The private credit market in India has been on a steady upwards trajectory. According to publicly available data, private credit deals witnessed a 22.4% increase on a deal value basis in the first half of financial year (FY) 2024–25 (compared to the same period in the previous FY). The deal value in the first half of FY 2024–25 aggregated to approximately USD6 billion. In FY 2023–24, private credit deals in India crossed an aggregate deal value of USD8.5 billion.

The push from the Indian government towards the development of infrastructure and manufacturing in India has provided a conducive environment for growth of the private credit market in India. The projected growth trajectory of the Indian economy has also garnered interest in the Indian market among global private credit players.

In 2024, the real estate sector led the way, accounting for 28.3% of the total deal volume. Utilities and infrastructure followed with 15.7% and 10.7% respectively. Other emerging sectors included renewable energy, healthcare and pharmaceuticals. However, sectors such as renewable energy, data centres, logistics and healthcare are expected to provide significant opportunities in the coming years.

With the overall positive outlook, the requirement of growth capital and the availability of surplus dry powder, the Indian private credit market is set to grow exponentially in the next few years.

The Indian debt market is dominated by Indian banks, with the major players being the public sector banks and other private banks. The Reserve Bank of India (RBI) is the central bank of India and regulates Indian banks. Under the Indian banking regulations, Indian banks can only lend for productive purposes.

Private credit funds are a flexible source of capital that can be used for a variety of purposes that Indian banks may not be able to service or where funding from Indian banks is due to regulatory restrictions on end use and exposure norms. Therefore, there has not been a significant overlap between the Indian public debt market and the private credit market.

As private credit is at a nascent stage in India, there has not yet been a significant number of private credit transactions refinanced by borrowings raised from banks and the public bond market. However, it is anticipated that the next couple of years will witness an upturn in such refinancing where the banks are permitted to refinance within the regulatory framework of RBI.

As mentioned in 1.2 Interaction With Public Matters, RBI regulations permit an Indian bank to finance the acquisition of equity shares in limited circumstances. Generally, a promoter’s contribution towards equity cannot be funded by a bank, and banks cannot finance the acquisition of equity shares other than in exceptional cases. Therefore, financing for a domestic acquisition has generally been from non-banking financial companies (NBFCs) or through the issuance of non-convertible debentures (NCDs) in the debt market. The investors in such NCDs can be foreign portfolio investors (FPIs), mutual funds or alternative investment funds (AIFs).

Domestic acquisition finance was previously majorly dominated by NBFCs, but the arbitrage enjoyed by NBFCs has reduced drastically and, due to the failure of some large NBFCs, private credit funds have become major players in financing acquisitions in the last 12 months.

The private credit market in India is currently in its evolutionary stage. The market has witnessed significant growth in recent years, with investments reaching an all-time high in the first half of 2024.

In recent times, with the influx of local wealth funds, increased retail investor participation in the equity market and the Securities Exchange Board of India (SEBI) allowing for small and medium enterprises listings, a substantial number of companies have raised money by going public rather than availing debt.

Furthermore, private credit players that are organised as AIFs in India have to comply with exposure and concentration norms. Some funds are also restricted by their fund documents and investment strategies to invest in certain sectors. Such restrictions limit the investment ability of the AIFs.

The Indian debt market is focused predominantly on senior or pari passu debt instruments. Typically, senior debt is funded by the lenders, and subordinated debt and equity infusion is provided by the sponsor/promoter. However, junior and hybrid investments are made by private credit funds where required.

Private credit funds have also deployed funds in convertible instruments, quasi-equity instruments and warrants alongside debt instruments issued by the borrowers.

Investments by foreign investors or foreign sponsored AIFs in quasi-equity instruments like warrants and equity instruments are regulated by the Indian foreign exchange laws, which are prescriptive.

Private credit solutions gained traction in the Indian market due to financial difficulties faced by NBFCs and situations where the end use of funds restrict bank funding. They also gained momentum as new age companies, which did not want to dilute equity, were able to access private credit funds, albeit at a higher cost. Private credit deals are more prevalent for funding growth capital, acquisitions, high-risk sectors, special situations and start-ups. Therefore, in India, private credit providers do not focus primarily on companies with private equity sponsors and their portfolio companies.

International and domestic private credit funds have also participated in the acquisition of companies undergoing insolvency resolution processes, where the actual returns are dependent on the turnaround of the asset. However, itis less common for companies requiring long-term debt to avail funding from private credit funds.

Recurring revenue financing, which is based on the borrower’s recurring revenue rather than earnings before interest, taxes, depreciation and amortisation (EBITDA), has not been predominant.

