The Reserve Bank of India (RBI) recently issued the framework to permit the financing of strategic acquisition of shares (the “New Acquisition Finance Framework”), marking a big shift in regulatory policy to address market realities. The New Acquisition Finance Framework will come into effect from 1 July 2026 (or earlier, if chosen by a bank) (discussed in 3.1 Senior Loans). The New Acquisition Finance Framework is expected to open the acquisition and leveraged financing market to domestic banks, and is seen as a potential game-changer in the domestic debt market. Until the New Acquisition Finance Framework comes into force, Indian banks are restricted to financing the acquisition of securities in very limited situations.

At the same time, the RBI has also permitted Indian companies to raise foreign currency financing from offshore lenders in the form of external commercial borrowings (ECBs) for certain specified acquisition of shares, including strategic acquisitions. This liberalisation, pursuant to recent amendments to the framework on ECBs introduced by the RBI on 16 February 2026 (the “New ECB Framework”), will therefore provide a new avenue to offshore banks to fund control acquisitions in India.

Until the New Acquisition Finance Framework comes into force and the ECB route becomes more popular, financing for domestic acquisitions will generally be procured from non-banking financial companies (NBFCs) or by the issuance of non-convertible debentures (NCDs) by the acquirer, which can be subscribed to by foreign portfolio investors (FPIs), mutual funds or alternate investment funds (AIFs).

NBFCs are registered with the RBI and have a more relaxed regulatory framework than banks. International banks often lend through their offices outside India to borrowers outside India for acquisitions in India. Where the borrower is an Indian making an acquisition, international banks make debt investments through the FPI route or will lend through the ECB route. Private credit funds also participate in this space in the form of AIFs in India or under the FPI route (discussed in 1.2 Corporates and LBOs and 3.1 Senior Loans).

Further, the Insolvency and Bankruptcy Code, 2016 (IBC) also enables the acquisition of Indian distressed companies through a statutory process. Domestically, in certain cases such acquisitions have been leveraged buyouts.

The RBI also introduced the RBI (Commercial Banks – Resolution of Stressed Assets) Directions, 2025, which requires banks to resolve stressed assets in a time-bound manner and may involve resolution by way of a change of ownership of the borrower. Some leveraged buyout financings have also been seen in such restructurings.

In the Indian context, cross-border acquisitions are commonly classified into two categories.

• Inbound acquisitions, where an offshore acquirer acquires the shares of an Indian target. A slight variation to this structure is the acquisition of an Indian target by a foreign-owned and controlled operating company (FOCC) incorporated in India (which is a subsidiary of an offshore entity).
• Outbound acquisitions, where an Indian acquirer acquires a company incorporated outside India directly or through a special-purpose vehicle incorporated outside India (“Offshore SPV”).

For an inbound acquisition where the acquisition is through an offshore acquirer, the lending market essentially comprises international banks, capital markets, financial institutions and offshore debt funds. However, such acquisition finance cannot be secured by a pledge on shares of the Indian target, charge on assets of the Indian target or guarantees from the Indian target due to Indian exchange control regulations. Additionally, Indian banks, Indian financial institutions and domestic funds cannot provide finance to an offshore entity to acquire shares of an Indian company.

For an acquisition by a FOCC, finance cannot be provided by Indian banks, Indian financial institutions or domestic funds, as FOCCs are not permitted to leverage in the Indian market for the acquisition of shares. Indian companies can now raise foreign currency financing from offshore lenders in the form of ECBs for funding controlled deals. Accordingly, apart from the new ECB route, the other primary source of debt funding which a FOCC can utilise for the acquisition of an Indian target is through the issuance of NCDs subscribed under the FPI route. FPIs are registered with the Securities and Exchange Board of India (SEBI) under the SEBI (Foreign Portfolio Investors) Regulations, 2019 (the “FPI Regulations”).

For an outbound acquisition, an Indian acquirer can borrow domestically from banks, financial institutions and other lenders if it complies with certain qualitative and quantitative requirements. Once the New Acquisition Finance Framework comes into force, such financings will also be governed by the new framework. Additionally, if the acquisition of the offshore target is through an Offshore SPV, the Offshore SPV can borrow funds offshore from offshore lenders, funds, capital markets and other financial institutions. Any financing by offshore branches of Indian banks in such financings will also be governed by the New Acquisition Finance Framework, subject to any exemptions provided therein.

Financing documents for acquisition finance raised by an offshore borrower and ECBs are typically governed by English law. Financing documents for acquisition finance raised by an Indian borrower domestically, and transaction documents in relation to NCD issuance by an Indian company, are governed by Indian law. Security and guarantee documents are generally governed by the law of the jurisdiction where the assets are located or the jurisdiction of which the guarantors are nationals or in which they are incorporated.

The choice of foreign law for an agreement is generally upheld by Indian courts unless, in the view of the Indian courts, the choice of foreign law is not bona fide or if the application of foreign law is opposed to the public policy of India. In any proceedings in India, foreign law has to be proved as a matter of fact by leading expert evidence of foreign legal counsel.

In any acquisition financing where the funding is in a foreign currency and obtained from foreign lenders (including in the case of ECBs), the credit agreements and intercreditor agreements will generally be based on the latest Asia Pacific Loan Market Association (APLMA) or Loan Market Association (LMA) forms.

For acquisition financings in Indian rupees (INR), where the lenders are Indian NBFCs, funds or FPIs, the nature of documentation varies with every transaction, and there is no industry-accepted market standard. Some banks, NBFCs and funds may have their own formats of facility agreements or debenture documents.

