Representations & Warranties in Indian M&A
By Most Indian M&A disputes don’t start at signing. They surface after closing, when a buyer discovers an undisclosed tax demand, a lapsed licence, or a labour claim nobody mentioned during diligence. Representations, warranties and indemnities are among the key contractual tools an SPA uses to decide who absorbs that cost — get them wrong, and a well-priced deal turns into years of litigation instead of a clean exit.
Quick Answer
Representations and warranties are statements a seller makes in an SPA about the target company’s financial, legal, tax and operational position. An indemnity — governed by Sections 124 and 125 of the Indian Contract Act, 1872 — is the seller’s contractual promise to cover the buyer for losses arising from a breach of those statements, or from specifically identified risks carved out during negotiation. Khaitan & Co’s 2025 survey of 440 Indian PE/VC transactions found business-warranty caps set at 100% of consideration in 51% of deals, tax-warranty survival most commonly running 5–10 years, and escrow and holdback arrangements each used in only about 4% of deals.
What Are Representations, Warranties and Indemnities?
A representation is a statement of fact made to induce the buyer into the transaction — about share ownership, litigation status, tax compliance, or material contracts. A warranty is a contractual promise that a stated fact is, or will be, true. Neither term is separately defined in the Indian Contract Act, 1872; Indian courts have imported the distinction from English contract law, and the two trigger different remedies, which is where it actually matters commercially.
An indemnity works differently again. Section 124 of the Indian Contract Act, 1872 defines it as a contract by which one party promises to save the other from loss caused by the promisor’s own conduct or that of a third person. In an SPA, this becomes the mechanism for covering losses from a breach of the representations and warranties, and just as often for covering specifically identified risks — a pending tax dispute, a title defect, a compliance gap — that the parties have carved out and priced separately during negotiation.
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Why This Clause Decides Who Bears the Risk
Buyers use R&W to price the deal and push diligence risk back onto the seller. Private equity funds rely on them to protect fund-level returns if a portfolio company later turns out to be carrying undisclosed liabilities. Promoters selling a business need warranties scoped tightly enough that they aren’t exposed to open-ended claims years after they’ve exited and moved on.
Lenders financing the acquisition care too — a weak indemnity package can leave the buyer carrying more post-closing risk than the deal was priced for, which is worth raising with your banking team while the SPA is still being drafted, not after.
Resolution applicants buying assets under the Insolvency and Bankruptcy Code, 2016 sit in a different position. In Ghanashyam Mishra & Sons Pvt Ltd v. Edelweiss Asset Reconstruction Co. Ltd. (2021), the Supreme Court held that once a resolution plan is approved, all claims not included in it — including government and tax dues — stand extinguished against the corporate debtor. That doesn’t remove the need for R&W between the resolution applicant and the other transaction parties, but it does change the risk landscape enough that R&W in these deals tend to be scoped narrower than in a conventional share purchase.
Representations vs Warranties: Why the Label You Choose Changes the Remedy
Under Section 19 of the Indian Contract Act, 1872, a misrepresentation that induced consent can make the contract voidable and let the buyer seek rescission and restitution, depending on the facts and how the SPA is worded. A breach of warranty, by contrast, ordinarily gives rise to a damages claim under Section 73 — the contract itself stands, and the buyer is compensated for the shortfall in value.
That difference has real consequences: rescission aims to unwind the transaction; a damages claim doesn’t. Well-drafted Indian SPAs reduce the argument by stating that every representation is also a warranty, and vice versa, so the buyer isn’t left disputing characterisation after a breach has already surfaced.
The Indemnity Framework Under Indian Law
Read literally, Section 124 only covers loss caused by a person’s conduct — it doesn’t obviously extend to losses from events nobody controlled. Indian courts settled this early: in Gajanan Moreshwar Parelkar v. Moreshwar Madan Mantri (Bombay High Court, 1942), Justice Chagla held that Sections 124 and 125 are not exhaustive of the law of indemnity in India, and that courts can apply the same equitable principles English courts do — a position also reflected in the English case Adamson v. Jarvis (1827). In practice, this means contractual indemnities in Indian SPAs routinely go further than the bare statute, covering regulatory penalties, third-party claims, and specific risks flagged during diligence.
