The Mergers & Acquisitions Litigation Review: India


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

  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/put options, relief against 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 conflict of interest arising from insinuations of management kickbacks. The state may also initiate tax claims arising from the M&A transactions;
  4. third-party actions: whistle-blower complaints, class actions, and employee actions; and
  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.

Litigation in India is often viewed as an infinite game of chess. A strategically planned M&A dispute would usually 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 the primary objective of leveraging the relative bargaining position of the party in a settlement negotiation rather than winning a case before the judicial authority. M&A 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. The volume of M&A deals (US$82 billion across 1,756 reported deals in financial year 2020) can, however, provide an insight into the scope and volume of potential disputes.

Legal and regulatory background

M&A in India is governed by various 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 legislations governing M&A disputes in India are as follows.

i Contract Act and Specific Relief Act

The Indian Contract Act 1872 (the Contract Act), lays down the general principles relating to the formation, validity, and enforceability of contracts and the consequences of breach of contracts. It also deals with the various types of contractual relationships including nuanced contracts such as bailment, indemnity and guarantee. In addition, the Specific Relief Act 1963 (SRA), provides recourse to the aggrieved party to enforce specific performance of contracts and injunctions against breach. Recently, the SRA was amended to allow for specific performance to be a primary remedy available to a party and not only where damages would not provide adequate relief. Civil and commercial courts and arbitral tribunals have jurisdiction over the Contract Act and the SRA. Appeals and challenges to enforcement of award would lie before the superior civil courts and thereafter the High Court and the Supreme Court.

ii Companies Act

Companies form the predominant legal entities underlying M&A activity in India. The central legislative framework governing M&A structuring is the Companies Act 2013 (the Companies Act), which inter alia, sets out the laws governing issuance and transfer of securities, the framework for shareholder rights, class action suits and the procedures for mergers, amalgamations and arrangements for companies. The Ministry of Company Affairs and the Registrar of Companies provide regulatory oversight and investigative powers under the Companies Act. The National Company Law Tribunal (NCLT), a specialised statutory tribunal, is the judicial authority under the Companies Act. The NCLT has 16 benches, including one principal bench at New Delhi and regional benches in several states. Appeals from orders of the NCLT would be before the National Company Law Appellate Tribunal (NCLAT) and thereafter to the Supreme Court.

iii Securities and Exchange Board of India Regulations

For listed companies, a key area of compliance for 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 (the Takeover Code), which govern the rules around mandatory tender offers;
  2. the Securities and Exchange Board of India (Prohibition of Insider Trading) Regulations 2015, 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 (the Listing Regulations), which, inter alia, govern disclosures and duties of board and directors in an M&A situation and provide the additional requirements for mergers, amalgamation and arrangement 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 prosecution. Appeals in respect of SEBI orders would lie before the Securities Appellate Tribunal (SAT) and thereafter the Supreme Court.

iv Foreign exchange control regulations

A cross-border M&A would also be governed by the requirements of the Foreign Exchange Management Act 1999 (FEMA) (specifically the Foreign Exchange Management (Non-debt Instruments) Rules 2019 (the NDI Rules)), and the Foreign Direct Investment Policy of India (the FDI Policy), which governs foreign investment in India setting 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 Enforcement Directorate (ED). to enforce foreign exchange control laws. Orders of the RBI or the ED would be subject to judicial review of the High Court and the Supreme Court.

v Competition Act

The Competition Act 2002 (the Competition Act), regulates combinations (merger control) as well as anticompetitive behaviour. Specifically, M&A transactions that trigger the specified thresholds would require clearance from the Competition Commission of India and may result in orders of mandatory divestment as a condition of approval. The orders are often appealed before NCLAT and thereafter the Supreme Court.

vi Insolvency Code

The Insolvency and Bankruptcy Code 2016 (IBC) has recently become a popular route for acquisitions of companies in India. As of March 2020, a total of 221 acquisitions have 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 would lie before the NCLAT and thereafter the Supreme Court.

