Indian Contract Law

What turns a conversation into a contract

Under Section 10 of the Indian Contract Act 1872, an agreement becomes a contract when it is made by free consent of parties competent to contract, for a lawful consideration and a lawful object, and is not expressly declared void. Strip away the legalese and a contract needs five things: an offer, an acceptance, consideration (something of value each way), capacity, and a lawful purpose.

The building blocks

• Offer and acceptance (ss.2–9): One party proposes terms; the other accepts them without modification. A reply that changes the terms is a counter-offer, not an acceptance. Acceptance must be communicated — silence is generally not acceptance.
• Consideration (s.2(d), s.25): Each side must give or promise something. A bare promise to make a gift, with nothing in return, is usually not enforceable as a contract. Past consideration can count in India, unlike in some other systems.
• Capacity (s.11): A party must be of the age of majority, of sound mind, and not disqualified by law. A contract with a minor is void from the start — a recurring trap when onboarding young founders or interns.
• Free consent (ss.13–22): Consent obtained by coercion, undue influence, fraud or misrepresentation makes the contract voidable at the option of the wronged party.

Practical India guidance

You do not always need a signed paper to have a contract — oral and email exchanges can bind you — but written terms make proof far easier if a dispute reaches a court. For routine commercial deals, capture the bargain in writing and have an authorised signatory execute it. When you start a new engagement, a clear Service Agreement records offer, acceptance and consideration in one place.

Common mistakes

• Treating a quotation or price list as a binding offer — usually it is only an invitation to offer.
• Assuming a "letter of intent" is non-binding; courts look at substance, not the label.
• Letting someone without authority sign on behalf of a company.

Takeaway: Before you rely on a deal, check that all five ingredients of Section 10 are present — a missing one can mean you have no enforceable contract at all.

The clauses that decide who carries the risk

Most contract fights are not about whether a deal exists, but about what its words mean when something goes wrong. A handful of clauses do the heavy lifting, and leaving them vague is the single most expensive drafting mistake businesses make.

The core set

• Term and termination: State the start date, duration, renewal mechanics, and how each side can exit — for cause (a breach left uncured) and, often, for convenience on notice.
• Payment: Spell out amounts, currency, due dates, invoicing, and the consequences of late payment. Be explicit about whether prices are inclusive or exclusive of GST, and which party bears TDS.
• Intellectual property: Say clearly who owns work created under the contract. Without an express assignment, the creator may retain rights you assumed you had bought.
• Indemnity (s.124–125): A promise to make good specified losses — for example, losses from third-party IP claims. Define what triggers it and cap it where you can.
• Limitation of liability: Cap total liability (often to fees paid) and exclude indirect or consequential loss. Courts respect commercially negotiated caps between businesses, though they will not let a party exclude liability for its own fraud.
• Governing law and dispute resolution: Name the governing law (Indian law), the seat and venue, and whether disputes go to a named court or to arbitration under the Arbitration and Conciliation Act 1996.

Practical India guidance

Match the dispute-resolution clause to the deal size: arbitration suits high-value B2B contracts; for small recurring deals, a clear courts-jurisdiction clause is simpler and cheaper. Lekha's Service Agreement and Vendor Master Agreement include these clauses as a starting frame.

Common mistakes

• Silence on GST, then arguing later about who absorbs the tax.
• An uncapped indemnity that quietly exposes you to unlimited liability.
• Naming arbitration but forgetting to fix the seat, leading to procedural fights.

Takeaway: Read every contract through the lens of "what happens if this goes wrong?" — the term, liability and dispute clauses are where that question is answered.

Why NDAs are worth getting right

A non-disclosure agreement (NDA) lets you share sensitive information — pricing, code, customer lists, strategy — while keeping a legal handle on how it is used. A weak NDA gives false comfort; a sharp one is genuinely protective. Start from Lekha's NDA template and tailor the key terms below.

The terms that matter

• Define "Confidential Information" carefully: Too narrow and real secrets fall outside it; too broad ("everything we ever say") and a court may struggle to enforce it. Cover both written and oral disclosures, and consider whether information must be marked confidential to qualify.
• Permitted use: Limit use of the information to the stated purpose only (for example, evaluating a partnership), and bar onward disclosure except to those who need to know and are themselves bound.
• Exclusions: Standard carve-outs cover information that is already public, already known to the recipient, independently developed, or required to be disclosed by law or a court.
• Term and survival: Set how long obligations last — confidentiality often survives for a fixed period after the engagement ends. Decide whether it is one-way (one discloser) or mutual.
• Return or destruction: Require the recipient to return or delete materials on request or on termination.

A note on restraint-of-trade clauses

NDAs are sometimes bundled with non-compete or non-solicitation terms. Section 27 of the Indian Contract Act 1872 treats agreements in restraint of trade with caution, and Indian courts often decline to enforce broad post-employment non-compete restrictions that stop someone earning a livelihood after they leave. Confidentiality obligations and reasonable non-solicitation clauses are commonly used alternatives, and restraints that operate during the term of an engagement are viewed differently from those that bite afterwards. Treat this as context to discuss with a lawyer, not a verdict on your specific clause.

Common mistakes

• A one-line "keep this secret" email that defines nothing.
• No exclusions, so the recipient breaches the moment the information becomes public through no fault of theirs.
• Relying on a sweeping non-compete instead of a focused confidentiality and non-solicitation approach.

Takeaway: A protective NDA is precise — it defines the information, limits its use, sets sensible exclusions and a clear term, and leans on confidentiality rather than overreaching restraints.

