Drafting of Contracts – Templates with Drafting Notes

Contents at a glance About the author. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . v Contributors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . vii Preface . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ix Table of contents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xiii List of templates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xxi Chapter 1

Partnership. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

Chapter 2

Procurement of Goods and Services . . . . . . . . . . . . . . . . . . . . . . . . . . 19

Chapter 3

Mergers, Acquisitions and Joint Ventures. . . . . . . . . . . . . . . . . . . . . . 45

Chapter 4

Real Estate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99

Chapter 5

Employment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 155

Chapter 6

Confidentiality. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 195

Chapter 7

Franchise Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 235

Chapter 8

Trademarks. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 271

Chapter 9

Patents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 285

Chapter 10

Copyright Publishing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 293

Chapter 11

Agency. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 309

Chapter 12

Hire Purchase. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 325

Chapter 13

Turnkey/EPC Contract. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 337

Chapter 14

Project Finance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 369

Chapter 15

Dispute Resolution. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 605

xi

Table of contents About the author. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . v Contributors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . vii Preface . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ix Contents at a glance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xi List of templates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xxi Chapter 1

Partnership. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

1A Partnership. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 1A.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 1A.2 Rights and Duties of the Partners. . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 1A.3 Creation of Partnership. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 1A.4 Registration of the Partnership Firm . . . . . . . . . . . . . . . . . . . . . . . . . 3 1A.5 Advantages and Disadvantages of Partnership. . . . . . . . . . . . . . . . . . 4 1A.5.1 Advantages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 1A.5.2 Disadvantages. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 1A.6 Drafting Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 1A.7 Template for a Deed of Partnership. . . . . . . . . . . . . . . . . . . . . . . . . . 6 1B.

Limited Liability Partnership. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 1B.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 1B.2 Creation of LLP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 1B.3 Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 1B.4 Advantages and Disadvantages of a LLP. . . . . . . . . . . . . . . . . . . . . 10 1B.4.1 Advantages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 1B.4.2 Disadvantages. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 1B.5 Drafting Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 1B.6 Template for a LLP Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

Chapter 2 Procurement of Goods and Services. . . . . . . . . . . . . . . . . . . . . . . . . 19 2.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 2.2 Aims of Public Procurement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 2.3 Legal Framework in India . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 2.4 Template for a Procurement Agreement. . . . . . . . . . . . . . . . . . . . . . 23 Chapter 3 3A.

Mergers, Acquisitions and Joint Ventures. . . . . . . . . . . . . . . . . . . . 45

Share Purchase Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46 3A.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46 xiii

Drafting of Contracts – Templates with Drafting Notes

3A.2 3A.3

Drafting Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46 Template for a Share Purchase Agreement. . . . . . . . . . . . . . . . . . . . 49

3B.

Share Subscription Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62 3B.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62 3B.2 Drafting Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63 3B.3 Template for a Share Subscription Agreement. . . . . . . . . . . . . . . . . 64

3C.

Joint Venture Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71 3C.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71 3C.1.1 Importance of Establishing a JV. . . . . . . . . . . . . . . . . . . 72 3C.1.2 Forms of JV. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73 3C.1.3 Foreign Direct Investment in JV. . . . . . . . . . . . . . . . . . . 73 3C.2 Drafting Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74 3C.3 Template for a Joint Venture Agreement . . . . . . . . . . . . . . . . . . . . . 77

3D.

Business Transfer Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82 3D.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82 3D.2 Drafting Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83 3D.3 Template for a Business Transfer Agreement. . . . . . . . . . . . . . . . . . 85

3E.

Investment Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93 3E.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93 3E.2 Drafting Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94 3E.3 Template for an Investment Agreement. . . . . . . . . . . . . . . . . . . . . . 96

Chapter 4

Real Estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99

4A.

Lease Deed – Commercial. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100 4A.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100 4A.2 Scenario in India. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101 4A.3 Commercial Lease . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101 4A.4 Drafting Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102 4A.5 Template for a Commercial Lease Deed . . . . . . . . . . . . . . . . . . . . 104

4B.

Lease Deed – Residential. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 110 4B.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 110 4B.2 Residential Lease. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 110 4C.3 Drafting Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111 4B.4 Template for a Residential Lease Agreement. . . . . . . . . . . . . . . . . 112

4C.

Sale Deed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 116 4C.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 116 4C.2 Scenario in India. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 117 4C.3 Drafting Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 117

xiv

Table of contents

4C.4

Template for a Sale/Conveyance Deed. . . . . . . . . . . . . . . . . . . . . . 119

4D.

Leave and License Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 121 4D.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 121 4D.2 Difference between “leave and license” and “lease”. . . . . . . . . . . 121 4D.3 Scenario in India. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 122 4D.4 Drafting Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 123 4D.5 Template for a Leave and License Agreement. . . . . . . . . . . . . . . . 125

4E.

Build to Suit Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 133 4E.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 133 4E.2 Scenario in India. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 134 4E.3 Drafting Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 134 4E.4 Template for a Build to Suit Lease Agreement. . . . . . . . . . . . . . . . 136

4F.

Joint Development Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 142 4F.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 142 4F.2 Scenario in India. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 143 4F.3 Drafting Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 144 4F.4 Template for a Joint Development Agreement. . . . . . . . . . . . . . . . 147

Chapter 5

Employment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 155

5A.

Contractor and Sub-Contractor Agreements. . . . . . . . . . . . . . . . . . . . . . . 156 5A.1 Contractor. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 156 5A.1.1 Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 156 5A.1.2 Drafting Notes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 157 5A.1.3 Template for a Contractor Agreement. . . . . . . . . . . . . . 158 5A.2 Sub-Contractor Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 161 5A.2.1 Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 161 5A.2.2 Drafting Notes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 162 5A.2.3 Template for a Sub-Contractor Agreement. . . . . . . . . . 164

5B.

Consultancy Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 166 5B.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 166 5B.2 Scenario in India. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 167 5B.3 Drafting Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 168 5B.4 Template for a Consultancy Agreement. . . . . . . . . . . . . . . . . . . . . 169

5C.

