PANORAMIC

PRIVATE M&A
India

LEXOLOGY
Contents
Private M&A
STRUCTURE AND PROCESS, LEGAL REGULATION AND CONSENTS
Structure
Legal regulation
Legal title
Multiple sellers
Exclusion of assets or liabilities
Consents
Regulatory Alings

ADVISERS, NEGOTIATION AND DOCUMENTATION

hppointed advisers
Duty of good faitm
DocuIentation

DUE DILIGENCE AND DISCLOSURE

Scope of due diligence
Liability for stateIents
Publicly available inforIation
FIpact of deeIed or actual knowledge

PRICING, CONSIDERATION AND FINANCING

DeterIining pricing
-orI of consideration
Earn,outsT deposits and escrows
-inancing
LiIitations on Anancing structure

CONDITIONS, PRE-CLOSING COVENANTS AND TERMINATION RIGHTS

Closing conditions
Pre,closing covenants
NerIination rigmts

REPRESENTATIONS, WARRANTIES, INDEMNITIES AND POST-CLOSING COVENANTS

Scope of representationsT warranties and indeInities
LiIitations on liability
Nransaction insurance
Post,closing covenants

TAX

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Nransfer taxes
Corporate and otmer taxes

EMPLOYEES, PENSIONS AND BENEFITS

Nransfer of eIployees
KotiAcation and consultation of eIployees
Nransfer of pensions and beneAts

UPDATE AND TRENDS

jey developIents

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Contributors
India
jmaitan & Co

Rajat Mukherjee [email protected]@coI

Sarthak Sarin sartmak@sarinHkmaitanco@coI
Utsav Lohia utsav@lomiaHkmaitanco@coI

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STRUCTURE AND PROCESS, LEGAL REGULATION AND CONSENTS

Structure
qow are ac?uisitions and disposals of privately owned coIpaniesT
businesses or assets structured in your .urisdiction( Wmat Iigmt a typical
transaction process involve and mow long does it usually take(
Fn FndiaT ac?uisitions and disposals of privately owned coIpaniesT businesses
or assets are typically structured pursuant to a binding deAnitive contract or
purcmase agreeIent@ Nme local law does not prescribe any forIat for tmese
purcmase agreeIents and parties mave tme autonoIy to negotiate tme terIs of
tme ac?uisition sub.ect to coIpliance witm applicable law@ hdditionallyT a private
coIpany can also be ac?uired by way of a Ierger pursuant to a court,approved
scmeIe of aIalgaIation@ qoweverT given tmat tme Ierger process is court,drivenT
Iergers are not a preferred structure for private ac?uisitions in Fndia unless tmere
are soIe Iutual tax beneAts@

Nme process of a private ac?uisition in Fndia varies depending on wmetmer tme

ac?uisition is structured as a smare purcmaseT business transfer or an asset
transferT and is driven by several otmer factors as well sucm as tme nuIber
of sellers )in case of a smare ac?uisition/T proAle of tme seller )ieT wmetmer a
private e?uity’venture capital or a strategic player/T deal valueT deal tiIelineT tme
sector in wmicm tme target’business operates and tme Iarket for tme proposed
assets’business@ SiIilarlyT between a bilateral negotiation and an auction processT
an auction process is not tmat coIIon in Fndia but is a preferred approacm wmere
tme seller is a private e?uity fund )and is selling Ia.ority ownersmip interests of an
Fndian coIpany/ or wmere tme target operates in a migm,perforIing sector witm a
vast secondary Iarket for its smares’business assets@

Fn FndiaT tme sale process can take up to tmree to six Iontms to closeT depending
on tme parties: level of sopmisticationT tme sector in wmicm tme target operates
)including tme need for any regulatory and tmird,party consents/T and generallyT tme
deal value and otmer paraIeters@ qoweverT wmen coIpared to an auction processT
a bilateral negotiation is relatively less streaIlined )usually owing to tme absence
of an investIent banker or deal adviser driving tme transaction process/ and largely
involves tme following steps2

• parties execute a non-disclosure/non-con;dentiality agreement to facilitate

discussions on the transaction,

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• parties execute a term sheetD outlining the key terms of the transaction
(including the exclusivity period),
• the buyer and its advisors undertake due diligence on the target (which is
typically undertaken for a look-back period of three years),
• simultaneously with the diligenceD a ;rst draft of the transaction documents
(which is typically a buyer-friendly or balanced draft) is prepared by the buyer
and negotiated between the parties,
• the agreed form of transaction documents are executed, and

• conditions to closing identi;ed during diligence and as agreed in the

transaction documents are completed by the parties prior to closing (and
where the signing and closing are simultaneousD such conditions are typically
completed prior to signing)D and the closing actions are undertaken on the
closing date.

Law stated - 9 January 2024

Legal regulation
Wmicm laws regulate private ac?uisitions and disposals in your
.urisdiction( Must tme ac?uisition of smares in a coIpanyT a business or
assets be governed by local law(
Nme local laws applicable to private ac?uisitions and disposals in Fndia differ
depending on tme forI of tme legal entity wmicm is being ac?uired or tme legal
forI of tme seller in case of a transfer of assets’business@ -or instanceT private
ac?uisitions involving an Fndian coIpany are principally sub.ect to tme )Fndian/
CoIpanies hct 013;T wmicm regulates tme regiIe for2 )3/ transfer or issuance of
securities of an Fndian coIpany8 and )0/ tme corporate approval re?uireIents for a
business or asset ac?uisition@ SiIilarlyT a transaction involving a sale of a liIited
liability partnersmip )LLP/ or a disposal of business or assets by an LLP is governed
by tme LiIited Liability Partnersmip hct 0119@

Private ac?uisitions involving a foreign buyer or seller additionally attracts

tme applicability of tme -oreign Excmange ManageIent hct 3BBB )and tme
regulations’directions issued tmereunder/T wmicm is tme principal law governing
botm inbound and outbound investIents@ hdditionallyT wmere a target entity is
operating in a regulated sector )sucm as banking or insurance/T tme ac?uisition
would also trigger tme applicability of certain special sectoral laws )sucm as tme
4anking Regulation hct 3BzB and tme Fnsurance Regulatory and DevelopIent
hutmority hct 3BBB/@

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-urtmerT froI a nexus perspectiveT wmere tme contracting parties to an ac?uisition

are doIestic’Fndian partiesT tmen as a Iatter of practiceT tme governing law
is tme local or Fndian law@ qoweverT wmere one of tme contracting parties is
a foreign partyT tmen tme parties mave tme autonoIy to cmoose law of any
.urisdiction as its governing law@ KonetmelessT wmere tme governing law is otmer
tman Fndian lawT tmen froI an enforceability perspectiveT tme rigmt cmoice of tme
dispute resolution IecmanisI becoIes iIportantT sinceT unlike arbitral awards
passed by an international arbitration institution wmicm are directly recognised
and )sub.ect to certain conditions/ enforceable in FndiaT .udgIents passed by
courts in a non,reciprocating country )ieT a country wmicm is not included in tme list
of reciprocating countries as notiAed by tme Fndian governIent/ are not directly
enforceable in Fndia and a foreign party will need to institute a suit against tme
Fndian resident party in a local Fndian court and establism its claiI based on tme
decision passed by tme foreign courtT wmicm is an ine‘cient process botm froI a
tiIe and cost perspective@

