drafting

How to draft quality agreement for a pharmaceutical company

April 3, 2022 — Leave a comment

First published on Ipleaders

Introduction

A contract in any industry or for any business is one of the most essential components, and carrying on a business or any kind of collaboration without a contract can be a nightmare for all parties involved. When parties enter into a contract, all their obligations and other clauses of the contract become binding upon each of the parties, and in case of a breach of any of the clauses, the one committing the breach becomes liable. So, contracts make the parties accountable to each other, hence, the quality of work gets better.

As we are living in this age of pandemic, there has been a rise in the consumption and production of drugs. From hoarding and black-marketing of medicines, the courts directing the concerned authorities to increase the production to the incredible growth in stock prices of pharmaceutical companies, within a single year we have seen and experienced so much. In this article, we will be focusing on quality agreements, as the name suggests, these agreements are extensively used for quality assurance of the drugs in the pharmaceutical industries. 

What is a quality agreement?

The quality agreement isn’t similar to any other agreement, rather these agreements have come under scrutiny from the concerned authorities worldwide, especially in India, as third party drug manufacturing hasn’t been defined under the Drugs and Cosmetics Rules, hence the liability of the third party involved in such agreements was a big question. 

Quality agreements are entered into by two or more people for the purpose of manufacturing, supply, and service while maintaining the quality of drugs and not compromising on them. These agreements are made primarily to comply with the quality of the drugs that are to be manufactured and also to comply with the regulations imposed by the government and/or to comply with the statutory obligations or as per the concerned authorities. 

One of the reasons why parties enter into such agreements is to expand their reach in the global market, to survive in the age of globalisation, businesses outsource contractors for manufacturing drugs at cost-efficient prices. India is one of the examples, where foreign pharmaceutical companies land up in the search of cheap labour and resources. Generally, the quality assurance department headed by the quality risk manager, along with the legal department of the pharma company and the contractor/vendor (manufacturer, laboratory, etc), collaborate together while drafting a quality agreement.

The scenario in India : before and after the 2020 amendment

In India before the 2020 amendment of the Drugs and Cosmetics Rules (“DCR”), drug marketers/distributors were not legally recognised which created huge confusion whether these quality agreements were legally enforceable or illegal in India or not, as the earlier rules didn’t have any provisions relating to the liability of the third party involved in such arrangements.

After the amendment to the DCR, contract manufacturing of drugs especially in India has become more transparent and there is more accountability of the parties involved in such agreements. From now on, both the drug manufacturer as well as the drug marketer or the distributor is now liable under the Indian laws. Hence, these agreements must be made with proper assistance and cooperation from all the parties in order to comply with all the required regulations as well as to provide the customers with the best possible product.

Why do parties enter into such agreements?

Quality agreements are stand-alone agreements, and they shouldn’t be read like an addendum or an attachment of the main agreement. This is because of the format and the language used while drafting these agreements. Regarding the question as to why parties enter into such agreements, while having the main agreement, then why do the parties need another/separate agreement, while these questions are normally asked by thousands of contract drafters. Now this question doesn’t have a single answer, however, the answers or the opinions are convincing. 

Now as we know that these agreements’ main purpose is to make sure that the quality of the product is as per the recognised standards and are not compromised for the sake of making profits, as these agreements deal with drugs, and drugs are essential goods/commodities in a person’s life. While manufacturing them, or testing them at laboratories, one has to keep in mind that they are doing a public service, although the only way to encourage these industries is by giving incentives, and in order to promote such development in these areas, it can only be done if these industries are not restricted by the authorities and are given reasonable freedom to make profits. The United States of America is the right example, as it doesn’t have any regulations regarding drug pricing, hence, the prices of drugs are way too high, as compared to the Indian drug’s prices, as India has a regulation regarding drug pricing.

Therefore, we can understand that the pharma companies go under huge pressure because of the government intervention or the laws laid down, the compliance issues and different approvals that these companies have to undergo in order to manufacture and as well as while releasing these drugs into the market. 

