The Mergers & Acquisitions Litigation Review: India


Most mergers and acquisitions (M&A) bring distinctive challenges to the parties to the transaction. Broadly speaking, the common areas that trigger M&A disputes in India can be categorised as follows:

  1. value clawbacks: claims between parties that relate to post-closing price adjustments, indemnity or damages for breach of representations or warranties or standstill obligations or contractual covenants, and allegations of fraud;
  2. post-M&A shareholder disputes: specific enforcement of veto rights and covenants, call and put options, claims in relation to oppression and mismanagement;
  3. regulatory actions: for failure to discharge disclosure obligations, suspicious related-party transactions, valuation disputes, governance challenges for breach of duty of care or loyalty, and conflicts of interest arising from insinuations of management kickbacks. The state may also initiate tax claims arising from the M&A transactions. In the case of M&A transactions involving companies listed on stock exchanges, the market regulator may also initiate investigations and actions for breach of applicable securities market regulations;
  4. third-party actions: whistleblower complaints, class actions, actions by lenders or investors, and employee actions;
  5. no-deal claims: claims that result from failed transactions, enforcement of break fees, or pre-emptive rights such as the right of first offer or refusal.

A strategically planned M&A dispute could comprise multiple regulatory and judicial proceedings with the intention of causing the right degree of delay and nuisance to drive the counterparty towards a settlement. Litigation strategies are constructed with this primary objective of leveraging the relative bargaining position of the party in a settlement negotiation rather than winning a case before the judicial authority. Merger and acquisition disputes between transacting parties are thus often resolved by alternative mechanisms such as inter-party resolution, mediation or confidential arbitrations, making it difficult to provide an estimate of the number of M&A disputes in India. However, there is an insight into the scope and volume of potential disputes in M&A, with deal values in India for FY 2020–2021 amounting to over US$80 billion across 1,268 transactions, out of which M&A accounted for 50 per cent of the total deal value.

Legal and regulatory background

Mergers and acquisitions in India are governed by various pieces of legislation and regulations, with multiple authorities having jurisdiction over different disputes that may arise from an M&A transaction. This cross-section of laws and regulatory and judicial authorities in various permutations and combinations makes M&A litigation in India a specialised and nuanced practice.

The key substantive pieces of legislation governing M&A disputes in India are as follows:

i Contract Act and Specific Relief Act

The Indian Contract Act, 1872 (Contract Act) lays down the general principles relating to the formation, validity and enforceability of contracts and the consequences of breach of contracts. The Specific Relief Act, 1963 (SRA) provides recourse to the aggrieved party to enforce specific performance of contracts and for injunctions to prevent breach of contract. Civil and commercial courts and arbitral tribunals apply the applicable provisions of the Contract Act and the SRA to the dispute. The civil courts and arbitral tribunals are required to follow the procedure set out in the Code of Civil Procedure, 1908 and the Arbitration & Conciliation Act, 1996, as applicable. Appeals and challenges to orders, judgments and awards passed by the civil courts and arbitral tribunals could potentially be preferred before the superior civil court or the jurisdictional high court. The Supreme Court is the final court of appeal in the country.

ii Companies Act

Companies form the predominant legal entities underlying M&A transactions in India. The central legislative framework governing companies, and therefore, M&A, is the Companies Act, 2013 (Companies Act). The Companies Act, inter alia, sets out the laws governing the issuance and transfer of securities, the framework for shareholder rights, class action suits, and the procedure for mergers, amalgamations and arrangements for companies. The powers to investigate irregularities in the manner in which a company is functioning vest with the Ministry of Corporate Affairs, the Registrar of Companies and the National Company Law Tribunal (NCLT). The NCLT is the judicial authority for adjudicating disputes under the Companies Act, having 16 benches, including one Principal Bench at New Delhi and regional benches across the country. Appeals from orders of the NCLT lie before the National Company Law Appellate Tribunal (NCLAT) (which currently has benches in New Delhi and Chennai) and thereafter to the Supreme Court.

iii SEBI Regulations

For listed companies, a key area of compliance in M&A are securities regulations that are notified and enforced by the Securities and Exchange Board of India (SEBI). Illustratively, at the stage of acquisition, the key regulations that come into play are:

  1. the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 (Takeover Code), which govern the rules around mandatory tender offers;
  2. the Securities and Exchange Board of India (Prohibition of Insider Trading) Regulations, 2015 (Insider Trading Regulations), which govern information flow about the target and insider trading;
  3. the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015 (Listing Regulations), which, inter alia, govern disclosures and duties of boards and directors in an M&A situation and provide the additional requirements for mergers, amalgamations and arrangements for listed companies; and
  4. the Securities and Exchange Board of India (Delisting of Equity Shares) Regulations, 2009 where an acquisition may involve delisting of a listed company.

