General structuring of financing

Choice of law

What territory’s law typically governs the transaction agreements? Will courts in your jurisdiction recognise a choice of foreign law or a judgment from a foreign jurisdiction?

Finance documentation for acquisition finance raised by an Indian borrower from Indian banks and financial institutions is governed by Indian law. Documents in relation to the issue of non-convertible debentures (NCDs) by an Indian company are governed by Indian law. Agreements for acquisition finance raised by a borrower located outside India are typically governed by English law. Security and guarantee documents are generally governed by the law of the jurisdiction where the assets or the guarantors are located.

Indian courts generally uphold the choice of the parties to have an agreement governed by foreign law unless the Indian courts believe that the choice of foreign law is not bona fide or if the application of foreign law is opposed to the public policy of India. Foreign law would have to be proved as a matter of fact in an Indian court by leading expert evidence of foreign legal counsel.

Under the provisions of the Code of Civil Procedure, 1908 (CPC), a foreign judgment is conclusive as to any matter directly adjudicated upon in such a decree, barring certain exceptions. If a foreign judgment is in the nature of a money decree and is passed by a ‘superior court’ of a ‘reciprocating territory’, then such a decree can be filed with an Indian court and would be enforceable as a decree of an Indian court. Certain territories (such as the United Kingdom) have been designated ‘reciprocating territories’ and certain courts in those territories have been designated as ‘superior courts’ by the Indian government (such as the House of Lords, the Court of Appeal and the High Court in England).

Where the judgment is not a money decree (such as an injunction or an order for specific performance), a fresh suit will have to be filed in a competent Indian court where the foreign judgment will be admitted only as evidence.

Restrictions on cross-border acquisitions and lending

Does the legal and regulatory regime in your jurisdiction restrict acquisitions by foreign entities? Are there any restrictions on cross-border lending?

India is an exchange-controlled regime and investment by offshore entities in India is regulated by the Foreign Exchange Management Act 1999 (FEMA), framing the rules and regulations, together with the government’s foreign direct investment (FDI) policy.

Any FDI in an Indian company will need to comply with the sectoral investment caps, pricing guidelines and specific conditions, if any, related to the sector in which FDI is proposed to be made. If such requirements are not met, then the approval of the relevant government department may be required.

Any loans or credit facilities by a foreign lender to an Indian borrower are governed by the FEMA. A foreign lender can provide debt to an Indian company via the following routes:

  • provide term loans or subscribe to bonds known as external commercial borrowings (ECBs), which are governed by the guidelines (ECB Guidelines) and directions issued by the Reserve Bank of India (RBI); or
  • subscribe to rupee-denominated NCDs issued to foreign portfolio investors (FPI) registered with the Securities and Exchange Board of India (SEBI) under the SEBI (Foreign Portfolio Investors) Regulations 2014 (FPI Regulations).

The ECB Guidelines stipulate provisions on various matters that need to be considered by a foreign lender when lending to an Indian borrower under the relevant options. Among other things, the ECB Guidelines regulate:

  • the sources from where Indian entities can raise ECBs;
  • the type of Indian entities that can borrow;
  • the average maturity and quantum of the ECB;
  • the purpose for which an ECB can be used;
  • the maximum interest and fees payable in relation to an ECB; and
  • the type of security and procedure for security creation.

NCDs may be listed on the wholesale debt market segments of stock exchanges or may be unlisted. Such NCDs are required to have minimum maturity or duration of one year at the time of investment by the FPI. Any investment by an FPI in NCDs will need to comply with the concentration limits and single or group investor-wise limit prescribed by RBI. It should be noted that investment by any FPI, including investments by related FPIs, shall not exceed 50 per cent of any issue of NCDs. In the case that an FPI, including related FPIs, has invested in more than 50 per cent of any single issue, it is not permitted to make further investments in that issue until this requirement is met. Further, FPIs cannot invest in partly-paid NCDs.

Types of debt

What are the typical debt components of acquisition financing in your jurisdiction? Does acquisition financing typically include subordinated debt or just senior debt?

Acquisition financing typically includes senior debt from the lenders and subordinate debt and equity infusion in the acquirer by the sponsors.

Certain funds

Are there rules requiring certainty of financing for acquisitions of public companies? Have ‘certain funds’ provisions become market practice in other transactions where not required?

If an acquisition of shares, voting rights or control of an Indian listed company triggers a requirement of making a mandatory open offer by the acquirer under the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations 2011 (Takeover Regulations), then the acquirer is required to fund an escrow account with the requisite funds in accordance with the Takeover Regulations. Such requirement can be funded in the form of cash deposited in the escrow account, a bank guarantee issued in favour of the manager to the offer by any scheduled commercial bank or the deposit of frequently traded and freely transferable securities with appropriate margin. If the escrow account is to be funded by financing obtained by the acquirer, then the manager to the offer must be satisfied that the financing is available.

