Introduction
“Good faith” (bona fides) is a modal thread that runs through multiple branches of Indian law — criminal, corporate, contract, property and administrative law. It is not a single technical term with a universal statutory definition; rather it is a fact-sensitive standard used to distinguish honest, reasonable conduct from mala fides, fraud or wilful negligence. For practitioners, the concept is simultaneously a shield (an exception or defence), an obligation (director’s or fiduciary duties) and a litigation yardstick (to test propriety of administrative action, contract performance or transfer of rights). Understanding how courts test good faith — what proof is required, whether the test is subjective or objective, and how it interacts with statutory duties — is essential for effective advocacy and transactional risk management.
Core Legal Framework
- Indian Penal Code, 1860
- Section 92 (general exception — acts done in good faith for benefit of a person without consent): this is a specific statutory recognition that an otherwise culpable act may be excused where done in good faith for the person’s benefit and the actor had no reason to believe consent would be refused. (See text of s.92 for precise language.)
- Other general exceptions (Chapters on general exceptions, e.g., mistake of fact/justification) operate with similar considerations of honest belief and reasonable cause.
- Companies Act, 2013
- Section 166 (Duties of directors): imposes a statutory duty on directors to “act in good faith in order to promote the objects of the company for the benefit of its members as a whole, and in the best interests of the company” (among other enumerated duties). This is one of the clearest statutory embodiments of good faith as an affirmative duty.
- Indian Contract Act, 1872
- No single provision defines “good faith” as a general duty in all contracts. The Act recognises categories (fraud, misrepresentation, undue influence, coercion) where good/bad faith is material; courts have been cautious about importing a freestanding, general duty of good faith into Indian contract law, preferring to do so where necessary by implication or policy.
- Transfer and Property Law / Equity
- The equitable doctrine of a “bona fide purchaser for value without notice” (recognized by statute and long-established principles) turns on absence of notice and honest belief. This is principally developed through case law and the Transfer of Property Act’s reading with equity.
- Administrative and Public Law
- Good faith (and its converse, mala fides) is a long-recognised criterion in judicial review of administrative action; the courts will strike down acts tainted by mala fides or where the decision-maker lacked an honest, reasonable basis for action.
Practical Application and Nuances
How courts and tribunals apply “good faith” varies by context. Below are the recurring practical tests and how to use them in litigation and transactional practice.
- Core elements courts look for
- Honest belief: The actor genuinely believed in the facts or the legitimacy of their authority.
- Reasonable basis: The belief was based on reasonable facts or steps taken to verify the facts (objective overlay).
- Absence of improper motive: No extraneous or corrupt motive (personal gain, vindictiveness).
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Due care and diligence: Steps taken to inform oneself, obtain independent advice, and document deliberation.
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Criminal law — claiming protection under general exceptions (e.g., s.92 IPC)
- Practical test: To succeed, the accused must show (a) the act was for the benefit of the person without that person’s consent, (b) the actor did not have reason to believe the person, if capable, would have refused consent, and (c) the act was done in good faith.
- Evidence to adduce: contemporaneous records of the perceived benefit; independent medical/legal opinions (if medical intervention); witnesses who observed urgency/necessity; absence of motive to harm.
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Burden: Once a plausible case of good faith is raised, the prosecution’s burden to displace the defence intensifies because criminal liability requires proof beyond reasonable doubt.
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Corporate law — directors’ duty (Companies Act s.166)
- Practical test: Director must show decision-making aimed at the company’s benefit, taken after due deliberation and without conflict of interest.
- Evidence to produce: board minutes showing discussions and independent advice, conflict disclosures, valuation reports, reasoned resolutions, audit committee approvals.
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Use in litigation: Good faith is both a defence against derivative/oppression suits and a metric in minority oppression/insolvency disputes.
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Contract and commercial disputes
- Limited implied duty: Indian courts do not uniformly import a general “good faith” obligation into commercial contracts; however, courts will enforce implied duties in specific contract types (insurance, fiduciary, agency) and will read in reasonableness where performance would otherwise be arbitrary.
- Practical manoeuvres: Draft express good-faith clauses (including standards and remedies); define scope and objective standards; include dispute-resolution and escalation mechanisms; preserve records of communications and post-contract conduct.
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Evidence: contemporaneous emails, internal approvals, independent valuations, and conduct consistent with terms (consistent performance, prompt disclosure of adverse facts).
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Property, transfers and purchasers
- Bona fide purchaser defence: Establishing good faith requires proof of absence of notice and payment of value. Due diligence searches, title insurance, solicitor’s opinion and independent inquiry are pivotal.
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Practical tip: Maintain a clear audit trail of searches (income tax/encumbrance, litigation searches), communications with vendors, and payment records.