SEBI is the regulatory authority under securities regulations with the power to impose monetary penalties on defaulters and to initiate enforcement actions, including prosecutions. Appeals in respect of SEBI orders would lie before the Securities Appellate Tribunal (SAT) and thereafter the Supreme Court.

iv Foreign exchange control regulations

Cross-border M&A would also be governed by the requirements of the Foreign Exchange Management Act, 1999 (FEMA) and the rules and regulations made thereunder, including the Foreign Exchange Management (Non-debt Instruments) Rules, 2019, and the Foreign Direct Investment Policy of India (FDI Policy). The FDI Policy sets out, inter alia, the sectoral limits for specific sectors, eligibility, pricing and manner of investment in Indian companies. The Reserve Bank of India (RBI) is the primary regulator that works with the Directorate of Enforcement (ED) to enforce foreign exchange control laws. Orders of the ED are appealable before the Appellate Tribunal for Forfeited Property, and thereafter the Supreme Court.

v Competition Act

The Competition Act, 2002 (Competition Act) is the central legislation tat regulates combinations (merger control) and anticompetitive behaviour. Specifically, M&A transactions that trigger the specified thresholds would require clearance from the Competition Commission of India (CCI) and may result in orders of mandatory divestment as a condition of approval. Appeals challenges to the orders of the CCI lie before NCLAT and thereafter the Supreme Court. Moreover, a merger transaction cannot be completed in India without formal CCI approval, and if parties fail in notifying such a proposed transaction within the prescribed time frame or even act in furtherance of such a transaction, it is seen as an instance of gun jumping and can attract penalties under the Competition Act.

vi Insolvency Code

The Insolvency and Bankruptcy Code, 2016 (IBC) has recently become a popular route for acquisitions of companies in India. The IBC provides the framework for insolvency resolution of insolvent companies, which involves, at the first stage, an attempt to sell the company on a going concern basis, failing which, liquidation of the assets of the insolvent company. As of March 2021, a total of 348 acquisitions had been completed through the corporate insolvency resolution process under the IBC.2 The NCLT oversees the corporate insolvency process, and appeals from the orders of the NCLT lie before NCLAT and thereafter the Supreme Court.

vii Tax

Another piece of legislation that has an important bearing on M&A transactions is the Income Tax Act, 1961 (IT Act). In addition to prescribing the tax treatment of M&As in India, the IT Act in 2017 also made effective General Anti-Avoidance Regulations, under which an arrangement may be voided if it is an impermissible avoidance arrangement. Appeals against orders of the Assessment Officer of the Income Tax department would lie before the Income Tax Appellate Tribunal, and thereafter the Supreme Court. The Taxation Laws (Amendment) Bill, 2021 (which is currently pending approval of the President of India) proposes to amend the IT Act so as to provide that no tax demand shall be raised on the basis of the said retrospective amendment for any indirect transfer of Indian assets if the transaction was undertaken before 28 May 2012.

viii Indian Penal Code

The Indian Penal Code, 1860 (IPC) is also often relied upon in M&A disputes pertaining to allegations of fraud and cheating. The Code of Criminal Procedure, 1973 lays down the procedure for criminal proceedings, including investigation, in India. The powers of investigation lie with the police. Financial crimes are often investigated by the Economic Offences Wing of the police and the Special Fraud Investigation Office under the Companies Act and, in certain cases, the Central Bureau of Investigation. Cases involving money laundering are investigated by the ED under the Prevention of Money Laundering Act, 2002 (PMLA). Appeals and challenges to judgments or orders of the criminal courts would rest with the superior criminal courts, or the high court, as the case may be. Appeals against the order of the ED under the PMLA lies before the Appellate Tribunal under the PMLA. The Supreme Court is the final court of appeal.

The high courts and the Supreme Court also have the power to review any order or judgment of the lower courts and tribunals, either criminal or civil.

Shareholder claims

i Common claims and procedure

In the past decade, we have seen a steady shift in the transformation of minority shareholders from being passive bystanders to becoming active participants. Alongside this, the regulator has played a bigger role in the protection of shareholders' rights. In 2020, India was also ranked 13th in the World Bank's Ease of Doing Business Ranking in respect of protecting minority investors. In summary, the most common claims that are brought by shareholders are as follows:


Merger and acquisition transactions often attract shareholder challenges pertaining to valuation. In general, courts are hesitant to grant relief in challenges to the valuation of shares or in respect of share swap ratios in mergers because of its inherently subjective nature. In Miheer H Mafatlal v. Mafatlal Industries Ltd,3 the Supreme Court held that valuation of shares is a matter of business judgement and outside the scope of judicial scrutiny, which continues to be the precedent of reference.4 Time and again, courts have held5 that as long as the requisite statutory and legal formalities have been complied with, the 'commercial wisdom' of a scheme would not be questioned by the courts. However, the recent trend in the decisions of the NCLT demonstrates a widened scope of scrutiny to assess whether the proposed scheme is for the sole benefit of the promoters6 or the shareholders as a whole. In Re: Cadbury India Limited,7 the Bombay High Court even appointed a valuer to undertake an independent valuation pursuant to complaints filed by shareholders against the one arrived at by Cadbury India-appointed valuers.

