A contract executed between a buyer and a seller under which the seller pledges to manufacture and supply certain goods according to specification of the buyer is called Istisna. This undertaking of production includes any process of manufacturing, construction, assembling or packaging. In Istisna, the work is not conditioned to be accomplished by the undertaking party and this work or part of it can be done by others under his control and responsibility. Istisna can also be used as an instrument of pre-shipment financing and it is a contract where the deal can be referred to something not in existence at the time of the contract.

Conditions & Key Features

• The concerned Agreement must contain the details, such as, the type, class, quantity and features of the goods to be produced, so that no misunderstanding is created later on.
• The price has to be settled; payment time/schedule and modes thereof is to be predetermined.
• When, where and on whose cost the goods to be supplied has to be clearly mentioned.
• If agreed by both parties, payment may be made in advance to the seller in part or in full or may be deferred to be paid in due course/ agreed time.
• Generally timeframe is not mandatory for supplying the goods under Istisna agreement. It may be executed without determining timeframe. But in case of bank, timeframe for supplying goods must be determined to avoid any dispute in future.
• Condition for imposing stipulated compensation/penalty may be included in the Istisna agreement against the party who breaches the terms of the agreement causing the other party to suffer. But no compensation/penalty would be imposed on any party if it happens for any valid reason or unavoidable circumstances.

As per opinion of the contemporary jurists, the compensation in case of Istisna may be treated as legal income.