Law stated - 9 January 2024

Legal title
Wmat legal title to smares in a coIpanyT a business or assets does a buyer
ac?uire( Fs tmis legal title prescribed by law or can tme level of assurance
be negotiated by a buyer( Does legal title to smares in a coIpanyT a
business or assets transfer autoIatically by operation of law( Fs tmere a
difference between legal and beneAcial title(
Fn FndiaT tme IecmanisI for transfer of legal title to an asset differs depending on
tme nature of tme ac?uired assets )ieT smaresT contractsT tangible Ioveable assets
or iIIovable property/@ -or instance2

• in the context of physical sharesD title is transferred by execution of duly

stamped share transfer formsD and endorsing or recording the name of
the buyer in the underlying share certi;cates and the register of members
statutorily maintained by the target. On the other handD where the shares
are in a dematerialised formD the transfer is effected electronically through
the depository participants (–P) (ieD a registered ;rm maintaining securities
account in which the dematerialised securities are held on behalf of the
holder) of the partiesD pursuant to written instructions issued by the parties,
• in the context of an asset transfer involving tangible moveable assetsD the
title to the tangible moveable assets is transferred by delivery of physical
possession of the assets pursuant to a delivery note executed between the
parties, and

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• in the context of a business transferD while the transaction as a whole is

captured in an umbrella purchase agreementD each of the assets forming part
of the business are transferred to the buyer pursuant to different mechanisms
which are clearly de;ned in the purchase agreement : for instanceq (a)
tangible moveable assets are transferred by delivery of possession pursuant
to a delivery noteD (b) business contracts (including software and licensed
IP) are transferred by way of an assignment or novation deed (as applicableD
depending on the terms of the underlying contracts), (d) owned intellectual
property is assigned to the buyer pursuant to a duly stamped assignment
agreement, (e) owned real property (if any) is delivered to the buyer pursuant
to duly stamped and registered conveyance deed.

SeparatelyT autoIatic transfer of title by operation of law is perIissible under

Fndian coIpany lawT but only in tme context of smaresT wmereby on tme deatm of
a smaremolderT tme title to tme smares is transferred to tme legal meir by way of
transIission and sucm cmange in ownersmip is registered by tme coIpany upon
intiIation by sucm legal meir@

LastlyT as far as tme beneAcial and legal ownersmip is concernedT Fndian coIpany
law recognises a distinction between sucm nature of ownersmip in tme context of
smaresT wmereby2 )3/ a beneAcial owner is one wmo mas paid tme consideration
for tme ac?uisition of smares and mas noIinated anotmer person to mold tme
legal ownersmip in sucm smaresT )0/ a legal owner is one wmose is recorded as a
legal owner in respect of tme smares in tme coIpany:s statutory recordsT witm tme
beneAcial interest resting witm tme beneAcial owner@ Fn factT tmis construct is fairly
coIIon in case of wmolly owned subsidiaries in FndiaT given tme re?uireIent under
Fndian law for every private coIpany to mave a IiniIuI of two smaremolders@
Wmere tme legal and beneAcial owners in respect of a smare of an Fndian coIpany
are differentT tmen botm sucm owners are re?uired to disclose tme fact of tmeir
separate ownersmip to tme coIpany in tme prescribed forIat and tme coIpany is
tmereafter re?uired to record sucm fact in tmeir statutory registers and furtmer report
sucm nature of ownersmip to tme relevant autmority@

Law stated - 9 January 2024

Multiple sellers
SpeciAcally in relation to tme ac?uisition or disposal of smares in a
coIpanyT wmere tmere are Iultiple sellersT Iust everyone agree to sell for
tme buyer to ac?uire all smares( Ff notT mow can Iinority sellers tmat refuse
to sell be s?uee–ed out or dragged along by a buyer(

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Fn tme context of a coIplete ac?uisition of a private coIpany witm a dispersed

smaremolding patternT all sellers mave to agree to sucm tme ac?uisition and are
re?uired to undertake certain prescribed actions for tme transfer of tmeir respective
smares to tme buyer@ Wmere tmere are dissenting sellersT a 311 per cent ac?uisition
can conse?uently be cmallenging as Fndian law does not provide an absolute rigmt
to a buyer or Ia.ority seller to force tme Iinority to transfer tmeir smares in a private
coIpany@ Wmile Ieasures are available under Fndian coIpany law to s?uee–e out
tme Iinority smaremolders pursuant to a capital reduction or an offer to ac?uire
tme Iinority molding 31 per cent )or less/ ownersmip interestT tme success of sucm
procedures is uncertain as tme capital reduction process is sub.ect to approval
froI tme coIpany court and as far as tme Os?uee–e,out: IecmanisI is concernedT
tme law provides tme Iinority smaremolders tme rigmt to cmallenge tme Os?uee–e,out:
offer before tme coIpany court on tme ground tmat tme offer is unfair to tme Iinority
smaremolders@

qoweverT as a Iatter of practiceT it is coIIon for tme Ia.ority smaremolder

to put in place a smaremolders: agreeIent in a private coIpany witm a
dispersed smaremolding pattern and sucm smaremolder: agreeIents often contain
a contractually negotiated drag,along rigmt or call option rigmt in favour of tme
Ia.ority smaremolder or seller@

Law stated - 9 January 2024

Exclusion of assets or liabilities

SpeciAcally in relation to tme ac?uisition or disposal of a businessT are
tmere any assets or liabilities tmat cannot be excluded froI tme transaction
by agreeIent between tme parties( hre tmere any consents coIIonly
re?uired to be obtained or notiAcations to be Iade in order to effect tme
transfer of assets or liabilities in a business transfer(
No ensure tax neutralityT business transfers are often structured on a sluIp
sale basis U wmicm is a transfer of a business undertaking as a wmoleT on a
going concern basis )ieT tme business is capable of running on its own on a
standalone basis witmout any interruption/T for a luIp suI consideration )ieT
witmout assigning any individual values to tme transferred assets underlying tme
business/@ hccordinglyT all tme assets and liabilities forIing part of tme business
undertaking Iove to tme buyer@ qoweverT except goodwill pertaining to tme ac?uired
businessT in practice tmere is soIe leeway for parties to agree on tme assets and
liabilities wmicm will be ac?uired or excluded as part of tme transaction@

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6n tme otmer mandT unlike a business transferT in case of an asset ac?uisitionT tme
parties mave Iucm Iore Vexibility to cmerry,pick tme assets tmat forI part of tme
transaction and tmere are no restrictions froI an Fndian law and tax perspective@

Wmere tme seller is operating in a regulated sector or is based out of a regulated

–one )sucm as a special econoIic –one/T transfer of business or assets is
often sub.ect to prior approval of tme relevant regulatory autmorities@ SeparatelyT
a business transfer or asset purcmase Iay also trigger consent or notiAcation
re?uireIents )if any/ under tme operational contracts or loan agreeIents of tme
seller or targetT and all sucm consents are typically identiAed by tme parties as part
of tme due diligence review@

