The growing IT sector and growth of Start-ups necessitated the better documentation to protect the respective rights and IPR. In India, the agreements should to be suited to the local condition with due regard to the court system and judicial response to such clauses. Any copy-paste approach may prove appalling in long term. Inadvertent drafting of payment Clauses meant for ensuring effective payment are seen to be attracting huge tax liability. Similarly blind adoption of arbitration clauses may lead to tremendous expense shoot-up making it costly deal for the Start-ups. Any casual approach can prove fatal for Star-ups in long term.

1. A Critical Concern for Start-Ups: Agreements in Software
Industry
BY: YUVRAJ P. NARVANKAR
BSL LLM DCl D.Corp.L DHL
Advocate, Bombay High Court
We are witnessing humongous growth in the IT sector in India and a
parallel growth in the career opportunities in this lucrative arena. Salubrious
climate, progressive local community and the presence of many educational
institutes have attracted many multinational IT companies to India. Cities like
Pune and Mumbai offer world class IT facilities and are the IT hubs of the city.
This unprecedented growth has resulted in growth of two limbs in the IT
industry, one in terms of jobs and other in terms of the independent business
opportunities. A trend of taking some experience in the mid-size companies and
later on opting for independent ventures can be essentially observed among the
youngsters. May it be job or independent venture, the most crucial part is the
documentation of respective rights and obligations. In the job-oriented industry
like IT, great emphasis is put on the well documented employee agreements,
non-disclosure agreements whereas the documents like non-compete
agreements, software-development agreements appear prominently in the
independent ventures arena. Generally the start-ups in the IT industry face this
documentary trauma to a great extent while dealing with the large IT
conglomerates. The start-ups often face undue subjugation to the onerous terms
and conditions due to lack of bargaining power and due to ignorance of the
drafting of the well-balanced clauses and their negotiations. There are also what
are called as ‘Boiler-plate’ clauses which appear in every contract and though
appear harmless, can prove fatal in the event of any dispute.
This wide-spread documentation has necessitated the start-ups to devote
considerable attention to the details of these agreements and be vigilant for
tricky terms and clauses. Each agreement has some skeletons in closet which are

2. either beneficial or stringent to either side. It is necessary to identify these grey
areas and to deal with them effectively.
Clauses like non-disclosure agreements are used widely, ranging from the
employment agreements to the software development agreements. Any blind-
folded or ignorant approach in drafting these clauses can lead to the legal
complications landing in courts of law. It is necessary to label the precise
information as confidential and any vague wording can create problems for the
‘disclosing party’ as well as ‘receiving party’. Further it is necessary to set out
preventive as well as compensatory remedies for any breach of the obligations
under the contract. The remedies set out must be practically enforceable in the
courts of law and any copy-paste approach can lead to appalling situation.
Software-Development agreement is the back-bone of the IT industry and
a lot depends on the flawless and balanced drafting of these agreements.
Especially a start-up whose future prospect hinges on such agreement, may find
itself in an awkward situation when some Conglomerate-Developer refuses to
abide by some essential term of the contract or exploits some lacunae in an
agreement in a prejudicial manner. The software specifications are the heart of
the Software-Development agreement. They attempt to define the software to be
created and provide a guide for quality control and maintenance of the standard.
The more comprehensive the specifications, the less is the likelihood of
misunderstandings, client dissatisfaction, and bitter litigation. There are two
basic ways to pay a developer for creating custom software viz. a pay-per-hour
(time and materials) agreement, or a fixed-price agreement.
One of the most important functions of the attorney working on the
software development agreement is to establish who will own the intellectual
property rights to the software to be created. This is often one of the most hotly
contested issues between the developer and client and can easily become a deal-
breaker. Developers own the copyright to software unless the developer is the
client's employee or the software is part of a larger work made for hire under a
written agreement. In order to own the copyright, the client must have an

3. agreement transferring ownership from the developer to the client. There are
many ownership options available, ranging from sole ownership by the client to
ownership by the developer with the client's merely having a license to use the
software. And there are also many substitutes between these two extremes.
There are some areas where even big-conglomerates haven fallen prey to
the tricky clauses. Generally software developers will normally have various
development tools, routines, subroutines and other programs, data, and
materials that they bring to the job and use to make up the final product. One
term for these ‘raw material’ items is "background technology." If the developer
transfers ownership of the software to the client, the client may end up owning
even this “background technology” as well. If this so happens, then every time
after the term of contract is over, the Developer has to again start from ground-
zero for any upcoming project which will cause immense loss of human
resources and time. The Developer can’t afford to begin from the scratch again
for every new project. Developers should avoid this by ensuring that the
development agreement provides that the developer retains all ownership rights
in this material i.e. “background technology” and also in the base-system used to
build the customized programme. But, in this event, the agreement should give
the client a nonexclusive license to use the background technology that the
developer includes in the software.
The issue of title and ownership of the software or product is the crucial
part of the agreement and has to be cleverly worded to avoid any unwarranted
tax liability. It is observed many times that, for ensuring timely payment, the
Developer retains the right and title in the Software and agrees to transfer it to
the client only on the payment of the agreed consideration. However such
agreements can be treated as “Sale” attracting huge sales tax liability though the
real intention of the parties was to vest the property in the software always with
the Client and such clause was meant only to ensure timely payment.
Warranty of software performance, title and non-infringement are also
major issues to be addressed in any IT related contract. The clauses like Dispute

