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CS Professional · Drafting, Pleadings and Appearances · General Principles of Drafting

In a draft shareholders' agreement for Narmada Infra Ltd, a clause reads: 'The Investor may nominate directors and observers.' The parties intended directors to be nominated only if the Investor holds at least 10% shares, while observers could be nominated regardless. Which drafting defect is most likely to arise from the clause as written, and how is it best cured?

The defect is ambiguity about how far a condition or modifier extends over the two rights. It is cured by drafting directors and observers in separate sub-clauses, attaching the 10% shareholding condition only to the director nomination right.

  1. AAmbiguity from a modifier's uncertain reach; split the clause into separate sentences or sub-clauses stating the condition for directors onlyCorrect
  2. BRedundancy; delete the word 'observers'
  3. CInconsistency of tense; rewrite in past tense
  4. DExcess definition; remove all conditions

Explanation

As written, it is unclear whether the shareholding condition (once added) governs both directors and observers. The cure is to separate the two rights into distinct sub-clauses so each carries its own condition. Deleting observers or changing tense would defeat the intention or fix nothing.

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