Lenders Law

Contribution Agreements are often presented as standard form documents with limited scope for negotiation. In practice, however, they operate as core risk allocation instruments — and careful drafting can materially influence investor rights, governance, and downside protection. While commercial terms may be largely set, the legal framework around them is far from rigid. From transfer restrictions and co-investment structures to removal rights and drawdown conditions, there is meaningful scope to recalibrate how risk is shared between the Investment Manager and contributors. This post highlights key areas where targeted negotiation and precise drafting can significantly enhance investor protections — without disrupting the underlying commercial understanding. 1. Transfer of Units – Limiting Manager Discretion: A frequent issue arises in provisions that subject transfers to conditions “as the Investment Manager may determine in its discretion.” Such language is inherently broad an...

When angel investors come on board, investment agreements (and often updated Articles of Association ) govern rights, protections, and obligations. Here’s what to consider: 🔹 Exit & Transfer What happens if the investor or any other shareholder wants to leave or sell shares? Pre-emption rights:  In case investor stays, and any other shareholder is exiting, the investor may seek for the first right to buy shares being sold. Drag-along & tag-along rights: Drag-along:  this clause is relevant for protection of majority shareholder- Allows the majority to compel minority shareholders to join a sale, ensuring smooth exits during strategic transactions. Tag-along:  this clause is relevant for protection of minority shareholder- Allows the minority to exit on the same terms if the majority is selling, safeguarding their interests. 🔹 Board & Governance Rights Right to appoint board members or observers. Veto/consent rights over major...

CAT-II vs CAT-III AIFs S. No. Criteria Category II AIF Category III AIF 1 Investment Limit Accredited investors can invest up to 50% of investable funds in an investee company. Limit is 20% of investable funds in an investee company. 2 Tenure Close-ended, minimum 3 years. Open-ended or close-ended. 3 Investment Focus Primarily unlisted securities and/or listed debt rated ‘A’ or below. Listed/unlisted securities, derivatives, other AIFs, structured products, commodities, CDS. 4 Leverage Not permitted. Permitted up to 2x NAV through derivatives/borrowing. 5 Valuation Independent valuer once a year. NAV disclosure quarterly (close-ended) / monthly (open-ended). ...

On July 29, 2025, RBI released "Investment in AIF Directions, 2025" —applicable to NBFCs and other Regulated Entities (REs). A closer legal look reveals a strong regulatory intent: curb indirect evergreening and tighten capital discipline. Key highlights: 1️⃣ 10% Cap per RE & 20% Collective Cap across all REs in an AIF scheme. 2️⃣ If an RE contributes >5% to an AIF that makes non-equity investments in RE’s own debtor company, RE must make 100% provision to the extent of its proportionate indirect exposure. 3️⃣ If an RE subscribes to subordinated units of an AIF, the investment must be entirely deducted from capital funds (Tier-1 & Tier-2). 🔍 Legal and compliance teams at NBFCs must now revisit: - Their AIF investment approval matrices; - Existing exposures vis-à-vis related-party/indirect lending; - Tier-1 capital impact under the revised approach. This is not just a compliance update — it’s a strategic recalibration of how structured exposure via AIFs is view...