In some cases, Indian sellers expect bidders to demonstrate binding funding commitments before choosing a winning bidder and entering into definitive documentation. Further, in case of acquisition of a corporate debtor undergoing a corporate insolvency resolution process under the Insolvency and Bankruptcy Code 2016 (IBC), the committee of creditors expects the acquirer to demonstrate that funding arrangements are tied up before approving its resolution plan. Very recently, it has been prescribed that upon approval of a resolution plan by the committee of creditors, resolution applicants must provide a performance security within the time specified in the request for the resolution plan, and such performance security will be forfeited if the resolution applicant of such plan, after its approval by the National Company Law Tribunal, fails to implement or contributes to the failure of implementation of that plan in accordance with the terms of the plan and its implementation schedule. The nature, value, duration and source of such performance security will be prescribed by the committee of creditors in light of the nature of the resolution plan and business of the corporate debtor.

Restrictions on use of proceeds

Are there any restrictions on the borrower’s use of proceeds from loans or debt securities?

The proceeds of an ECB cannot be used for financing the acquisition of shares of an Indian company

The proceeds of NCDs issued on a private placement basis can be used for equity investments. The proceeds of unlisted NCDs cannot be used for capital market investments. Further, the proceeds of a public issue of listed NCDs cannot be used for the acquisition of shares of any person who is part of the same group or who is under the same management.

RBI guidelines restrict an Indian bank’s ability to finance the acquisition of equity shares. In general, a promoter’s contribution towards equity cannot be funded by a bank and banks cannot finance the acquisition of equity shares, save for exceptional cases.

The restrictions on acquisition finance have led to the establishment of offshore lending mechanisms in which special-purpose vehicles (SPVs) are set up outside India to raise funds offshore for making acquisitions in India.

Licensing requirements for financing

What are the licensing requirements for financial institutions to provide financing to a company organised in your jurisdiction?

Indian banks and non-banking financial companies (NBFCs) are required to be registered with the RBI. A foreign lender providing an ECB to an Indian borrower does not need to obtain any licence in India to lend to the Indian borrower. However, an ECB can only be extended by a lender who is a resident of:

  • a country that is a member of the Financial Action Task Force (FATF) or a member of an FATF-Style Regional Body; and should not be a country identified in the public statement of the FATF as:
    • a jurisdiction having strategic Anti-Money Laundering or Combating the Financing of Terrorism deficiencies to which countermeasures apply; or
    • a jurisdiction that has not made sufficient progress in addressing the deficiencies or has not committed to an action plan developed with the Financial Action Task Force to address the deficiencies; or
  • a country whose securities market regulator is a signatory to the International Organization of Securities Commission’s (IOSCO) Multilateral Memorandum of Understanding (Appendix A Signatories) or a signatory to a bilateral Memorandum of Understanding with the SEBI for information-sharing arrangements.

Further, the following are also recognised lenders under the ECB Guidelines:

  • multilateral and regional financial institutions of which India is a member;
  • individuals provided they are foreign equity holders and for subscription to bonds or debentures listed offshore;
  • individuals provided they are subscribing to bonds or debentures listed offshore; and
  • foreign branches of Indian banks (only for foreign currency-denominated ECBs).

Offshore entities must be registered as FPIs with SEBI under the FPI Regulations in order to invest in listed or unlisted NCDs issued by Indian companies.

Acquisition financing can also be provided by domestic mutual funds and alternative investment funds by subscribing to NCDs or optionally convertible debentures. Mutual funds and alternative investment funds must be registered with SEBI.

Withholding tax on debt repayments

Are principal or interest payments or other fees related to indebtedness subject to withholding tax? Is the borrower responsible for withholding tax? Must the borrower indemnify the lenders for such taxes?

The borrower is responsible to withhold tax on interest payments in relation to ECBs and NCDs. Currently, the applicable rate of such withholding tax is 5 per cent, subject to satisfaction of certain conditions. This tax is withheld from the interest payable to the lender and deposited on the lender’s behalf with the government. However, the act of withholding the tax is an obligation of the borrower, who is also required to issue a certificate as evidence of the same. The lender can take the credit of the tax withheld on interest to meet its tax liabilities in the country of residence.

Typically, tax indemnity provisions are included in the acquisition finance documents. However, it should be noted that any indemnity payment by an Indian borrower to a lender outside India needs prior RBI approval.

