KEY

CLAUSES
UNDER
COMMERCIAL
CONTRACT
INTELLECTUAL PROPERTY RIGHTS

 Intellectual Property is simply defined as any form of knowledge or expression created with
one’s intellect.
 Example: inventions, trademarks, trade names, work related to literature, art, music or visuals,
technology, drawing and designs etc.
 IPR clause should stipulate respective rights and obligations of the parties owing and/ or using
such IPRs so as to avoid any disputes or challenges to ownership of old or new IPRs or any
improvements therein.
 Parties should be barred from using each others IPRs unless required in pursuance of the
agreement.
The clause may demarcate the following:-
 Scope of IPR
 Restrictions on the recipient- disclosure, usage etc.;
 Agreement regarding the new IPR developed;
 Assistance to each other for registration of new IPR;
 Obligation to report any violation of the other’s IPR;
 Assistance in pursuing any legal action alleging the violation of the other’s IPR
 Remedy for violation
INDEMNITY
 Section 124 of the Indian Contract Act, 1872
 Indemnification clause is a provision in an agreement under which one party (or both/ all parties)
commits to compensate the other (or each other) for any harm, liability or loss arising out of the
agreement.
 Indemnity clauses are used to manage the risks associated with a contract, because they enable
one party to be protected against the liability arising from the actions of another party. They are
particularly useful when the actions of one party are likely to create a risk which the other party
would otherwise have to bear.
 For example, suppose a manufacturer sells products to a retailer. The retailer may fear that, if the
products are defective, it will be exposed to product liability claims by consumers. The retailer
will usually seek an indemnity from the manufacturer against those claims, in order to be
compensated if such claims arise.  
CONTD…

 Example: XYZ shall indemnify ABC against all losses and expenses arising out of any
proceeding brought by ABC or a third party arising out of XYZ’s breach of its obligations,
representations, warranties or covenants under this agreement.
LIMITATION OF LIABILITY
 This clause limits the amount as well as the types of damages a party can recover from the
other.
 This clause is more prevalent in service agreements and normally favours the service provider
who wants to limit its exposure.
 The enforceability of limitation of liability clauses is not absolute (for example, in case
involving gross and deliberate negligence on part of the service provider) and depends on
merits of each case.
 Example: The Distributor shall have no liability to compensate the Company for any claim
pressed by the latter under this Agreement except as expressly provided under Agreement
DAMAGES………

• “Damages” means compensation for loss

• Burden lies on the injured party to prove his loss
 In 1854, Alderson’s w.r.t to the case of Hardley v/s.
Baxendale, helped to lay down 2 major rules as a result of its
decision:
• General Damages: Actual loss arising in usual course of business Rule in
• Special Damages: Those which are arising on account of the unusual
circumstances Hardley v/s
 The Plaintiff mill had stopped due to broken crankshaft and the
defendant was engaged to carry that to the manufacturer to replace it. Baxendale
The Defendant failed to complete his task in time, thus resulting
losses to the Plaintiff.
Thus we can classify the results as follows:
 General Damages: Loss for non delivery of crankshaft on
time. ……Interpretation
 Special damages: Loss of profit due to non production

Here, the Plaintiff had not disclosed to the defendant that the
delay in delivery of the crankshaft may result into loss of profit
as the line is completely at a halt.
Thus we can conclude that Special Damages are those which are
arising out of special circumstances, unless and if such artifacts
are disclosed by the Plaintiff while entering into contract. Thus
the Plaintiff cannot claim for losses for special damages.
Section 73: Compensation for loss or damages
caused by Breach of Contract

The rule as given in Section 73 are as follows:-

“when the contract has been broken, the injured party is entitled to”-
 General Damages: Those damages which arises naturally in the course of things
 Special Damages: Those damages which arises on account of unusual circumstances affecting the
Plaintiff
Case Law: Horne v/s Midland Railway Co. 1873 &
British Colombia Saw Mill Co. v/s Nettleship 1868
Court Held that- It was pointed out by the court that special damages are recoverable only when the special
purpose of the contract is brought to the notice of the other party.
 Nominal Damages:
It is discretionary power of the court that, it can award nominal CONTD….
damages to the aggrieved part even if he has not suffered any
loss, but just in recognition of his right
Case: Brace v/s Calder, 1895, Queen Bench

