Drafting Commercial Contracts PDF

Drafting of Commercial Contracts Lesson LESSON 5 Drafting of Commercial Contracts...

Drafting of Commercial Contracts Lesson LESSON 5 Drafting of Commercial Contracts 5 KEY CONCEPTS n LLP Agreements n Joint Ventures and Foreign Collaborations Agreements n Service Agreements n Outsourcing Agreements Learning Objectives To understand:  Drafting and details of Limited Liability Partnership Agreements  Collaboration Agreements  The detailed terms of Joint Development Right Agreements  Dealership, Distributorship and Franchise Agreements  Drafting of Outsourcing Agreements  Preparation of Non-disclosure Agreements  Types and Formation of e-contracts Lesson Outline  Introduction  Lesson Round-Up  Important Clauses of Commercial Contracts  Glossary  Limited Liability Partnership Agreements  Test Yourself  Joint Venture  List of Further Readings  Foreign Collaboration Agreement  Other References (including websites/video links)  Joint Development Rights Agreement  Service Agreements  Dealership Agreement, Distributorship Agreement & Franchise Agreement  Outsourcing Agreements  Non-disclosure Agreement  Electronic Contracts 173 PP-DP&A Drafting of Commercial Contracts REGULATORY FRAMEWORK l Limited Liability Partnership Act, 2008 l The Companies Act, 2013, l Arbitration and Conciliation Act, 1996 l Transfer of Property Act, 1882 l Indian Contract Act, 1872 INTRODUCTION When your business starts to make agreements with other businesses for supply or sale of goods and services, then a proper commercial contract is required to record these agreements and protect the parties in case of a dispute. Commercial contracts are legally enforceable agreements between two or more parties. They are agreements used to govern commercial activity(s) and involve with the commercial aspects of a product or service. They guarantee that parties follow their word and streamline transaction flow. The terms of a commercial agreement are usually quite formal and vary for each organisation and transaction. A commercial contract meets two objectives: – the first is that it must simultaneously advance and protect the business interests of the parties. – the second, and often overlooked, goal of a properly drafted commercial contract is that it should not unduly disturb or endanger the commercial arrangement that the two contracting parties have struck. Examples Joint Venture Agreement of commercial Shareholders Agreement contracts Business Purchase Agreement include Purchase and Supply Agreement Franchise Agreement Non-disclosure Agreement Employment Contracts Intellectual Property License and Assignment Partnership Agreement Loan and Finance Agreement 174 Drafting of Commercial Contracts LESSON 5 Important Clauses of Commercial Contracts Confidenality clause to prevent unauthorized disclosure of confidenal informaon. Dispute resoluon clause stang how disputes arising from the transacon will be handled. Details on the court that will have jurisdicon over ma ers arising from the transacon and the governing law, especially for domesc and internaonal cross-border transacons. Terminaon clause detailing how any party can opt-out of the arrangement and condions that will end the contract. Indemnity clause to protect pares from liabilies caused by a breach of contract or negligent acts of third pares. Liquidated damages clause to specify damages upon breach of contract. Force majeure clause to remove liability for failure to perform contractual obligaon caused by unforeseen and unavoidable circumstances. LIMITED LIABILITY PARTNERSHIP AGREEMENT Limited Liability Partnership is governed by Limited Liability Partnership Act, 2008 which came into force on April 1, 2008. LLP Agreement is a written contract between the partners of the LLP or between the LLP and its designated partners. It establishes the rights and a duty of the designated partners toward each other as well toward the LLP. It is compulsory to execute and file the LLP agreement with MCA within 30 days of the incorporation of LLP. It creates the foundation for the smooth running of Limited Liability Partnership. It defines the outlook and set well define concepts for decision making, adding a new partner and leaving of existing partners or change in roles. Content of LLP Agreement 1. Name of the LLP The name must end with LLP or Limited Liability Partnership as per the provisions of the LLP Act, 2008. 2. Date of the agreement and parties to the agreement After incorporation, the agreement is to be executed within 30 days as per the LLP Act, 2008. LLP 175 PP-DP&A Drafting of Commercial Contracts agreement is between all the partners and designated partner. The agreement must contain the date and of entering into an agreement. 3. Introductory provisions It includes all the definitions of terms used in the LLP agreement. 4. Place of business The agreement must contain the place of business which is the registered office of the LLP. 5. Business activity It is important to include the business activities to be carried on by the LLP. It must be in the same nature as approved by the MCA at the time of incorporation of LLP. 6. Duration If the LLP is formed for the specific period, then such period must be mention after which the LLP must be dissolved. LLP can also be formed for certain object, after completion of such object; the LLP must be closed. In the absence of specific period or object, one can include the duration of LLP as up to the period until which, it is terminated with the consent of the partners of the LLP. 7. Accounting and Auditing etc. This includes how to maintain the books of accounts, whether it is cash basis or accrual basis. During which period a partner can access books of accounts, whether an audit is mandatory or will follow the rules mentioned in the LLP Act. 8. Partners’ contribution and method of contribution Represents the contribution ratio of partners in terms of capital invested, interest on contribution, Profit Sharing Ratio as well as the time period after which the capital can be withdrawn by any of the designated partners. It is important for maintaining a good relationship between partners. 9. Record keeping and bank arrangement It includes the maintenance, storage, and recording of books and other related documents. 10. Allocation and distribution It clarifies the system of profit sharing among all partners and distribution including interim distribution or final distribution. It portrays the distribution of Profit between the partners as per the decided ratio. 11. Disassociation of partner Specifies the terms and conditions when partners can withdraw or disassociate from the LLP. This is one of the vital clauses of the LLP Agreement. It states the rights of partners and rights on assets after disassociation. 12. Partners’ rights to records Each partner has the right to check the records for avoiding misappropriation. 13. Management and Fiduciary Duty It takes into account the liability of the management of a LLP and the appointment of the person liable for taking care of confidential information of the LLP. 14. Arbitration and General Provisions In the case of conflict between parties, the parties may involve the third person known as an arbitrator 176 Drafting of Commercial Contracts LESSON 5 who listens to both the parties and takes a decision, which is to be accepted by both the parties concerned and the final order must be applied on both parties. 15. Other Provisions Several other provisions also come under the LLP Agreement such as admission of new partners and its rights thereafter and changes in the designation. It includes the right to take part in business, title and interest in assets, right to access, right to continue the independent business, right to recover the due debt and selling, transferring of partnership right to existing partner and another partner. It covers the mode, time period of the meeting of partners, the decision-making process, agenda and the voting rights of the partners. It also includes the rights of designated partners as well as how those rights can be availed from the LLP. It considers methods of readmission of partners as well as cross purchase. This clause illustrates the right of redemption of a partner’s rights. Specimen Model Limited Liability Partnership Agreement or LLP Agreement Limited Liability Partnership Agreement or LLP Agreement THIS AGREEMENT of Limited Liability Partnership (LLP) is made at ___________ on this ______ day of ____________, 20_____ BETWEEN (1) ________________________________ a company registered under the Companies Act, 2013, having its Registered Office at _____________________________________________through its authorised representative which expression shall, unless it be repugnant to the subject or context thereof, include their legal heirs, successors, nominees and permitted assignees and hereinafter called the FIRST PARTY, (2) ___________________________ s/o, d/o, w/o ___________________________r/o _____________ ______________________________ which expression shall, unless it be repugnant to the subject or context thereof, include their legal heirs, successors, nominees and permitted assignees and hereinafter called the SECOND PARTY, and (3) ____________________________ s/o, d/o, w/o __________________________ r/o ____________ _____________________________ which expression shall, unless it be repugnant to the subject or context thereof, include their legal heirs, successors, nominees and permitted assignees and hereinafter called the THIRD PARTY, and (All the PARTIES hereto, i.e., the FIRST PARTY, the SECOND PARTY and the THIRD PARTY shall be collectively called or referred to as the PARTNERS). WHEREAS the First Party is ________________________________________________________________ _____________. WHEREAS the Second Party is _____________________________________________________________ ______________. WHEREAS the Third Party is _______________________________________________________________ ______________. NOW the First Party, the Second Party and the Third Party are interested in forming a Limited Liability Partnership (LLP) under the Limited Liability Partnership Act, 2008 and intend to write down the terms and conditions of the said LLP as below. 