8 Asian Legal Business | October 2024 PE/VC This stems from a perfect storm of challenges unique to the Indian market: Promoters skilled at stalling exits through strategic use of court mechanisms, vague exit clauses in hastily drafted agreements, and a lack of jurisdictional clarity on dispute resolution that allows parties to take advantage when it comes to contested exits. The scale of this problem is significant. According to a 2023 report by the Indian Private Equity and Venture Capital Association (IVCA), approximately 15 percent of all private equity exits in India between 2018 and 2022 involved some form of dispute. This translates to roughly 75 disputed exits out of 500 total exits during this period. More alarmingly, the average duration of these disputes was 4.7 years, with some cases dragging on for over a decade. The case of Shaadi.com and Westbridge Capital serves as a stark reminder of the perils that await unsuspecting investors. What began as a promising partnership in 2006 devolved into a bitter legal battle that dragged on for years, significantly eroding the value of Westbridge’s investment. This cautionary tale is far from unique, with exit disputes in India taking an average of five to six years to resolve – a timeframe that aligns ominously with the typical lifespan of investment funds. But with India’s growing global reputation as a high-return market, both in private equity and public capital, investors have continued to grow their Indian bets, albeit with a more cautious approach to contract negotiation, creating pragmatic and enforceable exit strategies and dispute clauses to ensure smoother departures for their portfolio companies. The exit evolves A decade ago, it was common practice for investors to include a veritable smorgasbord of exit mechanisms in their agreements. From initial public offerings (IPOs) to buy-backs, third-party sales, drag-along rights, put options, and call options – contracts were often stuffed with every conceivable exit strategy. However, as Harshita Srivastava, co-head of Nishith Desai Associates’ In the fast-paced world of private equity and venture capital investments in India, exit strategies have long been a thorny issue. Over the past decade, foreign investors have grown increasingly cautious, their enthusiasm tempered by the harsh realities of protracted exit disputes that can leave them entangled in India’s labyrinthine legal system. Evolution of the exit Exit strategies in Indian private equity deals have transformed, with investors now prioritising enforceable exit mechanisms, dispute resolution clauses and realistic timelines to navigate the challenges of protracted legal battles. By Nimitt Dixit • Exit disputes significantly impact foreign investment in Indian markets. • Investors now prioritise enforceable, strategic exit clauses in agreements. • Prolonged legal battles prompt preference for settlement over litigation.
RkJQdWJsaXNoZXIy MjA0NzE4Mw==