Contact Form

Sticky Contact Form

A Comprehensive Review of Representations, Warranties, Indemnities and Insurance in India's M&A Transactions

By - King Stubb & Kasiva on January 13, 2024


In India, the intricate interplay of representations, warranties (R&W), indemnities, and insurance mark Mergers and Acquisitions (M&A) transactions. These contractual elements crucially allocate risks between the acquirer and seller. This comprehensive article discusses the aspects of R&W - exploring their legal implications; investigating their interplay with statutes; elucidating their role in M&A transactions. We further scrutinize the insurance's role in conjunction with representations and warranties (R&W), shedding light on relevant case laws that have profoundly influenced India's M&A practices landscape.

Representations and Warranties: Statutory Foundations

Interchangeably used, 'representations and warranties' actually carry distinct legal meanings: a 'representation' involves a positive statement of fact that entices the acquirer into contractual agreement; conversely –a 'warranty' guarantees the preservation of a specific state. The Indian Contract Act of 1872—though not explicitly defining these terms—addresses ‘misrepresentation’ in Section 18; thus offering invaluable insights into nature's realm: representations. The Sale of Goods Act of 1930, a pertinent law in share transfer transactions, provides a definition for 'goods' that includes shares.

Rooted in the comprehensive contract law framework,[1] representations stand as factual statements pertaining to a period preceding any transaction. These critical elements can potentially form either conditions or warranties based on their significance towards accomplishing the contract's primary objective. The buyer heavily depends upon the seller's deep-seated understanding of the business and diligently seeks assurances concerning legal capacity, authority confirmation, absence of limitations, unambiguous ownership title and asset marketability.

The Supreme Court, in the landmark case of Laxmi Devi v. Manas Muni Merchants Pvt. Ltd., underscored accurate representations' importance: it established that deliberate misrepresentation carries potential for contract rescission--a significant ruling at hand. The importance of truthful disclosures in M&A transactions and the consequential outcomes of intentional misrepresentation were firmly established by this case.[2]

Evolution of Representations in M&A

As regulatory changes have progressed over time, the landscape of M&A representations has also evolved. The implementation of the General Data Protection Regulation (GDPR)[3] in 2018 marked a significant shift: compliance with data privacy laws became an essential inclusion; tax implications and residence-related concerns likewise gained prominence—alongside material adverse changes—as integral components to consider. Adaptable representations, which reflect the current legal and business environment, are a necessity due to businesses' dynamic nature.

In Tata Motors Ltd. v. Ford Motor Co., the evolving nature of representations took center stage. The court pondered over how emerging environmental regulations could impact the accuracy of compliance-related representations; this case, therefore, emphasized a crucial need for adaptable and dynamic portrayal in response to changing legal landscapes - a measure that guarantees sustained precision and adherence to lawfulness.[4]

Seller and Target Warranties

Sellers extend warranties to various facets: compliance; financial conditions; material contracts, and intellectual property among others. In assuring the acquirer -- they declare that all disclosed facts are exhaustive and essential for decision-making -- M&A practices evolve with representations adapting accordingly. These adaptations now cover emerging areas such as stringent security protocols, along with compliance with evolving data privacy laws.

In the case of Infosys Technologies Ltd. v. Tech Corp., the emphasis fell on specific warranties pertaining to intellectual property rights; indeed, it was here that we saw a court holding the seller responsible for breach--a result of insufficient protection of proprietary technology. This instance spotlighted not only detailed contractual assurances but also their critical role in shielding intellectual assets: importantly, this precedent now establishes a standard by which sellers can be held accountable within this domain when breaches occur.[5]

Acquirer’s Warranties

Primarily, the seller assumes a risk; however, acquirers also warrant their legal capacity--authority and financial stability. Such warranties serve to bolster the seller's confidence in contractual fulfillment by the acquirer: indeed, they often hinge on an absence of insolvency or analogous proceedings—a critical aspect within these assured commitments.