Recurring revenue financing in the form of discounting transactions and loans against scheduled revenues has been used by companies with stable revenues. There are certain private credit funds that provide funding to these companies.

The size of private credit transactions depends on the requirements of the borrowers and the ability of the lenders to provide such limits, which usually fall in the “mid-cap” range. An indicative range for Indian private credit funds is USD10 million to USD50 million, but there are examples of such funds lending up to USD150 million. In contrast, certain deals have been in the range of USD150 million to USD300 million, or even higher.

High net worth individuals and family offices continue to fund Indian private credit players, as the fixed income stream is attractive for them as an investment option.

FPIs and AIFs are required to register with SEBI and are governed by the regulations issued by SEBI. Furthermore, any investment by FPIs in NCDs is regulated by the Foreign Exchange Management Act, 1999 of India (FEMA) and other rules and regulations framed by RBI and SEBI from time to time.

Currently, there are no proposed reforms or legislation that will affect lending by private credit funds in India at a macro level.

In a board meeting, SEBI has approved the issuance of a model format for the debenture trust deed (the document pursuant to which NCDs are issued) for the issuance of listed NCDs (Model DTD). While parties will be permitted to modify the Model DTD, any deviations will need to be disclosed to the stock exchange. This change has been proposed to standardise the documents relating to debt securities and to ensure increased participation by investors. The amendments to effect these changes have been approved by SEBI in its board meeting.

Domestic private credit funds are primarily structured as AIFs and are regulated by SEBI.

Foreign investors that want to participate in the private credit market in India can do so either by registering as an FPI with SEBI, or by lending through their offshore entity under the external commercial borrowings (ECBs) route.

Please see 1.9 Impending Regulation and Reform and 2.1 Regulatory Approval.

Any investment by a foreign investor in units of an AIF is regulated by the FEMA and the rules and regulations framed thereunder. A person resident outside India (other than a citizen of Pakistan or Bangladesh) or an entity incorporated outside India (other than an entity incorporated in Pakistan or Bangladesh) is permitted to invest in units of an AIF. Any sale, transfer or redemption of units acquired or purchased by a non-resident in AIF is regulated by SEBI and/or RBI.

If either the sponsor, manager or investment manager of an AIF is not Indian “owned and controlled”, then any downstream investment by such AIF is regarded as foreign investment and is required to comply with the relevant provisions of the FEMA. This is not applicable to investment by AIFs in NCDs. It should also be noted that AIFs cannot lend in form of loans.

In India, private credit providers must comply with various regulations prescribed by RBI and SEBI.

For example, a private credit provider registered as an FPI or an AIF has to comply with regulations and guidelines, including the regulation of terms of registration, continuous disclosure requirements (including regarding ownership structure), investment conditions, the reporting of investments and inspection provisions.

Please also see 2.1 Regulatory Approval.

Not all lending arrangements are subject to antitrust regulation but, while lending, one needs to be mindful of the antitrust laws in the context of debt enforcement and for merger and acquisition transactions.

In acquisitions, the Competition Act, 2002 restricts merging parties from undertaking actions that would effectively implement the transaction or integrate the businesses prior to receiving approval from the Competition Commission of India (CCI). Providing a guarantee on behalf of the target by the acquirer for securing loans by the target may be seen as gun jumping in certain circumstances.

The CCI also plays a role in the context of enforcement. Any credit arrangement where the lender acquires control in a company pursuant to enforcement may require the consent of the CCI if such acquisition results in a breach of certain thresholds prescribed pursuant to the Competition Act, 2002.

In India, private credit lenders predominantly lend by investing in NCDs. NCDs are debt securities, and NCD holders are treated as financial creditors of the issuer.

NCDs and other structures commonly used for private credit lending are as follows.

Non-Convertible Debentures

NCDs can be issued by a company to an AIF or FPI. The proceeds of NCDs issued on a private placement basis can be used for any purpose. However, where the investor is an FPI, the proceeds of an unlisted NCD cannot be used for real estate business, capital markets or the purchase of land. There are no end use restrictions for an NCD that is listed on a recognised stock exchange in India.

Generally, NCDs must have a minimum maturity or duration of one year at the time of investment by the FPI.

There are two investment routes available to FPIs: the general route (Normal Route) and the voluntary retention route (VRR Route). The key conditions for investment under the both the routes are set out below.

Normal Route

• FPIs are permitted to invest in NCDs with a minimum residual maturity of above one year.
• Short-term investments in corporate bonds by an FPI cannot exceed 30% of the total investment of that FPI in corporate bonds.
• Investment by any FPI, including related FPIs, shall not exceed 50% of any issue of NCDs.

