Regulatory framework's role in warranty of software license and service agreements


Regulatory framework's role in warranty of software license and service agreements - Part II

Huzefa Tavawalla and Vivek Kathpalia
The Indian regulatory framework provides several provisions for warranty of software license and service agreements. In the second part of the column on warranty aspects of software license and service agreements, experts from legal firm Nishith Desai Associates offer options to resolve warranty disputes.

As per the interpretation of certain provisions under the

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Safe Harbor

Sales of Good Act, 1930 ("Act") a buyer can invoke the implied condition that the product supplied is reasonably fit for a particular purpose. However, this is possible only if the following conditions are fulfilled:

• The buyer, expressly or by implication, makes known to the seller the particular purpose for which the products are required.
• This "making known" to the seller of the purpose shows that the buyer relies on the seller's skill or judgment.
• The products are of a description that is in the course of the seller's business to supply.

The communication's purpose for which the products are required may also be inferred from the product description given by the buyer to the seller, or from the circumstances of each case. For example, a seller in the business of selling mobile phones is approached by a buyer (end customer), whereby the buyer specifies that the phone should have Bluetooth connectivity. In such cases, subject to the buyer not examining the phone, it is an implied condition that the phone sold by the seller has Bluetooth connectivity.

In certain situations, warranty is also inferred from the product's quality. However, as per Section 62 of the Act , if the parties to a contract have come to an express agreement with respect to a particular term or clause, a different provision on the same point implied by law cannot have effect, because the mutually agreed express term or clause will override the implied term provided by law.

Under Indian law, a breach of warranty gives the right to claim damages and not the right to reject or repudiate the contract.

In light of the above, if a software vendor licenses the software on an "as is" basis, and expressly disclaims all his liabilities by way of a contractual arrangement, then as per Section 62, such a software vendor may not be liable for any implied warranty or condition arising under law, as the same will be overridden by the express terms mutually agreed in the contract.

Under Indian law, a breach of warranty gives the right to claim damages and not the right to reject or repudiate the contract. However, breach of a condition gives the right to reject or repudiate the contract along with the right to claim damages.

Therefore, notwithstanding an agreement to the contrary, if there is an express warranty for the performance of a licensed software, then failure of such performance gives a right to claim damages and not the right to reject the software. Depending upon the facts and circumstances in each case, a refund can also be claimed . The Indian courts have also held that where replacement of the defective parts is warranted under an agreement, then it is the liability of the seller (or licensor) to replace the defective parts if the defect is reported within the warranted period .

The need for customer awareness

The Indian economy has witnessed a sea change in the recent past. However, a need for much higher levels of awareness among vendors and customers is desirable.

Resources on regulatory framework
India's regulatory framework on IT policies

Regulatory framework in India

The existing Indian statutes have adequate provisions to uphold the contractual terms agreed between the parties, unless the same are contrary to law. Hence, it is imperative that software contracts should be express, comprehensive and unambiguous. This will not only avoid interpretation issues, but also achieve a proportionate blend of rights and obligations between the parties.

Read: The warranty side of software license and service agreements - Part I

About the authors

Vivek Kathpalia is a partner and heads the Singapore office of the international law firm, Nishith Desai Associates and is a registered foreign attorney. He is a senior member of the information technology, media and telecom practice group and represents clients in litigations and arbitrations in sectors ranging from technology, intellectual property, telecom, real estate and education.

Huzefa Tavawalla is an associate at Nishith Desai Associates and focuses on intellectual property, information technology, telecommunication and media and entertainment. He earned a bachelor's degree in law from the India Law Society's Law College, Pune and is a member of the Bombay Bar Association and the Bar Council of Maharashtra & Goa.

Nishith Desai Associates is a Mumbai-based international tax and legal counseling firm.

1 Section 16 - Sales of Goods Act, 1930
2 Section 62 - Where any right, duty or liability would arise under a contract of sale by implication of law, it may be negatived or varies by express agreement or by the course of dealing between the negatives or varied by express agreement or by the course of dealing between the parties, or by usage, if the usage is such as to bind parties to the contract.
3 Super Computer Centre Vs. Respondent: Globiz Investment Pvt. Ltd [3(2006)CPJ256,NC]
4 C.H. Krishnan Associates Vs. Union of India, [68 (1997) DLT 506]

This was first published in October 2009

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