Things to keep in mind while drafting a quality agreement 

While drafting a quality agreement, the parties have to keep few things in mind:

1. Scope and purpose clause

This is the most important clause in the entire agreement, as it states the entire scope of work and purpose or the intent of the parties for which they have agreed to enter upon this agreement. This clause needs to be drafted properly keeping in mind the target and the final goal for which the parties have joined or collaborated. In case this clause hasn’t been drafted precisely or the parties haven’t drafted the clause as per their verbal agreement, then such situations can lead to major differences between the parties further creating disputes/conflicts between the involved parties. It is very important to customise the clause as per the mutual understanding of the parties so that future conflicts can be easily minimised.

2. Definitions and interpretation clause 

In this clause, the terms which have been used multiple times or the terms that convey more and have a wider ambit as per the agreement. Such terms can be mentioned under this clause so that the parties can easily interpret and understand such terms more comprehensively, therefore minimising confusion and conflicts regarding the interpretation of such terms and clauses.

3. Roles and responsibilities clause

In this clause, parties should mention their roles and responsibilities as per the agreement. It is very essential that parties elaborately mention each of their roles as well as their responsibilities to contribute and fulfill the purpose and scope of the work as per the mutual agreement between the parties. In case if this clause is taken for granted and vaguely drafted, it can result in differences between the parties, and ruin the relationship of the parties by creating conflict between them. To prevent such disputes relating to the role or responsibility of any of the party, this clause should be drafted keeping in mind all the formal discussions, facts stated by each of the party, promises/covenants by each of the party, purpose, and scope of the agreement

4. Resolution of disagreements clause

Now it can’t be denied that if parties are entering into an agreement, though the parties know that they have to cooperate with each other and fulfill all their roles, responsibilities and further comply with all the clauses and the laws, it obvious that during the term of the agreement, there will be a time that parties won’t agree with each other and such disagreements can be regarding the quality of the drugs, while auditing or inspecting, etc. During such disagreements, parties will have to resolve and come to a conclusion else the purpose of the agreement would get defeated and to prevent such events, it is mandatory to include a clause stating a mechanism or process or steps to resolve such disagreements and differences between the parties.

5. Assignment clause 

In this clause, parties have to mention that neither of the parties shall have the right to transfer or assign their roles, responsibilities, and promises/covenants to any other third party, as it would defeat the present agreement’s purpose. 

6. Term and termination clause

Under this clause, the parties shall mention the term of the agreement, and whether the same agreement can get revised or extended during or before the expiry of the term. Further parties can include or make a separate clause regarding the termination of the agreement, whether the agreement can or cannot be terminated unilaterally, and under which circumstances, the parties will have the power to terminate the agreement, etc.

Parties can include other clauses too as per their preference and can customise the entire agreement as per their mutual understanding. As there isn’t any proper formatting of a quality agreement, but certain clauses are a must, and the most important thing that the parties should always keep in mind, whether they are drafting a quality agreement or any other type of agreement, the parties should draft the agreement in such a way that there isn’t any space which would lead to communication barriers or restrict communication between the parties, as communication is the major factor that would lead to a success story or a major failure!

Conclusion

By now you might have an idea about what a quality agreement is, why parties refer to such agreements, and the important or the basic clauses that are to be included while drafting one. Now one more important thing that shouldn’t be ignored while researching or drafting or assisting someone in drafting a quality agreement is that these agreements should be drafted keeping mind the parties that are involved, other factors such as the scope of the work, the control under the agreement, as to who has the major control in the agreement, the ways or modes of communication, the importance of inspection and auditing with the respect to the materials used, basically the entire agreement shouldn’t be an online template or a previously used template, rather it should be a customised agreement catering the needs of the parties because resolving conflicts can get expensive at times.

All you need to know about Representations & Warranties clause

March 29, 2022 — Leave a comment

First published on Ipleaders

Introduction

If you don’t remember this historical news which was at the same time shocking and with mixed reactions, back in 2011, the greatest company of all time “Google” acquired “Motorola Mobility” for $12.5 Billion! In this article, we won’t be discussing the decade-old acquisition, which was later sold to Lenovo in the year 2014 for just $2.91 Billion. Rather, through this article, we will try to understand what an acquisition agreement is all about, the concept, its importance and relevance. Furthermore, we will discuss one of the most essential clauses which would be useful not only for the present agreement but would play a key role in every agreement that you’ll draft. The author has covered important aspects, which would help you in drafting an effective representations & warranties clause for any given agreement. 