Employment Agreements/Offer Letters . . . . . . . . . . . . . . . . . . . . . . . . . . . 172 5C.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 172 5C.2 Scenario in India. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 172 5C.3 Who is not a workman? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 173 5C.4 Kinds of Employment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 174 xv

Drafting of Contracts – Templates with Drafting Notes

5C.5 5C.6 5C.7 5D.

Drafting Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 174 Template for an Employment Agreement (Permanent Employment) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 177 Template for an Employment Agreement (Fixed-Term Employment) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 182

Secondment Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 186 5D.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 186 5D.2 Scenario in India. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 187 5D.3 Drafting Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 188 5D.4 Template for an Employee Secondment Agreement . . . . . . . . . . . 189

Chapter 6

Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 195

6A.

Non-Disclosure Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 195 6A.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 195 6A.2 Scenario in India. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 197 6A.3 Drafting Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 198 6A.4 Template for a Non-Disclosure Agreement . . . . . . . . . . . . . . . . . . 200

6B.

Sensitive Personal Data or Information Agreement. . . . . . . . . . . . . . . . . . 203 6B.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 203 6B.2 Scenario in India. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 204 6B.3 Drafting Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 205 6B.4 Template for a Sensitive Personal Data or Information Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 207

6C.

Technology License Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 211 6C.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 211 6C.2 Scenario in India. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 212 6C.3 Drafting Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 212 6C.4 Template for a Technology License Agreement. . . . . . . . . . . . . . . 215

6D.

Software Development Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 224 6D.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 224 6D.2 Scenario in India. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 226 6D.3 Drafting Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 226 6D.4 Template for a Software Development Agreement . . . . . . . . . . . . 229

Chapter 7 7.1

7.2 xvi

Franchise Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 235 What is Franchising? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 235 7.1.1 Franchising . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 236 7.1.2 Pros and Cons of Franchising. . . . . . . . . . . . . . . . . . . . 237 Types of Franchise Business Models. . . . . . . . . . . . . . . . . . . . . . . 239

Table of contents

7.3 7.4

7.2.1 Product Franchising. . . . . . . . . . . . . . . . . . . . . . . . . . . . 239 7.2.2 Business Format Franchising. . . . . . . . . . . . . . . . . . . . . 239 Drafting Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 240 Template for a Franchise Business Agreement. . . . . . . . . . . . . . . . 242

Chapter 8

Trademarks. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 271

8A.

Trademark Licensing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 271 8A.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 271 8A.1.1 History of Trademarks. . . . . . . . . . . . . . . . . . . . . . . . . . 271 8A.1.2 Evolution of Trademark Licensing . . . . . . . . . . . . . . . . 272 8A.1.3 Modes of Trademark Licensing. . . . . . . . . . . . . . . . . . . 272 8A.1.4 Trademark Licensing in India. . . . . . . . . . . . . . . . . . . . 273 8A.1.5 Legality of a Trademark License Agreement . . . . . . . . 273 8A.2 Drafting Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 274 8A.3 Template for a Trademark License Agreement, Co-branding License Agreement and Registered User Agreement. . . . . . . . . . . 276

8B.

Trademark Assignment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 279 8B.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 279 8B.1.1 Meaning of Trademark Assignment . . . . . . . . . . . . . . . 279 8B.1.2 Types of Trademark Assignment. . . . . . . . . . . . . . . . . . 280 8B.1.3 Trademark Assignment in India. . . . . . . . . . . . . . . . . . . 281 8B.2 Drafting Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 281 8B.3 Template for a Trademark Assignment Deed. . . . . . . . . . . . . . . . . 282

Chapter 9 Patents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 285 9.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 285 9.1.1 Meaning of Patents . . . . . . . . . . . . . . . . . . . . . . . . . . . . 285 9.1.2 Criteria for Patentability . . . . . . . . . . . . . . . . . . . . . . . . 286 9.1.3 Importance of Patents . . . . . . . . . . . . . . . . . . . . . . . . . . 286 9.1.4 Meaning of Patent Assignment. . . . . . . . . . . . . . . . . . . 287 9.1.5 Kinds of Patent Assignment . . . . . . . . . . . . . . . . . . . . . 287 9.2 Drafting Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 288 9.3 Template for an Agreement of Assignment of Patent. . . . . . . . . . . 290 Chapter 10 Copyright Publishing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 293 10.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 293 10.1.1 Meaning of Copyright. . . . . . . . . . . . . . . . . . . . . . . . . . 293 10.1.2 Requirements for Copyright Protection. . . . . . . . . . . . . 294 10.1.3 Importance of Copyright Protection . . . . . . . . . . . . . . . 294 10.1.4 Meaning of Copyright Publishing Agreement. . . . . . . . 295

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10.2 10.3

Drafting Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 296 Template for a Copyright Publishing Agreement. . . . . . . . . . . . . . 298

Chapter 11 Agency. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 309 11.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 309 11.2 Duties of an Agent and Principal. . . . . . . . . . . . . . . . . . . . . . . . . . 310 11.2.1 Duties of Agent. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 310 11.2.2 Duties of Principal. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 311 11.3 Drafting Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 311 11.4 Template for an Agency Agreement. . . . . . . . . . . . . . . . . . . . . . . . 314 Chapter 12 Hire Purchase. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 325 12.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 325 12.2 Elements of Hire-Purchase Agreement. . . . . . . . . . . . . . . . . . . . . . 326 12.3 Drafting Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 327 12.4 Template for a Hire Purchase Agreement. . . . . . . . . . . . . . . . . . . . 329 Chapter 13 Turnkey/EPC Contract. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 337 13.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 337 13.2 Obligations of Employer and Contractor. . . . . . . . . . . . . . . . . . . . 337 13.3 Drafting Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 338 13.4 Template for an Engineering, Procurement and Construction Contract. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 341 Chapter 14

