Reviewing an MSA in India: the clauses to check before you sign

A master services agreement sets the rules for every piece of work that follows under it. Each statement of work adds scope and price, but liability, ownership, payment and how disputes end are usually decided once, in the MSA, and then forgotten until something goes wrong. These are the clauses worth slowing down for, and the points of Indian law behind them.

1. Scope, order of precedence and change control

Check how the MSA and each statement of work fit together. A clause on order of precedence should say which document wins if they conflict. It is usually safer for a statement of work to override the MSA only where the MSA expressly allows it. Change control should require written agreement on scope, price and timelines before extra work starts, so that unpaid work and disputed invoices do not build up.

2. Payment terms

Look at the payment period, what counts as acceptance of a deliverable, and whether part of an invoice can be disputed while the rest is paid. If the supplier is a micro or small enterprise under the Micro, Small and Medium Enterprises Development Act, 2006, Section 15 limits the agreed payment period to 45 days from acceptance, and Section 16 makes late amounts carry compound interest at three times the bank rate notified by the Reserve Bank of India. A contract cannot set these aside, so it is worth knowing the supplier's status before agreeing the terms.

3. Limitation of liability

Indian law does not cap contractual liability for you; the contract does. Check three things: the cap (often the fees paid in the previous twelve months), what is excluded from it (commonly breach of confidentiality, data protection breaches, IP infringement and fraud), and whether indirect or consequential losses are excluded. Watch for exclusions so wide that they swallow the cap, and for caps far below the real exposure. A breach involving personal data is the obvious example: penalties under the Digital Personal Data Protection Act, 2023 can reach 250 crore rupees, and a cap of one month's fees does not reflect that risk.

4. Indemnities

An indemnity is a promise to make good a specified loss, recognised in Section 124 of the Indian Contract Act, 1872. Read the triggers closely: an indemnity for any breach of the agreement is far wider than one limited to third party claims for IP infringement or data breaches. Check whether the indemnity sits inside or outside the liability cap, and whether it requires prompt notice of claims and lets the indemnifying party conduct the defence.

5. Liquidated damages and service credits

Under Section 74 of the Contract Act, an amount named in the contract as payable on breach is not automatically recoverable in full. The innocent party receives reasonable compensation up to that amount. Service credits and delay damages should therefore reflect a genuine estimate of loss, and the contract should say whether they are the only remedy for the failure they cover.

6. Intellectual property

For work created by an independent contractor, paying for it does not make the customer the copyright owner. The Copyright Act, 1957 requires a written assignment. Under Section 19, an assignment that does not state its duration is treated as lasting five years, one that does not state its territory is treated as limited to India, and rights not exercised within a year may lapse unless the assignment says otherwise. An MSA should therefore assign deliverables expressly, worldwide and for the full term of copyright, while letting the supplier keep its existing tools and know how under a licence.

7. Confidentiality and data protection

A general confidentiality clause is not a data protection clause. If the supplier will handle personal data for you, the Digital Personal Data Protection Act makes you responsible for what it does with that data and requires a valid contract with it. The MSA, or a data processing agreement attached to it, should cover security safeguards, prompt notice of any breach, use only on your instructions, sub processors and erasure at the end. Our article on vendor agreements sets out these clauses in detail.

8. Restraints on either side

Section 27 of the Contract Act makes an agreement that restrains anyone from carrying on a lawful trade void, subject to a narrow exception for the sale of goodwill. Courts generally uphold restrictions that apply while the contract runs, but a non compete meant to bind after it ends is unlikely to be enforced. A clause against poaching each other's staff should be narrow and limited in time, and even then may not be enforceable.

9. Term and termination

Check the rights to end the contract for convenience and for breach, the notice periods, the time allowed to cure a breach, and what survives termination. Exit matters as much as entry: transition assistance, return or erasure of data, and payment for work done up to termination should be stated, not left to be negotiated in a dispute.

10. Governing law, disputes and stamp duty

Choose Indian law and a seat of arbitration, and make the appointment of arbitrators even handed. The Supreme Court has held that a party with an interest in the outcome cannot alone appoint a sole arbitrator (Perkins Eastman Architects DPC v HSCC (India) Ltd, 2019), so a clause giving one side that power invites challenge. Stamp duty is a state matter and rates vary, so pay it when the agreement is signed. An agreement that is not duly stamped cannot be relied on in evidence until the duty and any penalty are paid. After the seven judge decision of the Supreme Court in December 2023 on the interplay between arbitration agreements and the Stamp Act, that defect is curable and does not by itself make the arbitration clause unenforceable.

Before you sign

Read the MSA as if the relationship has already gone wrong: who pays, who owns what, how you get out and where the argument happens. Those answers are set now, and they are much harder to change once the first statement of work is under way.