India: Why Time Is of the Essence in Mergers and Acquisitions Agreements

Timing is a critical consideration in mergers and acquisitions (M&A) transactions. From signing and obtaining regulatory approvals to satisfying conditions precedent, making payments and completing a transaction, parties frequently operate within carefully negotiated deadlines.

M&A agreements commonly incorporate notice periods, cure periods, grace periods and long-stop dates to manage these obligations. However, the legal consequences of missing a deadline are not always as straightforward as the contractual wording might suggest.

Under Indian law, the principle that “time is of the essence” requires an examination of the agreement as a whole, rather than reliance on a single contractual provision. Recent judicial decisions in India, together with developments in Delaware law, provide useful guidance for parties negotiating domestic and cross-border transactions.

The Legal Position Under Indian Contract Law

Section 55 of the Indian Contract Act, 1872 governs the consequences of failing to perform contractual obligations within an agreed timeframe.

Where time is expressly or implicitly intended to be essential to a contract, failure to perform within the stipulated period may render the contract voidable at the option of the party entitled to performance.

The provision also addresses delayed performance and waiver. Where the party entitled to performance accepts late performance without reserving the right to claim compensation, it may lose its entitlement to compensation arising from the delay.

Consequently, parties must consider not only whether a deadline is legally binding, but also how their subsequent conduct may affect their contractual rights.

Indian Supreme Court Guidance on Contractual Deadlines

Indian courts have consistently emphasised that a contractual declaration stating that time is of the essence does not necessarily make every deadline fundamental to the agreement.

In Hind Construction Contractors v. State of Maharashtra, AIR 1979 SC 720, the Supreme Court of India considered a contract containing an express time-is-of-the-essence provision.

The Court concluded that the parties’ intentions must be determined by examining the contract in its entirety. Provisions allowing extensions of time or imposing penalties for delays could indicate that strict compliance with the original completion date was not intended to be essential.

This approach was reaffirmed in Welspun Specialty Solutions Limited v. Oil and Natural Gas Corporation Ltd., AIR 2022 SC 1.

The Supreme Court held that the significance of contractual deadlines must be assessed in light of the agreement’s overall structure, the parties’ intentions and the surrounding circumstances.

In particular, extension mechanisms, liquidated damages provisions and other arrangements anticipating delayed performance may undermine an argument that strict adherence to the original deadline was fundamental.

These judgments demonstrate why the presence of a time-is-of-the-essence clause alone may not be sufficient to establish an absolute contractual deadline.

A More Recent Supreme Court Decision

The importance of surrounding circumstances was further illustrated in K.R. Suresh v. R. Poornima, 2025 INSC 617.

The dispute concerned an agreement for the sale of immovable property requiring the purchaser to pay the outstanding purchase consideration within four months.

The sellers needed the proceeds to satisfy an urgent, time-bound settlement obligation with their bank.

When the purchaser failed to make payment within the agreed period and did not seek an extension, the sellers retained the earnest money under the agreement.

Applying established principles, including those discussed in Welspun, the Supreme Court determined that time was essential in the circumstances.

The Court considered the fixed payment period, the sellers’ pressing financial obligations, the contractual forfeiture provision and the absence of an extension.

It consequently upheld the forfeiture of the earnest money.

The decision illustrates that courts may enforce strict contractual timelines where the agreement and surrounding commercial circumstances demonstrate that timely performance was fundamental to the transaction.

Implications for M&A Agreements in India

M&A transactions typically involve numerous obligations, each with different timing requirements and commercial consequences.

These may include payment of the purchase consideration, obtaining regulatory approvals, delivering closing documents and completing post-closing filings.

However, not every deadline will necessarily have the same contractual significance.

For example, an agreement may permit the parties to extend a long-stop date, remedy defaults during a cure period or waive certain pre-closing obligations.

Such mechanisms may indicate that some delays were contemplated and accommodated by the parties.

