“The explicit terms of a contract are always the final word with regards to the intention of the parties.” [1]
INTRODUCTION
An exit provision can appear complete because it identifies a date, a return and a payment formula. The test comes when performance is due. The agreed exit may then be incapable of lawful implementation, or a third-party approval may prevent it from proceeding in circumstances the documents have not adequately addressed. The same risk arises across instruments, drafting techniques and transaction structures. If those constraints are not identified and allocated when the exit is negotiated, structured investments, deferred consideration, earn-outs, put and call arrangements, third-party dependent exits and consent-dependent distributions can leave the parties disputing performance of what was intended as a defined commercial outcome.
Ramakrishnan Krishnan v. Gluhend India Private Limited provides a useful illustration. Following the acquisition, part of the consideration payable to the continuing seller remained invested through redeemable optionally convertible preference shares. A later framework agreement provided for a 15% compounded annual return, a special return, staged payments of at least INR 5 crore a year and final redemption by 30 June 2024. The relevant clause was made “subject to” provisions concerning the financing documents, board action and lender consent. It also contemplated support from the Guarantor if the company issuing the securities (the “Promisor”) lacked funds.
On a petition for interim protection under section 9 of the Arbitration and Conciliation Act, 1996, the Bombay High Court took the prima facie view that the agreement created substantive rights, but their performance remained governed by lender consent requirements and other restrictions in the financing documents. The Court also treated redemption as subject to section 55 of the Companies Act, 2013; considered that the holding company’s liability to pay would arise only in accordance with the financing documents rather than directly; and regarded the annual and special returns as composite, leaving their final characterization for adjudication. [2]
The Bombay High Court’s interim view is a useful stress test for transaction structures and their drafting. It draws attention to contingencies that documents may leave unresolved without determining the parties’ substantive rights. It raises the following questions:
a) If an exit depends on an event, consent or approval, does that requirement prevent the exit right from arising, or only defer performance of a right that already exists?
b) When an existing receivable is converted into preference shares or another instrument, is the earlier claim discharged and replaced, or does it survive as an expressly independent contractual right?
c) Do multiple contractual layers, by themselves, create additional protection?
d) If performance depends on a lender or other third party that is not bound by the investment documents, who bears the risk of refusal, delay or silence, and what contractual consequence follows?
e) If a shareholder, holding company or another group entity is expected to support the Promisor as a Guarantor, does that promise create an independent exit route, or remain subject to the same constraints that block the Promisor?
f) If the primary exit cannot be completed lawfully or contractually, what fallback can actually operate, and which rights and economic terms survive until it does?
These questions define the orbit around which this article revolves. The following sections discuss the issues and nuances, raise inquiries, and, where possible, offer suggestive answers and practical frameworks for consideration.
I. THE REAL ISSUE: RIGHT, PERFORMANCE AND FAILURE RISK
Every promised exit has at least four distinct components:
a) the economic entitlement;
b) the person obliged to provide it;
c) the legal and operational route by which it is to be provided; and
d) the consequence if that route fails.
Documents often describe the first three and leave the fourth to implication(s). That omission converts a foreseeable allocation question into a dispute about construction of that very provision. A right may exist although its performance is temporarily blocked. Conversely, a condition precedent may prevent any obligation from arising until the condition is satisfied. The difference cannot safely be left to the words “subject to” alone. Their effect depends on their placement, the language of the connected provisions and the agreement read as a whole. Indian contract law separately recognizes promises dependent on uncertain future events, and commercial contracts are construed so that one clause does not defeat another.[3]
Once the relevant event, action or approval is identified, the document should state expressly whether it:
a) must occur before the right itself comes into existence;
b) does not affect the right but defers the time for performance;
c) suspends payment or other performance while the underlying amount continues to accrue;
d) postpones performance only until a stated long-stop date;
e) triggers performance by an alternative obligor or through a separate route; or
f) extinguishes the entitlement if the event does not occur.
These consequences can be commercially different or at times intertwined depending upon the terms and conditions of a transaction.
The drafting must also separate the underlying obligation from the available remedy. A payment restriction may postpone performance without validating an immediate monetary claim. Equally, the absence of a presently available payment route need not mean that every contractual promise has vanished. Accrual, enforceability, breach, damages, specific performance and interim protection are distinct questions. Treating them as interchangeable produces precisely the uncertainty that an exit provision is meant to eliminate.