177 PP-DP&A Drafting of Commercial Contracts IT IS HEREBY AGREED BY AND BETWEEN THE PARTIES/PARTNERS HERETO AS FOLLOWS: Name of the LLP 1. A Limited Liability Partnership (LLP) shall be carried on in the name and style of M/s. _______________________ LLP and hereinafter called as the LLP. Registered Office 2. The LLP shall have its Registered Office at______________________ and/or at such other place or places, as shall be agreed to by the majority of the partners from time to time. Capital Contribution 3. The Capital Contribution of the LLP shall be Rs. __________________ (Rupees __________________________ only) which shall be contributed by the partners in the following proportions: First Party ______% i.e. Rs. ___________ (Rupees___________ only) Second Party ________% i.e. Rs ____________ (Rupees___________ only) Third Party_________% i.e. Rs ___________ (Rupees____________only) The further Contribution if any required by the LLP shall be brought by the partners in their profit sharing ratio. Profit sharing ratio (PSR) 4. All the Partners of the LLP are entitled to share Profits & Losses in the ratio of their respective Capital Contribution in the LLP. The net profits & losses of the LLP shall be arrived at after providing for payment of Remuneration to the Designated and working partners and Interest on Partners’ Contribution in the LLP or Loan given by them to the LLP. Business and Objects of the LLP 5. The objects, business and activities of the LLP shall be under : a. ___________________________________________________________________________ b. ___________________________________________________________________________ and other incidental and ancillary business more particularly described in the Schedule ‘A’ annexed herewith or any other business in any other manner as may be decided by the majority of the Partners. Common Seal 6. The LLP shall have a common seal to be affixed on documents as defined by partners under the signature of any of the Designated Partners. 7. That the immovable properties purchased by the LLP shall be clear, marketable and free from all encumbrances. Admission of New Partner 8. No Person may be introduced as a new partner without the consent of all the existing partners. Such incoming partner shall give his prior consent to act as Partner of the LLP. 9. Capital Contribution of the new partner may be tangible, intangible, movable or immovable property and the incoming partner shall bring minimum Contribution of Rs ____________________ (Rupees______________ only). 178 Drafting of Commercial Contracts LESSON 5 10. Profit Sharing Ratio (PSR) of the incoming partner will be in proportion to his capital contribution in the LLP. First Schedule of LLP Act not to apply 11. Provisions of First Schedule to the Limited Liability Partnership Act, 2008 will not apply to the LLP as the LLP will be governed by the terms of this LLP Agreement. Remuneration & Interest to Partners 12. The LLP shall pay such Remuneration to the Designated Partners and working partners as may be decided by the majority of the Partners, for rendering his/her/its services. 13. The LLP shall pay such Interest to the Partners on Capital Contribution in the LLP as may be decided by the majority of the Partners. 14. If any partner advances any sum of money to the LLP over and above his Capital Contribution, the same shall be a debt due from the LLP to the said partner and shall carry simple interest at the rate of % per annum or any other rate decided by the partners by majority/unanimously. Rights of the Partners 15. All the partners hereto shall have the rights, title and interest in all the assets and properties in the said LLP in the proportion of their Capital Contribution. 16. All the partners of the LLP shall be the working partners and each of the partners shall give time and attention as may be required for the fulfillment of the objects of the LLP business. 17. Every partner has a right to have access to and inspect and have copy any of the books of the LLP. 18. Each of the parties hereto shall be entitled to carry on their own, separate and independent business as they might hitherto be doing or may hereafter do as they deem fit and proper and other partners and the LLP shall have no objection thereto, provided that the said partner has intimated the said fact to the LLP before starting or commencing the independent business and in case of a business directly or indirectly competing with that of the LLP taken written consent of the LLP, provided also that he/she/ it shall not use the name of the LLP to carry on the said business. 19. The LLP shall have perpetual succession and the death, retirement or insolvency of any partner shall not dissolve the LLP. 20. On retirement of a partner, the retiring partner shall be entitled to full payment in respect of all his rights, title and interest in the partnership as herein provided. However, upon insolvency of a partner his or her rights, title and interest in the LLP shall come to an end. 21. Upon the death of any of the partners herein any one of his or her or its heirs will be admitted as a partner of the LLP in place of such deceased partner. The heirs, executors and administrators of such deceased partners shall be entitled to and shall be paid the full payment in respect of the right, title and interest of such deceased partner. 22. On the death of any partner, if his or her or its heirs opt not to become the partner, the surviving partners shall have the option to purchase the contribution of the deceased partner in the LLP. Duties of the Partners 23. Every partner shall account to the limited liability partnership (LLP) for any benefit derived by him without the consent of the LLP from any transaction concerning the LLP, or from any use by him of the property, name or any business connection of the LLP. 179 PP-DP&A Drafting of Commercial Contracts 24. Each Partner shall be just and faithful to the other partners in the conduct of business and all the transactions relating to the LLP. 25. Every partner shall indemnify the limited liability partnership (LLP) and the other existing partners for any loss caused to it by his/her/its fraud in the conduct of the business of the limited liability partnership (LLP). 26. Each partner shall render true accounts and full information of all things affecting the LLP to any partner or his legal representatives. 27. In case any of the Partners of the LLP desires to transfer or assign his, her or its interest or share in the LLP he has to offer the same to the remaining partners by giving 15 days notice. In the absence of any communication by the remaining partners the concerned partner can transfer or assign his share in the market. 28. No partner shall without the written consent of the LLP, – a. Engage any employee or dismiss any employee of the LLP except for gross misconduct. b. Employ any money, goods or effects of the LLP or pledge the credit thereof except in the ordinary course of business and upon the account or for the benefit of the LLP. c. Lend money or give credit on behalf of LLP or have any dealings with any person, company or firm whom the LLP has previously in writing forbidden it to trust or deal with. Any loss incurred through any breach of the provisions shall be made good to the LLP by the partner incurring the same. d. Enter into any bond, bail or become guarantor, surety or security with or for any person or knowingly do, cause or suffer to be caused anything whereby the LLP property or any part thereof may be seized or endangered. e. Assign, mortgage or charge his/her/its share in the LLP or any asset or property of the LLP or make any other person a partner or sub-partner therein. f. Compromise or compound or release or discharge any debt due to the LLP (except upon payment in full). g. Engage directly or indirectly in any business competing with that of the limited liability partnership (LLP). Meetings of Partners of the LLP 29. All matters related to the LLP as mentioned in Schedule B to this LLP Agreement shall be decided by a Resolution passed by majority in number of the partners & for this purpose each partner shall have one vote. 30. The meeting of the Partners may be called by sending 15 days prior notice to all the partners at their residential address or by mail at the e-mail ID provided by the individual Partners in written to the LLP. In case any partner is a foreign resident the meeting may be conducted by serving 15 days prior notice through e-mail. Provided that the meeting may be called at shorter notice, if the majority of the partners agree in writing to the same either before or after the meeting. In case, any urgent meeting is called, the notice requirement may be ratified by all the Partners. 31. Meetings of the Partners shall ordinarily be held at the Registered Office of the LLP or at any other place as per the convenience of partners. 32. With the written Consent of all the partners, a Meeting of the Partners may be conducted through Tele- Conferencing or Video-Conferencing. 33. The limited liability partnership (LLP) shall ensure that decisions taken by it are recorded in the minutes 180 Drafting of Commercial Contracts LESSON 5 within thirty days of taking such decisions and are kept and maintained at the registered office of the LLP. Duties of Designated Partners 34. Authorised representatives of the First Party and the Second Party shall act as the Designated Partners of the LLP in terms of the requirements of the Limited Liability Partnership Act, 2008. 35. Designated Partners shall be responsible for the doing of all acts, matters and things as are required to be done by the limited liability partnership (LLP) in respect of compliance of the provisions of the LLP Act including filing of any Document, Return, Statement and the like Report pursuant to the provisions of Limited Liability Partnership Act, 2008. 36. The Designated Partners shall be responsible for the doing of all acts and deeds arising out of this LLP Agreement. 37. Each partner shall punctually pay and discharge the separate loans and debts and indemnify the other partners and the LLP assets against any loss caused or suffered by the LLP and all proceedings, costs, claims and demands from the LLP in respect thereof. Books of Account 38. Books of Accounts of the limited liability partnership (LLP) shall be kept at the registered office of the LLP for reference, access, inspection and having copies of by all the partners. 39. The accounting year of the LLP shall be the Financial Year, i.e., from 1st April of the year to 31st March of the subsequent year. The first accounting year shall be from the date of commencement of the LLP till 31st March of the subsequent year. Bank Accounts 40. Bankers of the partnership shall be _______________________ Bank, _____________________ Branch and/or such other Bank or Banks as the partners may from time to time be agree upon by majority/ unanimously. 