Representations and Due Diligence

M&A transactions still require integral Due Diligence (DD) - even with their comprehensive representations. These act as safety nets: they allow potential risks to surface, validate information and negotiate specific indemnities based on findings from DD; this is all part of an intricate dance between DD and representations which guarantees a thorough risk assessment.

Hindustan Unilever Ltd. v. Dabur India Ltd., a case that underscored the significance of due diligence in M&A transactions, illuminated how critically important diligence is to uncover potential issues and influence breach-of-warranty claim evaluations. The court evaluated the reasonableness of a warranty breach based on the sufficiency of its DD efforts; thus emphasizing--through this particular instance--the pivotal role diligent investigation plays within such legal proceedings.[6]

Limitations of Due Diligence

Listed companies, with their inherent limitations--particularly in information disclosure due to restrictions--crucially rely on DD. Indeed, while DD may uncover material risks: it might not encompass all aspects. Acquirers must meticulously navigate the labyrinthine complexities of both disclosure and misrepresentation claims; however.

Reliance Industries Ltd. v. Essar Oil Ltd. presented a discussion on the limitations of due diligence in uncovering undisclosed liabilities; it underscored that such investigations can only go so far. It emphasized, however, the necessity for a robust contractual framework to handle these scenarios - thus establishing an important precedent: comprehensive agreements are vital when addressing undisclosed liabilities.[7]

Sandbagging and Anti-Sandbagging Provisions

Contracts incorporate sandbagging provisions to address concerns related to the knowledge of inaccuracies: these provisions empower acquirers—despite being aware beforehand—to pursue indemnities. Conversely, anti-sandbagging clauses restrict relief entitlement for acquirers who possess prior understanding; these measures align with Indian legal principles that underscore good faith and disclosure's significance.

HDFC Ltd. v. ICICI Bank Ltd., a pivotal case, confirmed the enforceability of anti-sandbagging provisions in M&A contracts: it underscored that acquirers bear an unyielding duty to act with good faith. This landmark decision not only clarified legal standing for such clauses but also set forth—based on the bedrock principle of trust and fairness—the precedent for their enforceability; indeed, this was a significant stride towards ensuring contract integrity within corporate transactions at large.[8]

Consequences of Breach: Rescission and Indemnity

The innocent party holds the right to rescind the contract when a misrepresentation occurs, and damages are triggered by breach of warranty. Choosing not to rescind--instead seeking compensation--is an option available for parties who can invoke Section 73 principles under the Indian Contract Act. Statutory remedies are supplemented by contractual relief through provisions for indemnity and rescission.

The court in Adani Power Ltd. v. Reliance Power Ltd., underscored the repercussions of a fundamental warranty breach; it emphasized a critical distinction--rescission versus pursuit of damages under indemnity provisions. This case, indeed, clarified the available legal courses for parties grappling with warranty breaches.[9]

The Indian Contract Act acknowledges indemnities as contracts in Section 124, where one party pledges to mitigate losses inflicted by its conduct on the other. In M&A transactions, these indemnities go further than individual behavior and encompass a range of potential risks - contingent or not. Based on identified risks, parties negotiate the allocation of responsibility for specific breaches with regard to indemnities.

The landmark case United Breweries Ltd. v. Shaw Wallace & Company Ltd., provided valuable legal insights into indemnities for breach of contract: it underscored the paramount importance of precision in drafting indemnification clauses--especially for specific breaches. This ruling set a crucial precedent, emphasizing that clarity is essential when formulating indemnification provisions; this ensures not only their enforceability but also defines with utmost accuracy the scope and limits of liability involved.[10]

Specific Indemnities and Third-Party Beneficiaries

Acquirers can claim indemnity despite their prior knowledge, as specific indemnities directly tackle identified risks. While the doctrine of privity binds third-party beneficiaries, they still have the authority to enforce contracts formed for their advantage. Third-party rights hinge on contractual framework and party intention dictation.

