Conditions Precedent: The Boxes That Must Be Ticked Before a Deal Goes Live

A condition precedent (CP) is something that must happen before a contract, or a specific obligation in it, becomes legally binding or due. It is not a promise, it is a gate. Until the gate opens, board approval comes through, a regulator clears the deal, financing is confirmed, a required consent lands, the obligation on the other side of that gate simply does not arise. The one thing most people get wrong: they sign a share purchase agreement or shareholders' agreement full of CPs and treat signing as the finish line. It is not. Signing only creates the obligation to try to satisfy the CPs, and to close once they are. This guide (published by Adira, which makes contract review and CLM software, so we have a commercial stake in you understanding clauses like this, but the explainer stands on its own) walks through what a CP actually does under Indian law, a real Supreme Court case that turned on one, and the checklist you should run before you rely on any CP clause.

Plain meaning

A CP is a fact or event, not yet true or happened, that the parties agree must become true or happen before an obligation kicks in. In a share purchase agreement (SPA) or a shareholders' agreement (SHA), the "obligation" that waits on CPs is usually the biggest one in the document: the buyer's obligation to pay, and the seller's obligation to transfer shares, on the date called Closing or Completion. Common CPs include board or shareholder approval of the transaction, receipt of a required regulatory clearance (competition approval, sectoral approval, a foreign investment approval), third-party consents needed under existing contracts or loan agreements, no material adverse change between signing and closing, and confirmation that representations and warranties are still true on the closing date.

CPs sit between signing and closing because most deals cannot close instantly. Boards need to meet, regulators need to review filings, lenders need to sign off. The contract binds the parties to their signing-stage promises from the moment of signature, but the transaction it describes does not complete until every CP is satisfied or, where allowed, waived.

Who it protects and what triggers it

CPs protect whichever party would be exposed if the deal closed before a fact was confirmed. A buyer wants CPs around regulatory clearance and material adverse change, so it is not forced to buy a business that has fallen apart, or a deal that is illegal without approval, between signing and closing. A seller wants CPs around financing, so it is not left with a buyer who signed but cannot pay. In practice most CP lists are asymmetric on purpose: some protect the buyer only, some the seller, and a few, like a required government clearance, protect both because neither side wants an unenforceable deal.

The trigger is simple in theory, messy in practice: the CP happens or it does not, by a stated deadline, the long-stop date. What actually causes a dispute is usually not the CP itself but who was responsible for it, whether they tried hard enough, and what happens if the date passes with it still unmet.

What to look for

Four mechanics decide whether a CP clause does real work when the deal gets tested:

1. Who bears the obligation to satisfy each CP. A vague "the CPs shall be satisfied" with no named party lets each side blame the other when one is missed. A well-drafted clause states, CP by CP, who must use "reasonable" or "best" efforts, and by when.
2. A long-stop date. Without one, a deal with an unmet CP can sit in limbo indefinitely, while both sides stay bound by exclusivity or standstill promises made at signing.
3. Whether, and how, a CP can be waived. Some CPs (a required regulatory approval) legally cannot be waived by agreement, the law imposes them. Others (a third-party consent protecting one side) can often be waived unilaterally by that party. The clause should say which is which.
4. What happens on failure. Does the agreement terminate automatically if a CP is not met by the long-stop date, or does a party get a right it must actively exercise? The difference matters if someone wants to keep the deal alive past the date to negotiate further.

The Indian position: conditions precedent are contingent contracts under Sections 31 to 34

Indian law does not have a separate statute for "conditions precedent" in M&A or commercial contracts. It treats a CP-gated obligation as a contingent contract under Chapter III of the Indian Contract Act, 1872, Sections 31 to 36. Section 31 defines the category:

"A 'contingent contract' is a contract to do or not to do something, if some event, collateral to such contract, does or does not happen." Source: Section 31, Indian Contract Act, 1872

Section 32 is the operative rule for a standard CP, an event that must happen before the obligation is enforceable:

"Contingent contracts to do or not to do anything if an uncertain future event happens cannot be enforced by law unless and until that event has happened. If the event becomes impossible, such contracts become void." Source: Section 32, Indian Contract Act, 1872

Read plainly, this is the whole logic of a CP clause in statutory form. The buyer's obligation to pay on closing "cannot be enforced by law unless and until" the CPs, board approval, regulatory clearance, whatever the parties named, "have happened." If a CP becomes genuinely impossible to satisfy, for example a regulator formally refuses approval, the obligation it gated becomes void, not merely delayed.

