From morning until night, almost every person enters into some form of contract in their daily life. For instance, a person may plan to buy or sell a house, vehicle, equipment, shares, or other assets. For such transactions, the person is required to enter into a contract and execute it properly in order to confer legal enforceability upon the transaction. Accordingly, it can be said that every individual, at some point in life, is required to deal with a contract.
Every draftsman, while drafting any contract, must acquire and develop certain skills so that he or she can effectively do justice to the drafting process. A draftsman should clearly understand the intention and purpose behind the parties entering into the contract so that the draftsman can give a proper legal form to those intentions. The objective should be to translate the understanding of the parties into a clear written document without ambiguity and without violating any applicable law governing the parties to the contract.
A draftsman should also possess comprehensive knowledge of the relevant laws while preparing a contract. For example, if a client intends to enter into a residential or commercial lease agreement, the draftsman must be aware of the provisions of the Indian Stamp Act, 1899, the Registration Act, 1908, the applicable Rent Control Act, and other relevant statutes. Based on this knowledge, the draftsman must properly advise the client. For instance, if the parties intend to enter into a lease agreement for a period exceeding one year, such an agreement is mandatorily required to be registered under the provisions of the Registration Act, 1908.
Therefore, a prudent draftsman should ensure that all essential elements of a valid and effective contract are incorporated while drafting. By doing so, the interests of both parties can be adequately protected and the possibility of misunderstandings or disputes can be minimized.
At this stage, an important question may arise in the mind of many individuals: how can a person acquire and develop the necessary skills required for drafting contracts? Further, what criteria should be followed to ensure that a contract drafted by a person adequately covers all important aspects?
In practice, contract drafting skills can only be acquired and refined through consistent and correct practice. Such expertise cannot be developed overnight, within a day, a week, or even a month. However, it is equally important that the person practicing contract drafting follows the correct approach and keeps certain fundamental principles and standards in mind while preparing any contract.
An illustrative list of key points, which may prove useful and should be kept in mind by a draftsman while drafting any contract for a client, is provided below.
1. Description of Parties: All the parties to contract should be clearly identified and their details should be clearly mentioned in the contract without leaving any place of ambiguity.
2. Recital: Recital contains the background and reason for entering into the contract. Here the background and the intention of the parties that why they are entering into contract are provided.
Generally the recital is not taken as evidence in case dispute arises but in exceptional circumstances recital may be used by the court of law for the purpose of taking it as evidence. In case there is some ambiguity in the interpretation of the operative part then court may take the help of the recital to interpret the contract.
Even it has been established by the court of law in the case of Ram Charan v. Girija Nandini, 3 SCR 841 (1965), that recitals carry evidentiary importance in the deed.
3.Knowledge of Fact: While drafting any contract being a prudent draftsman, he/ she should confirm from the parties to the contract and write down the important facts of the contract. Suppose a person is intending to enter into commercial lease transaction then being a good draftsman he/she should have the knowledge about the area like whether entering into commercial transaction is permissible into that area or not.
4. Knowledge of Law: A prudent draftsman should have the knowledge of the laws applicable to the concerned contract. Suppose a person is planning to enter into shareholder contract then the draftsman should have the knowledge of Companies Act, 2013, Indian Stamp Act, 1899 and Registration Act, 1908 etc. so that intention of the parties to the contract can be suitably mentioned without violating and breaching any applicable law.
5. Be Clear: The terms and language used in any contract must be clear and easy to understand. A prudent draftsman should use only simple and straight language and the language which may create confusion in the mind of the reader should be avoided. For example if draftsman write the word “not less than 100 rupees” this might be little bit difficult and create confusion in the mind of the reader that whether author was intending to include 100 rupees or not. So instead of this draftsman can simply write “at least 100 rupees”.
6.Detailed: A prudent draftsman should try to express the intention of the parties to any contract in detail and nothing should be left upon the parties to interpret. A draftsman should use only specific language which to keep less room of double interpretations and by expressing everything in writing the draftsman is simultaneously reducing the chances of future disputes. Suppose if a draftsman is writing that the “payment shall be made on the mid month of the each month” this might be little bit difficult and create confusion in the mind of the reader rather than writing this a draftsman should write the payment shall be made on or before 15th day of each month.
