Trademark & Copyright

Assignment of Trademarks

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Trademark is a form of Intellectual Property. It essentially refers to the brand name that allows for differentiation between similar goods. Trademarks can be in the form of numerals, a combination of colours, signature, name, or device. Companies spend a huge amount of money through advertising and product design to establish their brand value. The same is treated as an asset that can be transferred like any other type of property, in accordance with the Trade Marks Act, 1999 and accompanying Rules of 2017.

 

 

Assignment v/s Licensing

 

The assignment of Trademarks refers to the transfer of ownership of the Trademark to the buyer. The transfer can be with or without goodwill.

Licensing refers to a limited transfer i.e.; the transferee is allowed to use the Trademark (within the limits of the agreement entered upon) without having the ownership transferred to him. The Licensor(owner of the Trademark) usually generates loyalties while the Licensee gets the ability to expand his business using the appeal of the Trademark.

 

 

Types of Assignment

 

The following are the different types of Assignments allowed under the Act:

I. Complete Assignment: 

As the name entails, a complete transfer of all the rights pertaining to the Trademark is transferred to the buyer. The buyer would be empowered to sell it later on if he so chooses to.

II. Partial Assignment: 

Herein only restricted ownership pertaining to specific products or services is transferred to the buyer.

III. Assignment with Goodwill:

Goodwill is a term that is easy to describe but hard to define. It refers to the intangible value of (in this case) a Trademark. In this type of assignment, the owner transfers the rights and values related to the product or service.

IV. Assignment without Goodwill:

Trademark Ownership excluding Goodwill stands transferred. The buyer cannot use the Trademark for the same product or service as used by the owner. That is, the buyer shall be allowed to use the purchased Trademark for products other than those already being produced by the original owner, as the goodwill relating to that product is not transferred.

 

There exist certain restrictions on the assignment of registered Trademark so as to prevent creating confusion in the mind of the public or users.

  1. The restriction is placed on the assignment of a trademark that results in the creation of exclusive rights in more than persons that may lead to the production of the same goods/services or the same description or associated with each other.
  2. The restriction is placed on the assignment that results in the Trademark being used in different parts of the country by different people simultaneously.

 

 

Assignment Deed

 

While drafting an assignment deed, it is necessary to include the following:

  1. The name of the owner which needs to match the records present with the Registry if the Trademark is registered.
  2. Specificities like the territorial extent of the Trademark should be explicitly mentioned in order to prevent any ambiguity
  3. It is absolutely necessary to clearly mention whether the transfer of goodwill is taking place or not.
  4. The date of the assignment should be specified.

 

 

Process with the Registry

 

It is important to record the change in ownership with the Trademark Registry. According to Rule 75 of Trademarks Rules, 2017, Form TM-P should be filed with the Registry intimidating the changes to the ownership of Trademark. A flat fee is applicable - Rs.9,000 for E-Filing, and Rs.10,000 for Physical Filing. This has made the process of assignment streamlined and simpler.

 

 

Conclusion

 

Trademarks are valuable assets. They are a measure of a company's popularity and reputation in the market. Therefore, entities rather than investing a lot of time, effort, and money into creating a brand of their own sometimes prefer to buy it. It is advantageous for the buyer as through minimal effort; a customer base is handed over. Assignment deeds should be made with proper care otherwise, they might become a reason for litigation.

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Suggested Articles

Assignment of Trademarks
Trademark & Copyright

Assignment of Trademarks

Trademark is a form of Intellectual Property. It essentially refers to the brand name that allows for differentiation between similar goods. Trademarks can be in the form of numerals, a combination of colours, signature, name, or device. Companies spend a huge amount of money through advertising and product design to establish their brand value. The same is treated as an asset that can be transferred like any other type of property, in accordance with the Trade Marks Act, 1999 and accompanying Rules of 2017.

 

 

Assignment v/s Licensing

 

The assignment of Trademarks refers to the transfer of ownership of the Trademark to the buyer. The transfer can be with or without goodwill.

