Introduction
The first step is to confirm that the manufacturer is legally registered and authorised to operate. Businesses can verify a company’s registration through the Ministry of Corporate Affairs (MCA), check its GST registration on the GST portal, and confirm its Import Export Code (IEC) through the Directorate General of Foreign Trade (DGFT) if it exports goods.
Has Proper Legal Due Diligence Been Conducted?
Legal due diligence helps businesses understand who they are dealing with. It includes reviewing the manufacturer’s business history, financial standing, production capacity, certifications, previous clients, and any ongoing legal disputes. Factory visits, product samples, and independent inspections can provide additional confidence before signing a long-term agreement.
Is There A Proper Manufacturing Agreement?
A written manufacturing agreement helps both parties understand their rights and responsibilities. It shall clearly cover product specifications, quality standards, delivery timelines, payment terms, inspection rights, warranties, ownership of moulds and tooling, confidentiality, termination, and dispute resolution. Under Section 10 of the Indian Contract Act, 1872, a contract becomes legally enforceable only when it fulfils the essential requirements of a valid contract. If either party breaches the agreement, Section 73 allows the affected party to claim compensation for the losses caused by the breach, while Section 74 applies where the contract contains a liquidated damages or penalty clause.
Is Intellectual Property Protected Before Production Begins?
If the business shares product designs, technical drawings, prototypes, software, or confidential information with the manufacturer, these assets should be protected before production starts. A well-drafted Non-Disclosure Agreement (NDA) and clear intellectual property clauses help prevent unauthorised use or disclosure. Businesses can also register their trademarks under the Trade Marks Act, 1999, where Section 28 grants exclusive rights to the registered owner and Section 29 provides protection against infringement. Eligible product designs may also be protected under the Designs Act, 2000.
Are Payment Terms Clearly Defined?
The agreement should clearly explain how and when payments will be made. It shall include details about advance payments, production milestones, inspection-based payments, currency, refund conditions, and the consequences of delayed or failed performance. Linking payments to production milestones helps reduce financial risks. If the manufacturer fails to perform the contract, the buyer may rely on Section 73 of the Indian Contract Act, 1872 to seek compensation for the losses suffered.
Are Quality Standards And Inspection Rights Included?
Product quality shall never be left to assumption. The agreement should clearly define product specifications, testing requirements, inspection procedures, packaging standards, and acceptance criteria. It should also explain the process for handling defective goods, replacements, or rejected shipments. Clearly defining these terms helps reduce disputes and protects both parties if quality issues arise.
Does The Agreement Include A Dispute Resolution Clause?
Even well-planned business relationships can sometimes lead to disagreements. A dispute resolution clause explains how disputes will be resolved and which law will govern the agreement. Many international manufacturing agreements include an arbitration clause. Where arbitration is agreed, disputes are governed by the Arbitration and Conciliation Act, 1996, which provides a recognised framework for resolving commercial disputes and enforcing arbitral awards.
Are Export And Regulatory Requirements Being Followed?
Before shipping goods, businesses should ensure that the manufacturer complies with all applicable export and regulatory requirements. Depending on the product, this may include export documentation, customs requirements, product certifications, and tax compliance. Reviewing these requirements before production begins helps avoid delays during shipment and customs clearance.
Why Is Legal Support Important Throughout The Process?
Working with an experienced business lawyer helps businesses identify legal risks before they become costly problems. A lawyer can verify the manufacturer’s documents, conduct legal due diligence, draft and review contracts, protect intellectual property, advise on regulatory compliance, and assist in resolving disputes if they arise. Taking legal advice early often saves both time and money.
Conclusion
Starting a business relationship with an Indian manufacturer involves much more than negotiating prices. Verifying the manufacturer, carrying out legal due diligence, protecting intellectual property, and signing a well-drafted agreement create a strong foundation for a successful partnership. Completing this legal checklist before production begins helps businesses reduce risks, protect their investment, and build long-term commercial relationships with confidence.