VRR Route

• The minimum investment of an FPI during the retention period should be 75% of the limit allotted to the FPI under the VRR Route (Committed Portfolio Size). The minimum retention period for an investment by an FPI under the VRR Route is three years, and such period commences from the date of allotment of limit.
• FPIs are required to invest at least 75% of the Committed Portfolio Size within three months from the date of allotment of limit to the FPI.
• FPIs may redeem their investments and re-invest the proceeds as long as the above conditions are met. It should also be noted that the minimum tenure requirement, the concentration limit and the single/group investor-wise limits applicable to FPI investments in NCDs under the Normal Route do not apply.
• The limits under the VRR Route can be obtained through an auction process for allotment of investment amounts under the VRR Route.

Any investment by an FPI in NCDs, if not made through the VRR Route, must comply with the concentration limits and the single or group investor limits prescribed by RBI.

If the NCDs are listed on a stock exchange in India, they cannot be subject to a put or call option that can be exercised for a period of one year from the date of their issuance. In addition, one needs to keep in mind that NCDs with original maturity of less than one year are subjected to the separate regulatory framework of RBI.

Other Instruments

Private credit funds can also invest in Securitised Debt Instruments (SDIs), which are financial products where loans or receivables are pooled, converted into marketable securities, and sold to investors.

Other forms of structures for investment by private credit funds include compulsorily convertible debentures (CCDs) and optionally convertible debentures (OCDs). In India, foreign investors are allowed to invest in CCDs under the FEMA and the guidelines in relation thereto. Any investment by a foreign investor in any optionally convertible instrument is treated as an ECB.

Private credit providers in India provide delayed draw facilities by offering an elongated availability period. Revolving credit structures are not as common in private credit transactions.

The key documents involved in a private credit transaction depend on the type of credit being provided.

If the financing is by way of the issuance of NCDs, the key documents include the following:

• debenture trust deed;
• debenture trustee agreement;
• disclosure documents (Form PAS-4 for unlisted NCDs and general information document and key information document for listed NCDs);
• intercreditor agreement, if required; and
• in the event of a secured NCD and depending on the type of security, deed of hypothecation, indenture of mortgage/memorandum of entry, and share/securities pledge agreement.

In debt transactions, if an entity has multiple lenders, it is likely that the lenders would like to enter into intercreditor agreements. Any intercreditor agreements executed between the lenders are negotiated between them. For listed debt and loans, regulators also mandate a standard form of intercreditor agreement to be signed between various creditors to govern the enforcement of the security of a company in default.

India has not seen a rise in first-out, last-out transactions, which are relatively rare.

Foreign lenders can lend by way of either ECBs or investment in NCDs. Funding by private credit providers in the form of ECBs is not seen because India's ECB framework restricts all-in cost pertaining to the ECB, end use and other prescribed matters.

ECBs can be secured by the borrower’s domestic movable assets (including current assets), immovable assets and a pledge of shares held by the promoters in the borrowing company, and in the borrower’s domestic associate companies, subject to the satisfaction of certain customary conditions.

NCDs can be secured by domestic assets. However, security on the shares of an Indian entity that are held by an offshore entity requires prior approval from RBI.

Inan acquisition finance transaction, the target (if it is a public company) will be restricted from providing any kind of security or support for its acquisition.

As mentioned in 3.1 Common Structures, the proceeds of NCDs issued on a private placement basis can be used for any purpose. However, where the investor is an FPI, the proceeds of an unlisted NCD cannot be used for real estate business, capital markets or the purchase of land, so the proceeds of unlisted NCDs issued to an FPI cannot be used for acquisition financing. There are no end use restrictions for an NCD that is listed on a recognised stock exchange in India.

ECBs cannot be used for equity investments in India nor for financing acquisitions of shares but can be used for the acquisition of assets through a slump sale. However, private credit lenders do not typically use the ECB route to fund companies in India.

Call or put options can be provided pursuant to the terms of the NCDs. Such options will enable the issuer or NCD holder to redeem/buy back the NCDs subject to certain terms. Call or put options for listed NCDs can be exercised on completion of one year from the issuance of these NCDs. NCDs held by an FPI can be bought back subject to meeting minimum maturity requirements and the classification of such instruments as short-term instruments (where these instruments are subscribed under the general route). Therefore, they will be subjected to the lock-in requirements outlined in 3.1 Common Structures (if these are subscribed under the VRR Route).

In addition to the Model DTD described in 1.9 Impending Regulation and Reform, SEBI has also stipulated that a listed entity whose debt securities are listed on a stock exchange shall list all non-convertible debt securities proposed to be issued on or after 1 January 2024 on the stock exchange(s). It has also brought in parity in respect of disclosures to be made in the case of privately placed NCDs and NCDs issued by way of a public issuance.