Licensing refers to a limited transfer i.e.; the transferee is allowed to use the Trademark (within the limits of the agreement entered upon) without having the ownership transferred to him. The Licensor(owner of the Trademark) usually generates loyalties while the Licensee gets the ability to expand his business using the appeal of the Trademark.

 

 

Types of Assignment

 

The following are the different types of Assignments allowed under the Act:

I. Complete Assignment: 

As the name entails, a complete transfer of all the rights pertaining to the Trademark is transferred to the buyer. The buyer would be empowered to sell it later on if he so chooses to.

II. Partial Assignment: 

Herein only restricted ownership pertaining to specific products or services is transferred to the buyer.

III. Assignment with Goodwill:

Goodwill is a term that is easy to describe but hard to define. It refers to the intangible value of (in this case) a Trademark. In this type of assignment, the owner transfers the rights and values related to the product or service.

IV. Assignment without Goodwill:

Trademark Ownership excluding Goodwill stands transferred. The buyer cannot use the Trademark for the same product or service as used by the owner. That is, the buyer shall be allowed to use the purchased Trademark for products other than those already being produced by the original owner, as the goodwill relating to that product is not transferred.

 

There exist certain restrictions on the assignment of registered Trademark so as to prevent creating confusion in the mind of the public or users.

  1. The restriction is placed on the assignment of a trademark that results in the creation of exclusive rights in more than persons that may lead to the production of the same goods/services or the same description or associated with each other.
  2. The restriction is placed on the assignment that results in the Trademark being used in different parts of the country by different people simultaneously.

 

 

Assignment Deed

 

While drafting an assignment deed, it is necessary to include the following:

  1. The name of the owner which needs to match the records present with the Registry if the Trademark is registered.
  2. Specificities like the territorial extent of the Trademark should be explicitly mentioned in order to prevent any ambiguity
  3. It is absolutely necessary to clearly mention whether the transfer of goodwill is taking place or not.
  4. The date of the assignment should be specified.

 

 

Process with the Registry

 

It is important to record the change in ownership with the Trademark Registry. According to Rule 75 of Trademarks Rules, 2017, Form TM-P should be filed with the Registry intimidating the changes to the ownership of Trademark. A flat fee is applicable - Rs.9,000 for E-Filing, and Rs.10,000 for Physical Filing. This has made the process of assignment streamlined and simpler.

 

 

Conclusion

 

Trademarks are valuable assets. They are a measure of a company's popularity and reputation in the market. Therefore, entities rather than investing a lot of time, effort, and money into creating a brand of their own sometimes prefer to buy it. It is advantageous for the buyer as through minimal effort; a customer base is handed over. Assignment deeds should be made with proper care otherwise, they might become a reason for litigation.

Impact of COVID-19 On Project Financing
Company

Impact of COVID-19 On Project Financing

The impact of COVID-19 (coronavirus) cannot be miscalculated in project finance, as this virus is considered as a global pandemic and has resulted in the closedown of construction work and its related operations. The consequences can be seen as slow production and manufacturing of necessary equipment in projects are delayed due to the outbreak of COVID-19 which means the supply chain will be disrupted worldwide. Moreover, in project financing, Project Company is usually considered as a special purpose vehicle (SPV), and pursuant to present critical situation lenders are having no recourse to sponsors where the project is not performing as per the expected plan. But considering the different scenarios as the government now is hacking interest rates and making banking rules more convenient at this time of financial crunch.


Due to lower interest rates, demand for financing the new upcoming projects will increase along with debt financing and this effect will operate for the long term from the present. However, this article provides a snapshot of FORCE MAJEURE clause activation in project financing, how to get through the force majeure risk, and what all are the necessary consideration for the purpose of force majeure. Along with the force majeure aspect this article will also focus upon other immediate impacts on project financing due to COVID-19.