In relation to the issue of NCDs, the Companies Act, 2013 (the “Companies Act”) and its related rules prescribe certain prerequisites for the debenture trust deed. Debenture trust deeds are also governed by various SEBI regulations if the NCDs are listed on a stock exchange. In addition, the placement memorandum or the offer document for NCDs must be in a format prescribed under the Companies Act and applicable SEBI regulations.

There is no market-accepted form of documentation for security documents in relation to assets located in India. However, as the market matures, there is convergence on certain basic and standard clauses and the general form of such documents as accepted among the major market players.

There are no specific legal requirements as to the language in which documentation for acquisition financing is to be drafted. However, all finance documents for acquisition financings, securities and guarantees are in English.

Where a finance document is executed by an Indian company (resident or national), standard capacity, authority and enforceability legal opinions are issued. The opinions are issued based on the conditions-precedent documents provided by the borrower/obligors.

Domestic Acquisition Finance

Bank financing

Once the New Acquisition Finance Framework comes into force, Indian banks will be permitted to provide acquisition finance to “non-financial entities” to acquire control or to increase their stake towards acquiring control of a target company (whether domestic or foreign), where the objective is to secure long-term strategic value for the acquirer. Indian banks will not be permitted to provide acquisition finance for the purpose of acquisition of a non-financial target company which has financial entities as subsidiaries or joint ventures. Such loans are expected to be senior loans and will need to mandatorily be secured by a pledge over the target security.

Some key conditions under the New Acquisition Finance Framework are as follows.

Permitted acquisitions

Banks can extend acquisition financings to acquire “control” through a single or series of transactions, which must be completed within 12 months from the first date of utilisation of the acquisition finance.

Where the acquirer already has control over the target company, financing can be extended where the acquisition crosses a substantial threshold of 26%, 51%, 75% or 90% of voting rights. Such acquisition should confer materially enhanced governance or control rights under applicable law to the acquirer.

Eligible borrowers

Acquisition finance may be extended to the acquiring company, its existing non-financial subsidiaries (in India or overseas) on the strength of the acquirer, including via on-lending, or a dedicated SPV set up solely for the acquisition and holding of the target. Where the borrower is an SPV in which the acquirer holds less than majority voting rights, financing is permitted only if the acquirer remains the largest shareholder and retains effective control without any veto or overriding rights by others

Further, the acquirer (or where the deal is routed through an SPV or subsidiary, the parent company controlling that SPV or subsidiary) must have a minimum net worth of INR500 crores and profits after tax for the last three consecutive financial years. If the acquirer is an unlisted company, it must, in addition to the above requirements, also have minimum investment-grade credit rating of BBB- (or above) from a recognised credit rating agency.

Exposure limit

A bank’s total capital market exposure (on both a standalone and consolidated basis) is capped at 40% of its eligible capital base. Within this overall 40% ceiling, exposure specifically towards acquisition finance cannot exceed 20% of the eligible capital base.

Funding limits

Banks can finance up to 75% of the acquisition value (independently determined in line with RBI prescribed parameters) and the balance of 25% must come from the acquirer’s own funds – ie, funds demonstrably sourced from the acquiring company’s internal accruals, sale of assets or redemption of investments, or issuance of fresh equity.

Ratios

Further, the acquiring entity is required to maintain a maximum consolidated debt-to-equity ratio of 3:1 on an ongoing basis.

Mandatory collateral and guarantees

The following security is mandatory:

• corporate guarantees are mandatory from the acquiring company in the case of acquisition finance extended to a subsidiary or an SPV of the acquiring company; and
• pledge over the financial instruments issued by the target company through which control over it was acquired by the acquiring company (subject to applicable laws).

Additionally, banks may take security over other unencumbered assets of the acquirer and/or target and seek promoter guarantees as per their internal policy.

NCDs

Domestic acquisition finance is generally structured as NCDs availed from NBFCs, FPIs or AIFs, or as loans from NBFCs. The proceeds of NCDs issued on a private placement basis can be used for equity investments. However, the proceeds of unlisted NCDs cannot be used for capital market investments. Further, the proceeds of a public issuance of listed NCDs cannot be used for the acquisition of shares of any person who is part of the same group or under the same management.

ECBs

As discussed above, under the New ECB Framework Indian companies can use ECBs for acquisition of “control” where the borrowing is for strategic purposes – ie, driven by long-term value creation and synergies, and not short-term financial gains. Further, ECBs can also be used by Indian companies for business and asset acquisitions (subject to certain conditions).

The New ECB Framework has significantly liberalised the earlier guidelines on ECBs. Among other things, the New ECB Framework prescribes the following conditions which need to be considered by a foreign lender when lending to an Indian borrower.

Eligible borrowers

Any person resident in India (other than individuals) which is incorporated or established under a central or state act qualifies as an eligible borrower.

Recognised lenders

ECBs can only be extended by a person resident outside India, an overseas branch of an entity whose lending business is regulated by the RBI, or a financial institution or branch of a financial institution set up in the IFSC.

Borrowing limits

Eligible borrowers are permitted to raise ECB up to the higher of:

• outstanding ECBs up to USD1 billion; and
• total outstanding borrowings (external and domestic) up to 300% of net worth (based on last audited standalone financials).

For the purpose of calculating the outstanding borrowing, non-fund based credit and mandatorily convertible instruments are excluded from the computation. Further, for borrowing entities that are regulated by financial sector regulators, the above limits do not apply, and such entities can borrow uncapped amounts.

