How to Draft a Software License Agreement in India

To draft a software license agreement in India, put the licence in writing and fix six things: who the parties are, what the licensee may do with the software, how updates and support work, how far each side's liability goes, how and when the agreement ends, and which law and forum govern disputes. This guide is for founders in Jaipur and elsewhere in India.

Key Takeaways

• Write the grant narrowly: A licence should list what is licensed, who may use it, where, for what purpose and for how long. Rights not granted stay with the licensor.
• Separate updates from support: Define bug fixes, new versions and helpdesk support as different items, and say which the licence fee covers.
• Tie the liability cap to a measurable base: A cap linked to fees paid or payable over a stated period is easier to apply than an open figure, and carve-outs should be listed expressly.
• Plan the exit at the start: Termination for breach needs a cure period, and the clause should say what happens to access, copies, data and surviving obligations.
• Do not skip execution formalities: A copyright licence must be in writing and signed under section 30 of the Copyright Act, 1957, and the document may need stamping under the applicable state law.

Software License Agreement at a Glance

1. What Is a Software License Agreement, and Why Does It Matter in India?

A software license agreement is a written contract in which the owner of the software (the licensor) allows another party (the licensee) to use it on stated terms, without transferring ownership. In India it is the main tool for controlling how code is used, copied, supported and ended.

Software is protected as a literary work under the Copyright Act, 1957, so the licence is, in legal terms, a permission to do things that only the owner could otherwise do.

Section 30 of that Act allows the owner to grant an interest in the copyright by a licence in writing signed by the owner or an authorised agent. For a founder, the practical lesson is simple: do not rely on emails or click-through habits alone for a commercial relationship.

A licence is different from an assignment. An assignment moves ownership, and section 19 requires it to be in writing and signed by the assignor. A licence leaves ownership with you.

Most product companies want the second outcome, so the agreement must say clearly that the licensee receives a right to use, and nothing more. For background on how code is protected in the first place, see this note on copyright protection for software and digital works in India.

Founders without a full-time legal team often start from a template found online. That is a reasonable starting point, but templates written for other countries tend to assume different default rules on liability, stamp duty and dispute forums. The sections below show where an Indian agreement needs to be checked against local law.

2. Which Details Should You Fix Before Drafting?

Fix five facts first: the exact parties and their legal status, the product and version being licensed, the delivery model (installed software or hosted service), the type of licence (exclusive or non-exclusive, perpetual or term), and who owns the code and any third-party or open-source components inside it.

Most drafting problems begin with an unsettled commercial deal rather than a missing clause. A short term sheet, even one page, saves repeated rewrites.

Parties and product

Use the full legal name of each party as it appears in its incorporation or registration documents, with the registered address. A sole proprietorship, a partnership, a private limited company and an LLP are different legal persons, and the signatory must have authority for the one named. Describe the software by name, version and, where useful, a schedule listing modules or features.

Delivery model and licence type

Installed software is delivered as a copy that runs on the licensee's systems. Software as a service (SaaS) is accessed online and stays on the provider's servers. The first needs clauses on installation and copies; the second needs clauses on availability, hosting and data.

Decide too whether the licence is exclusive (no one else, and possibly not even the licensor, may use it in the licensed field) or non-exclusive, and whether it runs for a fixed term or perpetually.

Ownership and third-party components

List what the licensor owns and what it does not. Most modern products include open-source libraries or bought-in modules, each carrying its own licence terms. If your agreement promises that you own everything and a component says otherwise, that promise becomes a breach. Keep an internal inventory of components before you sign, and think about whether patent protection for software startups forms part of your wider plan, because licence scope can affect it.

3. How Should Scope of Use Be Drafted?

Draft scope of use as a single grant clause that names what is licensed, who may use it, where, for what purpose and for how long, followed by a separate list of restrictions. Anything not expressly granted should stay with the licensor. Vague grants are a frequent source of later disputes.

WIPO's publication on technology licensing lists the kinds of rights a licence can cover, including reproducing, displaying, modifying, using, making or having the technology made, and distributing or selling it. A software grant should pick only the rights the deal needs from that list and leave out the rest.