 


ACTIVATION OF FORCE-MAJEURE IN PROJECT FINANCING

Force majeure clause comes into play when one party is unable to perform his contractual obligation which he needs to perform and due to natural circumstances i.e. unforeseeable circumstance’s which includes acts of war and natural disaster, he was hindered or delayed in performing the same. Force majeure is governed by Section 32 and Section 56 of Indian Contract Act, 1872 and is also considered as exception to what amounts to breach of contract. This concept is explained in detail in one of the celebrated Supreme Court Judgement titled Energy Watch Dog vs. CERC. Usually this concept of force majeure is prevalent in project financing and construction cases. In an epidemic or pandemic scenario, like of COVID-19 this clause gets into play by contractor in construction project because he is the first one to encounter the consequences because of disrupted supply chain. When the force majeure clause is invoked due to the COVID-19 outbreak there is no surety that the contractor will succeed because it will depend on contractual interpretation whether this outbreak will be considered as “epidemic” or not.

 


After invoking force majeure number of key considerations arose which are as follows:

  1. Project Company has to ascertain that whether force majeure will succeed as per the interpretation of construction contract and this has to be done with the limited time frame.
  2. Assessing the evidences and circumstances which will prove that due to COVID-19, project company/contractor is unable to perform their obligation. Also, on the basis of a contractual agreement between the parties, it demands the contractor to prove that he is being prevented by the force majeure event to carry on his contractual obligation. Furthermore, the contractor also needs to produce the evidence to prove his onus pertaining to the contract

 

Now in order to analyze the force majeure in the contract the contractor or say the project company has to establish connectedness between the qualifying force majeure event and the impact to its performance of contractual obligations, and in most of the cases this will be based upon factual circumstances which will differ from case to case basis. Due to government measures that are related to business lockdown, mandatory quarantine measures, which will directly affect the working of the project and contractual obligations can be considered as evidence for the activation of force majeure clause. Concerned expert feedback would be required for the collection and preparation of evidence for notices of force majeure.

 

This also requires the affected to take steps in order to mitigate the force majeure events and it is considered as an obligation upon the affected party to do so. Also, it was required to draft or take the alternative options in consideration to perform the obligations pertaining to the contract and it would be advantageous to take remedying measures to address the impact due to unforeseeable events like COVID-19. However, in order to ensure that the claim is not time-barred, time is an essential ingredient for the notice requirement for the purpose of force majeure claim.

 


HOW TO TACKLE FORCE MAJEURE RISK?

The loopholes in the force majeure clause should be taken into consideration and such gaps should be addressed when the project documents were subject to bankability due diligence. Bankable project documents will typically contain similar force majeure provisions and the contractor's notice of force majeure will form part of the project company's notice in the project documents. Also, if there is any discrepancy or say loophole is identified, then the force majeure will be tested through the COVID-19 outbreak.


Further, others get through consideration include the timeline for submission for force majeure clause. In practice, the contractor and the project company may be engaged in negotiations or discussions on the impact of force majeure and will, therefore, need to consider the timelines that are running in parallel. Usually, Project documents with future cash flows contain time which provides a sufficient amount of time to project companies to provide its notice of force majeure under the upstream project documents. Another important contemplation is the different governing laws for project documents. Offshore construction contracts will be governed by English law, but on the other hand, power purchase agreements should be governed by the local law. Therefore, if the risks associated with different governing laws are not mitigated when the project documents were being developed, contractual interpretation of force majeure provisions can be difficult.


Moreover, the party claiming force majeure has to prove that he has taken all reasonable circumstances in order to avoid or mitigate the risk and its effect. Thus, this will depend upon case to case basis and in project company case contractor has to prove the same. In project financing consideration under financial document needs to be taken care of, project lenders are widely analyzing the COVID-19 outbreak as they begin receiving notices related to force majeure and due to which they cannot wash their hands off this outbreak. This outbreak requires taking steps in financial documents that are in consonance to the terms of the project document. Furthermore, after receiving the notice of force majeure the project lender has to consider carefully the impact on the project and positions under the financial document. Also, prior consent is also required before agreeing to any relief obtained through force majeure and certain time constraints need to be undertaken by the project company in this case.

