Letter of Intent (LOI)

A Letter of Intent looks like a polite handshake on paper. In practice, it is the document that decides whether your deal closes on the terms you negotiated — or unravels six weeks into due diligence. Once you sign, the exclusivity period starts running, the seller cannot shop the deal, your costs start mounting, and any sloppy clause becomes a real liability.

The trick is knowing which parts of the LOI bind you and which parts do not. A well-drafted LOI separates commercial intent — price, structure, timeline, kept non-binding until the long-form is signed — from protective clauses like exclusivity, confidentiality, cost-sharing and governing law, which are fully binding from day one. Get that architecture wrong and you either lose the deal or get locked into one you cannot exit cleanly.

At a Glance

• Who uses this: Buyers and sellers in M&A, JV partners, founders raising capital, real estate parties, and large vendor or customer contracts where the long-form needs DD first.
• Governing law: Indian Contract Act 1872; Specific Relief (Amendment) Act 2018 for enforcement; sectoral overlays from Companies Act 2013, FEMA 1999, SEBI regulations and the Competition Act 2002.
• Structure: Mixed-binding. Commercial terms non-binding, protective clauses binding from day one.
• Typical exclusivity: 30 to 90 days, calibrated to DD complexity and seller flexibility.
• Stamp duty: Nominal in most States, usually ₹100-500. Registration not required unless immovable property is being transferred.
• Turnaround for drafting: 7-14 working days including one round of mark-up with the counter-party.
• Bridges into: SPA, SHA, JV agreement, lease deed, master services agreement, or share subscription agreement.

What's New for FY 2026-27

Several procedural and regulatory shifts now affect how LOIs are drafted, signed and enforced.

• DPDP Act compliance: Personal data shared during DD now falls under the Digital Personal Data Protection Act 2023. LOI confidentiality clauses must address data principal rights, breach-notification timelines and processor obligations.
• E-stamping expansion: Most States have moved to e-stamping for nominal-duty documents and physical stamp paper is being phased out. The SHCIL portal handles issuance State by State.
• E-signature now mainstream: Aadhaar eSign and DSC-based signing under the IT Act 2000 are accepted in commercial courts. Counterpart exchange is faster and audit-friendly.
• FDI Press Note 3 vigilance: For cross-border M&A involving investors from neighbouring countries, prior government approval is a hard CP — flagged in the LOI itself.
• CCI threshold update: The revised assets and turnover thresholds bring more mid-market combinations under CCI approval. The LOI now lists this as a binding CP.
• SEBI takeover code: For listed targets, the LOI references SEBI (SAST) Regulations 2011 and the open-offer timeline so neither side is caught off-guard.

Why You Need a Properly Drafted LOI

A casual one-page LOI feels efficient at the start and expensive at the end. A structured LOI does specific work for both sides.

• Locks the commercial deal: Captures price, structure, payment terms and key conditions in writing. The seller cannot quietly reset these in long-form negotiation.
• Buys exclusivity: For the buyer, exclusivity is the whole point. It blocks competing bids while you spend lakhs on legal, tax and technical DD.
• Protects information flow: Confidentiality with a survival clause means DD findings cannot be used against you if the deal falls through.
• Allocates risk early: Cost-sharing, break-up fees and DD expense allocation are decided when both sides are still friendly — not after a fight.
• Sets the dispute path: Governing law, seat of arbitration (Delhi, Mumbai, SIAC or LCIA) and language are agreed before stakes rise.
• Forces alignment on CPs: Conditions precedent like regulatory approvals, board consents and third-party waivers are listed upfront so nobody is surprised later.
• Builds the bridge to long-form: A clean LOI saves 30-40% of long-form negotiation time because the locked points stay locked.

How It Actually Works

The LOI process moves quickly when the brief is clear and slowly when the parties keep changing their minds. The cadence is predictable.

Step 1: Commercial Brief & Structure Capture (1-2 days)

We start with a 60-90 minute call to capture the deal: parties, transaction structure (asset sale, share sale, JV, lease, supply contract), proposed valuation or pricing methodology, payment timeline, key CPs and expected closing date. Anything missing here will surface as a fight later, so we push for clarity even where the client is still thinking.

Step 2: First Draft Preparation (2-3 days)

The draft is built around the binding versus non-binding split. Each clause is tagged so there is no ambiguity. Exclusivity, confidentiality, cost-sharing, dispute resolution and governing law sit in the binding bucket. Price, structure, definitive agreement timeline and representations sit in the non-binding bucket. The draft also carries a clear CP list with deadlines.

Step 3: Internal Review & Counter-Party Mark-Up (3-7 days)

You review the draft first. We then circulate to the counter-party's counsel. Their mark-up typically targets exclusivity length, break-up fee quantum, scope of confidentiality and the CP list. We negotiate, document the comments and revert with a clean redline.

Step 4: Final Drafting & E-Stamping (1-2 days)

Once commercial points are settled, we prepare the execution-ready copy. E-stamping is arranged through the SHCIL portal for the relevant State, usually at ₹100-500. The LOI is formatted for either wet signature or DSC / Aadhaar eSign, whichever both parties prefer.

Step 5: Execution & Counterpart Exchange

Both sides sign — increasingly via Aadhaar eSign or DSC for speed. Counterparts are exchanged digitally with a clear exchange protocol. The exclusivity clock starts from the signature date stated in the LOI.

Step 6: DD Phase Under LOI (30-90 days)

DD is conducted under the binding exclusivity and confidentiality. We track cost-sharing entries, monitor CP progress and flag any deal-breaker findings early. Periodic status calls keep both sides aligned and prevent end-of-period surprises.

