Decriminalisation & Due Diligence: Corporate Laws Amendment Bill 2026 Impact on M&A

Decriminalisation vs. Due Diligence: Assessing the Impact of the Corporate Laws (Amendment) Bill, 2026 on Indian M&A Transactions

Summary: The Corporate Laws (Amendment) Bill, 2026, introduced in the Lok Sabha on March 23, 2026, seeks to amend the LLP Act, 2008 and Companies Act, 2013 by decriminalising several procedural defaults while simultaneously strengthening substantive corporate governance and due diligence requirements. The Bill substitutes civil penalties for criminal consequences for certain defaults, including refusal to provide corporate affairs information, regulatory breaches, failure to provide documents to the Registrar, books of account violations and disregard of Registrar requisitions. For M&A transactions, this may reduce compliance burdens, reputational risks and valuation uncertainty, but the relief is accompanied by enhanced requirements relating to director appointments, auditor disclosures, valuation oversight and settlement of civil defaults under proposed Section 454C. The “fit and proper person” requirement under Section 164 would make director selection a more formal compliance exercise, while enhanced auditor disclosures and strengthened NFRA powers could provide acquirers with greater information but also extend diligence timelines. The proposed settlement mechanism could allow targets to resolve civil defaults before closing, although buyers would need to identify potentially resolvable defaults and ensure appropriate settlement. The Bill also proposes streamlined NCLT proceedings for multi-jurisdictional schemes, expanded fast-track merger thresholds and treasury share provisions. Its final form, implementing rules and practical impact on transaction costs and valuations remain uncertain while the Bill is under Joint Parliamentary Committee consideration.

Introduction

A turning point in India’s corporate governance system was reached on March 23, 2026, when Finance and Corporate Affairs Minister Nirmala Sitharaman introduced the Corporate Laws (Amendment) Bill, 2026 (“the Bill”) in the Lok Sabha. This ambitious bill, which is presently being reviewed by a Joint Parliamentary Committee, calls for the changes to the Limited Liability Partnership (LLP) Act, 2008 and the Companies Act, 2013. Although the Bill’s declared goals are to make doing business easier and decriminalize procedural defaults, it also establishes stricter due diligence standards that provide M&A practitioners with complicated new considerations. The difficult balance between decriminalization and increased due diligence requirements is examined in this essay, along with the ramifications for mergers and acquisitions in India.

The Decriminalization Paradigm

The Bill’s extensive decriminalization structure is its main feature. The Bill decriminalizes a number of offenses that were previously considered crimes, substituting civil fines for incarceration. These offenses include willful refusal to provide corporate affairs information, breaking regulations, failing to provide papers to the Registrar, breaking books of account requirements, and disregarding Registrar requisitions.

This shift from criminal to civil liability represents a fundamental philosophical change in how India regulates corporate compliance. Rather than exposing individuals to criminal prosecution for technical and administrative lapses, the Bill acknowledges that not all violations warrant the severity of criminal penalties. For companies engaged in mergers and acquisitions activities, this decriminalisation offers several tangible benefits.

i. It reduces the compliance burden on organisation, allowing management to focus resources on strategic initiatives rather than navigating complex criminal liability for procedural defaults.

ii. It mitigates reputational risk associated with criminal prosecution, making targets more attractive to potential acquirers.

iii. It reduces uncertainty in valuation models, as the absence of criminal liability risk lowers the contingency provisions necessary in deal pricing.

However, the decriminalization framework is far from a blanket approach to corporate leniency. The Bill explicitly retains serious governance failures—particularly defaults in related-party transactions and substantive governance violations—under criminal provisions or enhanced civil penalties. This bifurcated approach signals that while procedural compliance has been relaxed, substantive corporate governance standards remain stringent and potentially more closely scrutinised than before.

The Due Diligence Complexity

Paradoxically, while decriminalisation reduces the severity of certain violations, the Bill simultaneously introduces enhanced due diligence obligations that effectively complicate M&A transactions. These new requirements stem from four critical amendments: the introduction of a “fit and proper person” standard for director appointments, enhanced auditor disclosure requirements under strengthened National Financial Reporting Authority (NFRA) powers, the establishment of centralised valuation oversight through the Insolvency and Bankruptcy Board of India (IBBI), and the introduction of settlement mechanisms for civil defaults under proposed Section 454C of the Bill.