Elements of a grant clause

• Licensed material: The named software, version, and any documentation or APIs included.
• Exclusivity: Say plainly whether the licence is exclusive, sole (only the licensor and licensee) or non-exclusive. Silence invites argument.
• Metric of use: Named users, concurrent users, devices, sites, servers, or transaction volumes. Choose the metric that matches how the licensee will really use the product.
• Territory: India only, or named countries. A territory that is not stated can be read as unlimited.
• Purpose: Internal business use, or use to provide services to customers. A licence for internal use does not usually permit resale or hosting for others.
• Term: Fixed years, renewable, or perpetual subject to termination.

Restrictions and audit

Restrictions normally bar copying beyond what is needed for backup and use, reverse engineering, removing proprietary notices, sublicensing, transferring the licence, and using the software to build a competing product. Whether a restriction is enforceable can turn on the facts and on Indian law, so keep each one specific and tied to a legitimate interest.

An audit clause lets the licensor check usage against the licence metric. A reasonable version gives notice, limits audits to business hours and once a year, and says who pays if under-licensing is found. A licensee should ask for confidentiality over what the auditor sees.

4. How Do You Handle Updates, Support and Maintenance?

Define updates, upgrades and support separately, and say which are included in the licence fee. State the support channel, hours and response targets, how long each version will be maintained, and what happens when it reaches end of life. Without these terms, a licensee may assume unlimited free upgrades.

The central drafting task is vocabulary. Founders often use "updates" to mean everything after the first delivery, and a court or arbitrator will read what the contract actually says.

Updates versus upgrades

An update usually means a patch, bug fix or security fix to the licensed version. An upgrade or new release usually means new features or a new version number. A common approach is that updates are included while new releases are priced separately or included only while a maintenance subscription is paid. Whatever you choose, write the definition into the agreement.

Support terms to specify

• Channel and hours: Email, ticket portal or phone, and the working days and hours in India time.
• Severity levels: For example, a total outage versus a cosmetic fault, each with a target response time and a target fix time.
• Exclusions: Faults caused by unauthorised changes, third-party software or misuse are usually outside support.
• Maintenance period: How long the licensor commits to supporting each version, and how much notice it gives before ending support.
• Licensee duties: Installing updates within a stated period, and giving the licensor access to logs and systems for diagnosis.

Be careful with response targets. "Response" means acknowledgement, "resolution" means fix. Mixing them creates a promise the licensor cannot keep. If the licensee's business depends on the software, it may also ask for a source code escrow, where the code is held by a neutral party and released on stated events such as the licensor's insolvency or closure. Escrow terms are heavily negotiated, so decide early whether they are in scope.

5. How Do Liability Caps and Warranties Work?

A liability cap sets the maximum one party can be made to pay under the agreement, usually linked to the fees paid or payable over a stated period. It works with a list of excluded losses and a short warranty clause. Carve-outs, such as infringement indemnities, are negotiated separately.

Under section 73 of the Indian Contract Act, 1872, a party who suffers a breach is entitled to compensation for loss that arose naturally from it, or that the parties knew was likely to result, but not for remote and indirect loss. Contracts often restate and narrow this by excluding indirect, consequential and special loss, and by capping the total.

Warranties and disclaimers

Licensors usually give a few narrow warranties: that they have the right to grant the licence, that the software will perform substantially as described in the documentation for a stated period, and that it will not knowingly contain malicious code. Everything else is normally disclaimed, including fitness for a particular purpose and uninterrupted or error-free operation. A licensee should read the disclaimer against the sales claims made during the pitch.

WIPO's licensing checklist prompts the parties to ask whether the licensor warrants that the IP is valid and who answers if a third party claims the technology infringes its rights. Those two questions belong in every software licence.

Infringement indemnity

An IP infringement indemnity is a promise by the licensor to defend and pay for third-party claims that the licensed software infringes their rights. Licensors typically limit it to claims arising from the software as delivered, require prompt notice and control of the defence, and keep the right to modify, replace or withdraw the software. This indemnity is commonly placed outside the general cap, or under a separate higher cap.

