“Rule of Law”

“Vendor Lock-in” is a major concern for any buyer, especially if the product/ service procured is of high value and has long-term implication on future procurement. The concern is quite natural and justified because if the product/ technology has locked-in the buyer, it is quite possible that the seller could use this dependency to extract more than what is fair.

There are quite a lot of discussions on this topic and there are quite a lot of strategies that try to address this. The mirror image of this is the “buyer- squeeze”. In this case the buyer who has significant market power can use the market power to squeeze the vendor to extent that he really may really bleed to death. (take a look at "Market Power & Relationships" for a discussion on Market Power in interpersonal relationships)

Different companies address this problem in different fashion. Some try to avoid over dependency on single buyers; some try to build in strong contracts and so on. One of the most difficult buyers in this respect can be government; especially because of the buying power and the plea of executive necessity. If the legal structure is not sufficiently evolved this risk can be quite high. This is very critical when we are exporting products or services abroad.

Indian law in this aspect has established quite a strong principle on this matter. Our law makers have appreciated that if this issue is not addressed properly, some executives, with short-term view could use this plea of executive necessity to drive his personal agenda and this in long term would discourage availability of high-quality service providers from both within the country and abroad to deal with the government.

The judgment by Justice P N Bhagvati who has served as the Chief Justice of India has addressed this matter lucidly in Motilal Sugar Mills case (AIR 1979 SC 621). I have quoted some parts of his judgment for the sheer beauty, brilliance and clarity of this judgment. "The law may therefore now be taken to be settled as a result of this decision that where the Government makes a promise knowing or intending that it would be acted on by the promises and, in fact, the promisee, acting in reliance on it, alters his position the Government would be held bound by the promise and the promise would be enforceable against the Government at the instance of the promisee, notwithstanding that there is no consideration for the promise and the promise is not recorded in the form of a formal contract as required by Article 299 of the Constitution”

He has further elaborated, “Why should the government not be held to a high "standard of rectangular rectitude while dealing with its citizens"? There was a time when the doctrine of executive necessity was regarded as sufficient justification for the government to repudiate even its contractual obligations, but let it be said to the eternal glory of this court, this doctrine was emphatically negatived in the, Indo-Afghan Agencies case and the supremacy of the rule of law was established. It was laid down by this Court that the government cannot claim to be immune from the applicability of the rule of promissory estoppel and repudiate a promise made by it on the ground that such promise may fetter its future executive action."

When we try to understand the strength of the rule of law of any country, the existence and enforcement of such fair dealing by government in any contractual relationship is an excellent indicator.


Power tends to corrupt, and absolute power corrupts absolutely. Lord Acton