We are also seeing an expanded scope of regulatory scrutiny by SEBI. Recent SEBI regulations mandate greater public shareholder participation, with certain mergers and schemes requiring approval of the majority of the minority shareholders and a compliance report, and also impose valuation requirements.8 SEBI has also commenced a review of valuation, specifically in the case of open offer pricing. One instance is the open offer pricing for Federal-Mogul Goetze (India) Limited (FMGL), whose parent had merged into Tenneco Inc. Based on valuation reports of independent valuers, the open offer for the shareholders of FMGL was launched at 400 rupees. However, pursuant to several complaints from shareholders on the open offer pricing, SEBI appointed a third valuer who arrived at a price of 600 rupees, following which the acquirer was directed to revise the open offer price. The SEBI decision was set aside by SAT citing the subjective nature of valuation.9 SEBI recently has also intervened in the matter of preferential allotment of shares of PNB Housing Finance Limited (PNB Housing) stating that PNB Housing had failed to uphold the interest of minority shareholders, and had directed the company to not issue a preferential allotment of its shares until the independent valuation of shares is complete.10 On appeal, SAT rendered a split verdict, due to which an interim order allows PNB Housing to seek shareholder approval for the deal at an extraordinary general meeting but mandates that the results be kept sealed, which shall continue until further orders.11

Inadequate or inaccurate disclosures

The law provides that shareholders are entitled to accurate, relevant and timely disclosures. While this is a developing area of jurisprudence in India, inadequate or wrong disclosures have been significant challenges faced by parties in M&A. Complaints for inadequate disclosure have been made by shareholders in many instances. Illustratively, in respect of the acquisition of Tirrihannah Company Limited, SEBI imposed a monetary penalty on the ground that there had been a failure to disclose the acquisition of shares in the target company.12 In addition to levying monetary penalties, SEBI recently had ordered 11 entities to make open offer to the shareholders of a listed company due to their failure to disclose the acquisition of shares of the company and failure to make a mandated open offer on two trigger events.13 The judicial trend appears to incline towards the principle of 'disclose even when in doubt'. In the case of ICICI Bank Limited v. SEBI,14 SAT was dealing with whether information relating to the signing of a binding implementation agreement entered into between ICICI Bank Limited and the dominant shareholders of the Bank of Rajasthan required immediate disclosure under Clause 36 of the Listing Agreement and Regulation 12(2) of the Insider Trading Regulations. SAT held that the information regarding the binding agreement was to be disclosed after signing and not after fulfilment of the conditions precedent as argued by ICICI Bank Limited.

Related-party transactions

Merger and acquisition transactions that involve related parties often find themselves at the centre of shareholder claims. Owing to the group or conglomerate holding patterns of Indian companies, this is a frequent issue in M&A disputes. One case where a related-party M&A came under the scanner of the authorities was Satyam Computer Services Limited's (Satyam) proposed acquisition of two related entities, Maytas Properties Limited (MPL) and Maytas Infra Limited (MIL) in December 2008 at a deal value of US$1.6 billion, because these were owned by the family and friends of the promoter of Satyam. The announcement of the deal attracted vehement opposition from the shareholders, with questions on corporate governance, which resulted in the deal being called off. Soon after, on 7 January 2009, massive corporate fraud involving systematic auditing failures came to light that exposed an intended cover up by Satyam in the guise of its acquisition of MPL and MIL.

Whistleblower complaints

Anonymous, shareholder and employee whistleblower complaints are also often a source of concern in M&A transactions. Moreover, in India, steps have been taken by regulatory authorities like SEBI to protect whistleblowers. SEBI has mandated that every listed company should have a whistleblower policy and make employees aware of such policy.15 SEBI has also increased the reward to 'informants' reporting violations of insider trading laws to SEBI to up to 100 million rupees.

Illustratively, an anonymous whistleblower complaint alleged that the CEO of a large listed company had received a kickback in an overvalued acquisition of a foreign company and that hush money had been offered to the former CFO to maintain silence on the matter. The board of the listed company undertook independent investigations and finally found that there had been no wrongdoing by the management or financial irregularities in the M&A transaction. The whistleblower complaint, however, caused much disruption and distraction. Thus, companies would be well advised to strictly comply with processes and approvals in their internal actions leading up to an M&A transaction.

Oppression and mismanagement

A claim for oppression or mismanagement may be preferred by members against the company pursuant to Section 241 of the Companies Act, when the affairs of the company are being conducted in a manner prejudicial to the interests of the company or prejudicial or oppressive to any member or members (including any one or more of themselves). The Companies Act mandates a number threshold (i.e., the lesser of 100 shareholders or one-10th of the total number of shareholders) and a percentage threshold (i.e., shareholders holding not less than one-10th of the issued share capital) for shareholders to bring forth a claim for oppression and mismanagement.

The Companies Act does not specify the precise nature of actions or conduct that would amount to oppression or mismanagement and leaves the same to be interpreted by the judicial authorities on the basis of facts of the case and judicial precedents.

