The document discusses Memorandums of Understanding (MOUs), including what they are, why they are created, and factors that determine whether an MOU is legally enforceable. Some key points: - MOUs outline mutual understanding and plans between two or more parties, but are generally not legally binding like contracts. They help avoid disputes by defining roles and responsibilities. - Courts examine elements like the parties' intent, language used, conduct after signing, and inclusion of clauses on confidentiality, dispute resolution, and liability when deciding enforceability. - MOUs can become enforceable if they satisfy contract requirements and indicate the parties intended to be legally bound through factors like specifying consequences for breach. The inclusion of in

1. MOU & ITS
IMPLICATIONS
Sharing by: Ms. Sakshi Khatri,
Manager (Law),
IndianOil AOD State Office

2. SESSION COVERAGE
Introduction
1. What is an MoU?- legal and generic parlance
2. Why are MoUs made?
3. Essentials of an MoU
4. Legality and enforceability of MoU
5. MoU vs. MoA vs. Contract
6. Factors looked into by courts while deciding on enforceability of MoUs
7. Indicators/ factors which make an MoU enforceable
8. Indicators/ factors which make an MoU non- enforceable
9. The Apex Court view on MoU/ other judgment(s) sharing
10. Summary & Key Learnings
Open Session

3. 1. WHAT IS AN MOU?- LEGAL
AND GENERIC PARLANCE
 A memorandum of understanding (MOU) is a formal arrangement cum agreement that outlines plans for a common
line of action between two or more parties.
MOUs are stronger than a gentlemen's promise; verbal decisions or a handshake. A Memorandum of Understanding
(MOU) is usually referred to as a “gentleman’s agreement.”
They are often the first steps companies take toward a legal contract.
MOUs are usually not legally binding and are less formal documents as compared to a binding contract.
Provide a roadmap of each party's duties and requirements.
Usually created at the early stage of a relationship or initiative or negotiations
Participants get to state their expectations and responsibilities, roles & potential conflicts

4. 1. WHAT IS AN MOU?- LEGAL AND
GENERIC PARLANCE….CONTD.
Usually drawn when:
 companies plan to work together
 entering a serious and more than frivolous business transaction
partnering a project or similar venture
 in government set up, make agreements to coordinate interagency work
In Public international law, an MOU is a political mutual agreement between two or more parties. It is less formal than a treaty and not legally binding.
Treaties and negotiations are typical non- binding MoUs, which are later required to be ratified in a short/ reasonable time and relevant legislations be passed.
MoU is a charter of consensus between two or more parties/ businesses/ nations to take their association/ ideas forward in serious and
structured manner.
When the parties arrive at a common consensus then they further indulge in negotiations and discussions
When these negotiations and discussions become successful then they finally enter into an agreement
Formal Agreement when duly signed/ formalized by both/ all parties with their free will becomes a legally binding formal contract

5. 2. WHY ARE MOU’S MADE?

6. 2. WHY ARE MOU’S MADE?
Advantages
It can help to avoid misunderstandings and disputes by clearly defining the roles and responsibilities of each party,
It can provide a framework for resolving disagreements. By clearly stating what each party expects from the other,
 The MOU provides a blueprint for any agreement, whether both parties want to settle it down the road.
Disadvantages
It can be difficult to enforce, and if one party breaches the agreement, the other party may not have any legal recourse.
The main drawback of consent forms is that they are not usually legally binding. Sometimes this can be advantageous, but neither party is obliged to
do what they said in their MOU, so they can just walk away or change their expectation.

7. 3. ESSENTIALS OF AN MOU
An MOU should include the following:
names and contact information of the parties involved;
context and purpose or goals of the agreement;
approximate date when the agreement will become effective; and
signatures of all parties involved.
Intention of parties for treatment of this legal document
Confidentiality/ indemnity/ dispute resolution clauses are not
mandatory clauses. But they become relevant at time of
enforcement.

