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How due diligence works in India
Who looks at what, the stages from first conversation to closing, and how long it takes. Written for founders going through due diligence for the first time.
9 min read, facts checked on
What due diligence is
Due diligence is the counterparty checking that your company is what you say it is before they put money in, lend to it or buy it. An investor, a bank or a buyer asks for documents, reads them, asks questions, and writes down what they found. What they find decides whether the deal goes ahead, on what terms, and what you have to fix first.
It is not a test you pass or fail on the day. It checks the record your company has been keeping for years: filings, registers, contracts, returns and approvals. Most of what goes wrong in diligence went wrong long before anyone asked.
Who does it
On the counterparty's side there are usually two or three teams:
- Lawyers do legal diligence: incorporation, shareholding, board and shareholder approvals, contracts, property, licences, disputes and employment.
- A CA firm does financial and tax diligence: accounts, tax returns, GST, TDS, working capital, related-party transactions and any tax demands.
- Sometimes a specialist looks at technology, the product, the market or the factory.
On your side: you (the founders), your finance person if you have one, and your own professionals. Your CA answers for accounts and tax, your CS for company law filings and registers, and your lawyer for contracts and disputes. The more of the record your own professionals have already checked, the faster the other side's teams move.
The stages, from first conversation to closing
1. Before anyone asks
The best time to prepare is before a deal exists. Filings get done on time, board minutes get written up, share allotments get papered, and documents live in one place instead of across email and WhatsApp. This is the stage most companies skip.
2. Term sheet or sanction letter
An investor signs a term sheet, a bank issues an in-principle sanction, or a buyer signs a letter of intent. It usually says diligence will happen, how long it can take, and that the deal depends on the result. Investors often ask for a period of exclusivity while they do it.
3. The request list arrives
You receive a request list: a spreadsheet of documents and questions, grouped by area (corporate and secretarial, financial and tax, legal and contracts, people, IP, regulatory). A first list can run to a few hundred lines. It is usually generic, so parts of it will not apply to you, and it is fine to say so.
4. Sharing the documents
You share the documents, usually through a data room or a shared folder. What slows this down is not the sharing but the finding: documents in someone's inbox, returns only on a portal, agreements never signed.
5. Questions and calls
The teams read and come back with questions, often in rounds. Expect calls with your CA or CS present, requests for explanations of unusual entries, and follow-up documents. For a manufacturing company there may be a site visit.
6. The diligence report
Each team writes a report. Findings are usually graded by seriousness: some are noted, some must be fixed, and some change the deal. You may not see the full report, but you will see what it leads to.
7. Closing
The findings turn into terms in the final agreements (below), the money moves, and there is paperwork afterwards: share allotment and filings for an investment, charge registration for a loan, transfer and approvals for a sale.
How long it takes
There is no fixed timeline. As a rough guide, diligence for an equity round or a business loan often runs four to eight weeks from the request list to closing, and an acquisition longer. The biggest variable is not the counterparty. It is how long you take to find documents and answer questions. A company whose record is already in order can cut weeks off.
What they look at
The areas are the same whoever is asking; the depth changes. An investor cares most about ownership and growth, a bank about repayment and security, a buyer about everything, including liabilities you may not know you have.
- Company records: certificate of incorporation, MOA and AOA, statutory registers, board and shareholder minutes, annual filings with the ROC.
- Shareholding: every allotment and transfer, with its approvals, filings and stamping; any convertible instruments; ESOPs.
- Accounts and tax: audited financial statements, income tax returns, tax audit reports where applicable, TDS returns, and any notices or demands.
- GST: registrations, returns, and whether sales and input credit reconcile across returns.
- Contracts: customers, suppliers, leases, loans, and anything with a change-of-control clause.
- People: appointment letters, PF and ESI, the PoSH committee if you have ten or more employees, key employee agreements.
- IP and technology: who owns the brand, the code and the designs.
- Licences and disputes: registrations your business needs, and any litigation or notices.
The guides on what investors ask for, what banks ask for and what buyers check go deeper on each.
What usually goes wrong
The same handful of findings come up again and again in Indian MSMEs: annual ROC filings made late or not at all, share allotments without the forms behind them, missing board minutes, GST returns that do not reconcile, PF and ESI paid late, and IP that still belongs to a founder or a contractor. None is unusual, most can be fixed, and all are cheaper to fix before a deal than during one. The guide to common findings lists them with what fixing each involves.
What it means for the deal
A finding rarely ends a deal on its own. More often it changes the terms:
- Conditions precedent: things you must fix before the money moves, such as filing a late form or getting a missing approval.
- Conditions subsequent: things you promise to fix within a set time after closing.
- Warranties and indemnities: you promise that certain things are true and compensate the counterparty if they are not. A specific finding may get its own specific indemnity.
- Price or structure: a buyer may lower the price, hold part of it in escrow, or change what they buy. A bank may ask for more security or a lower limit.
- Walking away: reserved for findings that go to the heart of the business, or for a company that cannot produce its records at all.
How to make it easier
- Know what applies to you. A company under ₹5 crore turnover with no exports owes a different list from one above ₹100 crore with foreign investors.
- Keep documents in one place, named properly, against what each one proves.
- Fix what you can before anyone asks. Late filings get more expensive with time, not less.
- Have your own CA or CS check the record first. A counterparty trusts a record your professional has already reviewed.
- Answer questions on the item they relate to, not across scattered emails, so nothing gets asked twice.
The free readiness check takes about four minutes and shows what applies to your company and where the gaps are.
Official sources
The rules this guide describes come from these. Check the current text there, or ask your CA or CS.
- Ministry of Corporate Affairs: company filings, charges and the Companies Act 2013
- Income Tax Department: the Income-tax Act 2025 and returns
- GST portal: registrations, returns and GSTR-9C
- EPFO and ESIC: provident fund and employees' state insurance
- Reserve Bank of India: FEMA rules on foreign investment, and MSME lending
This guide explains how things usually work. Your CA, CS or lawyer advises on your company’s case. To see which of these documents apply to your company, run the free due diligence readiness check; for a form or term you do not recognise, see the glossary.