Law stated - 9 January 2024

Consents
hre tmere any legalT regulatory or governIental restrictions on tme transfer
of smares in a coIpanyT a business or assets in your .urisdiction(
Do transactions in particular industries re?uire consent froI speciAc
regulators or a governIental body( hre transactions coIIonly sub.ect
to any public or national interest considerations(
Fn FndiaT free convertibility of capital is not perIitted and all investIents )wmetmer
direct or indirect/ into Fndia are regulated by Fndian excmange control regulations@
7nder tme Fndian excmange control lawT a foreign investIent is perIitted
under tme following routes2 )3/ autoIatic routeT wmerein foreign investIent is
allowed up to 311 per cent in perIitted sectors )sucm as FN’FNeST wmolesale
tradingT IanufacturingT and construction/ witmout any governIent approval8 and
)0/ approval’governIent routeT wmerein foreign investIent in certain sensitive
sectors )sucm as defenceT brownAeld pmarIaceuticalT retail tradingT insuranceT and
print Iedia/ re?uire governIent approval and tme investIent is sub.ect to sectoral
caps and’or otmer prescribed entry conditions@

hdditionallyT Fndia mad enacted a new regulation in 0101 wmereby Fndian coIpanies
mave been restricted froI accepting any foreign investIents )direct or indirect/
froI any entity based out of )or wmose beneAcial owner is situated in or is a citi–en
of/ any of tme countries tmat smare a land border witm Fndia )including PakistanT
KepalT 4angladesmT MyanIar and CminaT wmicm for abundant cautionT also includes
qong jong/ witmout tme prior approval of tme Fndian governIent@

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-urtmerT Fndian antitrust law also prescribes certain assets’turnover,based

tmresmolds )for instanceT wmere tme value of tme buyer:s and target entity:s
coIbined assets exceeds 01 billion Fndian rupees or coIbined turnover exceeds
51 billion Fndian rupees to deterIine wmetmer an ac?uisition is notiAable to )and
re?uires approval froI/ Fndia:s anti,trust regulator )ieT CoIpetition CoIIission of
Fndia )CCF//@ Wmere an ac?uisition breacmes any of tme prescribed tmresmoldsT tme
parties would be re?uired to notify tme CCF and obtain its prior approval for tme
coIpletion of tme transaction@ Fn tmis regardT Fndia mas also recently introduced
)wmile not effective yet/T a new notiAcation tmresmold )Deal Galue Nmresmold/ wmere
global M&h deals will also re?uire a notiAcation to tme CCF if2 )3/ tme target mas
Osubstantial business operations in Fndia:8 and )0/ tme value of tme transaction
exceeds 01 billion Fndian rupees@

qoweverT except wmere a transaction breacmes tme Deal Galue Nmresmold )once
effective/T tme antitrust law also provides an exeIption froI CCF notiAcation or
approval )until 09 Marcm 010$/ to ac?uisitions wmere tme total book value of assets
of tme target in Fndia does not exceed ;@‐ billion Fndian rupees or tme total turnover
of tme target does not exceed 31 billion Fndian rupees in Fndia in tme iIIediately
preceding Anancial year )SIall Narget ExeIption/@

LastlyT transactions in regulated sectors )sucm as banking or insurance/ Iay also

re?uire approval froI tme respective sector regulator under tme sectoral laws@ -or
instanceT ac?uisition of Iore tman ‐ per cent of tme paid,up smare capital of an
insurance coIpany re?uires tme prior approval of tme Fnsurance Regulatory and
DevelopIent hutmority of Fndia@

Law stated - 9 January 2024

Consents
hre any otmer tmird,party consents coIIonly re?uired(
7nder Fndian coIpany lawT any transfer or sale of smares does not re?uire tme
approval of tme smaremolders@ qoweverT in tme context of a private coIpany witm
dispersed smaremolding patternT it is coIIon for tme smaremolders to restrict tme
transfer of smares of tme target coIpany in tme smaremolders: agreeIent and’or
tme articles of associationT in wmicm case sucm smare transfers are sub.ect to
smaremolders: approval@

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6n tme otmer mandT in tme case of a sale of substantial or wmole undertaking by a

private coIpanyT private coIpanies are exeIpted froI tme smaremolder approval
under Fndian coIpany law@ qoweverT despite tme exeIptionT it is standard for
private coIpanies witm investors to mave restrictions in tme cmarter docuIents
)or smaremolders: agreeIents/ sub.ecting transfer of assets or business to
smaremolders: approval@

SeparatelyT any otmer tmird,party consent re?uireIents )in tme context of a cmange
in ownersmip or control of a coIpany or transfer of business or assets/ would
typically Vow froI tme operational and Anancing arrangeIents tmat tme target
coIpany or seller mas in place@

Law stated - 9 January 2024

Regulatory mlings
Must regulatory Alings be Iade or registration )or otmer o‘cial/ fees paid
to ac?uire smares in a coIpanyT a business or assets in your .urisdiction(
6tmer tman any antitrust Alings described above )if applicable/T doIestic
ac?uisitions do not trigger any regulatory Alings or registrationsT unless tme target
operates in a regulated sector )for instanceT bankingT insurance or defence/@

6n tme otmer mandT a smare ac?uisition involving a non,resident seller or a buyer

re?uires tme Fndian resident party to report tme transaction to tme Reserve 4ank of
Fndia )R4F/ in tme prescribed Ianner@ SiIilarlyT under Fndian excmange control lawsT
any ac?uisition of smares of an Fndian coIpany by anotmer Fndian coIpany )wmicm
is foreign owned and controlled/ is re?uired to reported by sucm coIpany to R4FT
sub.ect to certain prescribed conditions@

Law stated - 9 January 2024

ADVISERS, NEGOTIATION AND DOCUMENTATION

Appointed advisers
Fn addition to external lawyersT wmicm advisers Iigmt a buyer or a seller
custoIarily appoint to assist witm a transaction( hre tmere any typical
terIs of appointIent of sucm advisers(
6tmer tman external lawyersT advisers are typically engaged by tme parties
depending on certain factors sucm as deal coIplexityT deal valueT target:s sectorT

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regulatory interface and wmetmer tme deal is structured as an auction deal or

otmerwise@ -or instanceT in case of an auction dealT it is coIIon for tme seller to
appoint a transaction or Anancial adviser to lead and Ianage tme auction process@
hdditionallyT in addition to custoIary Anance and tax diligenceT if a buyer wismes to
conduct a due diligence in respect of tecmnical and environIental IattersT tmen in
addition to Anancial and tax advisorsT tme buyer will appoint additional specialists
to carry out sucm diligences and assist witm resolving tme issued Vagged pursuant
to tmeir diligence review@

Nmese professional advisersT in Iost casesT mave standard terIs of engageIent

tmat Iay be negotiated to soIe extent by parties@ -urtmerT tme ?uantuI and nature
of fees differs across advisers@ -or instanceT investIent bankers typically cmarge
a success fee tmat aIounts to a certain percentage of tme deal value and would
be contingent on tme coIpletion of tme deal@ Wmereas tme billing arrangeIent witm
otmer advisers )including legal or Anancial advisers/ varies froI a luIp suI rate to
mourly rates depending on tme service providerT scope of services and tme service
provider:s relationsmip witm tme client@

Law stated - 9 January 2024

Duty of good faith

Fs tmere a duty to negotiate in good faitm( hre tme parties sub.ect to any
otmer duties wmen negotiating a transaction(
7nlike certain foreign .urisdictionsT tme doctrine of good faitm is not statutorily
recognised in FndiaT and tme extent of its application and scope of interpretation
is priIarily driven by Fndian courts and is speciAc to tme facts of eacm
case@ hccordinglyT under Fndian lawT parties are generally free to pursue tmeir
own interests wmile entering into a contract@ qoweverT parties Iay agree to
contractually iIpose sucm obligations on eacm otmer@