Minimum average maturity

The minimum average maturity period (MAMP) of an ECB is three years. Manufacturing entities can also raise ECBs with an average maturity of between one and three years, subject to the outstanding amount of such ECB not exceeding USD150 million. Call and put options cannot be exercised before completion of MAMP.

Cost of borrowing

The borrowing cost must align with prevailing market conditions. For ECBs with average maturity period below three years, the cost of borrowing must comply with the prescribed ceiling for trade credits under the New ECB Framework. For fixed-rate loans, the all-in-cost benchmark (floating rate plus swap spread) must remain within prescribed ceilings. Penal interest and prepayment charges must also reflect market standards and are not required to be capped at 2% as earlier.

Cross-Border Acquisition Finance

Inbound acquisition finance: offshore acquirer

Typically, the offshore acquirer sets up an SPV outside India (FDI SPV), which acquires shares of an Indian target through foreign direct investment (FDI) into India. The FDI SPV raises debt from offshore lenders in the form of senior loans to finance the acquisition. Such loans are secured by the assets and shares of the FDI SPV (other than the shares of the Indian target and any other Indian assets).

Given that there are restrictions under Indian exchange control laws on pledging shares of an Indian target to secure acquisition finance availed by the FDI SPV, generally a non-disposal undertaking is obtained in relation to the Indian target shares held by the acquirer, coupled with a pledge on the acquirer shares.

If the Indian target is a listed company and the FDI SPV holds (together with persons acting in concert) 25% or more shares or voting rights in the target, or controls the target, any enforcement of the pledge on the shares of the FDI SPV may trigger a mandatory open-offer requirement under the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 (the “Takeover Regulations”). A mandatory open offer must be made for at least 26% of the voting shares of the target.

In the case of sponsor financing, the financing may also benefit from an equity commitment letter from the sponsor.

Inbound Acquisition Finance: FOCC

As mentioned previously, a FOCC cannot use acquisition finance from Indian banks, financial institutions or Indian funds, as FOCCs are not permitted to leverage in the Indian market to acquire shares. If the acquisition is through a FOCC, the debt can be raised by the FOCC by issuing NCDs subscribed to by FPIs. FOCCs can now also raise ECBs for funding control deals as per the New ECB Framework. NCDs and ECBs are typically structured as senior debt and are secured by the assets of the FOCC and a pledge on the shares of the target. Further, if the target is a private limited company, security can be created on the assets of the target to secure the acquisition finance. However, such security may need to be shared with the other lenders of the FOCC and the target.

NCDs must have a 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 the RBI. It should be noted that:

• investment by any FPI, including investments by related FPIs, should not exceed 50% of any issuance of NCDs;
• if an FPI, including related FPIs, has invested in more than 50% of any single issue, it cannot make further investments in that issue until this requirement is met; and
• FPIs cannot invest in partly paid NCDs.

The RBI has also provided a separate channel, called the Voluntary Retention Route (VRR), to enable FPIs to invest in NCDs. The investments through the VRR are free of the macro-prudential and other regulatory norms applicable to FPI investments in debt markets, provided that FPIs voluntarily commit to retaining a required minimum percentage of their investments in India for a specified period. If the FPI invests in the NCDs under the VRR, the minimum average maturity, single-borrower limits and concentration norms do not apply to those NCD investments.

Outbound Acquisition Finance

For an outbound acquisition made directly by an Indian acquirer, the following financing structures are typically adopted.

Onshore financing

An Indian company can raise loans from Indian banks for an outbound acquisition. Such loans can be utilised by the Indian company towards the acquisition of equity in overseas joint ventures/ wholly owned subsidiaries or other overseas companies, new or existing, as a strategic investment. For financing such an acquisition, an Indian acquirer can raise funds from banks or NBFCs in India or by the issuance of NCDs, which can, inter alia, be subscribed by domestic mutual funds, AIFs and/or FPIs. Once the New Acquisition Finance Framework comes into force, any financing by Indian banks for offshore acquisition will also be governed by the New Acquisition Finance Framework.

Offshore financing

In certain cases, the Indian acquirer sets up an Offshore SPV for acquiring the target in accordance with the guidelines issued by the RBI in relation to overseas direct investments (the “OI Guidelines”). The Offshore SPV then borrows funds from offshore lenders, funds, capital markets and other financial institutions.

While payment-in-kind (PIK) loans are not very popular in India, where the borrower is an Indian acquirer, PIK loans are generally structured by way of NCDs. Loans from NBFCs can also be in the form of PIK loans. Since the RBI requires banks to charge interest monthly, Indian banks cannot extend PIK loans. However, there have been PIK structures where the borrower was an entity incorporated outside India.

Mezzanine finance is generally raised in the form of:

• compulsorily convertible preference shares;
• optionally or partially convertible preference shares;
• compulsorily convertible debentures; or
• optionally or partially convertible debentures.

However, if the mezzanine finance is provided by an offshore entity, optionally or partially convertible preference shares or optionally convertible debentures are treated as ECBs and must comply with the New ECB Framework.

Bridge loans for acquisition finance are need-based and are raised pending the tie-up of the final financing for the acquisition. These bridge loans for acquisition finance are generally availed from NBFCs. ECBs cannot be structured as bridge loans due to their minimum average maturity period requirement. Further, NCDs with a maturity period of less than one year are subject to conditions under the RBI Short-term NCD Guidelines and are not prevalent.

ECBs can be raised from abroad by issuing bonds. Such bonds can be either listed or unlisted. The yield on such bonds will need to comply with the “Cost of Borrowing” requirement under the New ECB Framework. Given the liberalisation under the New ECB Framework, it will be interesting to see if high yield bonds will be used for control deals in acquisition financings.