Project Finance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 369

14A. Project Finance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 370 14A.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 370 14A.2 Documentation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 371 14A.2.1 What are “Documents”? . . . . . . . . . . . . . . . . . . . . . . . . 371 14A.2.2 Need for Documents. . . . . . . . . . . . . . . . . . . . . . . . . . . 372 14A.2.3 Stamp Duty of Documents . . . . . . . . . . . . . . . . . . . . . . 372 14A.2.4 Various Types of Documents. . . . . . . . . . . . . . . . . . . . . 374 14B. Financing Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 375 14B.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 375 14B.2 Rupee Term Loan Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 376 14B.2.1 Drafting Notes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 376 14B.2.2 Template for a Rupee Term Loan Agreement. . . . . . . . 378 14B.3 ECB Facility Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 432 14B.3.1 Drafting Notes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 432 14B.3.2 Template for an ECB Facility Agreement. . . . . . . . . . . 436 xviii

Table of contents

14C. Security Documents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 534 14C.1 Drafting Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 534 14C.2 Mortgage. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 536 14C.2.1 Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 536 14C.2.2 Template for a Declaration in the matter of Creation of Mortgage on Immovable Property. . . . . . . 537 14C.2.3 Template for a Memorandum of Entry . . . . . . . . . . . . . 541 14C.2.4 Template for a Mortgage Deed. . . . . . . . . . . . . . . . . . . 544 14C.3 Hypothecation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 554 14C.3.1 Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 554 14C.3.2 Template for a Deed of Hypothecation. . . . . . . . . . . . . 555 14C.4 Pledge. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 571 14C.4.1 Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 571 14C.4.2 Template for a Deed of Pledge . . . . . . . . . . . . . . . . . . . 572 14C.5 Guarantee. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 587 14C.5.1 Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 587 14C.5.2 Template for a Deed of Corporate Guarantee. . . . . . . . 588 Chapter 15 Dispute Resolution. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 605 15.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 606 15.1.1 Litigation – “in any case” . . . . . . . . . . . . . . . . . . . . . . . 607 15.1.2 Alternate Dispute Resolution (ADR) - “Fast & Uncomplicated”. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 607 15.1.3 Practical Points to Consider while Drafting a Dispute Resolution Clause. . . . . . . . . . . . . . . . . . . . . . . 609 15.2 Employment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 610 15.2.1 Employment-Fixed Term/Salaried. . . . . . . . . . . . . . . . . 611 15.2.2 Secondment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 611 15.2.3 Consultancy Agreement. . . . . . . . . . . . . . . . . . . . . . . . . 611 15.3 General Corporate Commercial AgreementS. . . . . . . . . . . . . . . . . 611 15.3.1 Partnership Agreements. . . . . . . . . . . . . . . . . . . . . . . . . 611 15.3.2 Procurement of Goods and Services Contract. . . . . . . . 612 15.3.3 Share Purchase Agreement . . . . . . . . . . . . . . . . . . . . . . 614 15.3.4 Share Subscription Agreement . . . . . . . . . . . . . . . . . . . 615 15.3.5 Joint Venture Agreement. . . . . . . . . . . . . . . . . . . . . . . . 616 15.3.6 Business Transfer Agreement . . . . . . . . . . . . . . . . . . . . 616 15.3.7 Investment Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . 617 15.3.8 Contractor and Sub-contractor Agreements . . . . . . . . . 617 15.4 Project Finance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 618 15.4.1 Rupee Loan Term Agreement. . . . . . . . . . . . . . . . . . . . 618 15.4.2 Security Documents. . . . . . . . . . . . . . . . . . . . . . . . . . . . 620 xix

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15.5

15.6

15.7

15.4.3 Hire Purchase Agreement . . . . . . . . . . . . . . . . . . . . . . . 622 15.4.4 Turnkey Project Agreement/EPC Agreement. . . . . . . . 623 15.4.5 Agency Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . 624 Lease Deed. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 624 15.5.1 Lease Deed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 624 15.5.2 Leave and License Agreement. . . . . . . . . . . . . . . . . . . . 626 15.5.3 Build to Suit Agreement . . . . . . . . . . . . . . . . . . . . . . . . 626 15.5.4 Joint Development Agreement . . . . . . . . . . . . . . . . . . . 626 Dispute Resolution Clause in Intellectual Property Right Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 627 15.6.1 Franchise Business Agreement. . . . . . . . . . . . . . . . . . . 627 15.6.2 Intellectual Property Right Agreements . . . . . . . . . . . . 628 15.6.3 Trademark License Agreement. . . . . . . . . . . . . . . . . . . 629 15.6.4 Patent Assignment Agreement. . . . . . . . . . . . . . . . . . . . 629 15.6.5 Copyright Publishing Agreement . . . . . . . . . . . . . . . . . 629 Confidentiality Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 630 15.7.1 Non-disclosure Agreement (NDA). . . . . . . . . . . . . . . . 630 15.7.2 Sensitive Personal Data Information Agreement. . . . . . 630 15.7.3 Software Development Agreement. . . . . . . . . . . . . . . . 631 15.7.4 Technology Transfer Agreement. . . . . . . . . . . . . . . . . . 631

CD CONTENTS The enclosed CD contains templates of all the agreements covered in the book as Word documents. Refer the “List of templates” on the next page.

xx

List of templates Agency Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 314 Agreement of Assignment of Patent. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 290 Build to Suit Lease Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 136 Business Transfer Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85 Commercial Lease Deed. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104 Consultancy Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 169 Contractor Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 158 Copyright Publishing Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 298 Declaration in the matter of Creation of Mortgage on Immovable Property. . . . . . . 537 Deed of Corporate Guarantee. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 588 Deed of Hypothecation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 555 Deed of Partnership. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Deed of Pledge. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 572 Dispute Resolution clauses for various contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . 605 ECB Facility Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 436 Employee Secondment Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 189 Employment Agreement (Fixed-Term Employment). . . . . . . . . . . . . . . . . . . . . . . . . 182 Employment Agreement (Permanent Employment). . . . . . . . . . . . . . . . . . . . . . . . . . 177 Engineering, Procurement and Construction Contract. . . . . . . . . . . . . . . . . . . . . . . . 341 Franchise Business Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 242 Hire Purchase Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 329 Investment Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96 Joint Development Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 147 Joint Venture Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77 Leave and License Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 125 LLP Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 Memorandum of Entry. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 541 Mortgage Deed. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 544 Non-Disclosure Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 200 Procurement Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23

