How to Review a Vendor / Supplier Agreement in India

A vendor or supplier agreement is the contract a business signs when it buys goods, equipment, or recurring services from someone else, rather than a one-off Statement of Work under an MSA. This guide is written from the buyer's side: what to check before you sign, what a vendor's own template leaves out, and where Indian law changes the answer from what a US or generic template assumes. Adira, which publishes this guide, sells contract review and CLM software, so it has a commercial interest in you signing more of these through a system rather than a spreadsheet. Everything below still holds if you never touch our product; you can mark up a vendor agreement clause by clause, free, in Weave, our browser tool, without creating an account.

Two things make a vendor agreement different from a services MSA. First, goods are usually involved, so the Sale of Goods Act, 1930 sits alongside the Indian Contract Act, 1872 as governing law. Second, the buyer usually has the leverage, so this checklist is written to catch the clauses a vendor's template writes in its own favour.

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

Walk the draft in this order. Each item links to a full explainer where one exists.

• Scope and specifications. A signed schedule, not "as discussed," so a shortfall is measurable.
• Pricing and escalation. Fixed, or moves with a named index. See our price escalation guide on why Section 29 of the Contract Act voids a formula too vague to calculate.
• Delivery and acceptance. When risk passes, and when silence counts as acceptance. See our acceptance clause guide on Sections 41 to 43 of the Sale of Goods Act, and how a short deemed-acceptance window waives a real defect claim.
• Warranties and remedies. What is promised, for how long, and the remedy: repair, replacement, or refund. See our warranty clause guide on how "as is" switches off merchantable quality under Section 62.
• Quality and audit rights. Your right to inspect the vendor's process, not just the goods. See our audit rights guide for notice periods and who pays.
• Indemnity. Two promises get bundled here, one for IP infringement, one for harm the goods actually cause. Covered below.
• Insurance. What makes that indemnity collectable rather than theoretical. See our insurance clause guide on Section 64VB of the Insurance Act.
• Retention of title. Whether the vendor keeps ownership until paid in full. See our retention of title guide on the Sundaram Finance ruling.
• Termination and exit. Notice, and separately, what the vendor hands back: tooling, drawings, stock. Most templates cover the first and stay silent on the second.
• Code of conduct. An anti-bribery certification and a basic labour-standards commitment. Covered below.
• Data protection. Only if the vendor's staff or systems will touch your data. See our DPDP explainer.

Product liability: the risk most vendor agreements never actually cover

Most indemnity clauses in a vendor agreement are written for one thing: a third party suing the buyer over intellectual property in what was supplied. Few cover the other risk, a defective product actually hurting someone, and Indian law makes that a specific, named exposure.

Chapter VI of the Consumer Protection Act, 2019 created a standalone "product liability action." Section 2(34) defines it as "the responsibility of a product manufacturer or product seller, of any product or service, to compensate for any harm caused to a consumer by such defective product manufactured or sold or by deficiency in services relating thereto." Section 84(1) makes a manufacturer liable if the product has a manufacturing defect, a design defect, deviates from its own specifications, does not conform to an express warranty, or lacks adequate instructions or warnings; none of these five grounds require the consumer to first prove negligence. Section 84(2) closes the gap directly: "A product manufacturer shall be liable in a product liability action even if he proves that he was not negligent or fraudulent in making the express warranty of a product." Source: Section 84, Consumer Protection Act, 2019 (Indian Kanoon).

The buyer's real exposure sits one section later. Section 86 covers a "product seller who is not a product manufacturer," exactly what a buyer becomes the moment it resells, installs, or bundles a vendor's goods into its own offering. Under Section 86(d), that seller is liable if "the product has been sold by him and the identity of product manufacturer of such product is not known, or if known, the service of notice or process or warrant cannot be effected on him or he is not subject to the law which is in force in India or the order, if any, passed or to be passed cannot be enforced against him." Source: Section 86, Consumer Protection Act, 2019 (Indian Kanoon).

Read that plainly: if your vendor is an unregistered workshop, or a manufacturer abroad with no assets in India, and its product injures someone downstream, the claim can land on you, the buyer who resold or installed it, because the real manufacturer cannot be served. An indemnity covering only IP claims leaves this unaddressed. Name product liability as a specific trigger, require product liability insurance sized to your exposure, and get manufacturer identity in writing. Quick test: search your draft indemnity for "product liability." If it is not there, the clause was written for IP risk alone.