Domestically, bonds are issued as NCDs. Where the issuers are not investment grade, the NCDs can be high-yield bonds as there is no interest cap for the NCDs. The return on the NCDs can be linked to the returns on other underlying securities/indices. However, such NCDs must comply with the structured product guidelines issued by the SEBI.

Further, NCDs are required to have a minimum maturity of 90 days. If NCDs are issued with a maturity of less than one year, they are regulated by guidelines issued by the RBI in this regard (the RBI Short-term NCD Guidelines). The RBI Short-term NCD Guidelines prescribe stringent guidelines for such issuances, including a minimum rating requirement of “A3” as per the rating symbol and definition prescribed by the SEBI and specific eligibility requirements for the issuer.

The NCD route offers greater flexibility on payment of interest to NCD holders, as there are no interest rate caps for privately placed NCDs. However, no call or put option can be exercised in relation to privately placed listed NCDs prior to the expiry of 12 months from the date of their issuance.

An Offshore SPV may also issue bonds outside India for financing the acquisition of shares of an Indian company.

ECBs issued as bonds can be privately placed with the eligible lenders outside India. An offer or invitation to subscribe to privately placed NCDs can be made to no more than 200 persons on aggregate in a financial year. Unlisted NCDs need to comply with the Companies Act. Further, if the NCDs are listed on a recognised stock exchange in India, their issuance should follow the guidelines issued by the SEBI in this regard, in addition to the conditions prescribed under the Companies Act.

As discussed in 5. Security, security can be created (to the extent discussed therein) for various financings that may be availed of for funding acquisitions. Acquisition finance (as discussed throughout 3. Structures) can also be asset-backed. The borrower in such structures is usually required to maintain a certain loan-to-value (LTV) ratio or security cover ratio.

Intercreditor agreements are common in the Indian market, where security is shared between multiple lenders. The intercreditor agreements provide for arrangements between various classes of creditors. Generally, the borrower is not a party to the intercreditor agreement. However, it executes an acknowledgement to the intercreditor agreement.

Intercreditor agreements govern the following, inter alia:

• ranking of security and order of priority among the creditors;
• consultation periods before taking any enforcement actions in relation to the security;
• a waterfall for distribution of enforcement proceeds;
• a decision mechanism as to the waiver of events of default;
• voting rights of different classes of lenders;
• collective action and a common approach to security enforcement, and exceptions thereto; and
• a mechanism for declaring an event of default, and manner of enforcement of security thereafter.

In relation to ECBs and acquisition financing, where the acquirer is an Overseas SPV or an FDI SPV, and the funding is obtained from foreign lenders, the intercreditor agreements will generally be based on the APLMA or LMA forms.

In liquidation of the borrower, an intercreditor agreement between lenders setting out equal ranking – which disrupts the order of priority set out under the IBC – is not required to be considered by the liquidator. The SEBI has issued regulations and circulars that specify the process to be followed by debenture trustees of listed NCDs to enforce security and execute intercreditor agreements.

The approach remains the same as previously set out. If the security is to be shared between the lenders of the borrower and the bondholders, similar intercreditor agreements must be established.

If the hedges obtained by the borrower are secured with the assets on which other lenders also have security, the hedge counterparties are also parties to the intercreditor agreements. The rights of the hedge counterparty under the intercreditor agreements are synonymous with the ranking of its security.

Security on the assets of an Indian entity and shares of an Indian company is usually created in the following manner.

Immovable Property

Security over immovable property such as land and buildings is created in the form of a mortgage governed primarily by the Transfer of Property Act, 1882 (the “TOP Act”). The common forms of mortgage are an English mortgage (a registered mortgage) and an equitable mortgage (a mortgage created by depositing the title deeds with the lender or security trustee).

The TOP Act provides that a mortgage (other than an equitable mortgage) for repayment of money exceeding INR100 must be created by a registered instrument. The instrument creating the mortgage must be signed by the mortgagor and registered with the land registry where the mortgaged immovable property is situated.

For an equitable mortgage, the authorised representative of the mortgagor deposits the title deeds in relation to the immovable property with the lender or security trustee intending to create a mortgage, and provides a declaration at the time of the deposit. The lender or security trustee records the deposit of title deeds by way of a memorandum of entry. In some states, an equitable mortgage needs to be registered or notified to the land registry.

Shares and Other Securities

Security over shares and other securities is typically created through a pledge. A pledge agreement is entered into between the pledgor and pledgee to create and record the pledge. The pledgor also issues a separate power of attorney in favour of the pledgee that allows the pledgee to deal with the pledged shares/securities in an event of default and to take other actions on behalf of the pledgor.

Movable Property

Movable property – such as receivables, plant and machinery, accounts and stock – is usually secured by way of hypothecation. Under Indian law, hypothecation generally means a charge over any movable property. The charge created by hypothecation may be a fixed charge over identifiable assets or fixed assets, and is usually a floating charge over current assets and stock-in-trade. The security provider executes a deed of hypothecation in favour of the lender or security trustee.

Types of Security for Acquisition Finance

The security that can be created for the various acquisition finance structures is discussed below.

Domestic acquisition finance

Acquisition finance by an Indian entity by way of NCDs or loans from NBFCs or Indian banks is domestic debt and can be secured by the Indian assets of the acquirer and the Indian group companies of the acquirer.

Inbound acquisition finance: offshore acquirer

Any acquisition financing availed by an offshore acquirer for the purpose of acquiring the shares of an Indian company cannot be secured by a pledge on the shares acquired by the offshore acquirer without the prior approval of the RBI. Further, no security can be created on the Indian assets of the target or any other person resident in India for securing any such acquisition finance.