Restrictions on interest

Are there usury laws or other rules limiting the amount of interest that can be charged?

The ECB Guidelines provide for a cap on interest and other costs and expenses that can be charged in relation to an ECB.

The NCD route offers greater flexibility on payment of interest to NCD holders, as there are no interest rate caps for privately placed NCDs.


What kind of indemnities would customarily be provided by the borrower to lenders in connection with a financing?

The borrower will usually provide indemnities to lenders on matters such as tax, stamp duty, loss to finance parties pursuant to events of default, costs and expenses in relation to the transaction, amendments to the documentation and enforcement and preservation of security. Transaction specific indemnities may also be included based on the due-diligence findings. Specific tax indemnities have also become the norm under financing documentation, especially when any security is provided to secure the credit.

Assigning debt interests among lenders

Can interests in debt be freely assigned among lenders?

ECBs can be assigned to a recognised lender under the ECB Guidelines subject to obtaining a ‘no’ objection from an authorised dealer bank in India.

NCDs are more freely transferable and can be transferred by an FPI to another FPI provided the residual maturity criteria, the concentration limits and single or group investor-wise limits as prescribed by RBI are met, or to an Indian resident. There has been a recent statement from the RBI on relaxing the single or group investor-wise limits and amendments to this effect are expected shortly.

Assignment of debt between domestic banks and NBFCs is regulated by the RBI. The RBI has prescribed guidelines on assignments, including the amount of debt that can be assigned and the minimum tenure for which the debt must be held by the assignor.

Stamp duty implications also need to be considered when assigning the debt and the form in which it is assigned.

Requirements to act as agent or trustee

Do rules in your jurisdiction govern whether an entity can act as an administrative agent, trustee or collateral agent?

Typically, security is created in favour of a security trustee for loan transactions and in favour of debenture trustee in relation to NCDs. A debenture trustee has to meet the eligibility criteria under the Companies Act 2013 (Companies Act) and obtain a registration under the SEBI (Debenture Trustees) Regulations 1993.

Debt buy-backs

May a borrower or financial sponsor conduct a debt buy-back?

Where the debt is in the form of an ECB, the debt cannot be prepaid by the borrower unless the minimum average maturity on the ECB (required under the ECB Guidelines) has been met. Any prepayment of the ECB prior to that period will need prior RBI approval. The call and put option, if any, in relation to an ECB cannot be exercisable prior to completion of minimum average maturity. It may, however, be possible to transfer the ECB to a foreign equity holder (holding at least 25 per cent equity directly or 51 per cent equity indirectly, or a group company with common overseas parent) of the Indian borrower.

Where the debt is in the form of rupee loans from NBFCs or banks, the same can be prepaid by the borrower subject to the terms agreed in the loan documentation with the borrower.

Where the debt is in the form of NCDs, then the terms of the NCDs can provide for call options pursuant to which the issuer is able to buy back the NCDs subject to certain terms. However, where NCDs are held by an FPI, they cannot be bought back until the minimum maturity of one year of the NCD is completed. Any buyback of the NCDs held by the FPIs prior to expiry of that period will need regulatory approval. Bilateral put or call options between the NCD holders and promoters of an issuer are also possible, subject to compliance with certain conditions imposed by SEBI.

Exit consents

Is it permissible in a buy-back to solicit a majority of lenders to agree to amend covenants in the outstanding debt agreements?

Yes. Generally, the credit documentation will clearly specify the terms that require the approval of the majority, super majority or unanimous approval of the lenders. If the covenants to be amended relate to maturity of the debt, interest payments or end uses, then, depending on the type of debt, certain regulatory approvals may be needed. Further, certain amendments maybe considered as ‘restructuring’ for Indian banks and require Indian banks to have higher provisions against those loans.

Guarantees and collateral

Related company guarantees

Are there restrictions on the provision of related company guarantees? Are there any limitations on the ability of foreign-registered related companies to provide guarantees?

Under the Companies Act 2013, a shareholder’s approval (by way of special resolution) is required for an Indian company to provide any guarantee or security if certain prescribed thresholds (in terms of paid-up capital and free reserves) are exceeded. However, this approval is not required if the guarantee or security is being provided for a financing mechanism utilised by the company’s wholly owned subsidiary or joint venture.