Recently, Tata Sons Ltd, the holding company of one of India's largest conglomerates, the Tata Group, was subject to an oppression and mismanagement claim by its second-largest shareholder, the Shapoorji Pallonji Group. The challenge was focused on what was alleged to be the illegal removal of Mr Cyrus Mistry as the executive chair of Tata Sons, and the wrongful interference by Mr Ratan Tata and the Tata Trust in the management of Tata Group companies. The Supreme Court, in its judgment, overturned the decision of NCLAT that had reinstated Mr Cyrus Mistry as the chair. The Supreme Court, inter alia, held that neither the removal of a person from the post of executive chair, nor affirmative voting rights provided in the articles of association of a company, can be termed as oppressive or prejudicial in nature.16

Third-party intervention

Shareholder agreements between parties confer various rights that are unique to a transaction. These rights consist of, inter alia, right of first refusal, right of first offer and options. Recently, such contractual obligation of a company caused hindrances in an acquisition deal that could have been the largest domestic transaction of 2020. The acquisition of the Future Group retail, wholesale, logistics and warehousing business by Reliance Industries was disputed by Amazon NV Investment Holdings LLC (Amazon), which was an existing shareholder of Future Group. The Supreme Court, vide its order dated 6 August 2021,17 inter alia held that the interim award delivered by an emergency arbitrator under the Arbitration Rules of the Singapore International Arbitration Centre, which was in favour of Amazon, was enforceable under Indian law, thus effectively stalling the deal.

ii Remedies

The Companies Act provides an inclusive list of remedies available to shareholders. Further, the SEBI regulations provide wide powers to SEBI to ensure investor protection. In summary, remedies that are often availed by shareholders include nullification of shares allotted, mandatory buyout of shares at a determined value, re-valuation, freezing of director assets, setting aside the appointment of directors or the re-appointment of directors, and the setting aside of AGMs and the resolutions passed therein.

iii Advisers and third parties

Under the Companies Act, the role of and recourse to auditors and other third-party advisers have been significantly redefined. Further, a class action by members can be directly instituted against:

  1. the auditors for any improper or misleading statement in the audit report for any fraudulent or unlawful conduct; or
  2. any expert or adviser for any incorrect or misleading statement made to the company for any fraudulent or wrongful act or conduct. 18

The central government notified the National Financial Reporting Authority on 13 November 2018, which is set to be an independent regulatory authority with sweeping powers to take actions against auditors. Further, the Companies (Auditors Report) Order, 2020 has been introduced, which replaces the Companies (Auditors Report) Order, 2016 and provides enhanced disclosure requirements for the auditors of companies.

The Supreme Court, in the matter of PricewaterhouseCoopers, recently stayed an order of SAT which had held that SEBI's action of barring the auditors was punitive in nature and not within its jurisdiction when SEBI had taken actions against the auditors for defaults committed by companies that the auditors were auditing.19 In addition, the Bombay High Court set aside an order of the NCLT, Mumbai Bench, barring Deloitte Haskins & Sells and BSR Associates, a unit of KPMG, from practicing for five years on account of their role in the financial irregularities of a subsidiary of the IL&FS group of companies.20 SEBI imposed a penalty of 300,000 rupees on Corporate Professionals Capital Private Limited, a merchant banker, for failure to comply with its diligence obligations under the provisions of the Takeover Code and the SEBI (Merchant Bankers) Regulations, 1992.21

The advisers of a company are generally also governed by their own professional bodies; for example, auditors are regulated by the Institute of Chartered Accountants of India. Claims and grievances can also be instituted before these governing bodies against such advisers.

iv Defences

Depending on the allegations and based on specific facts and circumstances, defendants in a shareholder claim may raise several defences to ward off such shareholder claim, including the following:

Business judgement rule

The business judgement rule provides an underlying assumption that directors act in the best interest of the company and courts will not interfere with their decisions unless it clearly appears that they are guilty of fraud or misappropriation of corporate funds. Directors have the freedom to exercise all the powers vested in them under law and in the constitutional documents of the company as long as such action is in the best interest of the company and its stakeholders.22 The NCLT has also observed that the interference of the court has to be kept to a minimum in granting oppression remedies, respecting business decisions unless they are mala fide and thus have to be tested on the fulcrum of the business judgement rule.23

Due process

Drawing from the principles of corporate democracy and regulatory process, a mainstay defence that is often made is that of due process having been observed. Illustratively, both the Companies Act and the SEBI Listing Regulations provide a specific requirement for majority of minority approval for related-party transactions above a prescribed threshold. A notice was issued by Hotel Leela Ventures Ltd (Leela) to its shareholders seeking approval for a proposed sale of assets to Brookfield. ITC challenged the sale before SEBI and SAT, inter alia claiming that the directors and promoters of Leela were attempting to gain through the transactions with Brookfield. SAT, however, held that SEBI's jurisdiction did not extend to ascertaining if the transaction is in the interest of the investors, but was limited to verifying that sufficient information is provided to shareholders to facilitate them to take an informed decision.24

Lack of locus or bona fide of claimant

The legal doctrine in India requires a petitioner to approach the courts with clean hands, which is no different in the case of shareholder claims against a company. In Abdul Wahid Abdul Gaffor Khatri and Ors v. Safe Heights Developers Pvt Ltd and Ors,25 the Bombay High Court rejected an appeal from an order of the company law tribunal (the erstwhile tribunal for adjudicating company disputes) on, inter alia, the ground that the shareholders (who were previously directors of the company) had approached the courts with unclean hands by suppressing material facts such as indulging in various acts of misconduct, including running a parallel board of directors, holding meetings without notice and appointing or removing directors at their whim. Similarly, the suppression and concealment of facts by the complaining shareholder, specifically on his shareholding in the target company, before, during and after the open offer, was one of the reasons why SEBI refused to grant relief to the complainant in relation to the open offer for Global Offshore Services Limited.26