4. resolution or choice of jurisdiction clause though seem to be insignificant, need
lot of attention and customization as per the need of the party. E.g though
arbitration as an alternative mode of resolution seems attractive at first brush,
the expenditure and the present day plight of this process outweigh its benefits
making it an expensive deal for the start-ups. One has to have a practical
knowledge of the arbitral process and its current plight in India for the
appropriate advice. The issue of judicial intervention in the Arbitral Award is
also a matter of concern for the companies.
Similarly any clause excluding jurisdiction of any court will serve no
purpose as the same is against Section 28 of the Indian Contract Act of 1872 as
the Agreements in restraint of legal proceedings are void. Further the
jurisdiction can also not be conferred on any of the court which has no
jurisdiction if the dispute arises. Thus for effective drafting of ‘jurisdiction clause’
it is necessary to know as to which courts are likely to exercise a jurisdiction
over the dispute as per Civil Procedure Code and only thereafter the exclusive
jurisdiction can be conferred on one of those courts. Further it is also necessary
to specifically exclude the jurisdiction of any other court exercising concurrent
jurisdiction.
Software Maintenance and Updating Contract, Customer Agreements and
Payment Gateway contract in any E-commerce sites project, Independent
Consultant Agreements, Indemnity Agreement, Web-hosting and Maintenance
Agreement, Employer-Employee Agreements and many such agreements shape-
up the transactions in the IT industry.
The dilemma of the contracts is not only faced by the start-ups but also by
the software professionals or fresher who takes up a job in some IT company.
The companies, for ensuring that the new-comers do not switch the job easily,
thrust upon them clauses like Lock-in period, non-compete clauses, non-
solicitation clauses etc. Such clauses also provide for the penalty to be paid by
the employee in the event of resigning during the Lock-in period. Particularly,
when the new job opportunities are on the horizon, the clauses of Lock-in and

5. Penalty haunt the youngsters. However, the enforceability of such terms can be
always challenged in the Court of Law in light of section 27 of the Indian Contract
Act, 1872 which deal with Agreement in restraint of trade and validity of such
clauses largely depend upon the reasonableness and toning of such clauses.
Generally the conglomerates or mid-sized IT or service provider
companies are well equipped with in-house legal teams. However the small start-
ups can not afford the luxury of maintaining their own in-house legal team. In
many cases, even the in-house legal teams, fail to secure interests of the company
due to copy-paste job.
The start-ups or software engineers have to ensure that such agreement
are reviewed and vetted by the specialized advocates with the know-how of the
technology and possible traps of the industry. Often, when handed a contract to
sign, we do not take the time to review it carefully, and possibly even discuss it
with an attorney as sometime the contract pertains to a matter that the
individual thinks is trivial or insignificant. Yet this simple step could prevent a
great deal of heartache, headache and expense in the future. One should always
proceed with caution before putting pen to paper. It is always easier to avoid
unfavourable terms in a contract by reviewing and understanding them before
you sign, than it is to try to avoid the contract’s effects later. So, when handed a
contract, put down your pen. Take a long pause and take the time to read it. If
you do not understand something in it, consider discussing it with your attorney.
An expenditure of consulting a qualified lawyer can certainly save a great deal of
money and harassment in future.
BY: YUVRAJ P. NARVANKAR
BSL LLM (Gold Medallist)
Bombay High Court
[Specializing in E-contracts and cyber law related issues)
Author can be reached at:
Cell: +91-98227867631
yuvraj.narvankar@yahoo.co.in

6. Penalty haunt the youngsters. However, the enforceability of such terms can be
always challenged in the Court of Law in light of section 27 of the Indian Contract
Act, 1872 which deal with Agreement in restraint of trade and validity of such
clauses largely depend upon the reasonableness and toning of such clauses.
Generally the conglomerates or mid-sized IT or service provider
companies are well equipped with in-house legal teams. However the small start-
ups can not afford the luxury of maintaining their own in-house legal team. In
many cases, even the in-house legal teams, fail to secure interests of the company
due to copy-paste job.
The start-ups or software engineers have to ensure that such agreement
are reviewed and vetted by the specialized advocates with the know-how of the
technology and possible traps of the industry. Often, when handed a contract to
sign, we do not take the time to review it carefully, and possibly even discuss it
with an attorney as sometime the contract pertains to a matter that the
individual thinks is trivial or insignificant. Yet this simple step could prevent a
great deal of heartache, headache and expense in the future. One should always
proceed with caution before putting pen to paper. It is always easier to avoid
unfavourable terms in a contract by reviewing and understanding them before
you sign, than it is to try to avoid the contract’s effects later. So, when handed a
contract, put down your pen. Take a long pause and take the time to read it. If
you do not understand something in it, consider discussing it with your attorney.
An expenditure of consulting a qualified lawyer can certainly save a great deal of
money and harassment in future.
BY: YUVRAJ P. NARVANKAR
BSL LLM (Gold Medallist)
Bombay High Court
[Specializing in E-contracts and cyber law related issues)
Author can be reached at:
Cell: +91-98227867631
yuvraj.narvankar@yahoo.co.in