Due Diligence Checklist for Acquiring an Indian Company: 50 Items to Review

Why India-Specific Due Diligence Matters

Cross-border M&A in India has reached record levels, with 134 combinations approved by the Competition Commission of India (CCI) in 2025 alone. Yet every experienced deal lawyer will tell you the same thing: India's regulatory complexity routinely surfaces liabilities that would never appear in a Western acquisition. Multiple overlapping jurisdictions — central, state, and municipal — create compliance layers that standard due diligence templates miss entirely.

A foreign acquirer buying an Indian target must navigate the Companies Act 2013, FEMA regulations, Income Tax Act (replaced by the Income Tax Act 2025 from 1 April 2026), GST laws, state-level labour statutes, environmental clearance requirements, and sector-specific licensing. Miss any single thread, and you inherit liabilities that can dwarf the acquisition premium.

This checklist is organised into 10 diligence workstreams with 50 specific items. Each item identifies what to verify, where to find it, and what red flags to watch for. It is designed for foreign acquirers — PE funds, strategic buyers, and multinational corporations — evaluating share purchase or asset purchase transactions in India.

Workstream 1: Corporate and Entity Structure (Items 1-7)

1. Certificate of Incorporation and MCA Master Data

Verify the Certificate of Incorporation, CIN (Corporate Identification Number), and date of incorporation against MCA21 records. Confirm the company has not been flagged for strike-off or marked as dormant. Download the MCA master data to cross-check the authorised share capital, paid-up capital, and registered office address.

2. Memorandum and Articles of Association

Review the current Memorandum of Association (MOA) and Articles of Association (AOA) for restrictive clauses — pre-emption rights, board composition requirements, transfer restrictions on shares, and special rights attached to specific share classes. Confirm that all amendments have been properly filed with the ROC via Form MGT-14.

3. Shareholding Pattern and Cap Table

Obtain the complete cap table showing all equity holders, preference shareholders, convertible instrument holders, and option holders. Cross-reference against Form MGT-7 (annual return) filed with the ROC. Verify that all share transfers have corresponding board resolutions and stamp duty payments. For targets with foreign shareholders, confirm that all FC-GPR filings were made within the mandatory 30-day window.

4. Board Composition and Director Compliance

Verify that the company has maintained the required minimum of two directors (for a private company) or three directors (for a public company), with at least one resident director at all times. Confirm all directors have valid DINs and have filed annual KYC (Form DIR-3 KYC) by September 30 each year. Check for any disqualified directors under Section 164 — their appointment renders every subsequent board resolution potentially voidable.

5. Statutory Registers and Minutes

Review the register of members, register of charges, register of directors, and minutes of board meetings and general meetings for the past 7-10 years. Look for undisclosed related-party transactions, unusual share allotments, and board decisions that were not properly authorised. Minutes should be signed and sequentially paginated — gaps suggest selective documentation.

6. Charges and Encumbrances

Search the MCA charge register (Form CHG-1) for all registered charges against the company's assets. Cross-reference with bank sanction letters and loan agreements. Unregistered charges are void against liquidators and creditors — but registered charges that should have been satisfied (Form CHG-4) but remain open indicate sloppy compliance at best, undisclosed liabilities at worst.

7. Subsidiaries, Associates, and Group Structure

Map the complete corporate group structure including all subsidiaries (Section 2(87)), associates (Section 2(6)), joint ventures, and LLPs in which the target holds investment. Foreign subsidiaries or step-down entities trigger additional FEMA compliance checks under ODI (Overseas Direct Investment) regulations. Verify whether any inter-company guarantees or comfort letters have been issued.

Workstream 2: Financial Due Diligence (Items 8-14)

8. Audited Financial Statements — 5 Years

Obtain audited financial statements (balance sheet, P&L, cash flow statement, and notes) for the past five financial years. Check whether audit reports contain qualifications, emphasis of matter paragraphs, or adverse opinions. A qualified audit report on revenue recognition or provisioning is a serious red flag. Verify that the statutory auditor is a Chartered Accountant firm with a valid peer review certificate.

9. Quality of Earnings Analysis

Analyse normalised EBITDA by adjusting for non-recurring items — asset sales, one-time contract revenues, insurance claims, government grants, and related-party income at non-market rates. Indian companies sometimes inflate EBITDA through capitalising expenses that should flow through the P&L, or by deferring provisions for doubtful debts and warranty obligations.

10. Working Capital and Cash Flow Patterns

Examine working capital trends — debtor days, creditor days, and inventory turnover — over 3-5 years. Indian businesses commonly have extended debtor cycles (90-120 days) compared to Western norms. Look for significant inventory build-ups near year-end, which may indicate channel stuffing or obsolete stock. Cash conversion ratios below 70% warrant deep investigation.

