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This article is written by Kusuma Sai, pursuing Diploma in Advanced Contract Drafting, Negotiation, and Dispute Resolution from LawSikho.

Table of Contents

Introduction

In India, a Memorandum of Understanding is admitted as a Letter of Intent. It means where the two or more parties condense the harmony or framework to work or to complete the project. The Letter of Intent should be signed by contracting parties. The contracting parties involved in this Memorandum of Understanding are Nissan Motors India Private Limited and Ennore Port Limited. The main purpose of this article is to understand the Memorandum of Understanding between Nissan Motors India Private Limited and Ennore Port Limited. This article also covers the importance, benefits, contents and documents needed for a Memorandum of Understanding. This Memorandum of Understanding is very important to understand to avoid future conflicts that arise in the course of a contract.

About Nissan Motors India Private Limited (NMIPL)

Nissan Motors India Private Limited is a 100% subsidiary of Nissan Motor Co. Limited, Japan. It was incorporated under the Companies Act, 1956 in the year 2005. It is a global full-line vehicle manufacturer which sells more than 60 models under Nissan, Infiniti and Datsun brands.

About Ennore Port Limited (EPL)

Ennore Port Limited was initially formulated as a satellite port to the Chennai Port. Predominantly the purpose of the Port is to handle the thermal coal to meet the requirement of the Tamil Nadu Electricity Board (TNEB). The Port was equipped with immense chunks of land. The Port was incorporated under the Companies Act, 1956. This Port was declared a big port under the Indian Ports Act, 1908. It was incorporated as the Ennore Port Limited.

What is a Memorandum of Understanding?

A formal arrangement between two or more parties that have agreed to enter into a contract is called a Memorandum of Understanding. Generally, a Memorandum of Understanding is executed by government organizations, non-government organizations and sometimes by the corporates. The aggrieved parties should reach an understanding which is acceptable by each party in the first place and also crystalline information on the predominant attitude for each of the parties to prepare a complete and effective document of Memorandum of Understanding. Even though the Memorandum of Understandings is not binding legally they can include a clause that can be legally binding to the parties. Violation of the clauses mentioned in the agreement can result in the guilty party being liable. To make the Memorandum of Understanding legally binding, there are certain elements. They are as follows:

  • An offer.
  • Acceptance of the offer.
  • Legally binding intention.
  • Consideration. 

Why does Nissan Motors India Private Limited and Ennore Port Limited need a Memorandum of Understanding?

Nissan Motors India Private Limited is not willing to enter into a contract. There is a difference between a Memorandum of Understanding and a contract. The contract is binding in nature whereas the Memorandum of Understanding is non-binding in nature. Nissan Motors India Private Limited should export their cars through Ennore Port Limited only because the manufacturing plant is near to the Ennore Port. There is a condition put forward by Ennore Port Limited. The condition is that Nissan Motors India Private Limited should not export their products through other ports located in Tamil Nadu except Chennai Port. By agreeing to the condition, Nissan Motors India Private Limited had entered into a Memorandum of Understanding. To avoid future conflicts Nissan Motors India Private Limited and Ennore Port Limited had entered into a Memorandum of Understanding. 

The process involved in drafting a Memorandum of Understanding

Memorandum of Understanding possesses a very unique drafting process. The steps involved in drafting a Memorandum of Understanding is as follows:

1. Link the agreement to the initiative

Here initiative means the opportunity to act or take charge before others do. It determines the actual parties of the agreement/Memorandum of Understanding. It also elucidates the collaboration between the parties to implement the agreement and what each party can accomplish.

2. Develop the content of the agreement

Parties must agree to responsibilities, objectives, time frame of the project, coordination procedure. And also how the parties will authorize and pay for any costs incurred in the project. The process of the Memorandum of Understanding would preferably be open and transparent to all the parties to the agreement. 

