What this covers: Twelve foundational clauses in an Indian commercial contract, the market-standard position, common negotiation points, and red flags to watch for when reviewing a contract. Quick reference for in-house counsel and commercial negotiators.
Statutory framework: Indian Contract Act 1872; Sale of Goods Act 1930; Specific Relief Act 1963; Arbitration and Conciliation Act 1996.
The Twelve Essential Clauses
1. Parties and Recitals
Standard: Identify each party by full legal name, registered address, CIN/PAN. Recitals explain context and commercial intent.
Red flag: Ambiguous party names; omission of recitals on rationale (can affect contract interpretation).
2. Definitions
Standard: Capitalised defined terms used consistently throughout; alphabetical order; cross-references work.
Red flag: Defined term used but not defined; inconsistent capitalisation.
3. Scope and Deliverables
Standard: Specific, measurable, time-bound. Include acceptance criteria for each deliverable.
Red flag: Vague scope (“services as may be requested”); no acceptance criteria.
4. Consideration / Pricing
Standard: Fixed, variable, or milestone-based. Specify currency, taxes (GST, TDS treatment), payment terms, invoicing frequency.
Red flag: Price tied to vague cost-plus formula; no cap on variable element.
5. Term and Termination
Standard: Initial term, renewal mechanics, termination for cause (with cure period), termination for convenience (with notice). Specify consequences, transition period, refund, final accounting.
Red flag: Termination for convenience with no notice; “perpetual” contracts without exit; silent on consequences.
6. Representations and Warranties
Standard: Each party represents authority, non-infringement, compliance with law. Product-specific warranties on quality, fitness for purpose, and time limits.
Red flag: Blanket disclaimer of all warranties; exclusion of Sale of Goods Act warranties without express acknowledgement.
7. Indemnification
Standard: Indemnity for breach of reps & warranties, IP infringement, third-party claims. Cap on liability; basket threshold; de minimis exclusion.
Red flag: Uncapped indemnity; no basket or de minimis; cross-indemnity without balance.
8. Limitation of Liability
Standard: Cap at fees paid or fixed multiple (1x-2x). Exclude consequential, indirect, special damages. Carve-out indemnity, IP, confidentiality breach, wilful misconduct.
Red flag: No cap; no carve-out for wilful misconduct; attempt to exclude gross negligence liability (void under Indian Contract Act Section 23 as opposed to public policy).
9. Confidentiality
Standard: Mutual obligations, definition of Confidential Information, permitted disclosures (legal compulsion), return/destruction on termination, survival period (typically 3-5 years post-termination).
Red flag: Perpetual confidentiality without carve-out for publicly available info; asymmetric obligations.
10. Intellectual Property
Standard: Clarity on pre-existing IP, foreground IP (created under contract), licences. Assignment language for work-for-hire must be explicit under the Copyright Act 1957.
Red flag: Ambiguous “ownership of deliverables” clause; missing moral rights waiver; implied licences that outlast the contract.
11. Dispute Resolution
Standard: Multi-tier clause, negotiation (30 days), mediation (optional), arbitration. Specify seat, rules, number of arbitrators, language. For India-India: institutional arbitration (MCIA, ICA) or ad hoc under the Arbitration and Conciliation Act 1996.
Red flag: “Courts at [remote city] only”; pathological “arbitration or court” clauses; named arbitrator with no fallback.
12. Governing Law and Jurisdiction
Standard: State governing law explicitly (“laws of India”). For cross-border: governing law of the contract is distinct from arbitration seat. Exclusive or non-exclusive jurisdiction of courts for non-arbitrable matters.
Red flag: No governing law clause; governing law and jurisdiction in different jurisdictions with no basis; exclusive jurisdiction that doesn’t match the commercial reality.
Cross-Cutting Review Points
| Area | Check |
|---|---|
| Boilerplate | Assignment, notices, entire agreement, amendments in writing, severability, counterparts, electronic execution |
| Annexures | Referenced but not attached? Unsigned? Inconsistent with main body? |
| Schedules | Cross-references work? Signed separately if required? |
| Force majeure | Defined events, notice period, consequences, right to terminate if extended |
| GST / Tax | TDS responsibility, GST gross-up, change in law clause |
| Data protection | DPDP Act 2023 compliance clause; data processing agreement if applicable |
| Anti-bribery | Representation on Prevention of Corruption Act compliance for public-sector contracts |
This resource is for general information purposes only and does not constitute legal advice. For advice on your specific situation, seek appropriate professional counsel.