Inbound acquisition finance: FOCC

Acquisition finance availed by a FOCC by way of NCDs is domestic debt and can be secured by Indian assets of the FOCC. Security on Indian assets of the target will be subject to financial assistance rules. However, prior approval of the RBI is required to create a pledge on the shares of the FOCC held by the non-resident shareholder to secure the NCDs.

Outbound acquisition finance

Any security provided by an Indian entity for finance availed by an Offshore SPV will be governed by the OI Guidelines. The revised OI Guidelines were introduced in August 2022 with the intent of liberalising and simplifying the regulatory framework governing overseas investments, and with a view to promoting ease of doing business.

In order to provide a financial commitment (which includes security and guarantee) for any borrowing by an Offshore SPV, an Indian entity must satisfy the following conditions:

• the Indian entity should be eligible to make overseas direct investment (ODI);
• the Indian entity should have made ODI in the foreign entity; and
• the Indian entity should have acquired control in such foreign entity at the time of making such financial commitment.

It is also important to note that an Indian entity will not be able to provide any financial commitment (including any guarantee or security) for any borrowing by an Offshore SPV if there is any delay in filing or reporting by the Indian entity in relation to such offshore entity, unless such delay is regularised. Further, an Indian entity can make an investment/financial commitment after it has obtained a no-objection certificate from the lender bank/regulatory body/investigative agency if:

• it has an account appearing as a non-performing asset;
• it is classified as a wilful defaulter by any bank; or
• it is under investigation by a financial service regulator or investigative agencies in India, namely the Central Bureau of Investigation, the Directorate of Enforcement or the Serious Frauds Investigation Office.

In order to further streamline matters, a deemed no-objection is also provided for, where a no-objection certificate is not issued by the lender bank/regulatory body/investigative agency within a period of 60 days.

The following security can be created in the case of an outbound acquisition finance, subject to the Indian entity complying with the conditions and other qualitative and quantitative restrictions set out under the OI Guidelines and after obtaining the approval of the authorised dealer bank (ie, banks in India that have been given special licences to deal with foreign exchange) (“AD Bank”):

• a pledge on the shares of an overseas target or the Offshore SPV, or the shares of its offshore step-down subsidiary, to secure facilities availed from an AD Bank or a public financial institution in India;
• a pledge on the shares of the Offshore SPV or its offshore step-down subsidiary to secure facilities availed from overseas lenders;
• a charge on the assets of the Indian entity, its group company or associate company in India, promoters and/or directors, to secure facilities availed from an AD Bank or a public financial institution in India or overseas lenders; and
• a charge on the assets of the Offshore SPV, its offshore step-down subsidiary or the overseas target to secure loans availed from an AD Bank or public financial institution in India.

The overseas lenders in whose favour any pledge or charge is created as above should not be from a country/jurisdiction in which a financial commitment is not permitted under the OI Guidelines.

Further, the value of the facility is assessed as a financial commitment for the Indian party, and the total financial commitment of the Indian party should be within the limits set out in the OI Guidelines. Currently, this limit is 400% of the net worth of the Indian entity, subject to a maximum of USD1 billion (or its equivalent) in one financial year.

In the case of ECBs, security can be created over movable property, immovable property, financial securities and intangible assets (including intellectual property rights) in favour of or for the benefit of an ECB lender. If applicable, a no-objection certificate from the existing lenders in India will have to be obtained prior to creation of such security.

The acquisition finance availed by an Indian acquirer from Indian banks or financial institutions for an outbound acquisition can be secured by security on the Indian assets of the acquirer or the Indian group companies of the acquirer.

Generally, the following perfection requirements exist in relation to the security created on the assets of an Indian company:

• any security on movable or immovable assets of a company or pledge on shares held by an Indian company must be registered with the registrar of companies (ROC) within 30 days of the creation of the charge;
• any security by way of mortgage or hypothecation is required to be registered with the Central Registry of Securitisation Asset Reconstruction and Security Interest of India;
• mortgages (except equitable mortgages) of immovable property have to be registered as per the Indian Registration Act, 1908, within four months of the execution of the mortgage deed with the concerned land registry – further, in certain states, equitable mortgages are also required to be registered or notified with the concerned land registry; and
• for shares and other securities held in dematerialised form, forms are required to be filed with the depository participant to create a pledge or non-disposal undertaking.

See 5.2 Form Requirements for various security perfection and registration requirements. Further, any security created under the OI Guidelines will also need to be reported to the RBI through the AD Bank in the form prescribed under the OI Guidelines.

Generally, upstream security can be provided by an Indian company for the indebtedness of its Indian holding company, subject to compliance with the provisions of the Companies Act. See the discussion in 5.6 Other Restrictions in relation to shareholder resolutions and common directors that will need to be complied with to create any such security. The creation of upstream security by an Indian company for financing availed by an offshore holding company is restricted under the FEMA.

However, upstream security on the assets of the target (which is not a private company) may not be possible for a debt used to acquire the shares of the target. See the discussion in 5.5 Financial Assistance.

As per the Companies Act, a public company (whether listed or not) is prohibited from providing any direct or indirect financial assistance to any person for subscription to, or the purchase of, its 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. This restriction does not apply to a private company. In view of the foregoing, a target company that is a public company cannot grant security over its assets or provide guarantees in relation to acquisition finance availed for acquiring its shares.

