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This article is written by Kartik H. Shah pursuing a Diploma in Advanced Contract Drafting, Negotiation and Dispute Resolution with LawSikho. A final-year law student at GLC Mumbai, Kartik H. Shah is also a B.M.M. grad who has gathered experience in taxation laws, property law and white collar & forensic investigations. He also works as a freelance consultant on commercial and corporate contracts. He enjoys the fields of Media & Entertainment Law and Intellectual Property.

Introduction

Most consultants in any industry work on contract basis. A consultancy agreement sets out the scope of work to be undertaken by the consultant, usually after discussing the client’s expectations. The contract should clearly express the duties of all the parties involved. 

A few fields which utilize consultancy services agreements are risk management, audit and taxation, securities, marketing, software development and maintenance, etc.

Termination of such contract

There are several reasons why a consultancy agreement could be terminated, some of which are listed below:

  • If either party commits a material breach of any term in the contract, and fails to remedy it within the given number of days (termination for cause); or
  • The consultant may terminate if the client fails to make a payment due to the consultant; or
  • By either party if the other becomes insolvent or unable to pay its debts or dues; or
  • By the client if the consultant puts the client’s intellectual property at risk; or
  • In the event of criminal conviction of either party; or
  • If it is found that either party has made fraudulent representations, (knowingly given false representations and information) in connection with the services or any other subject which is mentioned in the contract.
  • Expiry of the term; or
  • Force majeure; or several other possible reasons; or
  • Upon service of notice with agreed upon time period; or 
  • In the event that the Consultant or its employees or agents engage in any conduct which is detrimental to the business of the Company; or
  • In the event that the Company reasonably considers that there is/may arise a conflict of interest between the parties.

Such termination is initiated by a letter of notice. When a party to a consultancy agreement wishes to terminate the agreement, it issues a letter of notice to the other party, a certain amount of time before as given in the agreement (this is known as notice period).

A legal notice for termination of a consultancy agreement is a notification by one party to another party to a Consultancy Agreement informing them that since they have breached the terms of the lease by not performing their part of duty, or one party is shutting down the relevant business, or there may be mutual agreement to terminate the arrangement.

In such a situation, it is crucial for the party to serve a legal notice to the other party. Through this, one informs in detail how they have been unable to meet the terms of the Agreement. This is the initial step in ending a Consultancy Agreement between parties.

First, let us understand the basic technique of drafting a notice to terminate a consultancy agreement. For a well-drafted notice, one must ensure to follow all the pointers given below:

  1. The notice for termination of a consultancy agreement should have a professional tone. In other words, it should be formal and polite.
  2. One must not be disrespectful towards the other party no matter the magnitude of the breach or its effects.
  3. The breaching party should be addressed with respect.
  4. Any ambiguity in the language should be avoided.
  5. The content of the notice should be to the point.
  6. Clear reasons should be given for termination.
  7. The language of the notice should either be English or a regional language which is understood by both parties.
  8. Ideally it should be on the lawyer’s letterhead.
  9. Always know whom the letter is to be addressed to.

The notice for termination of the Consultancy Agreement must include the following five points:

  1. Name, description, and place of residence/office (address) of the Party – The legal notice for termination of lease must contain the correct and proper name, description and address of the party to whom the notice is being sent.

     

  2. The date of receipt of the notice by the other party – One of the most important purposes of the legal notice for termination of the Agreement is to keep an official record of the date on which the other party officially received notice that the Agreement is being terminated, along with the reason for termination. This date becomes a crucial detail in case the dispute ultimately moves to court.

     

  3. Mention the clause of Notice described in the Consultancy Agreement – Most Consultancy Agreements entered into by parties have a notice clause that describes how the legal notice for breach of any terms and conditions of the Agreement is to be conveyed to the breaching party. It consists of the contact information of all parties and the method of communication of the legal notice. If one does not follow notice related procedures stipulated in the Agreement, then it will not be treated as a valid legal notice. 
  4. The reason for termination must be described in detail – The letter of legal notice for termination of consultancy agreement should specifically point out the proper clause of the Agreement which has been breached by the breaching party. The breach committed can be of various categories:
  • When the breaching party fails to perform their duties in accordance with the consultancy agreement; or
  • The breaching party clearly refuses to perform its obligations under the consultancy agreement in the future; or
  • The breaching party makes it impossible for the other party to perform its obligations according to the Lease Agreement.

Therefore, it is important to identify the violation of the clauses of the Lease Agreement. This is irrespective of the type or reason of the breach. In case there is a breach of more than one clause, then all breaches need to be included in it. If the termination of the consultancy agreement is not due to a breach of the provisions of the Agreement, the reason for termination must be clearly stated, for example:

“Since the Company is applying for insolvency and liquidation procedures, kindly consider this communication as notice for termination of the Agreement as provided in Clause XYZ of the Agreement.”

5. Other points to be included in the notice to terminate a consultancy agreement are as follows:

  1. Details of all previous correspondence regarding any prior breaches of the Agreement.
  2. Signature of the lawyer in appropriate places.
  3. Relief sought should be mentioned in the notice.
  4. Reasonable time to act/reply.
  5. A copy of the notice is to be retained by the lawyer.

Matters related to agreements, breach thereof and termination thereof are subject to the law of contract, the relevant provisions of which are mostly found in the Indian Contract Act 1972. It also explains provisions for loss or damages caused by a breach of a contract. Although some remedies may vary between contracts, most do remain the same. For more information on remedies for breach of a contract, click here.

Sample letter of notice to terminate a consultancy agreement

To,                                                                                       Date: 1st January 2020
[Authorised personnel],
[Address Line 1],
[Address Line 2],
[Address Line 3],
Mumbai – [Pincode]
MH, India.

SUBJECT: Notice to terminate Consultancy Agreement dated [___________].

Sir/Madam,
           We refer to the following agreement, [___________] dated [________] (hereinafter referred to as “Agreement”), entered into between [Mr.___________], residing at [_____________], holding PAN [__________] and [__________ Private Limited], incorporated under the laws of India, having CIN [__________] with registered office at [____________]. 

  1. The arrangement for consultancy services between [__________] and [___________] under the Agreement shall stand terminated with effect from [__________]. The Agreement is being terminated due to a breach of the following terms of the Agreement by you and your failure to remedy the breach. 

               f.  Clause 2(a)(iii) of the Agreement:
                   [Quote the clause here]

               g. Clause 3(c) of the Agreement:
                   [Quote the clause here]

2. You were given notice of the breach on [_________] in which you were also requested to rectify the breach on or before [_________]. However, your failure to remedy said breach by [________] shall result in the termination of this Consultancy Agreement with effect from [_________]. 

3. A sum of INR [in figures] (in words) is payable by you to [________]. The said amount shall be remitted by you into the bank account as decided in the Agreement within the following period: [number of days] from the date of receiving this letter.

4. The amount of INR [in figures] (in words) to be paid by [________] to [________] shall be full and final settlement of all dues, therefore no further payments shall be made under the Agreement. 

5. According to Clause 9(b) of the Agreement, the following actions are required to be taken by the Parties pursuant to the termination:
a. [____________________________]
b. [____________________________]
c. [____________________________]

6. The Parties hereby agree that the clauses in the Agreement providing for Dispute Resolution shall as is apply herein.

Kindly affix your signature in the space provided below, signifying your receipt of this letter of notice and that the above accurately records our mutual agreement.

Sincerely,

__________
[Name of authorized signatory]
[Designation]
[Company]

Accepted: ____________

For and on behalf of __________.


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