Commercial Agreements in India

What is agreement

Every promise and every set of promises, forming the consideration for each other, is an agreement.

What agreements are contracts

All agreements are contracts if they are made by the free consent of parties competent to contract, for a lawful consideration and with a lawful object, and are not hereby expressly declared to be void.

Nothing herein contained shall affect any law in force in India, and not hereby expressly repealed, by which any contract is required to be made in writing or in the presence of witnesses, or any law relating to the registration of documents.

Who are competent to contract

Every person is competent to contract who is of the age of majority according to the law to which he is subject, and who is sound mind and is not disqualified from contracting by any law to which he is subject.

What are consequences of breach of contract

i. Compensation of loss or damage caused by breach of contract: When a contract has been broken, the party who suffers by such breach is entitled to receive, form the party who has broken the contract, compensation for any loss or damage caused to him thereby, which naturally arose in the usual course of things from such breach, or which the parties knew, when they made the contract, to be likely to result from the breach of it. Such compensation is not to be given for any remote and indirect loss of damage sustained by reason of the breach.

ii. Compensation for failure to discharge obligation resembling those created by contract: When an obligation resembling those created by contract has been incurred and has not been discharged, any person injured by the failure to discharge it is entitled to receive the same compensation from the party in default, as if such person had contracted to discharge it and had broken his contract.

iii. Compensation of breach of contract where penalty stipulated for: When a contract has been broken, if a sum is named in the contract as the amount be paid in case of such breach, or if the contract contains any other stipulation by way of penalty, the party complaining of the breach is entitled, whether or not actual damage or loss or proved to have been caused thereby, to receive from the party who has broken the contract reasonable compensation not exceeding the amount so named or, as the case may be, the penalty stipulated for. 

iv. Party rightfully rescinding contract, entitled to compensation: A person who rightfully rescinds a contract is entitled to consideration for any damage which he has sustained through the no fulfillment of the contract. 

What are stages in contracts

Following are stages in evolution of contracts:

1) Defining the scope of the agreement;

2) Agreement drafting; and

3) Contract implementation & its management

What are specimen clauses in a contract

The clauses generally included in contract document are:

• Description of parties

• Nature of contract

• Description of subject matter

• Consideration

• Payment terms

• Taxes & charges

• Remedies / liquidated damage

• Licences

• Packing

• Quality, quantity, inspection & acceptance

• Shipment

• Passing of property & risk

• Warranty / Guarantee

• Insurance

• Duration & renewal of the agreement

• Times for performance

• Intellectual property rights

• Restrictive covenants

• Indemnities

• Options

• Disputes resolution

• Force majeure

• Termination

• Severability

• Assignment

• Modifications

• Confidentiality

• Notices

• Governing laws

• Effective date

• Signature portion

What are commonly used agreements

Following are few commonly used commercial agreement:

Sale & Purchase agreement: It is agreement that involves pricing negotiation where both the buyer and the seller try to get the best offer before closing a deal.

Construction agreement: It is formal agreement for construction, alteration, or repair of buildings or structures (bridges,  dams, facilities, roads, tanks, etc.)

Distribution agreement: A distribution agreement is one made between a manufacturer and a supplier to distribute and/or sell items manufactured. The supplier may make such an agreement with separate stores selling the product that involves how goods will be merchandised or how much supplies will available to the store. The agreement may also include terms regarding advertising of a product.

Employment agreement: It is a formal agreement that specifies the conditions of relationship between an employee and an employer including compensation and expectations. 

Scheme of Amalgamation: It is a scheme made for arrangement whereby the assets of two companies become vested in, or under the control of one company, which may or may not be one of the original two companies. 

Franchise agreement: It is an agreement in which a well-established business consents to provide its brand, operational model and required support to another party for them to set up and run a similar business in exchange for a fee and some share of the income generated. The franchise agreement lays out the details of what duties each party needs to perform and what compensation they can expect. 

Joint Venture agreement: It is a contractual agreement between two or more business partners to assume a common business strategy on a project. All partners generally agree to share the profits and losses through their common shareholdings.

Non-competition agreement: It is a contract between two parties, where one party agrees not to compete with the other for a period of time. 

Services agreement: It is an agreement between two persons or businesses where one agrees to provide a specified service to the other. 

Shareholder agreement: An arrangement among a company's shareholders describing how the company should be operated and the shareholders' rights and obligations. 

Agency agreement: It is a legal contract creating a fiduciary relationship whereby ‘the  principal’ agrees that the actions of ‘the agent’ binds the principal to later agreements made by the agent as if the principal had himself personally made the later agreements.  

Arbitration agreement: It is a written contract in which two or more parties agree to settle a dispute outside of court. 

Hypothecation agreement: The established practice of a borrower pledging an asset as collateral for a loan, while retaining ownership of the assets and enjoying the benefits therefrom. With hypothecation, the lender has  the right to seize the asset if the borrower cannot service the loan as stipulated by the terms in the loan agreement. 

Collaboration agreement: It is agreement between two parties for exchange of technical know-how, technical designs and drawings; training of technical personnel and/or research and development; continuous provision of related services. 

Lease agreement: It is a contract between lessor and lessee for the fixed term for the use on hire of a specific asset selected by lessee. 

License agreement: It is an agreement where one person grants to other person, a right to do in or upon the immovable property of the grantor, something which would, in the absence of such right, be unlawful and such right does not amount to an easement or an interest in the property. 

Loan agreement: It is a contract between a borrower and a lender which regulates the mutual promises made by each party. 

Manufacturing agreement: It is a contract that defines responsibilities and bridges the relationship between an original equipment manufacturer and a contract manufacturer. 

Partnership agreement: It is an agreement between two or more persons who have agreed to share profits of business carried on by all or any one of them acting for all. 

Trust deed: It is an agreement in which an obligation is annexed to the ownership of property, and arising out of a confidence reposed in and accepted by the owner, or declared and accepted by him for the benefit of another or of another and the owner. 

Contract of guarantee: It is a contract where one person makes a legally binding promise to take on the legal responsibilities of another person, if that person defaults in their obligations. 

Assignment deed: It is a form of transfer of property and it is commonly used to refer the transfer of an actionable claim or a debt or any beneficial interest in movable property. 

Power of Attorney: It includes an instrument empowering a specified person to act for and in the name of the person executing it. 

Outsourcing agreements: It is the contracting out of a non-core, non-revenue producing activities to specialists. 

Indemnity agreement: It is a contract where one party agrees to protect another party against certain future claims or losses.

Management agreement: It is contract between the owner of property and someone who agrees to manage it.

Settlement agreement: It is an acknowledgment by parties to a civil lawsuit that it is in their best interests to agree to settle their dispute without the need for further litigation.

Promissory Note: It is an unconditional promise in writing made by one person to another signed by the maker, engaging to pay, on demand or at a fixed or determinable future time, a sum certain in money, to, or to the order of, a specified person or to bearer.

Release agreement: It is a legal contract drafted in which one party relieves the other of liability, releasing any rights to legal claims arising out of a given situation.

Reference: The Indian Contracts Act, 1872

Disclaimer: This is a general information on the commercial agreements and do not constitute opinion to  users. 

For further query, please contact:

CS Awadh Kishore Prasad 

(B.Com, LLB & ACS)



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on 24 June 2014
Published in Corporate Law
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