Adequacy of disclosure

Adequacy of disclosure has often been claimed as a defence by companies involved in disputes with shareholders. The Listing Regulations empower the board to make a determination of materiality for the purposes of disclosure. This often forms the basis of defence that it is the subjective discretion of the board, acting reasonably and in its fiduciary capacity, to determine whether a matter is material enough to warrant a disclosure. However, in a recent order pertaining to disclosure in the rejection of an application made by a promoter of Electrosteel Steels India Ltd to the Ministry of Environment and Forest (as it then was) in relation to the diversion of forest land for an iron ore mine located at Kodolibad, Jharkhand, SAT held that the emphasis of the regulations is on disclosure, not otherwise, signifying a disclosure is necessary even if the company doubts its materiality.27 Electrosteel had claimed that the information was not material to its business and so no disclosure was warranted. It may be noted a company is duty-bound to ensure that a false market is not created for its securities.

Director's defences

Directors can defend against personal liability on grounds of lack of knowledge (particularly for independent directors), recording of dissent and satisfaction of the legal standard of the duties of diligence, care and loyalty.

v Class and collective actions

In May 2019, the government notified the regulations under which a class would be eligible to pursue a class action under the Companies Act.28 Such class can be formed by the least out of:

  1. shareholders holding 2 per cent of the issued share capital;
  2. 100 shareholders; or
  3. 5 per cent of the total number of shareholders.

A proposal to provide financial aid to minority shareholders pursuing a class action lawsuit is also reportedly under consideration by the government.

To date, there has been no class action that has been initiated against any company in India under the Companies Act. Potentially, there is a wide variety of causes of action that may attract a class action, which include prejudicial conduct of the management that may harm the interests of the shareholders or company. A sudden fall in the stock price, often linked to a specific event, action or omission, allows the shareholders to quantify the compensation that may be sought. In the case that such event, action or omission can be attributed to a wrongful act or breach of fiduciary duty or the duty of care, it can result in considerable payouts by the listed company and its directors and auditors in the form of compensation to the investors.

vi Insurance and indemnification

Unlike in other jurisdictions, M&A insurance has not been an intrinsic part of M&A transactions in India, though there have been some instances of warranty and indemnity insurance in recent times.

Director and officer insurance finds stipulation under the Listing Regulations (which mandate that the top 1,000 listed companies by market capitalisation, with effect from 1 January 2022, subscribe to a liability insurance for all their independent directors) and is also the subject of limitation under the Companies Act29 (where a director or officer found guilty would find that the premium paid on the insurance would be treated as part of his or her remuneration).

vii Settlement

Parties are free to settle disputes through private negotiation at any time in the legal proceedings, provided that the crux of the issue is not a regulatory violation. In our experience, a large number of disputes settle once the legal proceedings are initiated and an interim favourable order has been obtained by one party. Further, with respect to regulatory disputes, SEBI has revised the settlement regime and introduced the SEBI (Settlement Proceedings) Regulations, 2018, which provide the types of proceedings that can be settled and the procedure for settlement of such proceedings.

Counterparty claims

i Common claims and procedure

The preferred form of dispute resolution for parties to domestic and cross-border M&A transactions is often arbitration. Moreover, with the recent judgments of the Supreme Court upholding interim awards given by a foreign seated tribunal,30 and allowing two Indian parties to elect a seat of arbitration outside India,31 the popularity of the mechanism is sure to increase among multinational corporations and majority owned subsidiaries of foreign companies. In addition to arbitration, commercial courts have also become one of the viable forums for resolving complex commercial disputes in the country.

Mediation is also fast gaining traction as a method of settling disputes between parties. The statutory provisions for mediation are embodied in Section 89 of the Code of Civil Procedure, 1908 and Part III (Sections 61 to 81) of the Arbitration & Conciliation Act, 1996. Further, Section 12A of the Commercial Courts Act, 2015 requires mandatory pre-proceeding mediation unless urgent reliefs are being sought, and a settlement, if reached, is enforceable as an arbitral award. Other special statutes, including the Real Estate (Regulation and Development) Act 2016 and the Consumer Protection Act 2019, also have voluntary mediation process. Moreover, India is also a signatory to the United Nations Convention on International Settlement Agreements Resulting from Mediation (New York 2018) (Singapore Mediation Convention), which gives mediation settlement in the country the force of law. The Singapore Mediation Convention came into effect from 12 September 2020. The two centres for international commercial arbitration, the New Delhi International Arbitration Centre and the Mumbai Centre for International Arbitration, providing arbitration on a par with what is offered by centres in developed countries, could attract adoption by the South Asian Association for Regional Cooperation in the near term.

It may also be relevant to note that the judiciary in India is actively promoting alternate dispute mechanisms such as mediation and conciliation. The Supreme Court has even constituted a committee to draft a mediation bill.


