What are the legal risks in contracts between US and Indian firms? US India Contracts Drafting Services
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The contracts between U.S. companies and Indian firms are highly profitable, on the other side, it comes with a variety of Legal Risks in contracts between U.S. and Indian Firms which must be carefully worked on. To appreciate and comprehend the risks, therefore becomes crucial for both parties to ensure compliance, protection of interests, and improving business relationships between the countries, navigating cross-border agreements.
Key legal risks
Foreign Corruption Practices Act (FCPA) Compliance
The Foreign Corruption Practices Act (FCPA) came in the form of law in 1977 in order to have the right to police the foreign corrupt practices of Multi-national Corporations. With its 50 years of existence, it has become one of the most actionable, largest areas for whistleblowers. Compliance with FCPA serves as one of the major legal risks between India and the U.S. Embraer case serves as the highlighting example where kickbacks of $5.76 million were allegedly paid to swing a three-aircraft deal with the DRDO in favor of a Brazilian company in 2008.
Contractual Breach and Misinterpretation
Breach of contracts and disputes arising out of that noncompliance are most common in international contracts. It results in the financial loss for the party which is wronged. When the terms of the contract are misinterpreted, or when one party fails to comply with the local laws, it leads to legal risks. The Indian Contract Act, of 1872, makes it necessary to draft clear and precise contracts, which U.S. firms are obliged to abide by. Violation of this principle may lead to the right to claim damages. Therefore, it is a pre-requisite condition for both parties to define the terms explicitly for better understanding as well as execution of the contract.
Intellectual Property Rights (IPR)
Intellectual Property Rights allows the holder to exercise the exclusive right on the use of the item for a specified period (OECD). India and the U.S. being the largest democracies, share some common values through bilateral relations among themselves. For strengthening cooperation and stronger bilateral ties, the Declaration of Friendship, 2015, India’s East Policy, USA’s Pivot to Asia Policy provided immense opportunities. Concerning IPR, both India and the U.S. comply with the WTO TRIPS Agreement. Despite rules, differences arise for which companies must include confidential clauses in their contracts to avoid unauthorized use of information, as given under The Patents Act, 1970, and Trademarks Act, 1999.
Employment law obedience
The employment laws are rapidly changing which subsequently increases complexity, increasing Legal Risks in contracts between U.S. and Indian Firms, and managing the terms and compliance. U.S. firms, while dealing with employees and contractors in India, need to abide by the Contract Labor (Regulation and Abolition) Act, of 1970, and other labor laws. Mistreatment can lead to liabilities on the part of U.S. firms, including penalties and back wages. Therefore, clauses related to the employment relationship and nature should be clearly defined to avoid disputes and complications.
Regulatory Compliance
U.S. firms, while operating in India must comply with the standard regulatory frameworks, including the Companies Act, 2013. The statute provides provisions laws dealing with the corporate dealings and domain-specific schemes. Failure to act in accordance with the laws might lead to Legal Risks in contracts between U.S. and Indian Firms by way of penalties, fines, and even criminal charges. In addition to this, due diligence is an integral part of compliance to keep abreast of emerging regulations.
Dispute Resolution Mechanism
The arbitration process is an important medium/mechanism for international contracts. It is the most preferable source to resolve a dispute, as it promotes confidentiality and efficiency. In India, under the Arbitration and Conciliation Act of 1996, it has become essential for firms to clearly indicate the arbitration clause in contracts to avoid jurisdictional conflicts
Relevant Case laws
• ECC Leasing Company Limited v. Paramount Airways Pvt. Ltd. 2010 SCC OnLine Mad 3111(Embraer Case): This case portrays a breach of the Foreign Corrupt Practice Act, 1977 where improper payments resulted in penalties and litigation exposure. This case highlights the significance of compliance with anti-bribery issue.
• Indian Oil Corp. Ltd, v. Amritsar Gas Service, (1991)1SCC 533: The case revolves around the significance of adhering to the contractual obligations and legal consequences of the breach of contract.
• Bharat Aluminium Co. v. Kaiser Aluminium Technical Services Inc.(2012) 9SCC 552. : The said case Supreme Court illustrates the relevance of arbitration clauses in the contracts by upholding the validity of arbitration clause in International commercial contracts.
Conclusion
The legal landscape between the U.S. and India requires a comprehensive study. By fostering Legal Risks in contracts between U.S. and Indian Firms, firms can ensure healthy contractual relationships.
Frequently Asked Questions (FAQs)
What are the main legal risks when U.S. companies contract with Indian firms?
It includes FCPA compliance, IPR protection, contractual breach, and dispute resolution mechanisms.
How can U.S. firms ensure compliance with FCPA in India?
By implementing robust Compliance programs, conducting regular training for employees, and engaging through due diligence.
Authored By: Adv. Anant Sharma
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