Is a no-warranty / 'as-is' clause in the deal NDA good or bad for the disclosing party?

Executive Summary

A no-warranty clause in NDA provisions shifts liability for information accuracy from the disclosing party to the receiving party during preliminary deal negotiations. While these clauses appear protective for sellers, targets, and information providers, they create negotiation friction, due diligence uncertainty, and post-transaction legal exposure for investors, acquirers, and commercial partners.

Key Legal and Commercial Risks:

• No-warranty clauses attempt to limit pre-contractual liability but do not protect against fraud, wilful misrepresentation, or violations under the Indian Contract Act, 1872
• Receiving parties face significant challenges proving reliance or claiming misrepresentation damages if they accept blanket disclaimer language
• Disclosure obligations under SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018 and Companies Act, 2013 are not automatically waived by private NDA language
• Cross-border investors may face jurisdictional conflicts between NDA terms and home-country investor protection standards
• Financial projections, IP ownership claims, and regulatory compliance statements remain areas of high exposure regardless of contractual disclaimers

Strategic Implications:

• Disclosing parties must balance liability protection with transaction credibility and deal momentum
• Receiving parties must conduct independent verification and insist on fraud carve-outs in negotiation
• Legal recourse remains available under fraud and statutory misrepresentation frameworks despite contractual language
• Negotiation outcomes depend on deal leverage, transaction stage, party sophistication, and information sensitivity

What Is a No-Warranty Clause in a Deal NDA?

A no-warranty clause in NDA documentation is a contractual provision stating that the disclosing party makes no representation, warranty, or guarantee regarding the accuracy, completeness, reliability, or fitness for purpose of the confidential information being shared. These provisions appear in non-disclosure agreements used during:

• M&A preliminary negotiations and term sheet discussions
• Private equity or venture capital due diligence
• Strategic partnership explorations and licensing negotiations
• Technology transfer agreements
• Procurement vendor evaluations
• Joint venture feasibility assessments

Typical language includes:

"The Disclosing Party provides all Confidential Information on an 'as-is, where-is' basis and makes no representation or warranty, express or implied, as to its accuracy, completeness, or suitability for any purpose."

The clause serves as a pre-emptive legal shield. It attempts to limit the disclosing party's liability if the receiving party later claims it relied on inaccurate, incomplete, or misleading information shared during preliminary discussions or due diligence.

Why Disclosing Parties Want No-Warranty Clauses

Limiting Pre-Contractual Liability

During preliminary deal discussions, companies share extensive information: financial projections, operational data, customer lists, IP portfolios, regulatory compliance records, litigation exposure, and strategic plans. Much of this information is forward-looking, uncertain, or subject to business assumptions.

A no-warranty clause in NDA provisions attempts to prevent the receiving party from later claiming that it relied on specific representations made during early negotiations. This protection is particularly important because Indian courts recognize the doctrine of pre-contractual misrepresentation under Section 18 of the Indian Contract Act, 1872, which allows contracts to be voidable if consent was obtained through misrepresentation.

Protecting Against Due Diligence Disputes

Due diligence often reveals discrepancies between information shared early in negotiations and actual operational realities. Sellers worry that buyers may later claim these discrepancies constituted actionable misrepresentations.

By including a no-warranty clause in NDA documentation, the disclosing party argues that the receiving party accepted the information subject to independent verification and cannot later claim reliance damages.

Managing Disclosure Uncertainty

Companies operate in dynamic regulatory, commercial, and operational environments. Financial projections depend on assumptions. Compliance records may be incomplete. Litigation exposure may be evolving. IP ownership may involve overlapping rights.

Disclosing parties want contractual protection against liability arising from information that was accurate when shared but later proved incomplete or inaccurate due to changed circumstances or discovery of new facts. The no-warranty clause in NDA language attempts to provide this buffer.

Streamlining Operational Efficiency

Without warranties, the disclosing party eliminates complexities associated with proving information accuracy. This streamlined process can expedite negotiations and facilitate quicker decision-making, contributing to operational efficiency in fast-moving transaction environments.

Why Receiving Parties Should Resist No-Warranty Clauses

Undermining Fraud and Misrepresentation Claims

A blanket no-warranty clause in NDA provisions may limit the receiving party's ability to pursue fraud or misrepresentation claims if material inaccuracies are later discovered.

Under Section 17 of the Indian Contract Act, 1872, fraud includes the suggestion of a fact that is not true by one who does not believe it to be true, or the active concealment of a fact by one having knowledge or belief of the fact. Section 19 provides that a contract induced by fraud is voidable at the option of the party whose consent was obtained by fraud.

However, if the receiving party contractually agreed that no representations were made and that all information was provided 'as-is,' proving fraud becomes procedurally and evidentially more difficult. Courts may hold that the receiving party waived its right to rely on the accuracy of disclosed information.