At the pre-signing stage, most counterparty M&A disputes relate to breach of confidentiality or non-disclosure agreements and exclusivity clauses. While for unlisted companies, confidentiality or non-disclosure agreements fall within the purview of contract law, confidentiality for listed companies includes compliance with the Insider Trading Regulations. A party may obtain an injunction in addition to damages for breach of confidentiality, especially in cases where such confidential information is used to compete against the party.32 A person who has obtained information in confidence is not allowed to use it as a spring board for activities detrimental to the person who made the confidential communication.33 While breaches of exclusivity clauses are not highly litigated matters in India, as there is limited scope to establish actual loss for damages, the threat of disputes for breach of an exclusivity clause has proved to be an effective tool for negotiation.


Disputes in the intermediate period between signing and closing are uncommon in India, as parties are typically unable to demonstrate loss for the pre-closing period. In this regard, it may be relevant to note that, while historically a break fee has not been a common practice in M&A transactions, break fee and reverse break fee clauses are gaining popularity in India. Another key area of dispute may arise in the pre-closing stage in India as a consequence of SEBI's reluctance to permit withdrawal of open offers despite the failure of an underlying transaction. This issue has arisen in multiple cases. For instance, the Supreme Court refused to direct withdrawal of the open offer of Shree Ram Multi Tech Limited despite a special investigation agency unearthing a fraud that could not have been discovered by the acquirer.34 A similar stance was taken in open offers for MARG Ltd,35 Golden Tobacco Limited36 and Jyoti Limited.37 However, in the case of Wendt (India) Limited's open offer, SEBI permitted the acquirer to withdraw its offer on, inter alia, the ground that a court order was responsible for the delay in completion of the open offer. SEBI also held that the open offer price would be significantly lower than the market price of the target company.


Typically, M&A disputes arise at the post-closing stage, including disputes relating to breach of representations or warranties, post-closing conditions and price adjustment mechanisms.

A breach of representations would entitle a non-defaulting party to void the transaction or claim indemnity or damages under the contract, or both, whereas a breach of warranty would only entitle the non-defaulting party to indemnity or damages under the contract. Typical defences would include the factual challenge of breach; the scope of knowledge qualifiers under the contract or attributable either to the buyer's own due diligence exercise or disclosures made by the seller or the target; or knowledge of the seller.

Post-closing price adjustments are often more litigated than pre-closing price adjustments, with the buyer stepping into the shoes of the seller and having higher access to information about the target. While price adjustments are usually considered an accounting matter, there are multiple legal issues that arise during the course of such exercise, which often pertain to the complexity of technical aspects and subjectivity underlying earn-out and working capital computations. In many instances, parties fail to provide for clear contractual parameters for price adjustment that position the dispute around the relative subjectivity of the two: the buyer's auditors and the seller's auditors. For instance, interpretation of the relevant accounting standard is often an area of dispute in post-closing adjustments where parties then seek to frame the approach based on past accounting practice.

Some of the relevant factors that may be kept in mind before bringing a claim include:

  1. review of the potential defences and counterclaims or regulatory complaints that the counterparty may avail itself of;
  2. any jurisdictional challenges on the proposed judicial forum (including a potential application for reference to arbitration or a claim of non-arbitrability);
  3. challenges to limitation;
  4. available documentary evidence and the extent of secondary and expert evidence that may be required;
  5. staying power and available cashflow for litigation expenses (including accessibility to third-party funding for litigation);
  6. creditworthiness of the counterparty to make good on the claim, if awarded; and
  7. potential challenges to the enforceability of decrees and arbitral awards (as discussed in more detail below).

ii Remedies

Parties in a contractual dispute have recourse to mandatory injunctions, damages, indemnification and specific performance. Each remedy is subject to the discharge of the applicable legal standard for availability of the remedy. For instance, to avail of an interim injunction, the claimant must demonstrate a prima facie case and irreparable harm or damage, and that the balance of convenience lies in his or her favour.38 Similarly, where damages are not predetermined, the courts usually grant reasonable damages for actual and foreseeable losses incurred by the plaintiff that naturally arose in the usual course of things on account of the breach of obligations by the defaulting party.39

iii Defences

Parties in M&A litigation typically present factual defences, there having been no breach or acquiescence or waiver and legal defences of invalidity of contract, actual or constructive knowledge of the claimant under the principles of caveat emptor that the truth could have been discovered by such an innocent party by ordinary diligence, and that the contract will not be rendered voidable at the option of such innocent party.40

iv Arbitration

If disputes arise under a contract that has an arbitration clause, the parties will have to agitate their disputes before an arbitral tribunal, subject to the arbitrability of the disputes under Indian laws. The nature of arbitration (i.e., whether domestic or international, ad- hoc or institutional) would depend on the agreement between the parties.

