Know all the intricate details about MoU as it is essential from the professionals and be legally very sure.
In the contemporary business world, business organisations are likely to enter various agreements while carrying out business. When negotiating with other potential business colleagues or vendors, joint ventures, or agents, these companies mainly enter into an agreement with them, which is the first friendly stage toward a grand alliance. But there are certain ambiguities surrounding whether the memorandum of understanding is legally bound. Read this blog to know what is memorandum of understanding in India, is mou legally binding, can mou be registered in india, its key features and more.
What do you need to know about a memorandum of understanding?
The phrase memorandum of understanding is one of the most commonly used phrases for a nonbinding contract which is described as the intention of 2 people or businesses to work together. And memorandum of understanding in India is also known as a letter of intent. But just calling the agreement of memorandum of understanding does not denote that the contract is non binding automatically. In the legal scenario in India terminology of the agreement is undoubtedly irrelevant.
Every agreement is not a contract, as per the Indian contract act 1872. Only those legally binding agreements as contracts will be enforceable by the contract law.
So you must be wondering, is MoU a legally binding contract or not? Well, you can learn everything about the Legal binding of MOU here.
How does the memorandum of understanding work?
The memorandum of understanding is ideally an expression of agreement to get going. It will indicate that the parties have reached the understanding level and are moving forward. Even though it is not binding legally, it is one of the most severe declarations of imminent contract.
The memorandum of understanding, letter of intent and memorandum of the agreement are distinguishable virtually. They all communicate about the agreement on a mutual basis, and there is a mutual goal besides a desire to see it through completion. A memorandum of understanding mainly communicates the expectations of the people accepted mutually. They are one of the most commonly used agreements, mainly because they are very different from the treaties, which can be produced quickly and secretly.
Know more: Memorandum of Understanding Format
Can a memorandum of understanding be registered in India?
You need to know everything about MoU registration in India before you eventually register. This agreement is just a promise between 2 or even more parties. Even though it does not have any legal binding, it is stated that it is a simple agreement and a legal value that can be used to establish any contract.
How far is a memorandum of understanding registered or relevant?
A Memorandum of understanding is generally the first step of the agreement for the formal contract formation. Even the memorandum of understanding is not binding legally but can be considered one of the most severe documents by the law. To be enforceable, and if an agreement is to be non-binding, then it is the agreement that should contain binding and non-binding terms. It must have everything specified as a non-binding agreement. All the understandings and the terms are eventually accepted expectations between the parties.
The legal position of dispute in the memorandum of understanding
The principal legislation governing the memorandum of understanding under Indian law is the Indian contract act 1872. It is one of the most stated characteristics of the contract featuring the intention of the parties to enter into the binding agreement or the obligation that leads to the formation of a contract.
Hence the clauses which are mentioned in the memorandum of understanding which make the provisions for the enforcement standard in case of a breach by either party are likely to confirm that the parties have no intention to enter into the binding agreement. The memorandum of understanding containing vague terms is nonbinding unless the critical understanding between the parties can be decided from any given context.
Even though there is a dispute resolution clause mentioned but if any breach happens, it can be settled out, and for this, the essential requirement is that the parties must settle the dispute in good faith if the dispute is not resolved within 14 days timeline then it will be resolved through the provision.
Should you register your memorandum of understanding?
Mou can be registered, you need to register it by mentioning some statements and documents.
- To safeguard your interest, you need to put some enforceable clauses.
- Besides that, if necessary other things, including the consequences, the timeline etc., should also be mentioned here.
- Furthermore, it would be best if you put some termination clauses in the memorandum of understanding and register.
- If there is some monetary exchange, then it must be registered to safeguard the interest of the parties.
Some of the key features and content
- It mainly describes who are the parties to the agreement
- It describes the projects on which the parties generally agree. Next is the document’s scope that is made during this agreement term.
- It sets out the roles and responsibilities of all the parties.
- Even though they are not binding or legally enforceable under the Indian laws.
- It can involve in exchange of money or any valuable consideration.
- It contains all the indemnification clauses.
- Joint undertakings and responsibilities are mentioned.
- For other parties, the termination clauses are also mentioned.
- The dispute resolution clause is also mentioned.
The court can hold the memorandum of understanding invalid when it does not fulfil the conditions of the contract under the Indian contract act 1872. The enforceability of the memorandum of understanding is considered and also enforced under the specific relief act, and it is only when the doctrine of estoppel comes into the picture. The Supreme Court justified the concept of the principle of promissory estoppel and equity in the landmark decision where it gave the statement that the doctrine of promissory estoppel is the principle involved by equity to avoid any type of injustice.
Conclusion:
To know anything about MoU, one can surely rely on Vakilsearch, as here the team of professionals is very experienced.
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