Why Foreign Companies Lose Money in India

1. “Industry Standard Performance” Has No Meaning in Indian Law
The phrase "industry standard performance" often appears in worldwide contracts to elucidate anticipated quality levels, delivery expectations, or technical levels of performance. The implication is that the phrase references objective KPIs and measurable objectives. In India, however, this phrase is more likely to be interpreted subjectively—that is, it will mean whatever the vendor had historically delivered to a client. Without service levels defined clearly, measurable and enforceable outcomes, and without the option of recourse, the term gives the vendor wide latitude to underperform and claim compliance. To prevent ambiguity in performance standards in India, those standards must be quantifiable and enforceable, not assumed.

2. No Protection against Employee Attrition
Attrition in India - especially for IT and project-based industries - is nothing new. Primary developers, engineers, or project managers tend to switch employers regularly, and often do this during critical deadlines. Most contracts written by foreigners do not even mention or address this cultural and market reality. If key team members leave, it is not common for replacement or knowledge transfer timelines or penalties for leaving suddenly to be written into the contracts. This result in delivery delays, loss of technical continuity, and sometimes project failure. Having explicit clauses that protect continuity in employment and knowledge transfer are no longer negotiable terms of the contract - they are essential elements of sophisticated risk management.

3. Stamp Duty Errors Can Render IP Assignments Unenforceable
In India, when assigning IP, creating a licensing agreement, or drafting a transfer document, you are bound to the stamp duty laws and regulations of the state in which you reside. Digital signatures and unstamped MoUs may be enforceable or recognize a contractual obligation in various jurisdictions but they have no evidentiary value before an Indian court. This small distinction can unravel the entire ownership structure. A contesting party can undermine an IP claim simply by stating the document which form the basis of the claim had a defect i.e. unstamped or incorrectly stamped. Stamp duty must be paid prior to executing the agreement or within prescribed timeframe, any aggreement stamped late or inadequately cannot be claimed in a court of law unless the document was stamped correctly. The risk is hidden, but very real for technology or media sectors which have a direct reliance on IP.

4. “Termination for Convenience” Frequently Backfires
To provide flexibility, foreign clients frequently include a termination-for-convenience clause. In India, however, this clause can give rise to compensation claims from vendors for completed work, anticipated profits, or workforce costs. Courts have consistently upheld vendors’ rights to receive compensation when termination is made unilaterally. The result is that the cost of termination exceeds the cost of performance, especially in long-term outsourcing or manufacturing contracts. The only way to manage that risk is to tightly draft termination rights, pre-agree the termination fee, and include a condition that precludes any future liability.

5. Missing Audit Clauses Enable Hidden Subcontracting
A properly constructed audit clause allows clients to confirm the accuracy of the billable hours, where resources were utilized, and what data handling practices were implemented. Most overseas contracts do not contain this protection, and vendors are not accountable. Additionally, prime vendors in India are known to subcontract away entire modules to smaller firms without the client’s knowledge. As a result, prime vendors can have multiple layers of sub-vendors engaging with sensitive code or data. Once there are no audit or inspection rights, the client loses jurisdiction and certainty around where data is stored, confidentiality, and cyber security. Regular auditing, notice periods, and access rights in the contract helps to maintain accountability of the vendor and any sub-vendors in the supply chain.

6. Broad “Force Majeure” Clauses Allow Convenient Delays
Indian vendors frequently apply “force majeur” for disruptions due to local strikes (bandhs), political rallies, festivals, monsoons, or a labor shortage. Unless carefully drafted, general force majeure clauses give them months of free time. Indian courts enforce force majeure clauses strictly based on the wording of the contract, therefore vague definitions will always favor the non-performing vendor. The clause should specifically identify extraordinary, uncontrollable events that prevent performance and be limited to events that cannot be reasonably obtained given local conditions. Narrow drafting – with notice and mitigation duties will limit mischief and provide fairness.