Junior/hybrid finance is generally raised in the form of compulsorily convertible preference shares (CCPS), optionally or partially convertible preference shares, CCD or OCD. If such finance is provided by an offshore entity, optionally or partially convertible preference shares or debentures are treated as ECBs and must comply with the ECB guidelines.

If the junior/hybrid capital is structured as CCPS, optionally or partially convertible preference shares, CCDs or OCDs or partially convertible debentures, then the key documents are the securities subscription agreement and the investor rights/shareholder agreement.

Deals involving funding to holding companies (HoldCo) are typically secured without recourse to the assets of the operating companies (OpCo). The security package may comprise shares of the HoldCo and the OpCo, security on the assets of the HoldCo and (in non-sponsor deals) a guarantee from the promoter.

Payment in kind (PIK) structures as a mode of repayment are not uncommon in India. Some of the largest private credit deals have featured full PIK structures. However, lenders prefer an amortised structure or a part PIK/part payments structure where a portion of the return on investment is paid on an amortised basis.

The following call protection measures are typically seen in private credit transactions.

• Lock-in periods: no prepayment of the loan/NCDs is permitted during the lock-in period. Any payment during the lock-in period may require the borrower to pay certain make-whole amounts.
• Make-whole provisions: if there is any repayment of the loan/NCDs by the borrower prior to a specified period, the borrower is required to pay an amount equal to the interest the lender would have received had the NCDs/loans been repaid after the specified period.
• Prepayment premiums: imposing a percentage-based fee on the principal amount for prepayments within a specified period.

Interest payments to foreign private credit lenders are subject to withholding tax. Such lenders can claim the credit of the tax withheld on interest to meet their tax liabilities in India and in the country of residence. Such withholding tax is mitigated by the addition of relevant tax gross-up provisions in the relevant documents.

Where a foreign credit player has invested in an AIF in India and the AIF has in turn made the credit available to the borrower, then the income is not taxed in the hands of the AIF (if incorporated as a Category II AIF). A Category II AIF that is incorporated as a trust will enjoy pass-through status, but the unit holders may be taxed depending on their jurisdiction of incorporation and any double taxation treaty available with the country of incorporation of the creditor.

Apart from direct tax, there are implications from an indirect tax perspective. While the principal and interest payable against a loan are exempt from the levy of goods and services tax (GST), any other consideration such as processing fees/charges will be subject to GST at the rate of 18%.

Furthermore, GST is payable on the issuance of a corporate guarantee. However, the provisions prescribing the above tax position have been challenged and are pending before the High Court(s).

Stamp duty is applicable on the financing documents and the issuance of NCDs.

Generally, interest paid on debt incurred for the purpose of carrying on business would be deductible for tax purposes. However, interest paid on debt incurred to acquire equity or preference shares (held as a capital asset and not as stock-in-trade) may not be considered deductible for tax purposes.

Provisions dealing with thin capitalisation (ie, limitation on deductibility of interest) in respect of other interest payments are contained in the Income Tax Act of 1961 (IT Act) and impose limitations on the deduction of excess interest – ie, any amount that exceeds 30% of the EBITDA of the Indian company or permanent establishment (PE) – incurred by way of interest or payments of a similar nature by an Indian company or a PE of a foreign company to its non-resident associated enterprise in respect of debt borrowed. These are not applicable to AIFs set up as a trust.

Furthermore, the thin capitalisation rules may also be 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 that lender.

The above rules are applicable only where the interest or payments of a similar nature exceed INR1 Crore. The interest expense that is disallowed against income shall be allowed to be carried forward and allowed as a deduction against profits and gains of any business or profession carried out for up to eight assessment years, subject to the limits mentioned.

In addition, interest payments made to associated enterprises would also be subject to the arm's length test under the Indian transfer pricing provisions.

Double Taxation Avoidance Agreements in India prevent taxpayers from being taxed twice on the same income in two countries, including private credit investors. They promote cross-border investment by providing reduced withholding tax rates on interest and other income.

Certain tax benefits are prescribed for investments made at the fund level – ie, the taxes are to be paid by an AIF in an International Financial Service Centre (IFSC). FPIs are also subject to tax based on a special tax regime that applies to them where securities held by FPIs are treated as capital assets. AIFs can benefit from an exemption from tax on income in certain cases.

Thin capitalisation provisions do not apply to Indian companies and PEs of non-residents engaged in the business of banking or insurance, nor to specified finance companies located in an IFSC or notified NBFCs.

The following assets are typically provided as security in private credit transactions.