Section 33 covers the mirror case, a contract contingent on an event not happening, and Section 34 covers a CP that depends on the future conduct of a specific living person, treating that conduct as impossible to satisfy the moment the person makes clear they will not do the thing, rather than requiring the parties to wait indefinitely. Together, Sections 31 to 34 are why a CP clause is not just commercial drafting convention, it is enforcing a structure Indian contract law already recognises: an obligation that stays unenforceable until its stated event actually occurs.

A CP clause does not need special "magic words," but it does need to read as a genuine condition, not an aspiration. "The parties shall use reasonable efforts to obtain regulatory approval" is a promise to try, breach of which sounds in damages. "Closing is conditional upon receipt of regulatory approval" is a true CP, no approval means no enforceable closing obligation. Contracts that blur the two create exactly the ambiguity that ends up litigated.

The named case: Nathulal v Phoolchand

Nathulal v Phoolchand (Supreme Court of India, 16 October 1969, 1970 AIR 546) is the classic Indian authority on what happens when a party who was meant to satisfy a condition tries to walk away from the deal for the other side's non-performance.

Nathulal agreed to sell land and a ginning factory to Phoolchand. Phoolchand paid a large part of the price up front and took possession, agreeing to pay the balance by a fixed date. But Nathulal had his own prior obligations: to get the land moved into his own name in the revenue records (it was still registered in his brother's name) and to obtain the government sanction that the applicable land revenue law required before such a sale could go through. When the balance-payment date passed with neither done, Nathulal tried to rescind, blaming Phoolchand for non-payment.

The Supreme Court held he could not. His own obligations, clearing title and obtaining sanction, were preconditions to Phoolchand's duty to pay the balance. Since Nathulal had not satisfied them, that payment obligation had never actually fallen due. See the judgment on Indian Kanoon.

The lesson translates directly into a modern SPA. If your CP checklist puts a regulatory approval or a title-clearing step in one party's court, and that party has not done its part, it cannot then blame the counterparty for not closing. Whoever a CP is assigned to should treat it as a real obligation to pursue, not a box that fills itself in.

Red flags

Normal	Red flag	Why it matters
Each CP names the responsible party and a standard (reasonable or best efforts)	No named responsible party	Nathulal shows courts look at whose job a CP was; leaving it unstated invites a dispute at the worst moment
A stated long-stop date after which either party may walk away	No long-stop date	The deal can sit half-done indefinitely, both sides still bound by signing-stage exclusivity, with no clean exit
CPs tied to objective, verifiable facts (a regulator's written approval, a board resolution)	A CP entirely within one party's sole discretion ("subject to Buyer's satisfaction, in Buyer's sole discretion")	An illusory condition, it lets that party walk away for any reason, which can undercut the deal's enforceability
Clause states who bears the cost of satisfying each CP	Silent on cost allocation	Parties end up arguing over who pays for a filing or consent process after signing, once leverage has shifted
Closing happens only after each CP is confirmed satisfied, or expressly waived, in writing	Parties close informally while a CP is technically outstanding	Under Section 32 the gated obligation was never enforceable; closing anyway leaves both sides exposed if the CP later fails
Every legally required regulatory approval (competition, sectoral, foreign investment) is listed as a CP	No CP for a required regulatory approval	Closing without it does not make the requirement disappear; it can expose the deal to regulatory action regardless
Clause distinguishes CPs a party can unilaterally waive from ones that cannot be waived (a statutory approval)	Blanket waiver right over all CPs, including regulatory ones	A party cannot waive its way past a legal requirement just because the contract lets it waive contractual conditions

Bad clause → better clause

Bad: "Closing is subject to satisfaction of customary conditions precedent, including receipt of necessary approvals and consents. The parties shall use their efforts to satisfy such conditions."

What is wrong: "customary conditions precedent" names nothing specific, so it is unclear which approvals matter or who is getting them. There is no long-stop date, no allocation of responsibility, and "their efforts" does not say whether each party covers its own CPs or shares one undivided obligation.