Shareholders’ approval by way of special resolution (75%) is required under the Companies Act 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 provided for a financing utilised by the company’s wholly owned subsidiary or joint venture.

Further, as per the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (the “LODR Regulations”), for an Indian listed company to provide security for debt availed by it or any other person, subject to certain exceptions, the listed entity will require the prior approval of its shareholders by way of special resolution, with the votes cast by the public shareholders in favour of the resolution exceeding the votes cast by public shareholders against the resolution. Further, the public shareholders who vote should not in any way be interested in the transaction. This requirement will not be applicable in cases of sale, lease or other disposal of the whole or substantially the whole of the undertaking of a listed entity by virtue of a covenant covered under an agreement with a financial institution regulated by or registered with the RBI or with a debenture trustee registered with the SEBI.

As per the Companies Act, 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. Certain relevant exceptions to this rule are:

• loans made by a holding company to its wholly owned subsidiary company, or any guarantee given or security provided by a holding company in respect of any loan made to its wholly owned subsidiary company, if the loans are utilised by the wholly owned subsidiary for its principal business activities;
• a guarantee given or security provided by a holding company in respect of loans made by any bank or financial institution to its subsidiary company, if the loans are utilised by the wholly owned 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 as specified under the Companies Act; or
• if the lending company obtains the approval of at least 75% of its shareholders for any guarantee or security provided, and the loans availed by the borrower are utilised by it for its principal business activities.

Generally, a lender may enforce its security on the occurrence of an event of default. The process to be followed to enforce the security is briefly set out below.

Immovable Property

If the mortgage is an English mortgage, the mortgagee has the power to sell the mortgaged property without the intervention of the court, subject to certain notification requirements. Where the mortgage is an equitable mortgage, the mortgagor must apply to the court for a decree to sell the mortgaged property to recover the debt.

Indian banks, certain notified financial institutions and debenture trustees for listed and secured NCDs can enforce a mortgage under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI), which provides for a quicker mode of enforcement of security.

Movable Property

The rights and remedies of a hypothecatee are entirely regulated by the deed of hypothecation with the hypothecator (security-provider), and are enforced either by appointing a receiver and selling the charged assets or by obtaining a decree for the sale of the movable property. Indian banks, certain notified financial institutions and debenture trustees for listed and secured NCDs can enforce hypothecation under the SARFAESI, which provides for a quicker mode of enforcement of security.

Pledge Over Shares

A pledgee may enforce a pledge by giving reasonable notice of enforcement to the pledgor. The pledgee does not need to obtain a court order to sell the pledged shares. If the pledged shares are held in physical form, the pledgee must submit to the company whose shares are pledged the executed share transfer forms held by the pledgee. The company will then need to approve the transfer of shares in the name of the lender or third-party transferee at its board meeting. If the company refuses to approve the transfer of shares, the lender or third-party transferee will need to approach the competent courts and tribunals to challenge that refusal.

If a company is admitted to the Corporate Insolvency Resolution Procedure (CIRP) under the IBC, or if a pre-packaged insolvency resolution process commences against a company under the IBC, no security can be enforced, due to the moratorium imposed under the IBC. Where the company is to be liquidated under the IBC, a secured creditor will have an option to realise its security and receive proceeds from the sale of the secured assets in priority. Additionally, in the case of any shortfall in recovery, the secured creditors will rank junior to the unsecured creditors to the extent of the shortfall.

Generally, a guarantee is obtained from the holding or group company of the acquirer or the target (where financial assistance rules are not attracted). If the guarantee is issued by a non-resident entity for an NCD, that guarantee will need to comply with the conditions prescribed under the FEMA (Guarantees) Regulations, 2026, including the following:

• the underlying transaction for which the guarantee is being given should not be prohibited under the FEMA or any rules or regulations issued thereunder;
• the guarantor and the borrower should be eligible to lend and borrow from each other, respectively; and
• the guarantee, any subsequent change in its terms and any invocation of the guarantee must be reported in the prescribed format to the authorised dealer for onward submission to the RBI.

Under the OI Guidelines, an Indian company that holds shares in an Offshore SPV can provide a guarantee or procure a guarantee from:

• a group company of the Indian company in India, being a holding company (which holds at least 51% in the Indian company), a subsidiary company (in which the Indian company holds at least 51%) or a promoter group company, which is a body corporate;
• a personal guarantee by the resident individual promoter of such Indian company; or
• a bank guarantee, which is backed by a counter-guarantee or collateral by the Indian company or its group company as above, and is issued by a bank in India.

The foregoing are subject to certain qualitative and quantitative requirements specified in the OI Guidelines, including the following:

• the guarantee should not be open-ended and the amount and validity period of the guarantee should be specified upfront;
• all the financial commitments undertaken by the Indian entity, including all forms of loans, guarantees, investments and creation of charge, must be within the overall ceiling prescribed for the Indian entity under the OI Guidelines (currently, 400% of the “net worth” ‏of the Indian party as defined under the Companies Act, 2013 and which should also not exceed USD1 billion (or its equivalent) during a financial year);
• where the guarantee is extended by a group company, it is required to be counted towards the utilisation of the financial commitment limit of such group company independently, and, in the case of a resident individual promoter, the same is required to be counted towards the financial commitment limit of the Indian entity; and
• the conditions discussed in 5.5 Financial Assistance in relation to financial assistance by an Indian party will also apply.

