Introduction
India’s mergers and acquisitions market crossed approximately USD 113 billion in deal value in 2025, a 42% year-on-year surge, according to recent online surveys. Behind every one of those deals was a due diligence process — and many of those deals either fell apart, were repriced significantly, or generated post-closing disputes that their parties are still managing.
Inadequate due diligence continues to be one of the leading causes of deal failure in M&A transactions globally. In the Indian context, there are five specific legal traps that surface consistently in the diligence process — traps that are largely preventable if identified early, and deeply costly if discovered after signing.
Trap 1: Change-of-Control Clauses in Key Contracts
In any acquisition, the buyer is purchasing the target company’s business — including its contracts. The problem is that a significant number of commercial contracts contain change-of-control clauses that give the counterparty the right to terminate the agreement if the ownership of one party changes materially.
These clauses appear in customer agreements, supplier contracts, license agreements, distribution arrangements, and bank loan covenants. They are often buried in boilerplate.
Consider the risk: A technology company acquires a software distribution business. Three of the five largest supplier agreements contain change-of-control clauses allowing termination with 30 days’ notice. Two suppliers exercise that right within 60 days of the deal closing. The business loses 40% of its product line almost immediately. The due diligence team had reviewed the contracts — but had not specifically reviewed them for change-of-control provisions.
In Indian due diligence practice, every material contract must be reviewed specifically for:
- Change-of-control triggers and their definitions
- Notice periods and cure rights
- Whether consent or waiver from the counterparty is required pre-closing
- Whether the clause applies to indirect changes of control (a common structure in private equity acquisitions)
Obtaining third-party consents to change-of-control events is standard pre-closing practice in well-advised transactions. The cost of not doing so can be measured in revenue, not legal fees.
Trap 2: Intellectual Property That Is Not Properly Owned by the Target
In technology, media, pharmaceutical, and consumer brand acquisitions, the intellectual property is frequently the primary asset being acquired. And yet, IP ownership gaps are among the most commonly encountered due diligence issues.
The most frequent problems:
- Software developed by freelancers or contractors whose agreements did not contain IP assignment clauses — meaning the IP may legally belong to the developer, not the company.
- Trademarks that are registered in the name of a founder personally, rather than in the company’s name.
- Trademark registrations that have lapsed due to non-renewal — IP India registration certificates are valid for 10 years from the application date and must be renewed.
- Technology licensed from third parties on terms that prohibit assignment — meaning the license cannot be transferred to the acquirer.
- Source code or content created under a Creative Commons or open-source license that imposes conditions on commercial use or distribution.
An IP ownership verification exercise in due diligence should cover: registered trademarks (verified against the Trade Marks Registry), patents (verified against the CGPDTM patent register), key software development agreements and their IP assignment clauses, and any third-party licenses for material technology or content.
Trap 3: Unresolved Labour Code Liabilities
With all four Labour Codes in force from November 21, 2025, M&A due diligence now includes a new category of employment law exposure: non-compliance with the new framework.
Buyers acquiring Indian companies need to assess:
- Whether the target’s salary structures comply with the new 50% basic pay requirement under the Code on Wages. Non-compliant structures create retrospective liability for underpaid PF and ESI contributions.
- Whether fixed-term employees have been accounted for in gratuity provisions — the Social Security Code now requires gratuity eligibility after one year of service for fixed-term workers, not five.
- Whether the target employs gig workers or platform workers under an aggregator model — social security contribution obligations now attach.
- Whether all employees have received written appointment letters as required under the new framework.
- Whether the target has constituted a valid Internal Complaints Committee (ICC) under the POSH Act — mandatory for companies with 10 or more employees.
Employment liabilities in an acquisition follow the business. Under an asset deal, liabilities can sometimes be left behind — but in a share acquisition, they transfer with the company. Buyers in share acquisitions are acquiring all of the target’s employment law exposure, including undisclosed liabilities that pre-date the transaction.
Trap 4: Pending or Undisclosed Litigation and Regulatory Proceedings
Indian public records are available — but they require systematic searching. A due diligence process that relies only on representations and warranties from the seller without independent verification of pending litigation is inadequate.
Public record searches in Indian M&A due diligence should include:
- Ministry of Corporate Affairs (MCA) portal: ROC filings, charges registered against the company’s assets, and company history
- National Company Law Tribunal (NCLT) records: Ongoing insolvency or restructuring proceedings
- Court records: High Court and District Court case searches by company name and director names in relevant jurisdictions
- Income Tax Department and GST Department notices: Outstanding tax disputes or assessments
- SEBI enforcement database (for listed companies or those with listed securities)
- Trade Marks Registry: Pending opposition proceedings or rectification applications against the target’s marks
The consequences of acquiring undisclosed litigation range from inheriting an unexpected financial liability to discovering a regulatory investigation that makes the acquired business unviable in its current form.
Trap 5: Real Estate and Property Title Issues
For acquisitions that include manufacturing facilities, commercial real estate, or land as material assets, title diligence is essential and cannot be skipped.
Common property title issues in Indian M&A:
- Land records that show encumbrances or charges not disclosed by the seller — these can be searched in state revenue records and through searches with the Sub-Registrar of Assurances.
- Property used for commercial purposes without a valid change of land use certificate.
- RERA-registered real estate projects with pending regulatory obligations — under RERA, developers carry continuing obligations to registered buyers. These obligations transfer in any acquisition of the development entity.
- Lease agreements where the landlord has not consented to assignment in favour of the acquirer.
- Agricultural land held for industrial use without appropriate conversion — a significant issue in manufacturing sector acquisitions.
In distressed M&A and acquisitions under the Insolvency and Bankruptcy Code, 2016 (IBC), the clean-slate principle under the IBC provides some protection to resolution applicants — but this applies specifically to IBC resolution processes, not standard acquisitions. In a standard M&A transaction, title defects remain with the buyer.
The 2026 Due Diligence Environment: What Has Changed
As observed in the analysis of India’s 2025 M&A activity (Lexology / Khaitan & Co, March 2026), due diligence in India has matured significantly. Standard practice now routinely covers operational resilience, Labour Code compliance, ESG considerations, data privacy (particularly under the Digital Personal Data Protection Act, 2023), and early integration planning — not just financial and legal checks.
Risk allocation provisions — representations, warranties, indemnities, caps, and survival periods — are being negotiated in direct response to what diligence reveals. In several significant transactions in 2025, the most time-consuming negotiations involved not the final price, but how identified risks would be handled post-closing.
Conclusion
Due diligence is not a formality. It is the process by which a buyer discovers what they are actually acquiring — and structures the transaction to protect against what they find.
The five traps identified in this article — change-of-control clauses, IP ownership gaps, Labour Code liabilities, undisclosed litigation, and property title issues — are not hypothetical risks. They are recurring patterns in Indian M&A transactions that are identifiable during diligence and manageable if caught early. After closing, they become the buyer’s problem.
This article provides general information about M&A due diligence in India. It does not constitute legal advice. Every transaction is different, and the appropriate scope and depth of diligence should be assessed by qualified legal, financial, and tax advisors.
