Introduction to Memorandum of Understanding
A memorandum of Understanding is a formal agreement between two parties to work on a single goal and achieve the desired results. This is also used in international contracts to move towards the intended goals. Sometimes it is used in places where the legal obligation doesn’t work. This Memorandum of Understanding will be the key to proceeding with such contracts. It is not legally binding but can be very effective when the parties disagree to work as per the agreement.
Purpose of Memorandum of Understanding
In simple words, the purpose of a Memorandum of Understanding is to enter into an agreement between two or more parties where a contract is signed which is way better than a verbal commitment and a little bit less than a legal agreement. It is mutual consent to enter a Memorandum of Understanding with the parties. It is also a step towards a binding legal contract for both parties. This can help resolve the dispute between the parties at the time of settlement. Therefore, it is preferred in most cases because it is less time-consuming and complicated.
How does it work?
It expresses the real intention of the two parties entering into the contract. So, first, this is signed between the parties; then the parties come forward to make some negotiations; after the parties agree upon all these points, the agreement is signed. The agreement is then ratified by the supreme authority and implemented for the goal’s purpose.
Example of Memorandum of Understanding
It was signed between India and China upon provision for Hydrological information of two rivers, i.e., Brahmaputra or Yaluzangbu.
In 2002, a Memorandum of Understanding was signed between India and China. The Government of India has entered into this Memorandum of Understanding for five years for sharing Hydrological information, especially during the flood season, i.e., from (15th May to 15th October). This has been renewed from time to time.
The eastern side of the Brahmaputra River is known as Siang. The River Brahmaputra is known as Yaluzangbu in China. Therefore, the Chinese government is responsible for sharing all the information on water level, discharge, and rainfall, if any. This can prevent our country from natural disasters because the government will make some provisions regarding the same to mitigate the risk.
Who signs a memorandum of understanding?
Whenever a Memorandum of Understanding is presented before the ministry, it is first verified and ratified. Then, after the proper screening, It is passed with proper consent to the parliament and signed by the President of India. For example, this process is done in the case of international contracts between two nations.
However, if the two states are signing a Memorandum of Understanding, then, in that case, the IAS officer of that department or the State government head is required to sign the Memorandum of Understanding.
- It reduces the risk associated with the contracts.
- The level of uncertainty also gets reduced because the Memorandum of Understanding is binding in nature.
- The importance of this lies in the intention of the parties entering the contract.
- It is less than a legal document and a bit more than a verbal commitment.
- It is the first step toward implementing the nationwide agreement signed between the two nations.
- It also reduces the possibility of future disagreement, which may lead to disputes.
- It helps to prevent the disaster on time, and the important information can help mitigate the risk.
- It is less legally acclaimed; however, it is more than a verbal commitment, making it a little more important.
- It prevents any future disagreements between the parties.
- Drafting a Memorandum of Understanding is very cost-effective and less time-consuming.
- It is the obligation that the other party has to follow certain rules and regulations to make it count.
- It is a mutually consented document; therefore, slight disagreement changes exist.
- Sometimes this fails to serve the purpose of its making. However, since this is not legally bound, any parties can take this lightly.
- In some rare situations, when planning or drafting the Memorandum of Understanding, if any of the parties refuses or changes any of their terms in the Memorandum of Understanding, it takes time to reach a mutual agreement.
- It is an agreement that is not legally binding.
- Most of this is found in international transactions.
- The mutual consent of both parties helps both parties achieve some common goal.
Both parties agree upon it when they have a common goal to achieve. After that, this is investigated and ratified after all the steps; the highest authority signs this. This, therefore, reduces the risk of disagreement between the parties. But considering the process of approving this, it may take longer to enter into any contracts. However, the authenticity of the documentation is the biggest key while entering into the Memorandum of Understanding. Mostly this is done in the case of international projects between two nations.
This is a guide to the Memorandum of Understanding. Here we also discuss the definition, purpose, working, example, and importance, along with advantages and disadvantages. You may also have a look at the following articles to learn more –