Governing law and jurisdiction
A governing-law clause naming a foreign jurisdiction, copied from a template built for a different market, often doesn't actually work between two Indian parties — courts have held that Indian parties can't contract out of Indian law for a purely domestic transaction. The jurisdiction clause (which specific court or forum hears a dispute) is a separate question from governing law, and both need to be set deliberately, not copied.
Dispute resolution
Whether disputes go to arbitration, mediation, or straight to court is decided here, and a vague clause — no named seat, no clarity on the number of arbitrators or the applicable rules — routinely produces a preliminary fight about the clause itself before the real dispute is ever reached. See Arbitration vs. Litigation in India for how that choice actually plays out.
Liquidated damages and penalty clauses
Section 74 of the Indian Contract Act, 1872 caps recoverable damages for breach at "reasonable compensation," regardless of what a clause labels itself. A stipulated amount that looks punitive rather than a genuine pre-estimate of loss is routinely reduced by courts — which means a liquidated-damages clause needs to actually show its working, not just state a large number to deter breach.
Indemnity
A broad, undefined indemnity ("indemnify and hold harmless against any and all losses") is far weaker in practice than a specific one that names what's covered — third-party IP claims, breach of a named representation, a specific category of loss. Indian courts parse what an indemnity clause actually promises, not the boilerplate strength of its language.
Termination
Termination for cause, for convenience, and their respective notice periods and consequences need to be spelled out, not implied. What happens to accrued payment obligations, confidential information, and any transition assistance after termination is exactly the part that gets litigated when a relationship actually ends badly — and it's the part most templates leave thinnest.
Force majeure
A force majeure clause only excuses a party from performance for the events it actually lists (or a general catch-all it includes) — Indian courts read these narrowly, so a clause that doesn't contemplate a specific kind of disruption may simply not apply to it, sending the parties back to the general law on frustration of contract instead, which is a much higher bar to clear.
Stamping and execution
None of the clauses above matter if the document itself can't be relied on — an inadequately stamped agreement generally cannot be admitted as evidence until the deficiency is cured under the Indian Stamp Act, 1899, and execution (signatures, witnesses where relevant, the right authorised signatory for a company) has to be correct on the document that actually gets relied on later, not just the draft everyone agreed to over email.
Frequently asked
Can a contract specify a foreign country's law to govern an agreement between two Indian parties?
Generally no, in practice — Indian courts have held that two Indian parties cannot contract out of Indian law for a purely domestic transaction, since doing so would circumvent mandatory Indian legal provisions. A foreign governing law clause is far more relevant, and enforceable, where at least one party is genuinely based outside India.
Is a penalty clause enforceable in an Indian contract?
Not as a penalty, specifically — Section 74 of the Indian Contract Act, 1872 caps what a party can recover for breach at "reasonable compensation," regardless of what the contract labels as a penalty. Courts routinely reduce a stipulated "penalty" amount to what they consider a genuine pre-estimate of loss, which is why liquidated-damages clauses need to be drafted as a real estimate, not a punitive figure.
Does an indemnity clause need to say the word "indemnity" to work?
No, but vague indemnity language is one of the most litigated categories of contract clause in India — courts look at what the clause actually promises to cover (specific losses, third-party claims, breach of specific representations) rather than the label used. A broad, undefined indemnity is much harder to enforce than a specific one.
Can a contract be terminated for "convenience" in India?
Yes, if the contract itself provides for it — Indian contract law doesn't prohibit a termination-for-convenience clause, but it has to be drafted clearly (notice period, effect on accrued obligations, any termination payment) since ambiguity here is a common source of disputes about whether a termination was actually valid.