 Exemplary or Vindictive/ Punitive Damages:

This damages are given by way of Compensation for loss and
not by way of Punishment for wrong. This damages have no
place in the law of Contract.
Court can award this damages, in case of-
• Breach of promise to marry &
• Dishonour of cheque by banker lawfully
CONTD…

 Liquidated damages (Section 74 of Contract Act, 1872): In this type of damages, the amount
of compensation payable in event of breach of contract is specified.
Case: Ford Motor Company v/s Armstrong, 1915
NON-COMPETE

 Under this clause a party agrees not to compete with the other party in the same/ allied field of
business.
 The non-compete clause may be effective during the validity of an agreement or even for a
stipulated period thereafter, depending on negotiation and requirement of the parties.
 These clauses are more common in agreement related to employment, agency, distributorship,
franchise, joint venture or technical collaborations in particular.
 Any agreement in restrain of trade is void under Section 27 of Indian Contract Act, 1872.
However reasonable restriction can be imposed to safeguard the interest of the parties.
CASE LAW

Supreme Court case, Delhi High Court in LE Passage to India Tours & Travels Pvt. Ltd vs.
Deepak Bhatnagar, observed that under Indian law there is a complete embargo to an agreement
in restraint of the trade with the sole exception that one who sells goodwill of a business may
agree with the buyer to refrain from carrying a similar business “within specified local limits”
provided that such limits appear to the Court to be reasonable, regard being had to the nature of
the business. However, in the garb of the alleged sale of goodwill of the trade, parties cannot
enforce a restraint on the employment even after the employee ceases to be in the employment.
 Example: During the course of his employment with the Company and for a period pf 2 years
thereafter, the Employee shall not, directly or indirectly, advise, manage or render services to
any person or entity similar to the Company’s business
NON-SOLICITATION
 Solicitation of business means to seek business from new or potential clients.
 By this clause, a party can bind the other party (employee, business associate, joint venture partner) not to solicit
business from their clients or entice their employees to join another entity.
 Example:  During the period commencing on the Effective Date and ending one year following the Termination
Date, the Company shall not, without the Advisor’s prior written consent, directly or indirectly; (i) solicit or
encourage any person to leave the employment or other service of the Advisor or its Affiliates; or (ii) hire, on
behalf of the Company or any other person or entity, any person who has left the employment within the one
year period following the termination of that person’s employment with the Advisor or its Affiliates. During the
period commencing on the date hereof through and ending one year following the Termination Date, the
Company will not, whether for its own account or for the account of any other Person, intentionally interfere
with the relationship of the Advisor or its Affiliates with, or endeavor to entice away from the Advisor or its
Affiliates, any person who during the term of the Agreement is, or during the preceding one-year period, was a
tenant, co-investor, co-developer, joint venturer or other customer of the Advisor or its Affiliates.
CASE LAW
FL Smidth Pvt. Ltd. v M/s. Secan Invescast (India) Pvt.Ltd. (“Secan Invescast”) the Madras High Court held
that merely approaching customers of a previous employer does not amount to solicitation until orders have been
placed by such customers based on such approach.
The Madras High Court laid down the standard to establish non-solicitation:
“….solicitation is essentially a question of fact. The appellants should prove that the respondents approached
their erstwhile customers and only on account of such solicitation, customers placed orders with the respondents.
Mere production of quotation would not serve the purpose. It is not that the appellant is left without any remedy.
In case the Court ultimately holds that the appellant has got a case on merits, they can be compensated by
awarding damages. The supplies made by the respondent to the erstwhile customers of the appellant would be
borne out by records. There would be no difficulty to the appellant to prove that in spite of entering into a non-
disclosure agreement, respondent has solicited customers and pursuant to such solicitation they have actually
supplied castings. When there is such an alternative remedy, question of issuing a prohibitory injunction does not
arise.”
NON-POACHING