vii Tax

Another legislation that has an important bearing in M&A activity is the Income Tax Act 1961 (the IT Act). In addition to prescribing the tax treatment of M&As in India, the IT Act has in 2017 also made effective General Anti Avoidance Regulations, under which an arrangement may be disregarded if it is an impermissible avoidance arrangement. Appeals against orders of the Income Tax department would lie before the Income Tax Appellate Tribunal or judicial review of the relevant High Court and thereafter the Supreme Court.

viii Indian Penal Code

The Indian Penal Code 1860 is also often relied upon in M&A disputes pertaining to allegations of fraud and cheating. The Code of Criminal Procedure 1973 (CrPC) lays down the procedure for criminal proceedings, including investigation, in India. The powers of investigation under CrPC lie with the police authorities; however, financial crimes of high value are often investigated by the elite Economic Offences Wing of the police. The courts or the state government or central government may also refer the investigation to the Central Bureau of Investigation in appropriate cases pertaining to financial scams and serious economic frauds. The relevant investigation agency would file a report of its findings and a charge sheet before the appropriate criminal court having jurisdiction. Appeals and challenges to judgment of the court would rest with the superior criminal courts, if any, and thereafter the High Court and the Supreme Court.

Shareholder claims

i Common claims and procedures

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, the regulator played a bigger role in the protection of shareholders rights. In 2019, India ranked seventh 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.


M&A transactions often attract shareholder challenges pertaining to valuations. In general, courts are hesitant to grant relief in challenges to valuation of shares or in respect of share swap ratios in mergers because of its inherently subjective nature. In its landmark decision in Miheer H Mafatlal v. Mafatlal Industries Ltd,3 the Supreme Court held that valuation of shares is a matter of business judgment 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 by 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 also see an expanded scope of regulatory scrutiny by SEBI. Recent SEBI regulations mandate greater public shareholder participation, with certain mergers and schemes requiring approval of majority of the minority shareholders, a compliance report and valuation requirements.

SEBI has also commenced 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)8, whose parent had merged into Tenneco Inc. The target company's shares were infrequently traded in the stock exchanges and, therefore, their valuation was undertaken by two independent valuers who arrived at 372.10 rupees and 397.66 rupees, respectively. Based on these valuation reports, 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. Another such instance was during the open offer in relation to Accelya Solutions India Limited,9 wherein SEBI had passed an order for the appointment of an independent valuer basis shareholder complaints, which was appealed before the SAT. In this case, however, the SAT had refused to interfere and the valuation of the independent valuer is still pending.

Inadequate or inaccurate disclosures

The law allows shareholders to be entitled to accurate, relevant, and timely disclosures. While this is a developing area of jurisprudence in India, inadequate or wrong disclosures has been one of the 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, a shareholder alleged that there had been a failure to disclose the acquisition of shares in the target company. In this case, SEBI imposed a monetary penalty on the promoter of the company.10

Related party transactions

M&A 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 of the cases where related party M&A came under the scanner of the authorities was Satyam Computer Services Limited's (Satyam's) proposed acquisition of two related entities, Maytas Properties Limited (MPL) and Maytas Infra Limited (MIL) in December 2008 with 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 shareholder, with questions on corporate governance, that resulted in calling off the deal. Soon after, on 7 January 2009, a massive corporate fraud involving systematic auditing failures came to light that exposed the intended cover-up by Satyam in the guise of acquisition of MPL and MIL.

Whistle-blower complaints

Anonymous, shareholder and amployee whistle-blower complaints are often a source of concern in M&A transactions.

Illustratively, an anonymous whistle-blower 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 separate independent investigations and finally found that there had been no wrongdoing by the management or financial irregularities in the M&A transactions. The whistle-blower complainant, however, caused much disruption and distraction. Thus, companies would be well advised to strictly comply with processes and approvals in the internal actions leading up to an M&A transaction.

Oppression and mismanagement

A claim for oppression and mismanagement may be brought forward by a shareholder against the company for 'oppression, etc.' pursuant to Section 241 of the Companies Act. This is a remedy afforded to members of the company where it is believed that 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 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.