• Security over immovable property, such as land and buildings, is taken in the form of a mortgage. The most common forms of mortgage are an English mortgage (a registered mortgage), a simple mortgage (a registered mortgage) and an equitable mortgage (a mortgage created by depositing the title deeds).
• Security over shares and other securities is typically created by way of a pledge. Pledges on securities are created pursuant to a pledge agreement.
• Movable property such as receivables, plant and machinery and stock, cash deposits and bank accounts is usually secured by way of hypothecation. Hypothecation is a charge over any movable property, existing or future, created by a borrower in favour of a creditor. Such security is created in terms of a deed of hypothecation.

The following perfection requirements apply to the creation of security.

• Registration under the Indian Registration Act, 1908 (Registration Act): any mortgage of immovable property, other than an equitable mortgage created by way of deposit of title deeds of the mortgaged property, is required to be registered in accordance with the Registration Act within four months of the execution of the mortgage deed. Where the mortgage is an equitable mortgage of immovable property, registration requirements will depend on the state where the immovable property is situated.
• Registration with Central Registry of Securitisation Asset Reconstruction and Security Interest (CERSAI): a mortgage and hypothecation are also registered with CERSAI. This registration must be done by the lender or the security trustee.
• Filing with the Registrar of Companies (ROC): a mortgage, lien, charge, pledge, hypothecation or any other security interest created by an Indian company over its assets located in India or abroad is required to be registered with the relevant registrar of companies. The ROC issues a certificate of charge upon completion of such registration. A charge is not taken into account by the liquidator or any creditor of the company unless it is registered with the ROC and a certificate of registration of the charge is issued by the ROC.
• Filing with information utilities: details of any mortgage, lien, charge, pledge, hypothecation or any other security interest created by an Indian company over its assets located in India or abroad is required to be filed with the relevant information utility in accordance with the Insolvency and Bankruptcy Board of India (Information Utility) Regulations, 2017.
• Other formalities: depending on the asset provided as security (such as intellectual property, ships and aircraft), further registration or filings with the relevant government authority may be required.

Please also note the following additional requirements that may apply to creation and perfection of security.

• Registration and filing fees: these vary according to the type of security and are payable at the time of registration. Some Indian states have a fixed registration fee, while others have a percentage-based fee. This varies based on the location of the property.
• Regulatory approvals: creating a charge over certain types of assets (land, buildings, machinery, plant, shares, securities and fixed deposits in banks), to the extent to which those assets do not form part of the stock-in-trade of the taxpayer's business, may also need permission from the income tax authorities. Permissions may also be required under the Central Goods and Services Tax Act, 2017 (CGST Act) and under the GST act for the relevant state.

Other formalities include the following.

• Immovable property: typically, title searches and searches on the portal of the registrar of companies are conducted in relation to immovable property to ensure that the mortgagor is the legal owner and entitled to mortgage the property, and to check whether any prior charge or mortgage exists over the property.
• Movable property such as bank accounts and contracts: where bank accounts or contracts are hypothecated, notices should be issued to the banks or the counterparties to the contracts, informing them of the charge created.
• Shares or other securities: where the shares are in dematerialised form, certain forms have to be filed with the depository participant to mark a pledge over these shares in the shareholder's beneficial account.

Under Indian law, a floating charge can be created on movable properties. A floating charge cannot be created on all the assets of the borrower – eg, immovable properties. Security over different assets is created through separate instruments, as discussed in 5.1 Assets and Other Forms of Security.

Lenders generally favour fixed charges over floating charges because fixed charges provide greater control and priority in case of default, restricting the borrower’s ability to freely use or dispose of the charged assets.

It is possible to provide downstream, upstream and cross-stream guarantees for private credit transactions in India. However, such guarantees need to comply with certain conditions and approval requirements, as follows.

• Companies Act requirements: any guarantee will need to comply with Sections 185 and 186 of the Companies Act, 2013. Section 185 regulates guarantees issued on behalf of any person in whom the directors of the company issuing guarantee are interested. Section 186 requires special approval from the shareholders of the company if the aggregate of the loans given, security provided and the investment made by the company exceeds the threshold provided thereunder.
• Compliance with SEBI regulations: any guarantee given by a listed company or high-value debt listed company for the benefit of its wholly owned subsidiary should be in accordance with the applicable laws for related party transactions in accordance with the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015.
• Guarantee for NCDs: if the guarantee is issued by a non-resident entity for NCDs, that guarantee will need to comply with the following key conditions:
1. such guarantees can be issued by multilateral financial institutions, regional financial institutions and government-owned (either wholly or partially) financial institutions and direct or indirect equity holders;
2. the NCD should have a minimum average maturity of three years, and no call or put options are permitted during that period; and
3. guarantee fees and other costs in respect of the guarantee cannot exceed 2% of the principal amount involved.

