7 Contract Clauses Every Indian Business Should Review Before Signing a Deal

A business contract can look straightforward when both parties are eager to begin working together. The price is agreed, the delivery date is fixed, and everyone expects the relationship to run smoothly.

Problems often emerge later. A customer delays payment, a supplier misses a deadline, a project is cancelled midway, or one party discovers that the agreement does not clearly explain what happens when circumstances change.

These disputes are not always caused by bad intentions. Sometimes, the real problem is that the parties never discussed the difficult questions before signing.

For Indian businesses, reviewing a contract means more than checking the payment amount and adding signatures. It means understanding each party’s obligations, identifying possible risks and deciding how disagreements will be handled.

Here are seven contract clauses that deserve particular attention before a business commits to a commercial agreement.

1. Payment Terms: When Does the Money Actually Become Due?

Payment clauses are among the most important provisions in a commercial contract, yet they are frequently drafted too broadly.

An agreement might state that payment will be made within 30 days. But when does that period begin? On the invoice date, delivery, acceptance of the goods or approval of a milestone?

If the contract does not answer this question, the parties may later disagree about when payment became overdue.

A stronger payment clause should clarify:

• The amount payable and applicable taxes.
• The invoice submission procedure.
• The event that triggers the payment deadline.
• Any advance payment or milestone requirements.
• The process for disputing an invoice.
• The consequences of delayed payment, where legally enforceable.

Consider a software development company that completes a project milestone but cannot obtain payment because the client has not formally approved the deliverable. If the contract does not specify how approval works or what happens when the client remains silent, the payment dispute can become difficult to resolve.

The solution is not necessarily to demand immediate approval. It is to establish an objective acceptance process, a reasonable review period and a clear procedure for raising objections.

For qualifying micro and small enterprises, statutory payment protections under the Micro, Small and Medium Enterprises Development Act, 2006 may also be relevant. Businesses should check eligibility and the applicable legal requirements rather than assuming the same rules apply to every supplier.

2. Scope of Work: What Exactly Has Each Party Agreed to Deliver?

Many commercial disputes begin with different expectations about the work itself.

A client may believe that a service provider agreed to provide unlimited revisions. The service provider may have priced the project on the assumption that only two revisions were included. Both parties may genuinely believe they are following the original agreement.

A well-drafted scope-of-work clause should explain what is included, what is excluded and how additional work will be approved.

For a service contract, this might cover:

• Specific deliverables and milestones.
• Technical or quality standards.
• Dependencies on information or approvals from the client.
• The number of revisions or rounds of testing.
• The process for requesting changes.
• The effect of a change on price and timelines.

Suppose a business hires an agency to redesign its website. During the project, it requests an additional payment gateway, a customer dashboard and new reporting features. If these requirements were not part of the original scope, the parties need a process for assessing the extra work.

A change-control clause can require written approval of the revised scope, cost and deadline before the additional work begins.

This protects both parties. The client gains clarity about what it is purchasing, while the service provider reduces the risk of being expected to perform unpriced work.

3. Termination: What Happens When the Relationship Must End?

Businesses often focus on how an agreement begins and overlook how it can end.

A termination clause should explain when either party can exit the contract and what obligations remain afterward.

Important questions include:

• Can a party terminate for convenience, or only for specified reasons?
• Is advance written notice required?
• Must a party be given an opportunity to correct a breach?
• What happens to outstanding invoices and completed work?
• Who bears the cost of non-cancellable commitments?
• What happens to confidential information, equipment and unfinished deliverables?

Imagine a manufacturer that purchases customised materials for a large customer. The customer later cancels the order because its business plans have changed. The manufacturer may be left with inventory that cannot easily be sold to another buyer.

The agreement should address the consequences of cancellation, including payment for work already performed and the treatment of committed costs, subject to applicable law.

A termination clause does not automatically make every claimed amount recoverable. Under the Indian Contract Act, 1872, the legal treatment of compensation for breach depends on the circumstances and the relevant provisions, including Sections 73 and 74.

The objective is to allocate foreseeable risks clearly before a dispute arises.

4. Limitation of Liability: Is the Financial Risk Proportionate?

A contract may expose a business to losses far greater than the value of the transaction itself.

For example, a small technology supplier might agree to provide a service worth ₹5 lakh. A broadly drafted liability provision could create uncertainty about its exposure if the customer later alleges substantial business losses.

A limitation-of-liability clause may establish a financial cap or exclude certain categories of loss, subject to the contract and applicable law.

When reviewing this clause, consider:

• Whether the cap applies to the entire contract or individual claims.
• Whether it is linked to fees paid, fees payable or another measure.
• Whether different limits apply to different types of claims.
• Which exclusions or exceptions apply.
• Whether the provision is commercially reasonable for both parties.