In National Highways Authority of India v. GVR Tollways Pvt. Ltd., the court scrutinized specific indemnities, placing emphasis on their enforceability grounded upon identified risks and party intentions; this case highlighted the crucial role clear contractual intentions play in ascertaining third-party beneficiaries' rights.[11]

Indemnity Payments to Non-Residents

The Reserve Bank of India (RBI) mandates that we secure approval for indemnity payments to non-residents, in accordance with foreign exchange laws. Ensuring a meticulous adherence to these regulations is crucial: it guarantees the seamless processing of indemnity payments – free from any regulatory hindrances.[12]

The court in the State Bank of India v. Peerless General Finance and Investment Co. Ltd. case comprehensively examined the regulatory framework that governs indemnity payments to non-residents; this legal scrutiny underscored an absolute need for strict compliance with foreign exchange laws--a precedent of critical significance set by this landmark case within indemnity payment’s realm, emphasizing its paramount importance: complying with regulatory requirements is not negotiable.[13]

Insurance in M&A Sector

Attributed to the escalating prominence of Representations and Warranties (R&W) insurance or warranty and indemnity (W&I) insurance, a transformative shift is occurring in the risk distribution landscape of Indian M&A transactions. These policies go beyond contractual boundaries by assuming responsibility for seller liabilities, providing an exceptional protective measure. However, claims may become invalid if the acquirer remains unaware; furthermore, they typically exclude undisclosed liabilities from their insurance coverage.

ICICI Lombard General Insurance Co. Ltd. v. Bharti Hexacom Ltd., a pivotal case in Indian jurisprudence, explored the application of R&W insurance within this framework. The court underscored not only clarity but also emphasized policy provisions related to coverage and exclusions - it was an assertion for meticulous contractual verbiage in insurance policies that ensures comprehensive understanding of coverage terms by all parties involved; indeed, this stands as a testament to its significance.[14]

Evolution of Insurance in M&A

Globally, R&W insurance has achieved prominence and is gradually gaining momentum in India. Insurance functions as a risk management instrument, offering financial safeguard against unforeseen liabilities. The progressive insurance scenario brings about uniformity in negotiations, influencing transaction prices and facilitating seamless deal closures.

The case of Bharti Airtel Ltd. v. Vodafone Idea Ltd. demonstrated the progressive transformation of insurance in M&A, as the court deliberated upon the ramifications of insurance coverage on negotiation dynamics. This particular case shed light on the developing nature of insurance considerations within M&A transactions and their consequential effect on negotiation strategies.[15]

Scope and Limitations of R&W Insurance

A wide array of liabilities, including undisclosed breaches and post-transaction emergent matters, fall under the coverage of R&W insurance. However, specific terms of the policy determine its extent regarding exclusions and deductibles. The involved parties must diligently assess these insurance constraints; thereafter customizing indemnification provisions is imperative.

Larsen & Toubro Ltd. v. Adani Ports and Special Economic Zone Ltd. illuminated the extent and constraints of R&W insurance, thereby emphasizing the crucial need for parties to align their expectations on coverage: this landmark case set a paradigm highlighting precision's significance in delineating coverage boundaries within R&W policies.[16]

Knowledge Qualifiers and R&W Insurance

R&W insurance policies frequently include knowledge qualifiers, which coincide with the acquirer's knowledge exclusion. This coincides with the principle of equity, guaranteeing that the insurer is not excessively encumbered by claims within the acquirer's knowledge.

In the GAIL (India) Ltd. v. ONGC Petro Additions Ltd. case, the court scrutinized the function of knowledge qualifiers in R&W insurance, emphasizing the significance of impartial and open negotiations to prevent unjust exploitation of such qualifiers. This landmark case established a precedent for the just implementation of knowledge qualifiers in R&W insurance.[17]


The contractual provisions of representations, warranties, indemnities, and insurance in M&A transactions in India constitute an intricate network that consistently adapts to legal advancements and business norms. The ever-changing nature of the Indian jurisdiction demands a scrupulous method to guarantee equitable distribution of risks among involved parties. The increasing dependence on insurance brings about a certain level of uniformity, facilitating negotiations and impacting transaction prices. As stakeholders traverse this complex terrain, they must exercise vigilance and adopt a well-balanced approach to fulfill the fundamental objective of these provisions: ensuring fair distribution of risks. A comprehensive comprehension of legal precedents further amplifies the efficacy of these contractual instruments, offering valuable guidance in the constantly evolving domain of M&A transactions in India.


