Entered into an arrangement with CA, CS, Lawyers but do you think that you are completely secure, we are sure your decision would be changed after reading this Article.

Introduction

A decade ago, many individuals and businesses relied largely on mutual understanding and moral values while carrying out their legal and professional engagements through professionals such as Chartered Accountants, Company Secretaries, or Advocates. However, over time, these informal arrangements have increasingly been replaced with formal written agreements.

This shift raises an important question: why have verbal assurances been replaced by written clauses, and why has trust evolved into legally binding agreements? In the rapidly changing corporate environment, professionals have adapted to evolving market practices. Since every form of business—whether a proprietorship, partnership, LLP, or company—engages professionals in one way or another, it has been widely experienced that having a properly drafted contract or agreement makes professional engagements smoother and more efficient. When terms and conditions are recorded in black and white, the scope for ambiguity is significantly reduced.

It can be said without any iota of doubt that parties to an agreement or contract feel more secure when their relationship is governed by a written document, as it promotes transparency and clarity in their dealings.

At the time of executing any agreement, it is essential to ensure that the agreement is balanced and compliant with the provisions of The Indian Contract Act, 1872 and other applicable laws of the land. Such compliance enables the parties to enforce the terms of the agreement during disputes or seek appropriate remedies before a court of law.

However, it is often observed that parties tend to incorporate certain clauses that make the agreement excessively favourable to their own interests. For instance, clauses restricting a party from initiating legal proceedings or prohibiting engagement in a similar business with competitors for a prolonged period, such as five to six years after termination or expiry of the agreement, are sometimes included.

Such clauses may conflict with the provisions of Sections 27 and 28 of the Indian Contract Act, 1872, which render agreements in restraint of trade and agreements in restraint of legal proceedings void, respectively.

Therefore, it becomes imperative to understand the fundamentals of drafting a well-balanced and legally sound Service Level Agreement (SLA).

Background

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:

1. 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.

2. 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.

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.

3. 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.

4. 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.

5. 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.

6. 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.

7. 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.

8. 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.

9. 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.

10. 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.

11. 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.
12. 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 needs to be mentioned.

13. 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.

14. Modification: The Service Agreement shall be modified only with the mutual consent of the Parties.

15. 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.

16. Jurisdiction: Which court shall be entitled to entertain the dispute, if any, arise between the Parties to the agreement.

17. 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.

Service Agreement with Professionals: Essential FAQs

1. Why is a written agreement necessary when engaging CA, CS, or Lawyers?

In the evolving corporate world, verbal promises have been replaced by written clauses to ensure transparency. A written contract makes professional work easier and hassle-free because every term is documented “in black and white,” leaving no room for ambiguity. It provides security to both parties by defining clear expectations and legal remedies.

2. What common clauses should be avoided in a professional service agreement?

One must ensure that the agreement is balanced and follows the law of the land. Certain restrictive clauses are considered void under the Indian Contract Act, 1872:

• • Restraint of Trade: Clauses that prevent a party from carrying out business with a competitor for several years post-termination is generally void under Section 27.
  • Restraint of Legal Proceedings: Clauses that prohibit a party from filing a suit are void under Section 28.

3. How should the “Scope of Services” and “Additional Work” be defined?

The scope of work must be elaborated in a proper manner to leave no room for doubt at a later stage. Additionally, the agreement should explicitly state how to handle work not specifically mentioned in the initial scope, including the formula or methodology for deriving extra commercial charges for such tasks.

4. What are the standard financial terms for professional engagements?

Professional charges must be specifically detailed, including:

• • Billing Structure: Whether charges are on an hourly basis or a lumpsum fixed amount.
  • Tax Treatment: Whether the fees are inclusive or exclusive of GST.
  • Expenses: The agreement should clarify if travel and government filing fees require prior approval before reimbursement.

5. Who owns the documents and Intellectual Property (IP) created by the professional?

• • Ownership of Materials: Any documents, records, or materials prepared by the professional while rendering services must be handed over to the owner, who remains the sole owner.
  • IP Rights: All intellectual property, including goodwill, trade secrets, trademarks, patents, and copyrights, are the sole property of the company or owner.
  • Usage: Professionals may only use the owner’s intellectual property (such as a registered trademark) with written consent and must hand it over completely upon termination.

6. What is the role of the “Indemnity” and “Confidentiality” clauses?

• • Confidentiality: This clause defines what information is sensitive and ensures it is secured from unwanted disclosure. All confidential data must be returned to the client upon the expiry or termination of the agreement.
  • Indemnity: Under Section 124 of the Indian Contract Act, this clause protects a party from losses caused by the wrongdoing or breach of duty of the other party. For example, if a professional’s mistake leads to legal actions against the client, the professional may be required to indemnify the client for those losses.

7. How can a professional service agreement be terminated?

The agreement should specifically list the grounds for termination, which may include:

• • Completion of the assigned service or expiry of the term.
  • Continuous delay in work or breach of duty.
  • Misuse of information/records or non-payment of fees.
  • Abuse or insult of either party.
  • The specific Notice Period required for termination must also be stated.