FEMA Compliance

DUE DILIGENCE Legal & Financial Checklist A Comprehensive 2026 Guide for Indian Businesses, Investors & Entrepreneurs  What is Due Diligence? Due diligence is a systematic process of investigation, verification, and analysis conducted before entering into a business transaction, acquisition, merger, investment, or partnership. In India, due diligence has taken on heightened importance in 2026, as regulatory frameworks have become increasingly robust under the Companies Act 2013 (as amended), GST laws, SEBI regulations, and the Foreign Exchange Management Act (FEMA). Whether you are an investor evaluating a startup, a corporation pursuing an acquisition, or an entrepreneur entering a joint venture, performing thorough due diligence protects you from hidden liabilities, legal pitfalls, and financial surprises. This comprehensive checklist covers every dimension — legal, financial, operational, HR, and intellectual property — aligned with Indian laws and market practices as of 2026. 🎯 Why Due Diligence Matters in India (2026) The Indian business landscape has evolved dramatically. With regulatory bodies such as SEBI, RBI, MCA, CCI, and NCLT operating with greater enforcement capabilities, non-compliance risks have multiplied. Key reasons due diligence is critical in 2026: Rising M&A activity across sectors — technology, pharma, fintech, and manufacturing Increased FDI inflows requiring FEMA and RBI compliance verification GST audit trails and digital financial records making financial verification more thorough Stringent anti-money laundering (AML) requirements under PMLA 2002 (amended 2023) SEBI’s enhanced disclosure norms for listed companies post-LODR amendments NCLT proceedings rising — hidden pending litigations can derail deals Data protection requirements under the Digital Personal Data Protection Act 202   PART 1: LEGAL DUE DILIGENCE CHECKLIST 🏢 1.1 Corporate Structure & Incorporation Verification Documents to Verify Certificate of Incorporation issued by the Registrar of Companies (ROC) Memorandum of Association (MOA) and Articles of Association (AOA) Latest Form MGT-7 (Annual Return) and AOC-4 (Financial Statements) filed with MCA Certificate of Commencement of Business (Form INC-20A) — mandatory post-2019 Board resolutions authorising the transaction List of current directors with DIN (Director Identification Numbers) — verify on MCA21 portal Shareholding pattern — Form SH-4, SH-7, and PAS-3 filings Register of Members (Form MGT-1) and Share Certificates Any pending Compounding Applications with RBI or MCA Key Checks Verify company status on MCA21 portal — Active, Struck Off, or Under Liquidation Check for any disqualified directors under Section 164 of the Companies Act 2013 Confirm no initiation of NCLT proceedings under IBC 2016 Verify authorised vs. paid-up capital discrepancies ⚖️ 1.2 Litigation & Regulatory Compliance Check Pending Litigations Obtain certified list of all pending civil suits, criminal cases, and arbitrations Check High Court, District Court, and Supreme Court case records (eCourts platform) NCLT / NCLAT proceedings — check insolvency or winding-up petitions Consumer Forum complaints — NCDRC, State and District level Labour court and Industrial Tribunal disputes Environmental tribunal (NGT) orders and show-cause notices Regulatory Compliance SEBI show-cause notices (for listed entities or SEBI-regulated entities) Competition Commission of India (CCI) — any anti-trust investigations Enforcement Directorate (ED) proceedings under FEMA or PMLA GST Department notices, audit reports, and demand orders Income Tax assessments, appeals pending at CIT(A) or ITAT Customs and Excise duty disputes 📜 1.3 Contract & Agreement Review Key Contracts to Review All material customer and supplier contracts — check lock-in periods, exit clauses, and change-of-control provisions Loan agreements, debenture trust deeds, and charge documents registered with ROC Lease deeds and rental agreements for office, factory, or warehouse Employment contracts of key managerial personnel (KMPs) Non-Disclosure Agreements (NDAs) and Non-Compete Agreements Joint venture, partnership, and shareholder agreements Agency, distributor, and franchise agreements Government contracts or licenses (e.g., MSME certificates, sector-specific licenses) Red Flags in Contracts Change-of-control clauses requiring third-party consent Unlimited indemnity clauses or uncapped liability provisions Automatic renewal clauses with unfavourable terms Penalty clauses for breach or termination Arbitration clauses specifying foreign jurisdictions (impacts enforcement in India) 🏠 1.4 Property & Real Estate Verification Title Verification Original title deeds and chain of title going back minimum 30 years Encumbrance certificate from Sub-Registrar’s office Property tax receipts (up to date for FY 2025-26) RERA registration (for real estate developers) — verify on state RERA portals Land conversion certificate (if agricultural land converted for commercial use) Building plan approvals and Occupancy Certificate (OC) from municipal authority Mutation entries in land records (7/12 extracts in Maharashtra, Pahani in Telangana etc.) Encumbrances & Charges Search at the Sub-Registrar’s office for mortgages and encumbrances ROC search for charges created on property under Section 77 of Companies Act 2013 CERSAI (Central Registry of Securitisation Asset Reconstruction) search for equitable mortgages Check for acquisition proceedings under Land Acquisition Act 🔐 1.5 Intellectual Property (IP) Due Diligence IP Assets to Verify Trademark registrations — verify on IP India portal; check for oppositions or cancellations Patent filings and grants — check expiry dates, annuity payments, and infringement risks Copyright registrations — especially for software, creative works, and databases Design registrations under Designs Act 2000 Domain name ownership and SSL certificate validity Software licenses — check proprietary vs. open-source compliance (GPL, MIT etc.) IP Red Flags IP registered in founder’s personal name rather than company name Absence of IP assignment agreements from founders and employees Pending trademark opposition proceedings Use of third-party IP without proper licensing 👥 1.6 Employment & HR Legal Compliance Labour Law Compliance (India 2026 — Labour Codes Framework) Compliance with Code on Wages 2019 — minimum wage, overtime, bonus Code on Social Security 2020 — EPF, ESIC, gratuity, maternity benefit compliance Industrial Relations Code 2020 — standing orders, trade union registrations Occupational Safety, Health and Working Conditions Code 2020 compliance POSH (Prevention of Sexual Harassment) Act compliance — Internal Complaints Committee Employment agreements of all employees including ESOP documentation PF and ESIC registration, ECR filings, and payment records Contract labour registrations and principal employer compliance Employee Verification List of all employees, consultants, and gig workers with CTC details Pending employee-related litigations or disputes Gratuity fund compliance for entities with 10+ employees Non-compete and IP assignment clauses in employment agreements 🌐 1.7 Data Privacy & Cybersecurity Compliance Digital Personal Data Protection Act 2023 Appointment