This is where India deals most frequently lose value — and where the legal problem is rarely the SPA. It is what happens inside the target company post-closing: it is the lived governance reality of the target. The governance practices that were never documented, the related-party arrangements that were never disclosed, and the founder behaviours that were never addressed. Standard legal diligence will find only the documented layer. The risks that actually erode your returns — undocumented related-party arrangements, off-book incentives, informal family employment, promoter-controlled trademarks.
Domestic
- Informal practices normalised in mid-market deals
- Promoter resistance to governance change
- Deeper undisclosed liabilities
Foreign
- Foreign investors consistently underestimate this risk
- And here is why it compounds: when you exit — whether through a secondary sale, IPO, or strategic buyout — the buyer’s diligence will revisit every governance weakness you inherited.
This is the highest real-world value erosion risk in India mid-market deals. The Indian Law now mandates disclosure of Significant Beneficial Ownership at a threshold of 10% — which applies to shares, voting rights, and control. Failure to disclose SBO carries penalties and, critically, restricts the beneficial owner’s ability to exercise rights over the undisclosed shares.
Common post-close leakage vectors
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Undocumented related-party contracts, family employment, promoter-owned trademarks, off-book sales incentives, GST leakages, and cash rebates.
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Board deadlock, refusal of ERP access, key customer diversion, vendor capture by promoter relatives, and tax raids triggered by legacy conduct.