Summary: The Supreme Court in its landmark ruling in Nagaraj V. Mylandla v. PI Opportunities Fund-I has charted out a clearer path for PE/ VC exits. It has held that a promoter responsible for providing exits to its investor cannot relitigate issues in an Indian court already decided by the seat court. By doing so, the court has formally embraced the doctrine of transnational issue estoppel.
Foreign investors in India have consistently flagged lengthy court dispute resolution processes as a significant structural barrier to investment, especially with regard to exits.[1] International arbitration was supposed to be a workaround that would provide investors with a faster route to a binding award. A time-efficient dispute resolution process, however, does not mean much if it is eventually going to be stuck in Indian courts at the enforcement stage. During this stage, recalcitrant parties routinely treat Indian courts as the appellate fora recycling the grounds and objections already decided by the seat court at the stage of challenge to the award.
Offering major relief to domestic and foreign investors, the Supreme Court in Nagaraj V. Mylandla v. PI Opportunities Fund-I [2026 INSC 298] (“Mylandla”), has adopted a firm and progressive view against such recycling of objections at the enforcement stage. The Supreme Court has, for the first time, applied the doctrine of ‘transnational issue estoppel’, for enforcing international arbitral awards. In doing so, the Court has shut the door on a familiar tactic, i.e., reagitating at the enforcement stage, challenges to factual and contractual findings that have already been tested and rejected by the seat court. The judgement has also clarified the difference between surrender and buy-back of shares and reiterated the narrow scope of public policy objection.
Exit Mechanism in Minority PE/ VC Deals
Virtually all minority PE/ VC investments are made on the premise of a defined exit. The shareholders’ agreements typically contain a set of chronological exit rights within a stipulated timeline – often beginning with an IPO, followed by a strategic sale, and a buy-back by the company as a matter of last resort.
In case none of these exits materialise within the agreed timelines, it would usually constitute an “event of default” or a “material breach” under the agreement. Most commonly, consequences of an event of default, among others, are put options requiring promoters to acquire the investors’ shares at a premium (subject to foreign exchange laws), or the right to initiate a drag-along process compelling a full exit.
In practice, however, these rights may not always be exercised in their pure form. A public dispute between an investor and a promoter carries its own costs. It depresses the company’s valuation, deters potential acquirers, unsettles management and key employees, and can trigger lender scrutiny or covenant breaches under financing documents. The parties, therefore, usually return to the negotiating table – extending the timelines, restructuring the exit, or exploring other workable solutions. It is only when negotiations completely collapse that the dispute resolution clause is invoked.[2]
The Deal and the Dispute
In 2014, Financial Software and Systems Private Limited (“FSSPL”) received an investment from venture capital investors (“Investors”) through a Share Acquisition and Share Holders Agreement.
The exit mechanism set out a classic waterfall. A qualified IPO (“QIPO”) was planned for March 2016. If unsuccessful, successive rights included a secondary sale at an agreed “exit price”, a company buy-back, an investor-initiated IPO, and ultimately a strategic sale or merger. Failure by FSSPL or its promoters (“Mylandlas”) to provide an exit would constitute a “material breach”, which in turn would trigger remedies such as strategic sale and buy-back.
The QIPO did not materialise. Secondary sale notices were issued in 2016 and reiterated in 2020 and 2021. Finally, investors issued material breach notices, termination-of-rights notices, and strategic sale notices simultaneously, and initiated a SIAC arbitration seated in Singapore.
The SIAC Arbitral Award
The arbitral tribunal, in its award in July 2024, ruled in favour of the investors and awarded them damages at the ‘exit price’. To avoid double recovery, investors offered to surrender their shares upon receipt of awarded damages. This pre-emptively neutralised any unjust enrichment or double recovery argument. The arbitral tribunal’s ruling was based on the reasoning that the definitive documents imposed an absolute obligation on FSSPL and its promoters to provide an exit to the investors and failure to fulfill this obligation would constitute a material breach.
Challenge before the Singapore High Court
Mylandlas challenged the award before the General Division of the High Court of Singapore. The grounds for challenge, inter alia, was violation of Indian law. Mylandlas submitted that paying damages to investors at the exit price, while they surrendered their shares would be akin to a buy-back. Mylandlas argued that the award effectively ensures a buy-back, which would violate the buy-back provisions under the Companies Act, 2013 (specifically the limitations imposed under the buy-back provisions). The Singapore High Court rejected the buy-back defence, stating it was merely an attempt to challenge the merits of the case, which was impermissible.