8. 3. ESSENTIALS OF AN MOU

9. 4. ESSENTIALS OF AN MOU-
LEGALITY AND ENFORCEABILITY
Essentials of a valid Memorandum of Understanding
 MoU is not usually legally enforceable in the court of law until the agreement is signed or ratified between the parties
But a valid MoUs has to have the essentials of Section 10 of the Indian Contract Act, 1872
 there should be at least two competent parties to enter into an MoU
Purpose and object of the MoU must be lawful and legal.
A specific date and time should be mentioned on which it is started and ended.
There should be a clear understanding between the parties regarding the duties and responsibilities.
All information regarding payment and finance should be defined clearly. *
It should be specified in the MoU about the clauses concerning the allocation of risks and dispute resolution as whenever a conflict of interest arises
between parties or any legal injury happens to any one of the parties, it should be cleared in the MoU who will be liable for the loss. *
MoU should contain a clause which talks about the termination of an agreement wherein under certain circumstances, any of the parties’ courts
terminate their agreement at a given point of time. Appropriate forum may be mentioned. *

10. 5. MOU VS. MOA VS.
CONTRACT
 An MOU vs. a memorandum of agreement
A memorandum of agreement, or MOA, is an alternate term for memorandum of understanding.
They are essentially the same kind of document that expresses a mutual understanding between
two or more companies, government agencies or other parties.
Both MOAs and MOUs often precede a more formal, detailed legal document or agreement.
 MOA is an enforceable document, however, MOU is generally a nonbinding agreement unless all
parties sign it and some sort of consideration for exchange of a token fee
MoU possesses unique authority based on the assertion that it serves as a substitute to a legally
binding agreement, which can be signed later on

11. 5. MOU VS. MOA VS.
CONTRACT….. CONTD.
Criteria MOU CONTRACT
Content
& Degree
of Details
Simply outlines the parties’ desires and intentions
May also contain term about the parties’ intentions
not to be legally bound
MoU memorializes key terms and expectations at
the start of a working relationship.
It does not defines the specifics, terms, and
conditions that each party needs to fulfill.
Low degree of details
A contract involves an offer from one party and the acceptance
of it from another in exchange for something i.e. consideration.
Contracts contain details of each party’s obligations and the
consequences of not fulfilling such obligations
Term, Scope, Responsibilities, Covenants, Warranties,
Guarantees, Indemnification, Insurance, Confidentiality,
Interpretation, Dispute Resolution, Choice of Jurisdiction and
Rights of Each Party are spelled out in detail and in separate
sections.
Termination at the wish of parties require due notice
Breach of contract attracts penalty / legal consequences.
High degree of details
Review Possible at multiple stages  Not possible. Breach attract consequences unless novation

12. 6. FACTORS LOOKED INTO BY COURTS WHILE
DECIDING ON ENFORCEABILITY OF MOU
The question as to whether a Memorandum of Understanding is legally enforceable or not must be decided by the courts, when challenged. Following
grounds are evaluated by the courts:
Does the MoU satisfies the requirements of a valid contract
 clear intention of the parties at the time of its execution
 intention to be inferred from the terms and conditions of the Memorandum,
parties’conduct following the implementation of the Memorandum
clauses, titles, detailing and language that will comprise the Memorandum of Understanding (MoU)
Construction and words such as Shall, May, Would be, Could be, must, can be, to do, may do, abide, will commit, may commit, shall be liable, may
be liable, shall attract etc. indicate the party’s intention to create legally binding contract.
What have the parties put/ framed so as to safeguard their respective interests. Accordingly what have they put in the agreement. Eg., as regards
consequences, in case of breach of MoU; termination clauses in the MoU and register it.
Whether there is a monetary exchange is registered or not?

13. 7. INDICATORS/ FACTORS WHICH
MAKE MOU ENFORECABLE
While the parties to a contract must intend to create a legally binding agreement, the parties to an MOU may intend otherwise. Following
reflect parties intended MoU to be enforceable:
 Outlining expectation & responsibilities: an MOU is often used to define the expectations and responsibilities of each of the
parties. If the MoU bears a clause regarding outcome and respective party onus for breach of MoU, then the same is intended to be
legally enforceable.
 Enforceability clause: the nature of an MoU can be determined to be enforceable if the parties have included a Confidentiality
and Dispute Resolution in the MoU cum agreement.
 These types of clauses create a legal obligation between the parties. If one of the parties breaches any of such clauses, then the suit
can be filed against the defaulting parties in the court of law to make the MoU/ agreement enforceable.
 Indemnity Clause: Inclusion of an indemnification clause, the relevant law clause, and the jurisdiction clause are reflective that
parties wanted it to be legally enforceable on themselves.
 Intention to act upon/ estoppels: if parties have desired each other to act upon on the terms of the MoU, thereby creating
financial obligation(s) and change in position; the parties intended the MoU be a legally binding document.
 Un- enforceable nature of MoU is not specified: Parties have not declared their intention to not make the MoU non- binding or
have a limited responsibility clause.