SeparatelyT under Fndian coIpany lawT tme directors of an Fndian coIpany are
generally bound by certain codiAed duties wmicm re?uire tmeI to always act in
good faitmT witm due and reasonable careT and in tme interests of tme coIpanyT its
smaremolderT its eIployees and tme coIIunity at large@ qoweverT tmere are no sucm
statutory obligations or duties iIposed on tme smaremolders of a private coIpany@

Law stated - 9 January 2024

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DocuKentation
Wmat docuIentation do buyers and sellers custoIarily enter into wmen
ac?uiring smares or a business or assets( hre tmere differences between
tme docuIents used for ac?uiring smares as opposed to a business or
assets(
Fn FndiaT a smare ac?uisitionT asset transfer or business transfer entered by parties
is docuIented in a purcmase agreeIent@ 6tmer tman tme purcmase agreeIentT an
indicative list of tme docuIents tmat tme parties typically enter into are as following2

• a non-disclosure and con;dentiality agreement regulating the exchange of

proprietary and con;dential information to facilitate the transaction,
• a non-binding term sheet outlining the key terms of the transaction agreed
between the parties
• in case of a bid process undertaken by the sellerD a binding bid offer letter
setting out the terms of the offer agreeable to the buyer,
• in the context of share acjuisitionsD amended and restated employment
agreements and/or retention bonus letters may also be executed with
members of the senior management of the target,
• disclosure schedules setting forth the speci;c disclosures that jualify
the respective representations and warranties included in the purchase
agreement, and
• documents to effect the closing of the transactionD which would include share
transfer forms (in case of a share acjuisition)D and delivery note along with IP
assignment deeds (in case of asset or business transfers).

SeparatelyT tme forI and substance will differ depending upon wmetmer it is a smare
ac?uisition or business or asset transfer@ -or instanceT a smare purcmase agreeIent
will mave a Iore robust representations and warranties package and tme seller will
typically stand bemind tme indeInity@ 6n tme otmer mandT tme representations and
warranties in a business or asset purcmase agreeIent are Iore focused on tme
business or assets and coIe froI tme seller entity itself andT depending on tme
bargaining power and tme Anancial wmerewitmal of tme seller entityT tme smaremolder
Iay or Iay not stand bemind tme indeInity@

Law stated - 9 January 2024

DocuKentation

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hre tmere forIalities for executing docuIents( hre digital signatures

enforceable(
Wmile tmere are no prescribed forIalities in terIs of executing docuIents in
an M&h transaction in FndiaT parties typically excmange board resolutions )or
sucm otmer entity,level or individual autmorisation docuIent as Iay be applicable/
wmereby tme autmority to sign mas been delegated to signatories to ensure tmat
signatories of tme respective parties mave tme re?uisite autmority to execute and
deliver tme transaction docuIents@

Wmile Fndian law recognises tme use of digital signaturesT its use is restricted by
certain prescribed criteria or tmresmolds U for instanceT tme digital signature smould
be based on an asyIIetric crypto systeI and masm functionT and smould be able
to detect any cmanges to tme docuIent or signature once tme digital signature
mas been a‘xed@ hccordinglyT tme use of digital signatures is not prevalent in
Fndian M&h and froI an enforceability perspectiveT parties prefer to execute tme
transaction docuIents in wet,ink sucm tmat tme docuIents would be enforceable
before Fndian courts witmout any cmallenge as to tme autmenticity of tme signatures
in tme docuIents@ hdditionallyT in case of cross,border deals or doIestic deals
wmere parties are in different locationsT parties typically coIplete tme execution
forIalities by excmange of tme PD- signature pages over eIail and tme transaction
docuIent recognises sucm constructs as a valid approacm for tme execution of tme
docuIent@

Law stated - 9 January 2024

DUE DILIGENCE AND DISCLOSURE

Scope of due diligence

Wmat is tme typical scope of due diligence in your .urisdiction( Do sellers
usually provide due diligence reports to prospective buyers( Can buyers
usually rely on due diligence reports produced for tme seller(
Nme scope of a legal due diligence on private coIpany in Fndia differs across
deals and it is driven by several factors sucm as deal tiIelines )including any
exclusivity period/T transaction structureT relevant sector in wmicm tme target
operatesT scale of target:s business operationsT buyer:s risk appetiteT and tme
coIIercial understanding between tme parties@

hs a general IatterT tme scope of diligence of a private coIpany is usually

broad and includes tme following areas2 corporate governanceT smare capitalisationT

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excmange control coIplianceT eIployIent arrangeIent and labour coIplianceT

intellectual propertyT real estateT litigationsT contractsT insuranceT data privacy and
regulatory@

Sellers typically do not provide due diligence reports to prospective buyers@ Fn

factT as a Iatter of practiceT buyers prefer to conduct tmeir own due diligence
)even wmere due diligence reports mave been provided by tme seller/T tme scope of
wmicm usually depends on tme coIIercial understanding between tme parties@ -or
instanceT tme buyer Iay elect to conduct tme due diligence in two pmasesT wmereby
pmase one will identify tme key roadblocks tmat Iay potentially iIpact closing
of tme ac?uisition )sucm as smare capitalisationT excmange control coIplianceT
regulatory approvals and otmer Iaterial tmird,party consents/ and tme pmase two
would be a Iore deep,dive diligence in all tme above,Ientioned diligence areas@

Law stated - 9 January 2024

Liability for stateKents

Can a seller be liable for pre,contractual or Iisleading stateIents( Can
any sucm liability be excluded by agreeIent between tme parties(
Wmile a seller would usually argue to liIit tmeir liability in tme transaction
docuIents to claiIs for breacm of explicit representations and warranties and
exclude any liability for any pre,contractual or Iisleading stateIentsT a seller can
be Iade liable for pre,contractual or Iisleading stateIents )particularlyT in case
of fraud or Iisrepresentation/ by adding an express provision in tme docuIent or
tme buyer relying on tme rigmts available under tme Fndian contract law in case of
fraud or Iisrepresentation by tme seller@

Law stated - 9 January 2024

Publicly available inforKation

Wmat inforIation is publicly available on private coIpanies and tmeir
assets( Wmat searcmes of sucm inforIation Iigmt a buyer custoIarily
carry out before entering into an agreeIent(
7nder Fndian coIpany lawT a private coIpany is re?uired to disclose certain
Iandatory inforIation and docuIents to tme Ministry of Corporate hffairsT
overnIent of Fndia )MCh/ and sucm docuIents are publicly available )on
payIent of a noIinal fee/ on MCh:s website@ SoIe of tme key corporate records
tmat are publicly available are as follows2

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• charter documents (including any modi;cation thereto)

• directors reportD audited ;nancial statements and shareholding pattern (on an

annual basis)
• shareholder resolutions

• encumbrance or charge created by the company

• details of the board directors (and any changes thereto)

• details of bene;cial owners or signi;cant bene;cial owners

-urtmerT buyers can undertake lien searcmes on tme corporate records tmat are
Iaintained by tme MCh to identify’conArI if any encuIbrances mave been created
by tme coIpany on its assets@ qoweverT tmis public searcm is not coIpremensive
and smould not be solely relied upon by a buyer )in substitution of tme legal due
diligence review/T since sucm public records Iaintained by tme MCh are based
on tme inforIation and docuIents tmat are disclosed by an Fndian coIpany to
tme MCh and tme regulatory autmorities in Fndia do not undertake any separate
exercise to collate tme records conArIing creation of any liens on tme assets of
a coIpany@ -urtmerT details in respect of tme registered tradeIarks and copyrigmt
of tme coIpany are also publicly available on tme online portal tmat is Iaintained
by tme Fndian Nrade Marks Registry and Copyrigmt 6‘ce respectively@

