How to Review a Share Subscription Agreement (SSA) in India

A Share Subscription Agreement (SSA) is the contract that moves money in exchange for shares. It is not the same document as a Shareholders Agreement (SHA), and treating the two as interchangeable is a common mistake. The SSA governs one event: the investor paying the subscription amount and the company allotting shares against it, with conditions precedent, representations, indemnity, and closing mechanics built around that transaction. The SHA governs what happens after: board seats, voting, transfer restrictions, exit. (This guide is published by Adira, which makes contract review and CLM software, a commercial interest in you understanding SSAs well, but it is written to stand on its own.) This piece walks through the major SSA clauses, the Companies Act and FEMA rules that make Indian closing mechanics non-negotiable, a red-flags table, a clause rewrite, and a checklist.

SSA vs SHA: two documents, two jobs

An SSA is transactional: it gets the money in and the shares allotted correctly, once, at Closing. After Closing, only indemnity and a few surviving terms still matter. An SHA is relational: it governs the ongoing relationship for as long as shares are held, board composition, reserved matters, drag-along, exit. Most Indian priced rounds sign both on the same day, the SSA closes the money, the SHA governs what follows. For the SHA-side checklist, including the gap between an SHA and the Articles of Association, see How to Review a Shareholders Agreement (SHA) in India.

Subscription amount and instrument

The SSA should fix the aggregate subscription amount and the price per security as numbers, not ranges or "as mutually agreed at Closing." The instrument matters as much as the price. Indian rounds almost always use Compulsorily Convertible Preference Shares (CCPS), sometimes Compulsorily Convertible Debentures (CCD), rarely plain equity. Under the Foreign Exchange Management (Non-Debt Instruments) Rules, 2019, only an instrument fully and mandatorily convertible into equity, with no optionality on the conversion ratio and no redemption feature, qualifies as an "equity instrument" eligible for India's automatic FDI route. An optionally convertible or redeemable preference share is treated as debt instead, pulling the deal into India's stricter External Commercial Borrowing framework. Check the instrument clause for "compulsorily and fully convertible" and a conversion formula stated as numbers.

Conditions precedent: what must be true before the money moves

The SSA gates the investor's obligation to pay, and the company's obligation to allot, behind conditions precedent (CPs): board and shareholder approvals, satisfactory diligence, no material adverse change, third-party consents, and, for a foreign round, FEMA compliance. Under Sections 31 and 32 of the Indian Contract Act, 1872, an obligation made contingent this way cannot be enforced "unless and until that event has happened." A CP list without a named responsible party and a long-stop date is the most common way an SSA drags on for months with no clean exit. Full mechanics, including the Supreme Court's Nathulal v Phoolchand ruling on a party that cannot blame the other side for its own unmet condition, are in Conditions Precedent, Explained. For an SSA specifically, check the CP list also names who obtains the FEMA valuation certificate.

Representations, warranties, and the disclosure schedule

The company, and often the founders personally, make representations: clean title to shares, no undisclosed litigation, tax compliance, accurate financials. A disclosure schedule carves out known exceptions. A fact accurately disclosed generally cannot later be the basis of a claim that the matching representation was false, an interaction with Section 19 of the Indian Contract Act, 1872, which voids a misrepresentation-induced contract unless the misled party "had the means of discovering the truth with ordinary diligence." Full mechanics, and the Avitel Post Studioz case on why a liability cap should not shield fraud, are in Representations vs Warranties in Indian Contracts. Check that every representation is cross-referenced to a dated schedule entry, not a single vague disclosure paragraph.

Indemnity: cap, basket, and survival

If a representation turns out false, the indemnity clause is what pays for it, bounded by a cap (usually a percentage of the subscription amount), a basket below which claims are not pursued, and a survival period after which a claim can no longer be brought. Fundamental representations, ownership of shares and authority to allot chief among them, are typically carved out of the general cap. Worked numbers on deductible versus tipping baskets, Section 28's question mark over very short survival periods, and the FEMA rule capping escrow holdbacks at 25% of consideration for up to 18 months on a cross-border deal, are in Indemnity Caps, Baskets and Survival in M&A (India).

Use of proceeds

An SSA commonly restricts how the company spends the subscription amount, tying it to a business plan the investor has seen, sometimes requiring consent before a material deviation. This is easy to treat as boilerplate, but it matters: a breach of a use-of-proceeds covenant is usually a standalone default, easier to prove than misrepresentation since it does not require showing the company lied at signing, only that it later spent outside the agreed plan. Vague drafting ("general corporate purposes") gives the covenant no teeth, since almost any spend fits. A specific, budget-referenced clause costs nothing to negotiate but changes what is enforceable later.

