In the wake of India’s move towards achieving a status of Developed Nation by providing its people various initiative like “Make in India”, Startup India, Promoting MSME, Skill India to start their own business platforms, the founder of any business set up is essentially required to direct its business strategy in a legally sound manner and for this, the Contracts and Agreements to be entered into by such businesses is a notable and important exercise, therefore requires a careful handling. Through this article module, one can understand the key points to be kept in mind while drafting agreements and Contracts in order to mitigate prolong legal battles in court or arbitral tribunals.
Objects of drafting an Agreement:
The Contracts and agreements are basically ‘meeting of minds’, however as all the businesses runs with various ups and downs so the intentions of parties are always advised to be noted down on a piece of paper with clear communicable terms and conditions. It must be such that it can be interpreted harmoniously and in true letter and spirit of document. They must not be misinterpreted and provide a clear picture of intention conveyed in such contracts/ Agreements.
From this understanding, the objectives are:
- Mitigation of Financial and Legal Risks;
- Creation of Legal rights and liabilities;
- Protection of Business strategies and Ideas;
Pre-requisites for Drafting of an agreement or contract:
Each and Every Agreement or Contract is different and possesses certain corners which needs to be identified before drafting. The intention of parties must be noted down to draw a rough picture of any agreement or contract along with its legal viability. There are certain queries which should be formed before proceeding for drafting, discussed as below:
- Type of Transaction or Subject matter to be entered into;
- Organisational structure of Parties;
- Term and Conditions of Agreement or Contract;
- Negotiations between the Parties;
- Date of Effecting the Agreement;
- Legal Provisions or stipulation, if any, related with such Agreement or contract.
Legal battling be fixed:
The Indian Contract Act, 1872 enumerates the basic essentials for any Contract or Agreement like Written Documents; capacity of parties and their free consent; Offer and Acceptance; Lawful subject matter and Consideration. However, when a Contract or agreement is being drafted for specific cause, it must be in concurrence with relevant law prevailed for Example: Copyright Licensing stipulates curtain terms and Conditions for Assignor and assignees and they must be put down in the agreement. Therefore, the legal consequences must be ensured and kept in mind while drafting the agreement and Legal concerns and battling must be fixed.
Parts of an Agreement or Contract:
Although every Agreement or Contract possess different parts depending upon its nature, however there some parts which are usually seen in the agreement:
- Title (Name of Agreement), effective date and Description of Parties;
- Recitals (Background to the agreement i.e. what leads the parties to come together);
- Definitions of certain Terms;
- Terms and Conditions;
- Legal Disputes redressal mechanism;
- Escalation clauses;
- Witness Clause;
- Schedules or Annexures.
Registration, Stamping and Attestation:
These are the miscellaneous but the most important factors while drafting the agreements or contracts and therefore is integral part of a document. As most of the agreements and Contracts in commercial World are entered into between private parties, therefore the instrument contains its legal dispute resolution mechanism until and unless mandated by law to be registrable. All the agreements or contracts needs to be made on a stamp paper of Rs. 100/- or more until and less mandated by Stamp Acts and Rules variously adopted by each State specifically for particular type of Document. Instruments / Agreements must be attested and testified by Two witnesses competent to hold identity of parties.
Generally, while starting any business and its operations, whether as corporate body, partnership, proprietorship or start up, there are few contracts and agreements which are notably be entered into, such as Service Agreement, Joint venture Agreement, Shareholder or Share purchase or Share-subscription Agreement, IPR Licensing (Trademark and Copyrights Licensing), Employment agreement etc.
Therefore, we can conclude that in order to protect the business and to meet the objects of Agreements and Contracts mitigating its legal, financial and business risks, the drafting of such documents is notable exercise which requires time and resources to save the business from any future legal disputes.