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Essential clause of Contract

Essential clause of Contract

Essential clause of Contract


As per sec 2(e) of Indian Contract Act, 1872, every promise or set of promises forming consideration for each other called as an Agreement. An Agreement which enforceable by law.

An agreement is a promise or promises given by one party to another party. It includes an offer that is made by one person and accepted by the other party to agreement. It consists of two or more parties. There must be a consideration for valid agreement. It becomes an agreement only if the essential ingredients are fulfilled i.e. Parties, offer or proposal, acceptance, promise, consideration etc.

 In plane language, a commercial contract is a legally binding agreement between parties to contract.

Essential clause of Contract:

As per Section 10 of the Indian Contract Act for a valid contract, it must be enforceable by law and must include the following essentials given under

  1. Parties: This clause identifies the parties involved in the contract and their legal names and addresses. Example: “This agreement is entered into between ABC Company, located at 123 Main Street, City, State, and XYZ Corporation, located at 456 Oak Avenue, City, State.”
  2. Offer: Person who signifies to another his willingness to do or abstain from doing anything with a view to obtained assent of another for such act. Without offer there is no acceptance and without acceptance there is no agreement.
  3. Acceptance: Opposite party must accept the proposal given by party to contract. Without  acceptance offer can be no agreement. Acceptance must be to the knowledge of offeror.
  4. Consideration: This clause outlines what each party will give or receive as part of the agreement. It can be monetary or non-monetary. For example: “In consideration of the services provided by Party A, Party B agrees to pay a sum of Rs.1,000 per month as consideration.”
  5. Scope of Work: This clause defines the specific tasks, deliverables, or services to be provided by one or both parties.
  6. Termination: This clause outlines the circumstances under which either party can terminate the contract and the notice period required.
  7. Confidentiality: This clause addresses the protection of sensitive information shared between the parties during the contract. For example: “Both parties agree to keep all confidential information disclosed during the term of this agreement strictly confidential and to use it solely for the purposes outlined in this contract.”
  8. Indemnification: This clause outlines the responsibility of one party to compensate the other for losses, damages, or liabilities arising from certain events or actions. For example: “Party A agrees to indemnify and hold harmless Party B from any claims, damages, or losses arising out of Party A’s negligence or breach of this agreement.”


  1. Contract not enforceable law treated as void.
  2. Consideration is essential clause agreement without consideration is void.
  3. There should be intention to create legal relationship between the parties.
  4. There must be valid consideration in commercial agreement except social and domestic agreement.


Some things to be kept in mind before drafting contract that a contract is much more than a legal document. The contract is mainly tested when differences arise between the parties to contract.

Even if you consult a lawyer to draft a contract, you can also suggest to him/her to make the agreement in an understandable and easy way.

Considering the above checklist and an overview on important clauses for a legal contract, you can now be better negotiator to keep in your mind terms of the contract or to make your own contract smoothly and efficiently and if you have any doubt regarding terms or making contract you can definitely consult our experts and team of Company suggestion.

CS Deepa Sharma

Author is a associate member of the Institute of Company Secretaries of India (ICSI) and apart from that she holds LLB degree and Master in Commerce degree from Rajasthan University. She is having over 5 years of experience as a Practicing Company Secretary. She is well versed with all the matters related to Company Law and ROC matters, RERA , statutory reporting, Compliance Report and Corporate Governance. She is having good exposure in maintaining secretarial records as prescribed under Companies Act, 2013.

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