Consequently, parties should not assume that every missed deadline automatically entitles them to terminate an agreement or treat it as voidable.

Where strict compliance is essential, the transaction documents should clearly identify the relevant deadline and specify the consequences of non-compliance.

For long-stop dates, the agreement should explain whether termination occurs automatically or whether a party must exercise an express termination right.

This distinction is particularly important in transactions where regulatory approvals, financing arrangements or other conditions precedent may be affected by circumstances outside the parties’ immediate control.

The Delaware Perspective: Disproportionate Forfeiture

A recent Delaware Supreme Court decision provides an additional perspective that may be relevant to cross-border M&A transactions.

In Thompson Street Capital Partners IV, L.P. v. Sonova U.S. Hearing Instruments LLC, 340 A.3d 1151 (Del. 2025), the Court considered notice requirements governing indemnification claims under a merger agreement.

The relevant provisions established contractual conditions precedent to obtaining indemnification.

Although the Court recognised the contractual requirements, it also considered circumstances in which non-compliance with a condition precedent might be excused.

In particular, the Court addressed the principle that strict enforcement may be inappropriate where the condition is not a material part of the agreed exchange and enforcement would result in disproportionate forfeiture.

The decision does not suggest that contractual notice periods or conditions precedent are generally unenforceable.

Instead, it demonstrates that Delaware courts may, in appropriate circumstances, consider both the materiality of a contractual requirement and the consequences of enforcing it strictly.

For parties entering into transactions governed by Delaware law, the potential application of this principle introduces an additional consideration when drafting notice requirements, indemnification provisions and other time-sensitive obligations.

Key Considerations for Cross-Border Transactions

Although Indian and Delaware law approach these issues through different legal principles, both highlight the importance of careful contractual drafting.

For transactions involving Indian law obligations, the Supreme Court’s guidance confirms that a deadline must be considered within the context of the entire agreement and the parties’ intentions.

Under Delaware law, the potential application of the disproportionate forfeiture principle may introduce an additional consideration when enforcing certain conditions precedent.

Parties negotiating cross-border transactions should therefore consider several practical measures:

• Identify critical deadlines: Clearly distinguish between dates that are fundamental to the transaction and those allowing greater flexibility.

• Specify contractual consequences: Explain whether failure to meet a deadline results in termination rights, compensation, forfeiture or another remedy.

• Define extension mechanisms: Establish how deadlines may be extended and whether extensions require written agreement.

• Clarify waiver provisions: Distinguish between a limited waiver of a particular breach and a formal extension of the underlying deadline.

• Address long-stop dates: Specify whether reaching a long-stop date triggers automatic termination or an elective termination right.

• Coordinate contractual provisions: Ensure that cure periods, notice requirements, liquidated damages provisions and termination rights operate consistently.

• Consider governing law: Assess how the chosen legal system may interpret deadlines, conditions precedent and remedies for non-compliance.

These considerations are particularly important where transaction documents involve multiple jurisdictions or different governing laws.

Conclusion

Contractual deadlines play an essential role in managing M&A transactions, but their enforceability depends on more than simply including a standard time-is-of-the-essence clause.

Indian Supreme Court decisions reinforce the importance of assessing the agreement as a whole, including the parties’ intentions, extension provisions and commercial circumstances.

The Delaware Supreme Court’s decision in Thompson Street introduces a further consideration concerning the potential consequences of disproportionate forfeiture.

For parties involved in Indian and international M&A transactions, the central lesson is the importance of precision.

Clearly drafted deadlines, express consequences for non-compliance and carefully coordinated extension and waiver provisions can reduce uncertainty and help protect the parties’ commercial objectives.

A comprehensive and consistent contractual framework is therefore likely to offer more reliable protection than reliance on a general time-is-of-the-essence provision alone.

By Majmudar & Partners, India, a Transatlantic Law International Affiliated Firm.

For further information or for any assistance please contact india@transatlanticlaw.com

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