Code of conduct: why a buyer needs an anti-bribery certification

The 2018 amendment to the Prevention of Corruption Act, 1988 added Section 9, which fines a "commercial organisation" where a person "associated with" it gives or promises an undue advantage to a public servant to obtain or retain business for it. "Associated with" reaches beyond employees to anyone performing services on the organisation's behalf, including a vendor acting for you in a tender or approval process. Source: Section 9, Prevention of Corruption Act, 1988 (Indian Kanoon). The statute gives a defence where the organisation had "adequate procedures" in place, which is exactly what a signed code-of-conduct clause, with an audit right behind it, is meant to evidence.

India notes: three things a generic procurement template gets wrong

Check the vendor's MSME status before you set payment terms. If the vendor is a registered micro or small enterprise under Udyam, Section 15 of the MSMED Act, 2006 caps payment at 45 days from acceptance "notwithstanding" anything your purchase order says, and Section 16 imposes compound interest at three times the RBI-notified bank rate if you miss it. In M/S Silpi Industries v Kerala State Road Transport Corporation (2021), the Supreme Court held the vendor's registration must exist on the date the contract was signed, not backdated after a dispute starts. Verify at udyamregistration.gov.in before finalising a net-60 or net-90 term; our MSME 45-day guide covers the mechanics in full.

GST invoicing is what your input credit depends on. Section 16 of the CGST Act, 2017 conditions a buyer's input tax credit on holding a valid tax invoice from a vendor who has filed and paid, so the agreement should obligate the vendor to issue compliant, timely e-invoices, with a cure period if one is wrong. Source: Section 16, CGST Act, 2017 (Indian Kanoon).

Stamping is not optional because the vendor is small. A vendor agreement is chargeable with stamp duty under the state Stamp Act, or the Indian Stamp Act, 1899 where no state Act applies. Section 35 says an unstamped instrument "shall [not] be admitted in evidence for any purpose" in most circumstances, a curable defect rather than a void contract, as the Supreme Court's seven-judge bench confirmed in its 2023 arbitration-stamping ruling, but one that delays enforcement exactly when you need it. Get it stamped for the state of execution at signing.

Red flags

Normal	Red flag	Why it matters
Indemnity names IP infringement and product liability as separate triggers	Covers only "third party IP claims," silent on defective goods	Section 86 exposure for a resold or installed product falls entirely on you
Insurance requires product liability or CGL cover sized to contract value	"Adequate insurance," no type or sum insured stated	An uncollectable indemnity is a promise, not a protection
Specification is a signed, dated schedule	Specification is "as per sample" or informal	A shortfall becomes an argument about intent, not a measurable breach
Deemed-acceptance window matched to your inspection capacity	A 2 to 3 day window on complex or bulk goods	You lose the right to reject before you can realistically check the goods
Retention of title scoped to unpaid, unmixed, resaleable goods	"All monies" title claimed over goods already processed into your product	Sections 19 and 25 give little protection once goods are no longer ascertained
Payment term checks and respects the vendor's Udyam status	Blanket net-60 or net-90, no MSME check	Unenforceable against a registered micro or small vendor under Section 15
Termination defines transition: handover period, tooling, stock	Notice only, silent on exit	You lose the vendor with no defined runway to replace them
Code of conduct includes an anti-bribery certification	No code of conduct, or one with no certification	No documented "adequate procedures" defence under Section 9 if investigated
Audit right states notice period, scope, and who pays	Unlimited access, or costs land on you regardless of findings	The right is unusable, or one-sided in the vendor's favour
Agreement stamped for the state of execution	State left blank, or unstamped	Instrument inadmissible in evidence until cured, delaying enforcement

Bad clause versus better clause: the indemnity clause

Bad: "Vendor shall indemnify Buyer against any third-party claim arising out of the Goods supplied under this Agreement to the extent caused by Vendor's breach of this Agreement."

What is wrong: it triggers only on Vendor's breach, so a defect claim under Section 84's no-fault grounds, present despite full spec compliance, may fall outside it entirely. It names neither IP infringement nor product liability, and says nothing about insurance.

