitral.un.org/sites/default/files/media-documents/uncitral/en/19-09951_e_ebook.pdf

[5] https://iicl.law.pace.edu/cisg/page/use-united-nations-convention-use-electronic-communications-international-contracts