Legal due diligence is the work of confirming, before you sign or pay, that what you are buying exists, belongs to the person selling it, is free of hidden claims and complies with the law. It turns a seller’s assurances into facts you have checked yourself.
My background is in fraud investigation, risk and banking, and one lesson has stayed with me: most of the problems that later cost investors dearly were sitting in public records all along. Nobody looked. This checklist sets out where to look, whether you are investing in a company, buying a business, or putting family money into property or a private deal in India.
Start by being clear about what you are acquiring
The scope of legal due diligence depends on what changes hands:
- Shares in a company: you inherit the company’s history, including its debts, disputes, tax positions and guarantees.
- Assets of a business: you choose what you take, but you still need clean title to each asset and the right to transfer licences and contracts.
- Property: the focus is title, encumbrances, approvals and possession.
- A private investment or joint venture: the focus is the counterparty, the structure and the documents that protect you if things go wrong.
Write the scope down at the start. A tight scope saves money; a vague one leaves gaps.
Corporate records: what the MCA21 data tells you
For any Indian company, the Ministry of Corporate Affairs records are the first stop. From the company’s master data and filings you can confirm:
- Status: whether the company is active, or marked under strike-off or other action.
- Directors and their history: who sits on the board, recent appointments and resignations, and whether a director has been disqualified under Section 164 of the Companies Act, 2013.
- Filing discipline: whether annual returns and financial statements are filed on time. Years of missed filings say something about how the business is run.
- Charges: a company must register a charge on its assets with the Registrar within 30 days of creating it under Section 77. The index of charges shows which lenders hold security over what, and whether charges have been satisfied.
I pay particular attention to charges satisfied shortly before a sale, and to assets the seller describes as free while a charge is still open on the record.
Litigation searches: eCourts, NCLT and the DRT
A company can look healthy on paper while defending cases that threaten its core assets. Search the company, its promoters and, for property, the owners, across:
- District and High Court records through eCourts services, by party name and, where you have them, case numbers.
- The National Company Law Tribunal for insolvency petitions and company disputes.
- Debts Recovery Tribunals for bank recovery cases against the company or its promoters.
- Consumer commissions and other forums relevant to the sector.
Name searches miss spelling variations, so search more than one form of each name. A pending recovery case against a promoter matters even if the company itself is clean, especially where promoters have given personal guarantees for business loans.
Property: title, encumbrance and possession
Where property is part of the deal, or is the deal, the questions are who owns it, what claims sit on it and who is actually in possession:
- Title chain: trace ownership back through the earlier registered documents, commonly over 30 years, and look for gaps, unregistered links or missing consents.
- Encumbrances: search the registration records for mortgages, leases and agreements. In Maharashtra that means the sub-registrar’s index records alongside the 7/12 extract or property card.
- Security interests: a public search on CERSAI shows security interests that banks and financial institutions have registered against an asset. It complements, and does not replace, the registration search.
- Approvals and possession: building approvals, occupancy, society records and a physical check that the person selling is the person in possession.
Revenue and registration records reward experience. A property lawyer who reads 7/12 extracts, property cards and index records every week will usually spot a gap in the chain faster than a general reviewer.
Licences, tax and GST status
A business is only worth what it can lawfully keep doing. Check that its licences and registrations are valid and transferable, and that a change of ownership does not cancel them. Then look at tax:
- GST: confirm the registration is active using the taxpayer search on the GST portal, and compare return filings with the turnover the seller reports.
- Income tax: ask for assessment orders, pending demands and notices, and how they are being contested.
- Employee dues: provident fund and similar contributions that remain unpaid can follow the business.
Related parties and fraud red flags
This is where my investigation background shapes the work most. Documents rarely lie outright; they leave patterns. The red flags I look for include:
- Large transactions with related parties that do not appear to have been approved as Section 188 of the Companies Act requires.
- Money moving in circles between group entities, inflating turnover.
- Frequent changes of directors or auditors, especially an auditor who resigns mid-term.
- Reported turnover that does not match GST returns or bank statements.
- Guarantees or security given for other group companies that the seller does not mention.
- Key assets held in a promoter’s personal name rather than the company’s.
None of these proves wrongdoing on its own. Each is a reason to ask a pointed question and insist on a documented answer. For a wider view of how these risks build up, see my note on risk management in a hyperconnected world.