Better: "Vendor shall indemnify, defend, and hold harmless Buyer against any third-party claim, including a product liability action under the Consumer Protection Act, 2019, arising from (a) any manufacturing or design defect in the Goods, (b) any infringement of a third party's intellectual property rights by the Goods, or (c) Vendor's failure to provide adequate instructions or warnings for safe use of the Goods, whether or not caused by Vendor's breach of this Agreement. Vendor shall maintain product liability insurance of not less than [amount] throughout the Term and for [period] after delivery of the last Goods, and shall provide a certificate of insurance naming Buyer as an additional insured on request."

What changed: the indemnity now names product liability and IP infringement as distinct triggers, drops the breach requirement so it also covers Section 84's no-fault grounds, and ties it to a stated insurance obligation so the promise is collectable.

The vendor agreement checklist

1. Is the specification a signed, dated schedule, not "as discussed"?
2. Is the price fixed, or does escalation name a calculable index?
3. Does delivery state when risk and title pass, and is the deemed-acceptance window realistic?
4. Do warranty terms state duration and the remedy: repair, replacement, or refund?
5. Does indemnity name IP infringement and product liability as separate triggers?
6. Does insurance size cover to your actual exposure, with a certificate on request?
7. Is retention of title scoped to specific, unpaid, unmixed goods?
8. Does the audit right state notice, scope, and cost allocation?
9. Does termination include a defined transition period, not just notice?
10. Is there a code-of-conduct clause with an anti-bribery certification?
11. Does payment respect the vendor's Udyam status and the Section 15 cap, with a stated obligation to issue compliant GST invoices?
12. Is the agreement stamped for the state of execution, and is there a data protection clause if the vendor touches your data?

How this differs from a manufacturing or supply agreement

A vendor agreement, as covered here, is the general procurement contract for buying standard goods, equipment, or recurring services, without a volume commitment. Where a vendor instead manufactures to your specification, on a forecast, with tooling or design IP involved, the deal needs the extra terms in our guide to reviewing a manufacturing or supply agreement: forecast commitments, tooling ownership, and minimum purchase obligations. Retention of title, acceptance, and product liability apply to both.

US and global contrast

The US runs vendor relationships mainly off Article 2 of the Uniform Commercial Code, implying similar warranties of merchantability and fitness for purpose, and US product liability law is largely common law, developed state by state rather than one central statute. There is no US equivalent to India's 45-day MSMED payment cap, no GST reverse charge, and stamp duty on a commercial contract is not a US concept at all. Where a US vendor contract usually stops at an IP indemnity, an Indian one needs product liability named specifically, since Section 86 can put a defect claim on the buyer's desk when the actual manufacturer cannot be reached.

FAQ

Do I need a separate vendor agreement for every purchase, or can one master agreement cover recurring orders? A master vendor agreement, with purchase orders issued under it, suits a recurring relationship, similar to an MSA and SOW. A standalone agreement is simpler for a single purchase.

Can I hold a vendor liable for a defective product even if my contract is silent on product liability? The Consumer Protection Act, 2019 creates the liability regardless of what your contract says, since it protects the injured consumer, not the buyer. Silence affects whether you can pass that liability back through an indemnity, or absorb it yourself as the reseller Section 86 reaches.

Is retention of title enforceable in India if my vendor never registers it anywhere? Yes, as a contractual term under Section 25 of the Sale of Goods Act, it needs no registration. It weakens sharply once goods are resold to a good-faith third party or mixed into a finished product.

What happens if my vendor is a registered MSME and I set a net-60 payment term anyway? The term is unenforceable beyond the 45-day cap in Section 15 of the MSMED Act, and Section 16's compound interest applies regardless of what you signed, since the section overrides "any agreement" to the contrary.

Do I need a code-of-conduct clause if my vendor never deals with government officials directly? Lower risk, not zero, since import clearances and inspections can still put a vendor in contact with a public servant on your behalf. It costs little and is worth having in place before the question comes up.

How is a vendor agreement different from a purchase order? A vendor agreement sets the standing terms; a purchase order is the short document that triggers a specific delivery under those terms. Our order form guide covers which one should control if they conflict.

This guide explains how a vendor or supplier agreement should be structured from a buyer's side under Indian law, the statutory points, product liability, the MSMED payment cap, and anti-bribery, that a generic template usually misses. It is not legal advice, and it does not tell you whether your specific agreement is enforceable, adequately insured, or safe to sign on your facts. For that, especially before a high-volume or safety-relevant relationship, have a lawyer review the actual document.