Basic Contents of Memorandum of Understanding - MOU

The MOU is made at the initial stage of discussion between the parties, which is usually an oral discussion. The discussions between the parties that becomes a part of a Memorandum of Understanding includes:

The intent of the parties can be deciphered from the contents and the material provision of the MOU. Thus, according to the intentions of the parties, Memorandum of Understanding draft shall be scrutinized and finalised. Thus the legal nature of an MOU rests on the rights, duties, obligations, it creates among parties.

What to include in an MOU format i.e. Memorandum of Understanding Format:

Following are the content of MOU:

1. Objective or Purpose of entering into MOU,
2. Responsibilities of each party,
3. Meetings and manner of Reporting,
4. Technical and Financial Support, inf any,
5. Financial Consideration, if any, involved in the transaction,
6. Person responsible for the Management,
7. Duration of MOU,
8. Confidentiality Clause,
9. Conditions driving towards Termination of MOU,
10. Possibility of Extension,
11. Ways of Communication,
12. Severability Clause,
13. Arbitration Clause,
14. Indemnity Clause, etc.

Depending upon the nature of transaction covered under MOU, the clauses can be addeded or removed and agreed upon with mutual consent.

Legality of Memorandum of Understanding:

Legal validity of MOU in India:

A Memorandum of Understanding (MOU) does not constitute a legally enforceable obligation. It is commonly used for a non-binding contract, that describes the intention of the parties or businesses to work together.

If an MoU has been drawn for consideration, like for exchange of money, etc., the document would become binding on the parties, else it is a non-binding contract. The intent of the parties can be deciphered from the contents and the material provision of the MOU. Clauses such as jurisdiction clause, applicable law, indemnification have binding effects to the agreement. Thus the legal nature of an MOU rests on the rights, duties, obligations, it creates among parties.

In the Indian legal scenario, nomenclature of an agreement is irrelevant thus simply calling an agreement a Memorandum of Understanding does not automatically denote that a contract is non-binding.

Enforceability Of Memorandum Of Understanding as per Law:

MOU is governed by the Indian Contract Act, 1872, and if conditions under the Indian Contract Act are fulfilled, then the performance of an MOU can be enforced under the Specific Relief Act, 1963 where a Specific relief is granted when compensation cannot be ascertained in monetary terms.

In case where the conditions under the Indian Contract Act, 1872, are not fulfilled, the MOU is not recognised as a legally valid contract. But, it can still be enforced in the court of law based on the principles of promissory estoppels and equity.

Stamp Duty on MOU:

Normally, no stamp duty is payable on MOU. However, if the MOU incorporates an agreement to purchase immovable property worth more than Rs. 100/- and if you need to produce it in the court, it should be stamped.

A stamp duty paid document gets evidentiary value and is admitted as evidence in court. Document not properly stamped, is not admitted as evidence by the Court.

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