Acquiring an Indian project company can give a foreign or domestic investor access to an operating infrastructure asset, an established project structure or valuable contractual rights. However, project company acquisition in India requires a detailed legal review because the target may hold land rights, licences, government concessions, construction contracts, financing arrangements and long term operational obligations. A problem with any of these elements can affect the project's value or its ability to continue operating.

Legal due diligence helps the buyer identify liabilities, confirm ownership rights and establish whether the proposed acquisition can be completed lawfully. The review should cover the target company and the project itself. It should also assess whether a change in ownership triggers regulatory approval, lender consent or contractual restrictions. The scope will depend on the sector, project stage, acquisition structure and the buyer's intended use of the asset.

Review the Project Company's Corporate Records

The first step is to verify the target's legal existence, ownership and authority to undertake the transaction. The buyer should examine the certificate of incorporation, memorandum and articles of association, statutory registers, shareholding records, board and shareholder resolutions, annual filings and details of directors and beneficial owners. This review helps identify discrepancies in share ownership, unauthorised share issues, unpaid capital and restrictions on transfers.

The buyer should also check whether the company has complied with the Companies Act, 2013. This includes reviewing charges registered with the Registrar of Companies, related party transactions, statutory filings and any pending proceedings involving directors or shareholders. Unresolved corporate defaults can complicate completion and may require corrective filings or other remedial action.

Verify Ownership of Project Assets and Land Rights

Land and asset rights are often central to a project company's value. The buyer should establish whether the target owns the land, holds a lease, has a licence to use the site or benefits from a concession or right of way. Relevant records may include title deeds, lease agreements, revenue records, land conversion orders, encumbrance certificates, survey plans and possession documents. Local searches and independent title verification may be necessary.

For infrastructure and real estate projects, the review should also examine easements, access rights, utility corridors, rehabilitation obligations and restrictions on land use. The buyer should identify mortgages, charges, litigation, acquisition notices and competing claims. Where the transaction involves property investment, it is particularly important to distinguish ownership of the land from contractual rights to develop, operate or use it.

Examine Licences, Permits and Regulatory Approvals

A project company may need several approvals before it can construct, operate or expand its business. These can include environmental clearance, consent to establish and operate, building permissions, factory licences, electricity approvals, sectoral registrations and local authority permissions. The buyer should verify the issuing authority, validity period, permitted activities and conditions attached to each approval.

The review should also establish whether the approvals remain effective after a change in shareholding or control. Some permissions may require prior consent, notification or updated filings. Others may be linked to the project company and remain valid following a share transfer, subject to compliance with their conditions. The buyer should not assume every licence automatically transfers or remains unaffected by the acquisition.

Review Concession Agreements and Government Contracts

Many Indian infrastructure project companies operate under agreements with government authorities or public sector entities. These may include highway concessions, port agreements, airport arrangements, power purchase agreements, development agreements or public private partnership contracts. The buyer should review the full agreement, amendments, schedules, performance standards, payment mechanisms and termination provisions.

Particular attention should be given to change in control clauses, minimum promoter shareholding, restrictions on transfers, lender rights, performance security and termination events. A concession may require prior approval before the buyer acquires control or changes the project sponsor. The buyer should also assess whether the target is in breach of construction milestones, service standards or payment obligations.

Assess Existing Financing and Security Arrangements

Project companies often rely on substantial debt from banks, financial institutions, bondholders or external lenders. The buyer should review facility agreements, security documents, guarantees, escrow arrangements, intercreditor agreements and repayment schedules. It should identify outstanding principal, accrued interest, covenant breaches, defaults and any restructuring or waiver arrangements.

A change in ownership may require lender consent or trigger a review of the financing terms. The buyer should examine whether lenders have rights to accelerate repayment, enforce security or restrict transfers. It should also confirm whether the project assets, shares, receivables and bank accounts are already charged. A transaction cannot be assessed properly without understanding the target's secured debt and the lenders' contractual rights.

Identify Litigation, Claims and Disputes

The buyer should investigate all material litigation, arbitration, adjudication and regulatory proceedings involving the project company. This includes disputes with contractors, suppliers, employees, landowners, lenders, government authorities and customers. The review should consider the nature of each claim, the amount involved, procedural stage, possible outcomes and any interim orders affecting project operations.

It is equally important to examine threatened claims and unresolved notices. A dispute may not yet appear in court records but could still affect construction, land possession, project payments or the validity of a contract. The buyer should obtain management confirmations, legal case summaries and supporting documents, then assess whether the risk requires an indemnity, escrow or price adjustment.

Examine Construction, Operation and Maintenance Contracts

A project company's value may depend on contracts with engineering, procurement and construction contractors, equipment suppliers, consultants and operations and maintenance providers. The buyer should review performance obligations, payment terms, warranties, delay damages, defect liability periods, termination rights and subcontracting arrangements. It should also check whether the target has outstanding claims or disputes under these contracts.

