Warranty and Indemnity Insurance in Indian Private Equity Buyouts

In the mid-2010s, warranty and indemnity insurance in Indian private equity was largely theoretical. A handful of global deals involving Indian targets used W&I, but the structures were driven by the overseas holding company and had little interaction with Indian market practice. By 2023, that had changed materially. By 2025, buy-side W&I has become a standard transactional tool in Indian PE deals at deal values above INR 200 crore, used by funds including Blackstone, Warburg Pincus, Kedaara, ChrysCapital, and homegrown PE sponsors raising their next fund under the SEBI Alternative Investment Fund framework.

The shift has been driven by a specific tension in Indian founder-led transactions. Founders who have built a business over 20 to 30 years and are selling to a PE sponsor want two things above all others: a clean exit and certainty of receiving the full consideration at closing. The traditional W&I-free deal structure required the seller to place a portion of the consideration, typically 10 to 15% of enterprise value, in an escrow account for 12 to 24 months to cover post-closing warranty claims. For a founder selling a business at INR 500 crore, that is INR 50 to 75 crore sitting in an escrow account earning a modest return while the founder has been told the deal is done.

Buy-side W&I resolves this tension by replacing the escrow with an insurance policy. The buyer purchases a policy that pays directly to the buyer when a warranty breach causes a financial loss. The seller's escrow is reduced or eliminated. The seller receives the full consideration at closing. The buyer has insurance coverage for the same duration (commonly 3 to 7 years for non-tax warranties, 7 years for tax warranties) without requiring a seller-funded escrow. The premium, paid by the buyer from deal costs, is the price of this structural efficiency.

W&I insurance can be structured as either a buy-side policy (the buyer is the insured) or a sell-side policy (the seller is the insured). The distinction matters both economically and operationally.

A sell-side W&I policy insures the seller against warranty claims brought by the buyer. The seller pays the premium. If the buyer makes a warranty claim, the buyer must first pursue the seller and then the seller recovers from the insurer. This structure preserves the seller's direct liability but provides indemnity through insurance. It was more common in earlier Indian transactions and is still used in some secondary PE transactions where sellers want a clean exit but buyers resist eliminating recourse to the seller entirely.

A buy-side W&I policy insures the buyer directly. When a warranty breach is discovered, the buyer claims against the insurer, not the seller. The seller's liability is reduced to the policy retention amount (the deductible) and any specific indemnities carved out of the policy. The seller receives the full purchase price at closing and has minimal ongoing exposure. This is now the dominant structure in Indian PE buyouts because it produces the cleanest outcome for both sides: the seller gets certainty, the buyer gets independent coverage without the friction of suing a now-departed founder.

The insurer under a buy-side policy typically subrogates against the seller only in cases of fraud. In standard warranty breach cases, the insurer pays the buyer and does not pursue the seller. This is the 'no recourse to seller' feature that makes buy-side W&I particularly attractive in Indian founder-exit transactions, where maintaining the seller's goodwill for transition purposes is commercially important.

Premium for buy-side W&I in Indian deals in 2025 is running at approximately INR 5 to 7 per thousand of coverage (0.5% to 0.7% of the policy limit), with variation based on deal complexity, the quality of due diligence, the sector, and the coverage period. A INR 50 crore policy limit on a INR 500 crore deal costs roughly INR 25 to 35 lakh in premium, which is modest relative to the deal friction cost of maintaining escrow. Capacity in the Indian market has improved materially: major W&I underwriters active in Indian deals include Sompo International (through Canopius India), AIG's global specialty team, Berkshire Hathaway Specialty Insurance, and Munich Re's ERGO specialty unit.

A buy-side W&I policy in an Indian PE context covers the buyer's financial loss arising from breaches of seller warranties given in the share purchase agreement (SPA). The scope of coverage tracks the SPA warranty schedule but is narrower at the edges, shaped by exclusions negotiated during the underwriting process.

The covered warranty categories in a typical Indian PE deal include:

Commercial contract warranties covering the accuracy of representations about material contracts, the absence of undisclosed change-of-control triggers, and the completeness of the disclosed contracts list. In Indian deals, this category frequently uncovers issues with government contracts that have informal renewal understandings not reflected in formal documentation.

Tax warranties and representations covering the accuracy of tax returns filed, absence of undisclosed tax disputes, and compliance with GST, income tax, transfer pricing, and customs requirements. Tax warranty breaches are among the most common W&I claims globally and in India specifically. Indian tax complexity, including GST transition issues, accumulated MAT credits, and POEM (Place of Effective Management) risk, makes tax warranties particularly valuable in Indian deals.

