stand form contract
Image Source - https://bit.ly/2P9Edq2

In this article Vedant Shadangi of KIIT School of law, Bhubaneswar discusses MOU and it’s enforceability in India.

Introduction

Before entering into a formal agreement there comes an agreement called Memorandum of Understanding. Memorandum of Understanding which establishes a relation of promise, although it does not establish any legal obligations upon the parties it is of such nature that it establishes a relationship between parties who will ultimately through MoU are likely to get into a formal agreement or in other words a Contract with each other in near future.

Which law gives force to a MoU – Enforceability of MoUs In India

Memorandum of Understanding is merely an agreement or promise between two or more parties. Although it does not has any legal bindings but it is stated that, as it’s a simple agreement only but it has a legal value and can be used as a tool for establishing a contract.

A Memorandum of Understanding can be established as an effective base for stating out the objectives. In India, MoUs are governed under Indian Contract Act 1872.

Also, enforceability of MoUs are considered and enforced under Specific Relief Act and it is here only when the Doctrine of estoppel comes into play for enforcement of MoU. But it will only come under specific relief act if a Memorandum of Understanding entered by the parties fulfills the conditions prescribed by Indian Contract Act 1872.

When a MoU does not fulfill the conditions of a contract under Indian Contract Act 1872 then, in that case, the Court may hold the Memorandum of Understanding as invalid.

Then in such cases, the party seeking for enforceability of a contract can approach to the court based on the principle of promissory estoppels and equity.

The concept of principle of promissory estoppel and equity was justified by the Hon’ble Supreme Court in its landmark decision in Motilal Padampat Sugar Mills Co. Ltd. v. State of Uttar Pradesh[1] wherein it gave a statement that the doctrine of promissory estoppel is a principle evolved by equity to avoid injustice and so whereby a promise has been made by a person knowing that it would be acted upon by the person to whom it is made, and in fact it is so acted upon, and it is inequitable to allow the party making the promise to go back upon it.

How far it is relevant and how it is enforced

MOU is generally the first stage of agreement for the formation of a formal contract.

Although MOUs are not legally binding but are considered as a serious document by the law.

To enforce it, the agreement must contain binding and non-binding terms in order to be enforceable and if the agreement is to be a non-binding then, it has to be specified clearly as a non-binding agreement.

Each understanding and terms represents mutually accepted expectations between parties. And so an MOU signifies that a legal contract is about to be made in future.

Legal position of disputes in MoU

The Indian Contract Act, 1872 is the principal legislation governing MoUs under the Indian laws[2].

It is stated that the characteristic of a contract is the intention of the parties to enter into a binding agreement or obligation, which results in the formation of a contract.

Therefore, clauses mentioned in a MoU which are making provision for an enforcement standard in case of breach by either party will confirm that the parties had an intention to enter into a binding agreement and so a MoU containing preliminary terms is non-binding unless a binding understanding between the parties can be decided from the context.

Through a dispute resolution clause the breach if any can be settled out, and for this, the basic requirement is that the parties must settle the dispute in good faith and if the dispute is not solved within 14 days period then it will be solved through the other provision i.e. other than dispute resolution clause.

Is it advisable to register MoU

To enforce a MoU one should register it by mentioning certain statements and documents. There are certain points which are to be included.

  1. To safeguard the interest, one has to put certain clauses which are enforceable.
  2. And along with it necessary other things like the consequences, the time period etc. must be mentioned there.
  3. Another way is by putting termination clauses in the MoU and register it.
  4. If there is a monetary exchange then it should be registered so to safeguard the interest of parties.

Key features and contents

The major key features and contents of MoUs are:

  1. It describes who are the parties to the agreement.
  2. Describes the projects on which the parties are agreeing upon.
  3. The scope of the documents, which is thereby made during the agreement.
  4. Sets out the roles and responsibilities of the parties.
  5. Although they are not legally binding but are enforceable under Indian laws.
  6. Can involve any exchange of money or any valuable consideration.
  7. Contains indemnification clause.
  8. Joint undertaking and responsibilities.
  9. The termination clause is also there for the parties.
  10. Dispute resolution clause.

Various judgment which justifies the understanding more precisely

In the landmark judgment of Structural Waterproofing & Ors. v. Mr. Amit Gupta[3] the Delhi High Court held that in the absence of proof of coercion or misrepresentation, the Memorandum of Understanding which is otherwise valid should be applied and parties should be bound by the terms and conditions of the MoU.

Also in Jai Beverages Pvt. Ltd. v. State of Jammu and Kashmir and Ors.[4], the ascertainment of enforceability has been stated by Supreme Court that, if the conditions to the MoU are if otherwise acted upon by the parties to the MoU and they get the benefits arising out of MoU then it is enforceable.

In Millenia Realtors Private Limited v. SJR Infrastructure(Pvt.)Limited it was stated that MoUs are not to be interpreted as contingent contracts, and are capable of enforcement.

International MoU – Its enforceability

International MoU is made in the form of a treaty and is registered under the United Nations treaty collection, these MoU should be registered to avoid secret diplomacy and also are sometimes kept confidential.

The title of MoU does not mention the document as a binding or non-binding document. To determine the status, it is like in the case of a national MoU, the international MoU is also determined by the intent of the parties and the wordings and languages used here are of great importance and the legal position of the signatories is very much relevant in making the document enforceable or binding and these are guarded and protected by the International Court of Justice.

The International Court of Justice in the case of Qatar v. Bahrain on 1st July 1994 has stated the legality of the document, the International Court of Justice has provided certain standards for the legality of MoU.

International MoU between countries

International MoU is also not legally binding but the language used there must show the intention of the parties to perform and to work together. As stated above all MoU must not be formally but only those should be formally made and registered which include the exchange of some monetary value.

Mainly MoU is signed between different countries for exchanging resources, technical products, researching plans or for student exchange program etc.

Various MoU signed between countries

India has signed many MoU with different countries, for example, a MoU was signed between;

  1. Ministry of Earth Sciences, India and National Oceanic and Atmospheric Administration (NOAA), the USA on 16th April 2008. Under this, the objectives were to allow cooperation for exchange of scientific resources personnel and technical knowledge which will support the development of Earth observation and Earth science of both countries.
  2. Ministry of Earth Science, India and Met office of the United Kingdom on 28th August 2008 entered into an agreement with the objective to allow and support the development of meteorological services for both the countries by exchanging valuable knowledge and techniques[6].
  3. Ministry of Earth Sciences, India and Belmont Forum countries entered into a MoU for a joint collaborative international research on Earth science.

Putting things simply

The content and intention of the parties entering into MoU must be done with due care and attention during the drafting of language, titles, and clauses of the Memorandum of Understanding, failing in this can lead it to a loss for the parties.

References

[1]https://indiankanoon.org/doc/871220/

[2]http://www.advocatekhoj.com/library/bareacts/indiancontract/index.php?Title=Indian%20Contract%20Act,%201872

[3]https://indiankanoon.org/doc/828749/

[4]https://indiankanoon.org/doc/347950/

[5]https://indiankanoon.org/doc/493299/

[6]http://www.moes.gov.in/content/list-mous-agreements-signed-various-countries

2 COMMENTS

  1. Thanks for Sharing a Information about Memorandum of Understanding as we will updated that actually is going on in Finance and Legal

LEAVE A REPLY

Please enter your comment!
Please enter your name here