Contract Drafting & Law Course Preview
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<p class="banner-heading-text-two-line"><span>Status and Liability of a Consultant Under the Indian Laws</span><br><span class="banner-sub-heading">Modules IV & V: Deep Dive Into Specific Agreements</span></p>
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<p><span class="padded-dropcap">I</span>n the case of Balwant Rai Saluja & Anr. v. Air India Ltd. & Ors.<sup class="c3 c4"><a id="ftnt_ref1" href="#ftnt1">[1]</a></sup><span class="c0"> the Supreme Court of India had explained that merely designating someone as a "consultant" or labeling the relationship as a "contract for services" in the agreement is not conclusive. The true nature of the relationship depends on the overall circumstances, and the court will look at the actual facts of the relationship rather than just the terms used in the contract.</span></p>
<p class="c9"><span class="c0">Thus, it becomes more important to draft the consultant agreement in such a manner so as to reduce the risk of misclassification of a consultant arising from the agreement. To reduce such a risk the agreement should contain the following points:</span></p>
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<li class="c2 li-bullet-0"><span class="c0">The agreement should explicitly state that it is a contract for services, and that both parties are acting on a principal-to-principal basis. It should also clarify that no employer-employee relationship is established through this agreement.</span></li>
<li class="c2 li-bullet-0"><span class="c0">Ensure that no clause in the agreement suggests that the company exercises excessive control or supervision over the consultant's work. The agreement should reflect the consultant's autonomy in performing their duties.</span></li>
<li class="c2 li-bullet-0"><span class="c0">When drafting the payment terms in the agreement, avoid using words like "wages," "salary," or "remuneration." Instead, use terms such as "consideration" or "amount" to reinforce the independent nature of the consultant's role.</span></li>
<li class="c2 li-bullet-0"><span class="c0">Ensure that the consultant is not provided with statutory benefits such as Provident Fund (PF), gratuity, or paid leaves, as these are typically reserved for employees and could blur the distinction between a consultant and an employee.</span></li>
<li class="c2 li-bullet-0"><span class="c0">While there is no specific law regulating the maximum duration of a consultant agreement, it is advisable to limit the term to either the duration of a specific project or a one-year period. This helps to avoid the perception of the consultant being treated as a permanent employee, thereby maintaining the distinction between consultancy and regular employment.</span></li>
<li class="c2 li-bullet-0"><span class="c3">If the consultant is a company providing manpower, it is essential to ensure that the consultant assumes full responsibility for paying all statutory dues related to the manpower it supplies. Additionally, the consultant should be held accountable for the actions and conduct of the personnel it provides.</span></li>
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<p class="c5"><a id="ftnt1" href="#ftnt_ref1">[1]</a><span class="c8"> .</span><span class="c10"> </span><span class="c6">9 SCC 407, 2014.</span></p>
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