A European manufacturing group signs a term sheet with an Indian mid-market target. The deal looks clean on the surface – audited accounts, a capable management team, and a growing order book. Eight weeks into due diligence, the team discovers that three core production licences are registered in the name of a founding director personally, not in the company. The acquisition price does not move. The closing timeline extends by four months. The acquirer absorbs legal costs that were never budgeted. This scenario is not unusual. India's regulatory environment is multi-layered, its corporate legislation is detailed, and the gaps between what a target presents and what the documents actually show can be wide.
M&A due diligence in India requires a structured review of corporate, regulatory, tax, employment, and intellectual property matters under Indian corporate legislation, including the Companies Act 2013 (India's primary company law statute). Foreign acquirers must also assess compliance with foreign exchange rules administered by the Reserve Bank of India (RBI) and, where the target is listed, rules enforced by the Securities and Exchange Board of India (SEBI). A thorough process typically runs four to twelve weeks and is the foundation on which the share purchase agreement (SPA) – the binding acquisition contract – is negotiated and finalised.
This guide walks through each stage of the due diligence process, identifies the documentary requirements at every step. Flags the errors that foreign acquirers consistently make in Indian transactions. Additionally, provides a decision checklist for structuring the exercise to fit your specific deal scenario.
Why India's regulatory environment shapes the due diligence agenda
India operates a federal legal system. Corporate governance is governed primarily by Indian corporate legislation. Sector-specific activities – banking, insurance, defence, broadcasting, pharmaceuticals – attract additional licensing requirements under separate regulatory regimes. Foreign investment flows through a framework administered by the RBI and, in certain sectors, through government approval routes. Each of these layers generates documents, filings, and potential compliance gaps that due diligence must surface before closing.
Indian corporate legislation requires companies to file returns with the Registrar of Companies (RoC) – the public registry maintained under the Ministry of Corporate Affairs. Those filings are publicly searchable and provide the baseline for any corporate due diligence exercise. However, what the RoC record shows and what the company's internal records contain are frequently different. Directors may have changed without timely filing. Charges over assets may have been created and not registered. Share transfers may not reflect the current cap table accurately.
Where the target is a listed company, SEBI's disclosure and takeover rules add another layer. Acquisitions crossing defined ownership thresholds trigger open offer obligations. Foreign acquirers unaware of these thresholds have found themselves in mandatory open offer territory without having planned for the associated cost or timeline. SEBI's enforcement posture has become significantly more active in recent years, making pre-signing regulatory mapping essential.
The National Company Law Tribunal (NCLT) – India's specialist corporate court – has jurisdiction over mergers, amalgamations, and insolvency proceedings. If the target or any affiliate has been the subject of NCLT proceedings, those records are part of the due diligence scope. Practitioners in India note that NCLT-cleared restructurings sometimes leave residual contingent liabilities that do not appear on the balance sheet but bind successor entities.
For cross-border transactions, the RBI's foreign exchange rules determine the permissible ownership structure, the price at which shares may be transferred, and the method of remittance. Pricing must comply with the valuation methodology prescribed under foreign exchange legislation. A transfer priced outside that band – even by a small margin – can render the acquisition non-compliant, potentially blocking dividend repatriation or future share transfers. This is one of the most frequently underestimated risks in inbound India M&A.
Understanding this multi-layered environment before opening the data room is not optional. It determines which workstreams to prioritise, which third-party searches to commission, and how much time to build into the schedule. For a comparative perspective on due diligence processes in other high-growth markets, our guide on M&A due diligence in the UAE outlines a similarly structured approach for that jurisdiction.
Step-by-step: the due diligence process from kick-off to SPA negotiation
Due diligence in India follows a broadly recognisable international sequence, but each step carries India-specific content requirements. The following breakdown reflects standard practice for a privately held Indian target acquired by a foreign buyer.
Step 1 – Scoping and request list (weeks 1–2). Before the data room opens, the acquirer's legal team prepares a due diligence request list tailored to the target's sector and structure. A generic international request list is not sufficient. It must address Indian corporate legislation filings, sector licences, RBI compliance history, employee provident fund and gratuity obligations, and pending litigation before Indian courts and tribunals. The request list is negotiated with the target and sets the pace for the entire exercise.
