The five clauses that decide who pays on breach

Most commercial disputes are settled or lost long before anyone reaches a courtroom, in five clauses that almost nobody reads at signature: indemnity, limitation of liability, termination, dispute resolution and governing law. Together they answer a single question, which is who carries the loss when the deal does not go to plan. The underlying logic of each clause is broadly the same wherever the contract is signed, whether the parties sit in Mumbai, London, Singapore or New York, but how far a court will actually enforce that logic differs by jurisdiction. This note takes each clause in turn, sets out the common-law principle behind it, and flags where Indian law in particular, the system most often on one side of a cross-border deal, draws its own lines.

Indemnity clauses

An indemnity is a promise by one party to make the other whole for a defined category of loss, typically loss caused by the indemnifying party's own breach, negligence, or a third-party claim arising from its conduct. The concept is common to nearly every legal system that enforces contracts: English and American law treat it as an ordinary contractual promise, while Indian law gives it a statutory home in Sections 124 and 125 of the Indian Contract Act, 1872. What differs is how independent that promise is once litigation starts. Indian courts have consistently held that an indemnity is a separate, standalone contract, not merely a sub-clause of the main agreement (Deepak Bhandari v. State of Himachal Pradesh; HP Financial Corporation v. Pawana), so it can survive termination or invalidity of the rest of the deal if the survival clause says so. The drafting choices that matter in any jurisdiction are the same: whether the trigger is any loss arising out of or in connection with the contract or only loss caused by the indemnifier's breach or negligence, whether the indemnified party must first pay a loss before claiming, and whether the indemnity sits inside or outside any liability cap, a carve-out most drafters insist on wherever IP infringement, confidentiality or fraud is in issue.

Limitation of liability clauses

Every major commercial jurisdiction lets contracting parties cap or exclude liability by agreement, and every major jurisdiction polices that freedom at the edges too. English and Singaporean courts apply the UK's Unfair Contract Terms Act 1977 or its local equivalent to test whether an exclusion is reasonable; American courts apply the Uniform Commercial Code's bar on unconscionable limitations; Indian courts, absent an equivalent statute, fall back on Section 23 of the Contract Act, which voids terms opposed to public policy, and on the Supreme Court's unconscionability doctrine for contracts between parties of unequal bargaining power (Central Inland Water Transport Corporation v. Brojo Nath Ganguly). A cap that tries to exclude a statutory remedy altogether has been struck down on that basis (Simplex Concrete Piles v. Union of India), and courts across these systems apply a similar underlying test to the number itself: it has to bear some reasonable relationship to the loss the parties could foresee at signature, not be an arbitrary figure (ONGC v. Saw Pipes in India; Cavendish Square Holding v. Makdessi in the UK, which replaced the old genuine pre-estimate of loss test with a broader proportionality standard). In practice, three carve-outs from any liability cap are close to universal in commercial drafting: death or personal injury, fraud or wilful misconduct, and breach of confidentiality or IP obligations.

Termination clauses

Termination for convenience, a right to end the contract without cause, is standard in US government and commercial contracting and increasingly common in Indian and UK agreements too, but each system limits it differently. In India, an unqualified at-will termination right can render the contract determinable under Section 14(1)(c) of the Specific Relief Act, 1963, which bars a court from ordering specific performance, leaving damages as the only remedy for wrongful termination (Indian Oil Corporation v. Amritsar Gas Service). English and American courts are generally more willing to enforce a termination-for-convenience clause as written, though both will still scrutinise whether it was exercised in bad faith. Two drafting choices reduce this risk wherever the contract is signed: tying termination to a notice period plus a cure period for breach, rather than an unqualified at-will right, and, where the contract involves an investment with no real use outside the relationship, such as bespoke equipment or dedicated infrastructure, building in an explicit exit-cost mechanism rather than leaving the counterparty to argue for injunctive relief, as one did successfully in Atlas Interactive v. Bharat Sanchar Nigam Limited.

Dispute resolution and arbitration clauses

Two decisions sit inside every dispute resolution clause anywhere in the world: arbitration or litigation, and if arbitration, where. Under the UNCITRAL Model Law on International Commercial Arbitration, adopted in some form by more than 80 countries including India, Singapore and the UK, the seat of arbitration, not the venue where hearings happen to be held, is what fixes which country's courts supervise the process. A clause naming a city as venue without separately fixing the seat is a common and avoidable source of dispute in itself, wherever the parties are from. Choosing a foreign seat does not remove the courts of a party's home jurisdiction from the picture as completely as many assume: under India's Arbitration and Conciliation Act, 1996, for instance, Indian courts can still grant interim relief over assets located in India, assist with evidence, and hear a narrow class of appeals unless the clause expressly deals with those provisions. Any clause involving a party with local assets or a local regulatory footprint should say, in terms, which of those default court powers are excluded and which are deliberately retained, and should fix the law governing the arbitration agreement itself separately from the law governing the underlying contract, since the two need not be the same.

Governing law clauses

Parties to a cross-border contract are, as a near-universal principle, free to choose which country's law governs their agreement, a freedom recognised under the EU's Rome I Regulation, English common law, and Indian law alike. Section 28 of the Indian Contract Act voids a clause that absolutely restrains either party from approaching the ordinary courts, but the Supreme Court has read that narrowly: a clause channelling disputes to a specific court or foreign forum, without shutting out judicial recourse altogether, is a valid choice rather than a prohibited restraint (Modi Entertainment Network v. W.S.G. Cricket Pte. Ltd.; Man Roland Druckmaschinen v. Multicolour Offset). The practical catch, in India as in most jurisdictions outside a small treaty network, sits downstream at enforcement rather than at the choice-of-law stage. A foreign judgment is directly enforceable in India only if that country is a notified reciprocating territory, a short list that includes the UK, Singapore and the UAE; a judgment from the US or most of the EU has to be sued upon afresh as a new case in an Indian court. For any business weighing a foreign governing law and forum clause against an Indian counterparty, that enforcement question, not the perceived sophistication of the foreign court, is usually what decides whether the clause is worth the paper it's written on.