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THE LEGAL VALIDITY OF MOU IN INDIA

In my previous blogs, I have explained about MOU [better known as MEMORANDUM OF UNDERSTANDING] and how does it work. Also, that a Memorandum of Understanding or “MOU” is used at a variety of places starting from business, divorce, partnership firms, companies, familial relationships, government organisations, between Foreign and Indian Nationals etc. It is the general notion that a “MOU” is non biding and has got no legal validity in India. In my present blog, I shall discuss about another unanswered question which have had contrasting views and try to discuss each aspect and then conclude and comment upon the validity of “MOU” in India. The basic stressing areas shall include the following1.     Introduction to the validity of “MOU”2.     Legal position of “MOU” in Indian Law3.     Enforceability of “MOU”a.      In General b.     International “MOU”c.      “MOU” between two countries 4.     Landmark Judgments 5.     Personal Opinion6.     Conclusion INTRODUCTION TO THE VALIDITY OF “MOU”A “MOU” is generally said to be a ‘non-binding agreement’ which does not have any legal enforceability and thus acts merely as a ‘letter of intent’ between two parties who mutually agree or disagree to do or not to something and on the basis of which another legally binding instrument is executed keeping all the previous understandings outlined in such “MOU” and giving it effect. As such we can decipher two things 1.     A “MOU” is merely a statement of understanding between two or more parties which when made has no enforceability in the eyes of law as such an agreement has no intention to create a legal bond between such persons. As a result of which, if in case there is a breach of such “MOU” there is no relief. 2.     It is a well-established rule of law that – “All contracts are agreements but, all agreements are not contracts”. This is so because for a contract to be valid it needs to fulfil all the essential ingredients mentioned u/s 10 of The Indian Contract Act, 1872. One of which is – “an intention to create legal relationship between the parties to such contract”. However, now the question arises that what if A “MOU” is drafted in such a manner that is fulfills all the ingredients of section 10??? Can such a “MOU” be a valid contract and be legally enforceable in a court of law???Can such a “MOU” compel the other person to oblige to the same and the breach of such “MOU” will be treated similar to that of a breach of contract??? It is also true that ‘Nomenclature’ of a contract or an agreement is not an index to determine the validity or invalidity of the same. Stating an agreement to be a “MOU” does not explicitly denote that such contract is non-binding.LEGAL POSITION OF “MOU” IN INDIAN LAWAs mentioned above, now that we can understand the fact that it is not necessary for a “MOU” to be non-binding. The question of whether such a “MOU” is legally binding or not depends upon the intent of the parties to create a legal relationship to that extent. Therefore, we can say that the legal position of “MOU” in Indian Law depends upon the intent by which such a document is made and thus such an intention of creating a legal relationship by way of such a “MOU” plays a pivotal role in determining the legal position of the same. Also, it must be noted that the construction of such “MOU” holds primary importance in setting the legality and the construction of words play a pivotal role in the same. If the parties intend to create a legal binding effect to a “MOU” then,a.      The construction of the words shall be of such nature ü Use of the word ‘shall’ instead of ‘may’ü ‘would be’ instead of ‘can be’ü ‘should be’ instead of ‘might be’ So, on and so forth. The use of such words tries to create a legal relationship by making the other person liable to do a certain act. The words shall, would, should, instead of may, can, might are of a superior nature and bind the acts which follow after such words. b.     “legal binding clause”ü A “MOU” would be legally binding if the parties thereto agree to insert any such clause, the literal meaning upon reading of which would mean that such a “MOU” intends to create a legal relationship between the parties to the contract and that the breach of such provisions would mean the same as a breach of a contract under the Indian Contract Act, 1872. c.      In consistency with section 10 of the Indian Contract Act, 1872ü If a “MOU” fulfills all the conditions laid down u/s 10 of the Indian Contract Act, 1872 then, such a “MOU” should be treated as a contract as defined in section 2(h) of The Indian Contract Act, 1872. Hence, giving it a legal force. d.     Insertion of a “dispute resolution clause”ü If a “MOU” inserts a dispute resolution clause, then, it binds the parties to perform their obligations as mentioned or specified in such “MOU”. Non performance of which will lead to breach/dispute for which the “MOU” in itself shall contain a clause which shall provide the method in which such dispute shall be resolved in good faith and in an amicable manner. Thus, from the above we can say that – The principle legislation governing “MOU” in India is dealt with the Indian Contract Act, 1872. Also, in order to make a “MOU” legally enforceable it must have a clear intention to bind the parties to a contract whereby both come under specific obligation to perform their part of the duties. ENFORCEABILITY OF “MOU”As has been discussed earlier in this blog, the enforceability of a “MOU” depends upon the principle governing legislation. I.e. The Indian Contract Act, 1872. In light of this, the enforceability of “MOU” can be divided into 3 categories. a.     In General b.     International “MOU”c.      “MOU” between two countries IN GENERALIn the general sense, the enforceability of a “MOU” can be divided into two categories. They are: 1.     When it fulfills the conditions of a Contract as per The Indian Contract Act, 1872.ü If the “MOU” satisfies the conditions laid down u/s 10 of The Indian Contract Act, 1872 then, the performance of such obligations laid down in the “MOU” can be enforced vide The Specific Relief Act, 1963. ü However, such a relief shall only be granted under The Specific Relief Act, 1963 when, the damage caused to the aggrieved party by way of non-performance of obligation cannot be ascertained and compensation for in lieu of such damages fails to become an appropriate remedy. Sen Mukherjee and Co vs. Chhaya Banarjee [AIR 1998 / CAL 252]2.     