How to Review a Service Agreement in India

A service agreement is the contract that governs one party doing defined work for another, in exchange for a fee. It is the most common commercial contract in India, and also the most inconsistently drafted, because most businesses start from whatever template a founder or ops manager found online rather than one written for how Indian courts, the Stamp Act, GST, and the MSMED Act actually treat services. Most disputes under a service agreement do not come from a clause being missing outright. They come from a clause being vague enough that both sides can honestly disagree about what it means, months after signing, once the relationship has already gone wrong.

Adira, which publishes this guide, makes contract review and CLM software, so we have a commercial interest in you reviewing more service agreements carefully. The analysis below stands on its own regardless. If you want to mark up one service agreement by hand today, Weave, Adira's free browser tool, lets you do that without an account.

What a service agreement covers, and how it differs from an MSA

A standalone service agreement is a single, complete contract for one engagement: one scope, one fee structure, one term. This is different from a Master Services Agreement, which sets risk terms once and lets separate Statements of Work carry the scope and price for each new piece of work under it. If you expect one engagement with this counterparty, a service agreement is usually the right instrument. If you expect a relationship with several engagements over time, an MSA-plus-SOW structure avoids renegotiating liability and IP terms every time. See our guide to reviewing an MSA if you are choosing between the two, or already have an MSA and are trying to work out whether a document in front of you should be a full service agreement or a short SOW under it.

Clause by clause: what to check, and where to go deeper

Scope and service description. This is where most service agreements fail first, not on legal terms but on precision. "Provide marketing services" or "develop the application as discussed" describes nothing a court, or a frustrated client six months in, can hold either side to. A workable scope clause names deliverables, format, and an acceptance mechanism, does the client have a defined window to test and reject, or is silence treated as acceptance the moment something is delivered. Run this test: search your draft for the word "acceptance." If it is not there, deliverables are deemed accepted the instant they are delivered, whether or not anyone actually checked them.

Service levels. Where the service is ongoing rather than a one-time deliverable, uptime percentages, response and resolution times, and support hours belong in the contract, not in a sales deck. State what happens on a miss, credits, escalation, a termination right after repeated breaches, and whether credits are the client's sole remedy or sit alongside a claim for actual loss. See our SLA clause guide.

Fees and payment. Fixed fee, time-and-materials, or milestone-based, and each behaves differently when scope shifts. A time-and-materials clause needs a cap or a not-to-exceed figure, or the client is signing an open-ended bill. See our payment terms guide, and the MSME point below for when a stated payment term is overridden by statute regardless of what you agreed.

IP in deliverables. The single most litigated gap in Indian service agreements: does the client own what it paid for, or only get a licence to use it? Silence does not default to ownership. See our IP assignment explainer and our assignment versus licence guide on why "deliverables shall belong to the Client," with no assignment mechanism, consideration, or carve-out for the provider's pre-existing tools, often leaves ownership genuinely unclear.

Confidentiality. Mutual or one-sided, a defined survival period after termination, and the standard carve-outs (information already known, independently developed, or required to be disclosed by law). See our confidentiality explainer.

Warranties. A services warranty typically promises the work will be performed with reasonable skill and care, and conform to the agreed specification for a stated period. A disclaimer broad enough to exclude fitness for purpose can gut this promise. See our warranty clause guide.

Indemnity. Who pays for third-party claims arising from the work, IP infringement in a deliverable, a data breach, injury on the client's premises. See our indemnity explainer on how an uncapped indemnity can swallow a liability cap sitting two clauses away.

Limitation of liability. The cap, usually a multiple of fees paid, and its carve-outs. See our limitation of liability explainer for why a cap silent on carve-outs can accidentally cap IP indemnity or confidentiality breaches too.

Term and termination. Fixed term or ongoing, and whether either side can terminate for convenience on notice or only for cause. See our termination for convenience and termination for cause versus convenience guides.

Subcontracting. Can the provider bring in a third party to actually do the work, and does your confidentiality, IP, and data protection language travel with them. See our subcontracting explainer: under Section 40 of the Indian Contract Act, 1872, the provider stays liable for a subcontractor's work by default, but your protective clauses only bind the subcontractor if the contract expressly says they must flow down.

Force majeure and dispute resolution. A listed set of events or a general "beyond reasonable control" test, a notice window, and a termination right if the event runs long, see our force majeure explainer. For disputes, check arbitration or courts, the seat, and governing law, see our arbitration explainer and governing law explainer.