41. Bank Accounts of the LLP including Loans, Advances & Credit Limits, if any, from the Banks and Financial Institutions taken by the LLP, may be opened and operated by the Designated Partners and other Partners either singly or jointly as may be agreed upon from time to time by the partners by majority/ unanimously. Extent of Liability of the LLP 42. The LLP is not bound by anything done by a partner in dealing with a person if – a. the partner in fact has no authority to act for the LLP in doing a particular act; and b. the person knows that he has no authority or does not know or believe him to be a partner of the LLP. Indemnity 43. The limited liability partnership (LLP) shall indemnify each partner in respect of payments made and personal liabilities incurred by him – a. in the ordinary and proper conduct of the business of the limited liability partnership (LLP); or b. in or about anything necessarily done for the preservation of the business or property of the limited liability partnership (LLP). 181 PP-DP&A Drafting of Commercial Contracts 44. The LLP shall indemnify and defend its partners and other officers from and against any and all liability in connection with claims, actions and proceedings (regardless of the outcome), judgment, loss or settlement thereof, whether civil or criminal, arising out of or resulting from their respective performances as partners and officers of the LLP, except for the gross negligence or willful misconduct of the partner or officer seeking indemnification. Arbitration 45. All disputes between the partners or between the Partners and the LLP arising out of the LLP Agreement which cannot be resolved in terms of this LLP Agreement shall be referred for arbitration as per the provisions of the Arbitration and Conciliation Act, 1996 (26 of 1996). Cessation of existing Partners 46. Any partner may cease to be a partner of the LLP by giving a notice in writing of not less than 30 days to the other partners of his intention to resign as partner. 47. No majority of Partners can expel any partner except in the situation where any partner has been found guilty of carrying of activity/business of the LLP with fraudulent purpose. Winding up of the LLP 48. The LLP can be wound up with the consent of all the partners subject to the provisions of the Limited Liability Partnership Act 2008. IN WITNESS WHEREOF the parties have put their respective hands the day and year first hereinabove written. IN WITNESS WHEREOF the parties hereto have hereunto set and subscribed their respective hands and seals the day and year first hereinabove written. _______________________ _________________________ _________________________ Signed by the above Party 1 Signed by the above named party 2 Signed by the above named party 3 (Name, Signature and Details) (Name, Signature and Details) (Name, Signature and Details) Witnesses 1. ___________________________ (Name, Signature and Details) 2. ___________________________ (Name, Signature and Details) SCHEDULE A Incidental, Ancillary or Other Business of the LLP (1) THE OBJECTS OR BUSINESS INCIDENTAL OR ANCILLARY TO THE ATTAINMENT OF THE MAIN OBJECTS OR BUSINESS ARE: (2) THE OTHER BUSINESS ARE: SCHEDULE B MATTERS TO BE DECIDED BY A RESOLUTION PASSED BY A MAJORITY IN NUMBER OF THE PARTNERS Note: According to section 23(4) of Limited Liability Partnership Agreement, 2008, in the absence of agreement as to any matter, the mutual rights and duties of the partners and the mutual rights and duties of the limited liability partnership and the partners shall be determined by the provisions relating to that matter as are set-out in the First Schedule as provided hereunder. 182 Drafting of Commercial Contracts LESSON 5 PROVISIONS REGARDING MATTERS RELATING TO MUTUAL RIGHTS AND DUTIES OF PARTNERS AND LIMITED LIABILITY PARTNERSHIP AND ITS PARTNERS APPLICABLE IN THE ABSENCE OF ANY AGREEMENT ON SUCH MATTERS 1. The mutual rights and duties of the partners and the mutual rights and duties of the limited liability partnership and its partners shall be determined, subject to the terms of any limited liability partnership agreement or in the absence of any such agreement on any matter, by the provisions in this Schedule. 2. All the partners of a limited liability partnership are entitled to share equally in the capital, profits and losses of the limited liability partnership. 3. The limited liability partnership shall indemnify each partner in respect of payments made and personal liabilities incurred by him— (a) in the ordinary and proper conduct of the business of the limited liability partnership; or (b) in or about anything necessarily done for the preservation of the business or property of the limited liability partnership. 4. Every partner shall indemnify the limited liability partnership for any loss caused to it by his fraud in the conduct of the business of the limited liability partnership. 5. Every partner may take part in the management of the limited liability partnership. 6. No partner shall be entitled to remuneration for acting in the business or management of the limited liability partnership. 7. No person may be introduced as a partner without the consent of all the existing partners. 8. Any matter or issue relating to the limited liability partnership shall be decided by a resolution passed by a majority in number of the partners, and for this purpose, each partner shall have one vote. However, no change may be made in the nature of business of the limited liability partnership without the consent of all the partners. 9. Every limited liability partnership shall ensure that decisions taken by it are recorded in the minutes within thirty days of taking such decisions and are kept and maintained at the registered office of the limited liability partnership. 10. Each partner shall render true accounts and full information of all things affecting the limited liability partnership to any partner or his legal representatives. 11. If a partner, without the consent of the limited liability partnership, carries on any business of the same nature as and competing with the limited liability partnership, he must account for and pay over to the limited liability partnership all profits made by him in that business. 12. Every partner shall account to the limited liability partnership for any benefit derived by him without the consent of the limited liability partnership from any transaction concerning the limited liability partnership, or from any use by him of the property, name or any business connection of the limited liability partnership. 13. No majority of the partners can expel any partner unless a power to do so has been conferred by express agreement between the partners. 14. All disputes between the partners arising out of the limited liability partnership agreement which cannot be resolved in terms of such agreement shall be referred for arbitration as per the provisions of the Arbitration and Conciliation Act, 1996. 183 PP-DP&A Drafting of Commercial Contracts JOINT VENTURE A joint venture (JV) means a strategic arrangement between two or more businesses, where resources are pooled, to work together on a specific project or an ongoing basis. Joint ventures are a useful way of collaborating with other businesses and to combine different areas of expertise for targeted or general business purposes. Each of the participants in a JV is responsible for profits, losses, and costs associated with it. However, the venture is its own entity, separate from the participants’ other business interests. It is important that the parties to the joint venture define their respective roles and responsibilities early on and how the parties will work together to achieve the joint venture’s targets. There are several types of ways to structure a joint venture. Before taking too many steps towards a joint venture it is important to note whether the deal is for a short or long-term arrangement, whether a separate company should be set up for the purpose, whether it is purely a loose collaboration agreement or whether there is a view to a merger or acquisition in the future. Among the categories of JV Agreements Contractual Joint Venture can take the form of two or more parties coming together to collaborate on a specific project, share the costs of R&D act or share knowledge and expertise on an ongoing basis, Partnership where two or more parties start working together and carry on a business in common with a view to profit they will form a de facto partnership, even if the parties are unaware of this and Limited Liability Company involve a high-cost project, eg developing a new product or service, and both parties will put capital into the venture, they may decide to form a new company for this purpose (sometimes called a ‘special purpose vehicle/SPV’). Important clauses of joint venture agreement include Rights and Pares to the Contribuon of obligaons of Confidenality Joint venture pares the pares Distribuon of Representaon Dispute Business object shares and warranes resoluon Purpose of the Management Indemnity clause Force Majeure Joint Venture The Structure of Financial non-compete Exit mechanism the Joint venture arrangements clause and Terminaon Specimen Joint Venture Agreement Joint Venture with Foreign Company THIS JOINT VENTURE AGREEMNET IS MADE on this _____ day of ________________, 20___ at _________________________ BETWEEN AMCO INC. Incorporated under the laws of the United States of America having its office at 5 Seventh Street, New York of the ONE PART 184 Drafting of Commercial Contracts LESSON 5 AND INCO LTD. a company registered under the Companies Act, 2013 having its registered office at ____________ ______________________________ of the OTHER PART. WHEREAS AMCO INC. (hereinafter referred to as AMCO) carries on business as manufacturer of and dealer and exporter in Computers, Computer Hardware and Software and has worldwide market and intends to extend its market here in India and elsewhere. WHEREAS INCO LTD. (hereinafter referred to as INCO) carries on business as manufacturer of, dealer in and exporter of Computer Software and intends to expand its business in India and abroad. WHEREAS AMCO and INCO intend to co-operate in manufacturing/dealing in and exporting Computers, Hardwares and Software in India and abroad for mutual benefit by setting up a new company. NOW THESE PRESENTS WITNESSETH AND THE PARTIES HEREBY AGREE AS FOLLOWS: 1. A Joint-stock company would be formed under the name and style of Indo-American Company Pvt. Ltd. under the Companies Act 2013 having its Registered Office at _______________________________. 2. AMCO and three of its nominees and INCO and three of its nominees would be the subscribers to the Memorandum and Articles of Association of the said company to be incorporated. 