India: Globalizing India Inc.


Courts in India or in other jurisdictions such as the UK commonly interpret a contract based on a plain and simple reading of the clauses. Occasionally, in instances where a simple construction of the contract leads to ambiguous or commercially unreasonable results, courts endeavor to ascertain the actual intention of the parties at the time of signing of the contract. Such an exercise to ascertain the commercial intention of the parties is carried out by reading the contract as a whole. Courts rarely attempt to ascertain the commercial intent of the parties by relying on external factors such as surrounding circumstances at the time of signing of the contract, communication prior or at signing of the contract etc.

In one such rare instance the UK Court of Appeals in Belfairs Management Limited v. Matthew Sutherland & Ors.1relied on the surrounding circumstances at the time of signing of an acquisition agreement to determine the scope of a warranty clause.


Waveform Solution Limited ("Waveform") which was a supplier of communications and information technology decided to bid for a government tender which invited suppliers to participate in a programme to modernize the computer systems across UK's National Health Service ("NHS Programme"). The NHS Programme was seen by Waveform and many other market players as an extremely profitable venture. The NHS Programme required the tenderers to fulfill certain minimum eligibility requirements before they could be awarded the principal agreement ("Framework Agreement"). The Framework Agreement allowed the suppliers to supply required systems to the end users after certain milestones were achieved over a period of time. However, the Framework Agreement did not guarantee any specific number of assured sales.

The implementation of the Framework Agreement required significant capital expenditure to be made upfront. Thus, Matthew and his wife Christie Sunderland ("Sellers") who were the promoters of Waveform decided to arrange for a deal that would re-capitalize Waveform. In light of this the Sellers entered into a share purchase agreement ("SPA") with Belfairs Management Limited ("Acquirer") whereby the Acquirer acquired a 60 per cent stake in Waveform. The Sellers used the cash generated from the deal to inject funds into Waveform by way of a shareholder loan.


Following the acquisition, a dispute arose between the Sellers and the Acquirer when Waveform failed to implement the Framework Agreement resulting in an enormous loss of revenue. In fact, since Waveform had invested substantial capital and manpower for the implementation of the Framework Agreement, it had to close down its other businesses. The failure to implement the Framework Agreement led to Waveform being unable to pay dues of its creditors (other than the Sellers or the Acquirer). As a result, the creditors filed for dissolution of Waveform.

Simultaneously, the Acquirer also sued the Sellers for breach of warranty and deceit. The Acquirer's case was primarily based on a breach of warranty under the SPA wherein the Sellers had represented and warranted that "the company is not a party to any agreement, arrangement or commitment which cannot be readily fulfilled or performed by it on time" (the "Warranty Clause"). Relying on the Warranty Clause the Acquirer argued that the Sellers had breached the Warranty Clause by not providing the Acquirer an objective assessment regarding Waveform's ability to implement the Framework Agreement at the time of acquisition.

The Sellers on the contrary argued that the Framework Agreement which was not signed at the time when the SPA was consummated could not be brought within the scope of the term "agreement", "arrangement" or "commitment" in the Warranty Clause.


Based on the arguments advanced by both the parties, the trial court framed three issues for determination of the claims of the parties: (i) whether the Framework Agreement was an "agreement, arrangement or commitment" under the Warranty Clause?; if yes (ii) what was the scope and nature of the warranty set out in the Warranty Clause?; and (iii) was the Warranty Clause breached by the Sellers?

On issue (i) the trial court ruled in favor of the Sellers on the ground that as on the date of the consummation of the SPA, the Framework Agreement was not signed by Waveform and thus could not be an "agreement, arrangement or commitment" under the terms of the SPA and hence was not covered by the Warranty Clause. On issue (ii) the trial court found that in the event the Framework Agreement formed an "agreement, arrangement or commitment" to which the Warranty Clause applied, the Sellers were only required to provide a subjective assessment of whether the Framework Agreement could have been performed by Waveform. Based on its findings in respect of issues (i) and (ii), the court found that there was no breach of the Warranty Clause.


On issue (i) the Court of Appeals held that the Framework Agreement formed an "agreement, arrangement or commitment" under the terms of the SPA and hence was covered by the Warranty Clause. The Court of Appeals relied on the evidence from the negotiation between the parties and presentations made by the Sellers in respect of the financial projections of Waveform to the Acquirers. The Court of Appeals specifically relied on: (a) the initial communication between the Sellers and the Acquirer wherein the Sellers represented that the Framework Agreement had 'enormous potential' and as a result of which the Sellers were willing to retain some portion of their shareholding in Waveform; (b) the executive summary of the financial projections of Waveform shared by the Sellers with the Acquirer which made a specific reference to the Framework Agreement; (c) the cover email sharing the executive summary with the Acquirer's attorney which made specific reference to the Framework Agreement and its inestimable potential; and (d) the financial due diligence report carried out by the Acquirer's adviser stating that the projection of Waveform's future earnings and current value would be highly dependent on the implementation of the Framework Agreement. The other factor that influenced the Court of Appeals to arrive at this finding was the fact that the Sellers themselves had conceded in the initial stages of the litigation that the Framework Agreement constituted an essential element of the transaction.

On issue (ii) the Court of Appeals found that the Seller was required to make an objective assessment of whether the Framework Agreement could have been implemented. In other words, the Sellers were required to make a reasonable commercial judgment regarding Waveform's ability to perform the Framework Agreement and disclose it to the Acquirer.

Since issue (iii) required a finding of fact, the Court of Appeal remanded the matter back to the trial court.


The judgment may become relevant to acquisitions involving India as considering the limited case law on the interpretation of representations and warranties in India, the courts in India tend to rely on English law judgments in commercial matters. Also, in most cross-border acquisitions, parties tend to prefer to be governed by English law.

In light of this judgment, parties involved in an acquisition should be mindful of the following-:


From a seller's perspective, it is critical to negotiate very narrow representations and warranties. One of the ways of doing that is to make specific and clear disclosures in respect of each of the representations and warranties. However, sellers would continue to face the challenge of disclosing items which may potentially reduce valuations or could in fact be deal breakers. For instance, in this case if the Sellers had in fact provided an assessment that the Framework Agreement could not have been implemented after the acquisition it is likely that the Acquirer may not have consummated the deal. Hence, Sellers would be required to continue to walk the tightrope and maintain a balance between disclosing critical items (to ensure that they are not liable for failing to disclose material facts) and ensuring that the disclosure does not jeopardize the transaction.


In order to avoid a situation wherein a court would look at the external circumstances prior to the signing of the contract to ascertain the commercial intent of the parties, the parties would be well advised to incorporate their commercial understanding in the acquisition agreement itself. This is likely to provide a court sufficient guidance within the agreement while determining the commercial intent of the parties and limit the need to look for circumstances surrounding the execution of the transaction to ascertain the commercial intent of the parties.


Further, the parties should endeavor to include a robust "entire agreement" clause that specifically excludes the reliance on any prior drafts, presentations or any other documents shared between the parties prior to the signing of the agreement and limit their understanding to the final terms of the agreement itself.


From an acquirer's perspective, this case also reflects that extensive representation and warranties may not be a substitute for financial and legal due diligence. Thus, as far as practicable, acquirers should undertake a detailed due diligence of the target before the acquisition. Further, the acquirer should carefully negotiate the scope and the nature of the representation and warranties made by the seller.


1 [2013] EWCA Civ 185

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.