Fit and Proper Person Requirement

The “fit and proper person” requirement, inserted into Section 164, obligates boards to formally assess and document that each proposed director meets prescribed criteria. This creates a compliance-documented requirement that transforms director selection from a matter of business judgment into a regulatory compliance exercise. For M&A transactions, this means that due diligence questionnaires must now comprehensively address the fit-and-proper evaluation for the target company’s board, and representations regarding compliance with this new standard become critical closing conditions.

Enhanced Auditor Disclosure Obligations

Enhanced auditor disclosure obligations intensify the reduction of information asymmetry between acquirers and sellers. While this provides buyers with richer financial reporting information, it simultaneously raises the compliance bar for targets. During due diligence, acquirers can now expect more detailed and comprehensive auditor reports, but they must also conduct more sophisticated financial analysis and compliance verification. This increased transparency, while beneficial to buyers, also prolongs due diligence timelines and necessitates deeper engagement with external auditors and financial advisors.

Civil Default Resolution Mechanism

A paradigm shift in compliance architecture is represented by the civil default resolution mechanism created under Section 454C of the Bill. Instead of waiting for regulatory action or adjudication, businesses can now proactively resolve civil defaults through a statutory settlement process. In the past, unresolved civil defaults found during due diligence could become commercial obstacles disproportionate to their underlying nature, raising transaction costs, delaying negotiations, and requiring escrow mechanisms or indemnity arrangements. This mechanism fills a critical gap. Deal execution is streamlined by the new settlement pathway, which enables targets to pay such defaults prior to close. However, because buyers must find all potentially resolvable civil defaults and guaranty appropriate settlement before to acquisition, this also adds new due diligence requirements.

M&A Transaction Implications: The Double-Edged Sword

The interplay between decriminalisation and enhanced due diligence creates a nuanced landscape for M&A practitioners. On one hand, the Bill streamlines complex multi-jurisdictional deals by consolidating NCLT proceedings. Schemes involving companies across multiple jurisdictions previously required parallel proceedings before five separate NCLT benches; post-amendment, all proceedings will be conducted before a single bench of the transferee or resultant company. This reform dramatically reduces deal timelines from 12-14 months to potentially six to eight months, significantly reducing litigation costs and counsel appearances before multiple benches. For large-scale intra-group restructurings and cross-border acquisitions, this streamlining is transformative.

Simultaneously, the Bill’s expansion of fast-track merger thresholds and introduction of treasury share regimes open new structuring pathways previously unavailable or cumbersome. These reforms particularly benefit debt-free listed companies and PE sponsors seeking flexible capital management and restructuring options. However, these benefits are conditioned upon demonstrating compliance with the expanded regulatory disclosure and governance standards embedded throughout the Bill.

The Bill requires questionnaires, statements, and warranties to be recalibrated for due diligence practitioners. In particular, M&A transaction paperwork now need to make a clear distinction between crimes that have been decriminalized and those that are still illegal. To make it clear that compliance with decriminalized offenses relates to the civil penalty system rather than criminal requirements, the representation language requiring “compliance in all material respects” must be revised. The new “fit and proper person” standard and improved National Financial reporting Authority (“NFRA”) requirements must also be incorporated into statements on auditor disclosures and director credentials.

Strategic Considerations for Deal Parties

Acquirers

For acquirers, the Bill’s enhancements to information transparency and auditor oversight reduce information asymmetry, facilitating more comprehensive pre-acquisition risk assessment. However, this increased transparency also lengthens diligence processes and requires specialised expertise to interpret enhanced regulatory disclosures. Buyers should engage early with forensic accountants and compliance specialists to navigate the expanded information environment.

Sellers and Targets

For sellers and targets, the Bill presents a strategic opportunity to proactively address and settle civil defaults before entering the sales process, thereby presenting a cleaner regulatory profile and reducing buyer concerns. Targets should conduct pre-sale compliance audits to identify potential civil defaults and engage settlement mechanisms under Section 454C of the Bill early in the transaction process. This proactive approach transforms compliance liabilities from transaction obstacles into managed, negotiated outcomes.

