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Legal Issues of Offshore Outsourcing to India


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If you are considering outsourcing to India, but need some information on the legal issues in offshore outsourcing or are worried about whether your contract will be honored by the Indian Legal System, read on.

Indian Laws on Intellectual Property

Laws in India are always undergoing amendments, according to the needs of the changing times and in unison with International Laws and practices.

India has ratified the World Trade Organization (WTO) Agreement, which came into force on January 1 st 1995 and has also become a party to the Agreement on Trade Related Intellectual Property Rights. In the last few years, India has effected several legislative changes in copyrights, trademarks, designs, patents, and other issues besides enacting new legislations on bio-diversity and geographical indications. These measures have drastically reformed Indian laws on Intellectual Property.

Laws Governing International Contracts

When contracts transcend national boundaries, the national Legal Regime of any single country becomes inadequate to grapple with the situation. When the parties to the contract are located in different countries, at least two systems of law impinge upon the transaction and the rules of Private International Law come into play.

The best way to ensure the application of a particular legal system to international contracts is to choose a particular law to govern this contract. This law is called the “Proper Law of the Contract”. The Courts have held that “Proper Law is the law which the parties have expressly or impliedly chosen, or which is imputed to them by reason of its closest and most real connection”.

Indian courts uphold choice of law

When the parties in the Contract make an express choice of law, the Indian Courts have always recognized such choice of proper law. Previously in the US , though Courts generally honored the law chosen by the parties, the same was limited due to the holding that there should be some “reasonable relationship” between the transaction and the chosen law. This created some uncertainty. This legal quandary was fully removed by the New York General Obligations Law, which became effective on July 19 th 1984. According to Section 5-1401 of the said Law, parties are given freedom to select New York as their proper Law regardless of any relation to New York . However, where parties have chosen any law other than Indian Law, the choices of law have always been upheld by the Indian Courts.

Outsourcing parties are free to choose the law that will govern their contracts.

Under Indian Law, parties are free to stipulate their terms of contract and lay down the law by which the Contract is to be governed. Courts in India have held that the intention of parties would decide the law of which country would govern the Contract and which Court would have jurisdiction. Sections 13, 15 and 44A of the Indian Civil Procedure Code and Section 41 of the Indian Evidence Act, govern the conclusiveness and enforcement of foreign judgments in India . If there is a reciprocal arrangement between India and the foreign country whose judgment is sought to be enforced, then under section 44A of the Indian Civil Procedure code, the said foreign Decree could be executed as if it were a Decree passed by the Indian court without the need to file a Suit. If there is no reciprocal arrangement between the foreign country concerned and India , then the said Judgment/ Decree can be enforced in India by filing a Suit on the foreign judgment.

Guidelines to follow while entering International Contracts
Companies enter into International Contracts, as they are always profitable. The following aspects should be considered while entering into International Contracts, which would safeguard the interests of all the parties to the Contract:

• There should be an express choice of Law governing the Contracts.

• Ensure that the legal regime of the Country whose law is chosen, recognizes the proper law for enforcement.

• In cases where Contracts are signed in a country which is different from the country whose law is chosen, it should be ensured that the formal requirements of that place of Contract are fulfilled in all respects.

• Where the chosen Law is Indian Law and if Indian Judgment is to be enforced on any foreign soil, ensure that the said foreign soil has a similar law on the lines of Section 44A of the Indian Civil Procedure Code.

• Where Arbitration is chosen as the method of dispute resolution, the place of arbitration and other aspects have to be properly determined.

For more reading on Outsourcing, log on to http://www.outsource2india.com

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  • Posted On July 1, 2006
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