Any guarantee given by a listed company for the benefit of its wholly owned subsidiary should be in accordance with applicable laws for related party transactions. The requirements stipulated under the LODR Regulations will also be applicable to a listed entity that has listed its non-convertible debt securities and has an outstanding value of listed non-convertible debt securities of INR50 billion. In accordance with the LODR Regulations, the issuance of a guarantee by the listed entity for its subsidiary will require the prior approval of the audit committee of the listed entity and the prior approval of the shareholders of the listed entity. However, such approvals will not be applicable in the case of a transaction involving a wholly owned subsidiary whose accounts are consolidated with the listed entity and placed before the shareholders at the general meeting of the listed entity for approval.

See 5.6 Other Restrictions in relation to the restrictions under the Companies Act for issuance of guarantees.

Under Indian law, it is not mandatory for the borrower to pay a guarantee fee to the guarantor. However, a guarantee fee (if any) or commission is usually paid to comply with the requirement that the guarantee has been issued on an arm’s length basis. Prior approval of the RBI may be required for payment of any guarantee fees by a person in India to a person outside India in relation to a guarantee issued by that person. Guarantees provided for the benefit of related parties are subject to goods and services tax.

The IBC provides for a payment waterfall for the creditors in the event of the liquidation of a company. The priority waterfall for distribution of liquidation proceeds, prescribed under the IBC, is as follows:

• the costs of the insolvency resolution (including any interim finance);
• secured creditors (who are not enforcing their security outside the liquidation), together with workmen’s dues for the preceding 24 months;
• any unpaid dues owed to employees other than workmen and wages for 12 months preceding the liquidation commencement date;
• financial debts owed to unsecured creditors;
• amounts payable to the central and state governments for the preceding 24 months, and unrealised dues of secured creditors outside the liquidation;
• any remaining debts and dues;
• preference shareholders, if any; and
• equity shareholders or partners, as the case may be.

The Supreme Court has held that there is no provision under the IBC which mandates that a related party should be paid in parity with an unrelated party, and a differential payment to different classes of creditors in the resolution plan is subject to the commercial wisdom of the Committee of Creditors (CoC).

The different preference periods or reasons for claw-back during insolvency or the CIRP of an Indian company are set out as follows.

Preferential Transaction

Under the IBC, a corporate debtor shall be deemed to have been given preference if:

• there is a transfer of property or an interest therein of the corporate debtor for the benefit of a creditor, a surety or a guarantor, or other liabilities owed by the corporate debtor; and
• that transfer has the effect of putting the creditor, a surety or a guarantor in a more beneficial position than it would have been in the event of distribution of assets being made in liquidation of the corporate debtor.

However, the following are not considered as preferential transactions.

• Transfer in the ordinary course of business or financial affairs of the corporate debtor and the transferee.
• Any transfer creating a security interest in property acquired by the corporate debtor, if:
1. that 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 the property as a security interest and used by the corporate debtor to acquire that property; and
2. the transfer was registered with an information utility on or before 30 days after the corporate debtor received possession of the property.

The claw-back period in relation to a related party (other than being an employee) is two years preceding the insolvency commencement date (ICD) and for a non-related party is one year preceding the ICD.

Undervalued Transaction

A transaction (other than a transaction in the ordinary course of business of the corporate debtor) is 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.

However, the following transactions are not considered undervalued:

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

The claw-back period in relation to a related party is two years preceding the ICD, and, for a non-related party, one year preceding the ICD.

Undervalued Transaction Defrauding Creditors

An undervalued transaction (as previously discussed) entered into by a corporate debtor is considered to be entered into for defrauding the creditor if the court/tribunal is satisfied that the corporate debtor deliberately entered into the transaction to keep the assets of the corporate debtor away from any person entitled to make a claim against the corporate debtor, or to adversely affect the interest of that person in relation to the claim. No specific claw-back period is specified for such transactions.

Extortionate Credit Transaction

Extortionate credit transactions are transactions where the corporate debtor is a party to a transaction involving the receipt of financial or operational debt during the period within two years preceding the ICD, and where the terms of the transaction:

• 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 that comply with the law is not considered an extortionate credit transaction.

Stamp duty is required to be paid on a facility agreement and security documents at the time of or prior to execution. An insufficiently stamped document is not admissible as evidence in a court of law. Stamp duty differs from state to state and is determined based on the nature of the document.

Interest payments by an Indian company on money borrowed or debt incurred in foreign currency are subject to tax withholding at 20% (plus applicable surcharge and cess), while in other cases tax withholding at 35% (plus applicable surcharge and cess) applies. This is subject to the availability of tax treaty benefits and compliance with the requisite conditions for availing such benefits.

Further, foreign banks that have a branch in India (ie, a permanent establishment – PE) and which are generally taxed at the rate of 35% (plus applicable surcharge and cess) can apply for and obtain a certificate allowing the borrower to deduct tax at a lower appropriate rate, having regard to the overall tax liability of the Indian branch of the foreign bank. Upon sharing such a certificate with the borrower, the borrower can withhold tax at the rate prescribed therein.

The act of withholding tax is an obligation of the borrower, who must deposit the taxes withheld with the authorities, file a quarterly tax withholding return and issue a certificate evidencing the tax withheld and deposited. The lender can claim the credit of the tax withheld on interest to meet its tax liabilities in India. A credit for such taxes may also be claimed in the country of residence, subject to the applicable laws of such country.

Interest paid on debt incurred to acquire equity or preference shares (held as a capital asset and not as stock-in-trade) is generally not considered as a deductible expense for tax purposes.

Provisions dealing with thin capitalisation in respect of interest payments are contained in the Indian Income Tax Act 2025. These impose limitations on the deduction of excess interest (ie, any amount that exceeds 30% of the earnings before interest, taxes, depreciation and amortisation of the borrower being an Indian company or a PE of a foreign company) incurred by way of interest or payments of a similar nature by an Indian company or a PE to its non-resident associate enterprise in respect of debt borrowed.

