Brief Discussion on Drafting of Agreement

CS Akhilesh Kumar Jha

Agreements are the essential of our day to day life. We need to draft various agreements for different matters. Suppose, we are purchasing a home or renting a home, doing any business, the agreement is required after every step.

In view of above, some important points of discussion is mentioned below which may be useful at the time for Drafting and Vetting of Agreements:-

A)   BASIC FEATURES

1-    Agreement must be written:-

The Agreement must be written. Only oral agreement is not considered under the preview of law unless you present related proofs.  Every Terms and Conditions, but whatever you want to write it should be in affected structure, you may mention in the Agreement.

2-    Language:-

It is not a hard and fast rule that we should write Agreement in English Language. It may be written in local language of that area or in Hindi or in English. The words, which are being used in the Agreement, must be easy and understandable so that General People may understand the real meaning instantly.

3-     Explanation:-

The words which are being mentioned in the agreements must be explanative nature. Any words, which are full of confusion, should be avoided.

4-    Simple and Clear:-

The drafting of agreement must be in simple way. There is no need to put complicated sentences or words. The following do and do not should be considered at the time of drafting of agreement so that the agreement may be appeared in simple and Clear:-

Do:-

1. Avoid unnecessary repetition
2. Write shorter sentences
3. Choose the right words
4. Prefer the active to the passive sentences
5. Express the ideas in fewer words
6. Know exactly the meaning of the word
7. Put yourself in place of reader, read the documents and satisfy yourself about the content, interpretation and sense it carries.

Don’t:-

1. Avoid the use of words of same sound (Employer & Employee)
2. We should avoid the use of words  “Less than” or “more than”, we must use “not exceeding”

5-    Organized:-

The paragraphs of the agreement should be in sequence which is the art of drafting. At the time of drafting of Agreement, First, visualize the body of agreement and thereafter we should start to put the facts accordingly. In result of that the final structured and managed Agreement shall seem more clear and effective.

6-    Knowledge of Facts:-

Well knowledge of facts is more useful for drafting, without knowledge of facts, the drafting is just a formalities. Hence, before starting to draft of any agreement, we must be well versed of each facts of connected subject matter and full of awareness of that so that the drafting may be good and well.

7-    Numbering  and Paragraph:-

Paragraph is made according to the contents. As soon as one incident of related facts is completed, make paragraph. Paragraph shows clear story and text. So every Paragraph should be in meaning full. It should be noted the at the time of making paragraphs, the sense of paragraph must be clear according to contents and similar types sentence shall be avoided during the Paragraph.

The numbering is the important part of Drafting. In case we do not put numbers on the pages, it may be that someone may change the page or pages or modify the page accordingly. So future precautions, we need to mention the page number on each page.

8-    Intention of Agreement

Legal officer must be aware the intention of agreement at the time of drafting.  He is the person who knows the facts, who knows the intention and who knows the result of drafting. Hence, whatever he wants to reflect in the agreement, it must be shown thereafter so that other party may easily understand the meaning and intention of first party vice versa.

B)   LEGAL POINTS

1-    Parties enter into agreement freely,

At the time of entering into agreement, it must be sure that the parties which shall be bind through agreement have mutually agreed for binding. They are not bind by any ways.

As per Section 10 of the Indian Contract Act, 1872, all agreements are contracts if they are made by the free consent of parties competent to contract, for a lawful consideration and with a lawful object, and are not hereby expressly declared to be void. Nothing herein contained shall affect any law in force in India, and not hereby expressly repealed, by which any contract is required to be made in writing or in the presence of witnesses, or any law relating to the registration of documents.

2-    Offer  

In simple view, when a person gives proposal to another person to signify his assent to do or not to do is called offer.

As per Section 2 (a) of the Indian Contract Act, 1872, when one person signify to another his willingness to do or do abstain from doing anything with a view to obtaining assent of that other to such act or abstinence.

It means the parties of agreement who are entering a contract. Before signing an agreement, it must be sure that the proposal for offer has been accepted by the other party. It is preferable that back ground story about offer, proposal and acceptance of offer must be narrated in the Agreement.

3-    Acceptance

In simple view, when a person signifies his assent to do or abstain from doing anything, the assent is called Acceptance of the Proposal or Offer.

As per Section 2 (b) of the Indian Contract Act, 1872, a proposal or offer is said to have been accepted when the person to whom the proposal is made signify his assent to the proposal to do or not to do something.

4-    Contracts

As per Section 2 (h) of the Indian Contract Act, 1872, an agreement enforceable by law.   A final agreement shall be legally enforced when we take care followings:-

1-    Stamp Duty must be paid as per the prescribed rate of states.

2-    Wherever is required for Registration of Agreement, it also be registered accordingly.

3-    Both the parties must be signed.

4-    In case of parties is body corporate, the person who is signing on Agreement must have the board resolution, ID proof, One passport size photo and  authority letter from Company. Thereafter the Company Seal shall be affixed.

5-    Witness clause is also important. At least Two Witness for each party must be present and they must put their hand on Agreement. As per person opinion each witness must be mentioned following sentence. The ID proof and address proof must be enclosed by the witness who put their signature with the agreement for future purpose:-

C)   IMPORTANT PARTS OF AGREEMENTS

1-TITLE

The Title must be written in the way, if someone sees this, that one may understand the almost matter of the Agreement. So at the time of writing agreement its name (Title) must be clear and understandable. There is some example below:-

LEASE AGREEMENT FOR 1^ST FLOOR

LEASE AGREEMENT FOR 2^ND FLOOR

SHAREHOLDERS ADMINISTRATIVE AGREEMENT

SHAREHOLDER AGREEMENT

TAKEOVER OF………… AGREEMENT

Note: – it is suggested that the name should be in Capital Letter.

