A memorandum of Understanding is defined as an agreement between two or more parties. It is often used when two parties are in negotiating terms for a commercial transaction, for example, forming a joint venture, then a Memorandum of understanding is used to fix the interim arrangement agreed by the parties. A Memorandum of understanding is signed before signing the final legal contract. it is used to avoid renegotiation between the parties concerning the terms and conditions which have been settled and concluded between the parties. Memorandum of understanding can be both, binding and non-binding in nature. 

A memorandum of understanding can be used to fulfill the following purposes: 

1. A formal method of declaring that the parties are in the process of negotiation of a contract
2. Deciding the time frame for the negotiation may also include the final date of concluding the negotiation
3. To avoid misunderstanding between the parties. 
4. Creates a binding obligation to maintain confidentiality and practice non-competition between the parties involved
5. Outlining the important terms and conditions of the final contract which is yet to be signed by the parties. 
6. It may also be used in defining certain prerequisite conditions for the main contract between the parties. 

Certain terms should be included to make the memorandum of understanding effective: 

1. Names of the parties involved
2. The purpose of the Memorandum of Understanding
3. Period of Validity of the Memorandum of Understanding
4. Essential terms of the main contract 
5. Binding clauses such as the Nondisclosure clause and the non-compete clause
6. Pre-conditions for entering into the main contract
7. Terms related to enforceability/non-enforceability of the Memorandum of Understanding 
8. Signature of the parties 

One key point to note is that the Memorandum of Understanding can be both, binding and Non-binding in nature. While deciding the nature of the Memorandum of Understanding, the intention of the parties is taken into account while interpreting the document. Therefore, all the terms and text in the document must be clearly stated by the parties. 

The governing law for the Memorandum of understanding is the Indian Contracts Act 1872 therefore an agreement will be binding if it fulfills the conditions stated in the act. Section 10 of the Indian Contract Act states the essential conditions which need to be fulfilled: 

1. There must be an offer and acceptance made by the parties involved 
2. There should be a lawful consideration 
3. There should be a lawful object 
4. The intention of the parties must be to create a legal relationship
5. The consent of both the parties must be free, and
6. The parties must be competent to contract. 

If the parties lack the intention to create a legal relationship then the Memorandum of Understanding is not binding, and therefore none of the parties can sue for specific performance. The intent of the parties is interpreted from the text of the document. Therefore, before signing the document each of the parties must read all the terms conditions, and clauses mentioned in the document. 

This Article Does Not Intend To Hurt The Sentiments Of Any Individual Community, Sect, Or Religion Etcetera. This Article Is Based Purely On The Authors Personal Views And Opinions In The Exercise Of The Fundamental Right Guaranteed Under Article 19(1)(A) And Other Related Laws Being Force In India, For The Time Being.