LastlyT tme litigation records of tme SupreIe Court of Fndia and tme various state
migm courts mave been digitised and are publicly available on tme websites of tmese
.udicial autmorities@ qoweverT litigation searcmes are also not exmaustive since tme
litigation records of local or district courts are not yet fully digitised or available for
public inspection@

Law stated - 9 January 2024

IKpact of deeKed or actual knowledge

Wmat iIpact Iigmt a buyer:s actual or deeIed knowledge mave on claiIs
it Iay seek to bring against a seller relating to a transaction(
Wmere a buyer Iakes a claiI witm actual or deeIed knowledgeT sucm claiI would
not get autoIatically excluded and courts would Iake a deterIination of sucm
claiIs on a case,by,case basis@

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hs a Iatter of practiceT froI an enforceability perspectiveT buyers usually

negotiate sandbagging clauses )ieT wmere buyers mave tme rigmt claiI indeInity
even wmere tmey mad prior knowledge of tme breacm in ?uestion/ in tme transaction
docuIents@

Law stated - 9 January 2024

PRICING, CONSIDERATION AND FINANCING

DeterKining pricing
qow is pricing custoIarily deterIined( Fs tme use of closing accounts or
a locked,box structure Iore coIIon(
Fn tme context of M&h deals in FndiaT wmile closing accounts mas gained
Iore acceptance over tme yearsT a locked,box structure is still tme prevalent
pricing Iodel aIong buyers for deterIining tme purcmase consideration for an
ac?uisition@

SeparatelyT tme deterIination of tme purcmase consideration for an ac?uisition is

also driven by certain tax and regulatory considerations@ -or instanceT under Fndian
tax lawT tme price per smare cannot be less tman tme fair Iarket value as deterIined
by a registered valuer in accordance witm Fndian tax laws@ SiIilarlyT in tme context
of cross,border deals involving a non,resident buyer and resident seller )or vice
versa/T tme price is re?uired to coIply witm tme prescribed pricing guidelines )for
instanceT wmere a non,resident is buying smares froI a residentT a IiniIuI Voor
price applies wmicm is tme fair Iarket value of tme smares supported by a valuation
report issued by a registered cmartered accountant/ and parties are not perIitted
to defer tme consideration for an aIount of Iore tman 0‐ per cent of tme total
consideration for Iore tman 39 Iontms )except witm an approval froI tme Reserve
4ank of Fndia/@

Law stated - 9 January 2024

ForK of consideration
Wmat forI does consideration norIally take( Fs tmere any overriding
obligation to pay Iultiple sellers tme saIe consideration(
7nder Fndian lawT tmere is no restriction on tme forI of consideration )wmetmer casm
or non,casm/ tmat can be paid by a buyer to a seller@ qoweverT casm is tme Iost
prevalent forI of consideration in Fndian M&h deals@ -urtmerT in terIs of non,casm

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considerationT smares of tme buyer entity or tme buyer:s ultiIate parent coIpany are
typically offered by buyers as tme preferred forI of consideration@ KevertmelessT
wmile smares are used as consideration in doIestic Ierger dealsT tmey are rarely
used as consideration in cross,border deals due to certain regulatory approval
re?uireIents under tme Fndian excmange control law@

SeparatelyT in case of a smare ac?uisition involving Iultiple sellersT tme

consideration payable to a seller per smare in a transaction needs to be tme saIe@

Law stated - 9 January 2024

Earn-outs, deposits and escrows

hre earn,outsT deposits and escrows used(
Earn,outs are coIIonly used in strategic ac?uisitions of founder,driven private
coIpanies )especiallyT in tme FN’FNeS sector/ and are typically linked to tme
perforIance of tme ac?uired target coIpany for a period of one to tmree years
post,ac?uisition@ -urtmerT wmile deposits are a rare feature in Fndian M&h dealsT
escrow arrangeIents are a fairly coIIon Ieasure to facilitate indeInity claiIs
by tme buyer@

qoweverT in tme context of cross,border dealsT structuring of earn,outs and escrow

arrangeIents are relatively cmallenging owing to tme restrictions prescribed under
Fndian excmange control law@ -or instanceT in tme context of a smare ac?uisitionT
a buyer cannot defer beyond tme consideration and tiIe linked tmresmolds under
Fndian excmange control law )ieT deferred aIount cannot exceed 0‐ per cent of tme
total consideration and will need to be paid witmin 39 Iontms/@

Law stated - 9 January 2024

Financing
qow are ac?uisitions Ananced( qow is assurance provided tmat Anancing
will be available(
Fn FndiaT banks are generally not perIitted to Anance ac?uisition of smares of a
coIpany@ hccordinglyT at least in tme context of doIestic M&h dealsT in terIs of
debt AnancingT issuance of unlisted non,convertible debentures is tme preferred
forI of debt AnancingT and it is not coIIon for tme buyers to seek external
Anancial assistance froI banks to Anance ac?uisitions@ hdditionallyT wmere debt

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Anancing is not feasibleT buyers usually utilise internal accruals or raise additional
e?uity capital froI its smaremolders to fund tmeir ac?uisitions@ 6n tme otmer
mandT in tme context of cross,border dealsT it is coIIon for non,resident buyers
to utilise off,smore funds froI global banks to fund tmeir ac?uisition of Fndian
coIpanies’assets@

SeparatelyT in tme context of doIestic dealsT wmile it is not coIIon for buyers
to provide any assurance )including in tme forI of representations on tmeir credit
wortminess or Anancing of tme deal/T Iore sopmisticated sellers do insist on sucm
assurances in soIe forI or tme otmer@ -or instanceT wmere tme credit wortminess
is doubtfulT tmen a seller Iay ask for tme molding’parent coIpany or anotmer
creditwortmy a‘liate of tme buyer to stand bemind tme funding obligation of tme
buyer under tme transaction docuIents@

Law stated - 9 January 2024

LiKitations on mnancing structure

hre tmere any liIitations tmat iIpact tme Anancing structure( Fs a seller
restricted froI giving Anancial assistance to a buyer in connection witm a
transaction(
7nlike public coIpanies wmo are restricted froI funding tmeir own ac?uisitionsT
private coIpanies are not sub.ect to any sucm express restriction under Fndian
coIpany law@

qoweverT in tme context of inbound cross,border ac?uisitionsT wmere non,resident

buyers utilise off,smore funds froI global banksT buyersare restricted froI
securing ac?uisition Anance against a pledge on tme smares )or a cmarge in tme
assets/ of tme Fndian target coIpany in favour of an overseas bank witmout
approval froI tme Reserve 4ank of Fndia@

Law stated - 9 January 2024

CONDITIONS, PRE-CLOSING COVENANTS AND TERMINATION RIGHTS

Closing conditions
hre transactions norIally sub.ect to closing conditions( Describe tmose
closing conditions tmat are custoIarily acceptable to a seller and any
otmer conditions a buyer Iay seek to include in tme agreeIent@

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Fn private ac?uisitions in FndiaT closing conditions are a widely accepted deal

protection Ieasure for buyers@ CoIIon closing conditions sougmt by buyers
wmicm are custoIarily acceptable to sellers include2

• recti;cation of the issues identi;ed during diligence,

• receipt of applicable regulatory approvals (including antitrust and foreign

direct investment approvals) and approvals from third parties (including
customersD lendersD and lessors or landlords),
• absence of material adverse change or effect between signing and closing,

• representations and warranties being trueD correctD complete and not

misleading as on the signing date and closing date,
• in the context of a share acjuisitionD delivery of no-ob3ection certi;cates
issued by tax authorities (or at least a certi;cate issued by a reputed charted
accountantD along with screenshots from the tax portal indicating any pending
proceedings) in respect of the sale shares (and their transfer thereof), and
• procurement of rejuisite valuation reports under Indian foreign exchange
control laws or tax laws to support the determination of the purchase price.