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Residential Lease Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 112 Rupee Term Loan Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 378 Sale/Conveyance Deed. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 119 Sensitive Personal Data or Information Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . 207 Share Purchase Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49 Share Subscription Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64 Software Development Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 229 Sub-Contractor Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 164 Technology License Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 215 Trademark Assignment Deed. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 282 Trademark License Agreement, Co-branding License Agreement and Registered User Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 276

xxii

Chapter 1:

Partnership Contents 1A Partnership ......................................................................................................... 1 1A.1 Introduction ................................................................................... 1 1A.2 Rights and Duties of the Partners .................................................. 2 1A.3 Creation of Partnership ................................................................. 2 1A.4 Registration of the Partnership Firm ............................................. 3 1A.5 Advantages and Disadvantages of Partnership ............................. 4 1A.5.1 Advantages.................................................................... 4 1A.5.2 Disadvantages ............................................................... 4 1A.7 Drafting Notes ............................................................................... 4 1A.8 Template for a Deed of Partnership .............................................. 6 1B. Limited Liability Partnership ............................................................................ 8 1B.1 Introduction ................................................................................... 8 1B.2 Creation of LLP ............................................................................ 9 1B.3 Requirements ................................................................................ 9 1B.4 Advantages and Disadvantages of a LLP .................................... 10 1B.4.1 Advantages.................................................................. 10 1B.4.2 Disadvantages ............................................................. 10 1B.5 Drafting Notes ............................................................................. 10 1B.6 Template for a LLP Agreement .................................................. 12

1A PARTNERSHIP 1A.1

INTRODUCTION

Partnership is a form of business entity in which two or more people create business alliance with each other to share the profits and losses of a particular business. The partners of the partnership firm agree towards sharing of profits, losses and responsibilities. It is a relation created by a contract which can be either written or oral.

It has been recognized under the Indian Partnership Act, 1932 (Act), before which the provisions were enacted under Indian Contract Act, 1872. The provisions under Indian 1

Drafting of Contracts – Templates with Drafting Notes

Contract Act, 1872 were sufficient only to meet the needs of that particular period and as trade developed in India, defects and insufficiency in the law were witnessed. So as to maintain modern business relations, changes were made and the above law was enacted. The provisions relating to offer and acceptance, free consent, consideration etc which have been laid down in Indian Contract Act, 1872 are also applicable to the partnership deed. Partnership has been defined under the Act as “the relations between persons who have agreed to share the profits of a business carried on by all or any of them acting for all’. A partnership firm has no separate entity apart from its partners resulting to which the life of a partnership firm is limited and the partners have unlimited liability.

1A.2

RIGHTS AND DUTIES OF THE PARTNERS

Partnership involves various rights and duties of the partners towards each other.

The Act provides for general duty of every partner which basically means to work for the common advantage of the partnership firm, being just and faithful to each other and to render true accounts and correct information affecting the firm and the partners are required to indemnify for losses due to their misconduct as per sec 10 of the Act. Section 16 of the Act provides that the partners are required to account for the profits made by them by using the name and property of the firm. Rights of the partners have been listed under sec 12 of the Act, which includes the right to take part in the conduct of the business, the right to express his opinion in case of disagreement towards any matter, the right to his consent towards a decision, and the right to have access to and to inspect the books of the firm. Also, under sec 13, it has been provided that the partners will be sharing the profits and losses equally, subject to the contract so entered between them; a partner is entitled to interest on capital which would be given only out of profits, a partner will also get interest on the loan provided by him; the partners are also to be indemnified towards the payments made by them in the ordinary course of business.

1A.3

CREATION OF PARTNERSHIP

According to sec 5 of the Act, a partnership is not created by status, but by contract between the partners. A partnership comes into existence when there is sharing of profits and losses amongst the individuals.

For a partnership to come into existence, certain conditions are to be fulfilled, which are as follows: 1.

2

There must be an agreement An agreement has to be entered between the people concerned relating to the business, sharing of profits and losses, community of benefit and towards their rights and liabilities such that there are lesser chances of conflict. The agreement provides a structure to the relationship between partners. The partnership agreement includes but is not limited to the following-

Chapter 1: Partnership

1.1

Name of the partnership

1.2

Nature of the business

1.3

Duration of partnership

1.4

Contributions by the partners

1.5

Profit sharing ratio

The agreement so entered between the partners is called as partnership deed. The deed may be oral or written; however, written deeds should be made in order to protect the rights of the partners.

2.

Agreement should be for the sharing of profits and losses The agreement should form a relationship which leads to the sharing of profits and losses. Since the partners have contributed towards the business in a certain proportion, there should be a ratio in which the profits and losses are distributed. The profits and losses can be shared in any ratio the partners prefer. A monthly payment can also be agreed upon, by the partners to be received. However, distribution of losses is also to be included in the agreement. An agreement which only provides for profits and not for losses is not valid.

3.

The business should be carried on by all or any of them acting for all Carrying on of business can begin as soon as the partnership becomes a business entity. However, the business can be carried on by all the partners or by one partner who will act for all of them. Thereby, the partners are agents for each other and therefore, they are liable towards each other. Just the sharing of profits and losses would not constitute partnership; proper business has to be carried on in a proper manner of conduct. There has to be mutual agency to create partnership. However, if there is an agreement towards sharing of profits and losses, there is a strong assumption towards the existence of partnership.

The element of mutuality, therefore, is a very important condition towards the creation of partnership. Subsistence and continuation of partnership are also dependent upon this condition. The essential feature of partnership is that all the partners are dependent on each other and a partner acts as an agent as he can bind other partners for his actions and a principal as well as he is bound by the actions of other partners as well.