Setting the cap

Consider this hypothetical. A licensee pays an annual licence fee, and the agreement caps each party's total liability at the fees paid in the twelve months before the claim. Indirect loss such as lost profit is excluded. That is simple to apply. The negotiation that follows is usually about carve-outs: breach of confidentiality, infringement indemnity, fraud and wilful misconduct, and data breach.

The twelve-month base is an illustration, not a recommended figure. The right cap depends on the deal size, the licensee's exposure and what insurance each side carries.

Liquidated damages and penalties

If the agreement names a fixed sum payable on breach, such as service credits or a late-delivery amount, section 74 of the Contract Act applies. It allows reasonable compensation not exceeding the named amount, and a stipulation by way of penalty is treated differently from a genuine pre-estimate of loss. Draft service credits as a fair estimate and as a stated remedy, not as a punishment.

6. How Should Termination Be Drafted?

Termination clauses should state the term, the events that allow early termination (material breach after a cure period, insolvency, non-payment), whether either side may exit for convenience, and what happens afterwards: access ends, copies are deleted or returned, fees are settled and surviving clauses continue.

The WIPO training material on licence agreements frames the questions this way: when does the agreement end, in which situations can it be terminated, in what manner, and how must a party request it. A good clause answers each in plain words.

Termination for cause

Define a material breach, or at least give examples: non-payment beyond a set number of days, use outside the licensed scope, breach of confidentiality, or assignment without consent. Add a cure period, so the breaching party gets written notice and a stated time to fix the problem before the other side can terminate. Breaches that cannot be cured, such as a leak of source code, can be listed as allowing immediate termination.

Insolvency triggers need care. Indian insolvency law may limit a counterparty's ability to terminate a contract merely because a corporate debtor has entered a process, so check the current position under the Insolvency and Bankruptcy Code, 2016 before relying on such a clause.

Termination for convenience and expiry

If either party can leave without cause, state the notice period and whether fees already paid are refundable. A fixed-term licence should say whether it renews automatically, and how a party opts out. Auto-renewal without a reminder duty is a frequent source of complaint.

What happens after termination

• Access and use: The licensee stops using the software, uninstalls it and removes copies, and certifies this in writing if asked.
• Data: For SaaS, the licensor returns or exports the licensee's data in a stated format within a stated period, then deletes it.
• Fees: Accrued fees remain payable. State the treatment of prepaid fees.
• Survival: Confidentiality, IP ownership, indemnities, liability cap, governing law and dispute resolution continue after termination.
• Transition help: A short, defined period of assistance, if the licensee needs to migrate.

7. What Other Clauses Does an Indian Software License Need?

Alongside the four core clauses, an Indian software licence normally needs confidentiality, data protection, intellectual property ownership, governing law, a dispute resolution mechanism, and correct execution: signature by authorised persons and stamping as required by the applicable state stamp law. Each addresses a risk the core clauses leave open.

Confidentiality and IP ownership

Source code, algorithms and product roadmaps are confidential information, and a licence that gives access to them should say so. A stand-alone non-disclosure agreement may sit beside the licence, and this overview of NDA clauses and drafting in India sets out what such a document contains. The licence itself should also state that all intellectual property in the software stays with the licensor, and decide who owns feedback, customisations and improvements.

Data protection

If the software processes personal data, the agreement should assign roles and duties under the Digital Personal Data Protection Act, 2023: who decides the purpose and means of processing, who handles breach notification, and what happens to the data at exit. Check the commencement status and rules under that Act at the time of signing, because its provisions have been brought into force in phases.

Governing law and disputes

State that Indian law governs, and then choose a forum. Arbitration under the Arbitration and Conciliation Act, 1996 is common for commercial software disputes because it is private and the parties choose the arbitrator and seat. Courts are the alternative, and software licence disputes between businesses may fall within the Commercial Courts Act, 2015.

A Jaipur or Rajasthan founder should name a seat or jurisdiction that is workable in practice, including for hearings and evidence. If both parties are in different states, think about whether neutral ground is easier than either home forum.

Execution, e-signature and stamping

The licence needs to be signed by someone authorised to bind each party. Electronic signatures can be valid under the Information Technology Act, 2000, if they meet its requirements. Stamp duty on agreements is governed by state law, so the amount depends on the state where the document is executed or brought in and on how the instrument is classified.

