Legal Due Diligence Before an M&A Deal: What Standard Checklists Miss

Most legal due diligence checklists for an M&A transaction are built the same way, and for good reason: request the target's material contracts, corporate filings, IP registrations, regulatory approvals, and litigation disclosures, then verify what's handed over against public records where possible. That process works well for what it's designed to catch. It's structurally weaker against the thing it isn't designed to catch at all — what the target simply doesn't disclose, whether through omission, oversight, or a narrow reading of what counts as material enough to mention.

The disclosure gap, and why it's larger than it looks

A target company is generally only obligated to disclose litigation it considers material, and materiality is a judgment call that tends to favour the seller — for the simple reason that the seller is the one making it, under time pressure, during a process where they have every incentive to present a clean picture. A recovery suit at a DRT, a consumer complaint escalated to the national commission, or a matter involving a subsidiary two organisational levels down from the entity being acquired can all sit well outside what gets voluntarily disclosed, while remaining entirely relevant to the acquirer's actual risk. This isn't necessarily bad faith on the target's part. It's often just an honest, self-interested disagreement about where the line for 'material' sits — which is precisely why relying solely on the other side's judgment about what matters is a weak diligence design, independent of anyone's intentions.

Independent verification, not just disclosure review

The more reliable approach is to independently search major courts and tribunals for the target entity, its directors, and its group — rather than relying solely on what's handed over in the data room. This doesn't replace the disclosure-based checklist; it's a cross-check against it, run in parallel rather than as an afterthought. Where independent search surfaces something the target didn't disclose, that finding is useful on two levels: first, as a direct fact about the target's actual legal exposure, and second, as an indirect signal about how the target's team defines materiality more broadly — which tells you something about how carefully to read everything else they've handed over.

Why tribunal exposure specifically deserves a closer look

Insolvency proceedings are a particularly easy category to underweight in disclosure-based diligence, partly because they move slowly enough that a target can reasonably describe an ongoing matter as 'unresolved' rather than 'material' — a framing that isn't technically false, just unhelpful to an acquirer trying to price risk. Tribunal proceedings are also getting slower, not faster, which raises the stakes of missing one: the average time to complete a corporate insolvency resolution process at the NCLT rose from 566 days in March 2024 to 688 days by September 2025 — well past the Insolvency and Bankruptcy Code's own 330-day statutory outer limit — according to data reported in December 2025. Separately, industry estimates from the same period put roughly 10,000 cases stuck at the admission stage across NCLT benches nationally, with more than ₹10 lakh crore in recovery value locked in distressed assets awaiting resolution.

A target — or a group entity sharing directors with the target — sitting inside that backlog, whether as applicant or respondent, is exactly the kind of fact an acquirer wants surfaced before signing, not discovered during the resolution process afterward. An insolvency matter involving a group entity doesn't necessarily mean the target itself is distressed. It does mean the group's finances and the target's are more entangled than a clean set of standalone financials might suggest, and that's a fact worth pricing into the deal, not a footnote to skip past.

What good independent search looks like in practice

It should cover the target entity and its known directors and group entities by name, and by the name variants those entities have historically used. It should span the forums where the relevant disputes are actually likely to be — District Courts, High Courts, NCLT, DRT/DRAT, Consumer forums, and the Supreme Court where a matter has escalated that far — rather than stopping at whichever single court is easiest to search. And every finding should be identified against the court and case record it comes from, not delivered as an unattributed summary you have to take on faith. A diligence process that can't tell you which court a claim originates from is asking you to trust a black box on exactly the question where trust is least appropriate.

When to run it

Ideally, independent litigation search runs early — alongside the initial disclosure request, not after it comes back. Running it early gives you a baseline to compare against what the target actually discloses, which is where the most useful signal tends to show up: not in what's found, but in the gap between what's found and what was volunteered. Running it only after signing, as a post-closing surprise, defeats the entire purpose of due diligence, which is to price risk before you're contractually committed to it, not to discover it afterward when your only remaining options are expensive ones.

Source: NCLT resolution-timeline and admission-backlog data reported by Business Standard, December 2025, citing industry sources and IBBI figures.

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