Closing mechanics: what has to happen, in order

Closing is a sequence, and Indian company law fixes hard deadlines regardless of what the SSA says. Once application money is received, Section 42(6) requires it be kept in a separate bank account, used only for adjustment against allotment or refund. The Registrar of Companies, Mumbai, fined a company and its directors a combined ₹45 lakh under Section 42(10) for failing to do this, a real illustration that it is enforced. The company then has sixty days from receipt to allot the securities; if it cannot, Section 42(6) requires a refund within fifteen more days, with interest at 12% per annum from the expiry of the sixtieth day if even that is missed. After allotment, two filings follow on their own clocks: a return of allotment in Form PAS-3 within 30 days under Section 39(4), read with Rule 12 of the Companies (Prospectus and Allotment of Securities) Rules, 2014 (default penalty ₹1,000 per day, capped at ₹1 lakh), and, for a non-resident investor, Form FC-GPR with the RBI within 30 days of allotment. Ctrl+F your SSA's closing schedule for these three deadlines and confirm it names who is responsible for each; "the Company shall comply with applicable law" assigns the job to no one.

The Indian position: Section 42 and the private placement ceiling

Most Indian SSAs execute a private placement, and Section 42 of the Companies Act, 2013 is the section that makes that classification hold. It defines private placement as:

"any offer of securities or invitation to subscribe securities to a select group of persons by a company (other than by way of public offer) through issue of a private placement offer letter" Source: Section 42, Companies Act, 2013 (Indian Kanoon)

Section 42(2) caps that group at 200 persons in aggregate in a financial year for each kind of security, excluding qualified institutional buyers and employees offered shares under an ESOP scheme under Section 62(1)(b). Cross that ceiling, or skip the section's conditions, and Section 42(4) does not just penalise the company, it reclassifies the transaction: "Any offer or invitation not in compliance with the provisions of this section shall be treated as a public offer and all provisions of this Act, and the Securities Contracts (Regulation) Act, 1956 ... and the Securities and Exchange Board of India Act, 1992 ... shall be required to be complied with."

The Supreme Court gave this doctrine its sharpest illustration in Sahara India Real Estate Corporation Ltd & Ors v SEBI & Anr, (2013) 1 SCC 1, decided 31 August 2012. Two Sahara Group companies raised roughly ₹17,400 crore through debentures issued to millions of investors, structured and labelled as a private placement. The Court held that an offer beyond the numerical threshold the law permits for a private placement is, in substance, a public issue however the document is labelled, triggering the full SEBI public-issue regime. The case was decided under the 1956 Act's parallel 49-person rule, but the doctrine, that labels do not override the numbers, is exactly why the 2013 Act tightened Section 42 as it did. See the full judgment.

A test you can run: count the investors named across your SSA and any linked side letters, across every class of security issued in the current financial year, and check that against 200, excluding QIBs and ESOP allottees. Across more than one round in the same year, the count is cumulative, not reset per round.

Red flags

Normal	Red flag	Why it matters
Instrument is CCPS or CCD, fully convertible, fixed formula	Optionally convertible, redeemable, or "instrument to be agreed"	Risks reclassification as debt under FEMA's ECB rules
Subscription amount and price stated as fixed numbers	"Approximately," price "to be finalised at Closing"	Core commercial term left unfixed at signing
CPs are specific, with a responsible party and long-stop date	"Customary conditions precedent," no long-stop date	Round can sit half-closed indefinitely
Every representation tied to a dated disclosure schedule entry	Single vague disclosure paragraph, or none	Nothing is actually carved out of the representations
Indemnity cap, basket, survival stated together; fundamentals carved out	Silent on cap or survival, or one cap for everything	Ownership and authority breaches get the weakest protection
Use of proceeds tied to a named budget	"General corporate purposes," no reference document	A misuse-of-funds breach becomes unprovable
Application money clause names a separate bank account	SSA silent on where money sits pending allotment	Section 42(6) violation regardless; real penalties exist
Closing schedule names who files PAS-3 and FC-GPR, and by when	"The Company shall comply with applicable law"	Both filings carry independent delay penalties
Investor count tracked against the 200-person ceiling	No mechanism to confirm the round stays under Section 42(2)	Sahara v SEBI shows the cost of a "private" round that is not
FEMA valuation obtained before price is fixed	Price agreed first, valuation arranged as a formality after	Pricing below fair value cannot be agreed around

Bad clause, better clause

Bad: "The Subscription Amount shall be utilised by the Company for general corporate purposes, including working capital, business development, and other purposes as the Board may determine from time to time."

