Share Purchase Agreement

A Share Purchase Agreement (SPA) is the contract that moves ownership of an Indian company from one set of hands to another. It is also the contract that decides whether the buyer actually gets what they paid for, or spends the next four years in arbitration trying to recover the price. Between the term sheet and the closing call, the SPA is where every promise the seller made gets converted into a binding, court-enforceable instrument — or quietly diluted into nothing. The price is rarely where the dispute happens. Reps and warranties, indemnity cap and basket, escrow / holdback, conditions precedent, and FMV compliance — that is where the money is.

By 2026, share transfers in unlisted Indian companies have become materially more procedural. Section 56 of the Companies Act 2013 still governs the legal mechanics of transfer — duly stamped Form SH-4, board approval, register of members updated, share certificate endorsed. But since 1 October 2024, transfer of securities in unlisted public companies (and most private companies above prescribed thresholds) must be in dematerialised form — physical share transfers no longer close. The Indian Stamp Act now applies a uniform 0.015% stamp duty on transfer of shares (down from State-level variations), collected at the depository level for DEMAT shares. Layer on top: Section 56(2)(x) of the Income-tax Act, which deems any consideration below FMV (computed under Rule 11UA) as taxable in the hands of the buyer; FDI / FEMA / Press Note 3 routing for any non-resident party; CCI approval where thresholds are crossed; SEBI takeover code where a listed entity is involved; and lender / contractual consents that almost always show up in the diligence.

We draft Share Purchase Agreements that survive a buyer-side counsel's red-pen, hold up at closing, and remain enforceable when something goes wrong post-closing. Same team handles drafting, diligence translation, FMV / Rule 11UA, FC-TRS / FC-GPR, CCI / FDI / lender consents, escrow set-up, closing mechanics and post-closing filings.

What an Investor-Grade SPA Locks Down

• Conditions Precedent:: FDI route confirmation (automatic vs approval), Press Note 3 declaration, CCI clearance where thresholds met, SEBI compliance for listed targets, lender NOCs, statutory approvals, third-party contractual consents — payment does not trigger until each CP is satisfied or waived.

• Reps & Warranties + Disclosure Schedule:: Title to shares, no encumbrances, capitalisation, financial statements, tax (direct, indirect, GST, TDS, transfer pricing), litigation, employees, ESOPs, IP, contracts, regulatory licences, environment, data privacy under DPDP Act 2023 — declared, qualified by knowledge / materiality / time, and tied to a calibrated indemnity.

• Indemnity Cap, Basket & Tail:: Cap typically 25–100% of consideration; basket / de minimis threshold to filter nuisance claims; tail of 18–24 months general, 7 years for tax matters, and indefinite for title / fundamental warranties — all standard in modern Indian SPAs and routinely missed in older templates.

• Escrow / Holdback:: A defined slice of consideration (typically 10–25%) parked in escrow with a bank or third-party escrow agent for the indemnity tail period — protects the buyer when the seller will disperse proceeds to founders / investors / departing employees.

• FMV & Tax Mechanics:: Rule 11UA valuation report obtained pre-closing; price benchmarked above FMV to neutralise Section 56(2)(x); withholding tax (Section 195 for non-residents, Section 194-IA / similar where applicable) computed and gross-up clauses drafted so the seller bears the right tax.

• Closing Mechanics & DEMAT Transfer:: Closing date, place, simultaneous-exchange protocol, DEMAT delivery instruction, share certificate endorsement, board resolution approving transfer, register of members update, FC-TRS filing for non-resident party — all sequenced so nothing slips.

• Specific Performance & Remedies:: Specific Relief (Amendment) Act 2018 makes specific performance the default — drafted-in carefully so the buyer can compel transfer, not just claim damages, and the seller can compel completion against a defaulting buyer.

Why Templates Get Buyers Killed Post-Closing

They miss DEMAT-mandated mechanics, ignore Section 56(2)(x) FMV exposure, skip FC-TRS for non-resident transactions, drop indemnity baskets so every minor claim survives, fail to define disclosure schedule discipline, and use US boilerplate that fails Indian Companies Act / Contract Act tests. Buyer-side counsel spots all of this in a first read. The deal either re-prices, gets re-papered, or dies.