Courts have also confirmed that an indemnity is enforced on the terms the parties actually wrote, not diluted by how much diligence the buyer did. In GWL Properties Ltd v. James Mackintosh & Co Pvt Ltd (Bombay High Court, 2012), the SPA expressly stated that the warranties would remain effective notwithstanding the buyer’s investigation and due diligence — and when the seller argued that the buyer’s own diligence should defeat the claim, the court disagreed and upheld the buyer’s claim on that basis. The lesson isn’t that due diligence never matters; it’s that if you want a warranty to survive it, the SPA has to say so.
Structuring the Indemnity: What the Data Actually Shows
Cap, survival period and basket size are the three most heavily negotiated numbers in any Indian SPA, and generic “market practice” figures circulate constantly with no source behind them. Khaitan & Co’s 2025 report gives real numbers, though it’s worth being precise about what it measures: 440 PE and VC transactions the firm advised on over three and a half years, not a census of Indian M&A generally.
| Element | Khaitan & Co, 2025 — 440 PE/VC deals | Why It’s Negotiated |
| Business warranty cap | 100% of consideration in 51% of deals; up to 50% in 33%; uncapped in only 2% | Buyers push hard for full-value coverage and usually get most of the way there |
| Fundamental warranties (authority, capacity, title) | Capped at 100% of deal value in 69% of deals; survival exceeds 10 years in 63% | These go to deal validity itself |
| Tax warranty survival | 5–10 years in 37% of deals; tied to the statutory reassessment period in 24% | Matches tax reassessment timelines |
| Tax warranty cap | 100% of consideration in 52% of deals; 25% of consideration in 20% | Tax exposure can exceed general business risk |
| Business warranty survival | 2–4 years in 66% of deals — the most common band | Balances buyer’s discovery window with seller’s certainty |
| Basket | Present in 57% of deals; 81% of those structured as a tipping basket | Filters out immaterial claims once triggered |
| De minimis | Present in 58% of deals; threshold of 2.6% of consideration — well above the ~0.1% often cited as generic practice | Sets the floor below which individual claims don’t count; only 18% of deals also carry a materiality scrape to stop that threshold double-counting against materiality language elsewhere |
| Escrow arrangements | Present in 4% of deals | Rare — Indian exchange-control conditions on cross-border deferred consideration are the main constraint |
| Holdback arrangements | Present in a separate 4% of deals | Equally rare, for the same reason |
Source: Khaitan & Co, “What’s Market in Indian Private Equity Deals” (2025) — 440 PE/VC transactions the firm advised on over 3.5 years. This is PE-backed deal data, not a census of Indian M&A generally; strategic (non-PE) acquisitions can look meaningfully different, particularly on escrow and holdback.
Drafting note: frame the indemnity as an independent covenant, not just “damages for breach of warranty.” Indian drafting commentary has long treated “hold harmless” and “compensate” as carrying different practical consequences — hold-harmless language is generally read as protecting the buyer before it pays out, while compensate/make-good language can leave the buyer to pay first and seek reimbursement. Have your drafting counsel confirm which reading applies to your specific wording.
Disclosure Schedules and Due Diligence: How They Interact
A disclosure schedule is supposed to tell the buyer what the seller already knows is imperfect, so that anything properly disclosed falls outside the indemnity. In practice, Indian SPAs set that bar high. Khaitan & Co’s 2025 survey found that 91% of the reviewed deals did not accept the data room as general disclosure, 88% did not accept due diligence reports as general disclosure, and 84% did not accept information already in the public domain as general disclosure. In other words, a buyer finding something in the data room usually doesn’t protect the seller by itself — the SPA has to name the issue specifically, or the seller stays on the hook for it.
