Commercial Contracts and Agreements in India - SSRANA

Corporate Laws

Commercial Contracts

Commercial Contracts and Agreements in India

Commercial agreements and contracts are very essential as they legally determine and create liability over parties who enter into agreements for transacting a business, sealing a deal, selling and buying of movable and immovable goods, renting and leasing of properties etc. In each and every aspect of a transaction the formation of contracts and agreements is indispensable.

A commercial contract may refer to a legally binding agreement between parties in which they are obligated to do or restrain from doing stipulated acts and include all aspects of a business, such as hiring, wages, leases, insurance, loans and employee safety. Negotiations are the starting point of any commercial relationship and commercial agreements are drafted to record the negotiations between the concerned parties in writing so as to give them a legally binding nature.

The terms of the Contract in India are governed by the provisions of the Contract Act, 1872 and other special laws applicable to the agreement/contract in question. In view of the fact that commercial activities between two parties are governed by the terms and conditions of the agreement, it is very essential that the terms are drafted in a very thoughtful manner, keeping into consideration the rights and duties and the liabilities of parties to the contract.

Interpretation of Commercial Contracts

In plethora of cases, the Indian Courts have elucidated on the aspect of interpretation of commercial contracts. The High Court of Bombay in the case of Novartis Vaccines & Diagnostics v. Aventis Pharma Limited (Arbitration Petition no.763 OF 2009) made a remarkable observation in relation to interpretation of commercial contracts and opined that while considering a commercial contract or agreement- the Court needs to take into consideration all the terms and clauses of the Contract but within the frame of law. The contract/agreements need to be read as a whole considering the nature & the purpose of the business. The clause and the contract as a whole even if is clear and unambiguous, the court needs to consider the same in the facts and circumstances of the case. It is necessary to see relationship between words; sentences; clauses; chapters and the whole document. It cannot be read in isolation. The aspect of faith, trust, fiduciary relationship and understanding between the parties, just cannot be overlooked, while interpreting any such private commercial documents.

Hence, from the aforesaid it is abundantly clear that while determining the rights and liabilities of the parties to a contract, the terms and clauses of the agreement form the foundation of the contract or the agreement.

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