2-DATE AND PLACE

There is no specific format for dates. Hence, we may use any type of format of date. There is some format below. Let’s see:-

Personally, we prefer to write the 14^th day of March, 20….

Place should be also mentioned clearly. It is too much important because the place decides the jurisdiction of the Agreement and stamp duty. So it must be written clearly.

3-PARTIES

Normally, Agreement is entered between two parties but it is not necessary that the parties always be only two. It may be more than Two Parties. In that case we should write among instead of between. Sometimes, we observe in the agreement that the detail of parties is not mentioned completely. So this indication is always wrong. The details of parties must be clear and understandable.

The following are some formats:-

In case of Proprietorship Concern/ Partnership Firm/ LLP/ Company

M/s ……………………(Proprietorship)/…………………………(Partnership Firm/LLP) registered under the Partnership Act 1932 or Limited Liabilities Partnership Act 2008. ……………………… Private Limited/ Limited, a company incorporated under the provisions of Companies Act 1956 (1 of 1956)/ having its registered office/administrative office situated at……………………..  and having its factory premises situated at……………………., (if applicable)  (Hereinafter referred to as the “the ……..”, which expression, unless it be repugnant to the context and meaning thereof,  shall mean and include its successors, affiliates, and assigns and acting through Mr………….son of shri………………..resident of………………..having PAN No……., Propriter/ Partner/ Designated Partner/ Directors of the Company, duly authorized in the Board Meeting held on……………., (only applicable for company) of the ONE PART.

In case of Individual 

Mr./ Mrs/…………………… Son of/ wife of………………………..resident of……………………….. having PAN no…………………….. which is the part of this agreement, herein after referred to as the  First  Party   (which  term shall mean and include wherever the context so  requires  or  admits his  heirs,  successors,  administrators,  executors, attorneys and assigns) of the One  Part.

4-RECITLES

As per dictionary meaning

“A formal statement appearing in a legal document such as a deed that is preliminary in nature and provides an explanation of the reasons for the transaction. The recital in a deed, for example, might indicate the reasons why the owner is selling the property.”

In Simple meaning Recitals is just a back ground story of the terms and conditions. The Terms and Conditions cannot be started without briefing of agreement. Such briefing shows the initiation of terms and conditions of any agreement.

It is noted that the facts which is mentioning in the agreement must be clear. If any ambiguity exists there, it may create huge difficulties in coming future.

Some format of Recitals:-

Starting of Recitals

Whereas……………

And whereas……….

And whereas……….

And whereas……….

Noted that in modern agreement, we may avoid to use too much time “Whereas…” we just put main heading Recitals and start to put facts like below that:-

Recitals

This agreement is entered with reference of following facts:-

1-

2-

3-

5-CONSIDERATION

Consider clause is the most important part of agreement.  Consideration clause should be written clear in descriptive mode. The mode and description of consideration may be differing on different agreement. Hence, at the time of drafting of Consideration Clause, the following point should also be considered:-

1-    Amount must be written in Numeric Values as well in words.

2-    At the point of fixation of Consideration or Price, the parties’ consent should be specified therein.

3-    Consideration against numbers or quantity, if any, must be specified

4-    In case, the detail of number of Services or Quantity of Products must be shown. If possible, clarify each item in descriptive mode.

5-    Details of Performance of Payment like it shall be paid through chequ or installment bases etc. it shall also be clarified.

6-DEFINATIONS

At the time of drafting we put various words in the Agreement. Some words have unclear meaning or full of confusion. In that case such types of specified words must have definition or explanation so that the matter may be cleared at the time reading.

7-INTERPERTATIONS

Interpretation is most important technique for understanding the matter. The words or sentences, which you want to express, must be simple and small sentences so that the Interpretation may be easily and understandable. To avoid harsh, complicated and confused sentences, its create ambiguity to read. In that case the interpretation of sentences may go in other direction.

8-TERMS AND CONDITIONS

Now, Terms and Conditions of both parties must be clear. Every agreement has different terms and conditions depend on subject of agreement. There is no specific rule of terms and conditions for whole agreement like drafting a Rent Agreement we put various conditions like period of months, registration clause, sub letting clause. Monthly rent, security clause etc. in case of gift deed we put gift details, structure, mutual consent, consideration, registration etc.

So we cannot fix a particular standard for terms and conditions for all type of agreements but we may put common clause which is used in every agreement at the time of drafting like:-

1-    Board resolution clause (In case of Company)

2-    Indemnity Clause

3-    Force Major Clause

4-    Severability

5-    Confidentiality

6-    Renewal (if applicable)

7-    Termination Clause

8-     Termination Notice

9-    Permission Clause

10- Undertaking Clause

11- Waiver Clause

12- Arbitration Clause

13- Jurisdiction Clause

14-Testimonials and attestation

9-SIGNATURE AND SEALS

Finally, the parties put their signature in the presence of witness. In case of Company the board resolution must be enclosed with Agreement.  The Stamp of the company should also be affixed.

10- ANNEXURE OR SCHEDULES

In case any Annexure or Schedules, which are attached therein, must be signed. Normally annexure is not been signed by the parties. It is wrong practice is going on. As we know well that where the Annexure is part of Agreement and if annexure is not properly cared, it may create difficulties. Hence, The Annexure is part of Agreement. So every pages of agreement including annexure should be signed.