One overlooked contract provision is the difference between a
business dispute and a criminal case. Discover the specific clauses that Indian courts recognise as your strongest defence against cheating, breach of trust, and fraud allegations.
Learn which clause can shield you from criminal liability and why that “simple” agreement you signed could be your biggest legal vulnerability.
In boardrooms, startup hubs, and finance departments across India, a quiet but dangerous risk is brewing, not from hostile takeovers, market crashes, or customer churn, but rather from something much more easily handled and preventable: poorly
created contracts.
For years, founders, CFOs, heads of procurement, business owners, all have treated commercial contracts as bits of endless paper and a formality to “get a deal done”.
It is obvious that contracts are the foundation of any business
transaction that can protect parties from future disputes and ensure everyone knows their obligations. However, poorly constructed agreements can unintentionally set the phase for criminal issues, including white-collar crimes.
Legal disputes often arise from misunderstandings that are rooted in the parties’ contracts. Business owners often find themselves dealing with allegations that they were completely unaware of, solely from contracts tombs without the important clauses required for protection.
Which is why, in this edition, I am presenting a deep dive into the anatomy of fraud and misrepresentation in contracts, crafted not just to inform, but also to empower you with clarity, caution, and importance of finely drafted contracts.
White Collar Crime Is not Just for Big Corporates Anymore
The new Bharatiya Nyaya Sanhita (BNS) has broadened criminal liability in business. With stricter laws and digital financial tracking, even routine disputes like payment delays or misstatements are being escalated into criminal charges such as cheating (Sec 318) or breach of trust (Sec 316).
One client a mid-sized manufacturer was dragged into a criminal case when their logistics partner falsified delivery records. Due to missing indemnity and liability clauses, the client faced an FIR, despite no fault of their own.
Though we got the FIR quashed, the damage legal costs, reputation loss, and disruption was already done.
The Real Problem: Vague, Missing, or Misleading Clauses
Here are just a few situations where things go wrong:
- Lack of clear timeline for payments or milestones: This ends in accusations of deception when one party believes the work is finished but the other disagrees.
- No exit or termination clause: This ends up in disputes claiming “abandonment” or “bad faith,” usually when money has changed hands.
- Over-promising in regard to scope or deliverables becomes a basis for claiming “intention to cheat from the beginning”, a significant factor in many criminal cases.
- Not having a limitation of liability clause leaves promoters or key employees personally exposed if it is claimed the actions of a company are criminal.
How Are Courts Responding
Indian courts have often warned against criminalising disputes between parties in civil cases. In Sarabjit Kaur v. State of Punjab and Another, the Supreme Court held that mere a breach of contract does not give rise to criminal prosecution for cheating unless fraudulent or dishonest intention is shown right at the beginning of the transaction. Simply alleged failure to keep a promise, would not be enough to pursue a criminal case.
But the issue I have often come across is that the intent is inferred from facts. And when your contract is vague, silent, and overly optimistic, there is normally ample opportunity for a hostile party to allege fraud.
Here, I am sharing certain fundamental clauses that cannot be overlooked:
- Indemnity Clause – protects businesses from legal liability caused by a third party.
- Confidentiality Clause – protects proprietary information
as well as all parties involved in preventing improper
interpretation from leaking trade secrets. - Limitation of Liability Clause – describes the range of
liability, both financially and legally, as well as preventing
excessive claims. - Force Majeure Clause – every business has obligations
under a contract, unless something unexpected and
beyond their control is addressed in a force majeure
clause. - Dispute Resolution Clause – Indicates how any
disagreements will be addressed, and arbitration or
mediation should be the strongest avenues that prevent
criminal allegations from being made.