While guarantee fees are not mandatorily payable under Indian law, they are typically paid to comply with the requirement that the guarantee has been issued on an arm's length basis. Guarantees provided for the benefit of related parties are subject to GST.

Please see 5.4 Restrictions on the Target regarding upstream guarantees for acquisition financings.

Under the Companies Act, 2013, a public company is prohibited from providing any direct or indirect financial assistance to any person for subscription to or the 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 and guarantees, and the provision of security. This restriction does not apply to a private company. In view of the above, a target company that is a public company cannot create security nor provide guarantees in relation to an acquisition financing for the acquisition of its shares.

Stamp duties and registration fees are required to be paid on the guarantees 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.

Please see 7.6 Transactions Voidable Upon Insolvency regarding hardening periods.

Security is released either on complete repayment of the debt or by way of approvals or mutual agreement between the parties. To effectuate such release, the borrower (which is a company) is required to carry out the requisite regulatory formalities, which are typically as follows:

• a release deed is executed to record the release of security;
• Form CHG-4 is required to be filed with the ROC to record the release of security with the ROC;
• where the security is over immovable property, the release deed may need to be registered with the relevant land registry where the mortgage was registered; and
• filing is required to be made with the depositories for the release of any pledge created on shares or other dematerialised securities.

Indian laws allow multiple lenders or groups of lenders to hold a charge on the same asset. The ranking and priority of the charge can be determined between the lenders based on the commercial agreement between the parties.

The subordination of debt is typically effected by an intercreditor agreement or a subordination deed. Indian courts typically recognise intercreditor agreements providing for a different ranking of security or lien in a non-liquidation scenario. Under the Insolvency and Bankruptcy Code, 2016 (IBC), any contractual agreements between parties who have equal ranking and that disrupt the order of priority under the IBC must be disregarded by the liquidator in the liquidation of a company.

Under the Indian IT Act, if any proceedings are pending against the security provider (above a de minimums threshold), they may be held to be void to the extent of any claims of the income tax authorities arising out of those proceedings, other than for certain specified exceptions.

Furthermore, as per the provisions of the CGST Act, if a company creates a charge over its assets after amounts under the CGST Act are due from such company and with the intention to defraud the government revenue, such charge will be void against any claim in respect of any tax or any other sum payable by the company.

Typically, lenders require the security provider to obtain permission from the assessing officer under the IT Act and the proper officer under the CGST Act before creating any mortgage or charge in favour of the lender or security trustee.

Please also see 7.2 Waterfall of Payments regarding the priorities granted in case of liquidation.

Lenders sharing security can enter into intercreditor agreements to define the priority of the security amongst themselves. An intercreditor agreement governs the following matters, amongst others:

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

Cash pooling is not common in India, except for project financing transactions. Private credit providers are not typical lenders for project financing transactions.

In India, security can be held by any Indian entity, except when security is created for NCDs, in which case it is created in favour of a debenture trustee. Debenture trustees have to register with SEBI in order to act as debenture trustee in relation to secured NCDs. Furthermore, the debenture trustees have to comply with SEBI regulations and provide certain regulatory certifications to confirm that security is adequate and unencumbered.

If the security is created in favour of a debenture trustee or a security trustee, it is not required to be re-taken in case of the assignment or transfer of debt.

The enforcement of security is governed by the terms and conditions of the security documents. Generally, a lender may enforce its security on the occurrence of an event of default.

Immovable Property

In the case of an English mortgage, the mortgagee has the authority to sell the mortgaged property without court intervention, subject to specific notification requirements. In the case of an equitable mortgage, the mortgagor must seek a court order to sell the mortgaged property in order to recover the debt.

Debenture trustees of listed and secured NCDs can enforce a mortgage under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI), offering a quicker method of security enforcement by way of private sale without the intervention of courts.

Any proceedings taken against any mortgagor under the SARFAESI in relation to immovable properties could take two to four years. The enforcement of security through the courts may be more time consuming.

Movable Property and Current Assets

The rights and remedies of a hypothecatee are governed by the deed of hypothecation with the hypothecator (security provider) and are enforced either by appointing a receiver to sell the charged assets or by obtaining a court decree to sell the movable property.

Debenture trustees for listed and secured NCDs can enforce hypothecation under the SARFAESI, providing a quicker mode of security enforcement by way of private sale without the intervention of courts.

Pledge Over Shares

A pledgee may enforce a pledge by giving reasonable notice to the pledgor. The pledgee does not need a court order to sell the pledged shares. A pledge can be enforced in the depository system, which provides for ease of enforcement.

Please note that the time periods for the enforcement of security may vary depending upon the facts and circumstances surrounding the enforcement, disputes raised by the security provider, non-co-operation in case of security enforcement, the backlog of cases at the court level and any cross-claims filed by the relevant security provider.