This is why diligence and drafting can’t happen in sequence with no communication between them: every material finding needs to land somewhere — a specific indemnity, a price adjustment, or a disclosure the SPA actually recognises as such. Gaps here are a recurring source of post-closing disputes in Indian deals.
Warranty & Indemnity Insurance: A Growing but Still Niche Tool
W&I insurance is long-established in the UK and US. In India it shows up mostly in larger transactions and private equity exits, though adoption is still limited — Khaitan & Co’s 2025 survey found related tax insurance policies in only 3% of the deals reviewed, which gives some sense of how niche insurance-backed structures still are outside the biggest deals. Where used, the policy pays the buyer directly for a breach of warranty, reducing reliance on the seller’s balance sheet and often letting the seller exit cleanly with minimal escrow.
It doesn’t replace the underlying R&W, though — insurers price the policy based on how well those clauses and the diligence behind them are drafted. A sloppy SPA still costs money; it just shows up as a higher premium and wider exclusions instead of a lawsuit.
A Typical Scenario: How This Plays Out in Practice
(An illustrative, composite scenario — not an actual client matter.)
Picture a mid-sized manufacturing company in the Delhi NCR region being acquired by a strategic buyer. Financial due diligence turns up an unresolved GST demand the seller hadn’t disclosed in the data room. Instead of walking away, the parties restructure the deal: the disputed amount becomes a specific indemnity backed by a dedicated escrow, kept separate from the general basket, and its survival period is extended to run with the applicable limitation and appeal timelines under the GST framework rather than the standard warranty survival period. The deal closes on schedule — the buyer has a ring-fenced remedy if the demand crystallises, and the seller avoids reopening the entire price negotiation.
Common Mistakes Companies Make
Treating warranties as boilerplate. Copy-pasted warranty schedules miss sector-specific risks — environmental clearances for manufacturing, FDI compliance for foreign-invested targets, RBI reporting for NBFCs.
Relying on warranties without a standalone indemnity. Without an express indemnity, the buyer has to prove damages under Section 73, which means establishing both loss and causation — a much harder and slower claim than enforcing a defined indemnity trigger.
Vague survival language. SPAs that say a claim must be “made” within the survival period, without defining what counts as valid notice, invite arguments over whether the claim was raised in time.
Leaving the sandbagging position unaddressed. Deals silent on whether a buyer can claim for a breach it already knew about invite disputes. Among the Khaitan & Co-surveyed deals that addressed it expressly, pro-sandbagging clauses were more common than anti-sandbagging ones — 35% against 8% — so a seller who wants protection has to negotiate for it, not assume silence covers them.
Underpricing tax and title risk. Capping tax warranties at the same level as general warranties leaves the buyer exposed to reassessments that can surface years after closing.
Pro Tips From Sapient’s Advisory Desk
Match survival periods to the correct statutory framework. The Income-tax Act, 2025 replaced the 1961 Act from 1 April 2026, but earlier tax years and pending proceedings continue under the old Act’s transitional provisions. Check which regime actually governs the exposure before picking a survival period, rather than applying one number across the board.
Keep the indemnity independent of the warranty remedy. Draft it as a standalone covenant that survives termination, assignment and closing, rather than folding it into general damages language.
Use a tiered basket. A per-claim de minimis plus an aggregate basket filters out nuisance claims while still catching the ones that matter.
Price W&I insurance early if you’re using it. Insurers need lead time to underwrite properly; leaving it to the final week compresses your negotiating leverage right when you need it most.
Define “Loss” precisely — and check it against your diligence findings. State whether consequential loss, diminution in value, and multiple-based loss are included or excluded, and make sure that definition actually covers what diligence flagged.
Build an escrow release mechanism with clear timelines. Undefined release triggers create avoidable last-mile disputes after closing.
Frequently Asked Questions
Q: What is the difference between a representation and a warranty in Indian M&A?
