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Drafting of Contracts

Drafting of Contracts


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  • 1. ART AND CRAFT OF DRAFTING OF DOCUMENTS APURVA AGARWAL December 16, 2006
  • 2. APPLICABLE LAWS
    • Constitution of India
    • Companies Act, 1956
    • Indian Evidence Act, 1872
    • Indian Contract Act, 1872
    • Indian Stamp Act
    • Registration Act
    • Transfer of Property Act, 1882
  • 3. INTRODUCTION
  • 4. WHAT IS A DEED
    • A deed is an instrument-
    • Written on parchment/paper
    • Executed by some person/corporation
    • Making/confirming in/consenting to some assurance
    • Of some interest in property
  • 5. WHAT IS A DEED
    • Or of some legal/equitable right, title/claim
    • Or undertaking/concurring in some other act
    • Affecting the legal relations/position
    • Of a party to the instrument
    • Or of some other act affecting other person/ corporation
  • 6. SOME TYPES OF DEEDS
    • Power of attorney under seal
    • Patents
    • Agreements : E.g.- agency, brokerage, copyright, sale etc.
    • Deed of gift
    • Arbitration agreements
    • Lease deed of land
    • Affidavits
    • Wills
  • 7. WHAT IS NOT A DEED
    • The following instruments, though under
    • seal, are not termed as deeds –
    • Awards
    • Testamentary instruments
    • Share certificates
    • License to use patented articles
    • Certificate of admission to a professional society
    • Letters of ordination
  • 8. WHAT IS A DOCUMENT
    • Section 3 of the Indian Evidence Act, 1872, defines
    • a document to mean
    • Any matter, expressed/described
    • Upon any substance
    • By means of letters/figures/marks/ more than one of these means
    • Intended to be used/ which may be used
    • For recording that matter
  • 9. CLASSIFICATION OF DEEDS Deed Deed Poll Deed Indenture
  • 10. DEED POLL
    • A deed poll is a deed made by one party expressing his intention or two or more persons together expressing their common intention.
    • Parchment required is usually shared even or polled at the top
  • 11. DEED INDENTURE
    • A deed indenture is a deed between two or more persons evidencing some act or agreement between them, other than to express their intention.
    • The document is executed in two parts, and they are indented or cut with a waving or indented line at the top.
  • 12. CONVEYANCING AND DOCUMENTATION
    • Conveyancing : Act of transferring property title from one person to another.
    • Documentation : The preparation, finalisation and execution of documents.
  • 13. DOCUMENTATION IN INDIA
    • Drafting of deeds in metropolitan cities done by solicitors.
    • Drafting in small towns done in vernacular forms.
    • English precedents and forms adopted with minor modifications.
    • Exact meaning of expressions used in the documents as applicable in India should be understood in accordance with Indian law.
  • 14. PRINCIPLES OF GOOD DRAFTING
  • 15. BASIC PRINCIPLES
    • 1. Document should be clear:
        • Simple words
        • No ambiguity
        • Ascertain meanings of words used
        • Avoid legal jargon
        • Only one connotation for one term
  • 16. BASIC PRINCIPLES
    • 2. Logical arrangement:
        • Logical order of document
        • Eliminate substantive inadequacies and repetition
    • 3. Consistent usage of words:
        • Same words in same sense
        • Final product should be clear
  • 17. BASIC PRINCIPLES
    • 4. Compliance with legal requirements:
        • Legal requirements should be incorporated
        • A document which is void ab initio has no existence in law
        • Contractual obligations should not be contrary to the law
  • 18. BASIC PRINCIPLES
    • 5. Concise and brief document:
        • Irreducible minimum of clear words
        • Avoid repetition and redundancy
    • 6. Direct expression in document:
        • Nothing implicit
        • Active voice preferred to passive
        • Simple sentence preferred to complex
        • Objective preferred to subjective
  • 19. PRECAUTIONS
    • Divide into paragraphs
    • First word/ phrase of important part of deed in capitals
    • Proper punctuation
    • Use terms like ‘ not exceeding’ instead of ‘less than’ and ‘more than’
    • Clauses in subsequent paragraphs should not be referred without giving numbers
  • 20. PRECAUTIONS
    • Small sentences in simple language
    • Avoid negatives in successive phrases
    • State dates, sums and numbers in both figures and words
    • Fill blank spaces in document before execution
  • 21. ARTIFICIAL AIDS FOR DRAFTING
    • Aids are used by a draftsman to give emphasis to the document at the appropriate places.