The clause should be assessed alongside indemnity provisions, confidentiality obligations, data-related responsibilities and insurance requirements.

A cap that is too low may provide little practical protection to the customer. A cap that is too high may expose the supplier to a risk it cannot reasonably price or insure.

Businesses should also avoid assuming that a liability clause will necessarily protect them in every situation. Its wording, enforceability and interaction with other contractual obligations require careful review.

5. Indemnity: Who Bears the Cost When a Claim Arises?

Indemnity clauses are often included in contracts without sufficient attention to the situations they cover.

Broadly speaking, an indemnity may allocate responsibility for specified losses, claims or liabilities. The exact effect depends on the wording and applicable law.

For instance, a business supplying branded packaging may be asked to indemnify the customer against intellectual property claims. That could be reasonable if the supplier is responsible for creating the disputed artwork. The position may be different if the customer supplied the design and instructed the supplier to use it.

A well-considered indemnity clause should address:

• The types of claims covered.
• The circumstances that trigger the obligation.
• The relationship between the loss and the responsible party’s conduct.
• Notice and cooperation requirements.
• Who controls the defence or settlement of a third-party claim.
• Any applicable financial limits.

The parties should avoid treating an indemnity as a substitute for a clear allocation of responsibilities.

A business should understand what it is promising to cover, whether it can control the relevant risk and whether insurance or operational safeguards are appropriate.

6. Dispute Resolution: What Happens When Negotiations Fail?

A contract should not leave the parties guessing about how a disagreement will be resolved.

A dispute-resolution clause can specify the process for escalation, negotiation, mediation, arbitration or court proceedings, as appropriate.

However, simply inserting the word “arbitration” does not settle every procedural question. The agreement should be reviewed for the scope of the arbitration clause, the appointment procedure, the seat of arbitration and the allocation of costs.

The parties should also consider whether they need an initial negotiation period and who has authority to participate in settlement discussions.

For Indian commercial agreements, the Arbitration and Conciliation Act, 1996 provides the statutory framework for arbitration where applicable. Certain commercial suits may also be subject to pre-institution mediation requirements under Section 12A of the Commercial Courts Act, 2015, depending on the circumstances and applicable law.

The appropriate mechanism depends on the transaction, the likely dispute, the parties’ locations and the remedies they may need.

A dispute-resolution clause should be practical, not merely copied from another agreement. A procedure that is unnecessarily expensive or difficult to follow may create additional problems when a dispute actually occurs.

7. Confidentiality and Intellectual Property: Who Owns the Work?

Businesses routinely exchange sensitive information during commercial relationships. This may include customer lists, pricing models, product specifications, source code, business plans and internal processes.

Contracts should distinguish between information that must remain confidential and information that can be disclosed or used for other purposes.

Where intellectual property is involved, the agreement should also identify who owns existing materials, who owns newly created work and what rights each party receives.

Consider a design agency that develops a brand identity for a customer. Does the customer receive ownership of the final artwork, a licence to use it or rights that become effective only after full payment? What happens to unused concepts and the agency’s pre-existing templates?

These issues should be addressed explicitly.

A confidentiality clause should identify the information covered, permitted disclosures, exceptions and the obligations that continue after the agreement ends.

Intellectual property provisions should address ownership, licensing, permitted use, third-party materials and any transfer formalities required by applicable law.

Clear wording reduces the likelihood of disagreements about whether a business can continue using materials after the commercial relationship has ended.

A Practical Contract Review Checklist

Before signing a commercial agreement, ask the following questions:

1. Are the deliverables, responsibilities and exclusions clearly defined?
2. Is the payment deadline linked to an objective event?
3. Is there a documented procedure for approving changes?
4. Can either party terminate, and what are the financial consequences?
5. Are liability limits and indemnity obligations proportionate to the transaction?
6. Is the dispute-resolution process clear and workable?
7. Are confidentiality and intellectual property rights properly allocated?

The checklist is a starting point, not a substitute for reviewing the complete agreement. Other provisions may be particularly important depending on the transaction, such as data protection, regulatory compliance, force majeure, exclusivity or non-solicitation.

Conclusion: Good Contracts Anticipate Difficult Questions

A well-drafted contract cannot eliminate every commercial disagreement. It can, however, make the parties’ obligations clearer and provide a more predictable process when something goes wrong.

The most useful time to resolve uncertainty is before signing, when both parties can still discuss their expectations and negotiate reasonable protections.

Businesses should pay particular attention to payment triggers, scope changes, termination rights, liability, indemnities, dispute resolution and ownership of confidential or intellectual property assets.

Reviewing these provisions early can reduce misunderstandings and help companies make better-informed commercial decisions.