Legal Due Diligence Before Raising Secured Debt in India: Bank, NBFC & Private Credit Borrower Checklist 2026

Companies often approach debt fundraising as a finance exercise: negotiate amount, pricing, tenure and repayment, then ask Legal to document the deal. That sequence creates avoidable friction. A lender advancing secured money is underwriting not only cash flow but also legal enforceability, corporate authority, security value, ranking, regulatory status and default risk.

A borrower-side legal due diligence review should therefore begin before sanction or term-sheet conditions harden. The goal is to identify issues that can delay drawdown or weaken negotiating leverage: existing charges, negative covenants, title defects, missing approvals, cross-defaults, promoter guarantees, material litigation, licence problems, tax attachments, weak contracts, unrecorded related-party transactions and conditions precedent that the company cannot satisfy quickly.

1. Start with the debt structure, not the documentation

Before reviewing documents, identify what the company is actually raising: secured term loan, working-capital facility, non-convertible debt, structured private credit, promoter-backed facility, acquisition finance, refinance or external commercial borrowing.

The structure determines:

• corporate approvals;
• security package;
• ranking and intercreditor issues;
• charge registration;
• financial and information covenants;
• guarantees;
• conditions precedent;
• regulatory and foreign-exchange issues;
• events of default and acceleration mechanics.

The principal corporate statute is the Companies Act, 2013, read with applicable rules, the company’s constitutional documents and any sector-specific law.

2. Verify borrowing authority and internal approvals

A lender will examine whether the borrower has valid authority to incur the debt and create the proposed security. Review:

• Memorandum and Articles;
• Board powers and delegation;
• borrowing resolutions;
• shareholder approvals where applicable;
• existing financing restrictions;
• signatory authority;
• conflicts or interested-director issues;
• group approvals if required by existing arrangements.

Section 179 of the Companies Act includes borrowing and related financing powers within the Board framework. Depending on the company and transaction, other statutory provisions and approvals may also become relevant. Borrower counsel should verify applicability rather than assume a generic Board resolution is sufficient.

3. Map all existing debt before negotiating new money

Prepare a complete debt schedule covering:

• banks and NBFCs;
• private lenders;
• inter-corporate deposits;
• debentures and other debt securities;
• equipment and vehicle finance;
• factoring or receivable finance;
• working-capital lines;
• promoter and related-party debt;
• corporate guarantees given or received;
• off-balance-sheet commitments.

For each facility capture outstanding principal, security, interest, maturity, defaults, financial covenants, negative covenants, prepayment restrictions, change-of-control provisions, cross-default clauses and consent requirements for additional borrowing.

This schedule often reveals that the new debt cannot be raised on the assumed terms without an existing lender’s consent.

4. Existing charges and security ranking

Before offering assets as security, reconcile the company’s charge position. The Companies Act framework on registration of charges, including sections 77 to 87, is central to corporate security documentation. The Companies Act text should be reviewed together with current rules and MCA records.

Build a security matrix showing:

• asset or undertaking;
• current lender/security trustee;
• nature of charge;
• first, second or pari passu ranking;
• charge registration details;
• modifications;
• satisfaction status;
• consent needed for new security;
• intercreditor implications.

Do not assume an old repaid facility is legally cleared merely because the loan ledger is zero. Confirm whether satisfaction of charge and related security releases are properly documented.

5. Security asset title must be tested, not assumed

If financing is secured by immovable property, plant, receivables, shares, bank accounts, inventory, intellectual property or other assets, the borrower should test whether it has legally sufficient rights to create the proposed security.

Review:

• ownership/title chain;
• leases and lessor consent;
• existing encumbrances;
• statutory or tax attachments;
• litigation affecting the asset;
• insurance;
• valuation assumptions;
• restrictions on assignment or charge;
• location and asset identification;
• perfection steps applicable to the relevant security.

For companies with large property or asset portfolios, title verification should be treated as a separate workstream rather than an annexure to the finance documents.

6. Receivables and cash-flow security

Where lenders rely on receivables or escrowed cash flows, legal review should test the contracts generating those receivables. Questions include:

• Can receivables be assigned or charged?
• Does the customer contract require consent?
• Can the customer set off other claims?
• Are receivables disputed or overdue?
• Is revenue concentrated in a few customers?
• Can the contract be terminated at convenience?
• Are there performance deductions or SLA credits?
• Does a government/public-sector contract impose assignment restrictions?

The value of receivables as security is only as strong as the underlying contract and collection position. Use our Contract Risk Audit for deeper review.

7. Negative covenants can block the new transaction

Existing loan agreements commonly restrict:

• additional indebtedness;
• creation of further security;
• asset sales;
• dividends;
• related-party transactions;
• change in control or promoter shareholding;
• acquisitions and investments;
• new subsidiaries;
• capital expenditure;
• guarantees and loans to group entities.

Before a new facility is signed, prepare a consent and waiver matrix. A financing that is legally valid in isolation may still trigger default under an older facility.

8. Litigation and regulatory due diligence

Lenders assess whether litigation can impair repayment or security. Prepare a complete schedule of:

• material civil and commercial disputes;
• arbitration;
• tax and GST proceedings;
• labour and employment cases;
• regulatory notices;
• environmental proceedings;
• criminal complaints involving the company or key management;
• injunctions, attachment or recovery proceedings;
• insolvency-related notices or proceedings where relevant.