    • Intelligible numbering system
    • Roman/Arabic numerals, capital/ lower case letters for sub-divisions
  • 22. ARTIFICIAL AIDS FOR DRAFTING
    • Capitalisation to show essentials of the document
    • Paragraphing, spacing, and indenture
    • Latin, Roman and purely technical terms in English italicised / underlined
    • Headings and sub-headings
    • Use of good quality paper
    • No spelling/ grammatical/ typing mistake
  • 23. DRAFTING FOR A CLIENT
    • Form drafted for one client can never be used verbatim for another
    • Document for every client should be drafted separately
    • Exceptions: Forms like simple sale deed and wills
  • 24. CHOICE OF DOCUMENT
    • Collect facts from client
    • Sift facts
    • Understand client’s requirements
    • Determine most appropriate legal document
    • Selection of the right document is of vital
    • importance to the client for tax or other
    • reasons.
  • 25. DETERMINATION OF CONTENTS
    • Keep in mind applicable laws
    • Section 46 of the Companies Act
    • Article 299 of Constitution of India
    • Keep in mind purpose of document
    • Try to provide all provisions which may arise in future
    • Keep in mind laws affecting taxability and legality
    • Provide clauses to cover every situation of the transaction
  • 26. REPETITION OF BOOK’S PRECEDENT
    • Avoid the repetition of the book’s
    • precedents.
    • Client’s needs are different from those of previous client’s or from those given I the conveyancing book
    • No two documents are precisely alike
  • 27. USE OF A CONVEYANCING BOOK
    • A new lawyer can use a conveyancing book
    • for limited purposes:
    • As a checklist
    • Examples of language and format used to meet similar situations
    • Guide of organisation of material in document
  • 28. REVISION OF DRAFT
    • Prune redundant and extraneous material
    • Prune clauses drafted to guard against remote contingencies
    • Add inadvertent omission of some vital provision or incomplete expression of some included clause
    • Consult conveyance book
    • Refine and improve draft
  • 29. PARTS OF A DEED
  • 30. NAME OF THE DEED
      • The deed commences with its name
      • Name in capital letters
      • Name given not conclusive of the nature of the deed
      • Deed containing different transactions should be commenced as ‘ THIS DEED’
      • E.g.- “ THIS DEED OF SALE…”
  • 31. PLACE AND DATE
      • Place of execution stated after name
      • Date of execution stated after place
      • In case different parties execute document on different dates, the date when the deed was last executed is taken
      • E.g.- “ THIS DEED OF SALE MADE AT MUMBAI ON THE TWENTY-FIFTH OF APRIL, TWO THOUSAND AND SIX…”
  • 32. PARTIES
      • Necessary parties depends on nature of the deed
      • Mention in proper order
      • Full description of parties- parentage, occupation, domicile, full residential address, etc
  • 33. DESCRIPTION OF PARTIES
    • Juridical persons, E.g.- company, idol, corporation or association:
    • “ ABC Ltd., a company registered under Companies Act, 1956, and having its registered office at ………..”
    • Minors: Minors are not competent to contract (Sec. 10, Indian Contract Act)
  • 34. DESCRIPTION OF PARTIES … contd
    • Persons of unsound mind: A person of unsound mind or a lunatic is not competent to contract (Sec. 12, Indian Contract Act)
    • Trusts:
    • “ X, Y and Z, trustees of the estate of A”
  • 35. DESCRIPTION OF PARTIES … contd
    • Partnership Firm:
    • “ M/s ……….., a partnership firm, having its place of business at ……….. Acting through its partner A”
    • Attorney:
    • “ A, attorney of B ”
    • “ B, acting or through his attorney A ”
  • 36. DESCRIPTION OF PARTIES … contd
    • Insolvent:
    • The Official Assignee or Receiver appointed by the Court should be made party in his own name and the fact of vesting of property due to insolvency of the owner should be referred to in the recitals.
  • 37. DESCRIPTION OF PARTIES … contd
    • Pardanashin Ladies:
    • Where the transferor is a pardanashin lady the transferee should be cautious and the fact that the contents of the document have been explained to her and she is executing the document after clearly understanding the nature of the transaction, should be referred to in the recitals.