II. INSTRUMENT LAYERING: WHEN THE FORM CHANGES, THE RIGHT MAY CHANGE WITH IT
Transaction documents often change the legal form through which the same underlying commercial value is held. A receivable may be converted into preference shares; rights attached to those shares may subsequently be dealt with under an SHA or another contractual arrangement; and that arrangement may later be amended, restated or settled. Each step may supplement the earlier right, but it may also replace or extinguish it. The drafting must make clear which of these consequences is intended.
The consequence is illustrated by EPC Constructions. The Supreme Court held that, once the outstanding receivable had consciously been converted into preference shares, the earlier outstanding amount stood extinguished and the relationship became that of a preference shareholder. The holder could not thereafter treat the antecedent receivable as though the conversion had not occurred. Equally, expiry of the redemption period did not convert the preference shareholder into a creditor, and redemption remained subject to section 55 of the Companies Act.[4]
This makes the transition between instruments as important as the terms of the new instrument itself. Where an existing payment obligation is being converted or restructured, the documents should state whether the new arrangement constitutes full satisfaction, novation, conditional substitution, partial discharge or an additional right alongside an expressly surviving obligation. The same discipline should apply to an amended or restated agreement: accrued rights, continuing security or guarantees, superseded obligations and the order of precedence between documents should not be left to implication.
The practical risk is therefore to mistake more documentation for more protection. If the instrument terms, SHA and later arrangements ultimately depend upon the Promisor performing the same redemption obligation through the same legally restricted route, the holder may have several provisions but only one effective remedy. Instrument layering should therefore be used to allocate distinct rights and consequences, not merely to restate the same economic expectation in different documents.
III. CONSENT-DEPENDENT PERFORMANCE: WHO BEARS REFUSAL RISK?
Third-party consent is often treated as an administrative step even when it is a substantive condition to the exit. The risk becomes acute where the person whose consent is required is a senior lender with an independent economic interest in retaining cash within the borrower group.
Suppose the company is profitable, remains compliant with its financing covenants and can comfortably service projected debt. Those facts may support a consent request and may be relevant under an express reasonableness standard. They do not, by themselves, convert an absolute lender discretion into an obligation to consent. The answer depends first on the financing documents. Further, an investment or shareholders’ agreement ordinarily cannot impose a duty on a lender that is not a party to it.[5] If the lender is expected to observe a response period, apply stated criteria or refrain from unreasonably withholding consent, the strongest structure is a lender undertaking, consent letter, direct agreement or accession that actually binds the lender.
Where that is not commercially available, the contracting parties can still allocate the refusal risk between themselves. The consent provisions should identify:
a) who must make the request, by what date and with what information;
b) the standard of efforts required and the persons responsible for escalation;
c) the financial criteria supporting the request, including pro forma liquidity, debt-service coverage, leverage and covenant compliance;
d) whether consent may be withheld absolutely or only on specified or reasonable grounds;
e) a response period, a requirement for written reasons and any renewal process;
f) the information and correspondence to be shared with the affected party;
g) the long-stop date and the consequence of silence or refusal; and
h) the alternative route that becomes available if consent is not obtained.
The document should also address self-induced failure. A borrower or Guarantor can covenant not to invite or induce a refusal, not to amend the financing documents in a manner principally intended to frustrate the agreed exit, and not to enter into side arrangements whose purpose or effect is to keep consent permanently unavailable. It can be required to disclose each request and response and to pursue an agreed escalation process. These protections are more reliable than an assumption that an oral, undisclosed or strategically inconvenient arrangement is automatically illegal. Its validity and consequences would depend on the actual agreement, the governing law, the duties of the parties and the available evidence.
The essential drafting choice remains the consequence of refusal. Consent failure may suspend the primary payment while preserving the entitlement; defer it with an agreed carrying return; trigger a Guarantor purchase or third-party sale; require a refinancing process; or terminate the arrangement for an agreed payment or remedy. If the document says nothing, a court or tribunal is left to select among consequences that may have very different economics.
IV. GUARANTOR SUPPORT MUST BE A GENUINE ALTERNATIVE
Assume, A sells shares of a company to B, while agreeing that part of the consideration will remain invested in the company through redeemable preference shares. Under the transaction documents, B or its affiliate C undertakes that, if the company is unable to complete the agreed exit, C shall provide funds or purchase such securities from A. In such an arrangement, C becomes the promisor of the additional undertaking, A is the promisee, and the enforceability of C’s obligation depends on the terms, conditions and limitations expressly attached to that promise.
A promisor providing exit support may undertake to inject funds into the company, purchase the holder’s securities, procure a permitted third-party sale, guarantee a lawful payment obligation or compensate for breach of a separate covenant.