3. The shareholding in the Share Capital of the said company to be incorporated would be in equal proportions between AMCO and INCO. 4. The Memorandum and Articles of Association of the company proposed to be incorporated would be settled in mutual consultation and the same would govern the rights and obligations of AMCO and INCO in relation to the said proposed company. 5. AMCO will be allotted shares in the said new company partly in cash and partly towards the cost of plant, machinery and equipment to be supplied by AMCO to the new company and in consideration for assignments by AMCO of its Patent Rights, Trade Marks, Trade Names and Licences in favour of the new company to be incorporated. The consideration for allotment of shares to AMCO would also include the supply and transfer of technical formula, new inventions, secret processes, technical information concerning the production, manufacturing, testing, specifications, instructions and information as to the manufacture of, development, use and servicing, maintenance and improvement of quality of Computers, Hardware and Software and generally in connection with the successful carrying on of the said business by the said new company to be incorporated. 6. INCO will furnish necessary technical assistance and expertise to the new company for assembling, installation, start-up and for smooth running of the manufacturing and selling processes as might be required by the new company from time to time. 7. INCO will furnish to the new company all other technical assistance and advice in relation to the operation of the plant and machinery, repairs thereof, testing facilities, training facilities and Research & Development facilities should be arranged for, provided and continued for successful running of the business of the new company. 8. The shares that would be allotted by the new company should not be transferred by either AMCO or INCO within a period of five years from the date of allotment and thereafter if any of the parties intends to transfer any share then the same shall be offered first to the other party at a price to be determined by a Valuer to be appointed by mutual agreement and in absence by application to the Indian Chamber of Commerce. 9. The new company will manufacture Computers, Hardwares and Softwares and allied accessories and 185 PP-DP&A Drafting of Commercial Contracts products and the same would be marketed in India and exported to other countries under the Trade name or Brand name made available by AMCO and by any other name and shall obtain new Trade Mark and obtain Patents for further and better manufacturing, selling and exporting the new company’s products. 10. AMCO will buy 75% of the products of new company for exporting; to other countries through its own organisations or outlets at a remunerative price not below the price at which the products are sold in India. 11. Neither party shall carry on their own business in a manner which will directly adversely affect the business and profitability of the new company. 12. The expenses for the setting up and promotion of the new company would be shared equally by AMCO and INCO. 13. The consideration for allotment of shares of the new company to INCO shall be paid in cash and in kind such as by transfer of immovable properties for the setting up of factory and making arrangement for the office accommodation of the new company. The valuation of such immovable properties including office accommodation would be decided by mutual agreement between AMCO and INCO. 14. Any disputes or differences arising in relation to this agreement, its construction, validity, performance, breach or any other question shall be referred to the Indian Chamber of Commerce for settlement by Arbitration or Conciliation in Calcutta and the decision of the said Arbitrator shall be final and binding on both the parties. 15. This agreement is made subject to obtaining approvals of the Indian Government and other concerned authorities. 16. In the event certain additions or alterations are required under this agreement due to imposition of certain terms and conditions by Government of India or appropriate authority granting the approval shall be incorporated in this agreement by way of a supplemental agreement and if required the Memorandum and Articles of Association of the new company would also be in conformity with such directions or approvals of the appropriate authorities. 17. IN WITNESS WHERE OF the parties hereto have signed, sealed and delivered these presents on the day, month and year first above-written. __________________________________ __________________________________ Mr. __________________________________ Mr. __________________________________ Pursuant to the Board Resolution Pursuant to the Board Resolution dated _______________ of AMCO dated _______________ of INCO Signature in the presence of: 1 __________________________________________ 2 __________________________________________ (Name and Details of Witnesses) FOREIGN COLLABORATION AGREEMENTS When two parties join hands for exchange of technical know-how, technical designs and drawings; training of technical personnel of one of the parties in the manufacturing and/or research and development divisions of the other party; continuous provision of technical, administrative and/or managerial services, they are said to be 186 Drafting of Commercial Contracts LESSON 5 collaborating in a desired venture. The word “collaboration” has, however, acquired a specific meaning, which refers to cooperation between a party within India and a party abroad. The agreements drawn and executed between such collaborating parties are known as “foreign collaboration agreements”. With sophistication and technical advance achieved in the developed countries and motivated by the desire of carrying the country into the twenty-first century, the Indian entrepreneurs are seeking all possible avenues for obtaining technical know-how in the fields of agriculture, mining, oil exploration, power generation, etc. A large number of Indian industrialists have already entered into long and short-term collaboration arrangements with foreign companies, firms etc. In order to ensure quick processing of the proposed collaboration arrangements and on a uniform basis, the Central Government has issued guidelines for prospective collaborators so that they submit their proposals in accordance with those guidelines. Example: Mr. A is a plot owner and Mr. B is constructor, entered into a contract stating inter alia that Mr. B will construct 4 floors on the entire plot and Mr. A will take two floors and remaining two floors will be owned by Mr. B on account of construction cost. Here, Mr. B is not taking any construction cost from Mr. A and they are using each other’s’ resources. Such contracts are named as Collaboration contracts. Guidelines for entering into Foreign Collaboration Agreements These guidelines cover the following aspects of foreign collaboration agreements: 1. Investment: Where in a foreign collaboration agreement, equity participation is involved, the value of the shares to be acquired about be brought in cash. 2. Lump Sum Payment: The amount agreed to be paid by an Indian party to a foreign collaborator for technology transfer should be paid in three instalments as follows: (i) one-third to be paid after the agreement has been approved by the Central Government; (ii) one-third on transfer of the technical documents; and (iii) one-third on the commencement of commercial production. 3. Royalty: Royalty payable to a foreign collaborator has to be calculated on the basis of net ex-factory selling price of the product less excise duties and cost of imported components. The normal rate of royalty may be three per cent to five per cent. This rate will depend upon the nature and extent of the technology involved. Payment of a fixed royalty is preferred by the Government in certain cases. There should be no provision for payment of a minimum guaranteed royalty, regardless of the quantum and value of production. 4. Duration of agreement: Normal period of a foreign collaboration agreement is eight years subject to maximum of ten years. The period is approved by the Government usually for five years from the date of the agreement in the first instance or five years from the date of commencement of commercial production; the total period, however, not exceeding eight years from the date of the agreement. 5. Renewal or extension of agreement: The Central Government may consider an application for renewal of a foreign collaboration agreement or for extension of its period on merit. 6. Remittances: Remittances to foreign collaborators are allowed only on the basis of the prevailing exchange rates. 7. Sub-licensing: An agreement shall not normally impose any restriction on the sub-licensing of the technical know-how to other Indian parties. The terms of such sub-licensing will be as mutually agreed to between all the concerned parties including the foreign collaborator. Sub-licensing is, however, subject to the Central Government’s approval. 187 PP-DP&A Drafting of Commercial Contracts 8. Exports: No foreign collaboration agreement shall be allowed to contain any restriction on the free export to all countries, except in a case where the foreign collaborator has licensing arrangements in which case the countries concerned shall be specified. 9. Procurement of capital goods etc.: There should be no restriction on procurement of capital goods, components, spares, raw materials etc. by the Indian party. The Indian collaborator must be free to have control over pricing facility and selling arrangements. 10. Technicians: The number, terms of service, remuneration, etc., of technicians to be deputed on either side are subject to approval of the Reserve Bank of India. 11. Training: Provision shall be made in the agreement for adequate facilities for training of Indian technicians for research and development. 12. Exploitation of Indian patents: Where any item of manufacture is patented in India, the payment of royalty or lump sum to the foreign collaborator should make provision for compensation for use of such patent until its expiry. There should also be provision for manufacture by the Indian company of the said item even after the expiry of the collaboration agreement without making any additional payment. 13. Consultancy: If the necessity for any consultancy arises, it should be obtained from an Indian company. If, however, in the special circumstances foreign consultancy becomes essential, even then the prime consultant should be an Indian company. 