When it does not fulfill the conditions of a Contract as per The Indian Contract Act, 1872.ü In certain cases, the courts may find that the “MOU” lacks certain requirements to form a valid Contracts and hence the same cannot be enforced. ü However, even in the above circumstance a person has the right to approach to the court on the basis of: Ø Principles of promissory estoppel     &Ø EquityMotilal Padampat Sugar Mills Co. Ltd. vs. State of Uttar Pradesh   [AIR 1979, SC 621]ü Even beyond that, a “MOU” can be held as enforceable merely on the grounds of equity and on the basis of the general principles of equity irrespective of whatever deficiency it holds is still held to be a contract. Subimalchandra Chatterji vs. Radhanath Ray [AIR 1934, CAL 235]INTERNATIONAL “MOU”ü Any International “MOU” is executed in the form of a treaty or a covenant which is then registered under the ‘United Nations Treaty Collection’.ü These International “MOU” should be registered and by doing so one avoids political diplomacy and secrecy.ü The enforceability of a National or International “MOU” does not differ. In both the cases, the enforceability is dependent upon the intention so conveyed through the construction of such “MOU” ü The title of such International “MOU” nowhere mentions whether it is a legally binding document or whether it is non-binding document. It is prudent to mention here that, The International Court of Justice in the year 1994, July 1st [Quatar vs. Bahrain] has expressed their views upon the legality of “MOU” and had also provided various standards to be maintained for the legality of such “MOU”INTERNATIONAL “MOU” BETWEEN COUNTRIESü As it has already been mentioned and is clear now that no “MOU” is legally binding without the clear intention of it making it as binding. ü Nevertheless, there are “MOU” between countries for a variety of reasons and some of them can be as follows. The “MOU” entered between two countries can have the object and purpose of: - 1.     Exchanging resources between themselves 2.     Exchanging technology between themselves 3.     Student exchange programs4.     Exchange of technical support 5.     Military Support 6.     Understanding of peace 7.     Understanding of trade 8.     Understanding of allies          ETCü The above list though not exhaustive, mentions some of the reasons why two countries enter into a “MOU” and act accordingly. ü Also, every “MOU” must not be formally designed and executed, but those which have been formally designed and executed must be registered and include the exchange of some monetary value with the same. LANDMARK JUDGMENTSGiven below are a list of landmark judgments which have been held to be useful in deciding the legality or non-legality of “MOU” CASE LAWS WHERE “MOU” HAS BEEN DECLARED AS A LEGALLY BINDING DOCUMENT 1.     BrikramKishore Parida v. Penudhar Jena2.     Structural Waterproofing & Ors. v. Mr. Amit Gupta3.     Jai Beverages Pvt. Ltd. v. State of Jammu and Kashmir and Ors4.     Millenia Realtors Private Limited v. SJR Infrastructure Private Limited 5.     Motilal Padampat Sugar Mills Co. Ltd. v. State of Uttar Pradesh6.     M/s. Nanak Builders and Investors Pvt. Ltd. v Vinod Kumar Alag7.     Kollipara Sriramulu vs. T. Aswathanarayana &OrsCASE LAWS WHERE “MOU” HAS NOT BEEN DECLARED AS A LEGALLY BINDING DOCUMENT 1.     Monnet Ispat and Energy Ltd. v. Union of India and Ors2.     Jyoti Brothers v. Shree Durga Mining Co PERSONAL OPINIONAfter going through all the above details, facts, and decisions one can conclusively conclude that a “MOU” is generally a non-binding agreement made for the purpose of making another agreement which shall rely upon the principles of such “MOU” and then carter them into a legally binding agreement. Going by the same logic it is stated by the courts that any agreement which is made for the purpose of making another agreement cannot be given the legal status of an agreement. So, to say, an agreement for an agreement is not enforceable. However, now the question arises that – if a “MOU” which is said to be an agreement on the basis of which another agreement is made which then becomes a contract and the breach of such contract shall be legally bending but not a “MOU”. Then, would it be right to say that 1.     A pre-mortgage agreement 2.     A pre-sale agreement 3.     A pre-lease agreement           ETCOr, any such agreement which has the same purpose that which of a “MOU” merely having different names as mentioned above shall also come under the same purview and shall not be legally binding? To which I can deduce the following: - 1.     Mere heading of any agreement shall not be used as an index to come to the decision of its legality or illegality. The contents of the same shall hold value and the agreement in full shall be taken into consideration with respect to equity and principles of promissory estoppel. 2.     The construction and use of words in such agreement shall also be taken into consideration which will further help the reader to analyse the same and conclude whether such agreement was made with an intention to comply with or was it made just for namesake and was merely a promise. 3.     Insertion of various clauses like “legal binding” “indemnification” “damage” “breach” which shall show the clear intention to make such agreement legally binding would play a pivotal role. 4.     A “MOU” is said to be an agreement which needs to fulfil the valid requisites of a contract u/s 10 of The Indian Contract Act, 1872 as it is the guiding principle legislation. Hence it can be said that if any agreement [irrespective of its nomenclature] fulfils the conditions as laid down u/s 10 of such act shall be deemed to be legal and enforceable. CONCLUSION From the above we can finally come to the conclusion that: - 1.     Any agreement to be a contract shall fulfil the provisions of section 10 of The Indian Contract Act, 1872. 2.     An agreement may or may not be legally binding depending upon the intention between the parties who enter into a contract. 3.     In its generic definition a “MOU” is defined to be a non-binding document, however, if there lies a clear intention of compliance then such “MOU” shall be binding. 4.     It is a well-established rule of law that if a “MOU” fulfils all the conditions laid down u/s 10 of The Indian Contract Act, 1872 then, such a “MOU” shall be legally binding. 5.     Apart from everything a “MOU” can be enforceable in spite of deficiencies on the grounds of equity and promissory estoppel as held in the case of Subimalchandra Chatterji vs. Radhanath Ray [AIR 1934, CAL 235]. 