 


EVENTS WITH ITS NEGATIVE IMPACT

After considering force majeure scenario there are other events too which will be triggered due to COVID-19 outbreak in project financing and major of these defaults might extend to necessary parties involved in the successful completion of the project that is construction contractor, operator, and main manufactures of necessary equipment’s. Default events are as follows:

 

  1. Emerging Economies: COVID-19 outbreak affected economy drastically which would be clearly seen through interruptions created in supply chains, fall in exchange rates, limited support, or say financial support of government for projects as impacted by COVID-19 outbreak. Whilst it also includes travel restrictions, the lockdown of major working sites and financial covenants involved in the projects are also affected. Thus, this pandemic affected economy but it insurances should be taken into consideration to take up protection form this drastic effect and all these measures should be taken into consideration by the project company, lenders, and all sponsors, who may be coming under pressure due to this outbreak.
  2. On-going Projects: one should expect, that this outbreak already affected on-going construction projects due to hampered supply chain and labour availability worldwide. In India, labourers are going back home because of this outbreak and it is expected that this impact will be amplified in the future. Further, as the government has taken initiatives in lowering interest rates and baking measures which will benefit the upcoming projects in the future but presently debt financing and tax equity financing is going through a negative impact. Lack of funds would be witnessed pertaining to the on-going projects which will attract defaulting lending provision in loan documentation.
  3. Material adverse effect clauses: ongoing projects which contain Material adverse effect clause, will get triggered because of circumstances that arose due to COVID-19. Further, this clause will be activated when specifically the situation or say circumstances will affect the project. Thus, there should be material adverse effect and circumstances from case to case basis has to be administered and considered. In my opinion, this clause will get in activation mode because each and every project is hampered due to this virus outbreak. Also, the borrower should inform the lender about these circumstances from time to time.
  4. Financial ratios: The effect of COVID-19 as of now cannot be said to be accurate because it is still in action and according to the Health Ministry and government inputs it may extend for some more time. Due to which debt financing or tax equity financing will hamper but the project financing sector will surely bounce back with a boom in itself from this recession as it was earlier seen in the 1987 recession. The present slashing interest rates and tax incentive proposal will allow the project finance sector to recover.

 

Considering the impact, Project Company has to take the following measures:

 

  1.  A project-related review should be done by the project companies so that it can analyze the impact which the project has to go through due to the COVID-19 outbreak. As seen in normal circumstances the risk associated with the project will be the supply of necessary equipment, labour availability risk, financial covenant risk, and other lending and funding scenario. Whilst with the effect of COVID-19 these risks will get one level up and due to the slowing of economy financial crunch will also arise in project financing.
  2. Major contracts involved in project financing like an employment contract, shareholder agreement, the loan agreement should be critically analyzed in respect of termination, force majeure, and law jurisdiction and dispute resolution mechanism. Also, repayment covenants, information covenants, events of defaults should be critically reviewed.
  3. A detailed review of Supply chains should be done so that an alternate option can be finalized in advance by the project company. This step should be in respect to mitigating the losses and reasonable steps that can foresee.
  4. Expected outcome after inserting force majeure and list of events in which it can be invoked and other ways as stated earlier about how to get out of the force majeure and compliances which are necessary as per Indian Contract Act, 1872.
  5. Consider developments or impacts of steps taken up by the government pertaining to the COVID-19 outbreak with respect to project financing along with tax implication involved. Also, the Project Company should amend all it’s an important document well in advance so that it can save time and cost for the same.

 

 

CONCLUSION


COVID-19 outbreak is spreading at an alarming rate due to which economy is diversely affected and the project finance sector is also facing uncertainties through the hampered supply chain, labour availabilities, financial crunch, and unforeseen circumstances. This outbreak has also affected debt financing and tax equity involved in project financing. Further, continuous monitoring of government policies are required for project financing. So, at last, after considering the crucial aspects of force majeure, the negative impact of several defaults due to the COVID-19 outbreak is one of the worst nightmares in today’s economic sense for project financing.

 

Authored By: Vaibhav Chauhan

JEMTEC School of Law

 

Disclaimer: The content of this article is solely the author’s personal analysis and interpretation. In case you wish to act upon on the basis of the content of this article, please seek legal advice. The author shall not be responsible for any loss you may incur as a result of your actions relying upon this content. The content herein is the copyrighted material of the author and is informational and shall not be used for commercial purposes other than for personal reading.