Law stated - 9 January 2024

Closing conditions
Wmat typical obligations are placed on a buyer or a seller to satisfy
closing conditions( Does tme strengtm of tmese obligations custoIarily
vary depending on tme sub.ect Iatter of tme condition(
Fn private ac?uisitions in FndiaT closing conditions are a widely accepted deal
protection Ieasure for buyers@ CoIIon closing conditions sougmt by buyers
wmicm are custoIarily acceptable to sellers include2

• recti;cation of the issues identi;ed during diligence,

• receipt of applicable regulatory approvals (including antitrust and foreign

direct investment approvals) and approvals from third parties (including
customersD lendersD and lessors or landlords),
• absence of material adverse change or effect between signing and closing,

• representations and warranties being trueD correctD complete and not

misleading as on the signing date and closing date,
• in the context of a share acjuisitionD delivery of no-ob3ection certi;cates
issued by tax authorities (or at least a certi;cate issued by a reputed charted

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accountantD along with screenshots from the tax portal indicating any pending
proceedings) in respect of the sale shares (and their transfer thereof), and
• procurement of rejuisite valuation reports under Indian foreign exchange
control laws or tax laws to support the determination of the purchase price.

Law stated - 9 January 2024

Pre-closing covenants
hre pre,closing covenants norIally agreed by parties( Ff soT wmat is tme
usual scope of tmose covenants and tme reIedy for any breacm(
Nme obligations )wmetmer absolute or pegged to an efforts standard/ placed on
a party to satisfy closing conditions would typically depend on tme nature and
Iateriality of tme closing conditionT tme regulatory proAle of tme transaction and
on tme bargaining power of tme parties@ -or instanceT in case of any regulatory
approvalsT tme obligation to procure sucm approval as a condition to closing is not
absolute and is sub.ect to a best efforts standard@ 6n tme otmer mandT it is coIIon
for buyers to iIpose an absolute obligation on tme sellers to procure a valuation
report .ustifying tme price botm froI a tax and regulatory perspective@

Law stated - 9 January 2024

TerKination rights
Can tme parties typically terIinate tme transaction after signing( Ff soT in
wmat circuIstances(
Wmere tme ac?uisition agreeIent is structured as a staggered sign and close
docuIentT it is custoIary for sellers or target coIpanies to agree to interiI
covenants and otmer standstill obligationsT wmicm protects tme buyer froI any
Iaterial iIpact to tme business or tme ability of tme parties to consuIIate tme
deal in tme Ianner conteIplated in tme transaction docuIents@ Depending on
wmetmer tme ac?uisition is a smare ac?uisition or a business or asset transferT an
indicative list of sucm custoIary pre,closing covenants or standstill obligations are
as follows2

• issuance of new securities or modi;cation of rights of existing classes of

securities,
• changing the shareholding pattern,
• raising any indebtedness or writing off any debt,
• disposal of or creation of lien on the assets of the target,

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• amendment of charter documents of the target (except to facilitate the

transaction or an agreed pre-closing internal reorganisation),
• change in senior management/key employees of the targetD or their terms of
engagement,
• starting a new line of business or closing an existing line of business,

• entering into material contracts in excess of an agreed threshold, and

• settlement of litigations involving the target.

hdditionallyT sellers typically Iake representations in tme agreeIent and’or tme

closing certiAcate to tme effect tmat none of tme pre,closing covenants mave been
breacmed and breacm of any of tme pre,closing covenants would ?ualify as an
indeInity event@

Law stated - 9 January 2024

TerKination rights
hre break,up fees and reverse break,up fees coIIon in your .urisdiction(
Ff soT wmat are tme typical terIs( hre tmere any applicable restrictions on
paying break,up fees(
4reak,up fees and reverse break,up fees are not very coIIon in Fndia due to
absence of statutory recognition and certain regulatory restrictions@ -or instanceT
wmere tme recipient of a break,up fee is non,residentT tme approval of tme Reserve
4ank of Fndia Iay be re?uired for tme reIittance of sucm break,up fee by tme
resident seller to tme buyer@

Law stated - 9 January 2024

REPRESENTATIONS, WARRANTIES, INDEMNITIES AND POST-CLOSING

COVENANTS

Scope of representations, warranties and indeKnities

Does a seller typically give representationsT warranties and indeInities to
a buyer( Ff soT wmat is tme usual scope of tmose representationsT warranties
and indeInities( hre tmere legal distinctions between representationsT
warranties and indeInities(
Ft is custoIary for a seller to give representationsT warranties and indeInities
to a buyer@ qoweverT tme scope of representationsT warranties and indeInities
usually depends on tme nature of tme transaction )ieT smare ac?uisition or business
or asset transfer/T tme diligence issues identiAedT bargaining power of tme parties

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and tme negotiations aIong tme parties@ KevertmelessT in tme context of smare
ac?uisitionsT tme standard ask is for tme seller to provide a coIpremensive pack
of representations and warrantiesT wmicm typically includes tme following2

• capacity and authority of the seller to executeD deliver and perform the
transaction documents,
• title to the shares,

• the share capital and shareholding pattern,

• basis of preparation of the ;nancial statements,

• tax and ;nancial compliance aspects, and

• operational aspects of the company or business in respect of employeesD

;nancingD contractsD real estateD information technologyD compliance with
lawsD exchange controlD litigationD data privacyD information technology and
insurance.

6n tme otmer mandT in tme context of a business or asset transfer or in case of an

auction dealT tme scope of tme representations and warranties package is usually
narrower@ Fn addition to tme representation in respect of titleT autmority and capacityT
tme scope of representations is liIited to tme assets or business of tme seller
)for instanceT in respect of tme ade?uacy and condition of assets proposed to be
ac?uired/@

hs far as indeInity is concernedT tme scope largely reIains tme saIe but tme
liIitation of liability Iay vary depending on wmetmer it is a smare ac?uisition or a
business or asset transfer@

KevertmelessT tme seller Iay also disclose certain speciAc facts )including tme
identiAed diligence issues/ against tme representations and warranties )except
fundaIental warranties/T and to tmat extentT tme representations will be ?ualiAed
and tme buyer will not be able to claiI indeInity )unless parties mave agreed to it
as a speciAc indeInity iteI/@

SeparatelyT in tme context of M&h deals in FndiaT it is coIIon for tme buyer
to rely on indeIniAcation provisionsT moweverT wmere tme purcmase agreeIent
does not contain any sucm indeIniAcation regiIeT tmen in case of breacmT tme

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buyer can Iake a claiI for daIages under )and in coIpliance witm/ Fndian law@
qoweverT in case of a claiI for daIagesT tme buyer is re?uired to establism certain
pre,re?uisites as re?uired under Fndian law U for instanceT breacmT causation )ieT
breacm,cause linkage/T proof of actual loss’daIage and reIoteness of daIage@