Intellectual property warranties confirming the target owns or has valid licences for all IP used in the business, that there are no undisclosed IP disputes, and that employee IP assignments have been completed. For Indian IT services and pharmaceuticals targets, IP warranties are substantively important.

Employment and labour warranties covering EPFO and ESIC compliance, the absence of undisclosed employment disputes, accuracy of disclosed headcount and compensation, and compliance with the Code on Wages and other labour codes. In India, contract labour misclassification is a commonly discovered post-closing warranty breach that W&I policies cover.

Financial statement warranties confirming that the disclosed accounts give a true and fair view and that no material undisclosed liabilities exist at completion.

The coverage period varies by warranty type. General commercial warranties typically run for 3 years post-closing. Tax warranties and fundamental warranties (title to shares, capacity to sell) run for 6 to 7 years, matching the Indian tax assessment limitation periods.

W&I policies are not all-risk insurance. The exclusions built into Indian deal policies reflect both standard global W&I market practice and specific Indian legal and commercial risks that underwriters price out of the coverage.

The most significant exclusion is for known issues identified in due diligence. This is the 'knowledge scrape' exclusion. Anything recorded in the due diligence reports, disclosed in the data room, or identified in the management Q&A sessions is excluded from coverage. The policyholder's knowledge is imputed through the buyer's deal team and advisers. This is why the quality and depth of due diligence directly determines the scope of W&I coverage: thorough due diligence that identifies and records issues creates disclosed exceptions to warranties (reducing the warranty scope), while simultaneously excluding those same issues from W&I coverage. The W&I policy covers what was not found, not what was found and disclosed.

Forward-looking warranties are uniformly excluded. The policy covers past breaches discovered post-closing, not future business performance. A warranty that says 'the business will achieve its projections' is either not given in Indian deals or, if given, is not covered under W&I.

Consideration adjustment mechanisms (price adjustment, earn-out, completion accounts) are excluded. Issues that are or should be resolved through the price adjustment mechanism in the SPA do not give rise to W&I claims.

Pension and defined benefit liabilities are excluded in most Indian policies, though this is less significant in India than in UK or US deals given the structure of EPF and gratuity obligations. However, unfunded gratuity liability is occasionally the subject of deal-specific negotiation.

Governmental or regulatory approvals as a specific category may be excluded where the deal involves a sector requiring CCI approval, FIPB (now replaced by the DPIIT approval route), or SEBI clearances, and these approvals are not yet obtained at the time the policy is placed.

The retention level (the W&I equivalent of a deductible) in Indian PE deals is typically 0.5 to 1% of enterprise value, meaning the first INR 2.5 to 5 crore of loss on a INR 500 crore deal remains with the buyer. Below the retention, the buyer has no insurance recovery. Above the retention, the policy pays up to the policy limit. The policy limit is commonly 10 to 20% of enterprise value, though buyers in competitive deal environments sometimes take a lower limit to reduce premium cost.

A fast-growing category of Indian PE activity involves acquisitions of distressed assets through the Insolvency and Bankruptcy Code 2016 (IBC) process: resolution plans, distressed acquisitions from liquidators, and secondary trades of IBC claims. These transactions present a structurally different W&I problem.

In a standard IBC resolution plan acquisition, the seller is the resolution professional (RP) acting on behalf of the corporate debtor. The RP cannot give meaningful warranties about the business because the RP has limited knowledge of it and typically has no historical operational access. The target company's promoters, who have historical knowledge, are not party to the transaction. Standard W&I coverage, which relies on seller warranties, is therefore not available.

Two structures have emerged for distressed deals. The first is synthetic W&I, where the buyer itself gives warranties to the insurer about what the buyer believes to be true about the target based on its due diligence. The insurer covers the buyer if post-closing facts turn out to be inconsistent with the buyer's own representations. This is effectively a due diligence insurance product, covering the gap between what the buyer's investigation revealed and what is subsequently discovered. Synthetic W&I has higher premiums and more restrictive coverage than standard W&I because the underwriter is relying on the buyer's self-assessment rather than a seller's warranty.

The second structure is specific contingent risk insurance for identified discrete risks in the distressed asset, such as a pending income tax demand, an undisclosed regulatory notice, or a disputed land title. Rather than comprehensive W&I coverage, the buyer insures a specific risk that the due diligence identified as a concern but could not conclusively resolve.