Business Lookouts During COVID-19
Company

Business Lookouts During COVID-19

Businesses are experiencing unprecedented challenges and market disruption due to the Covid-19 pandemic and consequential economic meltdown seems inevitable. Economists predict that economy is now dealing with a situation far worse than the global recession of 2008. We are not prepared to deal with this situation since no business has anticipated or predicted menace to this extent, where globally national borders are locked down halting global market and business operations. 

 

Importantly, we are dealing with a war waged by the unknown, and nations are fighting to safeguard and protect their people and economy. In this context, businesses/ entrepreneur has to operate sustainably, and it is important to set up and administer certain proactive measures to mitigate financial and business losses. These special circumstances require special measures to sustain and thrive, and this article covers some measures that companies may imbibe to thrive over the crisis and to sustain. 

Pragmatic ideation and proactive resolution will mitigate the impact of impending problems”

 

 

WORK FROM HOME

Work From Home is not an exception but has become a Rule”

Legally, the success of a business and its sustenance depends on how well it protects its confidential information and trade secrets. Especially, in times like now, it has become imperative not only to have sustainable business modus operandi to thrive and succeed during bad market conditions but also to protect what has been already built through years of hard work. This sounds simple yet very difficult to implement and execute in the frontline. 

 

Employees are key to every organization. Their performance and conduct in operating the business decide the company's future. Good employees build a successful business and the bad ones ruin the organization. A simple claim or lawsuit will change the future of the company or drag the company into darkness (third party infringement and damages suits), so the company should explicitly set out the framework within which the employees have to function within the company. 

 

With a large number of employees working remotely at the comfort of their houses, the management is now grappling with the management of infrastructure to facilitate employees with work from home access and to keep the business running. While companies are dealing with infrastructure difficulties, protection of confidential information and trade secrets should be set on high priority in order to avoid future uncertainties and to govern the way the organization continues to operate within an uncontrolled environment of homes of the employees.

 

Measures: Implementing effective policies and conduct awareness training programs so as to how to operate and function while working at the comfort of home. Data Protection Policy, Information Technology and Security Policy and Work from Home Policy are few policies that companies should implement and effectuate measures for protection of data and confidential information.

 

 

STRUCTURE BUSINESS CONTRACTS

Businesses don’t operate in silos but are reliant upon clients, service providers, and customers (the list may vary business to business). It is important to evaluate and strategically secure and retain existing business connections. Practically, retaining old clients is a cost-effective measure, since securing new clients is a costly affair during this market meltdown. The business relationship with the client is regulated by a document called “Agreement” and this provides how to govern and operate during the subsistence of the agreement.

 

An agreement may be implied or express contract. Where the terms of the agreement are explicit, the business should evaluate the risks and be prepared for any foreseeable risks that may arise in the current market circumstances and protect itself from the unforeseen risks (Force Majeure Clause). For implied and unwritten business arrangement, the company will be operating in an uncontrolled and ungoverned territory and may cost the company irreparably, if things don’t operate the way they are supposed to, and legal binding of the implied agreement depends on external factors and burden of proving the transaction and losses are high. So, the management should focus on dealing with the governing business through the Agreements.

 

Agreement decides whether you have a falling business or scope to rise above the troubled water.”

 

It is imperative to work along with the legal team to overcome the uncertainties and to operate within a controlled business environment. In the interest of economies of scale of business, as a rule, litigation should be the last resort. When agreement provides for business certainty why take long shots with regard to company future.

 

As such, in case a client (or a set of clients) is important for the survival of a business, then the business should take proactive measures to re-negotiate, re-design, or structure the transaction to make it sustainable to both the business and the clients. If you are expensive to your client, your dealings with them are bound to fall to the ground. Importantly, be the first to make a proposal for restructuring a transaction before your clients make a decision against you and it’s too late.