Further, under the Companies Act 2013, a company (lending company) cannot give loans, provide security or extend any guarantee to or on behalf of any other company in which the directors of the lending company are interested or control a certain percentage of voting rights unless such a loan, guarantee or security falls within the exemptions prescribed under the Companies Act 2013. Certain exceptions to this rule are:

  • for any guarantee given or security provided by a holding company in respect of any loan made to its wholly owned subsidiary if those loans are utilised by the wholly owned subsidiary for its principal business activities;
  • for any guarantee given or security provided by a holding company in respect of loans made by any bank or financial institution to its subsidiary if those loans are utilised by the subsidiary for its principal business activities;
  • if the lending company, in the ordinary course of its business, provides loans or guarantees or security for the due repayment of any loan and in respect of those loans an interest is charged at a rate not less than the bank rate declared by the RBI; or
  • if the lending company obtains the approval of at least 75 per cent of its shareholders for such guarantee given or security provided and the loans availed by the borrower are utilised by it for its principal business activities.

An ECB can be guaranteed upon obtaining a no-objection from an authorised dealer. If the guarantee is issued by a non-resident entity, the guarantor is required to fulfil the qualification of a recognised lender under the ECB Guidelines.

A non-resident entity can guarantee any credit facilities availed by an Indian borrower from Indian banks and financial institutions. On invocation of that guarantee, the payment must be made to the beneficiary lender through an inward remittance and the liability of the Indian borrower towards that guarantor will be restricted to the rupee amount that was received by the Indian beneficiary lender.

A non-resident entity can also guarantee NCDs issued by Indian companies, subject to, inter alia, the following conditions:

  • the non-resident entity should be an eligible lender under the ECB Guidelines;
  • the issuer must be eligible to raise an ECB under the automatic route;
  • the debt instrument should have a minimum average maturity of three years;
  • any prepayment and call or put options are not permissible for such NCDs up to an average maturity period of three years; and
  • any guarantee fee and other costs in connection with that guarantee is restricted to a maximum 2 per cent of the principal amount involved.

Assistance by the target

Are there specific restrictions on the target’s provision of guarantees or collateral or financial assistance in an acquisition of its shares? What steps may be taken to permit such actions?

Under the Companies Act 2013, a public company (whether listed or not) is not permitted to provide any direct or indirect financial assistance to any person for subscription to, or for purchase of its own, shares or the shares of its holding company. The term ‘financial assistance’ is broad and includes assistance in the form of loans, guarantees and the provision of security. However, this restriction does not apply to private companies (which are not subsidiaries of public companies). There are no whitewash procedures available under Indian law in connection with this financial assistance.

Types of security

What kinds of security are available? Are floating and fixed charges permitted? Can a blanket lien be granted on all assets of a company? What are the typical exceptions to an all-assets grant?

In relation to financing utilised by a borrower located outside India for the purpose of acquiring shares of an Indian company, no security can be created over Indian assets and a pledge over shares of the Indian company is not permitted without regulatory approvals.

In relation to domestic financing, ECBs and NCDs issued by Indian companies, security over immovable and movable property (including shares under certain circumstances) may be created.

Security over property such as land and buildings is taken in the form of a mortgage. Security over shares and other securities is typically created by way of a pledge.

Movable property, such as cash deposits, bank accounts, receivables, plant and machinery and stock, is usually secured by way of hypothecation. Under Indian law, hypothecation generally means a charge over any movable property, existing or future, created by a borrower in favour of a creditor without the delivery of possession of the movable property to that creditor. A blanket charge over all movable assets can be granted and the charge created by way of hypothecation may be a fixed charge over identifiable assets or fixed assets, including a floating charge over current assets, stock-in-trade, future cash flows and receivables.

Security over claims and contractual rights can be created by a charge or by a legal or equitable assignment.

Requirements for perfecting a security interest

Are there specific bodies of law governing the perfection of certain types of collateral? What kinds of notification or other steps must be taken to perfect a security interest against collateral?

Perfection requirements would differ depending upon the underlying nature of the collateral.


Any mortgage, other than an equitable mortgage, of immovable property must be registered as per the Indian Registration Act 1908 within four months of the execution of the mortgage deed. Where the mortgage is an equitable mortgage created by way of deposit of title deeds of the property being mortgaged, no registered instrument is required (although in some states, the registration authorities require equitable mortgages to be registered or notified too). Mortgages are also registered with Central Registry of Securitisation Asset Reconstruction and Security Interest of India (CERSAI). The mortgage also needs to be registered with the relevant registrar of companies (ROC) within 30 days of creation.


Hypothecation of movable property is also registered with CERSAI and the requisite filings must be made with the ROC within 30 days.


For shares held in dematerialised form, a form must be filed with the depository participant to create a pledge on the shares, and the requisite filings must be made with the ROC within 30 days where the pledgor is a company.

