Use the Lexology Navigator tool to compare the answers in this article with those from other jurisdictions.


Preliminary agreements What preliminary agreements are commonly drafted?

Preliminary agreements usually include:

  • a term sheet, a memorandum of understanding or a letter of intent (containing the terms of the hand-shake agreement or outlining the preliminary commercial understanding of the proposed transaction);
  • a confidentiality or non-disclosure agreement (to safeguard the information provided by the target to the acquirer for due diligence purposes); and
  • an exclusivity agreement (requiring the parties, or generally the target, not to solicit competing bids for a specified period); this can form part of the aforesaid agreements

Principal documentation What documents are required?

The principal documents vary depending on the structure of the transaction as follows:

  • A merger, amalgamation or a demerger involves preparation of the scheme of arrangement between the relevant companies, their members and the creditors.
  • A share acquisition involves a share subscription agreement (for investment in new shares) or a share purchase agreement (for the purchase of existing shares). A shareholders’ agreement (setting out the inter se rights and obligations of shareholders) is also entered into in cases where existing shareholders retain their shares or where two or more acquirers purchase a company. Further, where shareholders’ agreements are entered into, a company’s articles of association are amended to reflect the agreement’s terms.
  • An asset or business transfer involves an asset purchase or a business transfer agreement.
  • A host of ancillary documents may be required depending on the nature and type of transaction, including:
    • employment agreements;
    • transfer agreements concerning intellectual or real property;
    • the novation or assignment of contracts; and
    • non-compete agreements with existing or exiting shareholders.

Which side normally prepares the first drafts?

The acquirer typically prepares the first drafts. However, where a sale occurs pursuant to a bid process, the first drafts of the definitive agreements are typically drafted by the sellers, followed by a review by the acquirer.

What are the substantive clauses that comprise an acquisition agreement?

Subject to issues arising from publicly traded targets or foreign direct investment and tax considerations, an acquisition agreement typically comprises the following clauses:

  • purchase and sale – which specifies what is being sold and purchased in the case of business or asset transfers, the contours of business or assets being sold and inclusions and exclusions thereto;
  • sale, payment mechanism and structure, escrow and holdback arrangements;
  • closing transaction conditions;
  • pre-closing obligations for parties, including positive and negative covenants (eg, standstill provisions);
  • the closing mechanism;
  • conditions subsequent to closing;
  • representations and warranties, including survival, exceptions and disclosures;
  • indemnity provisions;
  • limitation of liability provisions, including baskets and caps;
  • termination;
  • dispute resolution;
  • confidentiality;
  • governing law and jurisdiction; and
  • boilerplate clauses.

Further, shareholders’ agreements or investment agreements may include provisions concerning:

  • restrictions on the transfer of shares by shareholders, including promoter lock-in, restriction on transfer to competitors, right of first refusal and right of first offer and tag-along or drag-along provisions;
  • pre-emptive shareholders’ rights on further issuance of capital by the company;
  • board representation rights;
  • affirmative or veto rights for shareholders on certain material actions;
  • information rights;
  • exit rights in the case of minority investment (eg, put, tag and initial public offerings); and
  • deadlock resolution provisions.

What provisions are made for deal protection?

The provisions made for deal protection are:

  • confidentiality provisions;
  • exclusivity and non-solicitation covenants;
  • positive and negative covenants (eg, standstill provisions) for the period between the agreement and closing dates;
  • the escrow of selling shareholders’ shares; and
  • break-fee provisions, although this is uncommon in India.

Closing documentation What documents are normally executed at signing and closing?

The principal agreements, such as asset or business purchase agreements, share subscriptions or share purchase agreements and shareholders’ agreements, are usually executed at signing.

At closing, in the case of the issue of new shares, board resolutions for the allotment of shares and share certificates are issued. In the case of share transfers, the prescribed SH-4 forms to effect the transfer of shares are executed. In the case of business or asset transfers, ancillary documents to transfer particular assets, an example conveyance deed for transfer of land and an assignment agreement for IP transfer are executed.

Mergers and demergers are executed through a scheme of arrangement filed with the National Company Law Tribunal (NCLT). Once the NCLT order approving the scheme has been obtained, a filing is made with the Registrar of Companies and a board meeting is held to close the transaction.

Further, certain corporate filings may need to be undertaken with the Registrar of Companies. In the case of cross-border share acquisitions, filings are also made to the Reserve Bank of India at closing or within a prescribed period from the closing. 

Are there formalities for the execution of documents by foreign companies?

No, there are no such specific formalities. However, filings may be required with the Reserve Bank of India at closing or within the prescribed period from the closing.

Are digital signatures binding and enforceable?

Yes, digital signatures are binding and enforceable in India.