Limiting Due Diligence Reliance

Investors and acquirers conduct due diligence based on information provided by the target. If that information is materially inaccurate and the NDA contains a no-warranty clause, the receiving party may struggle to claim damages for reliance.

For example:

• Financial statements provided during preliminary discussions showed positive EBITDA, but post-signing audits revealed undisclosed liabilities
• IP ownership representations suggested clean title, but litigation later revealed third-party claims
• Regulatory compliance certifications were provided, but enforcement actions were pending but not disclosed

A no-warranty clause in NDA documentation shifts the burden entirely onto the receiving party to independently verify every statement, even those made explicitly by the disclosing party.

Weakening Negotiation Leverage

Accepting a no-warranty clause in NDA provisions weakens the receiving party's ability to later negotiate warranty protections in the definitive transaction agreement.

Sellers may argue: "You already accepted that no warranties were given during due diligence. Why should we provide warranties now in the purchase agreement?"

This creates negotiation asymmetry and undermines the receiving party's ability to secure robust indemnification provisions in the share purchase agreement (SPA) or asset purchase agreement (APA).

Increasing Due Diligence Costs

A no-warranty clause in NDA language forces receiving parties to conduct more extensive, expensive, and time-consuming due diligence. Every statement, projection, and representation must be independently verified through third-party audits, legal searches, technical assessments, and regulatory reviews.

This increases transaction costs and delays deal timelines, particularly for cross-border transactions involving India where information verification can be procedurally complex.

Creating Valuation Uncertainty

Receiving parties conduct valuation analysis based on information provided during preliminary discussions. If that information is qualified by a no-warranty clause in NDA provisions, investors face heightened valuation risk.

If revenue projections, customer retention data, or cost structures provided during NDA-stage discussions later prove inaccurate, the receiving party may struggle to adjust pricing or walk away without liability if the definitive agreement was signed based on those projections.

Legal Validity of No-Warranty Clauses Under Indian Law

Indian Contract Act, 1872

Section 23 of the Indian Contract Act provides that agreements whose object or consideration is unlawful are void. Courts have consistently held that parties cannot contract out of fraud liability.

In S.P. Chengalvaraya Naidu v. Jagannath (1994), the Supreme Court of India held that even where a contract contains an 'as-is' clause, it does not immunize a party from liability for fraud or wilful misrepresentation.

Therefore, a no-warranty clause in NDA documentation does not provide absolute protection. If the disclosing party knowingly provided false information or actively concealed material facts, the receiving party may still pursue remedies under Sections 17, 18, and 19 of the Indian Contract Act.

SEBI Regulations and Corporate Disclosure Obligations

For transactions involving listed companies or public securities, disclosure obligations under the Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2018 and SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 impose statutory duties to disclose material information accurately.

Private contractual disclaimers in NDAs cannot override statutory disclosure obligations. If a listed company provides materially misleading information during M&A negotiations, SEBI enforcement actions, penalties, and investor claims may still proceed regardless of no-warranty clause in NDA language.

Companies Act, 2013

Sections 34, 35, and 447 of the Companies Act, 2013 address fraudulent conduct, misstatements in documents, and criminal liability for fraud. A no-warranty clause in NDA provisions does not immunize company directors, officers, or promoters from statutory liability under the Companies Act.

If fraudulent misrepresentation or deliberate non-disclosure is established, criminal prosecution under Section 447 (fraud) may proceed independently of contractual risk allocation in the NDA.

Practical Implications for M&A and Investment Transactions

Impact on Valuation and Pricing

Receiving parties conduct valuation analysis based on information provided during preliminary discussions. If that information is qualified by a no-warranty clause in NDA documentation, investors face heightened valuation risk.

If revenue projections, customer retention data, or cost structures provided during NDA-stage discussions later prove inaccurate, the receiving party may struggle to adjust pricing or walk away without liability if the definitive agreement was signed based on those projections.

Post-Closing Dispute Risk

Even if a transaction closes, disputes may arise post-closing if operational realities diverge from pre-signing representations. If the NDA contained a no-warranty clause and the definitive agreement incorporated similar language, the buyer's ability to claim breach of warranty or seek indemnification may be limited.

Courts may interpret post-closing warranties in light of earlier contractual disclaimers, weakening the buyer's legal position.

Reputational Damage

While a no-warranty clause in NDA provisions limits formal legal liability, it does not protect against reputational damage. If the receiving party operates on faulty assumptions stemming from disclosed information, the disclosing party may still face reputational harm, especially if the transaction fails or leads to public disputes.

This reputational risk can affect future deal-making capacity and market credibility, particularly in industries where trust and reliability are paramount.

