Vendor / Supply Agreement
Free supply agreement for Indian buyers and vendors: purchase orders, inspection, MSMED-aware payment terms, warranty and capped delay damages.
A vendor or supply agreement sets the standing terms for buying goods from a supplier: price, delivery, inspection, payment, warranty and liability. Use it when you buy or sell goods repeatedly through purchase orders.
What to watch when you use this
- Fix an inspection and rejection window. Under the MSMED Act, 2006, the payment clock for a micro or small supplier runs from acceptance or deemed acceptance, so vague acceptance terms cause disputes.
- Delay damages should be a genuine pre-estimate of loss and capped. Courts generally require proof of loss for a breach, though where loss is hard to prove a genuine pre-estimate may be awarded, and never more than the stated sum.
- The Sale of Goods Act, 1930 implies conditions of quality and fitness in some sales. If you exclude or replace them with an express warranty, say so clearly.
- State when title and risk pass. Under the Sale of Goods Act, 1930, risk generally follows ownership unless the parties agree otherwise.
- Check GST invoicing, e-way bill and tax deducted or collected at source requirements with your accountant, because they depend on the goods, value and parties.
Stamping and registration. Stamp duty is a State subject, and an unstamped or insufficiently stamped instrument is generally inadmissible in evidence under Section 35 of the Indian Stamp Act, 1899 until the duty and penalty are paid. Registration requirements are separate and depend on the instrument and the State. Confirm both for your State before executing this document.
VENDOR SUPPLY AGREEMENT
This Supply Agreement is made on [DATE] between:
[BUYER NAME], having its registered office at [ADDRESS], GSTIN [GSTIN] ("Buyer"); and
[VENDOR NAME], having its registered office at [ADDRESS], GSTIN [GSTIN], Udyam Registration No. [UDYAM NUMBER, IF ANY] ("Vendor").
1. SCOPE
1.1 The Vendor will supply the goods described in Schedule 1 ("Goods") against purchase orders issued by the Buyer during the term.
1.2 This Agreement is non-exclusive. The Buyer is not obliged to buy any minimum quantity unless stated in Schedule 1.
1.3 Each purchase order will state the Goods, quantity, price, delivery date and delivery location. A purchase order becomes binding when the Vendor accepts it in writing or within [NUMBER] business days if not rejected. If a purchase order conflicts with this Agreement, this Agreement prevails.
2. PRICE
2.1 Prices are as set out in Schedule 1 and remain fixed for [PERIOD].
2.2 After that, either party may propose a revision by [NUMBER] days' written notice with supporting reasons, such as a documented change in raw material cost. A revision applies only to purchase orders issued after both parties agree to it in writing.
2.3 Prices are exclusive of GST, which will be charged as applicable. Prices include packing and [include / exclude] freight and transit insurance to the delivery location.
3. DELIVERY
3.1 The Vendor will deliver the Goods to the location in the purchase order on or before the delivery date, with a GST-compliant tax invoice, delivery challan, e-way bill where required and any test certificates specified in Schedule 1.
3.2 Title and risk in the Goods pass to the Buyer on delivery at the delivery location.
4. INSPECTION AND ACCEPTANCE
4.1 The Buyer will inspect the Goods within [NUMBER, NOT EXCEEDING FIFTEEN] days of delivery and either accept them or notify any shortage or defect in writing with reasons.
4.2 Goods not rejected in writing within that period are deemed accepted, except for latent defects that could not reasonably be found on inspection.
4.3 Rejected Goods will be collected by the Vendor at its cost within [NUMBER] days and repaired, replaced or credited, at the Buyer's choice.
5. PAYMENT
5.1 The Buyer will pay each undisputed invoice within [NUMBER] days of acceptance or deemed acceptance of the Goods.
5.2 Where the Vendor is a micro or small enterprise under the Micro, Small and Medium Enterprises Development Act, 2006, the payment period will not exceed 45 days from acceptance or deemed acceptance, and the Buyer will pay interest on late payment as required by that Act.
