Ashish Khanna is a law graduate from Thakur Ramnarayan College of Law, Mumbai University.
In today’s volatile global climate, no contract is immune from geopolitical shock. While uncertainty has become the norm, the real challenge lies in how businesses allocate and manage these risks.
Against this backdrop, this article examines whether rising geopolitical volatility is reshaping the drafting, interpretation, and litigation risk of Material Adverse Change (MAC) clauses in Indian cross-border M&A transactions, particularly in the renewable energy sector.
Indian courts have never directly ruled on a Material Adverse Change in a private M&A transaction. The closes analogues are cases on the doctrine of frustration under Section 56 of the Indian Contract Act 1872, , where courts have set an exteremly high bar for discharging contractual obligations.This legal vacuum leaves foreign investors uncertain whether a MAC clause will protect them when a geopolitcal or regulatory shock destroys the commercial logic of a deal. As India positions itself as a destination for green investment, that uncertainty functions as a hidden cost.
Risk Allocation in Cross-Border M&A: The MAC Clause Function
At its core, the MAC clause is a mechanism for allocating risk between signing and closing. Geopolitical uncertainty is no longer something parties can treat as a distant possibility in cross-border deals. These risks shape how deals unfold. Growing protectionism, investment screening and trade barriers means that political developments can disrupt the commercial assumptions behind the deal through sanctions or trade barriers or even stop the transaction from closing due to regulatory intervention. In such situations, the key question is how risks get shared between parties.
Limits of Traditional MAC Clauses in Geopolitical Volatility
For most of the post-Cold War period, geopolitical risk sat on the margins of M&A practice. Deals fell apart because of financial crises, not sanctions. Transactions unravelled because of market crashes, not trade wars. The US-China trade war forced companies to restructure thousands of cross-border supply chains. Further, India’s tightening of FDI rules caught several Chinese-linked acquisitions off guard.
Although the contracts could still be signed, the commercial logic that justified the deal, the reason the buyer agreed to the price, fails to materialise. However, from the perspective of Indian law, this event is immaterial, as Indian courts have consistently looked at these situations through the lens of impossibility, not commercial allocation.
The Comparative Divergence: Delaware and India
Delaware courts approach MAC clauses with a sharp focus on commercial reality. The leading case is Akron v. Fresenius , which held that a MAC requires showing that the target’s earnings potential has been “durably affected” and that the damage is not just temporary. Crucially, Delaware courts do not ask whether performance has become impossible. They ask whether the event falls within the risk the buyer agreed to take on. This approach respects the parties’ bargain and recognises that sophisticated commercial actors are best placed to decide which risks should trigger an exit.
Indian has no equivalent body of MAC case law. The closest reference points are decisions on frustration under Section 56. In.Energy Watchdog v. CERC, the Supreme Court held that a change in Indonesian coal pricing regulations did not frustrate a power purchase agreement because performance remained possible, however commercially disadvantageous. In Nirma Industries v. SEBI, the court prioritized regulatory compliance and contractual certainty over commercial expectations, refusing to excuse delay even when the regulatory landscape was deeply uncertain. Foreign investors cannot know how an Indian court would treat a MAC clause in a private M&A deal. The concern is that a court, lacking direct precedent, might borrow the high threshold from these frustration cases which effectively would require the buyer to prove that the deal has become impossible, not merely unattractive.
The Renewable Energy Blind Spot: Where Geopolitics and India’s Green Transition Collide
Nowhere is this gap more consequential than in India’s renewable energy sector. India has committed to achieving 500 gigawatts of non-fossil fuel capacity by 2030. Meeting that target will require hundreds of billions of dollars in foreign investment. Requiring foreign investors to navigate a landscape marked by policy volatility.
In late 2025, the Central Electricity Regulatory Commission proposed tightening grid compliance rules for renewable generators. The new framework, set to phase in from April 2026, would gradually eliminate the tolerance for deviations between forecasted and actual power supply. Industry bodies have warned that this could slash revenues for some wind projects by up to 48 per cent, according to submissions made to the Central Electricity Regulatory Commission.
A regulatory shift with the potential to cut a target’s revenue by half would fundamentally undermine the commercial logic of any acquisition. Under the Indian impossibility test, a buyer would likely be forced to close as the shares can still be transferred, even if the project’s profitability has been gutted. Whereas under the Delaware standard, this would almost certainly be a MAC event.
This asymmetry has negative consequences, as foreign investors are already pricing Indian regulatory risk into their bids, discounting assets because they know their MAC clauses may not protect them. Indian sellers get lower valuations. This functions as a hidden cost on India’s green transition.
The Way Forward
Indian courts need to recognise that MAC clauses and the frustration doctrine serve different purposes and should be analysed differently. A two-step inquiry should be considered to interpret the clause, first it should consider whether the clause properly allocates the risk of the event that occurred. Second, if the event falls within that risk, is it material enough using something like Delaware’s “durable effect” standard? Only if the clause does not address the event should courts fall back on Section 56.
The real protection lies in careful drafting. Agreements should clearly identify which risks are being allocated and who is expected to bear them. If the intention is that regulatory intervention, sanctions, or policy changes should allow a party to walk away, that must be expressed clearly.
For policy volatility, agreements should include specific carve-outs for retrospective regulatory changes. Most importantly, the clause should state clearly that it operates independently of Section 56.
The absence of clear Indian jurisprudence on MAC clauses leaves a gap between how deals are negotiated and how they might be interpreted. Buyers cannot be certain that their negotiated risk allocation will be enforced, and selleters may receive unexpected protection. To fill that gap would either require judicial clarification or regulatory guidance for India to becomes the trusted destination for green investment it aspires to be.
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