What is an acquisition agreement?

We might have come across the term “Acquisition” at least once, but if not, then in simple words an acquisition is when one party acquires the other party, in the presence of an agreement (preferably a written agreement/contract). One of the most common mistakes that we all tend to make is that we use certain words interchangeably but the meaning of those words is opposite to each other in reality, still, we use those words as a synonym to one another. One such example is the usage of “Merger” and “Acquisition”, although both these words are used together, both of them don’t mean the same, rather both are opposite to each other. A Merger is when one person/entity mutually agrees with the other person/entity to merge and form into a new entity or a joint entity. Whereas, in an acquisition, one party/entity buys the other entity (entirely or the majority parts of the entity) to become the owner of that entity. 

An acquisition can be mainly of two types- 1) Asset sale transaction and 2) Stock or equity sale transaction.

In an asset sale transaction, when there is a sale of some/specific assets or all the assets from the seller’s company by the buyer’s company, such transactions are called Asset Sale transactions. The reason behind such transactions could be, when the buyer doesn’t want to buy those specific or certain assets, rather wishes to directly acquire them from the Seller. The other reasons could be when the buyer prefers flexibility, as the best part of these transactions is that the buying entity can avoid risk and unwanted liabilities and assets. Through these transactions, the buyer can specifically buy assets as per the needs of the buying entity and assume liabilities accordingly.

Whereas, in a stock or equity sale transaction, unlike the asset sale transaction where the buyer takes over the assets and liabilities of the selling company. In this, the buyer takes over the ownership of the selling company by buying the stocks or equity from the equity holders. For the selling company, such types of acquisition are preferred over the asset sale because in the present transaction the buyer is buying the ownership which means, all the known and unknown liabilities are getting transferred from the seller to the buying company, hence it’s a relief for the selling company, unlike in the asset sale transaction where the buying company can easily avoid unknown liabilities. 

In an acquisition agreement, it is very essential to draft an effective representations & warranties clause, to protect both the selling company’s and the buying company’s interests, also to protect the purpose of the agreement and lastly, if representation and warranties clause is not studied and drafted properly, it may easily lead to any future dispute between the parties resulting out of a breach which would further impact the relationship of the parties and finally would result in termination and/or with damages to be paid by the defaulting party to the innocent party.

If an acquisition is of asset sale transaction, then under the representations and warranties clause, the list and number of the assets along with the liabilities shall be mentioned and/or annexed in a schedule at the end of the agreement. The selling company should also mention the title and possession of such assets and further should also state that the sale and transfer of such title won’t lead to any breach of a third party’s right, parties can also mention if there is any charge against any of the assets or if any ongoing litigation or dispute is going internally or externally, etc. Similarly with an acquisition agreement dealing with stock sale transaction, in such agreements, ownership of the business, as well as the transfer of the Intellectual property, and any other asset, shouldn’t create any third party dispute, as well as the current financial condition of both parties shall be revealed to each other, etc. These are some examples regarding what all can be included under the representations and warranties clause for an acquisition agreement. Let’s now discuss the meaning of these two terms in more depth.

Meaning and purpose of a representations clause

Representations are statements or presentations of facts, it can be a statement of fact that was true in the past or is true at present. When an entity either the buyer or seller represents the other, this clause induces the other party to enter into an agreement. Representations are used for persuading the parties to enter into an agreement, but the same is not a part of the contract. For example, a representation can be “The Buying Company is duly incorporated under the Companies Act, 2013”. Although this is just a statement of fact that is true at the present moment but doesn’t form the purpose or scope of this agreement, rather it is just a statement from which the parties were persuaded and hence decided to enter into an agreement. 

More simply, we can say that a representation is a presentation of facts from the past to the present defining the status of an entity. If such facts are hidden from a potential buyer or an investor, it may further lead to a dispute in the near future. From a buyers perspective, the scope of representations and warranties clause should be drafted in a wider manner, so that there aren’t any restrictions when any claims are made from the buyer’s side.