Step 2 – Corporate and ownership review (weeks 2–4). The first documents to analyse are the constitutional documents – the memorandum and articles of association (the Indian equivalent of the articles of incorporation) – and the statutory registers. These registers must reflect every share issuance, transfer, and pledge. Practitioners in India consistently flag discrepancies between the statutory register and the actual cap table as one of the most common defects in mid-market targets. Any pre-emptive rights, drag-along provisions, or tag-along rights embedded in existing shareholder agreements must be mapped and resolved before the SPA is signed.
Step 3 – Regulatory and licence review (weeks 2–5). Every material licence, permit, and approval held by the target is catalogued. The critical question is not merely whether the licence exists but whether it is transferable on a change of control. Many Indian sector licences – particularly in infrastructure, telecoms, and pharmaceuticals – contain change-of-control clauses that require the regulator's prior consent. Failure to obtain that consent before closing can result in the licence lapsing immediately upon completion of the acquisition.
Step 4 – Financial and tax due diligence (weeks 3–6). This workstream runs in parallel with legal review. Indian tax legislation is a standalone area requiring specialist input. Key issues include carried-forward losses and their transferability, pending tax assessments, transfer pricing exposure on related-party transactions, and goods and services tax compliance. Indian tax authorities have broad powers to reopen assessments for several years after filing. Creating contingent liability exposure that must be reflected in the representations and warranties in the SPA and. There, warranted, in a price adjustment mechanism.
Step 5 – Employment and labour review (weeks 3–5). Indian employment legislation is layered across central and state-level statutes. Due diligence must cover the target's workforce headcount and classification, the existence of recognised trade unions, pending labour disputes before relevant tribunals, and compliance with provident fund, gratuity, and employee state insurance obligations. Underfunded gratuity liabilities are a recurring finding. They are not always visible on audited accounts and can represent a material financial exposure for an acquirer.
Step 6 – Intellectual property review (weeks 3–5). IP ownership in Indian targets is frequently less tidy than the target represents. Software developed by employees or contractors may not have been formally assigned to the company. Trademark registrations may be in the name of a founder. Domain names may be registered personally. Each of these defects needs to be remedied – through formal assignments or confirmatory deeds – either before closing or through closing conditions embedded in the SPA.
Step 7 – Litigation and dispute review (weeks 4–6). A search of NCLT records, High Court records, and consumer forum filings provides the litigation picture. Indian litigation timelines are long. A dispute filed a decade ago may still be active. The acquirer must assess not just financial exposure but the management time and reputational risk associated with inherited disputes. Where the target operates in regulated sectors, pending proceedings before SEBI or sector-specific regulators must also be reviewed.
Step 8 – Due diligence report and SPA negotiation (weeks 6–12). The legal team consolidates findings into a due diligence report, which forms the basis for SPA negotiation. Material findings are translated into specific representations and warranties, closing conditions, and, where risks cannot be quantified precisely, price adjustment mechanisms or escrow arrangements. The SPA under Indian law is typically governed by Indian contract legislation. Though parties sometimes agree to English or Singapore law for the dispute resolution provisions. with arbitration administered under the rules of an international body and seated in a neutral location.
To explore how our firm structures M&A mandates across the full transaction cycle in India, visit our dedicated page on M&A transactions in India.
To receive an expert assessment of your due diligence scope and timeline for an Indian acquisition, contact us at info@ferrazwhitmore.com.
Documentary checklist: what to request and what to verify
A rigorous due diligence request list for an Indian target covers the following categories. This is not an exhaustive list but identifies the documents that most frequently reveal material issues.
