By Sreenitya Tirumalasetty & Manisha Kumari
Every commercial contract contains a clause that reads some variation of: “This Agreement shall be binding upon, and shall inure to the benefit of, the parties hereto and their respective successors and permitted assigns.” Lawyers draft it reflexively and clients sign it without particular attention. Its significance surfaces, reliably, when a party undergoes a corporate restructuring, like, a merger, amalgamation, demerger, or slump sale and the successor must assert its inherited position against a counterparty that never agreed to deal with it.
With the NCLT disposing of hundreds of merger petitions annually under Sections 230–232 of the Companies Act, 2013,[1] and Indian M&A volumes consistently exceeding USD 80 to 100 billion per year, the successors and assigns clause is being stress-tested at scale. The successor’s dilemma is consistent: does it execute a tripartite novation deed with the counterparty, seeking formal consent to the substitution? Or does it rely on the statutory vesting under Section 232(4)[2] and communicate the change through an intimation letter, asserting that no consent is required? The choice is not merely practical it is a legal characterisation with downstream consequences.
This article examines the successors and assigns clause as the foundational instrument of contractual continuity, identifies the legal distinction between successors and assigns that standard boilerplate obscures, and analyses the novation deed and intimation letter as the tools through which a successor asserts its inherited position. It concludes with three drafting recommendations to pre-empt the disputes that arise when the clause itself fails to answer these questions.
II. The Clause and the Distinction That Matters
The successors and assigns clause conflates two legally distinct categories. An assign acquires rights by voluntary transfer by a private act requiring the counterparty’s consent.[3] A successor acquires rights through various means, like, operation of law, as a consequence of statutory vesting, court order, or legal process that operates independently of the terms of the contract. A successor acquiring through statutory vesting under Section 232(4) of the Companies Act, 2013 is crucial and effective one, which vests all property, rights, powers, and liabilities of the transferor in the transferee upon the Effective Date. It does not, in principle, require the counterparty’s consent.[4] In contrary, Standard anti-assignment clauses are directed at voluntary transfers. So, Courts have consistently held that such clauses do not, without express language, extend to statutory successions a private contractual restriction cannot defeat a judicial order made in the public interest.[5]
However, a clause that expressly provides that the contract “shall not vest in any successor by operation of law without prior written consent” is a materially different instrument, and its enforceability against a statutory successor remains unsettled in Indian jurisprudence. A related and distinct risk is the change-of-control clause, which entitles the counterparty to terminate upon a change in the ownership or control of a contracting party.[6] Unlike the anti-assignment clause, the change-of-control termination right does not go to whether the vesting was valid, rather, it highlights the willingness of the counterparty to continue the contractual terms.
III. The Novation Deed: Where Consent Is Genuinely Required
Novation, under Section 62 of the Indian Contract Act, 1872,[7] extinguishes the existing contract and replaces it with a new one between the successor and the counterparty. As a mechanism for asserting successor status, it provides the clearest documentary position: the counterparty’s consent is on record, the predecessor’s liability is extinguished, and the successor’s rights are valid. Its limitation is equally clear, it requires the counterparty’s willing participation, creates an opportunity for renegotiation, and is operationally impractical at scale. The successor should reach for a novation deed where genuinely necessary:
- Regulated counterparties: Bank facility agreements, regulatory licences, government concessions, and intellectual property licences subject to statutory formalities require specific regulatory consent. The general vesting mechanism under the Companies Act does not override domain-specific requirements such as RBI master directions.
- Foreign-law contracts: Indian statutory vesting produces its effect under Indian law. For contracts governed by English, Singaporean, or other foreign law, a novation deed executed concurrently with the Effective Date is essential to establish successor status before a foreign court or arbitral tribunal.
- Express anti-vesting clauses: Where a contract expressly provides that rights shall not vest in any successor by operation of law without consent, seeking a novation deed avoids the risk of litigating the clause’s enforceability.
- Change-of-control scenarios: Where a merger triggers a counterparty’s right to terminate, a novation deed executed by the counterparty in lieu of exercising its termination right is the standard commercial resolution.
Lastly, a successor that seeks a novation deed implicitly acknowledges that the transfer required consent. This characterisation can undermine its position in respect of other contracts where it relies on statutory vesting alone. The decision to novate should therefore be taken deliberately, contract by contract, with an awareness of the admission it carries. Where novation is required by a specific regulatory or jurisdictional framework, that rationale should be expressly stated in the novation deed itself.
IV. The Intimation Letter: Asserting a Pre-Existing Legal Position
Where statutory vesting has occurred, the successor’s rights under the inherited contract already exist. The intimation letter does not create those rights, rather, it places the counterparty on notice of a legal reality that has already materialised.
A legally credible intimation letter must contain details, like, the identity of the transferor and transferee, the NCLT order particulars (case number, bench, date of sanction), the Effective Date as established by the proposed scheme, an express assertion that the transfer has occurred by operation of Section 232(4) of the Companies Act, 2013, and does not constitute an assignment requiring consent, and practical administrative details (updated entity name, GST registration, bank account, and designated contact). It should enclose the certified NCLT order, the sanctioned scheme, and an Effective Date certificate from a Company Secretary.