Transaction documents for finance raised by an Indian borrower domestically and for NCD issuances by an Indian company are governed by Indian law.

Security documents for security provided by an Indian company are governed by Indian laws.

The choice of foreign law for an agreement is generally upheld by Indian courts, unless the choice of law is not bona fide or the application of the foreign law is opposed to public policy.

A foreign judgment is conclusive as to any matter directly adjudicated upon in such decree, other than in certain specified cases. Where the judgment is in the nature of a money decree and is passed by a “superior court” of a “reciprocating territory”, then it can be filed with an Indian court and would be enforceable as a decree of an Indian court. Where the judgment is not a money decree, a fresh suit must be filed in a competent Indian court, where the foreign judgment will be admitted only as evidence.

Please see 6.2 Foreign Law and Jurisdiction.

The limitations applicable to enforcement by a private credit lender are similar to those that apply to other creditors generally, as follows.

• The enforcement of security may be impacted by insolvency proceedings, as a moratorium is declared during which time no proceedings can be commenced against the corporate debtor and no action can be taken for the enforcement of security provided by the corporate debtor. Please see 7. Bankruptcy and Insolvency for further details.
• The enforcement of security may be limited if the transaction is classified as a preferential transaction under IBC. Please see 7.6 Transactions Voidable Upon Insolvency for further details.
• Limitation periods apply to the enforcement of security. Court proceedings should be brought within the relevant limitation period.
• Where the security is enforced over an asset that is leased or licensed, or where a concession is granted by the government, the enforcement of security may require consent from the relevant governmental authority or may be subject to conditions imposed by the relevant governmental authority in relation to such enforcement.

Please see 6.1 Enforcement of Collateral by Non-Bank Secured Lenders.

If an enforcement action in relation to the security (which generally is the case) is contested by the security provider, the enforcement process becomes time-consuming: it could take several years to obtain a judgment in India in such scenario.

The timeline depends on the facts and the relief sought, and on the backlog of cases at the time of enforcement. However, it may be possible to obtain interim relief, like restricting disposal of secured property, in a shorter timeframe.

In the case of a bona fide enforcement of security in accordance with the contractual arrangements, and in due compliance with applicable law and if the security is enforced for the purpose of completing a sale, then the creditor is generally not liable.

In cases where assets are appropriated pursuant to security enforcement and the ownership vests with the creditor for the purpose of operating or using an asset, the creditor may be liable for any continuing violations under applicable law.

The type of insolvency and restructuring process in India depends on the type of incorporation of the debtor.

If the borrower is a company or a limited liability partnership, the insolvency regime prescribed under IBC will apply. Under IBC, the secured lenders have an option to relinquish the security provided to them by the borrower. Depending on the exercise of the option of relinquishment of security, the priority of payments to the lenders may differ.

On the initiation of a corporate insolvency resolution process (CIRP), which can be initiated by a financial creditor, an operational creditor (ie, sundry creditors) or by the borrower itself, a moratorium is imposed. During the moratorium, secured creditors are not allowed to enforce/sell the relevant assets given as security and seek the repayment of monies due and payable.

The insolvency process is a creditor-controlled regime. An insolvency resolution professional (IRP) administers the process and acts on the instructions of the financial creditors.

The payment of creditors is determined under Section 53 of IBC. The priority will depend on whether the creditor is secured or unsecured (as set out below), with the payment waterfall under IBC being as follows:

• cost of the CIRP;
• workmen dues (pending for a period of 24 months prior to commencement of liquidation) and debts owed to secured creditors who have relinquished their security;
• wages and any unpaid dues owed to employees other than workmen for the period of 12 months prior to commencement of liquidation;
• debt owed to unsecured creditors;
• any amount due to the central or state government, and pending debt owed to secured creditors who have enforced the security;
• remaining debts and dues;
• preference shareholders, if any; and
• equity shareholders of a company or partners of a partnership firm.

A CIRP is required to be completed within 180 days from the date the application under IBC is admitted by the National Company Law Tribunal (NCLT) having jurisdiction, but it may be extended by a further 90 days or in certain exceptional cases, based on the approval of the committee of creditors. However, in some cases, the CIRP process has taken much longer due to the complexities involved and multiple litigations.

Insolvency resolution under IBC inevitably results in sale of the company to a bidder, but IBC stipulates debt restructuring (which is not a favoured option). In some cases, there are haircuts in the debt outstanding. For private credit players, IBC is an effective mechanism.

Outside IBC, the Reserve Bank of India (Prudential Framework for Resolution of Stressed Assets) Directions, 2019, dated 7 June 2019, allows for the rescue or reorganisation of a borrowing entity. A scheme or arrangement is also available but is not widely used given the time it takes to effect in Indian courts.