11. Related-Party Transactions

Indian companies — especially promoter-owned businesses — frequently have significant related-party transactions: management fees paid to promoter-controlled entities, rent for promoter-owned premises, loans to directors or their relatives, and purchases from sister concerns. All related-party transactions should comply with Section 188 of the Companies Act and must have been disclosed in annual financial statements as per Ind AS 24. Check transfer pricing compliance for international related-party transactions.

12. Contingent Liabilities and Off-Balance-Sheet Exposures

Review the contingent liabilities note in audited accounts (Ind AS 37). Indian companies commonly face tax demands under appeal, labour law claims, and customer claims that may not be adequately provisioned. Obtain a complete list of corporate guarantees issued to banks, group companies, or third parties. Bank guarantees and letters of credit represent real contingent exposures that may not appear on the balance sheet.

13. Debt and Banking Arrangements

Review all loan agreements, working capital facilities, term loans, and external commercial borrowings (ECBs). Check for change-of-control clauses that could trigger prepayment obligations upon acquisition. Verify the company is not classified as a Special Mention Account (SMA-1 or SMA-2) or NPA by any lender. Review RBI filings for any ECBs — non-compliance with ECB end-use restrictions is a FEMA violation.

14. Internal Controls and Fraud Indicators

For larger targets, review the internal audit reports and management letters from statutory auditors. Section 143(12) requires auditors to report suspected fraud to the central government. Look for Benford's law anomalies in vendor payment data, unusual journal entries near reporting dates, and revenue recognition patterns that deviate from contractual terms.

Workstream 3: Tax Due Diligence (Items 15-22)

15. Income Tax Assessment History

Review assessment orders for all open years (typically 6-7 years). Under the Income Tax Act 2025 (effective April 2026), the reassessment window is 4 years from the end of the relevant assessment year, extendable to 10 years if escaped income exceeds INR 50 lakh. Pending appeals at CIT(A), ITAT, or High Court represent real cash outflow risks — obtain copies of all appellate orders and pending grounds.

16. Transfer Pricing Exposure

If the target has international transactions with associated enterprises, verify that transfer pricing documentation and Form 3CEB have been filed for all applicable years. TP adjustments by the tax authority can result in additions running into crores. Check whether the company has opted for Safe Harbour Rules or entered into an Advance Pricing Agreement (APA) with the CBDT. For targets with inter-company transactions exceeding INR 1 crore, this is a near-universal exposure.

17. GST Compliance and Input Tax Credit

Review GST registration status across all states where the target operates. Verify GSTR-1, GSTR-3B, and GSTR-9 filings for the past five years. Mismatches between GSTR-1 (outward supply) and GSTR-3B (summary return) are a common audit trigger. Check for reversed Input Tax Credit (ITC) — ITC blocked under Section 17(5) for personal consumption or exempt supplies. Verify that the GSTR-2B reconciliation is current and that no ITC is at risk due to vendor non-compliance.

18. TDS and TCS Compliance

Verify all TDS (Tax Deducted at Source) returns for the past 5-7 years. Common gaps include short deduction on payments to non-residents (Section 195), late deposit of TDS attracting interest under Section 201(1A) at 1.5% per month, and non-issuance of TDS certificates (Form 16/16A). For targets making payments to foreign entities, confirm that Form 15CA/15CB certifications were obtained for every outward remittance.

19. Capital Gains Tax History on Share Transfers

Review prior share transfers for proper capital gains tax treatment. Long-term capital gains on unlisted shares attract 12.5% tax (post July 2024 budget amendment). Verify that any past internal restructuring (demergers, amalgamations, share swaps) properly claimed exemptions under the applicable provisions. The tax department frequently challenges valuations used in historical share transfers.

20. Stamp Duty on Instruments

Indian share transfers attract stamp duty — 0.015% on delivery-based trades for listed shares, and varying rates (typically 0.25% to 0.50%) for unlisted share transfers under the Indian Stamp Act 1899 (as amended in 2020). Verify that all historical share transfer instruments were properly stamped. Unstamped or inadequately stamped instruments are inadmissible as evidence in Indian courts.

21. Customs and Foreign Trade Policy

For targets that import or export, verify IEC (Import Export Code) status and customs duty payment history. Check for advance licence/EPCG obligations with pending export obligations — failure to meet export commitments triggers customs duty recovery with 15% interest. Verify compliance with Rules of Origin requirements under preferential trade agreements.

