Understanding Indian Contracts for Foreign Investors

Introduction

The Indian Contracts are governed by a special statute called the Indian Contract Act, 1872 which governs the basic validity of the contract. For a contract to be valid under the Indian Laws, it is required to meet certain basic criteria such as an offer and an acceptance, a consideration, the free consent of the parties. This law makes sure that contracts are enforceable in court and offers remedies for contract breaches. Additionally, it defines guidelines for the fulfilment, termination, and modification of contracts, defending the rights of all parties. The term “contract” is defined under Section 2(h) of the Indian Contract Act, 1872 and defines it as an agreement enforceable by law.

You may looks for more information including the sections and the sub-sections therein https://lddashboard.legislative.gov.in/actsofparliamentfromtheyear/indian-contract-act-1872

Commercial contracts in India as well as in any other country are a legally binding agreement that regulate business relationships between entities or individuals, which involve the performance of the matter prescribed in the contract. Under such contracts, parties are obligated to do or restrain from doing stipulated acts and usually include binding terms, in regard to all aspects of business such as hiring, wages, leasing, insurance, loans, termination and employee status and safety.

In this article we would like to highlight the most common types of contract that local and foreign companies are frequently involved in while doing business with India, by representing their main characteristics.

First of all, and basis of most of the commercial relationships is the Non- Disclosure Agreement or NDA, which is an agreement that create an obligation on a party/parties to not disclose any particular information which is within its possession by virtue of employment or otherwise and that the party is obligate to keep such information confidential for the survival of a business or any other reason. There are certain exception such as information which is already in public domain is not required to be kept confidential. The key terms of the NDA are duration of Agreement, Obligation to Disclose, Return of Information. The NDA is usually signed between parties that begin a cooperation for the first time and exchange between them sensitive and confidential information related to the business or the companies itself.

Another frequent agreement is the Employment Agreement whereby which when a new employee joins a company this type of agreement is formed to ensure the rights and liabilities of the employee. Employee agreement is traditionally used in the corporate world while a new Employee is joined to a company. Some of the key terms and conditions are Salary, Benefits, Work Schedule, Vacation Allotment, Confidential Information. In India, the employment agreement is governed by the Indian Contract Act, the Labour laws and various other laws that regulate such a delicate relationship.

Another type of agreement is the Franchise Agreement wherein to set up a new relationship, the Franchisor and Franchisee enter into an agreement for the formulation of a Franchisee demarcating duties during the institution of the franchise and thereafter. Under this agreement the Franchisor grants certain rights to operate a business within the name and goodwill provided by the Franchisor in exchange for some royalties or interest in the business.

Some of the basic terms and conditions are duration, nature of the franchisee, Royalties, place of operation (territory), equipment assistance, professional training, initial investment. By way of example, this type of agreement is commonly used by brands entering and selling their products in the Indian market through the support of local partners.

An extremely common type of agreement in the international environment is the Sale and Purchase Agreement executed between the buyer and the seller for the purpose of determining the terms and conditions of the sale process. Said agreement is important for both, seller and buyer, as it captures not only the due diligence periods or conditions that must be met before the sale but also the closing date, purchase price, the amount of earnest money that the buyer must submit as a deposit, and the list of items that are and are not included in the sale.

An essential agreement to protect a company’ s intellectual property rights is the Intellectual Property Licensing Agreement or IP License Agreement. It is a legal agreement executed between the licensor who owns the IP rights and the licensee who is authorized to use the rights such as trademarks, trade secrets, copyrights, patents, etc. in exchange for money in terms of royalty or fee or both. There are various factors which need to be taken into consideration while drafting the IP license agreement such as exclusivity, territory, time period, rights to future developments, assignment, sub-license or termination of the license, etc. The IP License Agreement is of vital importance for companies that are granting the use of their own IP to partner companies or third parties to preserve the use and protection of the brand, patent etc.

Lastly one of the most important agreements that establishes an important relationship between the parties is the Joint Venture Agreement also known as a JV agreement which is basically an arrangement between 2 (two) or more entities who have agreed to undertake either new or existing business together. Under the said arrangement, the parties pool their resources by way of contributing the equity and sharing the revenues, expenses and control of the new venture in proportion to the capital that the parties have contributed.

Those mentioned above are just a few examples of very commonly used agreements in India and in the international environment. While drafting an agreement, it is essential to include all the terms and conditions that may protect the contracting party from the other party’s breach or misconduct.

Conclusion

It is very essential to carefully draft the commercial contract and is important that the terms and conditions are discussed between the parties before the agreement is signed off. The parties should expressly mention what they want to include or exclude from the contract. Any term, right or obligation is written vaguely will only leave ambiguity between the parties.

We at D’Andrea & Partners Legal Counsel are a legal firm with its presence in India, Pune and provide all round legal and fiscal services relating to open a company in India, legal compliance, litigation and dispute resolution, drafting of agreements and contracts, intellectual property rights protections, HR and IPR Related work and other miscellaneous services. Should you have any query or wish to know more, please reach us at info@dandreapartners.com. We are also pleased to introduce our practical guide on Foreign Direct Investment in India which you can purchase on https://www.amazon.com/Foreign-Direct-Investment-India-Invest-ebook/dp/B0BP7M7GKD/ref=sr_1_3?qid=1695004259&refinements=p_27%3ACarlo+Diego+D%27Andrea&s=digital-text&sr=1 3&text=Carlo+Diego+D%27Andrea

Disclaimer：

The above content is provided for informational purposes only. The provision of this article does not create an attorney-client relationship between D’Andrea & Partners and the reader and does not constitute legal advice. Legal advice must be tailored to the specific circumstances of each case, and the contents of this article are not a substitute for legal counsel.