1A.4

REGISTRATION OF THE PARTNERSHIP FIRM

The registration of the firm is optional though it has been provided for under sec 58 and 59 of the Act. It can be done before or after the continuance of business. However, registration is required when a suit is to be filed by any partner against the firm or the partners, the firm cannot file a suit against the third parties, and the firm cannot claim a set off against the third party in the proceedings against the third party.

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1A.5

ADVANTAGES AND DISADVANTAGES OF PARTNERSHIP

1A.5.1 Advantages 1.

Easy formation-The legal formalities in a partnership are comparatively lesser and the registration is also not compulsory which makes the formation easier.

2.

Combined skill and talent-All the partners together specialize in different areas due to which they can take better decisions and work in every field in the best way possible.

3.

Diffusion of risk-In a sole proprietorship, a single person is responsible for all the losses, however, a number of people bear the losses in a partnership concern which lessens the risk and makes it more favourable as a business organisation.

4.

Flexible-Decision in a firm can be taken easily as the partners are the ones to decide and can also be changed without a lot of regulations which makes it more flexible in terms of management.

1A.5.2 Disadvantages 1.

Unlimited liability-The partners have unlimited liability which serves as the biggest disadvantage as it results in personal risk.

2.

Conflicts-There are more chances of risk as the partners might disagree with each other in various situations which might lead to termination of partnership.

3.

Mutual agency-Since the actions of a partner can bind others it would lead to unnecessary responsibility of losses incurred due to the mistake of others.

4.

Division of authority-The authority is divided amongst all the partners and no single partner can take decision by himself as he would be liable to indemnify in case of losses.

5.

Limited life-A partnership ends on the death or retirement of partners and it does not have a separate entity like that of a company which leads to uncertainty of profits after a particular time.

1A.6 ●

4

DRAFTING NOTES Term-The duration of subsistence of any legal instrument is very essential, the commencement date as well as the end date of the Deed is essential in order to carve out as to the total duration of existence of obligation of the Parties. Like any other deed, the inclusion of the Term Clause is also essential in a Partnership Deed. However, the partnership may also be incorporated ‘AT WILL’. Therefore, the term of the partnership is important to specify in the Partnership deed.

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●

● ●

● ●

● ●

●

Place of Business-When two parties come together and form a partnership firm by entering into a Partnership Deed, clarification with regards to the place of business becomes important, and therefore, inclusion of a dedicated clause stating the complete address of the place of business is always vital.

Investment-Investment is the blood of any business as it helps in conducting the business and hence, it is one of the most vital things required for a Partnership Firm. It is necessary that every detail about the investment aspect, that is to say which party is putting in how much capital to begin the Partnership, the situation of what will happen if the firm needs more capital in the future should be put on paper, as it is always better to be prepared for the worst situations, and putting it on paper would decrease the complexity at a later point of time.

Profit Sharing ratio-It is necessary that when the firm starts making profits, the procedure or manner in which it is to be divided between the parties is already agreed and settled between the parties.

Bank Accounts-When a Partnership Deed is executed, it is important to maintain a separate account for the Firm as there is more than one party, so particulars regarding where the account is to be opened, when it is to be prepared, etc should be mentioned clearly in the deed itself.

Liability-As a Partnership Firm includes two or more different partners, the liability of each partner and their joint liabilities are important to be clearly mentioned in the Deed to remove future ambiguities.

Dispute Resolution-It will not be wrong to say that a dispute cropping up in future between the partners is highly probable, so the dispute resolution clause solves the complexity by already prescribing the manner and appropriate jurisdiction for resolving the dispute.

Amendment-It might so happen that a certain provision of the Partnership Deed might be required to be amended at a future point of time, so a clause allowing such amendments to be made is a must to be included in the deed.

Indemnity-It is necessary that the situation regarding any loss being caused to the firm by the activity of any partner is dealt with in the Deed itself, meaning that the firm has to be indemnified by the partner who causes any disruption in the conduct of the firm’s business as agreed mutually by the parties. In the same manner, the Partner would be indemnified by the firm if he incurred any liability by acting in emergency or in ordinary and proper conduct of business.

Admission of new partner and retirement of a partner-An introduction of a new partner would require the consent of the existing partners and a partner may retire (in case of a Partnership at will) by giving a written notice to all the other partners about his intention to retire.

The aforementioned clauses will be more understandable, if we look at the following template of the Partnership Deed.

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Drafting of Contracts – Templates with Drafting Notes

1A.7

TEMPLATE FOR A DEED OF PARTNERSHIP

DEED OF PARTNERSHIP THIS DEED OF PARTNERSHIP is made on [Date, Month, Year] between: 1.

2.

[First Partner’s Name], s/o of [Father’s Name], residing at [Address] hereinafter referred to as “First Party” AND [Second Partner’s Name] s/o of [Father’s Name], residing at [Address] hereinafter referred to as “Second Party”

The First Party and Second Party are collectively referred to as “Partners” and individually as “Partner”.

We, the above mentioned Partners have entered into this partnership for the purpose of [insert the business of the partnership firm]. We have formed the said partnership firm for carrying on the above mentioned business and hereby execute partnership deed as follows.

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1.

The partnership firm shall conduct its business under the name and style of “[insert the name of the proposed firm]”.

2.

The place of business for the partnership firm will be located at [insert the place of business]. The main place for transacting business may be changed and/or additional places may be created with the consent of the above mentioned partners.

3.

Investment in the said partnership firm shall be made by both the parties as per mutual agreement based on the percentage of profit and loss. If more resources are required for the firm in future, both the parties shall bring in additional personal capital or raise the money by securing loans from banks or financial institutions on the basis of their personal reputation or on the reputation of the partnership firm to meet the requirement of additional resources and our partnership firm shall be entirely responsible for the loans so obtained.

4.