Negotiating No-Warranty Clauses: Strategic Considerations

Carve-Outs for Fraud and Wilful Misrepresentation

Receiving parties should insist on explicit carve-outs stating that the no-warranty clause in NDA provisions does not apply to fraud, intentional misrepresentation, or wilful concealment of material facts.

Suggested language:

"Notwithstanding the foregoing, nothing in this Agreement shall limit liability for fraud, wilful misconduct, or intentional misrepresentation by the Disclosing Party or its representatives."

Limitations on Specific Representations

Instead of accepting a blanket no-warranty clause in NDA documentation, receiving parties can negotiate that specific categories of information such as financial statements, regulatory compliance certifications, or IP ownership representations are provided subject to accuracy warranties.

This approach balances the disclosing party's need for liability protection with the receiving party's need for reliable information on critical deal points.

Materiality Thresholds

Parties can agree that the no-warranty clause in NDA language applies only to immaterial inaccuracies or omissions, while material misstatements remain actionable.

This creates a graduated risk allocation framework that protects disclosing parties from liability for minor errors while preserving receiving parties' rights regarding material issues.

Survival of Reliance Rights

Receiving parties should ensure that the NDA explicitly preserves their right to rely on information for purposes of negotiation, valuation, and final agreement, even if warranties are disclaimed during the NDA stage.

Language might include: "The Receiving Party retains all rights to rely on the Confidential Information for purposes of negotiation, valuation, and execution of any definitive agreement, subject to independent verification."

Conditional Warranties

Rather than fully relinquishing warranties, parties can explore conditional clauses where the disclosing party provides limited assurances on certain critical aspects of the information.

For example: "The Disclosing Party represents that the financial statements provided are true copies of those prepared by [Auditor Name] as of [Date], but makes no representation as to future performance or projections."

Clear Information Definitions

Clearly delineate the nature of the information being disclosed. This helps frame the context around the no-warranty clause in NDA provisions and informs the receiving party of the limits of their usage rights.

Distinguish between historical facts (which may warrant limited warranties), forward-looking statements (which may be disclaimed), and third-party information (where warranties may be inappropriate).

Cross-Border Considerations for Foreign Investors

Jurisdictional Conflicts

Foreign investors operating under US securities law (Securities Act of 1933, Rule 10b-5), UK Misrepresentation Act 1967, or European investor protection frameworks may face conflicts between home-country legal protections and Indian no-warranty clause in NDA disclaimers.

While Indian law governs the NDA, foreign investors may retain statutory rights under their home jurisdiction if the transaction involves cross-border securities offerings or investor protections.

Enforcement Challenges

If disputes arise, foreign investors may find it difficult to enforce fraud claims across jurisdictions if the NDA is governed by Indian law and contains a no-warranty clause in NDA provisions.

Investors should ensure that dispute resolution clauses (arbitration or litigation) are jurisdictionally neutral and do not waive rights under foreign investor protection statutes.

Regulatory Sensitivity

Transactions involving regulatory bodies or sensitive industries such as healthcare, finance, or defense may require warranties for compliance. A no-warranty clause in NDA documentation could introduce potential risks that outweigh its benefits in highly regulated sectors.

Foreign investors should assess whether home-country regulatory requirements mandate certain warranties or representations regardless of private contractual arrangements.

When Should Disclosing Parties Avoid No-Warranty Clauses?

High-Stakes Transactions

In scenarios where substantial financial resources are at stake, the disclosing party may prefer providing limited warranties to protect deal credibility and maintain investor confidence. Excessive use of no-warranty clause in NDA language may deter serious buyers and signal lack of confidence in disclosed information.

Long-Term Relationships

If the transaction reflects a strategic partnership likely to evolve over time, the disclosing party may wish to foster trust and reassurance through warranties to build an ongoing collaborative relationship.

A no-warranty clause in NDA provisions may be appropriate for one-time transactions but counterproductive for relationships requiring sustained cooperation and information sharing.

Credible Counterparties

When dealing with sophisticated institutional investors or reputable acquirers, the disclosing party may find that limited warranties enhance rather than diminish transaction efficiency.

Assess the credibility and reliability of the receiving party before imposing blanket no-warranty clause in NDA disclaimers. A trustworthy counterparty can mitigate risks tied to the lack of warranties and may respond negatively to overly defensive contract terms.