For each item identify amount, stage, interim orders, next deadline, external counsel, likelihood, provision/contingent liability and impact on secured assets or cash flow.

Use our Litigation & Regulatory Due Diligence framework as a deeper reference.

9. Tax, statutory dues and attachment risk

A lender will be concerned not only with outstanding tax amounts but also with enforcement risk. Review material income-tax, GST, customs, labour, social-security and other statutory dues; demand orders; appeals; payment plans; attachments; recovery notices and contingent liabilities.

Borrower management should distinguish:

• routine disputed assessments;
• admitted but unpaid dues;
• amounts under stay;
• amounts subject to attachment;
• matters that can impair operating licences, bank accounts or secured assets.

10. Regulatory licences and business continuity

Debt repayment assumes the business can continue operating. Prepare a licence matrix covering every material approval required for the borrower’s core operations. Flag licences that are expired, under renewal, subject to show-cause notices, held by the wrong group entity or vulnerable to change-of-control or security-creation restrictions.

A licence problem that can stop revenue generation is a credit issue, not merely a compliance issue.

11. Corporate guarantees and promoter guarantees

Guarantees are often discussed commercially before their legal implications are analysed. Review:

• who is giving the guarantee;
• authority and approvals;
• existing guarantee obligations;
• cross-guarantees within the group;
• cap or continuing nature of guarantee;
• indemnity provisions;
• trigger and demand mechanics;
• security given by guarantors;
• financial disclosure and contingent liability implications.

Where a group company provides security or guarantee, borrower counsel should separately verify corporate authority, statutory restrictions and benefit considerations applicable to that entity.

12. Private credit documents can be more covenant-heavy than bank loans

Private-credit facilities may be commercially flexible on use of proceeds or structure but can impose detailed information rights, financial covenants, promoter undertakings, cash sweeps, prepayment premiums, equity-linked economics, enhanced events of default or tighter negative covenants.

Borrower-side review should model whether the business can realistically comply with each covenant over the life of the facility. A covenant accepted to close quickly can become a default trigger six months later.

13. Cross-border debt and ECB issues

If the lender is non-resident or the structure qualifies as an external commercial borrowing, the financing may engage FEMA and the RBI’s ECB framework. The Reserve Bank maintains its official Master Direction on External Commercial Borrowings, Trade Credits and Structured Obligations.

Cross-border debt should be checked for borrower and lender eligibility, maturity, end-use restrictions, all-in-cost parameters, security, guarantees, reporting and any other current conditions. Because the framework is amended periodically, transaction counsel should verify the operative RBI position at signing and drawdown rather than rely on an older term sheet.

14. Material contracts and change-of-control or financing restrictions

Review top customer, vendor, franchise, technology, lease and government contracts for provisions that may be triggered by:

• creation of security;
• assignment of receivables;
• change in control;
• default under financing;
• cross-default;
• insolvency events;
• transfer of material assets.

A debt facility should not accidentally create a default under the company’s most valuable commercial contract.

15. Conditions precedent: turn them into an execution checklist

Once a lender issues a term sheet or sanction with conditions precedent, create a live closing tracker. Typical items may include:

• Board/shareholder approvals;
• constitutional amendments;
• existing lender consents;
• security documents;
• title and valuation reports;
• insurance endorsements;
• legal opinions;
• corporate searches;
• charge filings;
• escrow/account arrangements;
• financial certificates;
• promoter documents;
• KYC and beneficial ownership;
• regulatory or sector consents.

Each item should have an owner, dependency, target date and evidence location. The borrower should identify impossible or time-consuming conditions before signing the final facility documents.

16. Events of default need a business-impact review

Borrowers often focus on pricing and security while accepting broad events of default. Review triggers such as:

• payment default;
• breach of representation;
• financial covenant breach;
• cross-default;
• material adverse effect/change language;
• litigation or judgment thresholds;
• licence loss;
• promoter event;
• change in control;
• insolvency events;
• invalidity of security;
• failure to provide information.

Negotiate cure periods, materiality thresholds and objective triggers where commercially justified.

17. Representations and warranties should be verified internally

Do not allow representations to become boilerplate. Before signing, assign each material representation to a responsible function and verify the evidence supporting it. Common topics include incorporation, authority, litigation, compliance, tax, title, licences, contracts, IP, sanctions, data, environmental matters and financial information.

If a representation is not completely true, the solution is not to sign and hope. Qualify it through the negotiated disclosure mechanism or correct the underlying issue.

18. Build a debt-readiness red-flag matrix

Feed material debt risks into the company’s Corporate Risk Register.

19. 30-day borrower legal-readiness plan

Days 1–7: confirm facility structure, map existing debt, charges, approvals and proposed security.

Days 8–15: review security title, material contracts, licences, litigation, tax, guarantees and negative covenants.

Days 16–23: obtain required consents, regularise curable gaps, prepare disclosure positions and negotiate realistic conditions precedent.

Days 24–30: complete closing tracker, verify representations, finalise security/perfection steps and establish post-drawdown covenant monitoring.

Frequently asked questions

Related resources

• Outside General Counsel in India
• Legal Compliance Audit for Private Limited Companies
• Corporate Risk Register in India
• Hidden Liabilities in M&A Deals

Author: Adv. Govind Bali, Fastrack Legal Solutions LLP.