Corporate and constitutional documents:
- Certificate of incorporation and all amendments to the memorandum and articles of association
- Statutory registers – members, directors, charges, and share transfers
- Board and shareholder resolutions for the preceding five years
- All existing shareholder agreements, investment agreements, and side letters
- Cap table certified by the company secretary, cross-referenced against RoC filings
Regulatory and licensing documents:
- All material licences, permits, and approvals – with expiry dates and renewal history
- Any correspondence with SEBI, the RBI, or sector regulators in the preceding three years
- Foreign investment approvals and FIPB or government route approvals where applicable
- Environmental clearances and pollution control consents for industrial targets
- Change-of-control provisions extracted from each material licence
Financial and tax documents:
- Audited financial statements for the preceding three years, with auditor's notes
- Tax returns, tax assessment orders, and any pending notices from tax authorities
- Transfer pricing documentation for all related-party transactions
- GST registration certificates and compliance history
- All loan agreements, security documents, and outstanding charges registered with the RoC
Employment documents:
- Complete employee list with classification – permanent, contractual, and third-party payroll
- Provident fund and employee state insurance registration and compliance certificates
- Gratuity fund actuarial valuation or provisioning methodology
- All pending or threatened labour disputes and tribunal proceedings
- Key employee contracts and non-compete obligations
Intellectual property documents:
- IP ownership register – patents, trademarks, copyrights, and domain names, with ownership verified against registry records
- IP assignment agreements from founders, employees, and contractors
- All technology licences – inbound and outbound – with change-of-control provisions identified
Litigation and dispute documents:
- All pending and threatened litigation, arbitration, and regulatory proceedings
- NCLT filings and orders affecting the target or any group entity
- Any settlement agreements entered into during the preceding five years
A common error is to accept the target's self-prepared summary of licences and litigation rather than verifying against primary sources. Third-party searches – RoC charge searches, court record searches, and trademark registry verifications – are essential and should be commissioned independently of the target's representations.
Common errors by foreign acquirers and how to avoid them
Foreign buyers entering the Indian market for the first time make a recognisable set of errors. Understanding these in advance reduces both cost and timeline.
Treating due diligence as a checklist exercise rather than an investigative one. Indian targets are frequently well-prepared for foreign interest. Data rooms are organised and presented attractively. The acquirer's role is not to accept what is provided but to identify what is absent. Missing documents – particularly historical RoC filings, lapsed licences, and unregistered charges – are as informative as the documents that are present. Practitioners in India note that the most material findings often come from third-party searches, not from the data room itself.
Underestimating the RBI compliance dimension. Every inbound foreign investment into an Indian company is subject to foreign exchange legislation administered by the RBI. The target's compliance history under this regime – reporting of past foreign investment rounds, filings for prior share transfers, and adherence to pricing norms – must be verified. Non-compliances are common, particularly in early-stage targets that received informal investment from the Indian diaspora. These historic non-compliances require compounding applications to the RBI, which adds time and cost to the closing process.
Misreading the SPA representations and warranties regime. International buyers accustomed to US or English law warranty and indemnity structures sometimes assume equivalent protection is available in India. In practice, warranty and indemnity insurance for Indian targets is available but priced at a premium. Negotiating comprehensive representations and warranties in the SPA – including tax indemnities, regulatory compliance warranties, and IP ownership warranties – remains the primary protection mechanism. These must be drafted with India-specific knowledge of what is litigable and what is not.
Ignoring state-level compliance. Indian corporate legislation operates at the federal level. However, a range of compliance obligations. shops and establishments registrations. Labour welfare fund contributions, professional tax. Additionally, certain environmental consents. are administered at the state level. A target operating across multiple Indian states has multiple state-level compliance profiles. Foreign acquirers focused on federal-level due diligence often miss state-level gaps that create post-closing liability.
Failing to plan for NCLT approval timelines. Mergers and amalgamations structured under Indian corporate legislation require NCLT approval. The NCLT process – involving filing, advertisement, creditor and shareholder meetings, and a final order – typically takes six to twelve months. Acquirers who structure a deal as a merger without building this timeline into their business plan find themselves unable to access the target's operations for far longer than anticipated. Share acquisitions avoid the NCLT route but carry different structural considerations, which must be assessed at the outset.
Neglecting dispute resolution planning. The Arbitration and Conciliation Act (India's primary arbitration legislation, aligned in significant part with the UNCITRAL Model Law) allows parties to agree on international arbitration seated outside India. Despite this, many SPA dispute resolution clauses in India-related transactions default to Indian courts without careful analysis of enforceability and timeline. Courts in India provide effective relief in many commercial matters, but arbitration – particularly with a Singapore or London seat – is frequently preferable for international acquirers seeking a more predictable timeline and enforcement route. Planning the dispute resolution clause is part of due diligence, not an afterthought.
For a broader view of corporate structuring options available to foreign investors in India, our overview of corporate law in India covers the principal entry vehicles and their respective compliance obligations.
For a tailored strategy on structuring your due diligence and SPA negotiation for an Indian acquisition, reach out to info@ferrazwhitmore.com.