The review should identify provisions triggered by a share transfer or change in control. Key contractors may have termination or consent rights, while government contracts may restrict subcontracting or replacement of the project operator. The buyer should also assess whether the target has adequate insurance and whether policies remain valid after completion.

Check Environmental, Social and Employment Compliance

Environmental compliance can have a direct impact on project continuity. The buyer should examine environmental clearances, pollution control consents, waste management records, environmental audits and notices from relevant authorities. Depending on the project, additional requirements may relate to forest land, wildlife protection, coastal regulation, groundwater extraction or rehabilitation and resettlement.

Employment due diligence should cover employee contracts, wages, statutory contributions, gratuity, provident fund, employee state insurance, workplace safety and pending labour disputes. The buyer should identify unpaid statutory dues and potential claims involving contractors or outsourced workers. The target's compliance with applicable labour and environmental requirements should be assessed before the acquisition price and post completion integration plan are finalised.

Review Tax, Financial and FEMA Exposure

The legal review should be coordinated with tax and financial due diligence. The buyer should examine income tax assessments, GST returns, input tax credit positions, withholding tax, transfer pricing exposure and outstanding tax demands. It should also verify whether the target has claimed incentives or exemptions subject to conditions which may be affected by a change in ownership or business activity.

Where a non resident acquires shares in an Indian project company, the transaction must comply with FEMA and the applicable Non Debt Instruments Rules. This includes foreign investment eligibility, sectoral caps, entry route, pricing requirements and reporting. Depending on the transaction, Form FC TRS or other prescribed reporting may apply. The buyer should also assess indirect transfer tax exposure and the treatment of any offshore holding structure.

Assess Whether a Share or Asset Acquisition Is More Suitable

In a share acquisition, the buyer acquires ownership of the company, while the company continues to hold its assets, contracts, licences and liabilities. This can help preserve project continuity, but the buyer also assumes the economic exposure of historical liabilities within the target. Contractual warranties and indemnities can allocate risk between the parties, but they do not automatically remove liabilities owed to regulators, employees, lenders or other third parties.

An asset acquisition may allow the buyer to select particular assets and rights, but transferring land, permits, contracts and concession rights can require separate approvals and consents. Some licences or government contracts may not be transferable at all. The parties should compare the legal, tax, financing and operational consequences of each structure before deciding how to complete the transaction.

Prepare the Transaction Documents and Remediation Plan

Due diligence findings should be translated into clear transaction protections. The share purchase agreement or asset purchase agreement should include appropriate warranties, indemnities, conditions precedent, disclosure requirements and completion obligations. Material issues may require a specific indemnity, an escrow arrangement, a retention of part of the consideration or a requirement to resolve the issue before closing.

The buyer should also prepare a post completion compliance plan covering statutory filings, licence updates, lender notifications, insurance, governance and project reporting. Where the acquisition involves a new holding or operating entity, the process to register a company should be aligned with the proposed acquisition structure and any sector specific conditions. A clear plan helps prevent regulatory and contractual obligations from being overlooked after completion.

Conclusion

Legal due diligence before acquiring an Indian project company must extend beyond a review of corporate records. Buyers should verify land and asset rights, regulatory approvals, concession agreements, financing, construction contracts, environmental compliance, litigation and foreign investment requirements. A thorough review helps identify liabilities, negotiate suitable protections and establish whether the project can operate lawfully and commercially after completion

Frequently Asked Questions

What is legal due diligence in a project company acquisition?

It is a structured review of the target's corporate records, assets, land rights, licences, contracts, financing, litigation and legal compliance. It helps the buyer identify risks and confirm whether the project can continue after the acquisition.

Why is land due diligence important when acquiring a project company?

Land rights may be central to the project's operation and value. The buyer must verify ownership or lawful use, title history, encumbrances, access rights, land use permissions and disputes.

Do government approvals need to be obtained before acquiring a project company?

Sometimes. The requirement depends on the project sector, concession agreement, licence conditions, FDI rules and whether the transaction changes ownership or control. Required prior approvals should be obtained before completion.

Is a share acquisition safer than an asset acquisition?

Neither structure is universally safer. A share acquisition may preserve existing contracts and licences but exposes the buyer to the company's historical liabilities. An asset acquisition can limit the scope of assets acquired, but transferring contracts, permits and land rights may be complex.

Can a project company be acquired if it has outstanding loans?

Yes, subject to the financing documents and any required lender consents. The buyer should review security, repayment obligations, financial covenants and change in control provisions before proceeding.

What happens if the project company has pending litigation?

Pending litigation does not automatically prevent an acquisition. However, the buyer should assess the claims, possible financial exposure and impact on project operations. Significant disputes may require specific indemnities or completion conditions.

This update was released on 14 Jan 2027.

The views expressed in this update are personal and should not be construed as any legal advice. Please contact us directly on +91 22 40565252 or contact@mhcolaw.com for any assistance.

Legal Update Team
MANSUKHLAL HIRALAL & COMPANY
Advocates, Solicitors and Notaries
T: +91 22 40565252
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