Other filings

Under Indian law, ships are usually offered as security by filing of a statutory form with the Mercantile Marine Department and the terms and conditions of creation of a mortgage on a vessel are generally agreed between the parties in a deed of covenants that is attached to that form. Aircraft are usually offered as security pursuant to a deed of hypothecation or mortgage, and security over aircraft is registered with the Director General of Civil Aviation.

Exchange control regulations

Approvals from the RBI or the authorised dealer may be required for cross-border security creation and the enforcement of that security is required to be in accordance with the exchange control regulations and the terms and conditions of those approvals.

Stamp duty

Under Indian law, stamp duty must be paid on a facility agreement and security documents at or prior to execution for them to be admissible as evidence in a court of law. Stamp duty rates are determined based on the nature of the instrument and differ from state to state. Stamp duty needs to be paid on a document depending on the state where it is executed.

No objection from tax authorities

A no objection certificate should be obtained pursuant to section 281 of the Income Tax Act 1961 for the creation of security on certain types of assets because the security interest could be void if there are any tax proceedings or tax claims by the income tax authorities against the security provider.

Renewing a security interest

Once a security interest is perfected, are there renewal procedures to keep the lien valid and recorded?

Once a security interest is perfected and the charge filings have been made with the ROC, no further renewal procedures are required to keep the lien valid and recorded.

Stakeholder consent for guarantees

Are there ‘works council’ or other similar consents required to approve the provision of guarantees or security by a company?

Consent from works councils or trades unions is not required for the purposes of providing guarantees or security by a company in India.

Granting collateral through an agent

Can security be granted to an agent for the benefit of all lenders or must collateral be granted to lenders individually and then amendments executed upon any assignment?

Indian law recognises the concept of agency as well as trust. Security is typically created in favour of a security trustee in syndicated loan transactions and debenture trustee in case of NCDs. Since the security is created in favour of the trustee for the benefit of the creditors, the security is not required to be created in favour of each individual creditor. Assignments and transfers can be effected by lenders under a facility agreement without the need for any steps to be taken in relation to the underlying Indian law’s security documents for new lenders to benefit. However, in some cases, the documentation will provide that the lenders should accede to the security trustee agreement by way of a deed of accession to get the benefit of the security.

Creditor protection before collateral release

What protection is typically afforded to creditors before collateral can be released? Are there ways to structure around such protection?

The security trustee generally executes a release deed or provides confirmation in relation to release of security upon the instructions of the lenders. Different procedures may be followed depending upon the nature of the property, and appropriate confirmation can be obtained from the borrower for the protection of the lenders. For example, modifications are required in the land registry for release of security over immovable property and appropriate instructions need to be issued to a depository participant for the release of pledge over shares. Further, filings are made with the registrar of companies for the release of security on the property, and sometimes government authorities may have to be notified depending upon the nature of the assets that were secured (eg, in the case of ships and aircraft).

Fraudulent transfer

Describe the fraudulent transfer laws in your jurisdiction.

See question 33 in relation to voidable transactions.

Debt commitment letters and acquisition agreements

Types of documentation

What documentation is typically used in your jurisdiction for acquisition financing? Are short-form or long-form debt commitment letters used and when is full documentation required?

In relation to ECBs and acquisition financing, where the acquirer is an SPV located outside India and the funding is obtained from foreign lenders, the credit agreements and inter-creditor agreements will generally be based on the latest Asia Pacific Loan Market Association (APLMA) or Loan Market Association (LMA) forms.

In relation to domestic financings, the nature of documentation varies with every transaction. The documents for an acquisition financing usually include the debenture trust deeds and facility agreements. Some banks and NBFCs may have their own format of facility agreement. Further, the Companies Act 2013, and its related rules, prescribe some prerequisites of the debenture trust deed. Further, the debenture trust deeds are governed by regulations from the SEBI if the debentures are listed on a stock exchange. In addition, the information memorandum or the offering memorandum for NCDs must be in a format as prescribed by the Companies Act 2013 and the various regulations issued by the SEBI.

There is no standard form of documentation for security documents in relation to assets located in India.

Typically, commitment letters are not executed for domestic acquisition financing and sanction letters are issued by lenders in India. However, commitment letters may be issued sometimes upon the request of the borrower, and APLMA or LMA forms are adapted for Indian transactions. The full finance documents are simultaneously executed with the acquisition documentation.

Level of commitment

What levels of commitment are given by parties in debt commitment letters and acquisition agreements in your jurisdiction? Fully underwritten, best efforts or other types of commitments?

Commitment letters, when executed, usually provide for underwritten debt or for a club of lenders to provide financing. Execution of commitment letters is not common unless the borrower is located outside India. Generally, the sanction letters govern the rights and obligations of the borrower and the lenders, and the financing is subject to final documentation.

