Arjun, the promoter shareholder of Viru Sports Accessories Private Limited, agreed to sell 25% of the company's equity shareholding to Kavin, a strategic investor, through a Share Purchase Agreement (SPA) executed betwee

Role of Representations and Warranties in Acquisition Agreements In Acquisition Agreements, representations and warranties serve as critical contractual assurances by the seller regarding the company's financial position, compliance, and absence of liabilities, governed by principles under the Indian Contract Act, 1872. They perform a dual function: risk disclosure and risk allocation. By making specific representations (e.g., no undisclosed tax liabilities), the seller assumes responsibility for their accuracy. If such statements prove false, they constitute misrepresentation or breach of warranty, giving rise to post-transaction remedies such as damages or indemnification. From a risk allocation perspective, warranties shift pre-closing risks to the seller, while the buyer relies on them instead of exhaustive due diligence. In the absence of express indemnity clauses, the buyer may still claim damages for breach. Thus, representations and warranties operate as protective mechanisms, ensuring transparency, allocating liability for undisclosed risks, and enabling the buyer to seek compensation for losses discovered after completion. The representations and warranties thus function as both pre-closing due diligence tools and post-closing remedies (providing enforceable claims for breach), effectively allocating the risk of unknown or undisclosed liabilities to the seller who made the warranties.