Business Law Review
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This paper examines the strategic manoeuvre of ‘sandbagging’ in mergers and acquisitions (M&As), wherein a party, despite having prior awareness of falsity of certain representations & warranties, attains the right to claim indemnification, damages for the breach of warranties, and restitution along with rescission of a contract for the breach of representations. Sandbagging is globally widespread; hence its permissibility is influenced by jurisdictional differences. This paper focuses its narrative on India, highlighting the nebulous terrain of a buyer claiming a breach of representations & warranties (R&Ws) through sandbagging provisions. The paper navigates section 19 of Indian Contract Act (ICA), 1872, to dissect how misrepresentation is understood and how the requirement of inducement, duty of ordinary diligence, and the presence of awareness of the falsity of representations has evolved. Judicial departure from the requirement of diligence and inducement for representations, aligns India with a pro-sandbagging stance, akin to the modern commercial practices in the United States (US), albeit with the challenge of deviating from the text of section 19 of the ICA, 1872. The paper also seeks to showcase the viability of sandbagging warranties in India by examining the scheme of the Sale of Goods Act (SoGA), 1930, the principle of ‘caveat emptor’, and the courts’ liberal understanding of contractual warranties. This exploration not only sheds light on the evolving legal landscape of sandbagging in India but also underscores the broader implications for M&A stakeholders. As India grapples with these intricacies, the delicate task of aligning statutory law with modern commercial practices echoes the global challenge faced in having clarity and transparency regarding the complexities of M&A transactions.
Business Law Review