Closing Conditions Litigations
CLOSING CONDITIONS LITIGATIONS
1. Meaning and Concept of Closing Conditions
Closing conditions (also called conditions precedent) are specified events or actions that must be fulfilled before an M&A transaction can be completed (closed). If these conditions are not satisfied or waived, the parties are generally not obliged to consummate the transaction.
They are central to:
Share Purchase Agreements (SPAs)
Asset Purchase Agreements (APAs)
Joint venture agreements
Strategic investments
2. Legal Nature of Closing Conditions
Under Indian law, closing conditions are treated as contingent contracts.
Indian Contract Act, 1872
Section 31 – Contingent contracts
Section 32 – Enforcement upon happening of event
Section 33 – Non-happening of contingent event
Failure of a condition precedent typically discharges parties from performance, unless waived.
3. Common Types of Closing Conditions
(A) Regulatory Conditions
Competition approvals (CCI)
Sectoral regulator approvals
Government consents
(B) Corporate Conditions
Shareholder approvals
Board approvals
No injunction or restraint order
(C) Commercial Conditions
No material adverse change (MAC)
Accuracy of representations and warranties
Completion of restructuring steps
4. Typical Causes of Closing Conditions Litigation
Dispute on whether a condition is satisfied
Alleged wrongful refusal to close
Bad-faith frustration of conditions
Waiver disputes
Time-is-of-the-essence controversies
MAC invocation disputes
Specific performance vs termination claims
Such disputes often arise when market conditions deteriorate post-signing.
5. Legal Issues Commonly Examined by Courts
Is the condition mandatory or waivable?
Who bears the risk of non-fulfilment?
Was reasonable or best efforts required?
Was non-fulfilment self-induced?
Is specific performance available?
6. Governing Legal Principles
Conditions precedent must be strictly complied with
A party cannot rely on failure of a condition it prevented
Waiver must be clear and intentional
Time stipulations matter if expressly made essential
Courts enforce contractual risk allocation
Commercial hardship alone is not a ground to avoid closing
7. Leading Case Laws on Closing Conditions Litigations
1. Dresser Rand S.A. v. Bindal Agro Chem Ltd. (2006)
Held:
Conditions precedent must be fulfilled strictly unless expressly waived.
Significance:
Foundational Indian authority on strict enforcement of closing conditions.
2. Energy Watchdog v. CERC (2017)
Held:
Commercial impracticability or market hardship does not excuse contractual obligations.
Significance:
Applied to failed closings where parties cite economic downturns.
3. Shin Satellite Public Co. Ltd. v. Jain Studios Ltd. (2006)
Held:
Contracts must be interpreted to give effect to business efficacy.
Significance:
Used to resolve ambiguities in closing condition drafting.
4. Alcatel India Ltd. v. Union of India (2003)
Held:
Discretion in contractual performance must not be exercised arbitrarily.
Significance:
Relevant where a party unreasonably refuses to certify satisfaction of conditions.
5. Bhasin v. Hrynew (2014)
Held:
Contracts carry an implied duty of honest performance.
Significance:
Applied to cases of bad-faith obstruction of closing conditions.
6. ONGC v. Saw Pipes Ltd. (2003)
Held:
Contractual allocation of risk must be respected unless against public policy.
Significance:
Supports enforcement of walk-away rights tied to closing conditions.
7. McDermott International Inc. v. Burn Standard Co. Ltd. (2006)
Observation:
Courts should not rewrite commercial bargains.
Significance:
Restrains judicial interference in closing condition negotiations.
8. MAC Clauses and Closing Condition Litigation
Material Adverse Change clauses are often framed as stand-alone closing conditions.
Courts examine:
Durational significance
Industry-wide vs target-specific impact
Carve-outs and exceptions
Whether invocation is opportunistic
Indian courts adopt a high threshold for MAC invocation.
9. Remedies in Closing Conditions Disputes
(A) Specific Performance
Granted when:
Conditions are satisfied or waived
Contract is determinable only at option of claimant
(B) Termination
Valid if:
Condition fails without fault
Long-stop date expires
(C) Damages
Available for:
Wrongful refusal to close
Bad-faith frustration
10. Drafting Best Practices to Avoid Litigation
Clear categorisation of conditions (mandatory vs waivable)
Defined effort standards (reasonable / best / commercially reasonable)
Long-stop dates with consequences
Explicit MAC carve-outs
Allocation of regulatory risk
11. Conclusion
Closing conditions lie at the heart of transactional certainty in M&A. Indian jurisprudence consistently holds that:
Closing conditions are enforceable contingent obligations
Parties cannot frustrate conditions and benefit from failure
Courts respect negotiated walk-away and closing rights
Bad-faith conduct attracts judicial intervention
Well-drafted closing conditions balance deal certainty with risk protection, while poorly drafted ones are a frequent source of high-stakes litigation.
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