Step 7: Long-Form or Termination

If DD is positive, the locked commercial terms flow directly into the SPA, SHA, JV agreement or lease deed. If DD breaks the deal, post-termination obligations — confidentiality survival, return or destruction of shared information, cost settlement — kick in within the timelines stated in the LOI.

A Real Example: ₹85 Crore Auto-Components Acquisition

A mid-market manufacturing acquisition. Buyer is a listed Indian company; seller is a closely-held private limited company in the auto-components sector. Enterprise value: ₹85 crore.

• Structure: 100% share purchase, with seller's promoters retained on a 24-month consulting contract for transition support.
• Price mechanism: ₹85 crore enterprise value, working capital normalisation at closing, escrow of ₹8.5 crore (10%) held for 18 months against indemnity claims.
• Exclusivity: 75 days, calibrated to environmental DD on the factory site and the CCI clearance timeline.
• Break-up fee: ₹40 lakh payable by the buyer if it walks without cause; equivalent payable by the seller if it accepts another offer during exclusivity.
• Cost sharing: Legal DD borne separately by each side; tax and financial DD shared 50:50, capped at ₹15 lakh per side; technical and environmental DD fully by the buyer.
• CPs flagged: CCI approval (combination threshold crossed), buyer board approval, lender NOC on existing seller debt of ₹22 crore, and environmental clearance verification.
• Confidentiality: Survives 3 years post-termination, with DPDP Act 2023 data principal rights specifically addressed.
• Dispute resolution: Indian law, arbitration seated at Mumbai under the Arbitration & Conciliation Act 1996, sole arbitrator, English language.

When DD threw up an undisclosed environmental liability of ₹6 crore, the cost-sharing and CP architecture let the buyer renegotiate price down to ₹79 crore and close — without litigation, without losing the deal.

The Binding / Non-Binding Architecture

This is the single most important drafting choice in an LOI. Get it wrong and you either have an unenforceable letter or an accidental contract.

• Commercial terms (non-binding): Price, valuation methodology, payment schedule, deal structure, target closing date, and scope of representations and warranties to be given in the long-form. Signals of intent, not promises.
• Exclusivity / no-shop (binding): The seller agrees not to solicit, negotiate with or accept competing offers for the agreed period. Breach triggers liquidated damages or injunctive relief.
• Confidentiality (binding, with survival): Both sides protect deal information and DD outputs. Typical survival period is 2-3 years post-LOI termination.
• Cost-sharing (binding): How DD costs, regulatory filing fees and break fees are allocated, with settlement within 30 days of termination.
• Governing law & dispute resolution (binding): Indian or foreign law, court or arbitration, seat, language and the number of arbitrators all locked.
• Public announcement (binding): Whether and when parties may disclose the LOI's existence — mandatory for listed entities under SEBI LODR.
• Standstill (binding, listed targets): Buyer agrees not to acquire shares of the target in the open market during the LOI period.

The Supreme Court's settled position — from Dresser Rand SA v. Bindal Agro and later cases — is that the binding effect of an LOI depends entirely on the intention of the parties as shown by the language used. Vague drafting invites litigation. Explicit tagging defeats it.

Where It Goes Wrong

Most LOI disputes do not come from bad faith. They come from sloppy drafting. These are the recurring failures.

• No clarity on binding versus non-binding: An LOI with no tags has been argued both ways in court. Always tag each clause.
• Vague exclusivity: 'Reasonable exclusivity' is unenforceable. Specify the days, the start date and the trigger event for any extension.
• Missing break-up fee mechanics: 'Break-up fee payable on breach' without quantum, payee and payment timeline is meaningless.
• Confidentiality without survival: If confidentiality lapses with the LOI, your DD findings are exposed the moment the deal dies.
• Incomplete CP list: Missing regulatory approvals (CCI, FDI, RBI, SEBI, sectoral) become deal-breakers two months in.
• Stamp duty miscalculated: Some States treat LOIs with monetary clauses as agreements requiring ad-valorem stamp duty. Check before signing.
• E-signature done wrong: Aadhaar eSign requires the signer's Aadhaar to be mobile-linked; DSC needs a valid class-3 certificate. Failed e-signs invalidate execution.
• No data protection language: Personal data shared during DD invokes DPDP Act 2023 obligations. Omit it and you carry penalty exposure.
• Standstill missed for listed targets: SEBI takeover code requires careful sequencing. Buying shares in the open market during the LOI can trigger creeping acquisition violations.
• No material adverse change exit: Without a MAC clause, the buyer cannot walk even if the target's business deteriorates during exclusivity.

What You Receive at the End

• Execution-ready LOI tagged binding or non-binding clause by clause
• E-stamped copy ready for signature in the relevant State
• Counter-party mark-up log with full negotiation history
• Signed PDF counterparts after execution
• CP tracker spreadsheet linked to the LOI
• DD cost-sharing ledger template
• Internal brief for your team explaining what binds you from day one
• Bridge memo mapping LOI clauses to the long-form agreement

How to Get Started

Send across a one-page brief: parties, transaction structure, indicative value, expected exclusivity period and any sectoral approvals you already foresee. If a prior NDA exists between the parties, share it — most NDAs already cover deal confidentiality and the LOI only needs to extend, not duplicate, those obligations.

We come back within 24 hours with a kickoff call to capture the rest of the commercial brief. The first draft lands in 2-3 working days. Most LOIs are signature-ready in 7-14 working days including one round of negotiation with the counter-party. For cross-border deals or listed-target transactions, we add 3-5 days for sectoral and SEBI overlay. Pricing starts at ₹6,999 for standard domestic LOIs; cross-border and listed-target work is quoted on scope.