 

Change is constant, adaption is a rule and knowing when to adapt will decide the success” 

 

Conventionally, business teams are oriented to gain business, finance to control costs and project profits, so they pay no heed to transactional risks. Inevitably, in order to succeed, the leaders have to make decisions that involve exposure to risk. However, it is important to take calculative and informed decisions with regard to such a risk exposure and the same has to be documented through an agreement to avoid uncertainties and ambiguity. Drawing up an agreement is not just a good-to-have measure, but it is a tool to resolve conflicts in case of disputes. 

 

To be triumphant, all teams should collaborate and structure a workable business transaction for the clients. Overpromising-Underperformance and low promises and overperformance both strategies kill the business, but a sustainable, performance and an achievable business agreement works well for all and leads business to a successful path. In this, the legal contribution would be to enlighten the business with unbiased views of the nature of risk and consequences that may arise therefrom.

 

Notably, business conglomerates are successful in a way they are, since they operate and function by making informed decision knowing their exposure and risks, and on the contrary, start-ups can’t afford legal costs and hence fall prey in the hands of business eagles who specialize in acquiring businesses at low cost (or no cost). As a result, start-ups rise and fall over-night. 

 

Measures: Evaluate your business agreement and understand the cost-value proposition as the deal/ transaction stands. In essence, restructuring your business agreement to current market will help companies to retain clients. This task also helps companies to evaluate high-cost clientele and to allocate funds to sustain the business or make the decision to let go of a client for the larger good.

 

 

SUMMARY

Pragmatic and proactive measures make to business sustainable and keep it afloat.”

This article outlines legal measures which the business managers have to evaluate and reconsider under the Covid-19 crisis. It aims to highlight the common areas of lacuna in business operations. Pragmatic and proactive measures make the business sustainable and keep it afloat. Introspection into business processes, models, operations, and business flow, and the results of such analysis helps to strategize and acclimatize to the current business environment. Change is inevitable so the factors are key to thrust and succeed. Having enforceable and sustainable contracts is vital to govern the way the business operates and to understand obligations and liabilities. This will help to plan, strategize, and execute business in an informed way during the time of change in the business environment, and to stay out of troubled waters. These measures may mitigate the disaster and help to survive and succeed in the long run.

 

Authored by: RAMYA KUNAPAREDDY

Corporate and Litigation Lawyer, Hyderabad

 

 

Disclaimer: The content of this article is solely the author’s personal analysis and interpretation. In case you wish to act upon on the basis of the content of this article, please seek legal advice. The author shall not be responsible for any loss you may incur as a result of your actions relying upon this content. The content herein is the copyrighted material of the author and is informational and shall not be used for commercial purposes other than for personal reading.

Legal Remedies for Termination of Contracts
Agreement & Contract

Legal Remedies for Termination of Contracts

A contract is typically a written agreement wherein the parties fix the terms and conditions of their relationship and transactions. Termination of a contract is very important as it provides parties with an exit option. Under the Indian Contract Act 1872, a contract can be terminated by the parties involved by giving legitimate reasons like frustration, repudiatory breach, termination by prior agreement, rescission, or on completion.

 

Such termination may occur by the mutual consent of the parties or by law. However, if a contract is breached or terminated without mutual consent, then the party other than the one breaching it can seek certain legal remedies on account of such termination. 

 

 

Following remedies may be pursued for if there is a termination of the contract: 

 