14. Brand Name: There should be no insistence on the use of foreign brand names on products for sale in India. There can, however, be no objection for use of foreign brand name on products to be exported to other countries. 15. Indian Laws: All collaboration agreements shall be subject to Indian laws. 16. Approval of Central Government: Every foreign collaboration agreement shall be approved by the Central Government. While drafting a collaboration agreement, care should be taken that it is in compliance with the guidelines as detailed above. Two important Clauses for Foreign Collaboration Agreements contain one or more clause to the effect The agreement shall be subject to The agreement shall be subject to the approval of the Government of Indian laws India Specimen Foreign Collaboration Agreement This Foreign Collaboration Agreement is executed on this _____ day of _____________________, 20_____ BETWEEN 188 Drafting of Commercial Contracts LESSON 5 M/s ___________________________, a Foreign Company incorporated in the United Kingdom and having its registered office at __________________________________________ (hereinafter called the U.K. Company) of the ONE PART. AND M/s ____________________________, a company incorporated in India under the Companies Act, 2013 and having its registered office at _____________________________________ (hereinafter called the Indian company) of the OTHER PART: WHEREAS the Indian company has been incorporated with the object of manufacture and production of _____ _____________________________________________; WHEREAS the Indian company has already constructed factory buildings, installed plant and machinery and commenced manufacture and production of ______________________________________________; WHEREAS the Indian company with a view to improve, still further, the quality of the commodities manufactured, and to increase production, is desirous of procuring the latest technique and know-how relating to the manufacture of the above said commodities; WHEREAS the Indian company, therefore, approached the U.K. company that has considerable experience in the line of manufacture engaged in by the Indian company, and requested the U.K. company to extend to the Indian company necessary technical assistance in that behalf; AND WHEREAS the U.K. company has agreed to extend technical assistance and to furnish to the Indian company for improvement of their business the requisite know-how in the form of designs, plans, engineering drawings, technical advice and also to supply technicians to advice for improvement of the existing factories, machineries and plant and also to provide to the Indian personnel necessary technical training to enable them to successfully handle and exploit the technical know-how to be imparted to the Indian company subject to the terms and conditions set out hereunder: NOW THIS AGREEMENT WITNESSES AS FOLLOWS: (1) In consideration of the remuneration paid by the Indian company to the U.K. company as described hereinafter, the U.K. company shall supply to the Indian company: (a) technical advice and know-how for the purpose of improving or adding to the existing factories and installing additional plant and machineries, if necessary, for the manufacture of…; (b) further the necessary plans, factory-design and layouts, charts and drawings, documentation and other forms of technical know-how for the said purpose; (c) render advice in the matter of purchase of the further plant and machinery suitable and necessary for the factory; (d) lend the services of their technicians to assist the Indian company in carrying out the improvement to the factories and for installing additional plants and machinery; (e) provide technicians from their own staff to attend at the Indian company’s factory in India whenever necessary; impart technical training to selected Indian personnel at their works in England or in their associated companies, to enable them to operate the machinery and plant to be installed and to exploit the imported technical know-how to the best advantage; (f) advise the Indian company, promptly and to the best of their ability, in connection with any technical or manufacturing problems or difficulties which may be referred to it by the Indian company during the continuance of this agreement. 189 PP-DP&A Drafting of Commercial Contracts (2) For technical know-how and data supplied by the U.K. company to the Indian company as above, the Indian company shall make a lump sum payment of Rs ___________________ to the U.K. company phased as follows: (a) one-third on approval of the agreement by the Central Government; (b) one-third, on the U.K. company supplying the Indian company necessary charts, plans, engineering drawings, documentation and other technical data and know-how, which shall be done within 15 days from the date of approval, of this agreement by the Central Government; (c) the balance one-third in three equal annual instalments thereafter after commencement of production. (3) This Agreement shall be in force for a period of 5 years at the first instance, subject to extension for a further period of 5 years by mutual agreement and subject to approval by the Central Government. (4) The Indian company may but not bound to use foreign brand names on their products for internal sale or on products to be exported. (5) There shall be no restriction on the Indian company exporting their products to foreign countries. (6) The Indian company shall not have the right to pledge, mortgage or assign or to sub-licence the technical know-how, data, engineering designs, layouts etc. to other parties, without the consent in writing of the U.K. company. (7) There shall be no restraint on the Indian company having their own arrangements for procurement of raw materials, purchase of spares and components and for pricing their products and the sale thereof. (8) Technicians who may be deputed by the U.K. company to the Indian company to advise and assist the Indian company under this agreement shall be paid their salary, travelling expenses and boarding and lodging by the Indian company. (9) The Indian company shall likewise bear all the expenses of the persons sent by them to the U.K. company for training in their works under clause 1(f) supra. (10) The parties hereto mutually agree that they will each inform the other of any new development in design or methods of manufacture which they respectively may discover during the continuance of this Agreement in so far as such new developments are applicable to the products manufactured by the Indian company. (11) The Indian company shall maintain the utmost secrecy in connection with any technical data supplied by the U.K. company under this Agreement, and in particular shall keep all data concerned with the manufacturing processes under lock and key. (12) It is agreed that the payment made to the U.K. company shall include the compensation for use of the patent rights for the period of its duration, and that the Indian company shall have the right for the period of its duration the right to manufacture their products even after the expiry of this Agreement. (13) The Indian company shall not, during the continuance of the Agreement refer any technical or manufacturing problems or difficulties to anyone other than the U.K. company but shall regard and use the U.K. company as its sole technical consultant. (14) On the expiry of the period prescribed herein or of extended period provided in clause 3 (supra) or upon the termination of this agreement for any reason the Indian company shall return to the U.K. company all copies of information data or material sent to it by the U.K. company under this Agreement and then in its possession, and shall expressly refrain from communicating any such information, technical data or material received by it hereunder to any person, firm or company whatsoever. 190 Drafting of Commercial Contracts LESSON 5 (15) The agreement shall be subject to Indian laws. (16) The agreement shall be subject to the approval of the Government of India. IN WITNESS WHEREOF the parties hereto have signed this Agreement on this ____ day of __________, 20____ in the presence of the following: __________________________________ __________________________________ Mr. __________________________________ Mr. __________________________________ Pursuant to the Board Resolution Pursuant to the Board Resolution dated _______________ of Indian Company dated _______________ of UK Company Signature in the presence of: 1 ___________________________________________ 2 ___________________________________________ (Name and Details of Witnesses) JOINT DEVELOPMENT RIGHTS AGREEMENT Present is the age of collaborative science, where the resources of different agencies are collaborated and put together for harnessing the expertise of different agencies. For development of real estate, model of joint development arrangement has emerged as a popular model wherein land owner and developer combine their resources and efforts. In a Joint Development Agreement (JDA), a landowner contributes his land for the construction of a real estate project and the developer undertakes the responsibility for the development of property, obtaining approvals, launching, and marketing the project. This agreement should be registered in the court of law under Section 53A of the Transfer of Property Act. The agreement bounds the landowner and the developer in an agreement for the construction of new projects. In return for the land provided by the former, the latter agrees to provides to some provisions. The developer agrees to provide lump sum consideration, percentage of sales revenue, or a certain percentage of the newly constructed project on the said piece of land. This depends on the terms and conditions, mutually agreed upon by the parties. In this manner, the resources and efforts of land owner and developer are pooled together so as to bring out the maximum productive result. The cost of land in a real estate project entails substantial part of total cost of the project. In such arrangement, developer is not required to make investment for acquiring land at the initial stage and he can utilize his expertise of project development with limited resources in a much efficient manner. On the other hand, land owner, who may not be having requisite experience and expertise for developing the project, gets better price for his land in comparison to what he would have got in the case of outright sale of land. Thus, it creates a win-win situation for both the parties. In fact, it can be said that the joint development arrangement is a commercial arrangement of convenience where in both the parties try to exploit their respective resources in the best possible manner and without much financial investment. However, the area of Joint development agreement is not restricted to Real Estate only. With the expansion of technology, a joint development agreement can be for a new product or technology. In these types of agreements, prominence is on the research and development of Intellectual Property Rights. A Joint development agreement is also called a strategic alliance agreement. Drafting of Joint Development Agreement Drafting of a joint development agreement is a highly specialized job. Both the parties have to ensure that inbuilt safeguards are incorporated to take care of their respective interests. Joint Development Agreement 191 PP-DP&A Drafting of Commercial Contracts should be drafted in a manner so as to have, inter alia, clarity of terms as agreed between the parties, protection of interests of both parties, legal enforceability in case of need, fair exit-route for both the parties in case of any dispute having regard to tax considerations & implications. While drafting Joint Development Agreement, the following points should be carefully observed, which may have legal and tax implications of wide ramifications: 1. In what manner and at what point of time, ownership rights of the land are transferred by the land owner to the developer so as to decide the capital gain tax liability in the hands of the land owner. 