Conditions precedent for funding

What are the typical conditions precedent to funding contained in the commitment letter in your jurisdiction?

The typical conditions precedent to funding in the sanction and commitment letters in relation to acquisition financing provided to Indian entities include:

  • corporate authorisations;
  • constitutional documents;
  • acquisition documentation;
  • funds-flow statements;
  • due diligence of the target;
  • security documents;
  • reliance letters for due-diligence reports;
  • government approvals and third-party consents;
  • know-your-customer requirements; and
  • lenders’ counsel legal opinions.

Flex provisions

Are flex provisions used in commitment letters in your jurisdiction? Which provisions are usually subject to such flex?

In our experience, flex provisions are not common in term sheets executed in relation to acquisition financing provided to Indian entities, except in cases where the acquisition financing is to be committed at a bidding stage. However, the term sheets and commitment letters are often kept open-ended (especially in relation to provisions on representations and warranties, covenants and events of default) and are subject to execution of final documentation to the satisfaction of the lenders. Flex provisions regarding financial terms are heavily negotiated and are especially influenced by any due-diligence findings that the lenders may have to consider from a financing perspective.

Securities demands

Are securities demands a key feature in acquisition financing in your jurisdiction? Give details of the notable features of securities demands in your jurisdiction.

These are not a key feature in acquisition financing in India.

Key terms for lenders

What are the key elements in the acquisition agreement that are relevant to the lenders in your jurisdiction? What liability protections are typically afforded to lenders in the acquisition agreement?

Lenders usually look for the following key elements in an acquisition agreement:

  • valuation of the target shares and any provisions regarding adjustments to purchase price;
  • issues arising out of any due diligence that are disclosures to representations and warranties;
  • timelines for completion of the acquisition and dependency on any court, government or regulatory approvals or filings;
  • indemnities available to the acquirer from the sellers;
  • ability of the acquirer to pledge or encumber the shares in the target;
  • transfer restrictions on the sale of shares of the target;
  • corporate governance matters, including board representation and veto rights;
  • anti-dilution protection in case of new issuances;
  • exit provisions, where the acquirer is a sponsor;
  • governing law and dispute resolution mechanisms;
  • confidentiality provisions and carve-outs for sharing information with lenders; and
  • acquirer ability to assign (including by way of security) any rights under the acquisition documents.

Acquisition agreements typically do not deal with the rights or liabilities of lenders, and those will usually be part of the credit documentation between the lenders and borrower. However, conditions precedent will be carefully provided for in those documents so that lenders are aware of what needs to be completed before they are required to fund the acquisition or part of it.

Public filing of commitment papers

Are commitment letters and acquisition agreements publicly filed in your jurisdiction? At what point in the process are the commitment papers made public?

Commitment letters, sanction letters and term sheets for acquisition financing and acquisition agreements are not publicly filed in India. However, security documents for loans and NCDs are publicly filed with the ROC within 30 days of execution of such documents. Further, the information memorandum and debenture trust deeds in relation to listed NCDs are filed as soon as possible with the stock exchanges in the case of listed NCDs.

Enforcement of claims and insolvency

Restrictions on lenders’ enforcement

What restrictions are there on the ability of lenders to enforce against collateral?

Enforcement of security is governed by the terms and conditions of the credit documents and security documents. Generally, a lender may enforce its security on the occurrence of a default event that is continuing and acceleration of the debt.

Enforcement of security may be impacted by insolvency. The insolvency regime for a company is governed by the IBC. After making the application to the National Company Law Tribunal (NCLT) and on the commencement of the insolvency proceedings of a corporate entity under the IBC (insolvency commencement date), a moratorium is declared until the completion of the corporate insolvency resolution process period, during which time no proceedings can be commenced against, and no action can be taken for enforcement of security provided by, the corporate debtor. The IBC requires the corporate insolvency resolution process (CIRP) to be completed within 180 days of the insolvency commencement date, which is extendable by another period of 90 days.

If the transaction in relation to providing security can be categorised as a preferential transaction or an undervalued transaction under the IBC, then the rights of the lenders in relation to that security could be set aside (see question 33).

Additionally, enforcement of security created over the assets of a project for which a lease, licence or a concession is granted by the government (ie, because government owns the relevant land or has commissioned the project) may be subject to government approvals and terms and conditions imposed by the relevant governmental authority.

The ability of the lenders to enforce security in a cross-border financing will also be subject to exchange control regulations if the lenders are located outside India.