3. Ensure Memorandum of Understanding is fit for purpose

Ensure that the Memorandum of Understanding is applied as per the aim of the contract to all parties to increase transparency. Make sure that the Memorandum of Understanding is drafted for the purpose of entering into the project. Having a legal representative’s review for elucidating the language used Memorandum of Understanding before it is signed by both the parties.

4. Execute and communicate the agreement

The formal agreement of collaboration must be conveyed to all the parties of the Memorandum of Understanding and the public, wherever possible. A copy of the Memorandum of Understanding should be posted publicly or it must be available for the public. A Memorandum of Understanding is examined and signed by each party.  

5. Review and adapting the Memorandum of Understanding

As the project develops, certain amendments can be made in the Memorandum of Understanding to incorporate relevant emerging clauses or agreements among the parties. The parties should regularly scrutinize the Memorandum of Understanding to scan its implementation and comprehensiveness. 

Contents of Memorandum of Understanding 

There are many contents that can be included but are not limited to certain contents in the Memorandum of Understanding. The following are the contents of the Memorandum of Understanding:

1. Scope of the Memorandum of Understanding

The purpose of the Memorandum of Understanding should be mentioned by the parties. If both the parties come to Understanding during the time of entry to a contract, then there is less chance of conflicts arising of conflicts. The Memorandum of Understanding prescribes the purpose and scope and is helpful when conflicts arise. 

2. Intended action

Memorandum of Understanding communicates meeting of will between the parties, specifying a willful common line of action, in place of a legal document. Both parties should have a common intention. 

3. Name of the parties

A Memorandum of Understanding should contain the name of the parties. A Memorandum of Understanding is not valid without the name of the parties.

4. Name of the project

The name of the project shall be mentioned in the Memorandum of Understanding. 

5. Responsibilities of respective parties

Each party must ensure that the responsibilities are fulfilled. The responsibilities of each party vary from project to project. Here are some of the responsibilities:

  1. The project shall complete within the specified time.
  2. Confidentiality shall be maintained by both parties.
  3. The parties shall ensure that the payment is made on time.
  4. The parties have the responsibility to check the quality of the products that are used in the project.
  5. The parties must follow the terms and conditions without breaching which are specified by the parties in the Memorandum of Understanding.

6. Length of the Memorandum of Understanding

The length of the Memorandum will be the time period of the Memorandum of Understanding. That means if the project is for 10 years, then the length of the Memorandum of Understanding will be for 10years.

7. Date of execution of the Memorandum of Understanding

The parties must disclose the date of execution of the Memorandum of Understanding. For example, if the Memorandum of Understanding is entered on the 28th of July, 2021 then the date of execution will be 28th July, 2021. 

8. Clause of termination of the Memorandum of Understanding

If any of the parties to this Memorandum of Understanding breaches the terms or conditions, then the other party can terminate the Memorandum of Understanding.

If the project has been completed on time, then the Memorandum of Understanding will terminate.

9. Contact information of both the parties

The address, contact number of both the parties are mandatory in the Memorandum of Understanding.

10. The possible dates for performance reviews

Both parties have the right to check the performance or improvements of the project.

11. Notice clause

If any dispute arises during the course of the project, the party shall send the notice to the other party without fail. 

12. Amendments

If any amendments are to be made, then the parties can amend necessary points to the Memorandum of Understanding with the consent of the other party.

Briefing of documents

A “briefing document” should be prepared to provide conditions and hypothesis for the Memorandum of Understanding as well as a crystalline attestation of the benefits to the other party. The document must include the following:

  1. Background of the proposed party.
  2. Summary statement of mission, purpose and scope of the Memorandum of Understanding.
  3. Reasons for using the Memorandum of Understanding form of agreement instead of other forms like contract or articulation agreement.
  4. Advantages to the party (who accepts the offer).
  5. Background of development of the partnership arrangement.
  6. A list of individuals working under the project.
  7. Consequences if Memorandum of Understanding is not pursued.
  8. Nature of the risk in entering into the Memorandum of Understanding.
  9. A copy of the signature page. 