The Guarantor discussion in Ramakrishnan illustrates the danger. The relevant clause contemplated funding the Promisor or purchasing the shares, but the clause opened with words making it subject to another provision. At the interim stage, the Court was not prepared to treat the Guarantor limb as automatically independent of that qualification; it observed that different words could have been used if the parties intended the Guarantor to stand outside it.[6] The point is syntactical as much as commercial: an opening qualification may govern every sub-clause that follows.
If a Guarantor purchase obligation is intended to operate after a promisor or issuer company has failed in providing redemption route, the agreement should say that it is a separate secondary-transfer obligation, identify its own trigger and conditions, and state whether lender consent affecting the promisor also affects the Guarantor. It should specify the purchase price, accrued economics, payment date, transfer documents, title protections, regulatory approvals and consequences of non-completion. If it is intended merely as an obligation to use efforts or to explore a purchase, it should not be drafted as though it were an unconditional backstop.
Similarly, a covenant to “fund the company so that it may redeem” is not necessarily a complete solution. Additional cash does not, without more, satisfy every requirement of section 55, and the infusion or the subsequent payment may itself be restricted by the financing documents. A Guarantor-side route cannot be used to disguise an unlawful return of capital or evade another mandatory rule. Its value lies in providing a legally distinct and independently workable performance route where the parties have deliberately chosen one.
V. IDENTIFY THE LEGAL SOURCE OF EACH RETURN
A percentage compounded annually may describe dividend, redemption premium, deferred purchase price, price accretion on a transfer, interest on an independent debt or consideration payable by a Guarantor. Each characterization carries different rules on accrual, declaration, payment, tax, priority and remedies.
The documents should disaggregate the economics and answer, for each component;
a) what it is;
b) who owes it;
c) why it is owed;
d) when it accrues;
e) when it becomes payable;
f) what condition regulates payment;
g) whether it compounds;
h) whether it survives conversion, redemption or transfer; and
i) what happens if the primary payment route is unavailable.
Dividend on preference capital remains subject to the terms of issue and section 123 of the Companies Act. Redemption and any amount forming part of the redemption route must be tested against section 55. Deferred consideration or a Guarantor purchase price must be supported by the transaction that is said to create it and should not merely rename a return on share capital.[7]
The annual and special returns in Ramakrishnan demonstrate why this work must occur at drafting stage rather than in adjudication. The Court considered the connection of the returns with the preference shares too close to treat them, at the interim stage, as wholly independent payments, but also considered the wider restructuring documentation relevant. Their “composite” character was expressly left open for the arbitral tribunal.[8] The order therefore supplies no rule that a negotiated return linked to preference shares is necessarily dividend, debt or separate consideration.
Accounting treatment cannot cure the ambiguity. EPC Constructions confirms that classification as a financial liability under the applicable accounting standard does not, by itself, alter the legal relationship or turn preference capital into debt.[9] Accounts may still provide evidence of how a transaction was recorded or an amount calculated, but the statute and the operative documents determine substantive rights. The issue terms, shareholders’ agreement, purchase agreement, board papers and accounts should therefore describe each economic component consistently without assuming that an accounting label will supply a missing legal source.
VI. BUILD A LAWFUL FALLBACK, NOT A FICTIONAL ONE
Section 55(2) permits redemption only through the statutory routes and subject to the prescribed conditions, including that the shares be fully paid and that redemption be made from profits otherwise available for dividend or from the proceeds of a fresh issue made for the purpose. A contract may allocate the commercial consequences of an unavailable redemption, but it cannot require the company to redeem contrary to those conditions.[10]
Section 55(3) is sometimes presented too quickly as the answer to a failed redemption. It is a qualified restructuring mechanism. Where a company is not in a position to redeem preference shares or pay the associated dividend, it may with the consent of holders of three-fourths in value and with the approval of the Tribunal issue further redeemable preference shares equal to the amount due, including dividend. The statute also addresses dissenting holders. The mechanism is not automatic, is not controlled unilaterally by an individual holder and does not assure an immediate cash exit.[11]
An agreement may require the company and relevant shareholders to consider or pursue that process, supply information, convene meetings and seek approvals. If section 55(3) is intended to be part of the fallback, the documents should also address the terms of the replacement instrument, accrued economics, voting, ranking, long-stop date and the result if the approvals are refused.
A credible fallback hierarchy may instead or additionally include a permitted fresh issue or refinancing, a Guarantor purchase, an organized third-party sale, an agreed conversion or exchange, or deferred performance with preserved economics. Every alternative must be tested independently against company law, the financing documents, foreign-exchange rules (if applicable), tax, securities regulation (if applicable) and the facts of the transaction. A list of theoretical options is not a fallback unless at least one can operate when the primary route is unavailable.