Law stated - 9 January 2024

LiKitations on liability
Wmat are tme custoIary liIitations on a seller:s liability under a sale and
purcmase agreeIent(
LiIitation on a seller:s liability is negotiated and is largely dependent on bargaining
power of tme parties@ Sellers typically negotiate to liIit tmeir liability on account
of indeInity claiIs by tme buyer by Iaking sucm claiIs sub.ect to2 )3/ a de
IiniIis )ieT wmere a single claiI Iust exceed a IiniIuI tmresmold to be eligible
for an indeIniAcation claiI/T )0/ a deductible basket )ieT wmere tme aggregate of
all eligible claiIs Iust exceed a speciAed tmresmold before a buyer can claiIT
and sucm claiI can only be for tme aIount of losses in excess of tme tmresmold/8
moweverT a tipping basket is Iore coIIon tman a deductible basket wmere tme a
buyer can claiI for tme entire claiI aIount once all eligible claiIs exceed tme
basketT and );/ an indeInity cap e?uivalent to tme purcmase price )or a percentage
tmereof/8 moweverT buyers typically pusm back on any sucm caps in respect of
fundaIental warranties )ieT warranties in respect of titleT autmorityT capacityT etc/@

-urtmerT sellers also usually negotiate to deAne a tiIe period for tme survival
of tmese representations and warranties after wmicm a buyer cannot bring any
indeInity claiIs against tme buyer@ -or instanceT tme survival for operational or
business warranties is usually between 30 to ;5 IontmsT wmereas fundaIental
warranties survive for a longer period )soIetiIesT even till tme statutory liIitation
period/@

LastlyT tme scope of losses in terIs of indeInity claiIs is also negotiated between
tme partiesT wmereby sellers typically want to exclude any indirectT incidentalT
conse?uentialT specialT and punitive losses and on tme otmer mandT buyers negotiate
to include all sucm losses witmin tme purview of its indeInity claiIs against tme
seller@

Law stated - 9 January 2024

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Transaction insurance
Fs transaction insurance in respect of representationT warranty and
indeInity claiIs coIIon in your .urisdiction( Ff soT does a buyer or a
seller custoIarily put tme insurance in place and wmat are tme custoIary
terIs(
Wmile a representations and warranties insurance mas not been mistorically
coIIon in tme context of private M&h deals in FndiaT it is deAnitely gaining tractionT
particularly wmere tme sale or divestitures of securities is by a Anancial sponsor or
private e?uity fund@

Nme scope of sucm insurance is liIited to tme representations and warranties

agreed under tme transaction docuIents and it typically excludes claiIs in respect
of tme following2

• fraudD briberyD corruption and money laundering matters,

• environment matters,

• transfer pricing issues,

• matters where the buyer had prior knowledge of the breach or where the
breach was disclosed in the disclosure letter,
• stamp duty,

• pension or gratuity underfunding,

• secondary tax liabilities,

• purchase price ad3ustments or leakages,

• criminal ;nes and penalties,

• documents which were disclosed in the data room, and

• issues which have been identi;ed in the due diligence reports and where
speci;c indemnity has been granted by the seller.

Fn terIs of coverageT typicallyT sucm policies coverage can range froI 31 to ;1 per
cent of tme enterprise value of tme targetT witm a retention )ieT an aggregate aIount
up to wmicm tme claiIs are not reiIbursed by tme insurer/ of 1@‐ to 3 per cent of tme
enterprise value@ -urtmerT tme period of sucm policies Iay differ across tme nature
of tme warranties@ -or instanceT in case of title warrantiesT tme period Iay be in tme
range of seven to 30 years wmereas for business warrantiesT it Iay be for two to
tmree years@

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SeparatelyT as a Iatter of practiceT a transaction insurance is taken by tme buyer

and tme cost Iay be in tme range of 0 to z per cent )depending on tme negotiations
witm tme insurer/T moweverT tme cost allocation of sucm insurance is typically
negotiated between tme parties@ -roI a tiIing perspectiveT depending on tme
insurerT it can take tmree to four weeks to put in place a transaction insurance@

Law stated - 9 January 2024

Post-closing covenants
Do parties typically agree to post,closing covenants( Ff soT wmat is tme
usual scope of sucm covenants(
Ft is coIIon for parties to a private ac?uisition to agree to post,closing covenants@
Nmese post,closing covenants would usually include parties undertaking post
facto regulatory Alings )for instanceT foreign excmange control Alings in terIs
of a smare ac?uisition/ and Alings witm tme tax autmorities@ hdditionallyT buyers
also seek tmat sellers agree to post,closing conAdentiality obligations and otmer
post,closing restrictive covenants in terIs of non,solicitation of buyer:s eIployees
and non,coIpetition witm tme buyer@ qoweverT under Fndian lawT enforceIent
of non,coIpetition restrictions on tme seller in tme context of an ac?uisition is
cmallenging wmere sucm ac?uisition does not involve any sale of goodwill@

Law stated - 9 January 2024

TAX

Transfer taxes
hre transfer taxes payable on tme transfers of smares in a coIpanyT a
business or assets( Ff soT wmat is tme rate of sucm transfer tax and wmicm
party custoIarily bears tme cost(
Nransfer of smares of an Fndian coIpany attracts staIpduty at tme rate of 1@13‐
per cent of tme total consideration payable for tme sale smares@ 7nder Fndian lawT
tme obligation to pay sucm staIp duty is on tme seller@ qoweverT as a Iatter of
practiceT tme allocation of tmis cost )siIilar to any otmer transaction cost/ is sub.ect
to coIIercial discussions between tme parties@

-urtmerT in tme context of sale of assets’businessT wmere sucm sale involves any
transfer of owned real estateT staIp duty and registration fees at tme prescribed

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rates )wmicm Iay differ across Fndian states/ is payable on sucm transfer of
property and as a Iatter of practiceT typicallyT sucm costs are borne by tme buyer@

hdditionallyT in tme context of an asset purcmaseT tme sale of assets Iay also attract
goods and service tax ) SN/ liability@ Nme rate of SN will depend on tme nature of
tme assets and Iay be in tme range of ‐ to 09 per cent@

Law stated - 9 January 2024

Corporate and other taxes

hre corporate taxes or otmer taxes payable on transactions involving tme
transfers of smares in a coIpanyT a business or assets( Ff soT wmat is tme
rate of sucm transfer tax and wmicm party custoIarily bears tme cost(
Fn FndiaT corporate taxes are payable on tme capital gains arising froI transactions
involving tme transfers of smares in a coIpanyT a businessT or assets@ -or instance2

• In share acjuisitionsD depending on how long the shares have been held by
the sellerD the applicable tax rate on the gains of a resident seller would be 20
per cent (where the period is more than 24 months) or W0 per cent (where the
period is less than 24 months)D plus applicable surcharge and cess. 1here
such seller is a non-residentD the long-term capital gains would be taxed at
0 per cent (plus applicable surcharge and cess) and short-term capital gains
would attract tax at W0 per cent (plus applicable surcharge and cess).
• In the context of a business transferD depending on how long the business has
been owned and held by the sellerD the applicable tax rate on the gains of a
resident seller would be 20 per cent (where the period is more than W6 months)
or W0 per cent (where the period is less than W6 months)D plus applicable
surcharge and cess. 1here the seller is a non-residentD the long-term capital
gains would be taxed at 20 per cent (plus applicable surcharge and cess)
and short term capital gains would attract tax at 40 per cent (plus applicable
surcharge and cess).
• In the context of an asset transferD the tax rates will depend on the assets
being acjuired as part of the transactionD howeverD it would be largely similar
to the tax rates applicable in case of a business transfer.