The shape of a services relationship

When one business provides ongoing services to another, a single document rarely fits. The common pattern is a Master Services Agreement (MSA) that sets the legal terms once, plus one or more Statements of Work (SoW) that describe each specific project — scope, deliverables, timelines and fees. New work means a new SoW, not a renegotiated contract.

What goes where

• In the MSA: payment terms, IP ownership, confidentiality, indemnity, liability caps, term and termination, governing law and dispute resolution — the clauses from Module 2 that stay constant across projects.
• In each SoW: the scope of work, deliverables, acceptance criteria, milestones, project-specific fees, and any service levels (SLAs) — uptime, response times, or turnaround commitments, with credits or remedies if they are missed.

Scope: the clause that prevents most disputes

Vague scope is the leading cause of services disputes. Describe deliverables concretely, define what is explicitly out of scope, and include a simple change-control process so extra work is priced and agreed in writing rather than assumed. Lekha's Service Agreement, Consultancy Agreement and Freelancer Agreement give you tailored starting points for different engagement types.

GST and TDS — get the tax mechanics right

State whether fees are inclusive or exclusive of GST, and ensure the provider raises a proper tax invoice. The customer typically deducts TDS on professional or contractual payments under the Income-tax Act and issues a TDS certificate; the contract should say fees are subject to applicable withholding so there is no surprise when the payment lands short. Getting this wrong creates reconciliation headaches and strained relationships.

Common mistakes

• Folding scope into the MSA, so every new project reopens the whole contract.
• SLAs with no remedy — a "99% uptime" promise that costs nothing to miss.
• Silence on TDS, then a dispute when the customer withholds tax the provider did not expect.

Takeaway: Separate the durable legal terms (MSA) from the project specifics (SoW), nail the scope and SLAs, and make the GST/TDS treatment explicit so the commercials are predictable.

When the other side breaks the deal

A breach is a failure to perform a contractual obligation. Indian law gives the injured party several remedies, and which one fits depends on what you actually lost and what you want — money, or the deal itself.

Damages: compensation in money

• Section 73, Indian Contract Act 1872: The injured party can recover compensation for loss or damage that naturally arose from the breach, or that the parties knew was likely when they contracted. Remote or indirect losses are generally not recoverable, and the injured party is expected to take reasonable steps to mitigate (reduce) its loss.
• Section 74 — agreed/liquidated damages: If the contract names a sum payable on breach (or a penalty), the court awards reasonable compensation not exceeding that amount. A pre-agreed figure helps, but the party claiming it should still be able to show the sum is a genuine, reasonable estimate of loss rather than an arbitrary penalty.

Specific performance: making them do the deal

Sometimes money is not enough — you want the actual performance, for example transfer of a unique asset. The Specific Relief Act 1963 governs this. Following its 2018 amendment, specific performance is available much more broadly as a remedy (rather than an exceptional one), subject to the bars in the Act — for instance where performance has become impossible, or where the contract is determinable. Courts can also grant injunctions to restrain a threatened breach.

Practical India guidance

Keep clean records — emails, invoices, delivery proofs — because damages turn on evidence of loss. Send a clear notice of breach giving the defaulting party a chance to cure before you escalate; many contracts require this, and it strengthens your position. Where the subject matter is genuinely unique (specific property, a one-off asset), think about specific performance early, as your conduct can affect the relief available.

Common mistakes

• Assuming a liquidated-damages figure is automatically payable in full — you may still need to show reasonable loss.
• Doing nothing to mitigate, then claiming for losses you could have avoided.
• Skipping the cure-notice step the contract required, and weakening your claim.

Takeaway: Match the remedy to the harm — damages under ss.73–74 for compensable loss, specific performance under the SRA 1963 when only the actual deal will do — and build your evidence from day one.

Two quiet rules that can sink a good claim

You can have a watertight contract and still lose — if you sue too late, or if the document was never properly stamped. These procedural points trip up businesses constantly because they feel like paperwork, not law.

Limitation periods: the clock is running

The Limitation Act 1963 sets deadlines for bringing a claim. For most contractual disputes the period is three years from the date the right to sue arises — for example, from when payment fell due or the breach occurred. Recovery of money lent or due, and compensation for breach, generally fall within this three-year window. Once the period expires, the court will usually dismiss the claim as time-barred even if it has merit, so do not let a recoverable debt drift for years before acting. A part-payment or written acknowledgement of the debt can, in defined circumstances, reset the clock.

Stamping: pay the duty or risk inadmissibility

• Indian Stamp Act 1899 (and state stamp laws): Many instruments must be stamped with the correct duty, which varies by state and document type. Stamp duty is a state subject, so the rate for the same agreement can differ across states.
• Section 35 — the sting: An instrument that is not duly stamped is generally not admissible in evidence for any purpose. In practice that can mean a court refuses to look at your contract until the deficient duty, plus a penalty, is paid. The defect can often be cured by paying duty and penalty, but at the worst possible moment.

Practical India guidance

Identify the correct stamp duty for the state where the agreement is executed, and pay it (commonly via e-stamping) before or at signing. For agreements executed across states, stamp in the state with the higher duty to avoid top-up demands. Keep stamped originals safe — Lekha's templates such as the Distribution Agreement and Joint Venture Agreement are starting points, but the stamping is your responsibility based on local rates.

Common mistakes

• Sitting on an unpaid invoice past three years and losing the right to recover it.
• Signing an unstamped or under-stamped agreement, then discovering it cannot be used as evidence.
• Applying one state's stamp rate to a contract executed in another.

Takeaway: A contract is only useful if you can enforce it — sue within the Limitation Act window, and stamp the document correctly so Section 35 never keeps it out of court.