When a borrower is admitted into a CIRP, a moratorium is imposed on the borrower and its assets. Following this, all financial creditors are required to participate in the CIRP as per the provisions of IBC.

Key decisions in a CIRP, including the approval of a resolution plan, require the consent of at least 66.6% of financial creditors by value, and such decisions are binding on all stakeholders. Consequently, lenders with minimal voting shares may still be bound by the decisions made by the specified majority.

Due to a moratorium being imposed, the lenders are not able to enforce their security interest. The guarantors are not covered by the moratorium and lenders can enforce their remedies against them, including initiating a CIRP.

Under IBC, if the liquidator or the IRP is of the view that the corporate debtor has given a preference to any person, then such liquidator or IRP may apply to the NCLT to seek a declaration that such transactions are void and that their effect be reversed. The types of transactions subject to scrutiny are:

• preferential transactions that favour specific creditors, sureties or guarantors over others;
• undervalued transactions, where a corporate debtor transfers assets for a value that is significantly less than their actual worth; and
• extortionate credit transactions, where the terms require the corporate debtor to make exorbitant payments in respect of the credit provided, or where the terms are unconscionable under the principles of law relating to contracts.

The look-back period for preferential transactions and undervalued transactions is two years preceding the insolvency commencement date (ie, the date on which an application for initiating the CIRP is admitted by the NCLT) for a related party and one year in the case of any other person. However, the look-back period for extortionate transactions is two years prior to the insolvency commencement date in all cases.

The Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016 provide the right of set-off during the liquidation process. IBC does not recognise the principle of the set-off during a CIRP. This has also been clarified by the Supreme Court of India.

A typical private credit out-of-court restructuring would require the co-operation of the borrower and the equity holders of such borrower and other security providers. The out-of-court restructuring may involve the conversion of debt into equity, the refinancing of debt with haircuts or the sale of the company to a new investor to resolve the debt.

An in-court restructuring is a creditor-driven, court-supervised process and does not warrant co-operation from the borrower or the equity holders. This gives the lenders greater control over the restructuring process.

IBC recognises the clean slate principle. The courts in India have clearly recognised a whitewash of past liabilities (including statutory liabilities) upon the completion of a CIRP. This is not available during out-of-court restructurings.

In order to protect the rights of dissenting financial creditors, IBC provides that financial creditors who do not vote in favour of the resolution plan must be paid an amount that is not less than the amount they would have received pursuant to the liquidation waterfall set out in IBC in the liquidation of the corporate debtor. This amount has to be paid in priority to the amounts payable to assenting financial creditors.

Under IBC, a pre-packaged insolvency resolution process is currently only available for micro, small and medium enterprises (MSMEs). Insolvency proceedings can be initiated against MSMEs with a pre-agreed resolution plan. This accelerates the resolution by enabling negotiations with creditors before filing with the NCLT.

It is anticipated that a pre-packaged insolvency resolution process for companies other than MSMEs will soon be introduced under IBC.

India has seen large-ticket deals being funded by private credit providers in India.

According to publicly available sources, one of the larger logistics and warehousing companies raised more than USD600 million to fund the refinancing of its debts (and debts of the group companies).

In 2024, a subsidiary of one of the larger listed conglomerates raised funding of approximately USD300 million from international private credit funds.

It has also been reported that GMR Airports Limited (which operates multiple airports in India) has availed a funding aggregating to USD271 million, which employed a cash coupon and PIK structure.

In one of the largest acquisitions under the insolvency process in 2025, Hinduja Group is said to have raised close to USD300 million through private credit funds.

Public reports also suggest that a few major acquisitions have also been funded by private credit funders in emerging sectors, such as healthcare.

With the advent of foreign private credit lenders, the diligence and market competencies have been on the rise over recent years. Origination structuring and portfolio management are more effective when funding is provided by private credit lenders. This has pushed companies to look for more comprehensive covenant monitoring. As a regulator, SEBI has also been monitoring debenture trustees to ensure that covenant testing is undertaken effectively.

As some domestic private credit funders have not yet seen a full cycle, the effectiveness of the strategies of these entities is yet to be tested but it is expected that they will be on a par with their foreign counterparts operating in India.

While the future of private credit looks resilient, private credit providers must thoroughly evaluate risks and rewards before deploying their capital, to ensure the private credit market remains this way for a long time and sees exponential growth.

In addition to commercial factors such as diversifying their portfolio and assessing and monitoring the borrower’s creditworthiness and cash flows, investors need to concentrate on legal and regulatory risks, and must address any concerns with the help of professional advisers.