Supply Contract

What is a Supply Agreement?

A Supply Agreement is a document between two parties, a Supplier, and a Purchaser. The Supplier can be an individual or business and is the party that "supplies," or sells, the goods to the Purchaser. The Purchaser can also be an individual or a business and is the party that purchases for its use the goods that the Supplier provides.

In these agreements, the supplier and the purchaser outline their expectations for the sale and acquisition of goods, as well as the general behaviour and boundaries of their relationship. This document can be used when a supplier and purchaser are preparing to enter into a new contract for the purchase of goods. It can be used for a one-time delivery or ongoing supply of goods.

What is the difference between a Supply Contract and a Sale of Goods Agreement?

The Sale of Goods Agreement differs from the Supply Contract. In a Supply Contract, the supplier and buyer agree to purchase specific goods for a fixed price over a set period. This can establish an exclusive and ongoing relationship between the supplier and buyer. On the other hand, a sale of goods agreement involves a one-time transfer of ownership of goods. This transfer of ownership usually occurs when the buyer pays the price for the product to the seller.

Is it mandatory to have a Supply Agreement?

No, it is not mandatory to have a Supply Agreement. However, having will help ensure clarity and avoid any disputes in the future.

What must a Supply Agreement contain?

A Supply Agreement should include the following clause:

• Parties involved: Names and details of the supplier and purchaser.
• Description of the goods: Detailed description of what is being supplied.
• Quantity and Quality: Specifications for the quantity and quality of the goods.
• Pricing and Payment Terms: Price per unit, total cost, payment schedule and payment methods.
• Delivery Terms: Delivery schedule, location of delivery, and who's responsible for loss of goods.
• Inspection and acceptance: Procedures for inspecting and accepting the goods.
• Term and Termination: Duration of the agreement and grounds for termination of the agreement.

Who can enter into a Supply Agreement?

Any individual above the age of 18 years or entity registered in India can enter into a Supply Agreement.

What can be the duration of a Supply Agreement?

The duration of the Supply Agreement varies from transaction to transaction. It usually ranges from a few months to several years.

What has to be done once a Supply Agreement is ready?

The Supply Agreement will be legally binding when it has been printed on non-judicial stamp paper or e-stamp paper, signed by both the Supplier and the Purchaser and has been dated. The value of the stamp paper would depend on the state in which it is executed. Each state in India has provisions in respect of the amount of stamp duty payable on such agreements. Information regarding the stamp duty payable can be found on the State government websites.

Both the Parties may keep a signed copy of the Supply Agreement. In order to do this, two different copies can be signed, or if only one copy is signed, it can be photocopied and then distributed between the parties.

Can a Supply Contract be terminated?

Yes, a Supply Contract can be terminated. The Supply Contract is mainly terminated on the following grounds:

• Mutual agreement between both parties
• A material breach of contract by one party such as non-payment, or compromise of key confidential information to third parties.
• Completion of the agreement period mentioned in the Supply Contract.
• Unforeseen circumstances where the project cannot be continued (force majeure event).

Which laws are applicable to a Supply Agreement?

Supply Agreements in India are subject to the Indian Contract Act, 1872 which covers general contract principles like formation and mutual understanding and the Sale of Goods Act, 1930 which deals with title to goods and warranties. If the purchaser is an end customer as defined, the rules and regulations under the Consumer Protection Act, 2019 will be applicable.

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