While counterparty acknowledgment is not a legal condition for the vesting’s effectiveness, the successor should affirmatively seek it. A counterparty that later claims it had no notice of the succession and therefore continued to perform toward, or seek performance from, the defunct transferor creates operational and evidentiary complications that a documented acknowledgment pre-empts.
V. Choosing the Right Instrument
The novation deed and the intimation letter are not mutually exclusive, rather, they are calibrated to different legal circumstances and should be deployed in combination. The contract portfolio should be mapped at the due diligence stage[8] and each contract assigned to the appropriate mechanism before the Effective Date. For listed entities, SEBI’s prior approval requirements under Regulation 37 of the LODR Regulations operate as an additional pre-condition to the scheme becoming effective.[9]
The following illustrative scenarios provide practical guidance on the appropriate use of a novation deed or an intimation letter, depending on the nature and legal effect of the underlying corporate transaction:
- Regulated or foreign-law contracts – Novation deed, preceded by applicable regulatory approvals.
- Material private contracts (key clients, strategic partners) – Intimation letter with senior management communication; novation deed where a change-of-control waiver is needed.
- Standard commercial contracts (vendors, service providers, operational agreements) – Intimation letter at scale, with written acknowledgment sought from each counterparty.
- Contracts with express anti-vesting language – Legal advice on enforceability first; novation deed where litigation risk is material.
VI. Way forward
The successors and assigns clause, in its standard form, raises questions it does not answer, i.e., qualification as a successor, need for statutory vesting for consent, and assertion of successor’s position. Novation deeds and intimation letters are the successor’s tools for navigating that gap, that are necessary, because the contract failed to anticipate the succession. The practical solution is prospective drafting of the clause with precision that pre-determines the successor’s position.
Recommendation 1 — Distinguish Successors from Assigns
“This Agreement shall be binding upon and endure to the benefit of each party and its successors (including any entity to which rights and obligations are transmitted by operation of statute, court order, or legal process, including any scheme of amalgamation sanctioned under the Companies Act, 2013) and its permitted assigns. A transmission to a statutory successor shall not constitute an assignment requiring consent under this Agreement.”
Recommendation 2 — Exclude Statutory Restructurings from Change-of-Control
“‘Change of control’ shall not include any merger, amalgamation, or demerger effected pursuant to a scheme sanctioned by the National Company Law Tribunal under Sections 230–232 of the Companies Act, 2013, provided that the resulting entity assumes all obligations of the original party under this Agreement.”
Recommendation 3 — Specify the Successor’s Notification Procedure
“Upon succession by operation of law, the successor shall, within 30 days of the Effective Date, deliver to the other party: (a) the relevant court order or statutory notification; (b) confirmation of the Effective Date; and (c) confirmation of the successor’s assumption of all rights and obligations hereunder. The succession shall be effective from the date of the relevant legal event regardless of whether the receiving party acknowledges such notice.”
These provisions convert the successors and assigns clause from a boilerplate recital into a functioning legal instrument. They reduce the number of contracts requiring novation deeds to those where consent is genuinely necessary, and they provide the successor with a contractual foundation for its intimation letters that is far more defensible than a bare invocation of statutory vesting. The intimation letter, in this framework, is not a substitute for legal diligence, it is the dividend of it.
[1]Sections 230–232 of the Companies Act, 2013, govern the procedure for compromise, arrangements, and amalgamations sanctioned by the National Company Law Tribunal (“NCLT”).
[2]Section 232(4) of the Companies Act, 2013: The order of the Tribunal under sub-section (3) shall be filed with the Registrar by the companies within 30 days of the receipt of the order”.
[3]Section 37 of the Indian Contract Act, 1872, provides that the parties to a contract must either perform or offer to perform their respective promises, unless such performance is dispensed with or excused.
[4]Saraswati Industrial Syndicate Ltd. vs. Commissioner of Income Tax (04.09.1990 – SC) : MANU/SC/0584/1990
The Supreme Court held that upon an amalgamation, the transferor company loses its separate legal identity and the transferee succeeds to all its assets, liabilities, and rights by operation of law.
[5] ICICI Bank Ltd. vs Late Smt. Shakuntla Gupta MANU/DE/2246/2015- Courts have consistently distinguished between contractual assignment restrictions (operative against voluntary transfers) and statutory vesting, which operates by judicial decree and is not subject to private contractual restriction absent express language to the contrary.
[6] Classic Motors Ltd. Vs. Maruti Udyog Limited MANU/DE/0586/1996 – Whether a merger sanctioned by the NCLT constitutes a “change of control” within the meaning of such a clause depends on the precise definition adopted in the contract.
[7]Section 62 of the Indian Contract Act, 1872: If the parties to a contract agree to substitute a new contract for it, or to rescind or alter it, the original contract need not be performed.
[8]The mapping of a contract portfolio for post-merger integration purposes is a standard component of legal due diligence in M&A transactions. The due diligence checklist should specifically flag: (a) contracts governed by foreign law; (b) contracts with regulated counterparties; (c) contracts containing change-of-control clauses; (d) contracts containing express anti-vesting language; and (e) contracts subject to sector-specific regulatory consent requirements.
[9]SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, Regulation 37, requires listed companies to obtain prior approval of the stock exchange(s) before filing any scheme of merger or amalgamation with the NCLT.