5.3 The Buyer may deduct tax at source, or the Vendor may collect tax at source, as required by law, with certificates issued in time.
6. WARRANTY
6.1 The Vendor warrants that for [NUMBER] months from acceptance the Goods will conform to the specifications in Schedule 1, be of satisfactory quality and free from defects in material and workmanship, and comply with applicable law, including any mandatory quality standard.
6.2 During the warranty period the Vendor will repair or replace defective Goods free of cost within [NUMBER] days of notice, or refund the price if repair or replacement is not possible.
6.3 The warranty does not cover damage from misuse, improper storage by the Buyer or normal wear and tear.
7. DELAY
7.1 If the Vendor delays delivery beyond the agreed date for reasons within its control, the Buyer may claim liquidated damages of [PERCENTAGE]% of the price of the delayed Goods for each week of delay, up to a maximum of [PERCENTAGE, FOR EXAMPLE 10]% of that price. The parties agree this is a genuine pre-estimate of the Buyer's likely loss.
7.2 If the delay exceeds [NUMBER] weeks, the Buyer may cancel the delayed part of the purchase order without liability.
8. INDEMNITY
8.1 The Vendor will indemnify the Buyer against third-party claims arising from defects in the Goods, or infringement of intellectual property by the Goods as supplied, except where caused by the Buyer's specifications.
8.2 The Buyer will indemnify the Vendor against third-party claims arising from specifications or designs supplied by the Buyer.
9. LIMITATION OF LIABILITY
Neither party is liable for indirect or consequential loss or loss of profit. Each party's total liability in a contract year is limited to the total price of Goods supplied in that year, except for indemnities, fraud, wilful misconduct and the Buyer's obligation to pay for Goods accepted.
10. CONFIDENTIALITY
Each party will keep confidential the other's non-public information, including pricing, drawings and specifications, and use it only for this Agreement. This clause survives for [NUMBER] years after termination.
11. COMPLIANCE
Each party will comply with applicable law, including tax, environmental and labour law. The Vendor will not use child labour or forced labour in making the Goods.
12. TERM AND TERMINATION
12.1 This Agreement runs for [PERIOD] from the date above and may be renewed in writing.
12.2 Either party may terminate it by [NUMBER] days' written notice. Purchase orders accepted before the notice date will be completed unless both parties agree otherwise.
12.3 Either party may terminate immediately for material breach not remedied within [NUMBER] days of written notice, or on the other's insolvency.
12.4 On termination, the Buyer will pay for Goods accepted, and for finished Goods made specifically to its purchase orders that cannot be sold to others.
13. FORCE MAJEURE
Neither party is liable for delay or failure caused by events beyond its reasonable control, such as natural disasters, epidemics, war or government action. The affected party will notify the other promptly and resume performance as soon as possible.
14. DISPUTES
The parties will try to resolve disputes by negotiation for [NUMBER] days. Any unresolved dispute will be referred to a sole arbitrator appointed by mutual agreement under the Arbitration and Conciliation Act, 1996, with the seat at [CITY]. This does not affect any statutory remedy available to a micro or small enterprise under the Micro, Small and Medium Enterprises Development Act, 2006.
15. GENERAL
This Agreement is governed by the laws of India. It is the entire agreement on its subject, may be amended only in writing signed by both parties, and may not be assigned without consent.
For [BUYER NAME] For [VENDOR NAME]
_______________________ _______________________
Name: [NAME] Name: [NAME]
Designation: [DESIGNATION] Designation: [DESIGNATION]
Date: [DATE] Date: [DATE]
SCHEDULE 1: GOODS, SPECIFICATIONS AND PRICES
[For each item: description, HSN code, specification or drawing reference, unit price, minimum order quantity (if any), lead time, test certificates required and warranty period.]
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This free template is provided by ClauseAudit as general information, not legal advice, and using it does not create an advocate-client relationship. Replace every [BRACKETED] placeholder. Stamp duty and registration requirements vary by State and are your responsibility. Have the final document reviewed by a qualified advocate before use.When to use this template
- You buy raw materials, components, equipment or finished goods from the same supplier on a recurring basis.