  • 38. DESCRIPTION OF PARTIES … contd
    • Illiterate Persons:
    • Thumb impression should be obtained on the document:
    • “ Left/right thumb impression of Shri/Smt…”
    • Case Laws:
    • Sivakoti Dasadharam v. Sivakoti Yoganandan,
    • AIR 1966 All 273
    • Kartich Prasad Gorai v. Neami Prasad Gorai,
    • AIR 1998 Cal 278
  • 39. DESCRIPTION OF PARTIES … contd
    • Government:
    • According to Article 299, of the Constitution, contracts where the Government of India or a State government is a party should be executed in the name of the President of India or the Governor of the State.
  • 40. REFERENCE OF PARTIES
    • Reference Label of Parties:
      • Put in parenthesis against the name and description
      • More than two parties- Terms like ‘ of the First Part’ , ‘ of the Second Part’, etc.
      • E.g.- “ THIS DEED OF MORTGAGE is made at …. on ….2006 between A s/o B, resident of …… ( hereinafter called “ the Mortgagor”) of the one part…”
  • 41. REFERENCE OF PARTIES
    • Reference of heirs, executors, assigns, etc:
      • Reference after labels of parties
      • E.g.- “ ………A, S/o B, resident of…. (hereinafter referred to as “the Mortgagor”) ( which term, unless it be repugnant to the context or meaning thereof means and includes his heirs, legal representatives, executors, assigns of the one Part)……..”
  • 42. RECITALS
    • Recitals:
      • Narrative Recitals – History of property and devolution of title upto the transferor
      • Introductory Recitals – Motive or intention of parties; put after narrative recitals
      • Logical and chronological order
      • May restrain the condition of a bond
  • 43. TESTATUM
    • Testatum:
      • After recitals
      • Operative part of deed commences
      • Form:
      • “ NOW THIS DEED WITNESSETH AS FOLLOWS ”
      • “ NOW THIS DEED WITNESES AS FOLLOWS ”
  • 44. CONSIDERATION
    • Consideration:
      • Fully and truly set forth in the deed (Section 25, Indian Contract Act)
      • Need not be adequate
      • Mere inadequacy not a ground for relief ( Vijaya Minerals Pvt Ltd v. Bikash Chandra Deb , AIR 1996 Cal 6)
  • 45. RECEIPT
    • Receipt:
      • Within parenthesis
      • E.g.- “ NOW THIS DEED WITNESSETH THAT IN PURSUANCE OF THE SAID AGREEMENT AND IN CONSIDERATION OF A SUM OF Rs. 1,00,000/- ( Rupees One Lakh only) paid by the transferee to the transferor before the execution hereof ( the receipt of which the transferor does hereby acknowledge) ”
  • 46. OPERATIVE WORDS
    • Operative Words:
      • After testatum
      • Clear and unambiguous
      • Includes covenant on the part of the parties , e.g. – in a lease deed, the lessor and lessee covenant to perform duties
  • 47. PARCELS
    • Parcels:
      • Description of property after operative words
      • Inaccurate/ insufficient description does not invalidate the document ( Lal Babu Yadav v. Ram Ilash Rai , AIR 1997 Pat 131)
      • Section 17 & 21 of the Indian Registration Act
  • 48. DESCRIPTION OF PROPERTY
    • Schedule of the Property:
      • Description of property given in Schedule appended to the deed
      • Words “ and more particularly described in the schedule hereunder written” written in parcel of the deed
  • 49. INCOMPLETE/ INSUFFICIENT DESCRIPTION
    • Does not invalidate the document
    • ( Lal Babu Yadav v. Ram Bilash Rai ,
    • AIR 1997 Pat 131)
  • 50. MAP
    • Map:
      • Map of property annexed in deed
      • Referred to in parcel
      • Form- “ The house delineated on the plan annexed hereto and thereon surrounded by red coloured boundary line.”