7. Headings: The draftsman while drafting any contract should try to make proper heading of every clause to the possible extent. Because by doing this it will be easy for the reader to the contract to interpret any particular clause of contract. But the draftsman while making heading should take certain precautions as the headings should be matched and in the line of the content of the particular headings.
8. Important Term and Conditions: Important terms and condition to the contract must be specifically mentioned by the prudent draftsman after ascertaining the fact from the client and having good knowledge of the laws applicable, if any. Here the terms like right and obligations of the each party, warranties and representation etc. are specifically mentioned.
9. Termination Clause: The termination clause should be mentioned after doing proper discussion with the parties to the contract as it play key role in any contract. Here the terms on the basis of which contract shall be terminated and what shall happen upon the termination of contract like liabilities of the parties etc. shall be mentioned clearly.
10. Stamping and Registration: Detailed particulars for who shall bear the cost of stamp duty and registration of a contract must be specified clearly because in some case registration of a contract is compulsory. Suppose a party is entering into commercial lease deed transaction for a period more than one year then such lease deed is required to be registered as per the provisions contained under the Registration Act, 1908. So in such a situation who will bear such registration charges should be specifically mentioned by the draftsman meaning thereby Lessee or Lessor or both.
11. Arbitration Clause: The prudent draftsman should mention the arbitration clause in the contract clearly. The need of arbitration clause arise only when dispute arise between the parties to the contract.
Although it is not mandatory to have this clause in the contract but in case the contract did not have this clause and dispute arise between the parties to an contract, then such dispute shall be referred to the court and in India approaching court is presently very time and money consuming exercise and on the different side arbitration is less time and money consuming exercise so it is suggested to have this clause in an contract.
The draftsman should also mention that the arbitrator shall be appointed by the consent of the both the parties.
12. Jurisdiction: In case of dispute, which state or city court of law shall be entitled to entertain the dispute, if any, arose between the parties to the contract.
The draftsman needs to mention specifically in order to remove ambiguity at later stage.
Ingenuity for Drafting Contracts: Essential FAQs
1. How can a person acquire and develop contract drafting skills?
Drafting skills are acquired and developed through consistent right practice over time; they cannot be mastered overnight, within a week, or even a month. A draftsman must follow a specific path that involves keeping key standards and points in mind to ensure all important aspects of a legal agreement are covered.
2. What is the legal importance of the “Recital” in a contract?
The recital explains the background and the exact intention of the parties entering into the contract. While generally not used as primary evidence, recitals carry evidentiary importance and can be used by a court to interpret the contract if the operative part contains ambiguities.
3. Why must a draftsman have specific “Knowledge of Law”?
A prudent draftsman must have complete knowledge of the law to ensure the interest of both parties is protected. For example:
-
- Rent/Lease Contracts: Knowledge of the Indian Stamp Act, 1899, and the Registration Act, 1908, is necessary because any rent contract exceeding one year must be mandatorily registered.
- Shareholder Contracts: A draftsman should understand the Companies Act, 2013, Indian Stamp Act, 1899, and the Registration Act, 1908, to ensure the parties’ intentions do not breach applicable statutes.
4. How should a contract be structured to ensure clarity and avoid ambiguity?
To prevent misunderstandings and reduce future disputes, a draftsman should utilize the following standards:
-
- Simple Language: Use clear, straight language; for example, writing “at least 100 rupees” is clearer than “not less than 100 rupees”.
- Detailed Specifications: Avoid leaving interpretations to the parties. Instead of writing “payment at mid-month,” specify “on or before the 15th day of each month”.
- Headings: Proper headings should be used for every clause to help the reader interpret the document, provided the headings match the content.
5. When is an “Arbitration Clause” recommended over standard court proceedings?
Although not mandatory, an arbitration clause is suggested because court proceedings in India can be time-consuming and expensive. Arbitration provides a less costly and faster alternative for resolving disputes, with arbitrators typically appointed by the mutual consent of both parties.
6. Who is responsible for Stamping and Registration costs in a contract?
The contract must specify which party—such as the Lessor, Lessee, or both—will bear the cost of stamp duty and registration. This is especially critical in transactions like commercial leases exceeding one year, where registration is compulsory under the Registration Act, 1908.