22. Professional Tax and State Tax Compliance

Professional Tax is levied by individual states on salaried employees. Verify PTRC and PTEC registrations in every state where the target has employees. Check for outstanding professional tax demands. Also verify compliance with state-specific taxes such as entry tax, luxury tax (pre-GST), and entertainment tax where applicable to the target's business.

Workstream 4: FEMA and Foreign Exchange Compliance (Items 23-27)

23. FDI Compliance History

This is often the most critical workstream for foreign acquirers. Verify that every historical issuance of shares to non-residents complied with FEMA pricing norms and sectoral caps. For unlisted companies, share valuation must have been conducted by a SEBI-registered Category I Merchant Banker or CA using a SEBI-approved valuation methodology. Confirm that FC-GPR was filed within 30 days of every share allotment to non-residents.

24. FLA Return Filing History

Every Indian company with FDI must file the FLA Return with the RBI by July 15 each year. Non-filing is a FEMA contravention that can result in compounding proceedings. Verify FLA Return filing for all applicable years. Many Indian companies with foreign shareholders are not even aware of this obligation.

25. ECB and Trade Credit Compliance

Review all external commercial borrowings for compliance with RBI's ECB framework — all-in cost ceiling, minimum average maturity, end-use restrictions, and reporting (Form ECB-2 filed monthly). Trade credits exceeding USD 5 million per import transaction or with tenor exceeding 1 year require RBI registration. Non-compliant ECBs are FEMA violations that the acquirer inherits.

26. Downstream Investment Compliance

If the target has made downstream investments (investments by an Indian company owned or controlled by non-residents into another Indian company), verify compliance with FEMA downstream investment regulations. The target should have notified the RBI within 30 days of such investment, and the downstream entity must comply with the sectoral cap and conditions applicable to the downstream entity's sector.

27. FEMA Compounding History

Check whether the target has ever filed a compounding application with the RBI for FEMA contraventions. A history of compounding applications indicates systemic compliance gaps. Under the 2025 revised framework, compounding penalties are capped at INR 2,00,000 for specific contravention categories, but legal costs for compounding applications typically run INR 50,000 to INR 3,00,000 per application.

Workstream 5: Competition and Regulatory Approvals (Items 28-31)

28. CCI Merger Control Notification

Since September 2024, India's merger control regime includes a deal value threshold (DVT): any transaction with a deal value exceeding INR 2,000 crore where the target has substantial business operations in India requires prior CCI notification. The traditional asset/turnover thresholds also apply — combined assets exceeding INR 2,000 crore in India or combined turnover exceeding INR 6,000 crore in India. The de minimis exemption excludes transactions where the target's Indian assets are below INR 450 crore and turnover is below INR 1,250 crore, but this exemption does not apply when the DVT is breached.

29. Sector-Specific Regulatory Approvals

Certain sectors require regulatory approval beyond CCI. Banking and insurance acquisitions need RBI/IRDAI approval. Telecom companies need DoT approval. Defence sector acquisitions above certain thresholds require MoD clearance. Pharmaceutical companies need DCGI transfer of manufacturing licences. Verify all sector-specific licences and whether the acquisition triggers change-of-control provisions in any regulatory approval.

30. FDI Sectoral Cap and Route Check

Verify that the target's sector permits the level of foreign ownership contemplated. Over 90% of sectors allow 100% FDI under the automatic route, but restricted sectors include multi-brand retail (51% cap), print media (26% FDI cap for news, 100% for non-news), defence (74% automatic, 100% with government approval), and telecom (100% with conditions). If government approval is needed, factor in 8-10 weeks for DPIIT processing.

31. Antitrust and Anti-Competitive Conduct History

Check whether the target has been investigated by the CCI for anti-competitive practices (cartels, abuse of dominance). CCI penalties for anti-competitive conduct can reach 10% of average turnover for the preceding three years — a material liability that survives the acquisition. Review any leniency applications filed with the CCI.

Workstream 6: Intellectual Property (Items 32-35)

32. Trademark Portfolio Verification

Search the Indian Trademark Registry for all registered and pending trademarks. Verify ownership, classes of registration, validity periods, and renewal status. In India, trademark registrations are valid for 10 years and must be renewed. Check for any trademark opposition proceedings or rectification petitions. Unregistered trademarks have limited protection under common law — a significant gap in India's competitive consumer markets.

33. Patent Portfolio and Pending Applications

Review all patents granted and applications pending with the Indian Patent Office. Indian patents are valid for 20 years from the filing date. Verify maintenance fee payments — failure to pay annual maintenance fees results in patent lapse. For pharmaceutical and chemical targets, check for compulsory licence risks under Section 84 of the Patents Act.