While, the Companies Act does not specify the precise nature of actions or conduct that would amount to oppression and mismanagement under Section 241 of the Companies Act, there are several judicial precedents that illustrate the conduct that amounts to such acts, and may include an abuse of predominant voting power by majority shareholders whereby the company property is usurped to the prejudice of the minority shareholders.11

Recently, Tata Sons Ltd, the holding company of one of India's largest conglomerates, the Tata Group, was subject to an oppression and mismanagement suit, 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 executive chairman of Tata Sons, and the wrongful interference by Mr Ratan N Tata and the Tata Trusts in the management of Tata Group Companies. The NCLAT, in a landmark order, waived the minimum shareholding threshold prescribed under the Companies Act, reinstated Mr Cyrus Mistry as executive chairman of Tata Sons, ordered Mr Ratan N Tata to desist from taking any decision in advance that requires majority decision of the board or shareholders and declared the conversion of Tata Sons from public company to private company as illegal. The NCLAT order is currently in appeal before the Supreme Court.

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, revaluation, freezing of director assets, setting aside of appointment of directors or re-appointment of directors, and setting aside of AGMs and the resolutions passed therein.

iii Advisers and third parties

Until very recently, claims against third parties and advisers were not as prevalent. However, with the introduction of new provisions under the Companies Act, the auditor role and recourse to auditors 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.12

Though there is limited jurisprudence on action against advisers and third parties in M&A litigation, there are two recent instances where auditors of Price Waterhouse Coopers and Deloitte Haskins and Sells LLP have been held accountable for defaults committed by companies they were auditing. In a recent case, 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, 1992.13 Recently, the central government notified the National Financial Reporting Authority, which is set to be an independent regulatory authority with sweeping powers to take actions against auditors.

It is also relevant to note that advisers of a company are generally also governed by their own professional bodies. Claims can also be instituted before these governing bodies against such advisers, for instance, a claim against an auditor may be instituted before the Institute of Chartered Accountants.

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

Similar to other jurisdictions, 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. This is the foundation of the principle that valuation falls outside the scope of judicial scrutiny. 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 company14 and its stakeholders.

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 transaction 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 the tribunal's jurisdiction did not extend to ascertain if the transaction is in interest of the investors, but was limited to verify that sufficient information is provided to shareholders to facilitate them to take an informed decision.15

Lack of locus and bona fide of claimant

The legal doctrine in India requires a petitioner to approach the courts with clean hands, which is no different for shareholder claims against a company. This doctrine has been acknowledged and reiterated by the courts in India in multiple cases, including in the case of Abdul Wahid Abdul Gaffor Khatri and Ors v. Safe Heights Developers Pvt Ltd and Ors.16 Here the Bombay High Court rejected an appeal from an order of the company law tribunal, on, inter alia, the ground that the shareholders (who were previously directors of the company) had approached the courts with unclean hands, as they had suppressed 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 or 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.17

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 was material enough to warrant a disclosure. However, in a recent order18 The SAT has demonstrated an inclination towards limiting the discretion of a company and has expanded the disclosure regime significantly. The case pertained to disclosure of 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. Electrosteel had claimed that the information was not material to its business and so no disclosure was warranted. However, the 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 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 duty 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. Such class can be formed by the least out of:

  1. shareholders holding two per cent of the issued share capital;
  2. 100 shareholders; or
  3. five 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.

As at the time of writing, no class action has been initiated against any company in India. Potentially, a wide variety of causes of action 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. If 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 or 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 500 listed company by market capitalisation subscribe to a liability insurance for all their independent directors) and is also the subject of limitation under the Companies Act (where a director or officer found guilty would find that the premium paid on the insurance would be treated as part of the 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.

Counterparty claims

i Common Claims and Procedure

Parties to domestic and cross-border M&A transactions often contract into arbitration as the preferred mode of dispute resolution. Recently, however, commercial courts have also become one of the viable forums for resolving complex commercial disputes.