 Whilst non-compete, non-solicitation and non-disclosure agreements deal with the employer-
employee relationship, a fourth class of restrictive agreement which are often signed by the
parties is the non-poaching agreement which is executed between two employers.
 This type of agreement essentially considers the case wherein two organizations/companies
agree not to solicit or ‘poach’ the employees of their direct competitors. Non-poaching
agreement per se does not contravene Section 27 of the Contract Act as it does not restraint an
employee from seeking and/or applying for any job/employment. What this class of agreement
does instead is, it simply mandates that one competitor should seek the consent of the other
before hiring that other competitors’ employee/s.
CONTD…

 Usually, such agreements are also alleged by the parties to be violative of The Competition
Act, 2002 especially, Section 3 which prohibits agreements that are anti-competitive in nature
and have adverse effects on competition in India. However, non-poaching agreements usually
don’t fall under Section 3 because it does not ban lateral hiring, but as a substitute, sets
guidelines to be followed in case of such hiring
TERMINATION

 The termination of an agreement could either be mutually agreed by all the parties or initiated
by one or more parties to the agreement.
 It is also customary to define a “Material Breach” under an agreement to set benchmark for
an affected party to terminate the agreement.
 If the agreement is to be terminated for a reason (say, a breach), it is usual to give a notice to
remedy the breach, if it can be remedied. A termination notice follows in case of the breach not
being remedied
 Generally, an agreement is terminated with immediate effect in very urgent and grave situation.
EXAMPLE
 Each party shall have the right to terminate the Agreement by giving 15 days notice to the
other party.
 Either Party may terminate the Agreement upon a Material Breach of a provision of the
Agreement after giving a 30 days notice to the breaching party to cure breach. The Company
shall have the right to terminate the Agreement with immediate effect in the event of a Material
Breach by the other party. For the purpose of this clause “Material Breach” shall include:
– Any violation of the terms of clauses;
– Any other breach that the party has failed to cure within 21 days after receipt of written notice;
– An act of gross negligence or willful misconduct
 The Agreement may be terminated by either of the Parties, without assigning any cause and
without any liability, by giving 3 months prior notice of such termination to the other party or
fees in lieu thereof.
REPRESENTATIONS AND
WARRANTIES
 A representation is simply a statement of fact upon which another party is expected to rely.
 A warranty is a party’s assurance to the other as to facts along with a commitment to indemnify,
if that fact so represented is false.
 Remedy for a breach of warranty is damages. There is no automatic termination right for the
buyer on a breach of warranty and only damages are recoverable.
 Warranties can either be expressed or implied.
 Expressed warranties: Incorporated in an agreement (hold up better in court)
 Implied warranties: Imply that the product/ services should be fit for a particular purpose
CASE LAW

 General Insurance Co v. S P Maheswari AIR 1960 Mad 484: The Court stated that,
"Warranties are representations which are made the basis of the contract whereas a
representation is not strictly speaking a part of the contract or of the essence of it, but rather
something preliminary and in the nature of an inducement to it.“
 Example: The Company has the full right, power and authority to enter into this Agreement
and each agreement, document and instrument to be executed and delivered by the Company
pursuant to this Agreement and to carry out the transactions contemplated hereby and thereby.
JURISDICTION