SeparatelyT non,resident sellers Iigmt also mave certain tax beneAts available to
tmeI under bilateral tax treaties between tmeir most country and Fndia@ qoweverT

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tme availability of sucm beneAts is transaction speciAc and sub.ect to various

conditionalities@ hccordinglyT sellers typically engage tax advisors to undertake an
assessIent of tax beneAts available )if any/@

Fn terIs of cost allocationT taxes on capital gains of tme seller are typically borne
by tme respective sellers tmeIselves@

Law stated - 9 January 2024

EMPLOYEES, PENSIONS AND BENEFITS

Transfer of eKployees
hre tme eIployees of a target coIpany autoIatically transferred wmen a
buyer ac?uires tme smares in tme target coIpany( Fs tme saIe true wmen
a buyer ac?uires a business or assets froI tme target coIpany(
Fn a smare ac?uisitionT tme eIployees of tme target coIpany reIain eIployed witm
tme target coIpany and becoIe tme responsibility of tme buyer@

6n tme otmer mandT even in case of business or asset transfer wmicm involves a
transfer of eIployees to tme buyerT Fndianlaw does not provide for an autoIatic
transfer of sucm eIployees@ Nmere are two options for effecting sucm transfer of
eIployees froI an Fndian law and practice perspective )ieT transfer on a Ocontinuity
of service: basis or Oresign and mire:T but eacm of tmese options re?uires tme prior
written consent of a transferred eIployee/@ Wmere tme transfer is on a Ocontinuity
of service: basis )ieT witmout any break in tme service tenure/T tme buyer is re?uired
to offer no less favourable eIployIent terIsT and acknowledge tme past services
of tme eIployees )and tmeir tenure of service witm tme transferor/ for coIputation
of statutory retiral beneAts tmat are a function of eIployees: lengtm of service )ieT
gratuity/@

7nder tme Oresign and mire: optionT all eIployees are provided an opportunity to
voluntarily resign froI tmeir eIployIent witm tme seller )witm all tmeir eIployIent
dues being settled by tme seller/T and sucm eIployees would tmen be mired by tme
buyer on fresm eIployIent terIsT iIIediately after tmeir release by tme seller@
hltmougm in tmis optionT tme buyer would be free to offer eIployIent terIs as it
prefersT froI an eIployee retention perspectiveT buyers generally offer terIs of
sucm eIployIent offers wmicm are not less favourable or at least coIparable in

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aggregate )speciAcally in terIs of tme existing reIuneration and otmer beneAts/ to

tmeir existing terIs of eIployIent@

Law stated - 9 January 2024

Notimcation and consultation of eKployees

hre tmere obligations to notify or consult witm eIployees or eIployee
representatives in connection witm an ac?uisition of smares in a coIpanyT
a business or assets(
Wmile tmere is no general re?uireIent under Fndian law to seek tme consent of
or consult tme eIployees of a coIpany )or tmeir representatives/ in case of a
smare ac?uisition or sale of assets or businessT given tmat Fndian law does not
conteIplate an autoIatic transfer of eIployeesT as a Iatter of practiceT prior
written consent is obtained froI tme eIployees for sucm transfer as a part of tme
transfer process in tme case of business or asset transfer@

-urtmerT contractual arrangeIents between tme coIpany and labour union or any
siIilar organisation representing tme eIployees Iay also contain obligations for
consultation witm sucm organisation in connection witm any transfer of eIployees
or cmange in terIs of eIployIent@

Law stated - 9 January 2024

Transfer of pensions and benemts

Do pensions and otmer beneAts autoIatically transfer witm tme eIployees
of a target coIpany( Must Alings be Iade or consent obtained relating
to eIployee beneAts wmere tmere is tme ac?uisition of a coIpany or
business(
Fn case of an ac?uisition of smares of a private coIpanyT tme eIployee beneAt
and retireIent plans Iaintained by tme target coIpany reIain witm tme target
coIpanyT and tme buyer becoIes responsible for Iaintaining sucm plans after
ac?uisition@

-urtmerT in tme context of business or asset transfers )wmere eIployees are also
transferred/T eIployee beneAts do not get autoIatically transferred witm tme
eIployees of tme target coIpany@ Wmere eIployees are transferred by tme target
coIpany to tme buyer on a Ocontinuity of service: basis )ieT witmout any break in tme

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service tenure/T tme target Iay transfer and tme buyer Iay agree to assuIe certain
accrued eIployee beneAtsT sucm as gratuity@

Even in sucm casesT eIployee beneAts sucm as accrued eIployee provident

fund and pension fund balances do not get autoIatically transferred witm tme
eIployees@ 7pon on,boarding of tme eIployees by tme buyerT tme transferred
eIployees are re?uired to Iake statutory Alings witm tme relevant autmority for
tme release and transfer of tmeir accrued eIployee provident fund and pension
fund balances froI tme target coIpany:s account witm tme relevant autmority to
tme account of tme buyer@

Law stated - 9 January 2024

UPDATE AND TRENDS

ey developKents
Wmat are tme Iost signiAcant legalT regulatory and Iarket practice
developIents and trends in private M&h transactions during tme past 30
Iontms in your .urisdiction(
Wmile tme global M&h Iarket is correcting itself to tme pre,pandeIic nuIbersT
deal activity in Fndia mas reIained strong witm aggressive doIestic consolidations
driving tme Fndia growtm story@ Nme Fndian governIent:s increased focus on
investor,friendly prograIIes or scmeIes )for instanceT in tme seIiconductor
sectorT tme governIent mas introduced a coIpremensive scmeIe witm incentives
wortm Iore tman 7S 31 billion/ mave also pi?ued investor interest in tme Fndian
Iarket in tme past year@

FnterestinglyT tme global pusm towards expanding into new developing Iarkets and
establisming supply cmain or back,end support infrastructure mas also positively
iIpacted tme Fndian M&h IarketT witm Iore foreign buyers now entering tme Fndian
Iarket tmrougm indirect ac?uisitions of Fndian coIpanies or assets@

SiIilarlyT in terIs of investor strategyT owing to tme volatility of coIpany valuations

post covid,3B pandeIicT tme past year witnessed an increased )3/ usage of escrow
arrangeIents and moldbacks in doIestic and cross border transactions witmin
regulatory restrictions8 and )0/ focus on Iaterial adverse effect and force Ia.eure
clauses@ hdditionallyT tmere mas also been a smift in preference of pricing Iodel
adopted by buyersT witm buyers increasingly relying on closing account as a Iore

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accurate pricing Ietmodology to deterIine tme purcmase price payable to sellers

in a transaction@

Earn out structures continue to be popularT and tme last year also saw an increased
usage of convertible securities )preference smares and warrants for fund raises/ in
private ac?uisitions witm tme conversion linked to pro.ected revenues witm ratcmets@
Nmere was also an increased preference for siIultaneous or smorter period
between signing and closing and straigmt .acketed conditions were coIIon as
parties pusmed for deal certainty witm liIited walkaway opportunities for tme
buyers@

Law stated - 9 January 2024

Private M&A 2024 Explore on Lexology