Understanding Loss in Indian M&A Deals | Doing Business in India | Episode 35

Loss is one of the most heavily used terms in Indian M&A and investment agreements. But a ‘loss’ to the company and a ‘loss’ to an investor are not the same thing under Indian law.

In this episode of the Veyrah Law series, Ajay Joseph (Partner) unpacks a distinction that trips up even experienced dealmakers: a warranty breach usually causes a loss to the target company, not to the shareholder. Under Indian law, a shareholder has no legal right over the company's own property. A hit to the company's balance sheet does not automatically become a ‘Rupee for Rupee’ claim in the value of the shares, unless it can actually be shown to have moved that value.

Parties have tried to draft around this with deeming clauses and gross-up provisions, treating a company loss as an automatic ‘Rupee for Rupee’ shareholder claim. But these are far weaker than they look on paper since Indian courts require proof of actual, reasonable loss; not a label in a document. This episode sets out a practical framework for both sides of the table: a direct, company-level remedy on a secondary acquisition; a narrow, fraud-based standard for founder liability on a primary investment; and where a seller should actually spend their negotiating capital instead of fighting over the definition of ‘loss’ itself.

For anyone drafting, negotiating, or enforcing loss and indemnity provisions in an Indian M&A or investment deal, this episode is essential viewing on what the law will actually give effect to.