Posted By

Shreyash Mohta

3 months ago

IMPORTANCE OF MOU IN MUTUAL DIVORCE

In my present blog, I shall be discussing on one of the most important aspects of a mutual divorce and that is MOU [Memorandum of Understanding]. My blog shall be stressing on the basic issues which are stated below:1.     What is a MOU?2.     Why is MOU important in a Mutual Divorce?3.     Relevant Case Laws where MOU was held of utmost importancePresuming that one knows what a mutual consent divorce is, I shall still take a moment here and explain that in a few lines. So Mutual Divorce is basically when two couples, who have been staying separately for a period of 1 or more years and decide to part ways finally by way of a divorce, whereby both the parties [The Husband and The Wife] want a divorce from a each other and both of them set the terms unanimously about the divorce and the terms upon which they are divorcing each other and also the terms as to how shall their relation operate after such annulment of marriage. It is then, that such a divorce is said to be mutual when both the parties are consenting for the same thing at the same time against the same person upon the same terms and conditions and agree to annul the disturbed marriage with such terms and conditions which have been accepted together and freely consented by both. WHAT IS A MOU?Having discussed what a Mutual Divorce is all about let us now come to understand the basic crux on which such a type of divorce stands. I.e. MOU [Memorandum of Understanding]. Let this be said that a MOU is the basis upon which the Husband and Wife take divorce. It is more like a mutual settlement which has been penned down in writing and acts as a documentary proof of such terms which have been mutually accepted by the parties to the divorce. The term “MOU” has been used at a variety of places. They are used in Partnerships, Companies, Divorces, Settlements and also in General. The nature of the “MOU” changes from time to time and also varies according to the purpose of usage. The essence however, remains the same. The “MOU” acts as a Non – Binding, Non – Legal Agreement based upon which an Advocate prepares a “Separation Agreement” which when signed and notarized by the parties becomes legally binding and enforceable. The “MOU” in itself does not create any liability, it is just the basis of understanding which is taken into consideration while preparing the “Separation Agreement”  “MOU” is the skeleton principle or guidelines which are taken into consideration while preparing the “Separation Agreement” and it is on the basis of the “MOU” that the former Agreement is made. A “MOU” deals majorly with the following things and provides the guidelines, on the basis of which “Separation Agreement” is created accordingly. They are as follows: -1.     The understanding on the basis of which both the spouses are divorcing.2.     The payment of maintenance and alimony.3.     The basis on which properties shall be shared. 4.     The decision about Child Custody/Guardianship and maintenance of the same.5.     Duties and Liabilities of the Husband and Wife towards their child/children.6.     Conditions of Separation after Divorce.WHY IS MOU IMPORTANT IN A MUTUAL DIVORCE?The “MOU” in a Mutual Divorce is of preliminary importance because such a divorce is not contested by any of the parties and henceforth, the basis of such divorce is settled mutually out of court and it is just that the parties enter the court room to obtain the decree for divorce on the grounds accepted by them mutually, of which the “MOU” is created at first and thereafter the “Separation Agreement” which after execution is signed and notarized and thereafter creates a legally binding effect on both the parties to comply with.The following are some of the reasons as to why creation of “MOU” in a Mutual Divorce is very important. They are: 1.     It does not leave any scope of any further litigations as every minute detail is mentioned there and it is on the basis of such understanding that the divorce takes place. 2.     