Annual interest within the maximum limit of [●] percent shall be paid on the personal investment made by the above mentioned partners with their mutual consent under the applicable provision of the Income Tax Act, 1961. The interest so paid shall be decided as expenses in the profit and loss account and shall be paid in cash to the partners or credited to their respective capital accounts.

5.

This partnership shall be an “AT WILL” partnership and it shall last till the time the above mentioned partners wish to continue the same.

However, if either of the partners wants to dissolve the partnership, he

Chapter 1: Partnership

may do so after clearing the account for the duration of the partnership and by modifying the same under the law.

6.

Account shall be opened in the name of the above mentioned partnership firm in any banks or financial institution and withdrawals from such account shall be made with the signature of the partner nominated by the above mention partners.

7.

For the progress and development of the said partnership firm, the Parties shall work sincerely to the best of their abilities and perseverance and do nothing that may harm the interest of the partnership firm. Further, they shall discuss from time to time the work done for the firm and keep one another informed about whatever development that may take place.

8.

The books of accounts of the said partnership firm shall be maintained properly in a routine manner and the Parties and their respective successors shall have the right to examine the said accounts and shall be kept at the place of business as mentioned in clause 2 of this agreement.

Further, the Parties have also mutually agreed that the books of accounts of the partnership firm for the relevant financial year shall be prepared by the end of the month of March and any profit or loss that may result after deducting all the expenses, interest either paid or credited to the partners salary remuneration, commission etc. shall be shared every year between the above mentioned partners as follows. This arrangement shall also be acceptable to the successors of the Parties.

9.

The said partnership firm shall not be responsible for any transactions made by either of the partners in his individual and personal capacity.

10.

Neither of the partners shall transfer his share in the partnership firm to any third party, fully or partially, without the consent of the other partner.

11.

Dispute Resolution Process: [Please refer to Chapter 15 (15.3.1.1) for template of the Dispute Resolution clause.]

12.

If it becomes necessary during the course of partnership to amend any condition of this partnership deed with mutual consent, a separate deed shall be made on a non-judicial stamp of required value and such deed shall be treated as supplementary to this deed which shall continue to exist.

13.

It shall be the duty of every partner to indemnify the firm if any loss is caused to the firm for that partner’s fraud. The firm will indemnify the Partner when the partner made any payment or incurred any liability in the proper conduct of business or acted in emergency.

14.

A person can be introduced into the partnership firm as a Partner only with the consent of both the existing Partners, and the new partner does not become liable for any act done prior to that person becoming a partner.

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Drafting of Contracts – Templates with Drafting Notes

15.

A Partner may retire the Partnership firm by giving notice in writing to the other partner about his intention to retire. A Partner continues to be liable to third parties with other Partners for any act of the firm until a public notice of retirement is given.

Having read and understood the above mentioned partnership deed, both the parties affix their respective signatures hereunder in sound state of mind in the presence of the witnesses and the same shall be acceptable to their respective successors.

Agreed and accepted on this [please insert the date of execution] day of [please insert the month of execution][please insert the year of execution].

SIGNED AND DELIVERED by [insert name of the FIRST PARTY] ________________________________ SIGNED AND DELIVERED by [SECOND PARTY] ________________________________ [NOTE: This is a draft Partnership deed entered between two individuals in India. It may be more detailed depending upon the agreed terms, conditions and arrangement between the parties and also the status and jurisdiction of the parties. Each agreement has to be drafted keeping in view the peculiarities involved in each such situation in order to avoid any conflict of interest in the future or any legal obligations.]

1B. LIMITED LIABILITY PARTNERSHIP 1B.1

INTRODUCTION

Limited Liability Partnership (LLP) is the form of business entity by which two or more persons are engaged together to conduct any business activities keeping their respective liabilities as limited. All the provisions relating to LLP are governed by the Limited Liability Partnership Act, 2008 (Act) and rules laid down thereunder.

The basic principle behind the introduction of the Act is to provide a kind of business entity that is simple to maintain in carrying out the business activities and to limit the liabilities of the partners.

The main benefit of an LLP over other business entities such as partnership etc is that in an LLP, one partner is not accountable for another partner’s misconduct.

An LLP also provides limited liability safeguard for the partners from the debts of the LLP. Therefore, all partners in an LLP enjoy a form of limited liability protection for each individual’s protection within the partnership. However, in LLP, the partners have full power to manage the business of LLP directly unlike in the company limited by shares where the consent of the shareholders is required in 8

Chapter 1: Partnership

some cases only as mentioned in the Companies Act, 2013 and all the business decisions are to be taken by its Board of Directors.

1B.2

CREATION OF LLP

The procedure for creation of an LLP is more or less similar to the incorporation of a private limited company in India. A minimum of two Partners are required to form an LLP and a registered office location is required to be within India only.

The process for creation of an LLP is discussed below in brief.

1B.3 1.

REQUIREMENTS Partners and Designated Partners-Partners are those persons who have subscribed their names to the incorporation document of the LLP or those persons who become a partner of the LLP by means of and in accordance with the LLP agreement. An LLP can be incorporated with a minimum of at least two partners who can be individuals or body corporate through their nominee.

Please note that an LLP is also required to have at least two designated partners out of the partners of the LLP and at least one shall be resident in India. In other words, in case there are only two partners in LLP, both of them would be designated partners.

2.

Obtaining Designated Partners Identification Number (“DPIN�)-In order to form an LLP, every designated partner is required to obtain DPIN from the Central Government.

3.

Name availability-The next step is to decide the name for the proposed LLP to be incorporated. Please note that the name of the LLP shall not be similar or identical with the name of a company or LLP already registered in India and shall be subject to the approval of the Central Government.

4.

Drafting of LLP Agreement-The most important step is drafting of an LLP Agreement that governs the common rights and liabilities amongst the partners and among the LLP and its partners. In case no agreement is entered into, the rights and liabilities as prescribed under Schedule I to the Act shall be applicable.

5.

Filing of incorporation documents-After drafting of an LLP agreement, the next step is to file the incorporation documents such as consent of partners and declaration of partners electronically with the Central Government.

