Five Ways to Write a Secure and Favorable Contract

What is a Contract?

A contract is an agreement between two or more parties, involving the exchange of something of value, and creating some obligations and corresponding rights on both the parties as against each other. A valid legal contract is enforceable in Court, meaning that if one party refuses to abide by the terms, or defaults on his duty, then the other party can approach the Court to enforce his rights against the defaulting party. But for this, the contract between the parties must be legally valid, and it must be carefully drafted to ensure that the terms and conditions are favourable to you.

POINTS TO WRITE A FAVOURABLE AND SECURE CONTRACT

Ø  Include all necessary information, and detail the purpose of the contract, and the clear identity of all the contracting parties.

 Eg; If you are entering into a contract to purchase a car, then specify the car’s details (year, model, make, etc.) and the name and addresses of the seller and buyer (yourself), the amount you have agreed on, etc.

Ø  The specifications and descriptions required to be entered into the contract will vary depending on the nature of the contract: whether it is a contract of employment, a contract of sale, a contract of insurance, etc. the details must be entered accordingly, and must properly describe the subject matter, the terms and conditions, the amount to be paid (specify if the contract is for some other non-monetary consideration), and the mode of payment.

Ø  Before bringing the contract into writing, ensure that you have discussed the terms and conditions with the other party and are in agreement, and there is clarity on both sides as to the nature and extent of obligations. This will help to prevent later disputes and disagreements, and will help both the parties to do their parts of the contract well.

Ø  Include clauses regarding the conditions that are to be fulfilled, in the execution of the contract, and warranties in relation to the subject matter. Eg: If you are buying a car from a person, try to negotiate and include a warranty regarding the good working condition of the car. On the other hand, if you are selling your used car, it is favourable for you to not include any personal warranty, and state that it is “sold as is”.  

Ø  Ensure maximum level of clarity and specifications in the language, to explicitly state your intent and the limit of obligations you agree to, and try to leave no room for broad interpretations.

IMPORTANT STATUTORY PROVISIONS (INDIAN KANOON)

Ø  The Indian Contract Act

Ø  Sale of Goods Act

Ø  Specific Relief Act

Ø  Transfer of Property Act

DO (s) AND DON’T (s)

Ø  Maximum Clarity; no vague statements, conditions, or terms

Ø  Ensure that the other party is a major, of sound mind, and is legally capable of entering into the contract

Ø  Include an arbitration clause, if possible

Ø  Agree on a jurisdiction where claims can be brought in case of disputes

Ø  Ensure that all parties enter into the contract in good faith, understanding the rights and obligations

Ø  Avoid mistakes to the best possible level

Ø  Read the document carefully before signing

Offence Of Abetment To Suicide (306IPC) Can’t Be Quashed On Settlement Between Parties - Bombay HC

On 2^nd March 2017, the Bombay High Court refused to quash the FIR against a person who had filed a writ petition for quashing the same on the grounds of the settlement with the victim’s father.

Case Name

Mohd. Asgar Choudhari and Ors. v. State of Maharashtra and Anr., WP No. 31 0f 2017 (Bombay HC)

Where it all began

The FIR was registered against Mohd. Asgar Choudhari, i.e., the Petitioner, under Sections 498A (cruelty), 306 (abetment to suicide) & 406 (punishment for criminal breach of trust) of Indian Penal Code, 1860. The petitioner was in a relationship with the victim. The first informant (father of the victim) registered the FIR on the grounds of abetment to suicide of his daughter. However, his affidavit in an order dated 2^nd January 2017 spoke otherwise, stating that “he was in a shocked state of mind due to the sudden demise of his daughter and his daughter committed suicide under depression.” This contrary statement has raised doubts over the veracity of the facts of the case. The petitioner then filed a writ petition before the Bombay High Court to quash the said FIR registered against him as the settlement has been reached between the petitioner and the first informant.

The Masqueraded Settlement

The petitioner scored a settlement with the first informant behind the curtains for an amount of Rs 8 lakhs. His cousin sent a letter dated 17-02-17 to the Senior Inspector of Police, Deonar Police Station, Mumbai mentioning the same.

The Verdict

The bench of Justice A. S. Oka and Justice Anuja Prabhudessai refused to quash the FIR on the ground that the victim of the alleged offence is no more and therefore, rejected the writ petition. However, it observed that the petitioner would not be precluded from applying for discharge.

