Material Adverse Change Clauses In India: Drafting For Enforceability
Aaves Khan, B.A. LL.B., Modern Law College, Pune, Affiliated with Savitribai Phule Pune University
ABSTRACT
Material Adverse Change Clauses serve as an important contractual tool for allocating risk in mergers and acquisitions, particularly during the period between signing and closing. In India, however, the practical enforceability of such clauses is shaped by courts’ cautious approach to contractual frustration under Section 56 of the Indian Contract Act,1872, as well as by the regulatory scrutiny in public acquisition transactions. Indian courts have consistently held that mere commercial hardship, adverse market movements do not, by themselves, discharge contractual obligations; the change must be fundamental enough to destroy the foundation of the bargain or render performance impossible in a legal sense. This article argues that while MAC clauses are not automatically invalid in India, invoking them successfully requires meeting a high threshold, which is precisely why they must be drafted with precision as to what triggers the clause and who bears the risk.
Keywords: Material Adverse Change Clauses, Indian M&A Transactions, Section 56, Indian Contract Act, doctrine of Frustration