Benefits of Memorandum of Understanding

1. Establishes a common intention

It is supreme that both parties understand each other’s objectives and goals. If there are no clear terms and effective communication, the business will fail. A Memorandum of Understanding would be a great asset to the business. So Memorandum of Understanding is appreciably beneficial. Parties must be able to simplify their requirements and expectations. Subsequently, this will initiate a common intention for future engagements.  

2. Providing a framework for future dealings

Memorandum of Understanding can settle the mind at ease. Paradoxically for proficient businesses also entering into a legal contract could be intimidating when the project is for a long period of time. If we put forward certain terms that have been set forth earlier in a document, it leads to a good framework for future dealings. Memorandum of Understanding might be used as a basis for the future contract. 

3. Reduces the risk of uncertainty

Business debates might be unsteady and uncertain at times. At the beginning of the relationship, there might be a misty relationship between the parties. There is nothing deficient other than contradicting the business partner overdetermined terms. Therefore, the Memorandum of Understanding contributes a substantial precaution to reduce the risk of uncertainty expectations and targets. The reduction of risk is beneficial to commercial partnerships and relations where the commitment is for a prolonged period. During the time of drafting the formal contracts, setting out prospects and ambitions is very beneficial to the parties to reduce the risk of uncertainty at the beginning of negotiations.

4. Records prior agreements

If any of the parties of an agreement retract any of the terms specified in the agreement then they can refer to the Memorandum of Understanding. In this case, Memorandum of Understanding is very beneficial as it records the terms and conditions of an agreement between the parties. Therefore, Memorandum of Understanding is helpful in the course of negotiation. Even though the document is not binding legally, it empowers safe communication and confidential information between the parties. For formation of partnerships Memorandum of Understanding is expressly a valuable document.

5. The ease of ending engagements

Contrary to the Memorandum of Understanding, a formal contract is binding legally. Even though Memorandum of Understanding eases a positive association between the parties, at the time of quitting or exiting the agreement a formal termination process should be followed. When compared to the Memorandum of Understanding, a formal contract is binding legally. If one of the parties is willing to exit the agreement it will be more difficult, complex and costly. 

6. Stamp duty

Substantially there is no need of paying the stamp duty on Memorandum of Understanding. Although, if a Memorandum of Understanding incorporates an agreement to purchase any property which is immovable and worth’s more than Rs. 100, it is compulsory to be stamped before producing it in court. The document for which stamp duty is paid is admitted as evidence in the court. If the document for which there is no payment of stamp duty, then it is not admitted as evidence by the court.

About Memorandum of Understanding between Nissan Motors India Private Limited (NMIPL) and Ennore Port Limited (EPL)

Ennore Port Limited had developed a Cargo-cum-terminal at a length of 35 acres. The development of Cargo-terminal had cost over Rs. 140 Crore which facilitates parking of 10,000 cars. This was the biggest car parking yard when compared to the other major ports. Whereas, Nissan Motors India Private Limited was aiming to expand their market share from 1.2% to 10%. Apart from the increase of market share, Nissan Motors wanted to carry on with its exploring opportunities for the expansion of the export base for India-built cars.

In 2008, Nissan Motors India Private Limited had entered into a Memorandum of Understanding. The Memorandum of Understanding had facilitated the export of 60,000 cars per annum. The Memorandum of Understanding was signed by Kenichiro Yomura (Managing Director and CEO of Nissan Motors India Private Limited) and M. A. Bhaskarachar (Chairman-cum-Managing Director of Ennore Port Limited) in the presence of Union Minister of Shipping, Road Transport and Highways T R Baalu. The validity of the Memorandum of Understanding is 10 years. 

Nissan Motors India will use only Ennore Port for 10 years to export cars from the Oragadam Manufacturing plant which is situated in Chennai. There is an important point that has been mentioned in the agreement. The note is that Nissan Motors India Private Limited must export their cars through Ennore Port only. Nissan Motors India Private Limited cannot export their cars through any other ports located in India. Other Ports include; L&T’s Kattupalli Port which is adjacent to Ennore Port and Krishnapatnam Port which is about 30km away from Ennore Port. 