A critical IBC-specific issue is Section 32A of the Insolvency and Bankruptcy Code, which provides criminal and civil liability protection to the successful resolution applicant for offences committed before the insolvency commencement date. Section 32A protection is intended to give bidders confidence that they will not inherit the previous management's liabilities, but its scope and application continues to be litigated. W&I underwriters assess Section 32A applicability in their underwriting of IBC acquisition deals and typically exclude any liability that falls outside the Section's protection scope.

Tax liability is the most litigated and highest-value source of post-closing warranty claims in Indian PE deals. The Indian tax environment, with its combination of significant tax officer discretion, a high volume of tax demands raised at assessment, and a slow dispute resolution process, creates substantial uncertainty about a target's actual tax exposure.

Standard W&I coverage includes tax warranties but is a blunt instrument for specific identified tax risks. For known or suspected tax issues that are not resolved by completion, a separate tax liability insurance (also called retrotax insurance or specific tax deed insurance) policy is more appropriate.

Retrotax policies in Indian deals are most commonly structured around three categories of risk. The first is transfer pricing adjustments: most large Indian PE targets transact with related parties, and transfer pricing positions taken in prior years may not have been tested at assessment. A retrotax policy covering transfer pricing risk insures the cost of any additional tax assessed on intercompany transactions for the policy period, covering audit costs, additional tax, interest, and penalties.

The second category is indirect tax legacy risk: GST transition-era disputes, service tax demands for pre-GST periods (which can still be assessed under the statute of limitations applicable to the pre-GST regime), and customs and excise demands. For manufacturing and logistics sector deals, indirect tax legacy risk can represent significant liability.

The third category is GAAR (General Anti-Avoidance Rules): transactions entered into by the previous management that might attract GAAR challenge. For a buyer acquiring a business with a complex pre-transaction structure involving multiple holding layers, SPVs, or prior reorganisations, GAAR exposure can be uncertain at completion.

Premium for specific tax deed insurance in India runs higher than general W&I: typically 2 to 4% of the amount of coverage depending on the strength of the tax position, the legal opinion supporting the position, and the amount of time elapsed since the relevant transaction. A strong legal opinion from a reputable Indian tax counsel supporting the tax position can reduce premium materially.

The Gujarat International Finance Tec-City (GIFT City) has emerged as a structuring platform for W&I insurance on Indian PE deals, particularly for transactions involving offshore holding structures.

Most large Indian PE acquisitions are structured with the acquisition vehicle sitting outside India, typically in Mauritius, Singapore, or the Netherlands, with DTAA benefits and round-tripping considerations driving the choice. When the acquisition vehicle is offshore, the SPA is governed by English law or Singapore law, and the W&I insurance policy is placed in the same offshore jurisdiction, the Indian insurance regulatory framework (and IRDAI) does not technically apply. Global W&I underwriters (Lloyd's syndicates, Bermuda market, US surplus lines) can write such risks directly.

For deals that are structured with Indian acquisition vehicles (which is increasingly common post-FEMA liberalisation and as domestic PE funds grow), the W&I policy must either be placed with an IRDAI-licensed insurer or through an IRDAI-licensed reinsurer. This creates friction: most W&I capacity is concentrated in the Lloyd's and Bermuda market, and fronting arrangements where an Indian insurer issues the policy and cedes 100% to the offshore reinsurer add cost and complexity.

GIFT City's International Financial Services Centre (IFSC) provides an alternative. Insurers operating in the IFSC can write W&I and other specialty risks for Indian transactions without the full IRDAI regulatory framework applying, under the International Financial Services Centres Authority (IFSCA) regulatory regime. IFSCA's Insurance Regulatory Framework for IFSC (Amendment) Regulations 2022 explicitly permit specialty risk insurance including M&A insurance, written in foreign currency, for transactions involving Indian companies. This means that a domestically structured Indian PE deal can access global W&I capacity through a GIFT City-based insurer or cell structure, paying premium in USD or other hard currency, with policy terms following global W&I market practice rather than IRDAI-prescribed Indian policy wordings.

GIFT City W&I structuring is not appropriate for every transaction. For straightforward inbound PE deals with offshore holding structures, going directly to the global market is simpler. GIFT City is most valuable for domestic fund structures, AIF Category II investments, and transactions where FEMA and RBI considerations require an Indian-nexus but global risk appetite is needed.