6.

Certificate of Incorporation-The Central Government shall issue the certificate of incorporation when it is satisfied that all the formalities with respect to the incorporation of LLP have been complied with. The certificate of incorporation shall be the conclusive evidence of the incorporation of an LLP. 9

Drafting of Contracts – Templates with Drafting Notes

1B.4

ADVANTAGES AND DISADVANTAGES OF A LLP

1B.4.1 Advantages 1.

Minimum contribution-There is no minimum capital requirement in LLP. An LLP can be formed with least possible capital, moreover, the contribution of a partner may consist of tangible, movable or immovable or intangible property or other benefit to the LLP.

2.

No maximum limit on partners-In order to form an LLP, a minimum two partners/owners are required while there is no limit with respect to having the maximum number of partners/owner; this is in contrast to a private limited company which restricts the maximum number of owners to 200.

3.

Low incorporation charges-The cost of incorporating an LLP is low as compared to the cost of incorporating a private limited or a public limited company.

4.

No requirement of compulsory Audit of the books of accounts-All the companies in India are required to get their books of accounts audited by the Chartered Accountant in whole time practice in India. However, in case of an LLP, there is no such mandatory requirement of audit of its books of accounts except for the LLP beyond some threshold as prescribed in the Act.

5.

Less Compliances-Burden of regulatory compliances are less on LLP in comparison to other forms of business such as company.

1B.4.2 Disadvantages 1.

Reliability in the market-LLP being a new form of business entity, it has not gained much respect in the market and the consumers do not consider it as the worthy business like companies.

2.

Limitation in the formation of LLP-An LLP cannot be formed by a single individual. Upon introduction of one person company under the Companies Act, 2013, LLP as the business entity has lost its recognition.

3.

Mutual Agency-Since the actions of a partner can bind others, it would lead to unnecessary responsibility of losses incurred due to the mistakes of others.

1B.5 â—?

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DRAFTING NOTES Contribution-This clause specifies about the Contribution of Partners which can be tangible, intangible, moveable or immoveable property or in the form of any other benefit to the LLP. It should also provide that the obligation of a partner to contribute money, property, other benefit or perform services for LLP shall be as determined by the Agreement. It should state the proportion and the amount of initial contributions to be made by the partners.

Chapter 1: Partnership

●

Profit Sharing Ratio-This clause would determine the ratios in which the partners would share the profits of the LLP amongst themselves. These may either be in the ratio of their contributions or any other ratio as determined by all/ majority of the partners.

●

Admission of New Partner-This clause should contain the provisions for the terms for introducing a new partner in the LLP. The new partner may not be introduced without the consent of all/majority of the existing partners or as otherwise agreed to between the partners. Prior consent will be required from the proposed incoming partner before admitting him to the LLP.

●

Resignation of a Partner-This clause should mention that the Partner may cease to be Partner of the LLP by giving a notice in writing within the time as may be agreed among the Partners.

●

Removal of Partner-This clause should mention that no Partner can be removed by the other Partners or a majority of Partners except in where he has been found guilty of carrying on any activity of the LLP for fraudulent purposes.

●

Rights of Partner-Rights of every partner need to be provided in the agreement in order to avoid any ambiguity in the future.

●

Miscellaneous Provisions-This clause may inter alia contain the following sub-clauses: ▪

Partner to be indemnified- The clause relating to indemnification shall also to be included in the LLP agreement which states that the LLP shall indemnify each partner in respect of payments made and personal liabilities incurred by him in the ordinary conduct of the business and anything necessarily done for the preservation of the business or property of the LLP as per the provisions of the Act..

▪

The books of accounts of the firm shall be kept at the registered office of the LLP for the reference of all the partners and the year of the LLP for the purpose of accounting shall be the period starting from 1st April of the year to 31st March of subsequent year.

The aforementioned clauses will be more understandable, if we look at the template for a LLP Agreement.

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Drafting of Contracts – Templates with Drafting Notes

1B.6

TEMPLATE FOR A LLP AGREEMENT LLP AGREEMENT (As per Section 23(4) of LLP Act, 2008)

THIS Agreement of Limited Liability LLP (“Agreement”) made at [●] on this.................... Day of [●] BETWEEN [Name of the first Partner], resident of [address of the first Partner] which expression shall, unless it be repugnant to the subject or context thereof, include legal heirs, successors, nominees and permitted assignees and hereinafter called the First Party, and [Name of the Second Partner], resident of [address of the second Partner], which expression shall, unless it be repugnant to the subject or context thereof, include legal heirs, successors, nominees and permitted assignees and hereinafter called the Second Party WHEREAS the First and Second Party are interested in forming a Limited Liability Partnership under the Limited Liability Partnership Act 2008 and that they intend to write down the terms and conditions.

IT IS HEREBY AGREED BY AND BETWEEN THE PARTIES HERETO AS FOLLOWS 1.

Name-The business of the Limited Liability Partnership shall be carried on in the name and style of [name of the firm] and hereinafter referred to as “LLP”.

2.

Registered Office-The LLP shall have its 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.

3.

Capital Contribution-The initial contribution of the LLP shall be INR [●], which shall be contributed by the partners in equal proportion i.e. [●] each in cash or in kind as agreed by and between the partners.

The further contribution if any required by the LLP shall be contributed or arranged by the partners in such manner as may be mutually agreed upon by and between the partners from time to time.

4.

Profit Sharing Ratio-All the partners of the LLP are entitled to share profit and losses in the ratio of their respective contribution in the LLP.

5.

Business-The business of the LLP shall be: [●]

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Chapter 1: Partnership

5.1.

Term of LLP-The LLP shall commence on the date of registration of the LLP, and shall be ‘AT WILL’.

6.

Common Seal-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.

Perpetual Succession-The LLP shall have perpetual succession, death, retirement or insolvency of any partner shall not dissolve the LLP.

8.

Admission of New Partner8.1. 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.