 A commercial contract is a legal relationship. This raises the immediate question: a relationship under
which laws? Different countries have different laws and the content and effect of those laws can vary
greatly. Similarly, it is inevitable that contracts will produce disputes from time to time. How will those
disputes be handled?
 A jurisdiction clause therefore states that the parties have agreed to the courts of a named country taking
jurisdiction over (in other words, having the right to hear) any disputes that may arise. Usually a
jurisdiction clause will provide for either "exclusive" or "non-exclusive" jurisdiction.
 Example of Exclusive Jurisdiction-This Agreement is governed by and shall be construed in accordance
with the laws of India. The courts of competent jurisdiction within the city of Bangalore shall have
exclusive jurisdiction over any and all disputes relating to this Agreement or performance there under, and
the Parties waive any objections thereto, and submit to the said courts.
 Example of Non Exclusive-  Each of the parties hereto hereby submits to the non-exclusive
jurisdiction of the United States District Court for the Southern District of New York and of
any New York State court sitting, in each case, in the Borough of Manhattan, The City of New
York for purposes of all legal proceedings arising out of or relating to this Indenture or the
transactions contemplated hereby.
 Case Law- ABC Laminart v A.P Agencies
It was held by the court that in the absence of words – “Only”, “alone” and “exclusive”, the
maxim of “Expressio unius est exclusio alterius” is to be used which means the explicit mention
of one is the exclusion of another. 
ARBITRATION

• One of the mechanism of ADR where the parties agree to resolve their disputes through
arbitration. This process allows a third-party Arbitrator to help with discussions between the
parties.
• Can be either binding or nonbinding. A binding arbitration clause means that the Arbitator’s
decision on a specific dispute will be final and the courts will enforce it and neither party can
appeal or not follow the decision. A non-binding arbitration clause allows parties to be free to
reject the arbitrators decision and take the dispute to court to make a final determination.
Usually parties use binding arbitration clauses since its more decisive
 Arbitration can be voluntary agreed by the parties to the transaction or can be mandatory
required by the courts.
 Example – All disputes or difference arising between the Parties as to the effect, validity or
interpretation of this Agreement or as to their rights, duties or liabilities shall be resolved
amicably between the Parties, failing which the dispute arising out of or in relation to the
breach of the working of, to the interpretation of the constructive meaning effect in relation to,
in respect of this agreement shall be referred to Arbitration under a sole arbitrator upon the
filing of a Request for Arbitration by either party.
INJUNCTIVE RELIEF
 For certain types of contracts, no monetary damage helps if the breaching party continues their problematic
behavior. This is where injunctive relief comes in. Courts can stop a party from disclosing or using
information protected by the contract including stopping them from selling a patented product, leveraging
information for their personal gain, putting pressure on the company, and more. Contracts can limit
damages or be drafted so that they specifically include injunctive relief as well as monetary damages.

 Example- The parties hereto acknowledge and agree that irreparable damage would occur in the event any
of the provisions of this Agreement were not performed in accordance with their specific terms or were
otherwise breached. It is accordingly agreed that the parties shall be entitled to an injunction or injunctions
to prevent breaches of the provisions of this Agreement, and shall be entitled to enforce specifically the
provisions of this Agreement, in any court of the United States or any state thereof having jurisdiction, in
addition to any other remedy to which the parties may be entitled under this Agreement or at law or in
equity.
AUDITS OF SERVICE
 An audit clause is essentially an agreement to provide documents. Typically it gives a principal the right to "audit" a
contractor's books and records in respect of the contractor's compliance with its obligations under a contract.
 Things to consider in an audit clause-
• Is it clear from the clause what records fall within its scope? Should you limit the scope?(for example, documents
"limited to the contract, invoices and time sheets");
• Does the clause contains words which may inadvertently expand the scope: such as "relating to" or "any other
documents an auditor may reasonable require"?
• How will confidential documents be dealt with?
• Can you refuse inspection based on privilege?
• What use can the principal make of the records provided?
• Does the audit clause provide any extra burden on you, and if so, who bears the cost of same? For example, if you are
required to store hard copy documents for 12 years, who pays the storage costs? If it would take 1,000 hours to collate
and check the records who pays this cost?
CONTD…

