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GENERAL COMMERCIAL KNOWLEDGE

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AN OVER VIEW OF MANAGEMENT OF COMMERCIAL CONTRACTS

(By S. KRISHNAMURTHY, B.Com., FCA.) VISITING FACULTY : IIM-B

1. INTRODUCTION

CONTRACTS are the backbone of all commercial activities. Not a minute is spent without carrying out contractual obligations by any business executive. The complexities of various types and kinds of contracts are phenomenal. This arises due to each contract giving "birth" to several legally independent but commercially inter-dependent contracts. Like biological cells, contracts multiply, replicate & mutate etc.

Consequently, legal issues governing the contracts are also numerous. A wide variety of statutes, rules, regulations encompass commercial contracts. However these normally do not interfere with customary and traditional practices and conventions. In other words the statutes act more, as gap-filler for the contractual terms not provided for. They also afford protective measure to innocent common person from being unduly exploited.

The on-going phenomenon of Liberalisation, Privatisation and Globalisation, has added new dimensions to handling of Commercial Contracts, due to the difficulties arising out of different customs, tradition, practices, laws, rules and regulations in different countries (or even in different regions)

To bring about uniformity in understanding of international contracts and trade, a host of International Institutions and Conventions such as WTO, ICC, UNCTAD, WCO, WB/IMF, UNIDO, FIDIC etc. have introduced several rules and models for various types of Commercial Contracts. The Information Technology and Electronic Data Interchange have further brought about a sea change in the handling of commercial contracts. For eg. United Nations rules on Electronic Data Interchange for Administration, Commerce and Transport (EDIFACT Rules) are intended to make international commercial transactions better and faster; CMI rules for Electronic Bills of Lading have also been introduced. E.Commerce is resulting in a paradigm shift in the handling of commercial contracts.

In India also several changes in the laws, rules, regulations and practices in Commercial Contracts are being implemented as a logical sequence to opening up of our economy to global competition. For example, w.e.f 16.8.1996 a new Arbitration and Conciliation Act 1996 drawn in accordance with UNITED NATIONS COMMISSION ON INTERNATIONAL TRADE LAW (UNCITRAL) have come into force in India; another example is the Information Technology Act 2000 based on U.N. Electronic Commerce Rules.

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2. CERTAIN IMPORTANT ELEMENTS of COMMERCIAL CONTRACTS :


# # # # # # Competence Performance Force Majeure Escalation Penalty Jurisdiction # # # # # Free-will Essence Limitation Variations Termination # # # # # # Consideration Breach Conciliation Warranty Confidentiality # # # Payment Liquidated damages Guarantee

# Arbitration # Specification

Enforceability

TAXATION ASPECTS OF CONTRACTS SUCH AS


* Excise & Modvat / CENVAT w.e.f. 1.4.2000 * Sales Tax/VAT (Including ST on Works Contract etc.) * Customs duties * Service Tax etc. * Income Tax * TDS Provisions * Double Taxation Agreements

3. ILLUSTRATIVE TYPES AND KINDS OF CONTRACTS :


Turn-Key Hire Dealership Forfaiting Supply Lease Indemnity Factoring Erection Boot Guarantee Service Transport Agency Maintenance

Counter-trade Works-Contract

Consultancy etc.

Combination of the above such as BOO, BOLT, BOOT, LSTK etc.

4. OTHER MISCELLANEOUS & IMPORTANT ASPECTS OF COMMERCIAL CONTRACTS:


Foreign Exchange Letters of Credit Marine Insurance Royalties Off-Shore deals ICBs Negotiable Instruments Transfer of Title Bid Bonds Fire & General Insurance Intellectual Property Rights High Sea Sales Export Credit Guarantee etc. Product Liability Insurance Transfer of Technology Collaborations

Overseas Investment guarantees

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5. SOME OF THE IMPORTANT INTERNATIONAL CONVENTIONS INTERNATIONAL TRADE ASPECTS (ILLUSTRATIVE) : WTO (GATT) provisions on # # # # # # # # # # # # Import - Export Valuation Anti-dumping & Subsidy Trade Related Intellectual Property Rights (TRIPS) Trade Related Investment Measures (TRIMS) General Agreement on Trade in Services (GATS) Agreement on Technical Barriers Import licencing & notification procedures. Uniform Law for International Contracts for Sale of Goods (CISG) Dispute settlement Rules and Procedures

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UNICITRAL (United Nations Commission on International Trade Laws):