8.2.

The Contribution of the partner may be tangible, intangible, moveable or immoveable property and the incoming partner shall bring minimum contribution as may be mutually decided by the partners.

8.3.

The Profit sharing ratio of the incoming partner will be in proportion to his contribution towards the LLP.

Rights of Partner9.1. 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 contribution.

9.2.

Every partner has a right to have access to and to inspect and copy any books of the LLP.

9.3.

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 partner as herein provided. However, upon insolvency of a partner his or her rights, title and interest in the LLP shall come to an end. Upon the death of any of the partners herein any one of his or her 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.

9.4.

On the death of any partner, if his or her heir opts not to become the partner, the surviving partners shall have the option to purchase the contribution of the deceased partner in the LLP.

9.5.

The First and the Second Part to this Agreement shall be entitled to carry on their own, separate and independent business as hitherto they might be doing or they may hereafter do as they deem fit and proper and other partners and the LLP shall have no objection thereto

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Drafting of Contracts – Templates with Drafting Notes

provided that the said partner has intimated the said fact to the LLP before the start of the independent business and moreover he shall not uses the name of the LLP to carry on the said business.

10.

Duties of Partners10.1. Every partner shall account to the 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. 10.2. Every partner shall indemnify the LLP and the other existing partner for any loss caused to it by his fraud in the conduct of the business of the LLP. 10.3. Each partner shall render true accounts and full information of all things affecting the LLP to any partner or his legal representatives.

10.4. Each partner shall punctually pay and discharge the separate debts and engagement and indemnify the other partners and the LLP assets against the same and all proceedings, costs, claims and demands in respect thereof.

10.5. No partner shall without the written consent of the other Partners,– 10.5.1. 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. 10.5.2. Lend money or give credit on behalf of the LLP or to have any dealings with any persons, company or firm whom the other partner previously in writing have forbidden it to trust or deal with. Any loss incurred through any breach of provisions shall be made good with the LLP by the partner incurring the same.

10.5.3. Enter into any bond or becomes surety or security with or for any person or do knowingly cause or suffer to be done anything whereby the LLP property or any part thereof may be seized.

10.5.4. Assign, mortgage or charge his or her share in the LLP or any asset or property thereof or make any other person a partner therein 10.5.5. Compromise or compound or (except upon payment in full) release or discharge any debt due to the LLP except upon the written consent given by the other partner.

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Chapter 1: Partnership

11.

Meeting11.1. All the matters related to the LLP shall be decided by resolution passed by a majority in number of the partners, and for this purpose, each partner shall have one vote.

11.2. The meeting of the partners may be called by sending [â—?] days prior notice to all the partners at their residential address or by mail at the Email ids provided by the individual partners in writing to the LLP. In case any partner is a foreign resident, the meeting may be conducted by serving [â—?] days prior notice through email.

Provided the meeting be called at shorter notice, if majority of the partners agrees in writing to the same either before or after the meeting.

11.3. The meeting of partners shall ordinarily be held at the registered office of the LLP or at any other place as per the convenience of partners.

11.4. With the written consent of all the partners, a meeting of the partners may be conducted through teleconferencing.

11.5. Every decision taken by the LLP shall be recorded in writing within thirty days of taking such decision and are kept and maintained at the office of the LLP.

12.

Duties of the Designated Partner12.1. The First and Second shall act as the Designated Partner of the LLP in terms of the requirement of the Limited Liability Partnership Act, 2008.

12.2. The Designated Partners shall be responsible for the doing of all acts, matters and things as are required to be done by the LLP in respect of compliance of the provisions of this Act including filing of any document, return, statement and the like report pursuant to the provisions of Limited Liability Partnership Act, 2008.

12.3. The Designated Partners shall be responsible for the doing of all acts arising out of this Agreement.

The LLP shall indemnify and defend its partners and other officers from and against any and all liability in connection with 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 wilful misconduct of the partner or officer seeking indemnification.

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Drafting of Contracts – Templates with Drafting Notes

13.

Cessation of existing Partners13.1. Partner may cease to be partner of the LLP by giving a notice in writing of not less than thirty days to the other partners of his intention to resign as partner.

13.2. 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 LLP with fraudulent purpose or in breach of terms of this Agreement.

14.

Extent of Liability of the LLPThe LLP is not bound by anything done by a partner in dealing with a person if— 14.1. the partner in fact has no authority to act for the LLP in doing a particular act; and 14.2. the person knows that he has no authority or does not know or believe him to be a partner of the LLP.

15.

Maintenance of accountsThe books of accounts of the LLP shall be maintained during the course of the business and these shall be closed on 31st March each year and shall be opened for inspection by the Partners at all reasonable hours at the office of the LLP.

16.

Operation of Bank AccountsThat bank account(s) of the LLP shall be operated by the Parties singly or jointly as may be agreed from time to time.

17.

Miscellaneous Provisions17.1. The LLP shall indemnify each partner in respect of payments made and personal liabilities incurred by him— 17.1.1. in the ordinary and proper conduct of the business of the LLP; or 17.1.2. in or about anything necessarily done for the preservation of the business or property of the LLP.

18.

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Dispute resolution[Please refer to Chapter 15 (15.3.1.2) for template of the Dispute Resolution clause.]

Chapter 1: Partnership

IN WITNESS WHEREOF the parties have put their respective hands the day and year first hereinabove written FIRST PARTY

SECOND PARTY

Witness: a)

Name:______________________________________ Address:_____________________________________ Signature:____________________________________

b)

Name:_______________________________________ Address:_____________________________________ Signature:____________________________________

[NOTE: This is a draft LLP agreement entered between two individuals in India. It may be more detailed depending upon the agreed terms, conditions and arrangement between the parties and also the status and jurisdiction of the parties. Each agreement has to be drafted keeping in view the peculiarities involved in each such situation in order to avoid any conflict of interest in the future or any legal obligations.]

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Drafting of Contracts – Templates with Drafting Notes

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