  1. Suit for breach of contract: A suit for breach of contract can be instituted when either party breaches an enforceable agreement. The remedies can be obtained in the form of damages, restituting the suffering party, rescinding the contract, or ordering the breaching party to perform the contract. These damages shall include the compensation given for financial losses caused by a breach of contract.
  2. Damages: Under Section 73 of the Indian Contract Act, any party can claim compensation for loss or damages caused to them in the normal course of business if the other party breaches it. The liquidated damages are pre-decided by the parties while forming the contract. The unliquidated damages are assessed and determined by the courts or appropriate authorities after the contract is breached. The general aim of an award of damages for breach of contract is to compensate the innocent party for the actual loss suffered and to put the party back in the same position as it was before the formation of the contract. The damages incurred are assessed as at the date of the breach of contract. These damages may be for the pecuniary loss, non-pecuniary, and nominal damages. 
  3. Specific Performance: Specific performance is an equitable and discretionary remedy given by the court in case of breach of contract, which compels the breaching party to perform a contractual obligation. It is generally awarded when the required obligation is unique and difficult to value. It may be ordered when the property is not an ordinary article of commerce or consists of goods which are not easily obtainable in the market. 
  4. Injunction: Injunctive relief is a legal order that either makes it mandatory for the defaulting party to perform specific obligations or prohibits the defaulting party from performing certain tasks. It is also at the discretion of the court and can be ordered on an interim basis or a final basis. A common instance of interim injunctive relief is an order restraining the party from dealing in certain property until the substantive dispute has been concluded. 
  5. Indemnity: Indemnity clauses are the contractual provisions that allow the parties to manage the risks attached to a contract by making one party compensate for the loss suffered by the other, due to specific events. An indemnity may be claimed for losses arising on account of the conduct of a third party. The damages, the amount paid under the terms of the agreement, legal costs of judgment, are some of the claims which Indemnity holders can include in its claims. 

 

 

Conclusion

It is important that a contract includes all these remedies in writing. It is advisable to approach a lawyer and assess which remedies to termination of the contract, maybe the most beneficial.
 

What does Indemnity In Service Contracts mean?
Agreement & Contract

What does Indemnity In Service Contracts mean?

Indemnity is a term that you may have heard or read often while going through commercial contracts. Do you know what does indemnity mean? Indemnity is defined as compensation which one contractual party gives to the other for the loss suffered. However, it is not this simple, and there are many contractual issues involved. We shall discuss and explain the issues associated with indemnity. 

 

 

What is an Indemnity Clause?

 

It is a promise to hold a person harmless from the consequences of his act. It can be express or implied. Companies, while entering into a contract, happen to mention an indemnity clause so as to manage risk arising out of acts by another party effectively. It is viewed as a form of security against a financial loss. The contracting party who promises/gives the indemnity is called the indemnifier while the contracting party to whom indemnity is given is called the indemnity holder. The definition of Indemnity in Indian Law is narrower compared to the English Law. While the latter definition includes within its scope losses arising from any cause (fire, ravages of the sea, etc.), the Indian definition only allows for a promise to indemnify losses arising out of actions directly attributable to the promisor or by any other person. Basically, loss must be on account of human agency. 

 

 

What Can be Claimed as Indemnity?


An indemnity is typically required under certain events. These include intellectual property rights infringement, loss to property, losses to third parties, etc. Even if one has indemnified a product for a particular amount, a valid claim can only be made for the exact amount of loss made and not the entire amount. Also, it is a settled law position that a party can be indemnified before suffering actual loss provided that such loss is imminent. 

 

 

Are Indemnity and Damages Same?


Damages are described as compensation for legal injury. The following are differences between Damages and Indemnity : 

  1. Action for damages arises when a breach of contract has occurred. The loss incurred needs to be due to the actions of the contracting party. In Indemnity, losses arising out of third-party actions can be claimed and does not necessarily entail a breach of contract. 
  2. Damages can be claimed only for losses arising out of reasonably foreseeable events. Indirect or remote losses cannot be claimed. This is not the case with indemnity where indirect and remote losses can be claimed.
  3. A duty to make up for the the loss by the party is implied in damages, whereas it has to be explicitly included in Indemnity clauses.

 

How to draft an effective Indemnity Clause?

 

There is a tendency to simply use previous indemnity clauses without tailoring it to the requirements of the contract at hand. This diminishes its effectiveness. Certain key points to keep in mind while drafting the Indemnity Clause are:

  1. Sources from which potential losses may arise, need to be identified, so as to ensure a proper comprehensive indemnity clause.
  2. One should define loss in an exhaustive manner as remote, consequential, and indirect losses can be claimed under this clause. Such an attempt reduces the possibility of a loophole.
  3. Also, wide definitions, vague expressions should be avoided as they might be read down, which might lead to the exclusion of some of the anticipated liabilities.
  4. An Indemnifier should consider adding a clause to put an obligation on the Indemnity Holder to mitigate its loss following the breach. 
  5. The indemnity holder should be limited from benefitting from his own negligent/irresponsible conduct.
  6. It is absolutely necessary to ensure that the indemnifier is financially capable of making good on the loss suffered in accordance with the contract.