VII. A BETTER WAY TO THINK ABOUT THE TRANSACTION DOCUMENTS
The preceding issues converge on a common drafting concern: whether the transaction, read as a whole, preserves the agreed commercials and allocates the consequences when the intended mechanism cannot operate as contemplated. That requires attention not only to the primary obligation, but also to which provision(s) survives, who bears the resulting constraint(s), and whether another performance or remedial route can operate independently of it.
For each exit, an exit-failure schedule should record the entitlement and its legal source; the obligor and source of funds; each condition, approval and consent; the required efforts and evidence; the performance and long-stop dates; the consequence of failure; the fallback route; and the rights that survive. The schedule exposes a circular backstop that depends on the same consent, cash source or statutory restriction as the primary route.
The definitive documents should then be read horizontally. Transfer provisions or financing covenants may block a Guarantor purchase; the terms of issue may conflict with an acquisition agreement; a later restructuring may discharge an earlier covenant; and an amendment to the finance documents may add a new restriction. Alignment across the document set is therefore part of the allocation of risk. Clear and express drafting is more likely to preserve the parties’ bargain, rather than leaving it to the court or tribunal to infer or reconstruct what the parties intended.
[1] Nabha Power Ltd. v. Punjab State Power Corp. Ltd., (2018) 11 SCC 508, ¶ 49. The Supreme Court added that a multi-clause contract must be understood so that a view of one clause does not do violence to another part of the contract.
[2] Ramakrishnan Krishnan v. Gluhend India Private Limited, Commercial Arbitration Petition No. 766 of 2026, ¶¶ 2–6, 26, 30–39, 49–56, 63, 80(ix) (Bombay High Court July 22, 2026) (Amit Borkar, J.) [hereinafter Ramakrishnan]. The order was made under section 9, repeatedly described its merits analysis as prima facie, treated the competing constructions as arguable and directed the arbitral tribunal to decide independently. It is therefore appropriately cited as a reasoned interim view, not as a final or binding determination of the underlying contractual and company-law questions. See State of Assam v. Barak Upatyaka D.U. Karmachari Sanstha, (2009) 5 SCC 694, ¶ 21 (a tentative finding in an interim order is not a precedent); Municipal Corporation of Delhi v. Gurnam Kaur, (1989) 1 SCC 101, ¶ 10 (only the principle constituting the ratio decidendi is binding; and obiter do not carry the same authority).
[3] Indian Contract Act, 1872, No. 9 of 1872, §§ 31–36 (India); Nabha Power, (2018) 11 SCC 508, ¶¶ 49–51. See also Arnold v. Britton [2015] UKSC 36, [15]–[20], [2015] A.C. 1619 (commercial common sense cannot be used to undervalue the contractual language or rewrite a bargain retrospectively).
[4] EPC Constructions India Ltd. v. Matix Fertilizers & Chemicals Ltd., 2025 INSC 1259, 2025 SCC OnLine SC 2293, ¶¶ 19–29, 34, 39–41, 43–47 (Supreme Court of India Oct. 28, 2025) [hereinafter EPC Constructions]; Companies Act, 2013, No. 18 of 2013, § 55 (India).
[5] See M.C. Chacko v. State Bank of Travancore, (1969) 2 SCC 343 (stating the general rule that a person who is not a party to a contract cannot, subject to recognised exceptions, enforce its terms). The converse drafting problem is equally important: an agreement between the investor, issuer and sponsor ordinarily cannot impose a consent standard on a lender that never accepted it.
[6] Ramakrishnan, ¶¶ 31–32. The observation was prima facie and depended on the language of the clause reproduced and considered at the interim stage.
[7] Companies Act, 2013, No. 18 of 2013, §§ 55, 123 (India).
[8] Ramakrishnan, ¶¶ 50–56. The order expressly left the characterization for the arbitral tribunal.
[9] EPC Constructions, ¶¶ 43–45; State Bank of India v. Commissioner of Income Tax, (1985) 4 SCC 585, ¶¶ 11–12; Union of India v. Association of Unified Telecom Service Providers of India, (2020) 3 SCC 525, ¶ 65.
[10] Companies Act, 2013, No. 18 of 2013, § 55(2) (India); EPC Constructions, ¶¶ 19–29, 34.
[11] Companies Act, 2013, No. 18 of 2013, § 55(3) (India). On issue of the further redeemable preference shares in accordance with subsection (3), the unredeemed shares are deemed redeemed; while granting approval, the Tribunal is to order immediate redemption of the preference shares held by dissenting holders.
