Finance Agreement

A Finance Agreement is the umbrella contract that governs how money moves between two parties — lender to borrower, investor to investee, sponsor to project — and what happens when the cash flow stops. Unlike a generic loan agreement, a finance agreement sits across the spectrum: secured term lending, working-capital, structured / mezzanine debt, vendor finance, supply-chain finance, lease finance, factoring, inter-corporate deposits, related-party finance, External Commercial Borrowings (ECB), bond and debenture issuances, and convertible / hybrid instruments. By 2026, the regulatory perimeter has tightened materially — RBI Master Directions, Companies Act 2013 reform, CERSAI digitisation, IBC amendments, and SEBI ILDS / NCS Regulations all shape what a defensible finance agreement looks like.

The legal architecture cuts across the Indian Contract Act 1872, Companies Act 2013 — Section 186 (60% / 100% inter-corporate loan limits) and Section 185 (loans to directors prohibited save narrow carve-outs), the SARFAESI Act 2002 giving secured creditors enforcement rights without court intervention, the Insolvency and Bankruptcy Code 2016 for default-to-CIRP escalation, the RBI Master Direction on External Commercial Borrowings for foreign-currency facilities, the CERSAI charge registration regime, the Indian Stamp Act with State-wise schedules, and the Income-tax Act — Section 194A TDS on interest, Section 269SS / 269T on cash, Section 56(2)(viib) for below-market-rate inter-corporate finance.

We draft finance agreements end-to-end — for lenders, borrowers, sponsors, structured finance, ECB, related-party — across sectors and across single-lender, syndicated, and security-trustee structures.

The Finance Architecture We Cover

• Secured Term Finance:: Sanction terms, drawdown conditions, interest reset (Repo / MCLR / T-Bill linked), security creation (mortgage, hypothecation, pledge, charge), CERSAI registration, financial & information covenants, default events.

• Working Capital / Structured Finance:: Cash credit, OD, stock / book-debt hypothecation, drawing power, periodic stock statements, factoring / supply-chain finance with TReDS overlay.

• Inter-Corporate Finance (Section 186):: 60% paid-up + free reserves + securities premium, or 100% with shareholder special resolution; minimum interest at G-sec yield; board / shareholder approvals; disclosures.

• Related-Party Finance (Section 188 / 185):: Section 188 RPT compliance, arm's-length pricing, board / shareholder consent, audit committee approval; Section 185 prohibition on director loans with limited carve-outs.

• External Commercial Borrowing (ECB):: RBI Master Direction — eligible borrowers / lenders, all-in-cost ceiling, minimum average maturity (1–10 years tiered), end-use restrictions, AD bank routing, LRN on FIRMS portal, ECB-2 monthly returns.

• Bond / Debenture Issuance:: Private placement under SEBI NCS Regulations or listed under SEBI ILDS — debenture trustee, debenture trust deed, ISIN, RTA, listing.

• Bullet / Structured / Instalment Repayment:: Bullet (one-time at maturity); structured (event / cash-flow linked); instalment (EMI / EQI); balloon; PIK interest — all drafted with cash-flow waterfall.

What a Finance Agreement Locks Down

• Principal, Drawdown & Conditions Precedent:: Sanctioned amount, tranches, CP fulfilment (security creation, CERSAI filing, regulatory approval), commitment fee.

• Interest, Default Rate & TDS:: Rate (fixed / floating), benchmark, reset cycle, default rate, capitalisation; Section 194A TDS by borrower; Section 195 for non-resident lenders with Form 10F + TRC.

• Security Creation & CERSAI:: English / equitable mortgage; hypothecation deed; pledge agreement; corporate / personal guarantee; CERSAI charge filing within 30 days; Form CHG-1 with RoC for corporate borrower.

• Financial & Information Covenants:: DSCR, leverage, current ratio, EBITDA-to-interest; quarterly financial statements; audit rights; restriction on additional indebtedness.

• Events of Default, Acceleration & Remedies:: Payment default, covenant breach, MAC, cross-default, insolvency events; acceleration; SARFAESI enforcement; IBC Section 7 / 9 trigger; security trustee enforcement.

Why Finance Agreements Fail in Litigation

Section 186 limit breached by inter-corporate lender. Section 185 violated by director-borrowing. ECB end-use diverted to prohibited purpose. CERSAI filing missed within 30 days, weakening priority. MAC clause too vague to enforce. Personal guarantee scope ambiguous. Stamp duty under-paid making the document inadmissible. We pre-empt each of these at the drafting stage.