Pertinently, the Commercial Courts Act prescribes for mandatory pre-litigation mediation, and the time during which the parties are occupied with pre-litigation mediation is not computed towards the limitation period.19 A settlement so arrived at between the parties is enforceable in the same manner as an arbitral award.20 It may also be relevant that the judiciary in India is actively promoting alternate dispute mechanisms such as mediation and conciliation. This is evident from the Supreme Court's judgment in the case of Salem Bar Association v. Union of India21 and more recently in the case of MR Krishna Murthi v. New India Assurance Co Ltd,22 where it asked the government to consider enacting the Indian Mediation Act to promote mediation and issued several directions to the government.


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 SEBI 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 plaintiff.23 While breach 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 exclusivity clause have 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, though historically 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 the underlying transaction. This issue has arisen in multiple cases. For instance, the Supreme Court24 refused to withdraw 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. A similar stance was taken in open offers of MARG Ltd,25 Golden Tobacco Limited26 and Jyoti Limited.27 However, in case of Wendt (India) Limited's open offer, SEBI had permitted the acquirer to withdraw it 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, which includes disputes relating to breach of representations or warranties, post-closing conditions and price adjustment mechanisms.

A breach of representation would entitle a non-defaulting party to void the transaction or claim indemnity or damages under the contract, 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 of 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 computation. 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 practices.

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;
  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 extent of secondary and expert evidence that may be required;
  5. staying power and available cash flow for litigation expenses (including accessibility to third-party funding of litigation);
  6. creditworthiness of 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, in order to avail an injunction the claimant must demonstrate a prima facie case; irreparable harm or damage; and that the balance of convenience lies in the favour of the claimant.28 Similarly, where damages are not predetermined, the courts usually grant reasonable damages for actual and foreseeable losses incurred by the plaintiff, which naturally arose in the usual course of things on account of the breach of obligations by the defaulting party.

iii Defences

The defendant in M&A litigation will typically set out a combination of factual and legal defences to claims. Factual defences include absence of breach or acquiescence/waiver. Legal defences include invalidity of contract, actual or constructive knowledge of the claimant and invocation of the principles of 'caveat emptor' that the truth could have been discovered by ordinary diligence and thus the contract cannot be rendered voidable.29

Cross-border issues

Some of the issues peculiar to cross border M&A are given below.

i Enforceability of put options

Foreign investors have conducted extensive litigation to enforce their put option rights against Indian counterparties, where the India party contended that the price at which the put option was sought to be enforced was in contravention of the pricing restrictions under the FEMA. In 2017, in NTT Docomo v. Tata Sons Ltd,30 the Delhi High Court 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 is 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. 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 a subject matter of contention in several M&A disputes.

The enforcement of a foreign arbitral award may be challenged where it is contended that subject matter of the dispute is not capable of settlement by arbitration under the laws of India; or that the enforcement of the award would be contrary to Indian public policy; or in the case of domestic award, 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,31 where the question of enforcement of arbitral award damages on account of inter alia fraudulent concealment 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. Yet another example can be found in Vijay Karia v. Prysmian Cavi E Sistemi SRL,32 which involved enforcement of an arbitral award passed by the 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 FEMA, was against public policy and unenforceable in India. The Supreme Court, in a landmark verdict, held that even a breach of FEMA would not result in the award being set aside on the ground that it violates the fundamental policy of Indian law.

iii Cross-border merger

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 judgment 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 because the definition of 'cross-border merger' under the recently enacted regulations does not include the term 'demerger'.33 In light of what might be a settled position of law soon, companies contemplating an outbound demerger route for a global acquisition or divestment may employ alternate routes such as slump sales.

Year in review

The commercial fallout of the covid-19 pandemic has placed force majeure and material adverse change-based claims at the forefront of M&A disputes between parties.

Another area of concern for parties has arisen from the policy decision taken by the government in respect of foreign investment restrictions on entities of a country that shares a land border with India. Although the policy is applicable to all countries sharing a land border with India, the most significant impact has been on investments by Chinese entities or entities with Chinese beneficial interest.