Key Takeaways for Disclosing and Receiving Parties

For Disclosing Parties

• No-warranty clause in NDA provisions provide meaningful protection against immaterial inaccuracies and business assumptions
• They do not immunize against fraud, statutory disclosure violations, or wilful misrepresentation under Indian Contract Act, 1872 or Companies Act, 2013
• Overuse of such clauses may reduce transaction credibility and deter serious buyers
• Balance liability protection with deal momentum and investor confidence
• Consider conditional or limited warranties for critical information categories
• Strengthen internal compliance protocols to ensure adherence to regulatory frameworks

For Receiving Parties

• Never accept blanket no-warranty clause in NDA language without negotiation
• Insist on carve-outs for fraud and intentional misrepresentation
• Conduct independent due diligence regardless of contractual disclaimers
• Preserve reliance rights and ensure definitive agreements contain robust warranty and indemnification provisions
• Consider statutory remedies under Indian Contract Act, Companies Act, and SEBI regulations
• Assess partner credibility before accepting significant warranty limitations
• Factor increased due diligence costs into transaction timeline and budget

Frequently Asked Questions

Does a no-warranty clause in an NDA prevent me from suing for fraud?

No. Under Indian law, parties cannot contract out of fraud liability. Section 17 of the Indian Contract Act, 1872 and the Supreme Court's ruling in S.P. Chengalvaraya Naidu v. Jagannath (1994) confirm that even 'as-is' clauses do not immunize intentional misrepresentation or fraudulent concealment. However, proving fraud becomes procedurally more difficult if the NDA contains broad disclaimers.

Can a seller refuse to provide any warranties even in the final purchase agreement if the NDA had a no-warranty clause?

Sellers often try this strategy, but buyers should resist. The NDA governs preliminary information sharing, while the definitive agreement governs closing obligations. Buyers should negotiate separate warranty, indemnity, and disclosure schedules in the share purchase agreement (SPA) or asset purchase agreement (APA) regardless of no-warranty clause in NDA language.

Are no-warranty clauses enforceable against institutional investors or private equity funds?

Yes, unless the clause violates statutory disclosure obligations or constitutes fraud. Institutional investors are generally treated as sophisticated parties capable of negotiating contractual terms. However, they should still insist on carve-outs and conduct rigorous due diligence.

What happens if financial projections shared during NDA-stage discussions prove inaccurate?

If the NDA contains a no-warranty clause, the receiving party may struggle to claim damages based solely on projection inaccuracies. However, if projections were knowingly false or recklessly prepared, fraud claims may still be viable under Section 17 of the Indian Contract Act or SEBI regulations (if applicable).

Should startups use no-warranty clauses when sharing pitch decks with investors?

Startups often include disclaimers in pitch materials, which is commercially reasonable. However, they should avoid blanket 'as-is' language that may later undermine investor trust. Instead, use specific disclaimers for forward-looking statements while maintaining accuracy for historical data.

Do no-warranty clauses affect my ability to claim indemnification post-closing?

Yes, if the definitive agreement incorporates or references the NDA's no-warranty clause in NDA language. Buyers should ensure that the purchase agreement contains independent warranty and indemnity provisions that supersede earlier NDA disclaimers.

Are mutual NDAs with no-warranty clauses more dangerous for buyers or sellers?

In mutual NDAs, both parties are disclosing parties and receiving parties. However, in M&A transactions, the seller typically discloses more sensitive operational information, so the seller benefits more from no-warranty clause in NDA provisions. Buyers should negotiate asymmetric protections or carve-outs.

How can compliance be maintained despite a no-warranty clause?

By establishing robust internal compliance protocols and ensuring clear definitions of the shared information, the disclosing party can help mitigate risks associated with misuse. Foster transparency around the limitations associated with the disclosure to enhance mutual understanding.

What should be considered before including a no-warranty clause?

Factors like the credibility of the receiving party, regulatory requirements, the nature of the transaction, deal size, relationship longevity, and industry sensitivity should be assessed before including no-warranty clause in NDA provisions.

Why is it essential to seek legal counsel for NDAs?

Legal counsel provides expertise in navigating the complexities of NDAs, ensuring that they effectively protect interests while aligning with strategic business objectives. Professional guidance helps balance liability protection with transaction credibility.

Conclusion

A no-warranty clause in NDA documentation is neither inherently good nor bad. It is a risk allocation tool whose impact depends on deal structure, party sophistication, information sensitivity, and negotiation dynamics. For disclosing parties, such clauses offer meaningful protection against immaterial inaccuracies and business uncertainties, but they do not provide immunity from fraud, statutory violations, or wilful misrepresentation. For receiving parties, accepting such clauses without negotiation creates valuation risk, limits legal recourse, and weakens post-closing protections.

The strongest legal and commercial position is achieved through balanced negotiation: disclosing parties should use targeted disclaimers for forward-looking statements and business assumptions while maintaining accuracy standards for factual representations; receiving parties should insist on fraud carve-outs, conduct independent verification, and ensure that definitive agreements contain robust warranty and indemnity protections that supersede earlier NDA limitations. What matters is not whether a no-warranty clause in NDA provisions exists, but whether both parties understand and accept the commercial and legal consequences of the risk allocation it creates.

Disclaimer:
This article is for informational purposes only and does not constitute legal advice. Please consult a qualified legal professional for specific guidance.

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