United Nations Convention on Independent Guarantees and Standby Letters of Credit (brought into force by ICC w.e.f. 1.1.1999 vide ISP98 - ICC No. 590) UN Rules on Electronic Commerce UN EDIFACT RULES (Electronic Data Interchange Rules for Administration, Commerce & Transport) (www.unido.org; www.oecd.org) Double Taxation & of Technology; Collaborations. UNIDO Models on COLLABORATIONS OECD Treatise on Transfer Pricing HSN Classification of goods.(with Explanatory notes) Cross Border Formalities Information Exchange on Value. ATA Carnet implementation Conditions of Contract for Works of Civil Engineering Construction Conditions of Contract for Electrical & Mechanical works including erection on site Client/Consultant Model Services Agreement

UNIDO/OECD # # #

World Customs Organisation (BRUSSELS) regarding : # # # #

FIDIC (Federation Internationale des Ingeneurs Conseils) Belgium (www.fidic.org) on: # # #

6.

1107 CERTAIN IMPORTANT OPTIONAL RULES/ GUIDELINES/ SUGGESTED MODELS FOR UNIFORMITY IN INTERNATIONAL TRADE : INTERNATIONAL CHAMBER OF COMMERCE (ICC) PARIS:*

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GUIDELINES, DEFINITIONS, MODELS RULES ON -

P Formation of Contracts & Pre-contractual liability (ICC - 440/9) P Penalty & Liquidated Damages (ICC - 478) P International Commercial Terms (ICC - 560) w.e.f. 1.1.2000 P Force Majeure & Hardship (ICC 650 wef from 1.1.1003) P ICC shortform Model Contracts-Intl.com agency & distributorship(ICC634) P ICC Model mergers and Acquisitions contract Share Purchase(ICC656) P ISBP for examination of documents under Doc. Credits UCP600 (ICC681) P Distributor/Dealership Contracts (ICC - 518) P Arbitration (ICC - 581) P Counter Trade & Offsets (ICC - 447/7) P Uniform Rules for Collection (URC) (ICC - 522) P Letters of Credit (UCPDC) (ICC - 500)- UCP P Managing Exchange Rate Risks (ICC - 549) P Guide to Incoterms 2000 including CMI Rules for Electronic Bills of Lading & COMBITERMS (ICC - 620) P Uniform Rules for Conduct for Interchange of Trade by Tele Transmission (UNCID RULES) (ICC - 542) P International Standby Practices ISP98 (ICC - 590 w.e.f. 1.1.1999) P Model International Sale Contract (ICC 556) P Model Occasional Intermediary Contract (ICC 619) P Model International Franchising Contract (ICC 557) P Model Contract for Turnkey Supply of Industrial Plant (ICC-653) P ICC Legal Handbook on Global Sourcing Contracts (ICC663)

600 WEF 1.7.07

# # #

ICC ADR (Amicable Dispute Resolution) Rules A to Z of International Trade (ICC 623) International Commercial Transactions (ICC 624) .
Fax:(011)23320714 & 23721504 E.Mail: iccindia

All ICC publications and price lists are available with ICC INDIA, Federation House, Tansen Marg, New

Delhi 110 001. Ph:23738760/ 70 (11 lines)23739229

@del2.vsnl.net.in. Anyone can become a member of ICC India for an annual subscription

1107 7 WB / IDA / ADB* guidelines on # Global Tenders. Page 4 of 5

# # #

Qualification & Selection of Bidders. Consultancy contracts. Multilateral Investment Guarantee Agency. (MIGA) * Information on the above can be got from:

World Bank 1818, H. Street, N. W. Washington D.C. 20433 USA Website: www.worldbank.org; or www.miga.org; www.asiandevelopmentbank.org EXIM BANK OF INDIA also has the above details.

Development Business (UNDB), UN Department of Public Information UN Plaza, New York 10017, USA

AND/ OR

ASIAN AND PACIFIC CENTRE FOR TRANSFER OF TECHNOLOGY (APCTT) (UN-ESCAP) Technology offers Technology requests. * TECHMONITOR & VATIS (Value Added Technology Information Service) are their publications (6 issues a year). Their address is APCTT, P.B. No. 4575, Off New Mehrauli Road New Delhi - 110 016 India These are very important & valuable publications, Ph: 26856276, 26966619,2 6966629 very in-expensive & useful. Every organisation Fax: (011) 26856274 small or big should subscribe to this. - SK e-mail: postmaster @ apctt.org Internet: http/www.apctt.org Biotechnology, Non-Conventional Energy, Food-Processing Ozone-layer protection, Waste-technology.

VATIS updates are on:

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