Questions worth putting to the seller in writing
Public records answer many questions, but not all of them. I prefer to send the seller a written questionnaire early and keep the answers on file, because written answers can later be tied to representations in the agreement. A short version looks like this:
- Are there any pending or threatened claims, notices or investigations not shown in the court records?
- Has the company or any promoter given a guarantee or security for anyone else’s borrowing?
- Are there any agreements to sell, lease or license the key assets to anyone else?
- Which licences or contracts need consent, or end, on a change of ownership?
- Are all statutory dues, including GST, income tax and employee contributions, paid up to date?
An evasive or incomplete answer is itself a finding. It tells you where to dig further before you commit.
Legal due diligence checklist
| Area | What to check | Where to look |
|---|---|---|
| Company status | Active status, directors, disqualifications, filing record | MCA21 master data and filings |
| Charges | Open and satisfied charges, lenders, assets covered | MCA index of charges |
| Litigation | Pending suits, appeals, recovery and insolvency cases | eCourts, NCLT, DRT, sector forums |
| Property title | Title chain, gaps, consents, possession | Registered documents, sub-registrar records, revenue records |
| Encumbrances | Mortgages and registered security interests | Registration search, CERSAI public search |
| Licences | Validity and transferability | Issuing authorities, licence documents |
| Tax and GST | Registration status, returns, demands | GST portal, assessment orders, notices |
| Contracts | Change of control clauses, exclusivity, termination rights | Material contracts of the business |
| Related parties | Approvals, pricing, group guarantees | Board minutes, financial statements, loan documents |
How the findings shape the deal
Due diligence is only useful if it changes the documents. Depending on what you find, the usual tools are:
- Conditions precedent: problems the seller must fix before completion, such as satisfying a charge or regularising a filing.
- Representations and indemnities: specific promises about the issues you found, with a clear way to recover loss if they prove untrue.
- Escrow or holdback: part of the price kept back until a tax demand or case is resolved.
- Price adjustment: a lower price that reflects a risk you are willing to carry.
- Walking away: sometimes the right result of a good review.
How those protections are drafted matters as much as the findings themselves, which I discuss in contracts that drive growth and protect value. Regulatory change can also move the goalposts mid-deal, a theme I cover in my note on how regulation in India is changing for businesses.
Check first, then commit
A careful review costs a fraction of what an unchecked problem costs after completion. Fix the scope, search the public records yourself, test the seller’s answers, and make sure what you learn ends up in the documents. If you would like to discuss due diligence for a deal you are considering, you can get in touch here, or read more about my background.
Frequently asked questions
What is legal due diligence?
Legal due diligence is a structured review, done before you sign or pay, of the legal position of a company, business or property you plan to invest in or acquire. It checks ownership, debts and security, litigation, licences, tax and contracts, so that you know the risks and can price them or protect yourself in the documents.
How do I check whether a company’s assets are already mortgaged?
Start with the index of charges on the Ministry of Corporate Affairs records, since companies must register charges within 30 days of creating them under Section 77 of the Companies Act, 2013. For specific assets, also run a CERSAI public search and a registration search, because each source can show security the others miss.
Which courts and tribunals should a litigation search cover?
Search district courts and High Courts through eCourts, the National Company Law Tribunal for insolvency and company matters, and the Debts Recovery Tribunals for bank recovery cases. Add consumer commissions and sector forums where relevant, and search the company, its promoters and property owners under more than one spelling of each name.
Is a CERSAI search enough to confirm a property is free of loans?
No. A CERSAI public search shows security interests that banks and financial institutions have registered, but some charges appear only in sub-registrar records, and private arrangements may not appear at all. Use it alongside a registration search, the title chain, revenue records and a physical check of who is in possession.
What are common red flags in a business acquisition?
Watch for related-party transactions without proper approval, money moving in circles between group companies, turnover that does not match GST returns or bank statements, frequent changes of directors or auditors, undisclosed guarantees for group entities, and key assets held in a promoter’s personal name instead of the company’s.
How do due diligence findings protect a buyer?
Findings are written into the deal. Typical tools are conditions precedent the seller must meet before completion, specific representations backed by indemnities, an escrow or holdback of part of the price until an issue is resolved, a price adjustment, or a decision not to proceed at all.