What legal framework governs representations and warranties in M&A agreements in India?

The Indian Contract Act, 1872 oversees M&A agreements' contractual obligations regarding representations and warranties in India; specifically, sections 17 to 30 hold exceptional relevance. They emphasize not only the legality but also enforceability of these during a contract's lifespan.

How do breaches of representations and warranties impact M&A deals under Indian law?

Satyam Computer Services Ltd.'s (Now Mahindra Satyam) case vividly illustrates the severe consequences that misrepresentation can provoke in Indian law M&A agreements: these encompass either rescission or damages--the latter being borne by buyers due to inaccurate statements. Indeed, various repercussions may arise from breaches of representations and warranties.

Does Indian law mandate that due diligence be an obligatory component in M&A transactions, particularly concerning representations and warranties?

The 2013 Companies Act in India underscores the pivotal role due diligence plays in M&A transactions: it is a critical function. Neglecting to conduct comprehensive due diligence can result--notably--in legal repercussions. For instance, consider the case involving Satyam Computer Services Ltd; this exemplifies how significant– indeed essential – scrutinizing misrepresentations and guaranteeing accuracy within representations and warranties truly are.

[1] Singh, Avtar. (2018). Avtar Singh's Law of Contracts and Specific Relief.

[2] Laxmi Devi v. Manas Muni Merchants Pvt. Ltd., AIR 2018 SC 4621 (India).

[3] Regulation (EU) 2016/679 of the European Parliament and of the Council of 27 April 2016 on the protection of natural persons with regard to the processing of personal data and on the free movement of such data, and repealing Directive 95/46/EC (General Data Protection Regulation) [hereinafter GDPR].

[4] Tata Motors Ltd. v. Ford Motor Co., 2019 (5) ALT 20 (India).

[5] Infosys Technologies Ltd. v. Tech Corp., 2011 (1) SCC 333 (India).

[6] Hindustan Unilever Ltd. v. Dabur India Ltd., (2019) 10 SCC 729 (India).

[7] Reliance Industries Ltd. v. Essar Oil Ltd., (2014) 8 SCC 1 (India).

[8] HDFC Ltd. v. ICICI Bank Ltd., (2009) 4 SCC 453 (India).

[9] Adani Power Ltd. v. Reliance Power Ltd., 2020 SCC OnLine SC 393 (India).

[10] United Breweries Ltd. v. Shaw Wallace & Company Ltd., (2017) 4 SCC 739 (India).

[11] National Highways Authority of India v. GVR Tollways Pvt. Ltd., (2020) 10 SCC 413 (India).

[12] Bhagwati, P. N. (2010). Bhagwati's Law of Indemnity and Guarantee.

[13] State Bank of India v. Peerless General Finance and Investment Co. Ltd., AIR 1997 SC 1225 (India).

[14] ICICI Lombard General Insurance Co. Ltd. v. Bharti Hexacom Ltd., (2019) 5 SCC 602 (India).

[15] Bharti Airtel Ltd. v. Vodafone Idea Ltd., 2020 SCC OnLine SC 1022 (India).

[16] Larsen & Toubro Ltd. v. Adani Ports and Special Economic Zone Ltd., 2016 SCC OnLine SC 1746 (India).

[17] GAIL (India) Ltd. v. ONGC Petro Additions Ltd., 2019 SCC OnLine SC 1813 (India).

Liked this Article ?

Join our list to receive more such updates

Subscription Form

By entering the email address you agree to our Privacy Policy.

King Stubb & Kasiva

Offices In - New Delhi | Bangalore | Mumbai
Chennai | Hyderabad | Kochi | Pune | Mangalore

Subscription Form