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Administrative law
- Bad faith/mala fide: Courts treat mala fide acts by public authorities as non-justiciable only in narrow cases; generally, actions tainted by malice, irrelevant considerations, or used to defeat statutory purpose are void.
- What to prove: internal memos, contradictory reasons, lack of pre-decisional opportunity to be heard, post-hoc justifications, or selective application of policy.
- Defence: public bodies should document rationale, follow procedures, and obtain legal advice; in litigating, insist on contemporaneous reasoning rather than ex post facto rationalisations.
Concrete examples
– Civil suit (alleged breach of contract): A defendant invokes good faith to justify a delay in performance due to an honest, objectively verifiable supply-chain disruption. Proof: notices to the counterparty, contemporaneous vendor emails, purchase orders, and mitigation steps. Pitfall: post-facto attempts to reconstruct facts without contemporaneous evidence are treated skeptically.
– Criminal case (emergency medical intervention): Accused doctor invokes s.92 IPC (act in good faith for benefit without consent). Proof: medical notes, witness testimony, inability to obtain consent, urgency indicators (vitals), and hospital protocols.
– Company director accused of misappropriation: Director shows independent valuation, board approval (with disclosures), no related-party benefits and minutes reflecting deliberation. This reduces chances of personal liability.
Landmark Judgments
- Central Inland Water Transport Corporation Ltd. v. Brojo Nath Ganguly, (1986) 3 SCC 156
- Principle: Administrative action must not be arbitrary or mala fide; exercise of power must be bona fide and for the purpose intended by the law. The Court emphasised fair play and reasonableness in public decision-making and set parameters for judicial review where mala fides is alleged.
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Practical import: Mere assertion of discretion by a public body will not be sufficient; courts will look at contemporaneous material, consistency of application and presence/absence of extraneous considerations.
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ONGC Ltd. v. Saw Pipes Ltd., (2003) 5 SCC 705
- Principle: The Supreme Court underscored that contractual or official powers must be exercised genuinely and not as a colourable device. The judgment discusses the limits of discretion and the requirement that actions be bona fide.
- Practical import: In procurement, termination, forfeiture or exercise of contractual rights, tribunals and courts will examine whether the dominant purpose was legitimate and supported by material, not merely the label attached by the actor.
(Use these decisions to illustrate how courts scrutinise evidence of motive, contemporaneous reasons and procedural regularity.)
Strategic Considerations for Practitioners
- Pleading and proof
- Plead facts that raise a plausible inference of honest belief and reasonable steps taken; do not rely on bald assertions of “good faith.”
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Assemble contemporaneous documentary evidence first (minutes, emails, approvals, medical/note entries). Courts weigh contemporaneous material far more heavily than after-the-event reconstructions.
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Burden and sequencing
- In criminal matters, once a defence like s.92 is plausibly raised, the prosecution must negate it beyond reasonable doubt. Still, practitioners should present primary evidence of good faith early to shape the narrative.
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In civil and corporate disputes, the plaintiff often bears initial burden to show breach; the defendant must then justify the conduct by evidence of bona fides and due process.
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Transactional drafting
- Where parties want certainty, use express good-faith obligations in contracts with clear standards (objective tests, reasonableness benchmarks, dispute resolution). Define consequences for failure (e.g., quantified damages, indemnities).
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For directors and fiduciaries, establish internal protocols: board minutes, external valuations, conflict disclosures and legal opinions.
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Remedies and risk mitigation
- If you represent a client accused of bad faith, seek an early interim preservation of rights (injunctions) and compile forensic contemporaneous records.
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If representing the opposing party, target gaps: lack of contemporaneous justification, selective application of rules, absence of independent advice, or clear personal gain.
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Common pitfalls to avoid
- Mistaking subjective belief alone for good faith: Courts apply an objective overlay. An honest but unreasonable belief may not suffice.
- Relying on post-hoc rationalisations: after-the-event affidavits and reconstructed minutes are vulnerable.
- Failing to document conflicts of interest and decision-making steps in corporate contexts.
- Drafting vague good-faith clauses without objective standards — courts may then interpret them adversely or leave enforcement to litigation.
Conclusion
Good faith is a pervasive, fact-specific standard that functions as defence, duty and interpretive principle across Indian law. Its proof depends less on formulaic statements and more on demonstrable contemporaneous conduct: honest belief, reasonable inquiry, absence of extraneous motive and adequate documentation. For practitioners, the lesson is practical and simple — where good faith will matter, make it empirical: build the paper trail, obtain independent advice, record deliberations and, where possible, contractually define the standard. Conversely, in attacking an opponent’s claim of good faith, focus on motive, procedural lapses and lack of objective justification. Well-pleaded facts and contemporaneous evidence will usually decide the contest.