Important Clause in Agreement

Important Clause in Agreement

Important Clause in Agreement

As per section 2(e) of the Indian Contract Act 1872, every promise as well as every set of promises forming the consideration for one another is an agreement.

A legal agreement is not a mere piece of paper for signing among two parties but it defends one business organization with its rights and remedies. An agreement also creates obligations, conditions, manners, time limit, monetary concerns, etc so that every part of the agreement is appropriately sealed failing which it might result unforeseen loses.

The most important clause in an agreement is;

Parties to the contract

Every individual to the contract is named in this clause. It is important to the validity of the agreement itself as any ambiguity in identifying the individuals could render an agreement null and void. If a party is drafting the contract, make sure that he clearly state the names of all the individuals and then, refer to them throughout the contract using the similar nomenclature. 


The term Confidentiality is a procedure or a promise that confines the access or places limitations on certain types of information relating  to sensitive information for example technical data or know-how(whether revealed  before or after  signing the agreement) which includes but not limited to, information concerning to business, goods, manufacture process, trade, research, designs ,procedure, Designs, drawings, marketing or any other data which under certain conditions or circumstances appear towards being confidential.

A confidentiality clause is the one where individuals to an agreement agree not to share any information acquired from a certain course of business or any other individual. This is in short a limitation clause in a sense it restrains a party from disclosing certain sensitive information of the corporation which could be misused to cause huge damage or losses to the corporation.


Where a specific service is being offered, accepted, promised as well as delivered upon consideration it becomes extremely hard to draw the lines relating to nature and extent of services towards an agreement. It is important to state and specify the nature of services that will be rendered by the business under normal circumstances. 

Term and Termination

This clause mentions the tenure for which a business is required to render service. It is significant for every kind of agreements to include a lock-in period in order to avoid any kind of losses. Determining the exact period would assist the parties to know the tenure for which they would be rendering the service.


Compensation is one the most important clauses in an agreement. The usual method is to look for approval of board of directors towards authorizing the compensation that the party would receive. 

Intellectual property rights

Intellectual property is a valuable source of income and it is important to identify it in an agreement, its ownership, usage, and the rights of the individuals concerning the intellectual property. Though the inventor of some intellectual property generally has all rights in it, those rights belong towards the employer or the individual who has commissioned the work when it is made for an employer or if the work has been commissioned.

Non-compete and non-poaching clauses

Aside from protecting trade secrets as well as intellectual property, businesses should also guard against the transfer of vital data to their competitors through employees who are offered greater inducements to do so. In a non-compete clause, an employee agrees to not to enter into, start, or join a profession or trade in rivalry with the employer. A non-poaching clause is pertinent in agreements amid businesses. In it, organizations mutually agree to not employ employees from each other. Both non-compete and no-poaching clauses could be limited to a certain period of time.

Indemnity, warranty, and guarantee

Indemnification is significant for protecting a firm from errors committed through those outside it. Warranties and guarantees are significant to establish a reliable framework of trust amid partners in a business for the successful execution of a business agreement. These clauses could often lead towards separate indemnity, warranty, guarantee, and in a few cases, full-fledged insurance agreements that are distinct from the original business agreement.

Dispute Resolution

The Apex Court by means of various precedents has highlighted on adding arbitration as well as other alternative dispute resolution ways, for example, negotiation and mediation in an agreement. The existences of such clauses have turn out to be a necessary requirement in all agreements in the field of business. It targets is speedy settling of disputes and avoids heavy lawsuit cost and long time-consuming procedure involved in the court of law.

Governing law and Jurisdiction

It is convenient to mention the laws that were or are applicable to when the agreement was entered into. It is essential to add in clear and plain terms the governing law and the jurisdiction within of the court where the individuals intend to pursue the case if the arbitration fails or is not opted for. 

An agreement could state the law it is to be governed by, that is to say, the law applicable towards the subject matter of the agreement. It could also state which court would exercise jurisdiction if the individuals choose to take judicial recourse, for instance, the courts of a specific city, or which mechanism would be utilized to redress disputes, for instance, arbitration tribunal.

Conflict of Interest

The agreement almost by specifies the responsibilities and the rights of the parties concerning the dealings with the corporation, to avoid any unnecessary conflict.

Termination of the contract

Every agreement should specify a manner of ending. Some contractual relationships might not state a termination date, for instance, employment agreements where employment ends on superannuation. Other agreements, for instance, those for the performance of a service or the use of a good, should clearly state the duration of the agreement and how to terminate it so that individuals could either renegotiate terms afresh or renew the agreement if required.

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eStartIndia Team

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