In the event of failure of any of the conditions by Nissan Motors India Private Limited, Ennore Port can terminate the agreement. If Ennore Port fails to handle cars by giving a valid reason, then Nissan Motors India and Renault (Nissan’s Alliance partner) can export their cars through Chennai Port. 

Nissan Motors India Private Limited had started its business in September, 2010. It was named as the first motor company to use the port as a transportation gateway. 

In the year of 2009 Ennore Port Limited and Nissan Motors India Private Limited had entered into a new agreement. The agreement specifies that Nissan can relish concessions in the use of Wharf up to 60,000 units per annum at the rate of 0.36 per cent of the Wharfage for a car. Nissan Motors India Private Limited got a free parking space for a period of 15days starting from the date of execution of the agreement. Also, Nissan Motors India Private Limited got the first priority in handling the automobile units in Ennore Port Limited. 

Ennore Port Limited had provided a special berth space of 40 lakhs square meters to Nissan Motors India Private Limited for parking their vehicles. 

Nissan Motors India Private Limited has exported over 2.44 lakh cars to various countries like Africa, Europe and the Middle East in the year 2010, exported 14,000 cars in the year 2013 and more than 3.36 lakh cars in the year 2016. The cars which have been exported from Ennore Port Limited are Ashok Leyland, Ford, Honda and Toyota. 

Sample draft: Memorandum of Understanding

This Memorandum of Understanding is entered into by the Metonian Meteorological Service (MMS) and the Metonian Broadcasting Corporation (MBC), hereinafter referred to as “the Parties”. 

1. Background

This Memorandum of Understanding is entered into by the parties in recognition of the potential opportunities for the improved safety of the community through closer cooperation between the parties. The MMS is responsible for the provision of official severe weather warnings, and the MBC is responsible for the broadcast of these warnings to the general community. This Memorandum of Understanding provides a framework for effective collaboration between the Parties to ensure that warnings are received and understood by the public in the most effective way to minimize loss of life and property.

2. Definition of terms

2.1 In this Memorandum of Understanding, unless the contrary intention appears, the following definitions will apply: 

  • Business day – Any day that is not a Saturday, Sunday or public holiday. 
  • Commencement date – The date upon which this Memorandum of Understanding is signed by both parties. 
  • Dispute notice – A notice is given in accordance with clauses 7.2 to 7.8. 
  • Memorandum of Understanding – The Memorandum of Understanding is amended from time to time. 
  • Term –The term of this Memorandum of Understanding is set out in clause 7.1. 

2.2 In this Memorandum of Understanding, unless the context indicates to the contrary: 

  • Words importing persons include a partnership and a body whether corporate or otherwise. 

3. Legislative context 

3.1 The parties acknowledge that MBC’s undertakings under this Memorandum of Understanding will be subject to the MBC Governing Rules. MBC Governing Rules refers to all laws and MBC Board directions regulating or otherwise affecting the conduct of the MBC, including the National Broadcasting Act and the MBC’s editorial policies. 

3.2 This document is not intended to create legal relations or constitute a legally binding contractual agreement between the Parties. Nothing in this Memorandum of Understanding is intended to impose any legal relationship, rights, duties, sanctions or liability on any party or be the subject of litigation. 

4. Aim of the Memorandum of Understanding 

The aim of the Memorandum of Understanding is to ensure that the MMS and the MBC will work closely together to improve the safety of the community through a better flow of weather-related information, and to try to reduce the burden on both organizations of sharing information. 

5. Scope of the Memorandum of Understanding

5.1 This Memorandum of Understanding forms the understanding between the parties on the subject matter. Any previous Memorandum of Understandings are superseded by this Memorandum of Understanding.

5.2 The parties acknowledge there will be other broadcasters that may broadcast emergency information.

5.3 No other agreements or working arrangements entered into with third persons by the parties will be affected by this Memorandum of Understanding.