Meaning and purpose of a warranties clause

Now we know, what a representations clause means and its importance as it is what a potential buyer or an investor would see first and then only he might bet on an investment that he is making and it is only possible through such clauses that a buyer would be willing to take the risk for his investment upon any company. Whereas warranties are a set of promises from an entity to another, such promises are for the present or for the future conditions as stated under the agreement, and these promises are contractual. So we can say that, when an entity represents something, to induce the other entity to get into an agreement, such representations are promised through warranties. For example: “The seller represents that his products are made from quality resources (this is the representation that the seller is making) and further warrants that if there is any defect in the product, such products can get exchanged or replaced by sending a notice to the seller within 30 days from the date of the purchase” (this is the warranty that the seller is providing). From a seller’s perspective, the scope of representations and warranties clause should be drafted more narrowly, so that the buyer is limited and restricted while claiming damages or any other claims.

Why are the representations & warranties clause so important in every contract?

By now we have discussed the meaning and purpose of both representation and warranty, and how we shouldn’t use both the terms interchangeably, as both the terms carry different meanings altogether. Since we now know the meaning and purpose of such essential clauses, it’s time to understand their importance and what happens when a party commits a breach under this clause.

When parties come into an agreement with each other, it is obvious that each of the parties will share some statement of facts, and further provide promises to such facts (representations and warranties) and only because of such facts and promises, parties will mutually agree to enter into an agreement, now if such statements of facts and promises aren’t written down into the contract or agreement, it might get very difficult for both the parties to claim or counterclaim if any dispute arises during the tenure of the agreement. Both parties should put down all the facts and promises that each of them has conveyed to each other while drafting the agreement. 

Warranty is not just simply a promise, rather it takes the market also into consideration. As the party or the company entering into an agreement needs to check the market condition as to what the other competitors are providing to the potential consumers as a warranty in their agreements.

Hence, it becomes mandatory and essential to have a representations and warranties clause in every agreement as it forms the basis of any agreement.

Under the Indian Contract Act, 1872 (“ACT”), neither representation nor warranty has been defined, but that doesn’t mean that these clauses won’t get governed or get any protection from the Act. If a party fails to fulfil any of the representation or warranty or both, the Act takes care of such events.

Section 18 of the Act, which talks about misrepresentation (without an intent to deceive) either by unwarranted statements or breach of duty or by inducing to make a mistake about the subject matter. A misrepresentation occurs when a party without an intent to deceive the other party, misrepresents a fact, or commits a breach, or innocently causes the party to make a mistake, such events can be termed as misrepresentation. 

The remedy for misrepresentation is provided under Section 19 of the Act, which states that in case of misrepresentation by a party to the other, the contract becomes voidable. The innocent party (party affected) can rescind or revoke the agreement/contract and can also claim compensation. Whereas in an event when the party fails to fulfil his promise or fails to comply with the warranty clause, the innocent party can only claim damages and/or compensation, the right to rescind the agreement is not available in such cases, as agreements/contracts are only voidable in the cases of misrepresentation, fraud and coercion. 

The exception to Section 19, talks about due diligence and if the party has failed to do due diligence before entering into the agreement, the party can’t claim compensation/damages and neither revoke the agreement. 

In the matter of Kopparthi Venkataratnam And Anr. vs Palleti Sivaraman And Anr. on 21 November, 1939–

The Madras High court held, “This Court considered the effect of Section 19 of the Contract Act in Morgan v. The Government of Hyderabad, a case very similar to the one now before us. A vendee had deliberately concealed from a purchaser the fact that he had already granted a lease of the property sold, but the buyer if he had been diligent could have ascertained this. The Court held that the case was not within the exception to Section 19 and the absence of exercise of diligence by the plaintiff was not a defence open to the defendant who had concealed the fact of the execution of the lease in order to deceive the plaintiff and had induced him to enter into the contract. This is the position here”.

