Memorandum of Understanding
- Enforceable by Law
- Draft MOU
- Mutual understanding between parties
- Professional’s guidance
- Legally binding
- Stamped on agreement
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Introduction
In India Memorandum of Understanding (MOU) is also known as the Letter of Intent in which two parties conclude a decision. It is a type of Agreement entered when two or more parties have agreed on such terms and conditions to enter into a contract, but the contract is yet to be negotiated and finalized.
MOU is made when two or more parties are at the initial stage of discussion outlining the rights and obligations of the parties with whom agreement is to be entered. It is used as an indicator to check the intention of the parties transacting before a deal is officially signed and executed between them and it doesn’t grant either of them any rights and can also be kept confidential, if desired.
Features of Memorandum of Understanding
A Memorandum of Understanding must have the following features:
- It must specify the name and other details of the parties entering into a memorandum of understanding.
- It must specify the time period of and the plan for the meetings between the parties to the MOU. E.g. the parties can decide to meet at least once in a quarter.
- It should also specify the person authorized under the MOU to make the important and major financial decisions
- The MOU may also guide for the appointment of the persons to look after the day to day operations of the program along with their role, responsibilities, and remuneration
- It must clearly specify the purpose of the MOU and the goals for which it is being signed.
- The memorandum of understanding should state the amount of capital contribution to be made by each of the parties.
- The financial record of the assignment/program being undertaken must also be kept.
- Once the MOU is agreed by parties to it, it should be duly signed and dated by the authorized representatives of each party or organization representing them.
Basic Contents of Memorandum of Understanding
A Memorandum of Understanding must have the following features:
MOU is made when two or more parties are at the initial stage of discussion outlining the rights and obligations of the parties with whom agreement is to be entered which is usually an oral discussion. The discussions done between the parties that becomes a part of a Memorandum of Understanding which includes:
- common understandings between the parties, and
- MOU (i.e. terms & conditions ) serving as a basis for entering into a formal contract later-on.
The Memorandum of Understanding depends on the intention of the parties & shall be drafted, scrutinized and finalized on the basis of that. Thus the legal nature of an MOU depends on the rights, duties, obligations amongst the parties.
Contents to be Included in Memorandum of Understanding
- Objective or Purpose of Memorandum of Understanding
- Financial Consideration in the transaction, if any involved
- Technical & Financial Support, if any
- Possibilities of Extension
- Arbitration Clause
- Responsibilities to be undertaken by each party
- Management and the person responsible
- Clause for Confidentiality
- Ways of Communication
- Indemnity Clause, etc
- Manner of Reporting and Meeting to be conducted
- Duration of the Memorandum of Understanding
- Situations driving towards Termination of MOU
- Clause of Severability
Process of Drafting Memorandum of Understanding
1. Placing request
2. Drafting of Agreement
3. Sharing of Ist draft
4. Sharing of Final Agreement
Additional Information
Types of Notice or Assessments
- Defective Income Tax Return: Section 139(9)
- Preliminary Enquiry before an assessment: Section 142(1).
- Refund adjusted against the tax demand: Section 245
- Summary assessment without calling the taxpayer: Section 143(1).
- Best judgment assessment: Section 144
- Income is concealed or likely to be concealed: Section 131(1A).
- Notice of demand: Section 156.
- Follow up of the notice u/s 142(1): Section 143(2).
- Scrutiny assessment: Section 143(3).
- Income escaped assessment: Section 148 & 147.
FAQs On Memorandum Of Understanding (MOU)
It is a type of Agreement entered when two or more parties have agreed on such as terms and conditions to enter into a contract, but the contract is yet to be negotiated and finalized.
MOU is made when two or more parties are at the initial stage of discussion outlining the rights and obligations of the parties with whom agreement is to be entered. It is used to an indicator to check the intention of the parties transacting before a deal is officially signed and executed between them.
Normally, no stamp duty is payable on the Memorandum of Understanding. However, if the Memorandum of Understanding states that the clause to purchase immovable property worth more than Rs. 100/- and if the same is required to be produced in the court then it should be stamped. The documents on which stamp duty is paid gets evidentiary value and is admissible as an evidence in the court. Documents which are not properly stamped are not admitted as evidence by the Court.
No, it is not legally enforceable. It is commonly used to create a non-binding contract.
If an MOU is drawn for consideration for e.g. for exchange of money, etc., then the said document becomes legally binding on the parties otherwise it is a non-binding contract. Clauses like jurisdiction clause, applicable law, indemnification do have binding effects to the agreement.
- Companies;
- Government Agencies can execute MOU with another agency with the government of other country or same country;
- Countries can independently execute Memorandum of Understanding;
- Natural Individuals;
- Trust;
- various other entities.