Cross-border issues

Some of the issues peculiar to cross-border M&A are as follows:

i Enforceability of put options

Foreign investors have run into extensive litigation to enforce their put option rights against Indian counterparties where the India party has contended that the price at which the put option was sought to be enforced would be in contravention of the pricing restrictions under the FEMA. However, in Banyan Tree Growth Capital, LLC v. Axiom Cordages Ltd,41 the Bombay High Court upheld the validity of a put option under the FEMA and Securities Contracts (Regulations) Act, 1956. The Court stated that merely because a contract has a put option in respect of securities, it does not become a contract in derivatives and such a contract does not provide an assured return to a foreign investor. The Delhi High Court, in NTT Docomo v. Tata Sons Ltd,42 held that if the obligations undertaken by the Indian party are absolute in terms of the contract, then notwithstanding the FEMA restrictions, the Indian party would be liable if the arbitral tribunal has awarded the amount by way of damages for breach of contract.

ii Governing law and enforcement of foreign arbitral awards

The substantive law chosen by the parties is the law that governs the underlying agreement. The parties may also provide separately for the law governing the arbitration agreement, failing which it is usually deemed to be the same as the law of the seat of the arbitration. The seat of the arbitration is important in as much as, unless otherwise specified, it determines the curial law applicable to the arbitration. The interplay of substantive, procedural and curial law has been the subject of contention in several M&A disputes.

The enforcement of a foreign arbitral award may be challenged where:

  1. it is contended that the subject matter of the dispute is not capable of settlement by arbitration under the laws of India;
  2. it is contended that the enforcement of the award would be contrary to Indian public policy; or
  3. in the case of domestic awards, if it is vitiated by patent illegality appearing on the face of the award only if the enforcement of the award would be contrary to the public policy of India.

The argument that an award is contrary to public policy has been taken up multiple times before the Indian courts. For instance, in the case of Daiichi Sankyo Company Limited v. Malvinder Mohan Singh,43 where the question of enforcement of arbitral award damages on account of, inter alia, fraudulent concealing and misrepresentation of material facts by the erstwhile Ranbaxy Laboratories Limited, the governing law was Indian law and the procedural law of the arbitration was the International Arbitration Act of Singapore. One of the issues raised by the respondent was that the award was unenforceable as it contravened the principles of Section 19 of the Contract Act for determining damages and, accordingly, was contrary to the fundamental policy of Indian law, morality and justice and, therefore, against the public policy of India. However, the court held that the award was not contrary to the fundamental policy of Indian law. Another example can be found in Vijay Karia v. Prysmian Cavi E Sistemi SRL,44 which involved the enforcement of an arbitral award passed by a sole arbitrator in London under the London Court of International Arbitration Rules (2014) in relation to breach of a joint venture agreement entered into by the parties. One of the contentions in the case was that the arbitral award, being in breach of the FEMA, is against public policy and unenforceable in India. The Supreme Court, in a landmark verdict, held that even a breach of the FEMA would not result in the award being set aside on the ground that it violates the fundamental policy of Indian law. Recently, the Supreme Court has also held that perversity or patent illegality is not a ground to set aside an international commercial award.45

iii Cross-border mergers

In 2018, the RBI issued the Foreign Exchange Management (Cross Border Merger) Regulations, 2018, laying down a detailed framework regarding inbound and outbound mergers, valuation norms and reporting requirements. However, in a recent order of the Ahmedabad Bench of the NCLT, the feasibility of the regulations was brought into question, wherein the NCLT rejected a request to approve an outbound demerger involving the transfer of specified undertakings of the demerged company to foreign companies since the definition of a cross-border merger under the recently enacted regulations does not include the term 'demerger'.46 In light of this, companies contemplating an outbound demerger route for a global acquisition or divestment may employ alternate routes such as slump sales.

Year in review

There has been a substantial increase in material litigation arising in respect of the key clauses of force majeure and material adverse effects in M&A contracts on account of the covid-19 pandemic.

In 2017, the Supreme Court, in Energy Watchdog v. Central Electricity Regulatory Commission & Ors,47 laid down guidelines on the availability of the force majeure exception. In summary:

  1. force majeure would apply only to events that are beyond the reasonable control of the parties;
  2. the party claiming relief would have to show whether best efforts have been taken to mitigate force majeure events;
  3. an event shall be considered force majeure only if it was unforeseeable by the parties; and
  4. the event has rendered the performance impossible or illegal.

The courts in India have held that covid-19 pandemic cannot be used as an excuse to resile from a contract. In Standard Retail Pvt Ltd v. GS Global Corp,48 the Bombay High Court refused to grant an injunction on the ground, inter alia, that there existed no direct link between the covid-19 pandemic and the non-performance of a contract.

Outlook and conclusions

It was anticipated at the start of the pandemic that M&A transactions would be widely affected due to the closure of business as usual; however, M&A transactions have largely been resilient and have seen only a slight dip.

The dip in the number of M&A transactions is also attributable to a moratorium on fresh filings, which was imposed in March 2020 under the IBC. The moratorium under the IBC ended as of 24 March 2021; however, as per reports, the number of corporate insolvency cases has stayed low.

Another trend that has evolved during the pandemic is an increase in acquisitions of entities operating within the same sector. A recent famous example is the acquisition of Uber Eats India (an erstwhile subsidiary of Uber Technology Inc) by Zomato Limited in January 2021, which helped Zomato consolidate its position in the booming sector of food and beverages delivery in the country.