Self-assessment checklist: is your due diligence process fit for purpose?
This checklist is designed to help foreign acquirers assess whether their planned due diligence process addresses the India-specific risk profile of the transaction.
This due diligence approach is appropriate if:
- The target is a privately held Indian company with a single operating entity and no listed affiliates
- The sector is not subject to SEBI oversight, sector-specific licensing, or government approval for foreign investment
- The transaction is structured as a share acquisition, not a merger or amalgamation requiring NCLT approval
- The target's foreign investment history is documented and RBI-compliant
- The acquirer has engaged Indian legal counsel alongside international M&A advisers
Before opening the data room, verify:
- RoC filings are current and consistent with the cap table provided by the target
- A third-party charge search has been commissioned independently
- All material licences have been reviewed for change-of-control provisions
- The foreign investment pricing compliance methodology is confirmed with RBI-specialist counsel
- NCLT records have been searched for the target and all group entities
Consider expanding the due diligence scope or restructuring the transaction if:
- The target has received foreign investment rounds with incomplete RBI filings
- Core licences contain change-of-control provisions requiring regulator consent
- Pending tax assessments involve material transfer pricing adjustments
- The target has underfunded gratuity liabilities or unresolved labour disputes
- IP ownership rests partly or wholly with individual founders rather than the company
The process should shift from share acquisition to asset acquisition if:
- Historic RoC and regulatory non-compliances are too numerous to remediate before closing
- Contingent liabilities from inherited litigation exceed acceptable thresholds
- The target carries undisclosed encumbrances on its primary operating assets
These triggers are not absolute – every deal has its own risk tolerance and commercial logic. But identifying them early is what separates a controlled process from a costly one.
Frequently asked questions
Q: How long does M&A due diligence typically take in India?
A: A focused legal due diligence exercise for a mid-market Indian target usually runs four to eight weeks from the date the data room opens. Complex targets – those with multiple subsidiaries, pending regulatory approvals, or SEBI-regulated activities – can extend the process to three months or more. Timeline depends heavily on how promptly the target provides complete documentation and responds to information requests.
Q: Can a foreign acquirer complete the due diligence process without an Indian lawyer?
A: A common misconception is that international legal counsel can manage Indian due diligence independently. In practice, Indian corporate legislation, foreign exchange rules administered by the RBI, and sector-specific licensing requirements demand local legal expertise. Relying solely on offshore counsel frequently results in missed compliance gaps that surface after closing – and can invalidate the transaction structure.
Q: What are the typical legal costs for due diligence on an Indian target?
A: Legal fees for due diligence in India generally start in the range of tens of thousands of US dollars for a focused single-entity review and can reach several hundred thousand dollars for a multi-entity or regulated-sector target. Government filing fees and stamp duty obligations are determined by the transaction structure and the state in which the target is incorporated or holds assets. Engaging a lawyer in India with cross-border M&A experience early in the process helps scope the work accurately and avoids cost escalation.
About Ferraz & Whitmore
Ferraz & Whitmore is an international law firm based in Lisbon, advising business clients across 46 jurisdictions. Our team combines Portuguese civil law expertise with English common law tradition to deliver cross-border legal solutions in M&A transactions. This includes due diligence. SPA negotiation. Additionally, post-closing integration for inbound and outbound deals involving Indian targets and acquirers. As an international law firm in India-related transactions, we work alongside local Indian counsel to provide a seamlessly coordinated service across corporate, regulatory, tax, and employment workstreams. Our M&A practice covers transactions across Asia-Pacific, the Middle East, and European markets, supported by practitioners with experience before international arbitral bodies including the ICC and SIAC. The firm's Lisbon base provides direct access to EU regulatory and capital markets, while our common law expertise supports arbitration and enforcement strategies in English-speaking and common law jurisdictions. We work with international entrepreneurs, institutional investors, and in-house legal teams who need results-oriented counsel across multiple legal systems. To discuss your India acquisition and how we can support the due diligence process, contact us at info@ferrazwhitmore.com.
Disclaimer: This publication is provided for informational purposes only and does not constitute legal advice. The information herein should not be relied upon as a substitute for professional legal counsel tailored to your specific circumstances. Ferraz & Whitmore assumes no liability for actions taken or not taken based on the contents of this material. For advice regarding your particular situation, please contact info@ferrazwhitmore.com.