34. Copyright and Design Registrations

Verify copyright registrations for software, literary works, artistic works, and cinematographic films. For technology companies, confirm that all IP developed by employees is properly assigned to the company through employment agreements containing IP assignment clauses. Industrial design registrations should be verified for validity (15 years from registration) and renewal status.

35. Technology Licence Agreements

Review all technology licence agreements, software licences, and royalty arrangements. Verify whether technology import agreements require RBI reporting. Check for exclusivity provisions, termination-on-change-of-control clauses, and IP indemnification obligations. For targets that are licensees of critical technology, loss of the licence upon acquisition can destroy the business rationale.

Workstream 7: Labour and Employment (Items 36-40)

36. Employee Headcount and Cost Structure

Obtain a complete employee register with designation, joining date, salary structure (basic + DA, HRA, special allowance), and employment type (permanent, contract, consultant, trainee). India does not have a TUPE-equivalent statute that automatically transfers employees — share purchases transfer employees by operation of law, but asset purchases require individual consent and may trigger severance obligations of 15 days' average pay per completed year of service.

37. Provident Fund and ESI Compliance

Verify EPF (Employees' Provident Fund) and ESI (Employees' State Insurance) registration and monthly contribution filings. Check for any pending demands from the EPFO or ESIC. Late payment of PF contributions attracts damages of 5% to 25% depending on the delay period. Verify that all employees earning basic salary up to INR 15,000 per month are enrolled in PF, and all employees earning gross salary up to INR 21,000 per month are enrolled in ESI where applicable.

38. Standing Orders and Labour Disputes

For establishments with 100+ workmen, verify that Standing Orders have been certified under the Industrial Employment (Standing Orders) Act, 1946. Review all pending labour disputes at labour courts, industrial tribunals, and High Courts. Under the Industrial Disputes Act 1947, retrenchment of workmen employed for more than one year requires 3 months' notice or pay in lieu, plus retrenchment compensation. These obligations transfer to the acquirer in a share purchase.

39. Employment Agreements and Non-Compete Clauses

Review employment agreements for key management personnel (KMPs), particularly CTC structure, variable pay components, notice periods, and termination provisions. Non-compete clauses in employment contracts are generally unenforceable in India under Section 27 of the Indian Contract Act 1872 — a critical distinction from US or UK law. Non-solicitation clauses have better enforceability but are still construed narrowly by Indian courts.

40. Gratuity and Leave Encashment Liability

Under the Payment of Gratuity Act 1972, employees who complete 5 years of continuous service are entitled to gratuity at the rate of 15 days' wages for every completed year (capped at INR 25,00,000). Verify the actuarial valuation of gratuity liability and the funded status of any gratuity trust. Leave encashment liability — the accumulated earned leave that must be paid out upon termination — should be actuarially valued and provisioned. Together, these can represent a significant undisclosed liability.

Workstream 8: Real Estate and Environmental (Items 41-44)

41. Title Verification for Owned Properties

For targets owning land or buildings, conduct a 30-year title search at the relevant Sub-Registrar Office. Verify the chain of title from original acquisition to current ownership. Check for encumbrances, mortgages, liens, pending litigation, and adverse possession claims. Agricultural land cannot be held by non-agricultural entities without land use conversion — verify Change of Land Use (CLU) approvals for any agricultural land converted for industrial or commercial use.

42. Lease Agreements and Tenancy Rights

Review all lease and leave-and-licence agreements for commercial premises. Under several state Rent Control Acts, tenants (as opposed to licensees) acquire statutory protections that make eviction extremely difficult. Verify whether any occupancy arrangements create unintended tenancy rights. Check for change-of-control or assignment clauses in critical leases — loss of a key premises can be operationally devastating.

43. Environmental Clearances and Pollution Control

For manufacturing targets, verify Consent to Establish (CTE) and Consent to Operate (CTO) from the State Pollution Control Board (SPCB). These consents typically require renewal every 1-5 years. Check for any show-cause notices, closure orders, or directions from the SPCB or National Green Tribunal (NGT). Environmental Impact Assessment (EIA) clearances for projects falling under the EIA Notification 2006 should be verified for validity and compliance with conditions.

44. Hazardous Waste and E-Waste Compliance

Targets handling hazardous waste must hold valid authorisation under the Hazardous and Other Wastes (Management and Transboundary Movement) Rules 2016. E-waste generators and manufacturers must comply with the E-Waste Management Rules 2022. Non-compliance can result in closure orders, criminal prosecution, and remediation costs that transfer to the acquirer.