2. Whether possession of the land is handed over to the developer in a manner so as to grant license to enter upon and possess land only for the development or the developer enjoys the possession of the land beyond that. Whether there is transfer of ownership/beneficial rights in the land in terms of the provisions of the Transfer of Property Act, 1882. 3. Whether exclusive rights to sell the developed real estate units and enter into buyers’ agreement with the customer are granted to the developer under Joint Development agreement or as per other document executed between the land owner and the developer. 4. In what manner sale consideration of the land is determined and paid by the developer to the land owner. Whether sale consideration is determined in monetary terms or in kind or as combination of both and how the timing of the payment of the consideration is settled between them. 5. Whether rights and authority to mortgage the land is granted to the developer to avail the credit facilities from the banks against the security of the land. 6. In what manner and at what point of time, legal title or ownership right of the developed unit is acquired by the customers. 7. Along with the JDA, what kind of other documents, e.g. Power of Attorney, Supplementary Agreement, Memorandum of Understanding, etc. are required to be executed between the land owner and the developer determining or altering their rights & obligations and tax liability under the Income-tax Act and various other laws. 8. Whether the terms provided in Joint Development Agreement may result into creation of a separate legal entity or joint venture in the form of Association of Persons (AOP) or otherwise. 9. Whether any kind of principal-agent relationship or partners’ relationship is created between the parties so that the action of one party may affect the rights and obligations of the other party. 10. Applicability and planning of liability under other tax laws, e.g. GST, Service Tax, VAT, Stamp Duty etc. 11. Whether the terms of Joint Development Agreement result into conversion of the land in the hands of the land owner from capital asset to business asset which may alter the chargeability of tax liability in his hands altogether. 12. Whether there are adequate terms in Joint Development Agreement providing dispute resolution mechanism and exit route to both the parties in case the real estate project does not take off in the desired manner. Specimen Format of Joint Development Agreement This Joint Development Agreement is made on this _______ day of _____________, 20____ at ______________________. BETWEEN _______________________________________ through its __________________________________ s/o 192 Drafting of Commercial Contracts LESSON 5 ___________________________________ r/o ___________________________________, hereinafter called the Owner, the First Party AND M/S _____________________________________, acting through its Director ________________________ __________ s/o _____________________________________ r/o _________________________________ ___, hereinafter called the Developers, Second Party. (The expression of the terms Owner and the Developers, whenever they occur in the body of this Agreement shall mean and include their respective heirs, executors, administrators and assign unless and until is repugnant to the context or meaning thereof.) Whereas the Owner is the recorded Owner and is in possession of plot No. ________________________ __________________________________, admeasuring ___________ sq. yards, the leasehold plot which was registered as Document No. __________ Book No. ____________ Vol No. __________ on pages from __________ to _________ dated ___________________.The property bounded as under: EAST ___________________ Plot No. _____ WEST _______________ Plot No. ______ SOUTH _________________ Road NORTH _________________________. AND Whereas the Owner is desirous of erection of a super structure comprising of the basement, ground floor, first floor, second floor and terrace, according to the plans which may be got sanctioned from competent Authority in this regard but is not fully equipped to do so and has therefore approached the Developer which on being assured by the Owner that the said property is free from all sorts of encumbrances, attachments, charges, legal flaws, claims, demands, dues, notices, religious or family disputes, etc., and that the said property is self- acquired property, has agreed to cooperate with the Owner for construction of a super structure on the land beneath the said property, on the terms and conditions that are set forth hereinafter. NOW THIS DEED WITNESSETH AS FOLLOWS: 1. That the Developers have agreed to pay a sum of Rs. __________ (Rupees __________________ only) as security for due performance of the terms of this agreement and success-full completion of the project. However, this security amount shall be adjusted against the consideration on completion of the building. The Developer has agreed to raise the superstructure of basement, ground floor, first floor, second floor and terrace on the land beneath the said property according to the building plans mutually agreed upon between the Owner and the Developers which may be sanctioned from the competent authority. The said sum shall be paid in the following manner: (a) THAT Rs. ____________________ (Rupees _________________________________ only) shall be paid at the time of signing the agreement vide Chq No. _________________ dated ________________ drawn on _________________________ Bank _______________________ Branch. (b) THAT the further sum of Rs. __________________ (Rupees ___________________________ _______ only) shall be paid to the Owner by the Developer at the time of handing over the physical possession of the said property after the Developer has got sanction of plans or before ________________________, whichever is earlier for the limited purpose of development and construction of the said project. The physical possession for the Developer’s portion shall automatically vest with the Developer on completing of the building. (c) That the Developer shall pay beside a sum of Rs. ___________________ (Rupees ___________ _________________________ only) already paid, a sum of Rs. ___________________ (Rupees 193 PP-DP&A Drafting of Commercial Contracts ________________________________ only) to the Owner on completion of the building and at the time of signing of all necessary sale documents in regard to the first floor and second floor, to make the total consideration of Rs. ___________________ (Rupees ______________________ _______________ only). 2. If the Developer defaults in payment of any payment on the due date, the Owner will be entitled to terminate the agreement and to forfeit all moneys paid hereunder. On such termination, the licence to develop the property will be revoked and the Developer shall take away and remove within one month of such termination, all buildings, structures and materials brought on the property and in default thereof, the same shall belong to and vest in the Owner absolutely and the Developer shall not be entitled to any compensation or damages in respect thereof. Without prejudice to his rights, the Owner may at his option, condone such default on payment by the Developer and extend the time for payment if the Developer pays interest at the rate of _________ % per annum on the defaulted installment provided that the Owner shall before terminating this agreement as aforesaid, make a demand in writing for payment of the said sum on the Developer. If the Developer pays the amount due to the Owner with interest within ________ days of receipt of such demand, then the Owner shall not be entitled to terminate the Agreement under this clause. 3. The Owner shall sign the necessary documents to enable the Developer to obtain all necessary permissions and sanctions as may be required. 4. That the Owner has executed attorney(s) by separate documents in favour of the Developer for submitting the applications, requisitions to the various authorities for obtaining permission, approvals, sanctions, allotment of building or other materials and concerning other matters required statutorily to be done and required in connection with the construction and completion of the said dwelling units/ floors on the said property. However, the Developers undertake not to cause to be done any act deed or thing which may in any way misuse, contravene any rule, law or regulation or to misuse the powers which may be conferred upon the Developers by the Owner to construct super structure as stated herein above on the land beneath the said building as per agreement. 5. That in the meantime till such sanctions and permissions are forthcoming, the Developers shall have the suitable plans prepared for the proposed residential building at their cost and the concurrence of the Owner shall be obtained with regards to final submission of plans. 6. That the entire cost of construction of the new building including cost of material, labour and the charges for time extension for construction from Delhi Development Authority on above said plot and expenses for clearance from Urban Land Act and fee of the architect and others charges shall be borne and paid by the Developer. 