5 Clauses Every Indian Business Contract Must Have

Scope of Work / Deliverables Clause

This is the most fundamental clause in any services or supply contract — and the most commonly left vague. The Scope of Work defines precisely what one party is obligated to deliver: what, how much, by when, and to what standard.

Vague language like "provide marketing services" or "supply goods as required" is an invitation to dispute. When expectations are not clearly defined, each party fills in the blanks with their own assumptions. What results is a conflict that was entirely preventable.

BSA Legal tip: Attach a detailed Schedule or Annexure for the scope, rather than cramming everything into the main body of the contract. This makes amendments easier without needing to rewrite the entire agreement.

Payment Terms & Late Payment Clause

A contract without clear payment terms is a debt recovery lawsuit waiting to happen. The payment clause must specify: the amount or pricing mechanism, the due date, the mode of payment, invoicing requirements, and — critically — the consequences of late payment.

Under the Micro, Small and Medium Enterprises Development (MSMED) Act, 2006, if you are an MSME supplying to a larger buyer, you are entitled to interest on delayed payments at three times the bank rate. This is a powerful protection that many MSMEs don't know they have — but it only works if the contract properly documents the transaction.

Also include what happens if a payment is disputed — whether the undisputed portion must still be paid, and the process for raising a formal dispute on an invoice.

Limitation of Liability Clause

Without a limitation of liability clause, you could theoretically be held responsible for consequential losses — lost profits, reputational damage, downstream customer claims — that far exceed the value of the contract itself. This is how a ₹5 lakh contract turns into a ₹50 lakh lawsuit.

A well-drafted limitation of liability clause caps your maximum exposure (typically to the total fees paid under the contract in the preceding 12 months) and excludes liability for indirect or consequential losses entirely.

Note: Courts in India will scrutinise exclusion clauses — they must be reasonable and clearly brought to the attention of both parties. An experienced lawyer can draft these to be enforceable under Indian law.

Termination Clause

Every contract must clearly define how and when each party can exit the arrangement — and what happens when they do. Without a termination clause, either party can be stuck in a contract indefinitely, or face a claim for breach if they attempt to exit.

A complete termination clause addresses three scenarios:

• Termination for breach — if one party materially breaches the contract, what notice must be given and what cure period (if any) is allowed before termination is triggered?
• Termination for convenience — can either party exit without cause, and if so, with how much notice and what compensation?
• Consequences of termination — what happens to work in progress, advance payments, IP created, and confidential information upon termination?

Dispute Resolution & Governing Law Clause

When things go wrong — and sometimes they do — this clause determines how the dispute is resolved and in which court. Without it, parties end up fighting over jurisdiction before they even get to the substance of the dispute.

Indian law gives parties significant freedom to choose their dispute resolution mechanism. The three main options are:

• Litigation — disputes are resolved by designated courts. Specify the city/jurisdiction (e.g., "Courts of New Delhi shall have exclusive jurisdiction").
• Arbitration — disputes are referred to a private arbitrator under the Arbitration and Conciliation Act, 1996. Faster, confidential, and the award is enforceable. Recommended for high-value commercial contracts.
• Mediation followed by Arbitration — parties first attempt mediated settlement; if that fails, the matter goes to arbitration. This is increasingly favoured in commercial contracts.

Always specify the governing law — for contracts involving foreign parties, this is especially important, as different jurisdictions have very different rules on contract interpretation and enforcement.