What is wrong: "general corporate purposes" and "as the Board may determine" describe almost any spend. There is no reference document, so a use-of-proceeds breach is effectively unprovable even if the money is spent in a way the investor never agreed to.

Better: "The Subscription Amount shall be utilised solely in accordance with the business plan and budget at Schedule 4 (Business Plan). Any deviation exceeding 15% of the amount budgeted for a line item, in aggregate in any financial year, shall require the Investor's prior written consent. The Company shall provide a quarterly utilisation statement within 15 days of each quarter-end, reconciling actual spend against Schedule 4."

What changed: the covenant points to a named, dated schedule, sets a numeric deviation threshold, and creates a recurring reporting obligation that makes a breach visible in the ordinary course rather than only discoverable later.

SSA review checklist

1. Is the instrument compulsorily and fully convertible (CCPS or CCD), with a fixed conversion formula?
2. Are the subscription amount and price per security fixed numbers?
3. Does the CP list name a responsible party for each item and a hard long-stop date?
4. Is every representation cross-referenced to a specific, dated disclosure schedule entry?
5. Are indemnity cap, basket type, and survival period stated together, fundamentals carved out?
6. Is use of proceeds tied to a named budget, with a numeric deviation threshold?
7. Does the SSA name a separate bank account for application money, per Section 42(6)?
8. Does the closing schedule assign responsibility for PAS-3 (30 days) and FC-GPR (30 days)?
9. Has the investor count for the financial year been checked against the Section 42(2) ceiling of 200?
10. For a non-resident investor, was a FEMA valuation certificate obtained before the price was fixed?

Run this checklist against a draft SSA clause by clause, for free, in Weave, before it goes back for negotiation or to a lawyer for a final check. For related clauses in full, see Conditions Precedent, Representations vs Warranties, and Indemnity Caps, Baskets and Survival.

US and global contrast

A US stock purchase agreement plays a similar role: closing conditions, representations with a disclosure schedule, an indemnity with a cap and survival period. Two things differ sharply. US rounds using plain preferred stock face no equivalent to India's compulsory-convertibility test; a redeemable preferred share is just preferred stock, not a candidate for reclassification as debt. And US private placements run under Regulation D's numerical thresholds, conceptually similar to Section 42's 200-person ceiling, but missing it is not litigated with the centrality the Sahara doctrine has given the issue in India. A US-style SSA dropped into an Indian round without FEMA-compliant instrument language, the separate bank account rule, and the private placement ceiling will read as complete while missing what Indian law actually enforces.

FAQ

What is the difference between an SSA and an SHA? An SSA governs the one-time event of the investor paying the subscription amount and the company allotting shares, conditions precedent, representations, indemnity, closing mechanics. An SHA governs the ongoing relationship afterward, board seats, voting, exit. Most priced rounds sign both.

Can an SSA use plain equity shares instead of CCPS? It can, but for a non-resident investor this risks the investment being treated as something other than a straightforward equity instrument unless the conversion or redemption terms are fully and compulsorily convertible under FEMA's Non-Debt Instruments Rules. Most Indian venture rounds use CCPS to avoid the question.

What happens if the company cannot allot shares within 60 days of receiving the money? Under Section 42(6) of the Companies Act, 2013, the company must refund the application money within 15 days of that 60-day period ending, and pay interest at 12% per annum from the expiry of the sixtieth day if even the refund is delayed.

Is there a limit on how many investors can subscribe under one SSA round? Section 42(2) caps a private placement at 200 persons in aggregate in a financial year for each kind of security, excluding QIBs and ESOP allottees. Sahara India Real Estate Corp v SEBI shows what happens when a round exceeds those limits in substance, regardless of what the documents call it.

Do foreign investors need any special approval beyond the SSA itself? Typically yes. Pricing must meet the fair-value standard under Rule 21 of the FEMA (Non-Debt Instruments) Rules, 2019, certified by a Chartered Accountant, SEBI-registered merchant banker, or a practising Cost Accountant, and the company must report the allotment to the RBI on Form FC-GPR within 30 days.

Does the SSA or the disclosure schedule control if they conflict? Properly drafted, they should not conflict; the schedule narrows what counts as a false representation rather than overriding the SSA's other terms. A fact accurately disclosed generally cannot alone be the basis of a later misrepresentation claim on the matching representation.

This guide gets you to a working understanding of what an SSA contains and the Companies Act and FEMA deadlines that apply regardless of what the document says. It does not tell you whether your specific CP list, indemnity cap, or FEMA valuation will hold up if tested, that depends on the exact drafting and the facts of your round, and is not legal advice. Talk to a corporate lawyer before you sign, negotiate, or rely on an SSA in a live transaction.