Any proceeding in court for the enforcement of security must be brought within the relevant limitation period. For example, a suit ordering the sale of the mortgaged property must be brought within 12 years from the date on which the money sued for becomes due, and a suit ordering a sale of charged or pledged property must be brought within three years from the date that the cause of action arises.

Debtor-in-possession financing

Does your jurisdiction allow for debtor-in-possession (DIP) financing?

The IBC provides for creditor-in-possession financing and not debtor-in-possession financing. In India, the powers of the board of directors of the corporate debtor are suspended and the NCLT appoints an interim resolution professional. From that date, the management of the affairs of the corporate debtor vests in the interim resolution professional. A committee of creditors has to approve the appointment of the interim resolution professional within 30 days of his or her appointment by the NCLT. An insolvency resolution professional can obtain secured and unsecured interim finance during his or her tenure under the IBC. Following the formation of the committee of creditors, any interim finance can be raised with the consent of 66 per cent of the financial creditors (in value) comprising the committee.

Stays and adequate protection against creditors

During an insolvency proceeding is there a general stay enforceable against creditors? Is there a concept of adequate protection for existing lien holders who become subject to superior claims?

Yes. There is a general stay against any legal proceedings by creditors or enforcement of security (see question 30).


In the course of an insolvency, describe preference periods or other reasons for which a court or other authority could claw back previous payments to lenders? What are the rules for such clawbacks and what period is covered?

The following rules summarise the different preference periods or reasons for clawback during insolvency.

Preferential transaction

A corporate debtor shall be deemed to have given preference if:

  • there is a transfer of property or an interest thereof of the corporate debtor for the benefit of a creditor or a surety or a guarantor for or on account of an antecedent financial debt or operational debt or other liabilities owed by the corporate debtor; and
  • such transfer has the effect of putting such creditor or a surety or a guarantor in a beneficial position than it would have been in the event of distribution of assets being made in liquidation of the corporate debtor.


  • transfer in the ordinary course of the business or financial affairs of the corporate debtor or the transferee;
  • any transfer creating a security interest in property acquired by the corporate debtor to the extent that:
    • such security interest secures new value and was given at the time of or after the signing of a security agreement that contains a description of such property as security interest and was used by the corporate debtor to acquire such property; and
    • such transfer was registered with an information utility on or before 30 days after the corporate debtor receives possession of such property.

Clawback period

  • related party (other than being an employee): two years preceding the insolvency commencement date (ICD); and
  • non-related party: one year preceding the ICD.

Undervalued transaction

A transaction (other than a transaction in the ordinary course of business of the corporate debtor) shall be considered undervalued where the corporate debtor:

  • makes a gift to a person; or
  • enters into a transaction with a person that involves the transfer of one or more assets by the corporate debtor for a consideration the value of which is significantly less than the value of the consideration provided by the corporate debtor.


  • any interest in property that was acquired from a person other than the debtor and was acquired in good faith, for value and without notice of the relevant circumstances; and
  • person received a benefit from the transaction in good faith, for value and without notice of the relevant circumstances, unless he or she was a party to the transaction.

Clawback period

  • related party: two years preceding the ICD; and
  • non-related party: one year preceding the ICD.

Undervalued transaction defrauding creditors

Where the corporate debtor has entered into an undervalued transaction as mentioned above and the NCLT is satisfied that such transaction was deliberately entered into by such corporate debtor:

  • for keeping assets of the corporate debtor away from any person entitled to make a claim against the corporate debtor; or
  • in order to adversely affect the interest of such person in relation to the claim.

Clawback period

No specific time period prescribed.

Extortionate credit transaction

Where the corporate debtor is a party to an extortionate credit transaction involving the receipt of financial or operational debt during the period within two years preceding the ICD.

A transaction shall be considered extortionate where the terms:

  • require the corporate debtor to make exorbitant payments in respect of the credit provided; or
  • are unconscionable under the principles of law relating to contracts.

However, any debt extended by any person providing financial services which is in compliance with any law for the time being in force shall in no event be considered as an extortionate credit transaction.

Clawback period

Two years preceding the insolvency commencement date.

Ranking of creditors and voting on reorganisation

In an insolvency, are creditors ranked? What votes are required to approve a plan of reorganisation?

Under the IBC, the corporate debtor will first go through a corporate insolvency resolution process (CIRP), and if that fails or if the creditors vote to put the debtor into liquidation, then the debtor will go into liquidation.

