This article is written by Nihithaa, pursuing a Diploma Programme in Advanced Contract Drafting, Negotiation and Dispute Resolution from LawSikho.
We all dream to start a business that has a brand name in the international market. If we want to expand our business in our home country it is necessary to import goods from other countries and make them available here. Importing goods from foreign countries and selling them in the home country makes the business profitable and striving. Consumers in India demand imported goods. Importer goods are always eye-grabbing for the people in developing countries. People in India tend to buy electronics, perfumes, leather bags, shoes, accessories from foreign countries for the same reason. Hence for the seller in India to expand his customer base needs to know about Import Laws and Regulations in India. In my article, you will read the important clauses of an Import Agreement in India and the things you need to take care of drafting an agreement.
There are certain documents required for import in India for customs clearance:
Bill of Entry: A Bill of entry is a formal declaration describing goods that are being imported. It is an important document because it is examined by customs officials to confirm that the contents of a shipment and restrictions may apply to shipment. It is a legal document indicating total outward remittance of the country regulated by the customs department.
Commercial Invoice: It is issued by a supplier to a customer to provide full details of business transactions between trading parties. It is an essential document with which customs service determines the worth of goods and record keeping. Invoice is the document indicating terms of delivery of goods. It also serves as sales evidence. It is required at the stage of evidence to prove your case. Make sure you are having the legally commercial invoice before importing goods.
Airway Bill: It acts as an evidence of receipt of goods and that the shipment was handed over to the recipient in good condition. It serves the purpose of a freight bill invoiced together with supporting documents. It is to be submitted for import customs clearance purposes. It is used for air transportation of goods.
Bill of Lading: It acts as a receipt of shipment when the goods are delivered at a predetermined destination. It is used for sea freight. Importer needs to know the difference between the Bill of Lading and the Airway Bill.
Import License: Import Licensing provides protection from legal disputes and financial losses for businesses engaged in international trade. In short it is a Gate-pass for an importer to start a business internationally. It acts as the basic formality of Import business.
Cargo Insurance: Insuring your goods can protect the value of your goods against potential losses that can happen while in transit. It acts as a shield providing safety and security. The importer needs to avail of insurance for the goods against theft, fire, and accidental damages.
Certificate of Origin: It is an important form because it can help determine whether certain goods are eligible for import or which goods are subject to the duties. It records the country of origin that an imported good has come from. Imported goods are carrying the certificate of origin.
Let’s now see the standard Import Contract clauses:
Name of the parties
It contains the Company’s legal name represented as the buyer, address details of the company must be specified, and the person represented whether he is authorized by board resolution must be specified in the agreement of the first part. In the second part also, the Company’s legal name as the Seller, address details must be specified, and is being represented by whether he is authorized by board resolution.
Sample Clause: “ABC Co (Name of Buyer), CIN:_________, Registered office________, _______ represented through Board Resolutions dated ____, (hereinafter referred to as the Buyer)
XYZ CO, CIN:__________, Registered office________, _______ represented through Board Resolutions dated ____, (hereinafter referred to as the Seller)
In the above clause description of the goods, type of products, features, quantities, units must be stated of the goods an importer supplying must be stated clearly and specified. The second party should also agree on the weights, dimension, volume, colour, price, packaging, warranty and guarantee of the product.
Sample Clause: “It is agreed that any information relating to the goods contained in catalogues, leaflets, circulars shall take effect as terms of the contract.”
Representations and warranties
The seller shall represent himself whether he is supplying goods is in proper and good condition. The seller must state the quality and quantity of goods. Also whether the goods are having a warranty for defects and whether it can be replaced.
Sample clause: “The Seller warrants and guarantees that all goods supplied under this contract shall be free from any defects patent or latent, in material and workmanship, and will conform to any applicable specifications and drawings. All materials used by the seller shall comply with the buyer requirements.”
Here in the importer agreement we deal with the currency of another country. For example the currency will be in Dollar, Euro, Asian rupee, Yen or as per the domestic rate of exchange. One must check the currency and calculate the amount and figure out how out much the Indian rupee comes to. Check out if the price of goods is stated in importer currency and whether the buyer can afford to buy it.
Sample Clause: The purchased of the product hereunder is:
$, EURO, YEN
Always have a check on the liability clause. The liability means loss or damages resulting from loss of merchandise at sea, failure of shipmen, failure due to fire, strike, flood, earthquake, government restriction. The liability clause states that the damages are to be borne by whom – seller or buyer?, ensure and read the clause.
Sample Clause: “The merchandise travels at Buyer risk unless otherwise specified. The Seller is not responsible for loss or damages resulting from loss of merchandise at sea, or failure to make shipment within the specified time or at all, when such failure is due to fire, strike, boycott, flood, war, riot, government restriction, or prohibition.
There should be insurance for every goods that are being imported. Insurance is important and should be drafted properly. Insurance means in simple language a protection cover against the loss incur due to unforeseen events. Insurance is of various types and in Importer agreement mostly Insurance for cargo, theft, fire are opted for. Insurance charges are taken by the buyer, the buyer agrees to pay for it. Whether reasonable rates are charged for insurance by the company must be stated clearly in figures and words.
Sample clause: “Buyer agrees to obtain an open policy or such other form of insurance to protect himself on shipments made.”
Arbitration and dispute resolutions clause
Importer agreement will have an arbitration clause. The arbitration clause shall contain the seat and venue of the arbitrations. Whether the parties prefer ad hoc arbitration or institutional arbitration must also be mentioned in the agreement. Whether the arbitration proceeding will be a sole arbitrator or will there be an odd number of the arbitrator.
- The Parties shall attempt to reach an amicable solution by mutual discussion within thirty days of the notice period. In case of failure to resolve disputes amicably, the parties will resort to mediation and conciliation. If the mediation and conciliation doesn’t succeed then the parties will go for arbitration.
- The Parties agree that in the event of any dispute or difference arising between the Parties in connection with this Agreement the parties shall be mandatorily referred to arbitration by a sole arbitrator. In case the parties are unable to agree upon a sole arbitrator within 15 days of the written notice on receiving upon the other party, the dispute shall be decided by an arbitral tribunal comprising three members with one arbitration appointed by each party and two appointees jointly selecting the third arbitration. The process of appointment of the tribunal shall be completed within 1 month of the written notice being received by the other party.
- The proceedings of the arbitration shall be made in English.
- The venue of the proceeding shall be New Delhi and the seat of the arbitration shall be New Delhi.
- The arbitration shall be subject to Arbitration & Conciliation Act 1996.
Commercial transactions are huge, complex, and even risky to handle. In every commercial transaction you will find the agreement of the Importer and the documents necessary for the importer agreement. In my short article, you will learn what are the basis of agreement and what the importer needs to have in clauses for the importer agreement. By reading my article you will understand the few clauses, in simple understanding, I have written in my article.
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