An unstamped or insufficiently stamped agreement may not be admissible in evidence until duty and any penalty are paid. Check the current schedule for Rajasthan or the relevant state before signing.

Founders working across states sometimes need local counsel for hearings in other places. The firm's own guide on pan-India counsel versus local firms in each state explains how that coordination works in general terms.

8. Common Drafting Mistakes and a Pre-Signing Checklist

Most software licence disputes trace back to a handful of drafting gaps. The list below pairs each mistake with the test a clause should pass, and what to do if it fails.

Mistakes that recur

• Grant with no metric: "Right to use the software" with no user, device or purpose limit. Pass: a reader can count how many users or devices are covered. Fail: redraft with a named metric.
• Undefined updates: "Free updates" with no definition. Pass: updates and upgrades are defined separately. Fail: add definitions and a maintenance period.
• Open-ended liability: No cap, or a cap with no carve-out list. Pass: one cap base, one list of exclusions, one list of carve-outs. Fail: add them before signing.
• Termination without cure: Immediate termination for any breach. Pass: cure period for curable breaches. Fail: add notice and cure steps.
• Silent on exit: No data return or deletion terms. Pass: format, timeline and certificate of deletion stated. Fail: add an exit schedule.
• Template mismatch: Foreign governing law or forum copied over without thought. Pass: law and forum are chosen deliberately and enforceable in practice. Fail: replace them.

Pre-signing checklist

1. Confirm the legal names, status and signing authority of both parties.
2. Check that the grant clause states exclusivity, metric, territory, purpose and term.
3. Match the licence to the real delivery model, installed or SaaS.
4. Check the third-party and open-source inventory against the ownership and warranty clauses.
5. Read the update, support and end-of-life terms against the product roadmap.
6. Confirm that the liability cap, exclusions and carve-outs are consistent with each other and with the indemnity.
7. Check cure periods, notice periods and survival clauses.
8. Confirm data protection duties if personal data is processed.
9. Choose governing law, seat or jurisdiction, and make sure it works for both sides.
10. Arrange signature and stamping under the applicable state law before the licence goes live.

One point remains unsettled in practice: how far courts will uphold very low liability caps against a licensee that has suffered serious loss. The answer depends on wording and facts, and no single rule covers every case. Drafting a cap that is reasonable, mutual and connected to the real risk is the safer course.

Riva Legal Associates is an intellectual property practice in Jaipur, and drafting and vetting of agreements falls within its areas of practice. The Government of Rajasthan's State Policy on Intellectual Property Rights 2021-2026 describes a state portal with a knowledge section on IP forms and procedures, and a resources section containing sample drafts of IP-related agreements, which can serve as general reference material.

Frequently Asked Questions

Does a software license agreement have to be in writing in India?

A written, signed licence is the safe course. Section 30 of the Copyright Act, 1957 provides that a licence granting an interest in copyright must be in writing and signed by the owner or the owner's authorised agent. Writing also gives both sides proof of the agreed terms.

Is SaaS licensed differently from installed software?

Yes, in practice. A SaaS agreement gives access to a hosted service, so it adds uptime commitments, data hosting and security terms, and data return on exit. Installed software needs clauses on copies, installation and use at specified sites. The core clauses on scope, liability and termination apply to both.

Can a liability cap exclude all liability?

A cap limits liability, but a clause that removes all remedy is harder to defend and may be challenged. Fraud and wilful misconduct are commonly kept outside any cap, and whether a given exclusion holds depends on the facts and wording. A reasonable, mutual cap tied to fees is easier to justify.

Does a software license agreement need stamping?

Often yes. Stamp duty on agreements is set by the law of the state where the document is executed or received, so the amount depends on the state and the nature of the instrument. An unstamped or under-stamped agreement may not be admitted in evidence until duty and any penalty are paid.

This content is published for general information only. It is not legal advice, an advertisement, or a solicitation of work, and reading it does not create an advocate-client relationship. In keeping with the Bar Council of India Rules, Riva Legal Associates does not solicit work or advertise.