During the CIRP, key decisions are taken by a creditors’ committee comprising financial creditors by a 66 per cent vote by value of the admitted claims of the financial creditors. Such approval is also required for a resolution plan during the CIRP. Once the creditors’ committee approves a resolution plan, the same must also be approved by the NCLT. If the resolution plan is not approved by the creditors’ committee within a time-bound manner, the corporate debtor will be ordered to go into liquidation by the NCLT. A resolution plan that is adopted during the CIRP must provide for the debts to be paid in the following order of priority:

  • insolvency resolution process costs (which includes interim financing costs);
  • at least the liquidation value of the operational debts; and
  • the value payable as per the resolution plan to the financial creditors.

If the corporate debtor goes into liquidation, the following order of priority is followed for the distribution of proceeds arising out of the sale of assets:

  • insolvency resolution process costs and liquidation costs;
  • equally between secured creditors (who choose to relinquish their security enforcement rights) and workers’ dues for a period of 24 months preceding the liquidation commencement date;
  • wages and unpaid dues of employees (other than workers) for a period of 12 months preceding the liquidation commencement date;
  • financial debts owed to unsecured creditors;
  • equally between statutory dues to be received on account of a consolidated fund of India or a consolidated fund of a state (relating to a two-year period, in whole or in part, preceding the liquidation commencement date) and debts of secured creditors (to the extent remaining unpaid after separately enforcing security on assets secured in their favour);
  • remaining debts and dues;
  • dues-of-preference shareholders; and
  • dues-of-equity shareholders (for a company) or partners (for a limited liability partnership).

On liquidation, a secured creditor may choose to realise its security and receive proceeds from the sale of the secured assets as first priority. If the secured creditor enforces its claims outside the liquidation, it must contribute pro rata towards the insolvency resolution process and liquidation costs, with any excess proceeds going to the liquidation estate. Further, in the case of any shortfall in recovery, the secured creditors will be junior to the unsecured creditors to the extent of the shortfall.

Intercreditor agreements on liens

Will courts recognise contractual agreements between creditors providing for lien subordination or otherwise addressing lien priorities?

In a non-liquidation scenario, courts will recognise inter-creditor agreements providing for different ranking of security or lien. However, if the company is undergoing liquidation, then under the IBC, any contractual agreements between parties who have equal ranking and that disrupt the order of priority must be disregarded by the liquidator.

Discounted securities in insolvencies

How is the claim of an original issue discount (OID) or discount debt instrument treated in an insolvency proceeding in your jurisdiction?

The holders of original issue discount or discount debt instruments in an insolvency proceeding will be categorised as financial creditors. Their claims should be up to the face value of the instrument. However, the IBC is a recent piece of legislation and jurisprudence is still evolving on this subject.

Liability of secured creditors after enforcement

Discuss potential liabilities for a secured creditor that enforces against collateral.

The potential liabilities for a secured creditor that enforces against collateral would depend upon the nature of the underlying collateral, whether the secured creditor has enforced the collateral in accordance with the security documents, and other applicable laws, and whether the security is appropriated or sold upon enforcement. If there is a bona fide enforcement of security by the secured creditor in accordance with the contractual arrangements, and in due compliance with applicable law and regulations and the security is enforced for the purpose of completing a sale, then the secured creditor is generally not liable. If the security is appropriated and the ownership vests with the creditor for the purpose of operating or using an asset, the creditor would be liable for any continuing violations under applicable law. The secured creditors are generally indemnified by the security provider for any potential liabilities in case of any enforcement.

Update and trends

Recent developments

Updates and trends

The IBC is a recent piece of legislation, and jurisprudence is evolving. Recently, an ordinance in relation to various aspects of the IBC has been promulgated in relation to the entities that can be a resolution applicant. The rules and regulations in this regard have been evolving rapidly. The tribunals and courts of India have passed various orders and judgments in relation to certain key aspects of the IBC.

Further, a government-appointed committee - the Insolvency Law Committee - has recommended the adoption of a United Nations model law along with some carve-outs for dealing with cross-border insolvency cases under the IBC. The United Nations Commission on International Trade Law (UNCITRAL) model law on insolvency involves a balance between liquidation and restructuring. The Insolvency Law Committee has endorsed the adoption of the UNCITRAL Model Law of Cross-Border Insolvency, 1997, as it provides for a comprehensive framework to deal with cross-border insolvency issues. Additionally, the Insolvency and Bankruptcy Board of India has set up a working group to recommend a complete regulatory framework to facilitate insolvency resolution and liquidation of debtors in a corporate group within the IBC.

Separately, the guidelines (ECB Guidelines) and directions issued by the Reserve Bank of India governing ECBs were overhauled recently and have effected various changes in the regulatory framework. Amongst other changes, potential bidders have been permitted to raise ECBs, after obtaining the approval of the RBI, for repayment of debt of the company undergoing insolvency.