A decade ago, people used to work on mutual understanding and moral value to carry out their legal activities through professionals like chartered accountant, company secretary or advocates but then the same people had start dealing with each other in proper black and white form.
So, how the things turn upside down, why the verbal promises is replaced by written clauses and trust turns into an agreement. Basically in the changing scenario of the corporate world, professionals are also evolving through the practice of the market. Since every form of business be it a proprietorship, partnership, LLP or Company is engaging professional in one or other way, Professionals had experienced that having a contract or an agreement makes their work easier and hassle free as every terms is written in black and white and there is no place for ambiguity.
It can be said without any iota of doubt that parties to any agreement/contract consider themselves more secured as it provide transparency in the work.
At the time of execution of any agreement one must keep in mind that an agreement should be balanced one and it should be as per The Indian Contract Act, 1872 and law of the land, this will enable the parties to enforce any clause during distress or seek suitable remedy from court of law.
However it is being observed that parties generally enters some clauses that makes an agreement more favourable to their terms and to secure their interest.
Some of the clauses like not to file suit or not to carry out business with competitor for 5-6 years post termination or expires by effluxion of time. Both clauses as mentioned above are against the provisions given section 27 and 28 of the Indian Contract Act i.e. Agreement restraint of trade void and Agreement in restraint of legal proceedings void respectively.
Therefore it is imperative to understand the basic of drafting a qualitative service level agreement
Before starting with the main terms and conditions of any service agreement it is very essential to write down the recital I.e. background.
It basically sums up the intention behind both the parties to execute the agreement. Further recitals also plays a pivot role at the time of dispute between parties the recitals help the court to ascertain the purpose of the agreement and intention thereof.
Main Terms and Conditions:
- Appointment & Scope of Services : So first thing first, it is necessary to mention in specific that the professional appointed has accepted its appointment in good faith and with free consent and mind i.e. without any kind of fraud, coercion, undue influence and scope of work needs to be elaborated in proper manner so that it will leave no room of doubt at later stage.It should also include the manner in which any additional work to be dealt with which is neither specifically mentioned in the scope of work nor agreed at the time of entering into an agreement. like whether the additional work has to undertaken or not and if the same has to pursue, then what will be amount to extra commercial charges and how and what would be the formula and methodology of deriving it.
- Professional Charges and applicability of Taxes etc.: Professional charges must be specifically mentioned like whether the same are charged on hourly basis or on lumpsum fixed amount basis.Tax treatment on professional charges also mentioned whether the same would be inclusive or exclusive of taxes like GST as per Goods and Service Tax Act, 2016 and time to time amendment therein. Like in case of charges from law firm, reverse tax mechanism is applicable as under section 9 of the GST Act, wherein they are not required to impose GST on the services provided by them.
- Period: Period of Agreement to be mentioned specifically like 1 year, 2 year etc. further it is also important to capture the treatment of agreement after expiry of period, means herewith, whether the agreement would be extended for further period automatically and parties would decide before expiry of period.
- Reimbursement of out of pocket Expenses: Intent of this clause is to remove doubt at later stage like how the travel expenses, one to one meeting expenses, government filing fee etc. would be meet out, so whether the additional charges for the same, if any, to be mentioned in the agreement from the day one or the parties to the contract can simply mentioned that above expense would be required prior approval of other party before expenditure.
- Duties of Professional: Roles and duties of the Professional must be specified clearly without keeping any room for ambiguity. For eg. Timeline for work completion, not to give any false statement, not to indulge in any wrong practice, work according to scope of work etc.
- Duties of Owner: Agreement should state the duties of the owner as well taking services from the professional like to make timely payment, not to make any false statement, provide time to time desired information’s to the Professional etc.
- Ownership of Documents & Information: Any documents, records or materials prepared by the Professional while rendering his services to the Owner shall be handed over to it. The Owner shall be the sole owner of the same and Professional shall not claim his ownership and charges paid to it for rendering services shall be the sole consideration.
- Warranties and representation by the Parties: Extra precaution and time needs to be given while drafting warranties and representation of the parties. It helps a lot at the time of dispute and in the court of law. Some of the W&R’s are
(1) both the parties have the right to enter into this Agreement,
(2) both the Parties hold the licenses, registration and done all the compliance as required for providing and availing services,
(3) authorised to enter into an agreement and
(4) have proper infrastructure, experience and knowledge to carry-out the scope of work.It is also important to mention specifically that the W&R’s would not only require to be fulfilled and complied at the time of entering into an Agreement but throughout the tenure of the Agreement.
