The Role of Arbitration in Mergers and Acquisitions

Introduction

Mergers and Acquisitions (M&A) are corporate agreements aimed at consolidating market share, achieving growth, and creating synergy. Although the complexity of these transactions, especially in cross-border scenarios, makes them vulnerable to disputes. Issues surrounding valuation, due diligence, representations and warranties, and shareholder rights frequently give rise to conflicts. In this context, arbitration has become the preferred dispute resolution mechanism, offering neutrality, confidentiality, and cross-border enforceability that traditional litigation often lacks. This article is to analyse the role of arbitration in mergers and acquisitions the advantages, limitations and future scenarios.

Legal Framework and Use in M&A

In India, arbitration is governed by the Arbitration and Conciliation Act, 1996, which is aligned with the UNCITRAL Model Law. For international deals, the New York Convention, 1958, ensures global enforceability of arbitral awards. Most modern M&A contracts—including Share Purchase Agreements and Shareholders’ Agreements—include arbitration clauses governed by institutions such as SIAC, ICC, or LCIA. These provide robust procedural safeguards and expert panels suited to resolving corporate disputes efficiently.

Benefits of Arbitration in M&A Transactions

Arbitration offers several advantages in the M&A context. Parties can appoint arbitrators with specific expertise in finance or sectoral operations, ensuring informed resolution. Confidential proceedings protect sensitive business information, and procedural flexibility allows customization to the unique needs of a dispute. Additionally, arbitral awards are enforceable across jurisdictions, reducing enforcement-related uncertainty in cross-border transactions. These features make arbitration particularly effective during both pre-closing and post-closing stages of a deal.(1)

Judicial Recognition and Case Law

Indian courts have consistently upheld the validity of arbitration in M&A disputes. In Amazon.com NV Investment Holdings LLC v. Future Retail Ltd.(2) , the Supreme Court upheld an emergency award passed by SIAC, affirming India’s pro-arbitration stance. In Daiichi Sankyo Co. Ltd. v. Malvinder Mohan Singh(3), the Delhi High Court enforced an ICC award based on fraudulent misrepresentations, reiterating the arbitrability of fraud. Conversely, Booz Allen & Hamilton Inc. v. SBI Home Finance Ltd.(4) and Rakesh Malhotra v. Rajinder Malhotra (5) illustrate that disputes involving rights in rem or statutory matters like oppression and mismanagement remain non-arbitrable.

Challenges and Limitations

Despite its strengths, arbitration in M&A is not without limitations. Disputes involving multiple parties or interconnected contracts may suffer from fragmented proceedings if not all parties are signatories to the arbitration agreement. Drafting inconsistencies between different transaction documents may also create jurisdictional conflicts. Another challenge lies in the ambiguity around the arbitrability of statutory or regulatory issues—especially under Indian law—such as those relating to the Companies Act or SEBI regulations. Moreover, arbitration costs can be substantial, particularly in complex, high-stakes M&A transactions.

Suggestions or Way Forward

To maximise the effectiveness of arbitration in M&A, clearer drafting of arbitration clauses is essential. Parties should harmonise dispute resolution provisions across all deal documents and anticipate possible multi-party or multi-contract issues by opting for consolidation-friendly rules (e.g., ICC or SIAC). Legislative clarity on the arbitrability of corporate law matters, especially in shareholder disputes, would also be beneficial. Encouraging fast-track or emergency arbitration mechanisms may help resolve pre-closing issues swiftly, preserving the integrity of the transaction.

Conclusion

Arbitration has become an indispensable tool in resolving M&A disputes due to its neutrality, expertise, and international enforceability. While challenges remain—particularly in terms of arbitrability limits and procedural fragmentation—these can be addressed through thoughtful drafting and legal reform. As cross-border M&A continues to rise, arbitration stands poised to ensure that such transactions are not only strategic but also legally secure. With proper safeguards, it can evolve from a reactive remedy into a proactive component of deal structuring.

References.

1. ADITYA BHARADWAJ, Role of Arbitration in Mergers and Acquisitions, International Journal of Legal Science and Innovation, [Vol. 6 Iss 4; 580]

2. Amazon.com NV Investment Holdings LLC v. Future Retail Ltd. & Ors., (2022) 1 SCC 209

3. Daiichi Sankyo Co. Ltd. v. Malvinder Mohan Singh & Ors. 2023 SCC OnLine Del 1046

4. Booz Allen & Hamilton Inc. v. SBI Home Finance Ltd. & Ors.,(2011) 5 SCC 532

5. Rakesh Malhotra v. Rajinder Malhotra, 2014 SCC OnLine Bom 102

   
   

DISCLAIMER- This article has been submitted by Sudeshna Mondal, trainee under the LLL Legal Training Program. The views and opinions expressed in this piece are solely those of the author.