The covid-19 pandemic has brought about a definitive shift towards the digitisation of the commercial dispute resolution space. Arbitral tribunals and commercial courts have been conducting hearings and opting for filings through the use of technology since 2020. Having experienced the tectonic shift in the corporate litigation sphere in FY 2020–2021, we acknowledge that the efficiencies of the digital process have made technology enabling litigation a permanent part of the dispute resolution landscape.


1 Cyril Shroff is a managing partner and Amita Gupta Katragadda is a partner at Cyril Amarchand Mangaldas.

2 Quarterly Newsletter of the Insolvency and Bankruptcy Board of India, January – March 2021.

3 AIR 1997 SC 506.

4 Blue Star Ltd with Blue Star Infotech Limited, 2000 (3) ALL MR 727.

5 Administrator of the Specified Undertaking of the Unit Trust of India v. Garware Polyester Ltd; AIR 2005 SC 2520; Kirloskar Electric Company Ltd, In re, [2003] Comp Cas. 413 (Karn); In Re: Operations Research (India) Ltd, [2000] CompCas 101(Guj).

6 Wiki Kids Limited and Anr v. Regional Director and Other, Company Appeal (AT) No.285 of 2017; In the matter of Gabs Investment Pvt Limited and Ajanta Pharma Limited, 2018 SCC OnLine NCLT 25562.

7 2015 (125) CLA 77 (Bom).

8 Regulation 23 of the Listing Regulations.

9 SAT order in Tenneco Inc v. SEBI, decided on 7 November 2019.

10 PNB Housing Finance Limited v. SEBI, 2021 SCC OnLine SAT 157.

11 SAT order in PNB Housing Finance Ltd v. SEBI, dated 9 August 2021.

12 SEBI adjudication order No. EAD/KS/MKG/AO/215/2018-19, dated 19 December 2018.

13 Order in the matter of Focus Industrial resource Ltd, dated 19 March 2020.

14 Appeal No. 583 of 2019, SAT order dated 8 July 2020.

15 Regulation 9A (6) of the Insider Trading Regulations.

16 Tata Consultancy Services Limited v. Cyrus Investments Pvt Ltd, 2021 SCC OnLine SC 272.

17 Amazon NV Investment Holdings LLC v. Future Retail Limited, 2021 SCC OnLine SC 557.

18 Section 245 of the Companies Act.

19 SEBI v. Price Waterhouse & Co, civil appeal No. 8567-8570/ 2019.

20 N Sampath Ganesh v. Union of India, 2020 SCC OnLine Bom 782.

21 SEBI adjudication order in respect of Corporate Professionals Capital Pvt Ltd in the matter of Medicamen Biotech Ltd, dated 31 October 2019.

22 Bajaj Auto Ltd v. NK Firodia (1970) 2 SCC 550.

23 Fidaali Moiz Mithiborwala v. STMPL Enterprises Pvt Ltd, 2017 SCC OnLine NCLT 960.

24 SAT order, appeal No. 357 of 2019, decision dated 26 September 2019.

25 2018 SCC OnLine Bom 693.

26 SEBI order, WTM/PS/46/CFD/NOV/2014, decided on 21 November 2014.

27 SAT order, misc. application No. 381 of 2016 and appeal No. 223 of 2016, decision dated 14 November 2019.

28 Section 245 of the Companies Act.

29 Section 197(13) of the Companies Act.

30 Amazon NV Investment Holdings LLC v. Future Retail Limited, 2021 SCC OnLine SC 557.

31 PASL Wind Solutions Private Ltd v. GE Power Conversion India Private Ltd, 2021 SCC OnLine SC 331.

32 Zee Telefilms Ltd v. Sundial Communications Pvt Ltd 2003 (27) PTC 457 (Bom).

33 Fairfest Media Ltd v. ITE Group PLC & Ors, 2015 SCC OnLine Cal 23.

34 Nirma Industries Limited v. Securities and Exchange Board of India, (2013) 8 SCC 20.

35 Securities and Exchange Board of India v. Akshaya Infrastructure Private Limited, (2014) 11 SCC 112.

36 SAT order, misc. application No. 95 of 2013 and misc. application No. 96 of 2013 and appeal No. 111 of 2012, decision dated 6 August 2014.

37 SEBI order WTM/SR/CFD/39/08/2016 dated 1 August 12016.

38 M Gurudas and Ors v. Rasaranjan and Ors, AIR 2006 SC 3275.

39 Steel Authority of India Ltd v. Gupta Brother Steel Tubes Ltd (2009) 10 SCC 63.

40 Section 19 of the Contract Act.

41 2020 SCC OnLine Bom 781.

42 NTT Docomo v. Tata Sons Ltd, 2017 SCC OnLine Del 8078.

43 2018 SCC OnLine Del 6869.

44 (2020) 11 SCC 1.

45 Gemini Bay Transcription Pvt Ltd v. Integrated Sales Services Ltd, 2021 SCC OnLine SC 572.

46 In the matter of Sun Pharmaceuticals Industries Limited, 2019 SCC OnLine NCLT 737.

47 Energy Watchdog v. Central Electricity Regulatory Commission & Ors, (2017) 14 SCC 80.

48 2020 SCC OnLine Bom 704.

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