Enforcement Proceedings before Madras High Court
The investors moved the Madras High Court (“HC”) under Sections 47-49 of the Arbitration and Conciliation Act, 1996. Mylandlas opposed the award enforcement, raising the grounds they had raised before the Singapore High Court. The HC rejected Mylandlas’ submissions and held the award to be enforceable, deeming it a decree under Section 49 of the Act.
The HC distinguished ‘surrender’ of shares by an investor from ‘buy-back’ by a company under Sections 66 to 68 of the Companies Act, 2013. The HC observed that the award neither directed FSSPL to repurchase shares nor specified to whom the shares were to be surrendered.
Significantly, the HC invoked the doctrine of transnational issue estoppel to bar Mylandlas from reagitating issues already settled by the Singapore High Court.
The HC also imposed a cost of INR 25 lakh on Mylandlas (payable to each investor) for reagitating the case on merits to frustrate award enforcement.
Supreme Court’s Ruling: No Re-litigation at Enforcement Stage
Aggrieved by the HC’s ruling, Mylandlas filed an SLP before the Supreme Court. Mylandlas contended that the HC had erred in applying transnational issue estoppel to a public policy challenge.
The Supreme Court ruled that where an issue has been fully contested and clearly decided by the seat court, an award debtor cannot relitigate that issue before an enforcement court in India. The Court clarified that enforcement courts would still need to consider the challenge on the narrow ground of ‘violation of public policy of India’. However, the Court was quick to reiterate that contentions on merits of the dispute that have been rejected by the seat court cannot be relitigated in the guise of a public policy challenge before the enforcement court.
The Supreme Court affirmed the ruling of the HC and distinguished between buy-back and surrender of shares in the present case. The Court, applying the transnational issue estoppel, held that once the seat court had rejected Mylandlas’ objection, it cannot raise it again before the enforcement court.
The Court, adopting a firm stance, endorsed the costs imposed by HC and imposed further costs of INR 25 lakh per investor for the “mudslinging effort” before the Court.
Key Takeaways
The judgement validates carefully layered exit waterfalls. It endorses a reading that gives meaning to each remedy rather than collapsing them. The clause mandating written waivers ensured that investors’ participation in restructuring talks did not waive their right to pursue other remedies.
Transnational issue estoppel is now formally a part of the Indian enforcement regime. Where a seat court has upheld an award on merits, it cannot be challenged before the enforcement court except on the narrow ground of ‘public policy’, which again cannot be invoked as a means to reagitate merits.
Given the context of the issues concerning this case, Mylandla is not merely an arbitration law judgement. It is also a ruling that makes PE/VC exit clauses credible. An Indian promoter/ company that may have treated exit obligations as aspirational rather than binding have certainly been put to notice – the terms of the contract that provide an investor an exit need to be adhered to strictly. Should the contractual clauses be breached, there may be consequences in the form of a formal dispute resolution process, leading to a foreign award that may not take years of enforcement riddled with challenges at every stage. The Supreme Court has now plugged a common escape route by invoking transnational issue estoppel which prevents re-litigation of the same issues. For transactional lawyers drafting exit clauses, the practical takeaway seems clear: structure the exit remedy as damages at exit price with voluntary surrender of shares (if all else fails) and ensure that the dispute resolution mechanism provides for arbitration seated at a place with a robust arbitral regime. The Supreme Court has now confirmed that a seat court’s upholding of an award will preclude re-litigation of the same issues at the enforcement stage in India – making the end-to-end enforcement pathway more predictable than it has historically been.
[1] See Dixit, N. (2024, October 24). PE/VC: Evolution of the Exit available at https://www.legalbusinessonline.com/features/pevc-evolution-exit – “According to a 2023 report by the Indian Private Equity and Venture Capital Association (IVCA), approximately 15 percent of all private equity exits in India between 2018 and 2022 involved some form of dispute. This translates to roughly 75 disputed exits out of 500 total exits during this period. More alarmingly, the average duration of these disputes was 4.7 years, with some cases dragging on for over a decade.”
[2] For instance, the case of (a) Banyan Tree Growth Capital L.L.C. v. Axiom Cordages Limited, Commercial Arbitration Petitions No. 475 & 476 of 2019 [Bom HC] and (b) Nine Rivers Capital Limited v. Gokul Patnaik, 320 (2025) DLT 208.