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IAI Actuarial Core Principles · Business Management · Sources of Indian law and valid contracts

A trade body of Indian reinsurers has for decades followed a particular practice when settling claims. A dispute arises and one party says the practice is a source of law that overrides the express terms of a signed contract and a statute on the point. Which statement is most accurate?

Custom or trade usage is recognised only where it is certain, reasonable and consistent with law. It may supply implied terms or fill gaps, but it cannot override a statute or contradict the express terms of a contract. The party's claim that it overrides both therefore fails.

  1. ACustom overrides both the contract and the statute once it is more than 20 years old
  2. BCustom overrides statute but not the express terms of a contract
  3. CCustom can be a source of law or an implied contract term if it is certain, reasonable and not contrary to statute, but it cannot override a statute or contradict express termsCorrect
  4. DCustom has no recognition in Indian law whatsoever
  5. Custom is the highest source of law, ranking above the Constitution

Explanation

Indian law recognises custom and usage when it is ancient or established, certain, reasonable and consistent with statute. It can fill gaps or be read into contracts, but express contractual terms and mandatory statutory provisions prevail over it. The claim that it overrides both is therefore wrong.

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