 

 

Conclusion


Thus, Indemnity clauses seek compensation for actual or potential damages arising out of certain set events. They are usually subject to intense negotiations on account of the liabilities they impose. Such clauses should be drafted with care and should be tailored as per the requirements of the contracting circumstances. Otherwise, they are likely to be rendered useless when a dispute arises. 
 

All You Need To Know About Drafting Lease Agreements?
Agreement & Contract

All You Need To Know About Drafting Lease Agreements?

A Lease agreement is quite common among corporate entities. It is like an arrangement between two parties with respect to rights of possession over some property for a specific time period and consideration. The basic function of the agreement is to ensure a clear demarcation of the terms and conditions involved in the said transfer. A poorly drafted agreement, more often than not, is the reason for extended litigation in Courts. Therefore, it is absolutely essential to understand the fundamental aspects of a Lease Agreement and the necessary points to incorporate in the same. 

 

 

What is a Lease?


A Lease is a transfer of possession rights over some property over an agreed-upon time period and monetary value. An important thing to note here is that in a lease, the ownership of the property is not transferred. The law governing the transfer of immovable property is the Transfer of Property Act, 1882. 

 

 

Key Terms


The following are certain key terms involved in the framing of a Lease Agreement:

  1. Lessor: The person who transfers the property
  2. Lessee: The person to whom the property is transferred
  3. Rent: Consideration for the transaction to take place
  4. Duration: The time period of the transfer begins from the day the Agreement mentions, otherwise on the date, it was entered into

 

 

Essentials of Lease Agreement

  1. Parties entering into the agreement need to be competent to contract. 
  2. The Lesser should be the true owner of the property being leased. 
  3. The Rent i.e., periodic payment or Premium, needs to be agreed upon.
  4. The nature of agreement entails acceptance by the lessee in the entirety.

 

 

Key Drafting Points

A Lease Agreement needs to be specific and exhaustive enough to cover the subject matter at hand and, at the same time, protect one's interests. The following are certain key drafting points to keep in mind while framing a Lease Agreement:

 

  1. Name and Addresses of everyone involved: It is necessary to mention the name of all the owners of property along with their addresses. At the same time, it is required to mention the names of all the parties to whom the property is being leased so that the enforceability of the conditions mentioned in the lease remains effective.
  2. Specification of the Property: The property needs to be properly demarcated and identified so as to prevent any possible miscommunication.
  3. Amount of Rent: The premium/rent with their due periods needs to be mentioned in the contract. Also, it is pertinent to mention what happens if the payment is not paid on time, the penalties and conditions surrounding the same.
  4. Amenities: To avoid any confusion, it is frugal to mention the amenities that the lessee is entitled to use on account of the lease agreement.
  5. Method of Termination: The method of terminating the Lease Agreement, grounds, time period of notices, and other incidental matters effectively preclude any possible lacuna leading to litigation.
  6. Time Period: The term of the Lease deed should be specified.
  7. Charges: The agreement should specify who is required to pay the Utility charges (electricity, water, telephone, internet, etc.) and land taxes and other incidental governmental charges.
  8. Permitted Usage: The permitted usage (material alteration, subletting, etc.) of property should be mentioned so as to avoid any future litigation.
  9. Redressal Mechanism: It is absolutely necessary to identify the jurisdiction of the appropriate Court along with a dispute redressal mechanism.
  10. Indemnity Clause: Clause covering possible damages and liability to compensate needs to be agreed upon.

 

 

Conclusion


Lease Agreements, especially in a commercial transaction, consists of various complicating circumstances, especially on account of the amount of money involved. This merits proper understanding of exactly what one expects out of the lease agreement and framing the same accordingly. The twin objective of any well-drafted agreement should be to grant peace of mind to the parties entering into a contract and prevent frivolous litigation. The points discussed above, though not exhaustive in any sense, should help achieve the same.