World’s Most Expensive Company Settlements

Business and competition are the phases of the same coin. There is cut throat competition to expand the business and it is becoming harsher day by day in the globalized World. Every company wants to become a global brand so that its presence can be appreciated world- wide in every class of consumer. The mergers and acquisitions are one of the strategies which followed by the companies to expand its horizons. The ownership of a company is acquired by the other company dealing with the same type of services or products. A legal adviser’s consultation is very crucial to facilitate a merger or acquisition. Let’s have a look on the recent settlements which happened between two companies-

 British American Tobacco Co. is going to acquire R.J. Reynolds American Tobacco Co. – 

British American Tobacco which is based in London has entered into an agreement to buy the stake in Reynolds American, based in Winston-Salem, N.C. for $49 billion. The deal is also subject to shareholders and regulatory approval. It is expected to complete in the third quarter of 2017. 

Reynolds American reported sales of $10.7 billion in 2015. British American Tobacco reported revenue of $15.8 billion, in 2015. The purchase would create the world’s largest publicly traded tobacco business, based on net sales.

 Chem China deals with Syngenta AG-

China National Chemical Corporation’s $43 billion offer for Syngenta AG., based in Basel, Switzerland was China’s biggest overseas deal announced last year. The takeover announced a year ago, is one of a trio of mega-deals that would reshape the global agrochemicals industry. The others are Dow Chemical Co.’s bid to merge with DuPont Co. and Bayer AG’s agreement to buy Monsanto Co. The combined transactions would whittle down six industry players to three giants: one American, one German and one Chinese. Syngenta AG said the U.S. Federal Trade Commission has asked for more time to review it's $43 billion takeovers by China National Chemical Corporation. Chem China filed for U.S. approval in January 2016. Repeated delays in the approval process, which has involved authorities on four continents, have pushed back the expected closing date for the deal. Companies authorities are hopeful that Merger could still win approval before April 12 EU deadline.

 The Shire completed merger with Baxalta-

The Shire has completed it's $32 billion mergers with Baxalta, creating the global market leader in rare diseases and other specialized disorders.

The Shire projected that the combined company would generate approximately 65% of its total annual revenues from its rare disease products revenues the company has forecast as rising to more than $20 billion by 2020.The combined company would consist of more than 22,000 employees across more than 100 countries, as well as more than 50 programs in clinical development.  

 Abbott completes the acquisition of St. Jude Medical-

Abbott has completed the acquisition of St. Jude Medical Inc., establishing the company as a leader in the medical device arena. Together the company will compete in nearly every area of the $30 billion cardiovascular market and hold the No.1 or 2 positions across large and high-growth cardiovascular device markets.

SoftBank to Buy Britain’s ARM-

In the year 2016 Japan's SoftBank acquired ARM Holdings for $32 billion, Softbank has agreed to acquire ARM Holdings, the giant semiconductor firm of U.K that supplies part of the chip design used in Apple iPhones, ARM the largest London-listed tech company by market value. ARM has a major presence in mobile processing. Its processor and graphics technology is used by Samsung, Huawei, and Apple in their in-house microchips.

 Microsoft tied up with LinkedIn- 

Microsoft acquired LinkedIn for $196 per share in an all-cash transaction valued at $26.2 billion. LinkedIn is the world’s largest and most valuable professional network and continues to build a strong and growing business. LinkedIn, based in Mountain View, California, will retain a distinct brand, culture, and independence, according to Microsoft, and LikendIn current CEO Jeff Weiner will remain in his role.

"LinkedIn and Microsoft really share a mission" of helping people work more efficiently and "There is no better way to realize that mission than to connect the world's professionals," said Microsoft CEO Satya Nadella. 

 Acquisition of  Tyco International by Johnson Controls-

Johnson Controls Inc., a U.S. maker of car batteries and heating and ventilation equipment, acquired Ireland-based peer Tyco International Plc., in a $16.5 billion deal. 

By uniting Johnson Controls, the number one provider of building efficiency solutions with Tyco International, the number one provider of fire and security solutions, the new company is uniquely positioned as a leader in products, technologies and integrated solutions for the buildings and energy sectors.