      • Section 21(4) of Indian Registration Act
  • 51. ESTATE
    • All estate clause:
      • Expresses that the transferor conveyed all his estate, interest, title, claim rights and demands whatsoever into or in the said property and any part thereof
      • Makes clearer the rights, interests, title, etc. of the transferor
  • 52. EXCEPTIONS
    • Exceptions and reservations:
      • Exception- Part of thing granted which is in existence
      • Reservation- Thing not in existence, but created or reserved out of land granted
      • E.g.- “ Subject to the right of way over the land reserved unto the transferor ”
  • 53. HABENDUM
    • Habendum:
      • Limits the granted estate
      • Mentions liabilities and incidents subject to which the property is transferred
      • E.g.- “ TO HAVE AND TO HOLD FOREVER ”
  • 54. REDDENDUM
    • Reddendum:
      • Rent paid by lessee specified
      • Specifies time and mode of payment
      • E.g.- “ PAYING THEREFOR Rs.100/- rent per month by the 10 th day the month of the following month, to which it relates. ”
  • 55. COVENANTS
    • Covenants:
      • Parties agree to do or not to do a specified act
      • No particular form
      • May be absolute / qualified
      • May be made jointly or severally
      • Clear words used
  • 56. DELIVERY
    • Delivery of title deeds:
      • After covenant clause
      • Mentioned in separate Schedule annexed to deed
      • Section 55(3) of Transfer of Property Act
  • 57. TESTIMONIUM
    • Testimonium:
      • Concluding part
      • E.g.- “ IN WITNESS WHEREOF THE PARTIES HERETO HAVE HEEUNTO SET THEIR RESPECTIVE HANDS THE DAY, MONTH AND YEAR FIRST ABOVE WRITTEN. ”
  • 58. EXECUTION
    • Execution:
      • Signed by the parties to the deed in presence of witnesses
      • Once executed, party cannot challenge deed on ground of coercion ( Gunjan Cement Pvt Ltd v. RSIDIC Ltd., AIR 1996 Raj 88)
      • Before execution, stamp duty to be paid (Section 3 of Indian Stamp Act)
  • 59. ATTESTATION
    • Attestation:
      • Two/ more witnesses (Section 3, Transfer of Property Act)
      • Necessary in bond, gift mortgage, will and codicil
      • Name and description of witnesses
  • 60. ERRORS
    • Errors and omissions:
      • Errors corrected in engrossment- initialed by parties signing the deed
      • Corrections may be noted in a Memorandum under the testimonium and a covenant added in post script after the testimonium
  • 61. SUPPLEMENTAL DEEDS
    • Endorsements and Supplemental Deeds:
      • Additions/ alterations to a deed
      • Form- usual form of deed
      • After names of the parties, following words added- “ supplemental to the deed of lease dated …… and made between the parties hereto ”
      • Several deeds- mention in chronological order in recitals
  • 62. ESCROW
    • Limitation/ condition on delivery of deed
    • Deed delivered to other party subject to the condition on happening of certain event
    • Deed comes into force on fulfillment of the condition
  • 63. GOVERNING LAW
    • Specify which law is applicable if parties belong to different jurisdictions
    • Specify which court will resolve the dispute – forum non convenience
    • Arbitration – specify all details
  • 64. SAMPLE DRAFT
    • COMPROMISE AGREEMENT
    • THIS AGREEMENT of compromise made at Bombay on this 5th day of December 2006 between X son of A residing at ……… (hereinafter called Party No. 1) of the ONE PART and Y son of B residing at …… (hereinafter called Party No. 2) of the OTHER PART.
    • WHEREAS disputes and differences have arisen between the parties aforementioned regarding…………..
  • 65. SAMPLE DRAFT
    • AND WHEREAS the Parties have agreed to settle their disputes and differences amicably between themselves without recourse to litigation and for that purpose are willing to abandon their claims in the manner hereinafter appearing.
    • NOW THIS DEED WITNESSETH THAT IT IS HEREBY AGREED AS FOLLOWS:
    • 1.
    • 2.
  • 66. SAMPLE DRAFT
    • IN WITNESS WHEREOF, the parties have hereunto set and subscribed their respective hands, the day, month and year first above written.
    • WITNESSES Signed and delivered by the within named X
    • 1. P
    • 2. Q Signed and delivered by the within named Y
  • 67. SUGGESTED READING
    • Bharat’s Guide to Deeds and Documentation – By R.K. Gupta
  • 68. THANK YOU
  • 69. CONTACT US
    • UNIVERSAL LEGAL
    • 5th Floor, Kimatrai Building
    • 77/79 Maharshi Karve Road
    • Mumbai – 400 002
    • Phone : 2203 4293 - 95
    • Fax : 2203 9845
    • E-mail : [email_address]

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