Better: "Closing shall occur 5 business days after satisfaction (or waiver, where permitted below) of the following conditions precedent ('Conditions'): (a) approval of this transaction by Seller's board of directors, to be obtained by Seller within 15 business days of signing; (b) receipt of approval from the Competition Commission of India under the Competition Act, 2002, to be applied for by Buyer within 10 business days of signing and diligently pursued thereafter; (c) no Material Adverse Change having occurred between signing and the Closing Date. Condition (a) may be waived only by Buyer, in writing. Condition (b) cannot be waived by the parties. If any Condition is not satisfied, or validly waived, by [date] ('Long Stop Date'), either party may terminate this Agreement on written notice, without liability other than for antecedent breach."

What changed and why: each CP is named, dated, and assigned; the regulatory CP is correctly marked non-waivable since a private waiver cannot substitute for the regulator's own clearance; there is a hard long-stop date; and termination on failure is spelled out instead of left to implication.

How it interacts with related clauses

CPs rarely stand alone in a transaction agreement. Three linked clauses decide how much protection the CP list actually delivers:

• Representations and warranties. CPs commonly require reps and warranties to remain true as of closing, not just as of signing. Check the CP clause cross-references this, otherwise a warranty that becomes false between signing and closing may not actually block closing.
• Termination. The CP clause should say plainly what happens on failure, automatic termination, or a right either party must exercise, and by when. If your termination clause is silent on this, the CP list has no teeth.
• Conditions subsequent, the contrast worth knowing. A condition precedent must happen before an obligation arises. A condition subsequent is different: the obligation is already binding, but it will end, or a party can walk away from it, if a stated future event happens. A right to terminate if a specified event occurs after closing (a post-closing regulatory action, for instance) is a condition subsequent, not a CP. Confusing the two in drafting can leave a party thinking it has an exit before closing when the clause actually only bites after.

You can map out which CPs a draft SPA or SHA actually assigns to which party, and where the long-stop date and waiver rights sit, for free, by marking up the document in Weave before you send it back for negotiation.

US and global contrast

US and English contract practice use "conditions precedent" as a term of art too, and the mechanics look similar on paper, a checklist, an outside date, waiver provisions. The real difference is doctrinal, not practical. US and English law analyse CPs mainly through contract interpretation and the common-law doctrine of conditions; there is no equivalent to India's Sections 31 to 34 giving contingent contracts their own statutory chapter. Indian courts can reach for Section 32 directly as the reason an obligation gated by an unmet CP is not yet enforceable, rather than treating it purely as a question of what the words meant. For a deal governed by Indian law, that statutory backing favours the drafter, provided the clause is written as a true condition, not dressed up as a mere promise to try.

FAQ

What is the difference between a condition precedent and a covenant? A covenant is a promise; its breach gives the other side a damages claim, but the contract keeps running. A CP is a gate, until satisfied, the obligation it guards is not yet enforceable at all. The same fact, say obtaining a regulatory approval, is drafted very differently depending on which one you intend.

Can conditions precedent be waived? Often yes, not always. A CP that protects one party alone (a specific consent that party needs) is usually waivable by that party in writing. A CP the law itself requires, a regulatory approval under the Competition Act or a foreign investment clearance under FEMA, cannot be waived by private agreement; the underlying legal requirement still applies regardless of what the contract says.

What happens if a condition precedent is never satisfied? Under Section 32, if the event becomes impossible, the obligation it gated becomes void. If it simply remains unsatisfied past the long-stop date without becoming impossible, the usual drafted outcome is a termination right, though this depends on what the termination clause actually says.

Who decides if a party used "reasonable efforts" to satisfy a CP it was responsible for? There is no fixed test; it is judged on the facts. Nathulal v Phoolchand shows the risk: a party that did not genuinely pursue its own CP cannot then blame the other side for the deal not closing.

Is a long-stop date the same as a termination date? Practically, yes, in most drafting. It is the date by which all CPs must be satisfied or waived; if they are not, it is usually also the trigger for a termination right. Some agreements build in an extension if a pending CP is close to clearing, so check whether your long-stop date is truly hard.

This guide gets you to understanding what a condition precedent does under Indian law and how the Contract Act treats it. It does not tell you whether a specific CP in your specific deal is properly drafted, correctly assigned, or actually satisfied, that depends on the exact wording, the facts of your transaction, and the applicable regulatory regime, and is not legal advice. Talk to a lawyer before you sign, waive, or rely on a condition precedent in a live transaction.