This past year has also witnessed an incremental increase in M&A through the corporate insolvency resolution process and brought to the fore the contentious interests of stakeholders in bankruptcy proceedings, resulting in a change of control. One such case is Committee of Creditors of Essar Steel India Limited v. Satish Kumar Gupta & Ors (Civil Appeal No. 8766-67 of 2019), in which the Supreme Court reaffirmed the primacy of the decision of the Committee of Creditors and the limited scope of judicial review.

Outlook and conclusions

It is now increasingly likely that covid-19 will have both a short-term and long-term impact on the business and operations of companies, including M&A transactions. Specifically, we anticipate material litigation to increase in respect of the key clauses of force majeure and material adverse effect in M&A contracts on account of the pandemic.

In a recent case, Energy Watchdog v. Central Electricity Regulatory Commission & Ors,34 the Supreme Court 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 the force majeure event;
  3. the event shall be considered as force majeure only if it was unforeseeable by the parties; and
  4. the event has rendered performance impossible or illegal.

Presently, there is a moratorium on fresh filings before the IBC for claims arising post March. This will likely reduce M&As going through the IBC route. The suspension of fresh insolvency proceedings may direct companies and their creditors to schemes under the Companies Act.

While the overall impact of covid-19 on M&A deals has yet to be fully realised, a reduction in overall deal activity is obvious. There has also been a definitive and seemingly permanent shift towards the digitisation of the commercial dispute resolution space. Arbitral tribunals and commercial courts have been conducting hearings and opting for filings exclusively through the use of technology since March 2020. We anticipate that the efficiencies of the digital process may drive a more permanent shift towards technology-enabled litigation in the coming decade.


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 2020.

3 AIR 1997 SC 506.

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

5 See 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 another v. Regional Director and Other, Company Appeal (AT) No. 285 of 2017 and CSP No. 995 of 2017 and Ajanta Pharma Limited CSP No. 996 of 2017 in CSA No. 791 and 792 of 2017 (NCLT Mumbai, 5 September 2018).

7 2015 (125) CLA 77 (Bom).

8 Securities Appellate Tribunal Order in the matter of Tenneco Inc v. SEBI, decided on 7 November 2019.

9 Aurora UK Bidco Limited v. SEBI, 2020 SCC OnLine SAT 92.

10 SEBI Adjudication Order No. EAD/KS/MKG/AO/215/2018-19, dated 19 December 2018.

11 Wholesale Society Ltd v. Meyer [1958] 3 All E.R. 56, 394. (relied by the Supreme Court in Shanti Prasad Jain v. Kalinga Tubes Ltd. MANU/SC/0368/1965).

12 Section 245 of the Companies Act.

13 SEBI Adjudication order in respect of Corporate Professionals Capital Pvt Ltd in the matter of Medicamen Biotech Ltd dated 31 October 2019.

14 Bajaj Auto Ltd v. NK Firodia 1970 INSC 0279.

15 SAT Order, Appeal No. 357 of 2019, decision dated 26 September 2019.

16 Bombay High Court, Company Appeal No. 22 of 2013 in CLB/Company Petition No. 52 of 2012 decided on 24 February 2018.

17 SEBI Order, WTM/PS/46/CFD/NOV/2014, decided on 21 November 2014.

18 SAT Order, Misc. Application No. 381 of 2016 and Appeal No. 223 of 2016, decision dated 14 November 2019.

19 Commercial Courts Act 2015, Section 12A.

20 Commercial Courts Act 2015, Section 12A.

21 (2003) 1 SCC 49.

22 2019 SCC Online SC 315.

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

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

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

26 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.

27 SEBI Order WTM/SR/CFD/39/08/2016 dated 1 August 2016.

28 M Gurudas and Ors v. Rasaranjan and Ors AIR 2006 SC 3275.

29 Section 19, Contract Act.

30 NTT Docomo v. Tata Sons Ltd (2017) SCC OnLine Del 8078.

31 2018 SCC OnLine Del 6869.

32 Judgment dated 13 February 2020, in the CA No. 1544 of 2020 and CA No. 1545 OF 2020.

33 Judgment dated 19 December 2019, in CP(CAA) No. 79/NCLT/AHM/2019 in CP(CAA) No. 38/NCLT/AHM/2019.

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

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