How will a court read your exit clause if it's never tested?

On 25 March 2026, the Supreme Court dismissed a batch of special leave petitions filed by two of the three promoters of Financial Software and Systems Private Limited ("FSSPL"), Nagaraj Mylandla and Sharada Mylandla, and affirmed the enforceability of the decree entered against them by the Madras High Court in terms of a Singapore-seated arbitral award.

The Madras High Court had described the liability as exceeding INR 1,400 crores: damages measured at a contractual "exit price" fixed as on 18 September 2020, together with interest and costs. It had already ordered the Mylandlas to pay costs of INR 25 lakhs to each investor, jointly and severally. The Supreme Court imposed further costs of INR 25 lakhs to each Investor, this time payable jointly rather than jointly and severally, describing the challenge as a mudslinging effort in the hope that some of it would stick.

The Investment and the Exit Clause

In October 2014, PI Opportunities Fund-I, Millenna FVCI Limited and 2 NYLIM Jacob Ballas entities (together, the "Investors") subscribed to shares in FSSPL under a Share Acquisition and Share Holders Agreement ("SASHA"), taking approximately 51.76% of the share capital as financial investors.

Clause 19, titled 'Exit', required FSSPL and its promoters to make efforts towards a Qualified Initial Public Offering ("QIPO") by 31 March 2016. Failing that, an exit waterfall opened: a secondary sale at a defined exit price under Clause 19.1, a buy-back under Clause 19.2, an Investor-initiated IPO under Clause 19.3, and finally a strategic sale under Clause 19.6. Clause 24.4(c) made the failure to provide an exit a 'material breach' in its own right, and Clause 24.6 then offered the Investors 3 options: strategic sale, buy-back, or termination of the rights but not the obligations of the promoters.

The QIPO never happened. Secondary sale notices went out in 2016 and were reiterated in 2020 and 2021. On 11 April 2022, the Investors issued notices of material breach, of termination of promoter rights, and of strategic sale, all on the same day. A SIAC tribunal awarded damages at the exit price as on 18 September 2020, aggregating INR 6,614 million, INR 2,804 million, INR 777 million and INR 1,093 million across the 4 Investors, with simple interest at 5.33% per annum.

The Court's Starting Point

The Supreme Court began from Vijay Karia and others vs. Prysmian Cavi E Sistemi SRL and others: the legislature has provided only "one bite at the cherry" against a foreign award, Section 50 of the Arbitration and Conciliation Act, 1996 ("Arbitration Act") gives no appeal against an order enforcing one, and Article 136 of the Constitution of India, under which these special leave petitions were filed, should not be used to circumvent that policy. It said it would interfere only to settle the law where a new or unique point arose.

The new point here was transnational issue estoppel, on which the Court noted there was no prior decision of its own. Drawing on the framework set out by the Singapore Court of Appeal in Republic of India v. Deutsche Telekom AG, it held that objections to enforcement on the ground that enforcement would be contrary to the public policy of India, raised under Section 48(2)(b) of the Arbitration Act, still require independent examination by the enforcement court, since public policy is a question the seat court would not itself have considered. But that independent examination does not licence reopening factual or contractual issues that were fully argued and rejected at the seat, merely by relabelling them as public policy objections. The two doctrines work together: transnational issue estoppel closes off relitigation of settled facts, while the public policy inquiry under Section 48 remains open, but narrow.

The Court also corrected the enforcement judge on one point: it was wrong to treat the contours of 'public policy' under Section 48 as narrower than under Section 34 of the Arbitration Act, which governs setting aside of domestic and India-seated international awards. The lapse made no difference to the outcome.

The Exit Obligation

This is the passage founders should read, carefully, because of what the Court was and was not doing. It did not undertake a fresh, appellate interpretation of Clause 19. It asked only whether the tribunal's reading, that Clause 19 imposed an absolute obligation on FSSPL and its promoters to provide an exit, was a plausible one. Testing that plausibility required the Court to walk through the SASHA's exit waterfall itself, and having done so, it described the tribunal's construction as "fully justified." But the operative finding is narrower than that phrase suggests: because the construction was plausible, it fell outside the merits-based review that Section 48 of the Arbitration Act does not permit.