All India General Insurance Co. … vs S.P. Maheswari on 5 November 1959, the Madras High Court held that “In the case of warranty materiality or immateriality of the fact warranted signifies nothing. Its incorrectness constitutes a defence to an action on the policy, even though it be not material and be made in perfect good faith. But, in the case of a representation, the insurer can avoid the policy only by proving that the statement is false and fraudulent or that it was false and material to the risk. In other words, it is only a material misrepresentation that can avoid a policy if the truth of the facts contained in the representations is not warranted by the policy”.

“This brings us finally to the topics of nondisclosure or misrepresentation which are practically the positive and negative aspects of the same thing. The effect of misrepresentation on the contract is precisely the same as that of non-disclosure; it affords the aggrieved party ground for avoiding the contract”.

In Esso Petroleum v Mardon, Lord Denning MR concluded-“… it was a forecast made by a party, Esso, who had special knowledge and skill. It was the yardstick (the “e a c”) by which they measured the worth of a filling station. They knew the facts. They knew the traffic in the town. They knew the throughput of comparable stations. They had much experience and expertise at their disposal. They were in a much better position than Mr Mardon to make a forecast. It seems to me that if such a person makes a forecast -intending that the other should act on it and he does act on it- it can well be interpreted as a warranty that the forecast is sound and reliable in the sense that they made it with reasonable care and skill…. If the forecast turned out to be an unsound forecast, such as no person of skill or experience should have made, there is a breach of warranty.”

Sample draft of “Representations & Warranties clause”

In order to explain this draft in a better way, the author has taken Google and Motorola as the parties. Through this sample draft, the viewers will get a better understanding of drafting representations & warranties clauses. Since 2011, Google acquired Motorola Mobility, and they must’ve entered into an acquisition agreement in order to ensure that both the parties are legally bound by all the contractual obligations and to secure their investment. The following is a hypothetical draft between Google and Motorola Mobility-

                                      ACQUISITION AGREEMENT

This Acquisition Agreement (“AGREEMENT”) is entered on ________(effective date) at ________(place). By and between:

Google LLC, an American multinational technology company, incorporated under the American laws, with CIN ________, having its headquarters at ____________ and being represented by its Authorised signatory ___________. Hereinafter referred to as the “PURCHASER” (unless repugnant to the context, this expression shall mean and include successors-in-interest/office and assigns) of the First Part;

AND

Motorola Mobility LLC, an American consumer electronics and telecommunications company, with CIN ________, having its headquarters at ____________ and being represented by its Authorised signatory ___________. Hereinafter referred to as the “SELLER” (unless repugnant to the context, this expression shall mean and include successors-in-interest/office and assigns) of the Second Part;

The Purchaser and the Seller shall be collectively referred to as “PARTIES”.

*Here Recitals can be drafted, and after Recitals, you can start drafting all the important clauses of the Agreement*

NOW THIS AGREEMENT WITNESSETH AND IT IS HEREBY MUTUALLY AGREED AND DECLARED BY AND BETWEEN THE PARTIES HERETO AS UNDER:

  • Representations and Warranties 

The Seller acknowledges, represents and warrants to the Purchaser as follows:

  1. Seller is a manufacturing/electronic telecommunication company duly organized, validly existing and duly incorporated under American laws.
  2. The seller has full power and authority to execute and deliver this Agreement hereby and it has been duly authorized and approved by such officers, directors, shareholders, and/or members of the board as required by, and in accordance with the applicable laws.
  3. The balance sheet and income statement of Seller have been prepared as of _________ and is attached at the end of the Agreement as Schedule 1. The balance sheet fairly presents the financial condition of the seller and reflects all assets, properties, debts and liabilities of the Seller and the income statement fairly presents the results of operations of Seller for the period _________. The seller has no liability as of the date of the balance sheet.
  4. Seller shall permit the Purchaser and its representatives at all reasonable times during business hours and without interfering with the normal conduct of the business of Seller, to examine and have full access to all of the properties, books and records of Seller and to copy such books and records.
  5. There is no litigation or proceeding pending against the Seller at any courts, tribunals, commission, regulatory authority, and no controversy is pending or is to the knowledge of the Seller that would affect the right of the Seller to enter into this Agreement.