India notes: four things a generic template gets wrong

Stamping. A service agreement is an instrument, and in most Indian states, commercial agreements attract stamp duty under the applicable state Stamp Act, or the Indian Stamp Act, 1899, where the state has none of its own. Rates are state-specific and change with state budgets, so check the current schedule for the state of execution rather than assuming last year's rate still applies. Section 35 of the Indian Stamp Act, 1899 says an instrument chargeable with duty "shall [not] be admitted in evidence for any purpose... unless such instrument is duly stamped." Read the section on Indian Kanoon. A seven-judge Supreme Court bench resolved the biggest uncertainty here in In Re: Interplay Between Arbitration Agreements under the Arbitration and Conciliation Act, 1996 and the Indian Stamp Act, 1899 (13 December 2023): non-stamping makes an instrument inadmissible in evidence, a curable defect, not void. Get the agreement properly stamped at signing; do not treat a missing stamp as a free exit, and do not assume an unstamped agreement is worthless either.

GST. Services in India attract GST under Section 9(1) of the Central Goods and Services Tax Act, 2017, which levies "a tax called the central goods and services tax on all intra-State supplies of goods or services or both... at such rates, not exceeding twenty per cent., as may be notified by the Government on the recommendations of the Council." Read the Act on India Code. The fee clause needs to state clearly whether the price is inclusive or exclusive of GST, since these produce opposite outcomes when the rate changes, and check whether the service falls under a reverse charge category notified under Section 9(3), certain legal services and sponsorship services are common examples, which shifts payment liability to the client regardless of what the contract says. Our dedicated GST clause guide covers inclusive-versus-exclusive drafting, reverse charge, and a 2012 Supreme Court ruling on shifting indirect tax liability by contract, in full.

The MSME 45-day rule can override your payment clause. If the provider is a registered micro or small enterprise under the MSMED Act, 2006, Section 15 caps how long the client can take to pay, regardless of what the contract says, at "in no case [exceeding] forty-five days from the day of acceptance," where a period is agreed in writing. Miss it, and Section 16 imposes compound interest, with monthly rests, at three times the RBI-notified bank rate, "notwithstanding anything contained in any agreement between the buyer and the supplier." A service agreement that sets a blanket net-60 or net-90 term without checking the provider's MSME status exposes the client to this override the moment the provider registers, or already has. Read the full mechanics, including the Silpi Industries Supreme Court ruling on when MSME registration has to exist, in our MSME 45-day rule explainer.

Personnel non-solicit clauses need to restrain conduct, not people. Service agreements often bar either side from hiring the other's staff, during the engagement and for a period after. Section 27 of the Indian Contract Act, 1872 says "every agreement by which any one is restrained from exercising a lawful profession, trade or business of any kind, is to that extent void," subject only to a narrow goodwill-sale exception. Read the section on Indian Kanoon. In Wipro Ltd. v. Beckman Coulter International S.A. (Delhi High Court, 11 July 2006), the court upheld a two-year mutual employee non-solicit between distributor and principal on the reasoning that it restrained the company's conduct, not any individual's freedom to move jobs, and that it carved out unsolicited applicants and general job postings. Read the judgment on Indian Kanoon. A non-solicit worded to stop active poaching, with those carve-outs, sits outside what Section 27 targets; one broad enough to functionally bar an employee from ever working for the other side risks being read as an unlawful restraint of trade.

Red flags table

Normal	Red flag	Why it matters
Scope names specific deliverables, format, and a defined acceptance window	Scope is a one-line description, or acceptance is left silent	Deemed acceptance on delivery removes the client's only real leverage to demand fixes
Time-and-materials fee has a stated cap or not-to-exceed figure	Time-and-materials with no cap at all	The client is signing an open-ended bill with no ceiling
IP clause states assignment, not just licence, with duration and a background-IP carve-out	IP clause just says "belongs to the Client" with no mechanism or carve-out	Ownership stays genuinely unclear, and the provider's own tools get swept in by accident
Liability cap stated as a multiple of fees, with named carve-outs	Liability cap silent, or "as per applicable law"	Silence does not default to a favourable cap; it often means uncapped exposure
SLA credits stated alongside, not instead of, a right to claim actual loss for material failures	SLA credits are the client's "sole and exclusive remedy" for any service failure	A modest credit becomes the ceiling on loss even where the actual damage is far larger
Payment clause checks provider MSME status and honours the 45-day cap	Blanket net-60/net-90 with no MSME carve-out	Sections 15 and 16 of the MSMED Act override contrary contract terms automatically
Non-solicit worded as a restraint on hiring conduct, with an unsolicited-applicant carve-out	Non-solicit broad enough to bar an individual from working in the industry	Risks being read as an unlawful restraint of trade under Section 27
GST treatment (inclusive or exclusive) stated explicitly in the fee clause	Fee clause silent on GST, or just says "plus taxes" with no detail	Ambiguity surfaces only when the rate changes or reverse charge applies
Stamp duty paid per the state of execution, at signing	No record of stamping, or state of execution left blank	Unstamped instrument becomes inadmissible in evidence, delaying enforcement in a dispute

Bad clause versus better clause: scope and change control

Bad: "The Service Provider shall provide digital marketing services to the Client as mutually discussed, and the Client shall pay the fees set out in Schedule A."