7. That the construction shall be that of specifications, detailed and described in Annexure 1 attached hereto. That the Developers shall utilise the full F.A.R. available in respect of the property to be developed. 8. That the property tax till the execution of this deed shall be payable by the Owner. Any property tax payable thereafter shall be the liability of the Developer and shall be paid by the Developer till the flats are ready in all respects. 9. That the Owner gives licence and permission to the Developer to enter upon the said property with full right and authority to commence, carry on and complete development thereof, in accordance with the permission & terms herein mentioned. The said licence to develop the property will be personal to the Developer and under no circumstance the Developer will assign his title, right and interest to any other party, except with the prior written consent of the Owner. However, the Developer shall be entitled to 194 Drafting of Commercial Contracts LESSON 5 enter into separate contracts in his own name with building contractor, architect and others for carrying out the development at his own risk and costs. 10. That the dwelling units proposed to be constructed by the Developer shall be owned and possessed by the parties exclusively as under: (a) Owner shall own and possess basement and ground floor and two car parking and two servant quarters with attached toilet of the said property with rear terrace for exclusive use and exclusive complete Ownership right of construction on second floor terrace (i.e., third floor) and right to all future FSI/FAR and right of construction on third floor if permitted by the bye-laws in future, in that case the Owner construct the water tanks on third floor terrace at their/his own cost/fund with 50% undivided land rights of total plot measuring ____________ Sq. Yds. (b) The Developer shall own and possess first floor, second floor, two car parking and two servant quarters along with toilet and front terrace for exclusives use, in case of construction of third floor, the Developer/buyers have rights to use front terrace of third floor terrace with 50% undivided land rights of total plots measuring ____________ Sq. Yds. (c) It is hereby specifically mentioned that the parties hereto shall be free to sell transfer and/or mortgage, assign or part with the possession of their respective portions at their own risk and account without any objection from the other party and to receive, accept any consideration, money in regards to above property and to issue receipt of full or partial payment. Each party shall have rights to negotiate his respective portion with common facilities to any intending purchaser. 11. The Owner agrees to execute, sign and deliver the document which might be required for conveying first floor and second floor of the said property in favour of the intending purchaser or nominee of Developer as a confirming party when the construction has been completed by the Developer and full consideration has been paid to the Owner. It is hereby specifically mentioned and agreed that the Owner shall not claim any remuneration for execution of the aforesaid documents and all the expenses whatsoever for the transfer of the first floor and second floor of the said property shall be borne and paid by the Developer/his nominee(s)/intending purchaser(s). 12. That the building shall be completed and finished in all respects within _____________ months and the first party’s share of property will be handed over to them within ___________ months from the date of sanctioning of plans/handing over the vacant possession of the plot for development, expect for reasons beyond second party’s control such as strikes, war, riots and natural calamities and due to any unforeseen circumstances like drastic changes in laws and hindrance caused by concerned authorities. 13. If the Developer fails to complete building and fails to deliver basement and ground floor within stipulated period of ___________ months then Developer shall be liable to give a sum of Rs. ______________ (Rupees ________________________ only) per month to the party as compensation penalty. 14. That except as herein before provided, the Owner shall not interfere with or obstruct in any manner with the construction of work for the said residential flats. However, the Owner or his nominee or nominees shall have free hand and unfettered access to the construction site at all reasonable time and he shall be free to point out to the Developer or their agents, subcontractors or administrators and the Developer shall rectify such defective construction, workmanship or use of inferior materials. 15. That this agreement shall not to be deemed to constitute a partnership between the Owner and the Developer or an agreement for sale of the plot by the Owner to the Developer and shall not be deemed to bind the parties hereto expect specifically recorded herein. The Developer shall solely be liable and responsible for any liability in connection with the construction of dwelling units in the land beneath the said building. The Owner and the Developer shall be solely responsible from the date of possession 195 PP-DP&A Drafting of Commercial Contracts for various expenses, taxes such as water charges, property tax, electric bills in respect of respective portions as mentioned aforesaid. 16. In case there is any accident in the aforesaid construction project, the Developer shall be fully responsible for all the consequences of the same under the Workmen Compensation Act or any other acts in force. If the Owner is ordered to attend a court or is requested or his presence is required by any other authority in this connection, he will empower the Developers to attend the court/authority concerned on his behalf and the Developer agrees to compensate the Owner fully in case an adverse order is passed or any compensation is ordered to be paid by the Owner by any court, judicial authority or any other competent authority. 17. That all costs of stamping, engrossing and registration of this agreement and any other paper relating to this agreement shall be borne by the Developer. 18. That during the course of construction all building materials and equipment used or to be used shall remain at the Developer’s risk and the Developer shall not be entitled to any compensation from the first party for any damages, loss or destruction of such works or material or equipment arising from the any cause whatsoever. 19. If until the completion of building any case damage or harm occurs to the adjourning properties, neighbours, the Developer shall be fully responsible for all the consequences. 20. That the Owner has declared and assured the Developer that property is free from all sorts of encumbrances, i.e., mortgage, charges, gifts, wills, exchanges, attachments, injunction notice prior agreement to sell/collaboration agreement and shall also keep the property free from all sorts of encumbrances till the completion of the building, sharing of the respective portions in the new building and registration of their respective portions. Whatsoever if it will be ever proved otherwise, first party shall be liable and responsible for making good all losses, which may be suffered incurred, undergone and sustained all by the Developer as a result thereof. 21. That no change modification or alterations to this agreement shall be done without the written consent of the Owner and Developer. The parties hereto undertake not to contravene any of the terms of this agreement. 22. That the Developer shall be responsible for any eventuality or consequences arising out of the structural defects. Appropriate remedial measures to rectify such defects or remove such irregularities at the earliest shall be taken. The Developer shall also apply and obtain the C&D forms, electricity, water and sewer connections, etc., from the competent authority/authorities concerned at his cost. 23. That as and when house tax gets assessed the Developer undertakes to pay for his share that is the basement and ground floor at the rates applicable. 24. That the Owner shall hand over all the original documents of the property to the Developer at the time of execution of this collaboration agreement. The same shall be returned back to the Owner on completion of the construction and possession of the Developer’s portion to him. IN WITNESS WHEREOF, the parties hereto have set their respective hands on these presents on the date, month and year hereinabove first mentioned. In the presence of the following witnesses: _______________________ _________________________ Signed by the Owner Signed by the Builder (Name, Signature and Details) (Name, Signature and Details) 196 Drafting of Commercial Contracts LESSON 5 Witnesses 1. ___________________________ (Name, Signature and Details) 2. ___________________________ (Name, Signature and Details) Annexure 1: Specifications SERVICE AGREEMENTS Contents of a Service Contract Service contracts are drafted in the same way as other agreements. The terms of employment should be definitely fixed and clearly expressed and nothing should be left to presumptions. They are required to be both affirmative (describing the acts and duties to be performed) as well as negative (putting restrictions on the acts of the employee during and/or after the term of employment). Important clauses for the service agreements are as under: Necessary provisions for Service Agreements The me or period of employment The remuneraon and other perquisites If any, including pay, allowances, commission, rent-free house, conveyance, etc. Leave and the terms on which it will be granted Modes and grounds of determining the employment during the term Restricve covenants, if any As the employer and the employee may not be conversant with law, the terms of a service contract should be as explicit as possible and should be easily intelligible to a lay man, Unlike other agreements and legal documents which need not contain matters presumed or implied by law, it is better in such an agreement to specify even such matters and all other matters so as to make it a complete code, embodying the rights and duties of each party. In respect of Government service, normally no formal contract is executed and only an appointment order is issued and the terms of service are thereafter governed by statutory rules and Government order. The same is the position of statutory corporations as employers. For other employment contract, important terms are discussed hereinafter: 197 PP-DP&A Drafting of Commercial Contracts 1. Period of Service: This may be definite or indefinite. If no period is fixed or an indefinite period is stated, e.g., “so long as the parties respectively please”, the contract is terminable by a reasonable notice on either side. What is a reasonable notice varies in different cases, according to the characters of the employment and the general custom, from 15 days to six months. When no term is fixed, it is always proper to provide for determination by notice. In such a case, and also in case option of determination is reserved during the term, the period of notice should be settled and expressed in the agreement. 