Memorandum of understanding

Basic Information- In the language of Black's Law Dictionary, the concept of Memorandum of Understanding is considered as a non-committal written statement detailing the preliminary understanding of the parties who plan to enter into a contract. As per the terminology states Memorandum of understanding (hereinafter the MoU) means, mutually agreed set of statements for the understanding.

In simpler language, MoU is an agreement between two or more than two parties. It is considered that MoU is just an agreement, but sometimes it can be used a legal instrument in the arena of contracts; the MoU can be presented as an effective and technical tool for establishing clear objective and targets. The MoU is exchange of words between the parties, and the MoU can be enforceable if those words say so. In India, the MoUs are governed under Indian Contract Act 1972. As we have discussed that MoU is an agreement; the Indian Contract Act defines Agreement as a promise or a set of promises forming the consideration for each other. Interestingly, a contract is defined as an agreement which is enforceable by law.

Though, there is no straight forward definition of MoU, it can be considered either as an agreement or a contract as it prescribes.

Legal Binding of MoUs- If we look into the decisions of various High Courts and Supreme Court; it seems that the MoU can be of binding nature depending upon the object of the Agreement, and the suitability and intention of the parties in the MoU.

In the case of Reliance Natural Resources Ltd. vs. Reliance Industries Ltd., the agreement was entered into between the private parties i.e. the Ambani brothers and their mother; the MoU was not approved by the shareholders and nor it was mentioned under the scheme of legal nature. So, one analogy can be inferred through this case that because the MoU was not circulated to all the interested members of the Company and it was a private settlement between the two parties, hence, it can be legally binding in nature. But the question arises of as to what is the legal status of the MoU between two Private Parties. In these kinds of cases, the primary thing is that for an MoU to be legally binding, it shall be sufficiently clear and certain.

Enforcement of MoUs- Enforceability of MoUs depends upon the intentions of the parties, as we have already discussed. If the MoUs agreed by the parties fulfils the conditions prescribes under the Indian Contract Act, then it is considered to that it can be enforced under Specific Relief Act. Moreover, doctrine of estoppels can be helpful for the enforcement of the MoU.

Confidentiality in MoUs- There is a term in MoU, which is known as Survival Clause i.e. whatever shared or stated confidential in MoU will be confidential in nature. Even if the MoU is unsuccessful in transforming into a full-fledged contract, the confidentiality clause will still be applicable upon the parties. If one of the parties default in keeping the confidential information undisclosed then the other party can claim on the basis of breach of confidentiality clause in MoU.

Conclusion- It is now clear that the MoU is, though, prima facie is not legally binding, it solely depends upon the intention of the parties and negotiation takes place between the parties. It can also be said that it is partly binding and partly non-binding in nature. Moreover, whether MoU will be binding or not can be decided by the Court by looking into the contents of the contract.

This article is written by Priyanka Kansara, a passionate writer at Aapka Consultant, India's leading online one stop business service provider, whose key focus areas are Trademark Registration, Company Registration, Business Compliance's, Copyright, Tax Compliance's, Legal Documentation etc.

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Aapka Consultant 
on 16 February 2016
Published in Legal Documents
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