7. Arbitration Clauses Often Fail at the Start
A defective arbitration clause may interrupt dispute resolution process before even commencing. Typical language such as “Arbitration accordance to the Indian Arbitration Act in good faith” is virtually meaningless. If it does not specify a seat of arbitration, a governing procedure, and an institutional arbitral authority (like SIAC or ICC), you may not be able to enforce the arbitration. The parties will often spend months litigating jurisdictional issues before hearing any substantive matter. An appropriate arbitration clause structure will describe the seat, applicable procedural rules, the number of arbitrators, and governing law. This will ensure that any award can be enforced (in India and internationally) where the Seat has been agreed as conclusive in the arbitration agreement.

8 No Clause Preventing Parallel Engagement with Competitors
Indian companies frequently partner with several clients from the same industry at the same time. Unless verbally stated otherwise, they are permitted to use similar technologies, solutions, or data from one direct competitor with another direct competitor. Indian law does not assume exclusivity and a vendor must expressly grant that exclusivity in writing. Without a confidentiality and non-compete clause, a foreign client is vulnerable to having their proprietary information and market knowledge exploited and used on behalf of the client's direct competitors. Sensitive sectors or industry — fintech, defense, and certain SaaS Companies — are particularly susceptible to this oversight.

9. Misinterpretation of the Indian Limitation Act Leads to Lost Claims
A common misconception held by foreign companies is that vendors are liable forever just as long as the project is not finished. Under the Indian Limitation Act, the timeframe for liability starts after the breach date, not after project completion date. After the limitation period for claims expires, the claims become unenforceable irrespective of breach validity. Limitation periods vary by contract type and jurisdiction, thus, it is imperative to observe the timelines closely and take action prior to claim expiration. A minor filing delay can, in essence, forever extinguish the right to recover damages.

10. Absence of Data Return or Wipeout Protocols
When projects wrap up, it is not unusual for Indian vendors to persist in retaining sensitive source code, access keys, client databases, etc., not out of any act of malice, but typically because of operational inertia. However, this places the client in further liability for potential breaches of IP and data security. A proper agreement should include a contract clause that specifically requires vendors to return all of the client's data, acknowledge and certify permanent deletion from the vendors' servers, and issue a completion certificate. If the agreement does not stipulate these conditions, the client's proprietary information may still be housed on the vendor's servers and may even be repurposed for use in subsequent projects involving other clients, exposing the client to liability through potential data breaches and IP violations, as well as possible compliance violations, including cyber security and regulatory compliance.

11. No Restriction on Mid-Contract Price Increases
Many foreign customers automatically equate an agreed price with a final price. However, Indian vendors frequently request - or even demand - new costs during the contract period on the grounds of inflationary costs, labor costs, or currency fluctuations. When there are no clear provisions in the agreement against unilateral price adjustments, customers may have no recourse. This issue may be more significant for long duration projects that include hardware, software maintenance or managed services. A strong pricing provision that locks in prices for the duration of the contract and limits renegotiation triggers is a must for financial certainty..

12. No Anti-Poaching Clause to Protect Key Staff
In India's cutthroat tech and outsourcing environments, vendor teams develop relationships with client personnel. Without an anti-poaching provision the vendor may directly hire your employees, depleting your internal capacity and increasing dependency on the vendor. Over time, the vendor's hires will result in facilitation of knowledge transfer to the vendor and losses of internal control for the client. Clients should be protected from predatory hiring practices for a period of six to twelve months post contract termination for the purpose of avoiding potential exploitation from employee cross exposure.

Final Insight
Many companies outside India tend to see the challenge in India as being the bureaucracy, delays in having things done, or the complexity of compliance. In most cases, cross-border losses are actually derived from contracts that do not take into account Indian law practices, judicial interpretation, and legislative quirks. Legal localization is not an exercise in bureaucracy, it is an exercise in strategic insurance. Contracts that are clearly written with deliverables, enforceable contract language, and written in the vernacular legally localized language step in the right direction to ensure that you can protect your investments, maintain relationships, and manage expectation in one of the most dynamic markets in the world.