- Intellectual Property Right: All intellectual property and related information including goodwill, relevant registration, trade secrets, and right in relevant copyright, patent, trademark shall and will be the Sole property of the Company/ Owner. The Owner/ Company can use the same without any restriction and the Professional shall use only with the written consent of the Client.For eg: Professional has provided a service of trademark registration to the Company. On successful registration, the Company/ Owner can use the said mark for his business purpose, but the Professional shall use only after obtaining necessary approval from the Company/ Owner in the manner as may be permitted by the Company/ Owner to the Professional and at the time of termination, shall duly hand over the said mark to the Company/ Owner.
- Confidentiality: It is important to capture this clause to keep the information and documents secured as shared with the professional by the Company. It is important to lay down the type of information’s and document which would be shared and to be kept secure and save from unwanted disclosures.
So it is very important to define the confidential information properly mean thereby what would be considered as confidential and what type of information’s and documents would come under the ambit of it. It is also important to mention that who and how someone can have access to whose confidential information’s.Handover of Documents: Upon the expires by effluxion of time or termination of the Agreement, the Service Provider shall hand over all the documents, confidential information, records of the Client prepared on his behalf by the Service Provider.
- Indemnity: the term Indemnity is defined under Section 124 of the Indian Contract Act, 1872 wherein it is stated that “A contract by which one party promises to save the other from loss caused to him by the contract of the promisor himself, or by the conduct of any other person, is called a “contract of indemnity”.Under the Service Agreement with the Professional, Indemnity clause helps to protect the Party from the wrong doing of other party under the Agreement. In case of breach of duty on the part of each Party, the Party committing the default shall indemnify the other party and make good the loss suffered
For e.g. Suppose a person had provided a professional Service and relied upon which other person has acted and consequently other person has faced legal actions and losses, now in such a scenario, other person may ask the first person to indemnify from the losses occurred due to its mistake.
- Force Majeure: This clause specifies that what would be the scenario which will be considered as beyond the reasonable control of the Parties wherein, party in default shall not be responsible for the non-compliances. Like Fire, drought, earthquake, lockout etc.
- Termination: Terms on which the agreement stands to be terminated shall be mentioned specifically in the Agreement. Few of the clauses can be:
- on completion of service
- on expiry of the term
- continuous delay in completing the work etc
- abuse/insult of parties
- misuse of information and records
- on breach of duty
- non payment of fees on time
Notice Period which needs to be given need to be mentioned.
- Miscellaneous Provisions:
- Bribery: Professional shall not offer any kind of bribe to get the work or to get the work done and shall not support any corruption activities.
- Relationship: What would be the legal relation between both the parties. Will it be of Principal to Principal basis or Principal to Agent basis.
- Notice: The Agreement must specify the address where Party to the agreement shall serve notice and mode of communication.
- Conflict of Interest: Professional must ensure that there is no conflict of interest while rendering its services to Company.
- Severability: In the event any clause being unenforceable in whole or any part, for the time being, then all other clause shall remain enforceable and valid and unenforceable part shall be severed from the remaining of agreement.
- Time is Essence: Time is Essence meaning thereby that the assigned work must be completed within the given time period and not goes beyond that.
- Assignment: Can the work, benefit, obligation etc. can be assigned to any third party or not? If yes, then will there be any prior approval for the same.
- Waiver: Whether the waiver of any clause would be allowed or not this must be specified.
- Modification: The Service Agreement shall be modified only with the mutual consent of the Parties.
- Arbitration: In case of any dispute, the Parties can mutually agree to settle the dispute through arbitration also and same shall be carried out as per the provision of Arbitration and Conciliation Act, 1996 and amendment therein from time to time.
- Jurisdiction: Which court shall be entitled to entertain the dispute, if any, arise between the Parties to the agreement.
- Governing Law: what would be the governing laws for the Agreement whether it would be of India or of some particular state or of some other country.
All the above clauses are illustrative list not exhaustive, Terms and conditions vary on basis of parties, nature of work, scope of services etc. Majorly above clauses creates a significant impact on the agreement and makes it more qualitative.