Commercial Contracts-India FAQs
- What law governs commercial contracts in India?
The Indian Contract Act 1872 is the primary statute governing commercial contract formation, validity, and enforceability. The Specific Relief Act 1963 governs remedies for breach. Sector-specific statutes also apply — the Sale of Goods Act 1930 for goods contracts, the IT Act 2000 for electronic contracts, and FEMA for cross-border payment arrangements.
- Is a verbal agreement enforceable in India?
In principle, yes — oral contracts can be enforceable under the Indian Contract Act 1872. However, practical enforceability requires proof of the terms, which is extremely difficult without documentation. Certain transactions are also required by law to be in writing. ATB Legal recommends written contracts for all commercial arrangements of material value.
- What is a shareholders agreement and why is it important?
A shareholders agreement (SHA) governs the relationship between shareholders in a company and the relationship of the shareholders vis a vis the company — covering board composition, reserved matters, share transfer restrictions, pre-emption rights, drag-along and tag-along provisions, exit mechanisms, and deadlock resolution. Without a tailored SHA, the Companies Act 2013’s default provisions apply, which frequently do not reflect the parties’ commercial intentions.
- What should a distribution or agency agreement cover?
A well-drafted distribution agreement should define territory, exclusivity, minimum purchase obligations, pricing and rebate terms, IP licence scope, sub-distribution rights, term, termination, and post-termination non-competes. Agency agreements additionally need to address the agent’s authority to bind the principal.
- What stamp duty applies to commercial contracts in India?
Contracts executed in India attract stamp duty under the Indian Stamp Act 1899 or applicable state stamp legislation. The rate depends on the document type and transaction value. Instruments that are inadequately stamped are inadmissible as evidence in Indian courts until the deficiency is remedied and penalty paid.
- How should a cross-border contract between an Indian and a UAE party be structured?
The key structuring decisions for an India-UAE contract are governing law, dispute resolution forum, currency and payment terms, and FEMA compliance for cross-border payment flows. Parties may choose Indian law, UAE law, or a neutral law such as English or Singapore law — each has different consequences for enforcement and limitation periods. Arbitration clauses designating a neutral seat such as Singapore or London are common in India-UAE commercial contracts.