Workstream 9: Litigation and Disputes (Items 45-47)

45. Pending Litigation Across All Forums

Conduct a comprehensive litigation search across civil courts, High Courts, Supreme Court, consumer forums (now Consumer Commissions), NCLT, NCLAT, labour courts, tax tribunals (ITAT, CESTAT), and arbitration proceedings. India's judicial system is notoriously slow — cases pending for 5-15 years are common. Verify the exposure quantum for each material case and the legal counsel's assessment of the likely outcome.

46. Regulatory Investigations and Proceedings

Check for pending investigations by SEBI (for listed targets), the Serious Fraud Investigation Office (SFIO), Enforcement Directorate (ED), Income Tax department (search and seizure actions), GST intelligence (DGGI), and sector-specific regulators. ED investigations under PMLA (Prevention of Money Laundering Act) can result in provisional attachment of assets — a dealbreaker for most acquirers.

47. Show-Cause Notices and Demand Orders

Compile all pending show-cause notices from tax authorities, GST department, customs, EPFO, ESIC, and regulatory bodies. Show-cause notices are not contingent liabilities — they are early indicators of confirmed demands. Many Indian companies treat show-cause notices as routine and do not provision for them. The aggregate exposure from outstanding SCNs can be material.

Workstream 10: Commercial and Operational (Items 48-50)

48. Material Contracts and Change-of-Control Clauses

Review all material contracts — customer agreements, supply contracts, distribution agreements, and JV agreements — for change-of-control provisions. Many contracts in India contain clauses that allow counterparties to terminate upon a change in shareholding or management control. Losing a key customer contract or distribution right upon acquisition can destroy the deal thesis. Identify contracts requiring consent or novation upon closing.

49. Insurance Coverage and Claims History

Review all insurance policies — property, liability, product liability, directors' & officers' (D&O), cyber, keyman, and workmen's compensation. Verify coverage adequacy against identified risks. Review claims history for patterns indicating operational or product quality issues. Indian courts have increasingly awarded significant product liability damages — inadequate coverage is a post-closing risk.

50. Data Protection and DPDP Compliance

The Digital Personal Data Protection Act 2023 (DPDP Act) imposes obligations on every company that processes personal data. Verify whether the target has implemented the required consent mechanisms, appointed a Data Protection Officer (where applicable), and established data breach notification processes. Non-compliance penalties under the DPDP Act can reach INR 250 crore. For targets processing cross-border data, verify compliance with data localisation requirements for sensitive personal data.

Structuring the Diligence Process: Timeline and Teams

A comprehensive due diligence exercise for an Indian acquisition typically takes 6-12 weeks depending on the target's size and complexity. The recommended approach is to run workstreams in parallel with specialised teams:

Budget INR 25 lakh to INR 1 crore (USD 30,000 to USD 120,000) for comprehensive due diligence of a mid-sized Indian target, depending on the number of jurisdictions, regulatory complexity, and the seller's data room readiness.

Post-Diligence: From Findings to Deal Protection

Due diligence findings should translate directly into deal documentation. Material issues identified during diligence should be addressed through specific indemnities in the Share Purchase Agreement, escrow holdback mechanisms (typically 10-20% of consideration held for 18-24 months), conditions precedent to closing (regulatory approvals, third-party consents), and pre-closing covenants requiring the seller to remediate identified issues. For a detailed guide on filings required after completing the acquisition, see our post-acquisition RBI and ROC filings checklist.

Key Takeaways

• FEMA compliance is the hidden minefield — historical FDI violations, missed FC-GPR filings, and non-compliant ECBs are inherited by the acquirer and can trigger compounding proceedings with the RBI
• Tax exposure often exceeds provisions — transfer pricing adjustments, pending income tax appeals, and GST ITC reversals can create tax liabilities significantly larger than what the target has provisioned in its accounts
• CCI notification thresholds expanded in 2024 — the new deal value threshold of INR 2,000 crore means even asset-light targets with substantial India operations may require CCI approval, adding 4-8 weeks to your timeline
• Labour liabilities do not appear on balance sheets — gratuity shortfalls, leave encashment provisions, and pending labour court cases routinely surface as post-closing surprises in Indian acquisitions
• Engage India-specialist advisers — generalist international law firms frequently miss India-specific compliance layers; use local counsel with sector-specific M&A experience for each workstream

For an understanding of how FDI routes and sectoral caps affect your acquisition structure, see our automatic route vs government approval comparison. If you need assistance with FDI advisory or FEMA compliance during your acquisition, our team can support the regulatory workstreams.