Private Equity Sponsors

Private Equity sponsors benefit significantly from the expanded fast-track merger thresholds and treasury share provisions, which enable more flexible structuring and capital deployment strategies. However, the enhanced governance standards necessitate disciplined board composition and comprehensive director qualification documentation throughout the holding period.

Remaining Uncertainties and Watchpoints

While the Bill significantly improves India’s M&A framework, several uncertainties remain. First, the Bill’s final form will only be determined upon completion of Joint Parliamentary Committee examination and subsequent legislative passage. Individual provisions may be modified, eliminating or weakening some reforms. Second, the procedural rules and guidelines implementing key provisions—particularly the Section 454C settlement mechanism and the “fit and proper person” evaluation criteria—have not yet been finalised. Until these regulations are issued, practitioners face uncertainty regarding practical implementation.

Third, the Bill’s impact on valuations remains unquantified. While decriminalisation reduces certain risk premiums, enhanced due diligence may increase buyer diligence costs, potentially offsetting valuation benefits. Finally, the settlement mechanism for civil defaults, while beneficial, introduces new transaction costs associated with proactive settlement, which may negate some efficiency gains.

Conclusion

The Corporate Laws (Amendment) Bill, 2026 is a complex two-pronged reform that tightens corporate supervision while also liberalizing some compliance regimes. The Bill takes a medium ground by eliminating criminal penalties for technical procedural errors while increasing substantive governance standards and transparency obligations, as opposed to establishing a “light-touch” regulatory environment. For M&A professionals, this means that even though deal implementation can grow quicker and need less litigation, the caliber and scope of due diligence must rise in tandem.

In the end, how regulators, practitioners, and courts interpret the Bill’s provisions will determine its actual impact. The Bill can establish India as a top location for intricate, cross-jurisdictional M&A activity if it is executed carefully, with well-calibrated settlement procedures and precise guidelines on “fit and proper person” norms. The decriminalization benefits of the Bill could be significantly outweighed by higher compliance costs if, on the other hand, the stricter enforcement of the additional due diligence standards or the difficulty of the settlement procedures.

M&A experts should actively participate in the legislative process as the Bill moves through parliamentary consideration to make sure that the final enactment strikes a balance between practical, implementable due diligence rules and decriminalization efficiency advantages. In order to position transactions for smooth completion under the new regulatory environment, it is prudent for transaction parties already involved in M&A processes to start recalibrating representations, warranties, and diligence procedures to reflect the Bill’s key provisions.

Relevant Sources

1. PRS Legislative Research: “The Corporate Laws (Amendment) Bill, 2026” – Official bill tracker and analysis

2. Lexology: “Corporate Laws (Amendment) Bill, 2026: Transforming India’s M&A and Capital Structuring Framework” (April 20, 2026)

3. Corporate Professionals: “The Corporate Laws (Amendment) Bill, 2026: Completing Decriminalisation Through Settlement of Civil Penalties” (June 24, 2026)

4. Global Law Experts: “Corporate Laws Amendment India: M&A and Due Diligence Implications” (May 14, 2026)

5. Legal Service India: “Corporate Laws (Amendment) Bill, 2026 Explained: Key Changes to Companies Act, LLP Act, NFRA, CSR & Compliance” (August 5, 2026)

6. FinPracto: “The Corporate Laws Amendment Bill 2026: Key Updates” (May 22, 2026)

7. Maheshwari & Co.: “Corporate Laws Amendment Bill 2026: CS Guide” (July 6, 2026)

8. B. Samrish & Co.: “Corporate Laws (Amendments) Bill, 2026: A Brief Overview of Changes Proposed” (July 22, 2026)

9. AICLR (All India Corporate Law Review): “The Corporate Laws Amendment Bill 2026: Impact on M&A in India” (August 2026)

10. Akansha Rathi and Associates: “Corporate Laws Amendment Bill 2026” (June 10, 2026)

11. New Kerala: “Joint Committee on Corporate Laws Amendment Bill, 2026 Invites Views” (June 9, 2026)