- You are a supplier and want clear acceptance and payment terms before taking large orders.
- Your purchase orders carry printed terms that the other side has never agreed to.
- You are a micro or small enterprise and want MSMED payment protection reflected in the contract.
How to fill it in
- Enter both parties' legal names, addresses and GSTIN, and the vendor's Udyam number if registered.
- Complete Schedule 1 with each product's specification, HSN code, price, lead time and test certificate requirements.
- Set the inspection window, payment days, warranty period and the delay damages rate and cap.
- Decide who bears freight and transit insurance and when title and risk pass, and adjust clauses 2.3 and 3.2 if needed.
- Pay stamp duty under your State's stamp law, usually by e-stamping, before or at signing.
- Sign through authorised signatories, and keep the agreement with all purchase orders and acceptance records.
Key clauses explained
- Inspection and deemed acceptance (clause 4)
- Acceptance starts the payment clock. A defined window with deemed acceptance stops either side using silence to delay or deny payment.
- MSMED payment terms (clause 5.2)
- For micro and small suppliers, the 45-day ceiling and statutory interest apply regardless of the contract, so it is better to record them than to draft against them.
- Warranty and remedies (clause 6)
- An express warranty with a repair, replace or refund ladder gives the buyer a practical remedy and the vendor a limit to its exposure.
- Capped delay damages (clause 7)
- Uncapped or excessive penalties are unlikely to be enforced as written. A modest weekly rate with a cap, described as a pre-estimate, is more defensible.
- Payment for custom stock on termination (clause 12.4)
- A vendor that makes goods to the buyer's specification should not be left with stock it cannot sell when the buyer walks away.
Frequently asked questions
Is a purchase order enough without a supply agreement?
A purchase order accepted by the vendor is a binding contract for that order. The problem is that it rarely covers warranty, liability, acceptance and disputes properly, and both sides often have conflicting printed terms. A supply agreement settles those points once, and each purchase order then only states quantity, price and delivery.
Can a buyer refuse to pay because goods are defective?
A buyer may reject goods that do not match the contract, but should do so in writing within the agreed inspection period, giving reasons. Goods not rejected in time are usually treated as accepted, and payment becomes due. For latent defects found later, the buyer's remedy is usually under the warranty rather than withholding the whole payment.
Are liquidated damages for delay enforceable?
Under Section 74 of the Indian Contract Act, 1872, a party can recover reasonable compensation up to the stated amount. Courts generally expect proof of loss, but where loss is difficult to prove, a sum that is a genuine pre-estimate may be awarded. A figure that is really a penalty will be cut down. Keep the rate modest and capped.
What happens if a large buyer pays a small supplier late?
If the supplier is a micro or small enterprise registered on Udyam, the MSMED Act, 2006 requires payment within the agreed period, not exceeding 45 days from acceptance. Late payment carries compound interest at three times the bank rate notified by the Reserve Bank of India. The supplier can also refer the dispute to the Micro and Small Enterprises Facilitation Council.
When does ownership of goods pass to the buyer?
The Sale of Goods Act, 1930 lets the parties decide when property in goods passes. If they do not, the Act provides default rules depending on whether the goods are specific or unascertained. Risk generally passes with ownership unless agreed otherwise. This template makes title and risk pass on delivery, which is clear and easy to prove.
Should a supply agreement be exclusive?
Exclusivity can secure supply or guaranteed volumes, but it also ties you in. This template is non-exclusive. If you want exclusivity, limit it by product, territory and time, link it to minimum volumes, and remember that exclusive arrangements by businesses with significant market power can raise issues under the Competition Act, 2002.
Been handed the other side's version instead?
Upload it and get every clause checked against Indian law, with the provision each finding rests on.
Review a equipment & vendor contractThis free template is general information about Indian law as at 2026-10-10, not legal advice, and using it does not create an advocate–client relationship. Replace every bracketed placeholder and have the final document reviewed by a qualified advocate before use.