The same plausibility standard carried the Court's treatment of Clause 24.6(c). It held that termination of promoter rights was never an exit mechanism in the first place: it gave the Investors no exit, and so could not have been the remedy elected in place of a strategic sale. Examining the notice of 11 April 2022, it found the Investors had removed the Mylandlas from the chairmanship, management and appointment rights, while Rudhraapathy J and other senior personnel continued to exercise their functions, evidence, in the Court's reading, of an interim measure to preserve value rather than an intention to take over the company. That reading, too, was upheld as plausible, not adopted as the Court's own independent construction of the clause.

Underpinning both conclusions was the Court's characterisation of the Investors themselves: venture capital entities whose business is to invest for profit, not to acquire control. That characterisation supported the plausibility of the tribunal's reading; it did not substitute for it.

Buy-back and Specific Relief

On the argument that damages plus surrender of shares was a buy-back attracting Sections 66 to 68 of the Companies Act, 2013, the Court held the Madras High Court's distinction between a shareholder's surrender and a company's repurchase of its own shares to be unexceptionable, and added its own reasoning: the award does not say to whom the shares are to be surrendered, and if the promoters pay, the shares would come to them, increasing their shareholding rather than reducing FSSPL's capital. It observed pointedly that the ground existed only because the Investors had volunteered the surrender, and that the Mylandlas were clutching at straws in pressing it.

On specific relief, the Court considered the Mylandlas' reliance on the unamended Sections 10(b) and 14(1)(a) of the Specific Relief Act, 1963, as explained in Katta Sujatha Reddy and Ors. vs. Siddamsetty Infra Projects Private Limited and Ors. and Annamalai vs. Vasanthi and Ors., and held that this reliance was misplaced, since Katta Sujatha Reddy stands recalled by a larger Bench in Siddamsetty Infra Projects Private Limited vs. Katta Sujatha Reddy and others, a recall of which Annamalai itself took note of before the case turned on its own facts. It held that the substantive relief was damages, the strategic sale being only a mode of realising them if payment failed.

It also upheld the Investors' choice to enforce against the Mylandlas alone and not the company, accepting that this preserved FSSPL's value as a going concern, and finding no improper motive in it.

One defence did not survive to be decided. The Mylandlas' case that the Investors had waived their secondary sale rights by pursuing a split sale had failed before the tribunal and the seat court on the strength of a no-waiver clause, Clause 29.5 of the SASHA, requiring writing. It does not appear to have been pressed before the Supreme Court, which recorded that grounds not argued were treated as abandoned.

Conclusion

For founders, the judgment is a reminder that an exit clause is read for what it says, not for what was intended in spirit. A covenant requiring FSSPL and its promoters to "find a buyer" at a defined price was construed as an unqualified obligation, and once a tribunal has plausibly read it that way, the Supreme Court has now confirmed that Section 48 of the Arbitration Act will not let an enforcement court revisit that reading. Promoters who assume the company alone carries an exit obligation should note that liability here was joint and several, and that the Investors were entitled to enforce against the Mylandlas personally while leaving FSSPL untouched. Years of informal cooperation, including participation in an alternative sale process, carried no legal weight against a written no-waiver clause. Each of these positions was available to the promoters to negotiate at the time the SASHA was signed, and each became unavailable to contest once the exit waterfall was triggered.

For investors, the judgment confirms that a well-drafted exit waterfall, precisely priced and paired with a written no-waiver clause, will be enforced substantially as drafted, both by the seat court and by an Indian enforcement court. It also confirms that structuring enforcement to run against promoters personally, while preserving the target company as a going concern, is a legitimate and effective strategy where the underlying obligation is joint and several. Equally, the judgment shows the value of offering to surrender shares upon payment of damages, rather than seeking a buy-back outright: the surrender was treated as distinct from a buy-back under Sections 66 to 68 of the Companies Act, 2013, and did not attract the restrictions that provision imposes.

Read together, the judgment rewards precision in exit drafting on both sides of the table, and confirms that once such a clause is tested before a tribunal and a seat court, an Indian enforcement court will scrutinise the result for public policy concerns, but will not reopen its substance.