Service Agreements executed by Foreign Nationals / Companies with service providers in India

What are service agreements?

When an agreement is executed between two parties, wherein one party agrees to provide some specific services to the other party for a consideration, such agreements are referred to as Service Agreements.

It is significant to execute such agreements before commencing the services as it helps establish the specific requirements of each party thereby minimising any possibilities of disputes arising in the future, enhances clarity and accountability and is legally binding and enforceable.

When does the need of Service Agreements arise

A service agreement is important whenever one party provides services in exchange for a consideration. Here are some common situations where a service agreement comes in handy:

1. Project based services/Consultancy/Outsourced work/ Freelancers – If the services are being hired for a specific task or project, like a designer or developer, a service agreement lays out the scope, purpose and other terms and conditions. In such cases, it is important to spell out the deliverables, deadlines, and the ownership of Intellectual Property Rights on its conclusion.
2. Working with Business distributors/providers/agents/suppliers/dealers etc – When companies outsource services like IT support, marketing, or consultancy, clear agreements help define expectations and responsibilities from the inception.

Key Components of Service Agreements

The essential elements or key clauses of such agreements are as below-

1. Description of Parties
   This head of the service agreement describes the parties executing the same. The description includes the name of the parties, their registered address, the business/services they are engaged into, etc.
2. Scope of Services
   The said clause defines the purpose and agenda of entering into the Service Agreement.
3. Timelines & Deliverables
   This clause of the service agreement sets out a timeline within which the service which forms the subject matter of the agreement has to be delivered. The non-fulfilment of this clause might lead to legal complexities as time is the essence of these agreements.
4. Responsibilities of each party
   The responsibilities of each party are incorporated in the agreement under the said clause.
5.  Confidentiality
   This forms one of the most essential parts of the service agreement which restrains both the parties from disclosing all such confidential information which is received by either party during the course of transaction/execution of the service agreement.
6.  Ownership of Intellectual property
   This clause in the agreement protects the intellectual property rights of the receiver of the services.
7.  Governing law & Jurisdiction in case of disputes
   This clause vests the jurisdiction of the courts in the event of any dispute arising out of the service agreement. It underlines the state which shall have the jurisdiction to entertain such suits/cases in the event of any dispute. After having conferred jurisdiction upon the courts of competent jurisdiction of any state/s, the parties are estopped/restrained from filing cases arising out of the service agreement before courts of any other state.

 Remedies for breach of service agreements

Below is an overview of legal remedies and enforcement options available:

A. LEGAL/DEMAND NOTICE

A legal notice may be issued before initiating any legal remedy, whether civil or criminal, which can be the first step to initiate a legal process in India, especially in commercial disputes. A legal notice is a formal written communication sent by one party to another, typically through an advocate, informing them of a legal grievance and demanding specific action or remedy within a stipulated time. It serves as an advance warning before initiating legal proceedings and gives the recipient an opportunity to resolve the matter amicably.

B. REMEDIES UNDER CIVIL LAW

1. Suit for specific performance for fulfilling the Contractual obligations as per the Service Agreement executed between the Parties-  If the service provider fails to deliver the agreed services or commits any breach of the terms of the service agreement, then the foreign national/company may seek appropriate directions from the court of competent jurisdiction for the fulfilment of the clauses/terms of the service agreement as applicable under the Indian law along with appropriate damages and monetary compensation for losses suffered due to the breach.
2. Suit for recovery- A suit for recovery can be filed by a foreign national/entity in a competent court to recover the principal amount along with interests and damages resulting from the Indian supplier’s failure to fulfil their contractual obligations. This type of suit typically arises when the Indian supplier does not perform the agreed services, performs them inadequately, or violates terms outlined in the service agreement, causing financial loss to the foreign company. The suit aims to claim compensation for the breach, and recover any dues or losses suffered. Such cases are generally governed by the terms of the contract, including the governing law and jurisdiction clauses, and are subject to Indian laws.
3. Commercial suits- When a dispute arises from a breach of a service agreement involving commercial transactions, a commercial suit can be filed under the Commercial Courts Act, 2015 in India, before a designated Commercial Court having territorial and pecuniary jurisdiction. The process involves drafting a detailed plaint outlining the facts of the case, the breach, the relief sought, and submitting it along with the required court fees. The court then issues a summons to the defendant (the Indian supplier), after which the matter proceeds through written statements, evidence, and hearings. The act however mandates pre-institution mediation in all cases pertaining to commercial transactions except the ones wherein some urgent relief has been sought. Commercial suits are aimed at ensuring faster and more efficient resolution of business disputes.
4. Suit for injunction- A suit for injunction can be filed to seek a court order restraining a party from doing a particular act (prohibitory injunction) or compelling them to perform a specific act (mandatory injunction). In the context of a breach of a service agreement, a foreign company may file a suit for injunction in an Indian court to prevent the Indian supplier from engaging in actions that may cause ongoing or irreparable harm—such as using confidential information, disrupting service delivery, or violating non-compete clauses. This remedy is particularly useful when immediate or preventive relief is required to maintain the status quo or prevent further breach, even while the main dispute (such as for recovery or damages) is pending. The court may grant temporary (interim) or permanent injunctions, depending on the circumstances and evidence presented.

C- REMEDIES UNDER CRIMINAL LAW

In addition to civil remedies, criminal remedies may also be available to a foreign company against an Indian supplier but only in specific cases where the breach of contract involves criminal intent or fraudulent conduct. Indian criminal law does not treat every contractual breach as a criminal offence. However, where the breach includes elements of cheating, misrepresentation, fraud, or criminal breach of trust, criminal proceedings can be initiated.

The burden of proof is higher in criminal cases i.e beyond reasonable doubt.

Criminal proceedings can run parallel to civil suits, but cannot be used to pressurize the other party in a purely contractual dispute. The general criminal remedies are as below-

1. Cheating

2. Criminal Breach of Trust

3. Forgery and Falsification of Documents

Considerations for protecting the interests of Foreign Nationals/Entities

• The foreign nationals/entities must ensure that the agreement is formally executed and signed by both the parties.
• Ensure that the agreement is properly stamped & notarised as per Indian laws.
• The copy of the agreement should also be with both the parties.
• All correspondence with the service provider should be with formal channels such as e-mails, letters etc.
• The consideration/fee towards the services should be made by bank transfer/RTGS/UPI as a proof for future purposes, if need be.