5.4 This Memorandum of Understanding applies to the provision and broadcast of severe weather warning information to the general public.

5.5 The parties acknowledge that warning messages are entirely separate from editorial, news and other content on the MBC networks. This Memorandum of Understanding has no effect whatsoever, expressed or implied, directly or indirectly, on MBC’s journalistic independence.

6. Joint undertakings 

6.1 The parties agree to undertake the following activities: 

(a) Identify opportunities to maximize the efficiency of information exchange between the Parties; 

(b) Share information that might lead to a better understanding of the way weather-related information is distributed and received by the public;

(c) Arrange regular senior operational meetings to discuss the organization and industry developments, future directions, community expectations, research and feedback;

(d) Arrange single points of contact at each organization through who contact information can be distributed and;

(e) Arrange annual senior briefings to discuss community warnings and seasonal forecasts to enable both organizations to plan for the receipt and distribution of warnings in the most efficient and effective way.

7. Terms of operation of this Memorandum of Understanding

7.1 This Memorandum of Understanding will begin on the commencement date and will continue until such time as it is terminated by the parties in accordance with clauses 7.8 and 7.9. 

Dispute resolution 

7.2 For the day-to-day operation of this Memorandum of Understanding, in the first instance, the parties will address any operational difficulties, disputes, issues or disagreements together in a transparent manner through open discussion. 

7.3 If a dispute cannot otherwise be resolved through open discussion, a party claiming that a dispute has arisen under this Memorandum of Understanding, between the parties or the way they are interacting, must give a Dispute Notice to the other party, specifying the nature of the dispute. 

7.4 A Dispute Notice may be withdrawn at any time by the party that gave the Dispute Notice. 

7.5 Within ten business days from the date of issue of the Dispute Notice, the representatives of each party will use their best endeavours to resolve the dispute between themselves at an operational level.

7.6 If the representatives of each party are unable to resolve the dispute within 20 business days from the date of issue of the Dispute Notice, the representatives of each Party will refer the dispute for resolution to their respective Managing Directors (or equivalent position holder). 

7.7 Even if a dispute is taking place, the parties to the dispute should make best efforts to continue to comply with this Memorandum of Understanding. 

Termination

7.8 This Memorandum of Understanding may be terminated by one party by giving two months’ notice to the other party. 

7.9 If a party does not agree to the termination, then the Parties agree that this will constitute a Dispute to be resolved in accordance with clauses 7.2 to 7.8

8. Length of the Memorandum of Understanding

This Memorandum of Understanding is entered with intention and may be modified by mutual consent of authorized officials from ___________. The period of this Memorandum of Understanding will end within 20 years from the date of execution of this Memorandum of Understanding. 

9. Costs

Unless otherwise agreed by the parties, each party will pay its own legal costs and other expenses for and incidental to the preparation, negotiation and completion of this Memorandum of Understanding.

The parties agree to the terms and conditions set forth above as demonstrated by their signatures as follows:

Signed for and on behalf of the Metonian Meteorological Service 

Signature [title of authorized signatory]:  

Name:  

In the presence of

Witness signature:

Witness Name:

Signed for and on behalf of Metonian Broadcasting Corporation 

Signature [title of authorized signatory]:

Name:

In the presence of 

Witness signature: 

Witness Name:   

Conclusion

In the world of business, Memorandum of Understanding takes an important role. In general, Memorandum of Understanding does not require any exchange of money. Broadly, the Memorandum of Understanding is not binding legally. Even if there is an exchange of money, a Memorandum of Understanding is considered a legally binding contract. Nissan Motors India Private Limited entered into a Memorandum of Understanding with Ennore Port Limited in the year 2008 by agreeing to export Nissan Motors India Private Limited vehicles to other countries through their port and is valid for 10 years. In the period of 10 years, NMIPL had planned to manufacture nine new models. Initially, they exported over 1,10,000 units of automobiles which included LCVs, cars etc. by the second half of 2010. 

References


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