The Purchaser acknowledges, represents and warrants to the Seller as follows:

  1. Purchaser is a_________ duly organized, validly existing and in good standing under the laws of America.
  2. There is no litigation or proceeding pending against the Purchaser at any courts, tribunals, commission, regulatory authority, and no controversy is pending or is to the knowledge of the Purchaser that would affect the right of the Purchaser to enter into this Agreement.

You can amend, modify and add more points under this clause, every agreement will have representations and warranties clause and it shall be drafted as per the parties understanding and the type of agreement, it is better to draft and negotiate the agreement and customising as per the needs of the parties, rather than just copying clauses from the internet or other agreements, in order to minimise the risk of any future dispute.

Conclusion

By now we can’t deny the fact that the representations and warranties clause plays a vital role in every agreement/contract, and how important it is to draft it clearly without leaving any ambiguity. It is also important that how courts have interpreted and defined both representations and warranties differently, hence, these clauses should be drafted by keeping in mind such judgements and foreseeing some disputes beforehand, and also by negotiating between the parties (negotiation is the key) before finalising the draft. Always have a habit of reviewing your drafts over and over, because only a good draft can prevent claims and future disputes. It is important that you draft the agreement as per the needs of your client, and keep his rights protected under the agreement that you draft. It is also recommended that you should draft your clauses and agreement on your own, and not by copying from the templates available online, as each clause in an agreement will have a different meaning, purpose and scope, hence draft according to your client’s needs, and focus on the businesses of the parties involved in the agreement this is because the representations and warranties clause of a Franchise Agreement, shouldn’t be drafted just like or similar to an Intercreditor Agreement.

Understanding Prenuptial & Parenting Agreements and the essential clauses- Effective drafting tips.

February 10, 2022 — Leave a comment
Source: Times of India

Author: Aarlin Moncy (HILSR, School of Law, Jamia Hamdard)

This article will give you a brief understanding about the concept of Parenting & prenuptial Agreements and how to draft them.

Introduction

Family is considered to be one of the most important as well as the most influential part of a person’s life. People say that we get influenced by our surroundings, but we forget to mention that initially before our friends or workplace, our first hand interaction is with our family. So it is obvious that the impact (positive or negative) of a family on a person’s life can’t be ignored.

As from the title of this article, you may or may not be familiar with the concept and the importance of this topic. But before further discussing the topic in detail, let me ask you one question: Is marriage a contractual union/relationship? If your answer to this is “YES”, then concepts like pre-nuptial agreements, post-nuptial agreements, parenting agreements, etc, would be an easier concept to you as these concepts are getting more common in the modern day and are practised extensively in the developed countries. If your answer to the above question was “NO”, then let me help you understand the entire concept through this article. 

What is a parenting agreement?

A parenting agreement is a written agreement mutually agreed by the married couple, and are made usually after the couple decides to separate and part ways with a common objective or purpose to support their child or children in order to give them all the care they deserve from both their parents, even though they are separated (legally). Parenting agreements are formed on the basic principle of joint custody or shared custody, with an aim to promote the welfare of the child.

A parenting agreement can be made as a part of a prenuptial agreement or can even be made as a separate agreement after the couple decides to split.

What are prenuptial agreements?

Pre-nuptial agreements are those agreements that are made before the marriage, now these agreements are primarily made to serve as a medium to resolve future uncertainty or disputes between the couple. These agreements are majorly drafted in order to protect the financial assets of the couple, and that’s why most of the clauses in these agreements relate to assets of each partner, how it needs to be divided, how much amount needs to be transferred as maintenance, whether the amount needs to be paid only one-time or it needs to be paid on monthly basis by one of the partners to the other, how much amount needs to be transferred to support their child/children, etc, are the clauses that are present in a prenuptial agreement. The couple can decide by themselves as to what all they require and need in a prenuptial agreement, and as per their requirements, a customised agreement can be drafted.

It is to be noted that prenuptial agreements may include a parenting clause too, but these agreements are not at all similar to parenting agreements, as both these agreements serve different purposes after all. The former is made before the marriage in order to protect the financial assets of the couple during their divorce and the latter is made only to serve as a mutual agreement with respect to parenting and giving care to their child/children post-separation or divorce.

