This article is written by Mithi Jaiswal who is pursuing a Certificate Course in Advanced Civil Litigation: Practice, Procedure and Drafting from LawSikho.
The world crude steel production has witnessed a growth of 4.94% over the years and has reached a production of 1789 million tonnes (mt). According to World Steel Association, the per capita finished steel consumption for India is 69kgs. India is the world’s second-largest crude steel producer in 2018 with a production of 106 million tonnes (mt). India is the world largest producer of sponge iron in the world and the 3rd largest finished steel consumer in the world after China & USA. Domestic availability of raw materials such as iron ore and cost-effective labour are the major reasons in the growth and development of the Indian steel sector.
The introduction of the National Steel Policy, 2017 and allowing 100 per cent Foreign Direct Investment (FDI) in the steel sector under the automatic route are certain steps taken by the Indian Government to boost the sector. The steel sector plays a major role in the manufacturing output of the country (India).
Essential contracts required to start an iron and steel manufacturing factory
Contracts and agreements are required for the commencement of any small- and large-scale businesses so in a similar way we require certain contracts for the commencement or for starting a manufacturing unit. To set up a factory you first require a plot of land for the installation of the machines and other set up required in a manufacturing unit. Let us know the names of the few essential contracts required to set up the manufacturing unit: –
- Sale Deed.
- Manufacturing contract.
- Purchase Orders (which is not a contract but is a very essential document required).
- Licensing Agreements.
- Contractor Agreement.
- Non-Disclosure Agreement.
- Employer-Employee Agreement.
Now, let us dive into the details of each and every contract for a better understanding of the same.
A written instrument entered between two parties, which legally transfers the ownership rights of the property from one person to another in exchange of a price paid/consideration is the final deed or conveyance deed, also called the Sale Deed. There are two parties in such a contract:
- Transferor or the Seller: The person who transfers the property.
- Transferee or the Buyer: The person in whose name the property is being transferred.
The sale deed lays down the following details:
- details of the parties,
- the final deal price of the property,
- the accepted mode of payment, and
- the time for handing over the possession of the property along with the original documents.
This contract is entered for the purpose of the sale or purchase of the land or any construction made on it. The owner of the factory will have to enter this contract at the very onset when he decides to purchase a land from the owner of the property to lay down the foundation of the manufacturing unit. This document also acts as proof that the buyer is the outright owner of the said property.
Mostly, all the entrepreneurs around, tend not to develop or manufacture their own product, in such a scenario the entrepreneurs enter into contractual relationship with other manufacturing units who would manufacture the desired product. The manufacturing unit who would manufacture the product for the entrepreneur is known as the contract manufacturer. The contract manufacturer is solely responsible for the sourcing of the raw materials required and also for providing manufacturing process to meet the following conditions:
- Delivery date.
The key points that are required to be covered in this contract are:
- Purpose-This clause shall clearly state the reason as to why the parties to the contract are executing this contract (explaining the nature of work)
- Intellectual property- This clause shall state every detail about the Intellectual Property created or used by either of the Parties and are made known each other. This clause also includes the license, assignment, ownership and destruction of the Intellectual Property created or previously created and used for the purpose of this contract.
- Project costs- The cost involved in carrying out the entire purpose for which the contract has been executed.
- Responsibilities of all parties- The Do’s and Don’ts of the Parties in the Contract.
- Liabilities of all parties- The obligations of the Parties to this contract are listed in this clause.
- Turnaround time- The duration or span of time within which the work has to be completed or partly completed has to be clearly mentioned in this clause.
This agreement is essentially required in cases where the manufacturing unit will allow or permit any other person to use any of the Intellectual Property (IP) owned by the manufacturing unit on their behalf. The unit might license or assign such intellectual property to the other third party with certain terms and conditions which are carefully and clearly listed down in this agreement. This agreement should specifically mention:
- The purpose or reason for which the IP rights are being granted to the third party.
- The time frame or the duration for which the IP is being granted to the third party.
- The procedure to revoke the rights granted to the third party in cases where the third party is found exploiting the IP without the permission of the owner of the IP.
- The damages to be paid by the third party upon violation of any of the terms and conditions set out in this agreement.
This agreement is essentially required when the manufacturing unit will engage certain labours on a contractual basis. The scenario is that there is a contractor providing labours to different manufacturing units to render services, now supposedly your manufacturing unit wants to engage certain labours provided by such contractor then in such cases you will require this agreement clearly identifying the purpose of execution of this agreement, the details of every single labour provided by the contractor with their identity attached as annexures, the payment to be received by this contractor, the duration for which the labours are being contracted and the working conditions of the labours provided by the factory. This agreement shall also lay down the working hours of each labour in a day and charges related to extra hour work or any certain such scenarios.
Non-Disclosure Agreement (NDA)
This agreement is sometimes even referred to as the Confidentiality Agreement which is executed between parties who are coming to together to perform certain function or work on certain project together or on behalf of one another and there is exchange of certain confidential information between and/or among the parties. The party who discloses such confidential information is called the Disclosing Party and the party who receives this confidential information is called the Receiving Party or the Recipient.
This agreement shall cover the meaning of confidential information along with the exceptions, the purpose for which such confidential information is being shared and the time period for which it is being shared, the clause stating how and when will all the confidential information received by the recipient be destroyed or returned, the damages that parties have to pay on violating the terms and conditions set forth in this agreement.
The major clauses of this agreement are the following:
- Probation Period.
- Job Description.
- Compensation and benefits.
The first two above mentioned clauses are called restrictive clause as they restrict the employee from soliciting any of the employee or business partners from the factory or place they are an employee of, this means that they cannot decisively brainwash or lead any of their colleague to leave their work in their workplace and join any other similar work or any business of the employee and the other non-compete clause prohibits the employee from starting any business similar to that of the employer or engage any similar business to that of the employer for a particular period of time. The termination clause will deal with the procedure, reason and time frame as to when and how will this agreement will be terminated this mean how will the employment of the particular employee will come to an end.
The probation period is the period in which the employee will be rendering their services to the employer and will be assessed by the employer during this trial period. Based on the performance of the employee during this period the employment of the employee might or might not be confirmed. This clause shall be time-bound for example the probation period should specify the duration for which this probation period may last. This agreement should further briefly describe the job of the employer, the payment to be received by the employee, the time and method of receiving the same.
The above described are the very basic and essential contracts required to start and establish an iron and steel manufacturing factory. The list of such contracts is very exhaustive as such large-scale manufacturing units generally put down everything to black and white that is everything in writing.
Iron and steel manufacturing factory is one of the basic industries and plays a very important role in strengthening the economy of any country. In India, iron and steel factory is the fastest and very essential for the development of the country. The basic component for the infrastructure development of the country is iron and steel. India ranks 5th in the production of steel in the world. This sector is witnessing an increasing number of players hence entities are investing considerably in this sector. This increase in the number of players in this sector has opened up great opportunities for the global players to enter the Indian steel market.
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