Legal Remedies in Failed Merger and Acquisition Transactions
- Lets Learn Law
- Jul 16
- 3 min read
Introduction
When billion-dollar deals fall apart the legal consequences are not just limited to broken business expectations they often turn into complex legal battles. In today’s volatile market, failed mergers and acquisitions have become more common due to regulatory roadblocks, financial downturns, or breach of agreement. For investors, promoters, legal teams, and regulators, the legal remedies available in such scenarios are critical to mitigate loss and protect interests.
This article explains why failed M&A deals are important to understand and what legal steps can be taken when things go wrong. It highlights the key rights and remedies available to parties involved, such as claiming damages, enforcing contracts, or terminating deals lawfully. By covering common causes of failure and the legal solutions available, this article aims to guide businesses, investors, and legal professionals on how to handle such situations effectively.
Common Reasons for M&A Failure
Regulatory disapproval
Transactions may be blocked or delayed due to non-clearance from authorities like the Competition Commission of India or Securities and Exchange Board of India.
Due Diligence Issues
Red flags discovered during legal, financial, or compliance due diligence zsuch as pending litigation or undisclosed liabilities can cause buyers to withdraw.
Misrepresentation or concealment
Providing false information or hiding material facts can void contracts and lead to legal action.
Strategic or market shifts
Changes in economic conditions, valuation expectations, or business priorities post signing may cause one party to reconsider or exit the deal.
Shareholder Opposition
In listed or large private companies, resistance from key shareholders can block approvals needed for closing the transaction.
Legal Remedies Available
A. Contractual Remedies
Specific Performance: A court ordered remedy that compels the defaulting party to complete the transaction as per the terms of the agreement. This is typically granted under the Specific Relief Act, 1963, when monetary compensation is inadequate to fully compensate the aggrieved party.
Break Fees: A contractually agreed amount payable by one party to the other if the transaction is terminated under specific circumstances such as failure to obtain shareholder or regulatory approval, or if a party exits the deal without valid cause. These clauses serve as a deterrent against arbitrary withdrawal.
Damages: Monetary compensation awarded to the non-breaching party for losses suffered due to contractual breach. Governed by Section 73 of the Indian Contract Act, 1872, the purpose is to place the aggrieved party in the position they would have been in had the contract been performed.
B. Statutory Remedies
Oppression & Mismanagement: Under Sections 241 to 246 of the Companies Act, 2013, minority shareholders can approach the National Company Law Tribunal if they believe that the conduct of majority shareholders or management during an M&A deal was oppressive, fraudulent, or prejudicial to their interests or the company’s well-being.
Regulatory Intervention: Regulatory authorities such as:
Competition Commission of India – for anti-competitive conduct or merger control
violations
Securities and Exchange Board of India – for breaches related to listed companies, insider trading, or takeover regulations
Reserve Bank of India – for violations of FEMA or sector-specific investment restrictions
Pain Points in Legal Remedies for Failed M&A Transactions
Vague Contract Clauses
Terms like “Material Adverse Change” or “Conditions Precedent” are often loosely drafted, making enforcement difficult.
Delay in Legal Relief
Courts take time to decide, causing further loss and uncertainty for parties.
Difficulty in Proving Damages
Losses from failed deals are hard to quantify and prove in court.
Cross-Border Enforcement Issues
Enforcing foreign judgments or arbitration awards can be complicated and expensive.
Case Law
Case - Daiichi Sankyo v. Malvinder Mohan Singh
The case is a critical example of legal remedies in a failed M&A. Daiichi, as the buyer of Ranbaxy, successfully used arbitration to prove the seller’s fraudulent concealment of crucial information. This resulted in a significant damages award, which Daiichi is now enforcing through Indian courts, including pursuing contempt proceedings and asset auctions to recover the money. The case highlights how parties can seek redress through various legal avenues when an acquisition collapses due to seller fraud.
Conclusion
Failed M&A transactions can lead to serious legal and financial consequences. But the law offers a range of remedies from contractual enforcement to statutory relief but their success depends on proactive drafting, due diligence, and legal foresight. Understanding these remedies helps stakeholders protect their interests and navigate deal failures with clarity and confidence
Sources
Indian Contract Act, 1872 – Section 73 (Compensation for breach of contract)https://indiacode.nic.in/handle/123456789/2187?sam_handle=123456789/1362&view_type=browse
2. Specific Relief Act, 1963 – Section 10 (Specific performance of contracts)
3. Delhi HC permits enforcement of ₹3,500 crore Tokyo arbitration award
4. Section 241 – Application to Tribunal for relief in cases of oppression, etc.
DISCLAIMER- This article has been submitted by Swastik Shetty, trainee under the LLL Legal Training Program. The views and opinions expressed in this piece are solely those of the author.
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