The legality of Prenuptial agreements

If the legality of these agreements is considered then, these agreements are not legal in India, because in India, marriages are not considered to be contractual relation/union between man and woman, rather it is seen as a sacred and spiritual union of the two beings. Hence, prenuptial agreements are not legally valid in India, but that doesn’t mean that these agreements are irrelevant. Prenuptial agreements are used and are more prevalent in the west, this is simply because of the difference in the ideology, culture, tradition, laws, etc.

Is a parenting agreement similar to a parenting plan?

Parenting agreements lay out a planned guideline stating how the separated couple can raise their child/children without compromising their child’s best interest. Hence, a parenting plan or a parenting agreement are used as a synonym to one another. In other words, we can say that a parenting agreement lays down a parenting plan focusing on how the partners shall carry out their roles and duties through a joint or shared custody of their child.

These plans can only be drafted if the court has granted joint or shared custody of the child, in case the custody of the child has been given to either of the two partners, then these agreements are not valid. 

It is important that while the agreement or the plan is drafted, suggestions from both sides need to be taken, partners may negotiate, and only if there is a mutual understanding between them, then only such plans or agreements may be finalised. While drafting such agreements, all the essentials of a valid contract must be kept in mind, else enforcing such agreements or the validity of such agreements would be an issue.

Are parenting agreements legally enforceable and binding in India?

This is one of the most important questions that need to be highlighted because if these agreements are not enforceable in the court of law or are not legally valid then there is no point in referring to these agreements. The question of legality is like a test to check whether such agreements or plans are valid or not in India. As we know that in India, marriages are not seen as any contractual form of union between two parties, rather it is seen and celebrated as spiritual, sacred and holy. Hence, these agreements stating the position of the two partners after their separation and providing guidelines on how to raise their child or children are contradictory to the traditions, religious beliefs and culture of many Indians and also degrades the meaning and purpose of Indian marriages.

But before diving into this question, let us understand first that when can the partners refer to a parenting agreement? The simple answer to this is when the court grants shared or joint custody of the child. Interestingly, in India, there aren’t any laws that provide for joint or shared custody of a child. Usually, the Indian courts grant the custody of the child as per the interpretation of the statutes and also focusing on various other factors like, the overall condition of each parent, whether they are stable or not, financially well or not, their relationship with their child, etc, and also taking into consideration the child’s interest. 

But, the jurisprudence and the court’s understanding behind determining the question of child custody has been changing, and the reasons could be many, but one of them could be the influence of the west and accepting the fact that a child would need the love from both of his/her parents no matter what, and hence, we can see that the Indian courts through their judgements are granting shared or joint custody of their child, but not in all cases. It largely depends upon the facts and circumstances that are different from case to case. The major principle that is prevalent in each judgement is ‘the best interest of the child’ and the same shouldn’t be ever compromised.

The apex court in, Mausami Moitra Ganguli vs Jayanti Ganguli, observed that, “it is the welfare and interest of the child and not the rights of the parents which is the determining factor for deciding the question of custody.”

The Supreme Court in Gaytri Bajaj vs Jiten Bhalla, held “The desire of the child coupled with the availability of a conducive and appropriate environment for proper upbringing together with the ability and means of the concerned parent to take care of the child are some of the relevant factors that have to be taken into account by the Court while deciding the issue of custody of a minor.”

In Mrs. Elizabeth Dinshaw Vs. Arvand M. Dinshaw and Anr., the Apex Court has observed that whenever there is a question before the Court pertaining to the custody of the minor child, the matter is to be decided not on consideration of the legal rights of the parties/parents but solely and predominantly on what would best serve the interest and welfare of the child.

In McGrath (infants), Re (1893) 1 Ch 143: 62 LJ Ch 208 (CA), it was held that, “The dominant matter for the consideration of the court is the welfare of the child. But the welfare of a child is not to be measured by taking money as a determining factor, or by physical comfort only. The word ‘welfare’ must be taken in its widest sense. The moral or religious welfare of the child must be considered as well as its physical well-being. Nor can the ties of affection be disregarded.”

From the above discussion, we can understand that the courts take the interest of the child as of great value and it is the governing principle in each of the judgements relating to custody of a child.

