Misrepresentation and due diligence: The HSBC case

Private equity investments in India are relatively recent when compared with more developed or economically liberalized countries. While Indian legal practitioners have based their investment agreement precedents on the forms typically used in Western economies, customized where required by Indian laws, instances of parties seeking enforcement or challenging the terms of such investment contracts before Indian courts are gradually increasing. One such recent judgment is the case of HSBC PI Holdings v Avitel Post Studioz Limited.

HSBC invested US$60 million in Avitel in May 2011, and entered into share subscription and share purchase agreements with Avitel and its promoters. The contracts were governed by Indian law, and provided for arbitration in Singapore before the Singapore International Arbitration Centre.

The subscription agreement included a warranty from the promoters stating: “The information provided to the Investor prior to and during the preparation and negotiation of this Agreement was provided by the Company and the Promoters and/or its representatives and advisors in good faith and is true, accurate and not misleading.”

Ashish Razdan is an associate partner and Sameer Sah is a principal associate at Khaitan & Co. Views of the authors are personal and should not be considered as those of the firm.