Employment Contract

An Employment Contract is a legal agreement which delineates the terms and conditions of employment between an employee and an employer such as wages, duration of works, non-compete procedures, etc. They are usually signed and executed at the time of the inception of employment. There are majorly three types of employment contracts: -

* Full-time employment contract (FTEC)

* Part-time employment contract (PTEC)

* Freelancer employment contract (FLEC)

Key Terms & Conditions of an Employment Contract

• Definitions and Interpretations;

• Acceptance of employee by the employer for the job and acceptance of job by the employee;

• Responsibilities and obligations involved in the job;

• Duration of probationary period and salary during that period;

• Salary including Basic, HRA, Medical Allowance, Education Allowance, etc;

• Status of job: Full time, part time or freelancers;

• Place of work;

• Date of starting and ending of job;

• Working hours in a day and working days in a week (for FTEC and PTEC) or assignment completion basis (for FREC);

• Overtime (for FTEC and PTEC);

• Payroll schedule: on a daily, weekly, biweekly, semi-monthly, monthly, per piece of work, etc;

• Refunds for calls travels carried out in the course of employment;

• Holidays and Paid leaves in a year;

• Unpaid leaves and exceptions to it;

• Perquisites;

• Deductions;

• Required travels: once in a week, twice in a month, 10 times in a year, etc;

• Policies and standards;

• Confidentiality and Non-Disclosure;

• Non-solicitation which may hinder the company’s interests;

• Provident Fund

• Change in duties and remuneration would not make the present contract invalid;

• Prior notice of resignation;

• Termination of employment by the employer;

• Indemnification;

• Governing Laws;

• Dispute Resolution;

• Schedule A – Job description;

• Schedule B – Confidentiality and Non-Disclosure agreement.

Statutory Law References

Sec. 2(h) & 27 of the Indian Contract Act, 1872

Industrial Disputes Act, 1947

Payment of Gratuity Act, 1972

Industrial Employment (Standing Orders) Act, 1946

Factories Act, 1948

Payment of Wages Act 1936

Minimum Wages Act 1948

The Sexual Harassment of Women at Workplace (Prevention, Prohibition, and Redressal) Act, 2013

Employees' Provident Fund and Miscellaneous Provisions Act 1952

Landmark Judgments

Diljeet Titus v. Mr. Alfred A. Adebare and Ors. 2006 (32) PTC 609 (Del)

Niranjan Shankar Golikari v. The Century Spinning and Manufacturing Company Ltd. 1967 AIR 1098

Desiccant Rotors International Pvt. Ltd v. Bappaditya Sarkar & Anr, Delhi HC, CS (OS) No. 337/2008

Important Do(s) and Don't(s)

• Contract should be signed and executed at the time of beginning of employment;

• Lawyer consultation or online legal advice should be the priority before executing such contract;

• Bond for a minimum time period of employment should be avoided as it constrains the employee to be with the company even if the work is contrary to his expectations;

Non-Disclosure Agreement (NDA)

A Non-Disclosure Agreement is a contract which enables the parties to the contract from sharing any piece of confidential information or knowledge shared between them for the purposes of business or any other kind of access but restricts such sharing to any third party to such contract. 

There are two types of NDA in practice:

 One-way NDA – Casts the obligation of non-disclosure of information on one party only;

 Two-way or Mutual NDA – Obligation on all the parties to the NDA.

Terms & Conditions of one-way and two-way NDAs are same for both with the only difference that in the latter, the obligations apply to all the parties to the contract.

General Terms & Conditions required in an NDA

• Confidential Information and its scope to be defined;

• Obligation of Non-Disclosure of the information to any third party without the permission of the party sharing such information;

• Application of NDA to apply to all the employees and directors of the recipient company;

• Exclusions/Exceptions to NDA for sharing the information to a third party;

• Notice of any unauthorized disclosure or loss is to be sent by the legal recipient of such information to the other party;

• Use of Confidential Information is to be “As is” and it is not be construed as a license or assignment of such information or any intellectual property. Moreover, the recipient is prevented from selling or registering such confidential information without prior authorization of the other party;

• No reproduction of such information without the authorization of the providing party;

• Time duration of the contract;

• Action was taken upon breach of the contract and Injunctive Relief;

• Governing law to be mentioned;

• Dispute Resolution mechanism to be stated;

• No Assignment to be carried out by the recipient without the authorization of the other party.

Statutory Law References

Sec. 2(h) of the Indian Contract Act, 1872.

Art. 39.2 of WTO Agreement on TRIPS.

Important Judgments

• John Richard Brady and Ors v. Chemical Process Equipments P. Ltd. and Anr, AIR 1987 Delhi 372.

• Mr. Anil Gupta and Anr. v. Mr. Kunal Dasgupta and Ors, 97 (2002) DLT 257.

Important Do(s) & Don't(s)

• Lawyer consultation or online legal advice is preferable to remove any illegalities and ambiguities;

• The information is to be protected for eternity, even after the expiration of the contract unless authorized by the disclosing party;

• Insert a stringent penalty clause;

• It is preferable to have a two-way NDA as it keeps the information flow and protection balanced.