Coming back to the question of the legality of a parenting agreement/parenting plans, if the partners have already drafted one, then the court might consider the same but it depends on the factor that whether such agreements are providing for the best interest of the child or not, and if it is providing, then the court might accept such plans and validates it by passing an order.. The court might make a few amendments to it keeping into account the principle of  “what’s best for the child”. 

These agreements are very common in the west, but surprisingly back in 2015, the law commission of India released a report titled as, ‘Reforms in guardianship and custody laws in India’. The report even mentioned the concept of a parenting plan, and it also stated that such plans are not legal documents and the approval of the court is mandatory to make such agreements enforceable and legally binding.

The court may amend these agreements/plans whenever needed from time to time, and it shouldn’t be construed as a final order/judgement passed by the court.

What are the essential clauses in a parenting plan/agreement?

Following are some of the essential clauses that you may consider including while drafting a parenting plan or agreement either jointly or individually. 

Note- The same shall have legal effect only after the court has reviewed it and has passed an order/judgement regarding such agreement keeping in mind that the child’s interest must be served through such an agreement.

  1. Visitation rights clause- In this clause, you may specify your rights relating to visiting your child, in case the child is not staying with you. You may draft this clause by taking into account all the scenarios and making it without any ambiguity. Your clause shall answer questions such as, when are you allowed to visit, timings, duration, etc.
  2. Major decision making & guidance clause- In this clause, you can specify as to who will be given the right relating to making major decisions only in case if the child has not attained the age of majority, and whether such rights are equally shared among the partners or not.
  3. Physical custody clause- As from the name only one can understand what all this clause shall include. This clause shall include and shall briefly explain the schedule stating the time, duration, days, months, etc as to for how long each partner shall have the physical custody of their child, whether physical custody will include staying with maternal and paternal grandparents, etc. For convenience, a schedule may be drafted to highlight the agreed time and duration of physical custody.
  4. Maintenance clause- This clause may state the monthly compensation/maintenance that needs to be provided by both the parents to their child for the purpose of education, health, basic necessities, entertainment, sports, etc. The partners/parents may start a joint account where the maintenance amount can be easily transferred. The right over the maintenance amount shall only be with the child.
  5. Physical & Mental health care & support clause- This clause shall provide for the medical assistance and expenses that the child might need anytime. Acknowledging the fact that the health of the child needs to be prioritised by providing the best medical assistance and support.
  6. Dispute resolution clause- This clause is important as this clause may function or will be referred to during any dispute or difference that may arise between the partners relating to any of the clause or the entire agreement as a whole, and such disputes shall be resolved only through the agreed and mentioned dispute resolution mechanism.
  7. Weekends, School holidays, festivals, birthdays, trips/tours clause- This clause shall state the rights of each of the partners relating to taking their child out during weekends, festive season, during birthdays, taking them on a trip or tour, etc. This clause can also be drafted on a tabular form describing all the possibilities as to when and for how long each of the partners are permitted to take their child out with them.
  8. School related responsibilities clause- This clause shall state all the roles and responsibilities as a parent and shall be equally divided between the partners. Responsibilities such as attending the Parent teachers’ meeting, attending the annual function, picking and dropping the child, etc.
  9. Contact with Relatives and Significant Others clause- This clause shall state whether the child be allowed or permitted to meet the extended families of each of the partners or not.

Conclusion

By now you must be familiarised with the concept of parenting agreements. It is a great step by the Indian judiciary by allowing and promoting joint or shared custody and giving the partners/couple an opportunity to customise their own parenting plan. It is important that the interest of the child is not only served through court orders but the same shall also be promoted through such agreements and plans. 

The importance of a shared or joint custody should be discussed and further be improved in order to provide a robust legislation relating to joint custody. The couple before finalising their separation need to be properly counselled and such counselling is necessary if they have a child together. The judiciary shall never compromise on the present prevailing principle of “best interest of the child”, and it shall always aim to pass such directions, orders and judgements that would not only be best for the overall development of the child but shall also focus on preventing mental health issues that the child may face during the time of divorce of his/her parents.

References