What is wrong: "as mutually discussed" is not a scope, it is a placeholder for a conversation neither party can point back to once there is a disagreement. There is no deliverables list, no acceptance mechanism, and no process for what happens when either side wants to change what is being delivered.

Better: "The Service Provider shall provide the services described in Schedule A (the 'Services'), including the specific deliverables, format, and delivery dates set out therein. Upon delivery of any deliverable, the Client shall have ten (10) business days to review it against the specification in Schedule A and either accept it in writing or provide written notice of specific deficiencies. Where the Client provides notice of deficiencies, the Service Provider shall remedy them within a reasonable time and resubmit for review under the same process. A deliverable not accepted or rejected with specific deficiencies within the review period shall be deemed accepted. Either party may propose a change to the Services by written change request specifying the change, its impact on fees, and its impact on timeline; no change shall take effect unless agreed in writing by both parties."

What changed and why: naming Schedule A as the actual scope document, rather than a conversation, gives both sides something to point to. A defined acceptance window with a deficiency-notice mechanism replaces silent deemed acceptance with a real quality gate. The change request process closes the most common real-world failure, work expanding informally over email with no record of what was agreed, which is where most fee disputes in service agreements actually start.

The service agreement review checklist

1. Does the scope name specific deliverables, format, and an acceptance mechanism, not just a description of the work?
2. Is there a written change control process for scope changes?
3. If fees are time-and-materials, is there a stated cap?
4. Does the IP clause state assignment, not just licence, with duration and a background-IP carve-out?
5. Does the liability cap have a stated number, with carve-outs explicitly listed?
6. Does the indemnity clause name specific triggers, not "any and all losses"?
7. If the service is ongoing, are SLA metrics, credits, and remedy language (sole remedy or not) all defined?
8. Does the payment clause account for MSME suppliers and the Section 15 cap?
9. Is the GST treatment, inclusive or exclusive, stated explicitly?
10. Can subcontracting happen, and do confidentiality and data protection terms expressly flow down if so?
11. Is any personnel non-solicit worded as a restraint on hiring conduct, not on any individual's right to work?
12. Is the agreement stamped correctly for the state of execution?
13. Does the dispute resolution clause name a seat, venue, and governing law?

US and global contrast

US-style service agreements share the same basic shape, scope, fees, IP, liability, but two things differ. US contracts routinely rely on "work made for hire" language to vest IP in the client automatically for qualifying work; Indian law has no general equivalent, so a US template reused as-is often leaves IP ownership weaker than the drafter intended, and needs an actual assignment clause, not a work-for-hire label, to do the job. And non-compete and non-solicit enforceability in the US varies heavily by state, California voids most employee non-competes outright, other states enforce them if reasonable, while India runs off one central provision, Section 27 of the Contract Act, applied consistently across every state.

FAQ

Do we need a full service agreement for a small, one-time project, or is a simpler contract enough? For a genuinely small, low-risk engagement, a short services letter covering scope, fee, and basic IP and confidentiality terms can be enough. Once the engagement involves real IP creation, ongoing service delivery, or meaningful fee value, the fuller structure above is worth the extra page count.

What is the difference between a service agreement and a consultancy agreement? The terms overlap heavily in practice. "Consultancy" often signals an individual or small firm providing advisory services, sometimes with independent-contractor status questions attached, while "service agreement" is used more broadly. Read the actual clauses rather than relying on the title.

Can a service agreement include a non-compete instead of just a non-solicit? It can be drafted that way, but a non-compete restraining the provider's business generally, rather than just non-solicitation of specific staff, sits closer to the line Section 27 draws, and courts are more cautious with broad restraints of that kind.

If the scope clause is vague, does that make the whole contract unenforceable? Not usually. Vagueness in one clause does not void the contract; it just means that clause resolves nothing on its own, and a dispute over it gets decided on whatever surrounding evidence, emails, prior drafts, conduct, a court or arbitrator can piece together.

We are the smaller party signing a large enterprise's standard service agreement. What should we check first? Start with the liability cap and indemnity scope, since large-client templates are often drafted with the smaller provider absorbing disproportionate risk. Check payment terms and MSME status next, then IP ownership if you plan to reuse your own tools across other clients.

Does GST apply on top of the fee, or is it usually already included? Either is possible, and the contract should say which explicitly. Ambiguity here surfaces at the worst time, when the rate changes mid-contract or a reverse charge category applies and the two sides disagree about who absorbs it.

This guide explains how a general B2B service agreement is typically structured under Indian law, and the specific statutory points, stamping, GST, MSMED payment timelines, and Section 27, that most templates get wrong. It is not legal advice, and it does not tell you whether your specific service agreement is enforceable, properly stamped, or safe to sign in your situation. For that, especially before a high-value or long-term engagement, have a lawyer review the actual document.