Legal Advice for Indian Importers on Drafting Strong & Legally Enforceable Contracts with Chinese Manufacturers & Suppliers before Imports in 2025 Part-1: Essential Clauses for Quality Assurance, Penalty Enforcement, and Arbitration
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Businesses from India and China deal with each other on a large scale in both countries. Import-export terms and conditions for any business are clauses included in the contract that resolve issues such as disputes and objections in case of violation. Working in this business sector for over 15 years, I have handled a lot of cases through arbitration and litigation. I have also helped many Indians resolve disputes. It has become clear to me that the import-export is just the sending and receiving of goods: it involves and lot of goods worth millions of rupees between manufacturers/businesses, but unfortunately, their contracts do not include the required basic quality guarantees, leading to huge losses.
Recently, I met a textile trader from Gujarat who had not even included a quality guarantee clause in his contract, due to which his goods worth Rs 4.2 crore were found to be of poor quality in just 3 months of import from China, which is a common case: such losses happen often. Our company has resolved many such cases from 2020 till now, from whose experience it can be said that if you want to keep your money safe and save yourself from big losses, then by including mainly five clauses correctly, you can save your business and losses.
Quality Assurance: The Foundation of Your Security
Last month, we recovered Rs 3.7 crore from a Chinese supplier for sending faulty circuits to a Delhi-based electronic company. We had already written in our contract that the goods would be inspected before shipment, due to which we were successful in recovering the money.
This is also confirmed by the landmark decision of the Hon’ble Supreme Court in the case of Tata Motors Limited vs BYD Auto Company Limited, 2025. It has been clarified that the buyer’s responsibility is to check the quality before accepting the goods. The test report conducted by the third party can also be used as evidence in international trade disputes.
My practical advice
When the quality assurance clause is written, it should carefully mention the acceptable quality standards, the number of tests to be done, and the number of samples to be used.
In Bharat Electronics Ltd. v. Shenzhen Tech Co. (2024), the importer lost the case in the Delhi High Court because the contract only mentioned “inspection”; no details of specific parameters were given. Now, the Bureau of Indian Standards has made certification mandatory for 128 product categories imported from China, even if the Chinese supplier has a Chinese certificate. Indian importers should ensure that the Chinese supplier follows the BIS standards written in the contract.
Warranty Clauses that Work
In a recent case at Mumbai Port, while mediating defective industrial machinery, the customer’s warranty automatically expired after a ‘visual inspection’ at the port. This crisis proved disastrous when manufacturing defects were discovered 3 months later.
Indian courts have always held that there should be a certain prescribed time limit for the discovery of defects in a warranty before a consumer can seek compensation.
In Ravi Engineers v. Dongfang Electronic Corp. (NCDRC, 2025) Consumer Case No. 542/2024, the Hon’ble Court held that there should always be a discovery limit for “defects not discovered during initial inspection”. In this case, the Commission awarded 150% compensation to the customer.
Our experience recommends a minimum 90-day period with specific language addressing hidden defects. For machinery imports, always clearly state language such as, “The warranty shall include, but not be limited to, performance metrics for 90 days following installation and commissioning.”
We prepared a similar clause for a Pune-based auto parts company. The machine broke down after 6 weeks, and the Chinese supplier company refused to replace the machine on their own responsibility. By pointing out the specific language used in the clause, we got a replacement within 14 days.
Penalty Enforcement: Balancing Deterrence with Legality
In many Indian contracts, Indian importers create penalty clauses that sound impressive but are not enforceable. Last year, I represented a Mumbai-based trader whose contract included a penalty of up to 75% if the supplier did not deliver the goods on time.
The Delhi High Court reduced the penalty to 17% in the case of ONGC v Saw Pipes Ltd (2003) 5 SCC 705, arguing for a genuine notion of deterrence that should be estimated in accordance with the law.
In my view, this should happen over time. for delays of 1-7 days: 2% of invoice value; 8-14 days: 5%; 15-30 days: 10%; beyond 30 days: 15%, representing pre-estimated losses due to market fluctuations and business disruption.” This approach was upheld by the Delhi High Court bench in Pratibha Singh Electric v Zhejiang Industrial Co., DHC 2025 FAO(OS) 112/2025, while formulating the ratio of “reasonable and actual damages” to reflect the pre-estimated loss caused by business disruption according to fluctuations in market demand.
Arbitration: Choosing the Right Forum
In my fifteen years of practice, I’ve seen countless disputes become unresolvable because they specified arbitration in China. Last December, a client with a ₹7.2 crore dispute faced a Chinese arbitration panel that conducted proceedings entirely in Mandarin despite the contract specifying English. The Singapore International Arbitration Centre (SIAC) has emerged as the gold standard for India-China disputes. In Amazon.com NV Investment Holdings LLC v. Future Retail Ltd. (2021) SCC OnLine SC 557, the Supreme Court upheld the enforceability of emergency arbitrator awards under Section 17(2) of the Arbitration Act.
Your arbitration clause should read: “All disputes shall be resolved under SIAC Rules, with Delhi as the seat of arbitration. Proceedings shall be conducted in English, and emergency arbitrator decisions shall be binding and immediately enforceable.” When a Guangzhou supplier failed to deliver critical components to my client’s Mumbai factory in March 2025, we invoked SIAC emergency arbitration. Within 72 hours, we secured a favourable interim award, which the Mumbai High Court enforced the very next day. The supplier settled within a week.
Authored by: Adv. Anant Sharma
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