Contract Drafting and Review in India The right document for the deal, checked clause by clause

Which document does your deal need?

Name the document first. Half the drafting problems we see come from using the wrong instrument.

If you are already in a dispute, a contract is not the document you need. Start with a legal notice, or a recovery notice if the dispute is about money.

Drafting, review or redlining?

Three different jobs at three different prices. Say which one you want and you get a faster, cheaper answer.

Ask for review before you ask for drafting if paper already exists. It is usually the cheaper route to the same protection.

What makes a contract enforceable

Section 10 of the Indian Contract Act, 1872 sets the test. An agreement is a contract if it is made by the free consent of parties competent to contract, for a lawful consideration and with a lawful object, and is not expressly declared void. Six things follow from that.

Section 10 also preserves any other Indian law that requires a contract to be in writing, to be attested by witnesses, or to be registered. So passing the section 10 test is necessary and sometimes not sufficient.

Electronic contracts and e-signatures

Most business contracts can be concluded and signed electronically. A small list cannot.

Sections 5 to 8 of the Information Technology Act, 2000 give legal recognition to electronic signatures and electronic records. Section 1(4), read with the First Schedule, lists the documents those sections do not apply to. After the amendment notified on 26 September 2022 and published on 6 October 2022, that list is:

1. A negotiable instrument other than a cheque, under section 13 of the Negotiable Instruments Act, 1881. A demand promissory note or a bill of exchange issued in favour of, or endorsed by, an entity regulated by the RBI, NHB, SEBI, IRDAI or PFRDA is carved out of the exclusion.
2. A power of attorney under the Powers-of-Attorney Act, 1882, except one that empowers such a regulated entity to act for the person executing it.
3. A trust under the Indian Trusts Act, 1882.
4. A will under the Indian Succession Act, 1925, and any other testamentary disposition.

Contracts for the sale or conveyance of immovable property were in the excluded list and were removed by that amendment.

Practical reading. Service agreements, NDAs, vendor and distribution contracts, licences, loan agreements, employment paper, founders and shareholders agreements: all can be signed electronically. A power of attorney, a trust deed and a will need wet signatures and their own formalities. If your document is on the excluded list, see power of attorney or talk to us before you send it for e-signature.

Stamping and registration, in plain words

Two separate questions, often confused.

Stamping. Stamp duty on an instrument is a state levy under the relevant State Stamp Act, or under the Indian Stamp Act, 1899 as applied to that state. There is no central rate and no national schedule for agreements. The amount depends on the state, the value and the type of document, and we confirm it before execution. An instrument executed only outside India, other than a bill of exchange or promissory note, may be stamped within three months after it is first received in India under section 18 of the Indian Stamp Act, 1899.

Registration. Section 17 of the Registration Act, 1908 makes registration compulsory for a short list of instruments, including gifts of immovable property, non-testamentary instruments that create or assign a right in immovable property of the value of ₹100 or more, and leases of immovable property from year to year or for a term exceeding one year. Most commercial contracts are not on that list and are not registered. If your document touches immovable property, assume registration is in play until we confirm otherwise.

A useful consequence: a sale of immovable property cannot be completed by an agreement to sell or by a power of attorney. The Supreme Court held in Suraj Lamp and Industries v. State of Haryana, decided on 11 October 2011, that immovable property can be legally and lawfully transferred only by a registered deed of conveyance.

Dispute resolution: what to write, and what the law adds

Pick one forum and name it precisely. A contract with both a court clause and an arbitration clause is a fight waiting to happen.

• Courts. Name Indian law as the governing law and the courts of one named city as having exclusive jurisdiction. Pick a city at least one party can actually get to.
• Arbitration. Under the Arbitration and Conciliation Act, 1996, the clause should name the seat, the number of arbitrators, the language and how the arbitrator is appointed. The seat, not the venue, decides which court supervises the arbitration. Leaving the seat out is the commonest drafting gap in agreements sent to us for review.
• Mediation first. Many contracts provide for a negotiation period, then mediation, then arbitration. That is worth having, but put a hard time limit on each step so a stalling party cannot park the dispute.

The law adds one step you cannot contract out of. For a commercial dispute of ₹3 lakh or more, section 12A of the Commercial Courts Act, 2015 says a suit that does not seek urgent interim relief cannot be filed until pre-institution mediation has been attempted, through the legal services authority. The Supreme Court held in 2022 that this step is mandatory and a suit filed without it faces rejection. Unpaid business invoices usually fall in this category.

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