The “MOU” acts as the document to rely upon during separation. Nothing more or nothing less can be taken or given than that which is agreed in the “MOU”3.     It clearly demarcates the rights and liabilities, assets and debts, and other various claims which one can have over each other and all of them are laid settled in writing prohibiting any of them to enter into litigation for the same purpose.4.     The major claims of maintenance and alimony are decided there and even in case there is a change in income standards this alimony [once decided shall not exceed]. Hence it reduces the burden to pay more alimony when one starts earning more. The payment medium remains static in spite of change in income which safeguards the husband.5.     It articulates the understanding to writing which then becomes legally binding to enforce the same. 6.     In case of breach of such understanding, either of the parties can sue the other for such breach in the same manner as that in case of breach of contract.7.     The decisions relating to Custody of Children and maintenance of them are also well expressed and settled in this “MOU”, thus avoiding frivolous litigation's to take up any extra burden for the well being of the child. 8.     The distribution of Assets and Liabilities shall also be explained in the “MOU”. ETC9.     Such a “MOU” also safeguards the interests of the Husband from false allegations of Domestic Violence and cases of 498A after Divorce.10. It acts as a full and final settlement, after which no further litigation's can take place between the Husband and Wife with respect to the breakdown of marriage. However, if in case any one of the two breaches the terms of the “Separation Agreement” then the aggrieved person has all the rights to sue the person responsible for such breach and compel specific performance according to the MOU executed. Though the above list is not exhaustive, they are the major issues which get covered in a “MOU”. By doing so the parties who want to take divorce avoid a huge process of litigation in deciding as to the above issues as it becomes cumbersome and also time consuming. “MOU” decides in advance everything that a court of law had to decide [if such “MOU” had not been executed beforehand]. It reduces the workload of the court by settling a lot of matters out of court with mutual consent which in other ways would have been brought to the courtroom for the judge to decide and then adjudicate upon the same.  RELEVANT CASE LAWS WHERE MOU WAS HELD TO BE OF UTMOST IMPORTANCE1.     Rajat Gupta vs Rupali Gupta2.     Kapildeo Prasad Sah vs State of Bihar3.     Case of Avneesh Sood4.     S. Balasubramaniyam vs P. Janakaraju & Anr.5.     Case of Dinesh Gulati6.     Sureshta Devi vs Om Prakash7.     Smruti Pahariya vs Sanjay Pahariya [2009]8.     Anil Kumar Jain vs Maya Jain [2009]9.     Hitesh Bhatnagar vs Deepa Bhatnagar [2011]10. Prakash Alu,al Kalandari vs. Mrs. Jahnavi Prakash Kalandari  [2011]11.  Mrs. Ishita Kunal Sangani vs Kunal Sudhir Sangani [2014]12.  Rajiv Chhikara vs Sandhya Mathur [2017]13.  Amardeep Singh vs Hardeep Kaur [2017]CONCLUSION In my honest opinion, I do believe that in the present scenario whereby frivolous litigation's have reached to such an extent that it is undermining the basic essence of statutory provisions which were once created to safeguard the interests of the women and now are being misused has took the matters of divorce at a tight spot for which till the present date there is no solution apart from fighting it out which does take a lot of time, energy and money. However, having made a Pre – Nuptial Agreement before marriage or A “MOU” cum “Separation Agreement” before the dissolution of marriage safeguards both the interests of the wife and the husband. Apart from that it also ends up in speedy disposal and timely justice. Also, it curtails the fear of false cases and untimely litigation's from either the husband or wife. Such a settlement is very much required and is the need of the hour whereby such disputes end by mediation and not litigation. 

Posted By

Shreyash Mohta

3 months ago

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