• Case Law: In Transport for Greater Manchester v Thales Transport & Security Limited [2012] EWHC 3717
(TCC) - court ordered specific performance in relation to an audit clause.
 Example of Audit Clause - Each Party shall have the right, at its sole expense and during normal working hours,
to examine the records of the other Party to the extent specifically relating to the transactions hereunder and
reasonably necessary to verify the accuracy of any statement, charge or computation made pursuant to this
Agreement. If any such examination reveals any inaccuracy in any statement, the necessary adjustments in such
statement and the payments thereof will be made promptly and interest calculated at the Default Rate from the
date the overpayment or underpayment was due until (but not including) the date paid; provided, however, that
no adjustment for any statement or payment will be made, and the same shall be deemed correct unless objection
to the accuracy thereof was made prior to the lapse of one year from the rendition thereof; and provided further
that this provision will survive any termination of the Agreement for a period of one year from the date of such
termination for the purpose of such statement and payment objections.
PAYMENT TERMS
 One of most important clauses in a contract which describes the payment of goods or services in the
particular commercial transaction. It includes the mode of payment, duration of payment, addressing late
payments (including interest charges), invoice disputes, and setoff rights. 
 Example – Unless specified otherwise, Service Provider shall invoice the Client on a monthly basis for the
Services rendered. All invoices will be submitted to the billing address provided by the Client and the
Client undertakes to pay/clear such invoices within 30 days from the date of submission of the invoice.
Any default of payment, subject to the terms of this Agreement or without reasonable cause shall entitle
Service Provider to suspend or terminate this Agreement giving 30 (thirty) days notice period.
 Any invoices not paid within thirty (30) days from the date of invoice shall be subject to interest accruing
at two percent (18%) per month from the due date until all amounts, including the principal outstanding
balance and all interest, are paid in full. Client shall pay Service Provider for any and all reasonable
expenses of collection, including, but not limited to, reasonable attorney's fees.
CONFIDENTIALITY

 Purpose of confidentiality clause is to protect a specific information or treat such information

as a trade secret and not to disclose the secret to others without proper authorization. Includes
the definition of CI, exclusions of CI, Obligations of Receiving party, Time frame.
 Case Law - Saltman Engineering Co. v. Campbell Engineering Co. (1963) 3 All. E. R. 413.
This was not a case of contract, but a duty not to use information of a process was extended to
a person receiving information in circumstances showing confidence, e.g. by one trader to
another and the latter making use of it by way of competition with the former (Peter Pan
Corpn. V. Corsets (1963) 3 All. E.R. 402, 406).
CONTD….

 Example- The Parties acknowledge that the existence and the terms of this Agreement and any oral or written
information exchanged between the Parties in connection with the preparation and performance this Agreement are
regarded as confidential information. Each Party shall maintain confidentiality of all such confidential information, and
without obtaining the written consent of the other Party, it shall not disclose any relevant confidential information to any
third parties, except for the information that: (a) is or will be in the public domain (other than through the receiving
Party’s unauthorized disclosure); (b) is under the obligation to be disclosed pursuant to the applicable laws or
regulations, rules of any stock exchange, or orders of the court or other government authorities; or (c) is required to be
disclosed by any Party to its shareholders, investors, legal counsels or financial advisors regarding the transaction
contemplated hereunder, provided that such shareholders, investors, legal counsels or financial advisors shall be bound
by the confidentiality obligations similar to those set forth in this Section. Disclosure of any confidential information by
the staff members or agencies hired by any Party shall be deemed disclosure of such confidential information by such
Party, which Party shall be held liable for breach of this Agreement. This Section shall survive the termination of this
Agreement for any reason.
INSURANCE

 The insurance clause supports the promise made in the indemnification by providing the indemnifier the
financial resources for losses that may result from a claim. Types of Insurance coverage are- General
Liability Coverage, Professional Liability, Products Liability.

 Example- The Company and the Subsidiaries are insured by insurers of recognized financial responsibility
against such losses and risks and in such amounts as are prudent and customary in the businesses in which
the Company and the Subsidiaries are engaged, including, but not limited to, directors and officers
insurance coverage at least equal to the aggregate Subscription Amount. Neither the Company nor any
Subsidiary has any reason to believe that it will not be able to renew its existing insurance coverage as and
when such coverage expires or to obtain similar coverage from similar insurers as may be necessary to
continue its business without a significant increase in cost.