The thin-capitalisation rules are also applicable in instances of interest payments to third-party lenders who provide a loan on the basis of an associated enterprise, either providing an explicit or implicit guarantee to that third-party lender or depositing a corresponding amount with such lender.

Thin-capitalisation provisions do not apply to Indian companies and PEs engaged in certain specified businesses such as banking or insurance business, specified companies located in an International Financial Service Centre or certain notified NBFCs. These provisions are also not applicable with respect to interest paid in respect of a debt issued by a lender that is a PE of a non-resident that is engaged in the business of banking (for example, where the lender is the branch of a foreign bank in India).

The above rules are applicable only where the interest or payments of a similar nature exceed INR10 million. Further, the interest expense that is disallowed against income of a particular year shall be allowed to be carried forward and allowed as a deduction against profits and gains of business or profession for a period of up to eight assessment years, subject to the limits mentioned.

Other than in relation to the acquisition of a listed target (see 9.2 Listed Targets), there are no specific regulatory requirements to demonstrate certain funds. Indian sellers may, in certain cases, expect bidders to demonstrate that they have binding commitments before selecting a winning bidder and executing definitive documentation.

Under the IBC, a resolution applicant (bidder for the company under a CIRP) is required to submit performance security after approval of its bid. The performance security will be forfeited if the resolution applicant fails to implement the resolution plan.

If the acquisition of a listed company triggers the requirement of making an open offer by the acquirer under the Takeover Regulations, the acquirer must fund an escrow account with the required funds in accordance with the Takeover Regulations. The funds can be provided in the form of cash deposited in an escrow account, a bank guarantee issued in favour of the manager of the offer by any scheduled commercial bank, or the deposit of frequently traded and freely transferable securities with an appropriate margin. Where the acquirer proposes to fund the escrow account by availing financing, the manager of the offer may need to be satisfied that such financing is available.

Disclosure of an Encumbrance on Listed Shares

Under the Takeover Regulations, shares taken by way of an encumbrance are treated as acquisitions and are required to be disclosed. Similarly, shares released from an encumbrance are treated as a sale and must also be disclosed.

The Takeover Regulations define “encumbrance” widely to include:

• any restriction on the free and marketable title to shares, by whatever name called, whether executed directly or indirectly;
• a pledge, lien, negative lien or non-disposal undertaking; or
• any covenant, transaction, condition or arrangement in the nature of encumbrance, by whatever name called, whether executed directly or indirectly.

Disclosure requirements apply to:

• any acquisition of shares or voting rights of 5% or more, and thereafter any change in shares or voting rights so disclosed where such change is above 2% when compared to the last disclosure; and
• any encumbrance created by the promoter on the shares of the listed entity.

The SEBI, in its frequently asked questions on the Takeover Regulations, has clarified that the promoter of a listed company has to disclose, within specified timelines, detailed reasons for an encumbrance on the shares of the listed company if the combined encumbrance by the promoter, along with persons acting in concert with the promoter, equals or exceeds either 50% of their shareholding in the listed company or 20% of the total share capital of the listed company. Such disclosure has to be made to the listed company and every stock exchange where the shares of the company are listed.

Therefore, covenants or other conditions in financing documents that create an encumbrance (directly or indirectly) on the shares or voting rights of the listed company may require disclosures under the Takeover Regulations. Any such covenants may include any borrowing limits linked to the value of listed shares, a requirement to hold a specific number or value of the listed shares and a consent requirement for disposal of the listed shares. However, the disclosure requirements will not be applicable where such encumbrance is undertaken through a depository.

Disclosure of Specified Agreements

The LODR Regulations require that any agreements entered into by the shareholders, promoters or promoter group entities, related parties, directors, key managerial personnel or employees of a listed entity or of its holding, subsidiary or associate company, among themselves or with the listed entity or a third party, which directly, indirectly or potentially impact, or whose purpose and effect is to impact, the management or control of the listed entity, are required to be disclosed to the stock exchanges, along with any amendments or alterations to such agreements.

Public Shareholders Approval for Disposal by a Listed Entity

For the purposes of providing security for any financing being availed, a sale or disposal by a listed entity of the whole or substantially whole of its undertaking (other than pursuant to a court-approved scheme of arrangement) requires the prior approval of its shareholders by way of a special resolution where the votes cast by the public shareholders in favour of the resolution need to exceed the votes cast by public shareholders against such resolution. Further, the object and commercial rationale for carrying out such sale along with the use of the proceeds from such sale are required to be disclosed by the listed entity to its shareholders. The exemption from the above requirements is available only in the case of a transaction between the listed entity and its wholly owned subsidiary whose accounts are consolidated.

Issuance of Listed NCDs

The SEBI (Issue and Listing of Non-Convertible Securities) Regulations, 2021 (the “NCS Regulations”) govern the following issuances:

• public issuances of non-convertible debt securities and non-convertible redeemable preference shares;
• private placements of non-convertible securities; and
• commercial papers.

As per the NCS regulations, issuers who have been in existence for less than three years are permitted to issue and list their debt securities on a private placement basis, but subject to the conditions that:

• the issuer discloses its financial statements for such period of existence;
• the issuance is made on the electronic book platform; and
• the issuance is made only to qualified institutional buyers.

The NCS Regulations provide that no call or put option can be exercised in relation to privately placed, listed NCDs prior to the expiry of 12 months from the date of their issuance.