A: A representation induces the buyer to enter the contract, and a false one can let the buyer seek rescission under Section 19 of the Indian Contract Act, 1872, depending on the facts. A warranty is a contractual promise; its breach ordinarily leads to a damages claim under Section 73, without automatically undoing the transaction.
Q: Are representations and warranties defined under Indian law?
A: No. The Indian Contract Act, 1872 doesn’t separately define either term — Indian courts and drafters apply the distinction developed under English contract law.
Q: What is a contract of indemnity under Indian law?
A: Under Section 124 of the Indian Contract Act, 1872, it’s a contract where one party promises to save the other from loss caused by the promisor’s own conduct or a third person’s conduct. Section 125 sets out what the indemnified party can recover, and the Bombay High Court held as early as 1942, in Gajanan Moreshwar Parelkar v. Moreshwar Madan Mantri, that these two sections don’t cover the whole law of indemnity.
Q: How long does an indemnity survive after an M&A deal closes?
A: In Khaitan & Co’s 2025 survey of Indian PE/VC deals, survival periods most commonly ran 2–4 years for general business warranties and 5–10 years for tax warranties, while fundamental warranties on authority, capacity and title often survived more than 10 years.
Q: What is a basket or de minimis in an indemnity clause?
A: A basket is a minimum aggregate threshold of losses that must be crossed before the buyer can claim; a de minimis is a per-claim floor below which individual claims are disregarded. Both filter out immaterial disputes, and some SPAs add a materiality scrape on top so the basket and de minimis thresholds don’t get undercut by materiality qualifiers elsewhere in the warranties.
Q: Does due diligence reduce a seller’s indemnity obligation in India?
A: Not automatically, and it depends on what the SPA says. In GWL Properties Ltd v. James Mackintosh & Co Pvt Ltd (Bombay High Court, 2012), the SPA expressly stated the warranties would survive the buyer’s investigation and due diligence, and the court held the seller to that language even though the buyer had done its own diligence. If the SPA is silent on this, don’t assume a court will read the same protection in.
Q: What is warranty and indemnity (W&I) insurance?
A: A policy that pays the buyer directly for losses from a breach of warranty in an SPA, reducing dependence on the seller’s post-closing solvency. It remains a niche tool in Indian deals outside the largest transactions.
Q: Who typically negotiates R&W and indemnity clauses in India?
A: Transaction counsel on both sides, supported by financial, tax and legal due diligence teams; valuers and advisory firms often get involved in quantifying disputed items that get carved into specific indemnities.
Q: What is sandbagging in an SPA, and why does it matter?
A: A pro-sandbagging clause lets a buyer claim indemnity for a breach it already knew about; an anti-sandbagging clause blocks that. Among the Khaitan & Co-surveyed deals that addressed the point expressly, pro-sandbagging was more common — 35% against 8% anti-sandbagging.
Q: How is loss calculated under an indemnity claim in an Indian SPA?
A: Largely as the SPA defines it. The definition should state whether consequential loss, diminution in enterprise value, or multiple-based calculations are included, since courts give substantial weight to the wording actually used.
Before You Sign: What to Actually Check
Don’t let the R&W section be the last thing reviewed before signing. Walk through three questions with your counsel and your diligence team together: Does every material diligence finding show up somewhere — as a disclosure the SPA actually recognises, a price adjustment, or a specific indemnity? Do the survival periods match the correct statutory framework for the tax years actually involved? And does the SPA say, in words, who wins if the buyer knew about a problem before closing?
If you are structuring an acquisition, a slump sale, or an IBC-linked purchase and need the disclosure schedule and indemnity structure reviewed before signing, Sapient Services’ valuation and transaction advisory team can help quantify disputed items and stress-test the indemnity cap against realistic exposure. Contact Sapient Services at +91 9540162888 or visit sapientservices.com.
This article is for general informational purposes and does not constitute legal advice. Transaction-specific drafting should be reviewed by qualified transaction counsel.
