Case Study · Corporate & Commercial Law
Protecting Founder Rights in a ₹12 Crore M&A Dispute
Client Background & Context
The Situation When Our Client Came to Us
Our client — the founder of a Hyderabad-based B2B SaaS company — entered into a share purchase agreement with a strategic acquirer from the BFSI sector. The transaction was structured as a two-tranche payment: an initial consideration of ₹7 crore on closing and a deferred consideration of ₹5 crore tied to performance milestones over 18 months.
At closing, the acquirer paid the initial consideration and took control of the company. Over the following 12 months, the acquirer systematically obstructed the conditions that would trigger the deferred consideration — refusing to implement agreed product integrations, redirecting sales resources away from the metric being measured, and restructuring the company’s reporting lines in ways that made milestone achievement impossible.
When our client raised the issue, the acquirer took the position that the milestones had not been achieved as defined in the SPA and that no deferred consideration was payable. They also threatened a counterclaim alleging that our client — who had remained as CTO under a post-acquisition employment agreement — had breached his fiduciary duties by ‘underperforming’.
The client approached SIRI Law LLP when the acquirer’s lawyers issued a pre-litigation notice threatening claims exceeding the deferred consideration amount itself.
Key Challenges
What Made This Matter Complex
Hostile Counterparty with Deeper Pockets
The acquirer was a large financial services group with in-house legal counsel and external law firm support. A prolonged litigation would have been prohibitively expensive for our client and was likely the acquirer’s strategy.
Ambiguous Milestone Definitions
The SPA’s milestone definitions contained language that, on a narrow reading, could support the acquirer’s position that the conditions had not been technically satisfied — despite the acquirer’s own interference.
Employment Vulnerability
Our client’s ongoing employment as CTO gave the acquirer leverage — the threat of termination for alleged fiduciary breach created pressure to abandon the deferred consideration claim.
Digital Evidence Preservation
The obstruction had occurred largely through internal communications and strategic decisions — establishing this required forensic analysis of emails and board resolutions during the relevant period.
Engagement Timeline
How We Handled It — Phase by Phase
Phase 1: Evidence Preservation & Legal Analysis
- Secured all pre-closing and post-closing communications, board resolutions, and management information
- Commissioned a forensic review of the acquirer’s post-closing strategic decisions
- Analysed the SPA milestone definitions and the contractual implied duty of good faith
- Identified the acquirer’s breach of the contractual obligation not to obstruct milestone achievement
Phase 2: Pre-Litigation Strategy
- Responded to the pre-litigation notice with a detailed counter-notice establishing the obstruction argument
- Issued a without-prejudice letter quantifying our client’s damages including lost deferred consideration and employment loss risk
- Filed a complaint before the relevant regulatory body regarding the acquirer’s post-closing conduct
Phase 3: NCLT Application
- Filed an application before NCLT Hyderabad for oppression and mismanagement
- Sought interim relief — preventing further restructuring of the company pending resolution
- NCLT granted a stay on the proposed organisational restructure within 3 weeks of filing
Phase 4: Negotiated Resolution
- Mediation initiated following NCLT intervention
- Presented comprehensive evidence of systematic obstruction to mediator
- Negotiated full recovery of ₹5 crore deferred consideration plus legal costs
- Secured dignified exit from employment with 12-month garden leave payment
SIRI Law LLP Expertise Applied
This matter drew on SIRI Law LLP’s cross-practice capabilities — combining deep subject matter expertise with procedural precision and strategic judgment.
Our Legal Approach
The Strategy That Delivered Results
The central legal argument was the acquirer’s breach of the implied duty of good faith that courts have consistently recognised in performance-linked payment structures — particularly where one party controls the conditions triggering the other’s payment entitlement.
We established this through a combination of documentary evidence and expert evidence on industry practice for M&A earnout structures — demonstrating that the acquirer’s post-closing decisions were commercially inexplicable except as a strategy to defeat the deferred consideration obligation.
The NCLT application for oppression and mismanagement — brought on behalf of the minority rights retained by our client post-closing — proved to be the decisive procedural step. The grant of interim relief changed the commercial dynamics of the negotiation significantly, demonstrating to the acquirer that SIRI Law LLP was prepared to pursue full litigation if required.
The employment threat was defused by a separate legal opinion demonstrating that the alleged fiduciary breach claims were without foundation — removing the leverage the acquirer had attempted to create through the employment relationship.
Key Principles Applied
M&A Transaction Advisory
Shareholders’ Agreement
Earnout Dispute
NCLT Litigation
Employment Law
Mediation & Settlement
Outcomes Achieved
What Our Client Achieved
Full Deferred Consideration Recovered
₹5 crore deferred consideration recovered in full through the mediated settlement — representing 100% of the amount claimed.
Employment Dignified Exit
Client exited the CTO role with a 12-month garden leave payment and clean employment reference — no adverse employment findings.
No Adverse Costs
Settlement structured to include reimbursement of a significant portion of legal costs — net legal costs to client substantially reduced.
Reputational Protection
Matter resolved without contested litigation — no public court proceedings that could have affected client’s professional reputation.
Key Learnings & Implications
What This Matter Teaches Clients in Similar Situations
M&A earnout and deferred consideration structures are among the most litigation-prone elements of any acquisition. The party whose continued effort determines whether a milestone is achieved and the party who controls the business post-closing have fundamentally conflicting interests in earnout structures.
The key learning for sellers in earnout negotiations: the milestone definitions and the implied obligations of the acquirer not to obstruct are as important as the headline consideration figure. Vague milestone language and absent good faith obligations are the most common causes of deferred consideration disputes.
For founders entering post-acquisition employment arrangements: the employment agreement and the SPA should be reviewed as a single, integrated document — because the employment relationship can be weaponised to apply pressure on financial claims arising from the SPA.
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