2. Remuneration: Remuneration may be fixed monthly salary, or fees or commission, or salary as well as fees or commission. Sometimes in business firms, employees are allowed a share in the profits in addition to a fixed salary. All these should be clearly provided. 3. Leave: Conditions and grounds on which, and the period for which leave may be granted as well as allowance payable during leave should be stated. In the case of Government servants engaged on contract, the leave rules applicable to permanent Government Servants in general may be applied but as there are different rules for different classes of Government Servants those applicable should be clearly referred to, or if they are not lengthy, they may be embodied in the agreement in the form of a covenant. 4. Determination of Employment: The grounds for determination of employment should be clearly expressed in the agreement. The grounds on which the employment may be determined during the term are generally misconduct, negligence, or want of medical fitness. Subject to what has been stated earlier, it may also be determined at pleasure by notice, without giving any ground. In the case of misconduct or neglect, no notice is required, but, provision may be made for framing charges and taking defence as in the case of Government Servants. Since an employee is entitled to damages for wrongful dismissal if the termination of the service is not properly made, provision in this respect should be carefully worded. 5. Restrictive Covenants: It is usual to include restrictive covenants in the agreement such as that the employer will not undertake any other work or service or that he will not divulge the employer’s secrets or make improper use of his trade secrets or information about the employer’s affairs. While drafting restrictive covenants, it is necessary to see that they are not illegal. Agreements in restraint of trade are void under Section 27 of the Indian Contract Act, 1872 and should not be inserted in an agreement. 6. Effect of Labour Laws: Many Acts have been passed by the Central or State legislatures relating to the conditions of employment of teachers and other employees of aided schools and colleges and of universities, and of workers in factories and commercial establishments, for e.g. the Factories Act, the Industrial Employment (Standing Orders) Act, the Payment of Wages Act, the Employees’ Compensation Act etc. In drawing up a service contract for such an employee, the provisions of the relevant Acts must be kept in view. Any term of contract contrary to the statutory provisions will be null and void, as it is not open to an employee to contract out of the safeguards provided by the legislature for his protection. Specimen Agreement of Employment of Manager of a Business Concern THIS AGREEMENT is made on this ________ day of_____________, 20____ at _______________________ BETWEEN _____________________________________, acting through its Managing Director ___________________ _______________ (Name with Designation), hereinafter called the Employer, First Party. AND _______________________________________ through its __________________________________ s/o 198 Drafting of Commercial Contracts LESSON 5 ___________________________________ r/o ___________________________________, hereinafter called the Manager, the Second Party (The expression of the terms Employer and the Manager, whenever they occur in the body of this Agreement shall mean and include their respective heirs, executors, administrators and assign unless and until is repugnant to the context or meaning thereof.) WHEREAS 1. The employer wants to appoint a suitable person to work as manager for his business concern; and 2. CD, the party of the other part, has agreed to serve as manager of the employer for his business concern. NOW THIS AGREEMENT WITNESSES AS FOLLOWS: 1. The manager shall work as such for a term of _______ years from the day of ________________ at__________________________ or any other place as desired by the employer. 2. The manager shall give his whole time and attention to the said business and shall use his best endeavour to improve and expand the same and shall in all respects diligently and faithfully obey and observe all lawful orders and instructions of the employer in relation to the conduct of the said business and shall not without his consent divulge any secrets or dealing thereto. 3. The manager shall keep at the place of business at ________________________ proper books of account showing all goods and moneys received and delivered and disbursed by him with necessary particulars of all such transactions and shall duly account for all moneys belonging to the employer and coming into the hands or power of the manager and shall forthwith pay the same to the employer or his bankers for the time being except only such moneys as the manager shall be authorised by the employer to retain for immediate requirements of the said business. 4. The employer shall pay to the manager during the continuance of his engagements and provided he shall duly observe and perform the agreement herein on his part contained the salary of Rs ________________ per month on the first day of every calendar month commencing from the first day of ___________________ without any deduction except such as he will be bound to make under the Income-tax law for the time being in force, and shall also pay the manager at the end of each year during the aforesaid period a further sum equal to 5 per cent on the gross sale return for the said year (or on the net profits of the said business for the said year (if any) after making such deductions as are properly made according to the usual custom of the said business in the estimation of net profits) provided always that upon the death or termination of the engagement of the manager before the expiration of the said period of __________ years/ the employer shall forthwith pay to him or his heirs, executors, administrators or other legal representatives, as the case may be, in respect of the services of the manager of the whole or any part of the current month a due proportion of the salary of Rs _________________ per month together with such further sum in lieu of such percentage as aforesaid as shall bear the same proportion to the estimated gross return (net profits) for the then current year as the part of the said year during which he has served, shall bear to the whole year, the gross return (net profits) being calculated on average of the past three years. 5. The employer shall during the continuance of the manager’s engagement provide him with a suitable furnished house for residence free of rent, rates and taxes (except the charges for electricity consumed by him or of extra water used by him) and the manager shall reside in the said house. 6. The manager shall make such tour as may be necessary in the interest of the said business or as he may be directed by the employer to make and the employer shall pay him all reasonable expense 199 PP-DP&A Drafting of Commercial Contracts actually incurred in undertaking such tours (or a travelling allowance at per mile for all journey by road and first class fare for journeys performed by rail and a halting allowance of Rs _________________ per diem when a halt of not less than 8 hours is made at one place). 7. The manager shall be entitled during his engagement to leave on full pay for a period equal to 1/11th of the period of service rendered and to a further leave on half pay in case of illness or in capacity to be proved to the satisfaction of the employer for a period of 15 days in one year. 8. Either party hereto may terminate the engagement of the manager at any time before the expiration of the said term of _________ years on giving or sending by registered post to the other party three calendar months, notice in writing, such notice to be given or sent in the case of the employer to his house at and in case of the manager to his place of business or residence provided by the employer and on the expiration of the said three months from the date of giving or posting such notice, the said engagement shall terminate provided that the employer may terminate the said engagement at any time on payment of three months’ pay in advance in lieu of such notice as aforesaid. 9. If the manager at any time willfully neglects or refuses or from illness or other cause becomes or is unable to perform any of the duties under this agreement, the employer may suspend his salary (and sum by way of percentage) during such neglect, negligence or inability as aforesaid and may further immediately terminate the engagement of the manager without giving any such notice or making such payment or salary in advance as hereinbefore provided. 10. The manager will at his own expense find and provide two respectable sureties to the amount of Rs ________________ each for his good conduct and for the due performance by him of this engagement and if he fails to do so for a period of three months from this date, the employer may terminate his services forthwith. IN WITNESS WHEREOF, the parties hereto have set their respective hands on these presents on the date, month and year hereinabove first mentioned. In the presence of the following witnesses: _______________________ _________________________ Employer Manager (Name, Signature and Details) (Name, Signature and Details) Witnesses 1. ___________________________ (Name, Signature and Details) 2. ___________________________ (Name, Signature and Details) Specimen Renewal Agreement of Term of Service of an Employee (Either on old terms or new terms) THIS SERVICE RENEWAL AGREEMENT is made on this ________ day of_____________, 20____ at _______________________ BETWEEN _____________________________________, acting through its Managing Director ___________________ _______________ (Name with Designation), hereinafter called the Employer, First Party. AND _______________________________________ through its __________________________________ s/o 200 Drafting of Commer