14. 8. INDICATORS/ FACTORS WHICH MAKE
MOUS NON- ENFORCEABLE
Mere agreement of co-operation: For example, an MOU may recite that the parties “agree to promote and support the joint use of
facilities.” This type of provision establishes an important public statement of cooperation, but it does not constitute a legally enforceable
obligation.
Detailed modalities in future: Alternatively, an MOU may outline the terms of an agreement but state that each party’s responsibilities are
only enforceable “in the event that the parties’ governing boards decide to enter a joint use agreement.”
No two separate legal entities: Additionally, a non-legally binding MOU may be useful to serve as an agreement between two or more
departments within a single public entity. For example, in large cities where the school district is considered a department of the city – and
not a separate legal entity – a contract between the city and the school district may not be legally appropriate.
Joint Use MoUs: Therefore, parties to a joint use agreement should address the legal status of their agreement early in the negotiation
process.
Parties often draft agreements with language that blurs the lines between a contract and an MOU. The key is to focus on whether the parties
intend to be legally bound by the terms of the agreement.
Indemnity Clause: Clauses such as the indemnification clause, the relevant law clause, and the jurisdiction clause are legally enforceable on
the parties to the agreement.
Intention to act upon/ estoppels:
Potency to cause loss: In the process of drafting the Memorandum of Understanding, it is essential to consider not only the parties’
communicated intentions, but also the clauses of the document, language, and title, as failure to do so would lead to a significant financial
loss to the parties involved.

15. 9. THE APEX COURT VIEW ON MOU/ OTHER
JUDGMENT(S) SHARING
Jai Beverages Pvt. Ltd. v. State of Jammu and Kashmir and Ors.
The Supreme Court of India in Jai Beverages Pvt. Ltd. v. State of Jammu and Kashmir and Ors. [2006 (4) SCJ 401] that if the conditions of
the Memorandum of Understanding are therefore complied with, the parties to the MoU will receive the profit resulting from the MoU. As
stated above, it leads to the conclusion that the binding nature of a Memorandum of Understanding is dependent on the intention of the
parties, the language used in the agreement, as well as the nature of the agreement. The conduct of the parties following the execution of the
MoU is also a pertinent factor in determining the enforceability of the MoU.
M/s. Nanak Builders and Investors Pvt. Ltd. v Vinod Kumar Alag
The High Court of Delhi held in the case of M/s. Nanak Builders and Investors Pvt. Ltd. v Vinod Kumar Alag [AIR 1991 Del 315] that where
the important significant conditions have been consented upon and reduced to written form, and the agreement so entered into does not cite
that another legal agreement will be implemented, the agreement will not be considered an incomplete contract. The Court went on to say
that the mere heading or title of a document would not be sufficient to determine its lawfulness. The validity of the agreement will be based
on the nature and parts of the agreement.

16. 9. THE APEX COURT VIEW ON MOUS/
OTHER JUDGMENT(S) SHARING…
CONTD
.
Brikram Kishore Parida v. Penudhar Jen
In the case of Brikram Kishore Parida v. Penudhar Jena (AIR 1976 Orissa 4), the court stated that the objective test for intent to establish
legal relations is the most appropriate.
If a prudent person would believe that the promisor intended to enter into a contract, then the promisor will be required to fulfill his or
her obligations under the agreement. Consequently, caution must be exercised when drafting a Memorandum of Understanding,
particularly when it comes to the language, titles, and clauses that are used. Clauses such as the indemnification clause, the relevant
law clause, and the jurisdiction clause are legally enforceable on the parties to the agreement.

17. 10. SUMMARY & KEY LEARNING/S
Mere heading of any MoU shall not be used as a ground to come to the decision of its legality or illegality
The contents of MoU shall hold value and the agreement in full shall be taken into consideration
The construction and use of words in such agreement shall also be taken into consideration to conclude whether such MoU was made with an
intention to comply with it or was it merely a promise.
Insertion of various clauses like legal binding indemnification damage breach which shall show the clear intention to make such MoU/
agreement legally binding would play a pivotal role.
In its generic definition a MOU is defined to be a non-binding document, however, if there lies a clear intention/ clause of compliance then such
MOU shall be binding.