Due diligence is a fundamental concept that describes the necessary care, caution, and thorough investigation a person or business must exercise before entering into a contract, investment, or other major transaction. It is an act of comprehensive review to evaluate the assets, liabilities, and potential commercial value of a target entity. The concept's roots trace back to Roman Law with the principle of diligentia, which mandated a standard of care in managing one's affairs. It became a specialized legal term in the United States with the Securities Act of 1933, where it was codified as "reasonable investigation" to provide a defense against liability for misstatements in public offerings (Section 11b3).
In the Indian context, due diligence is not governed by a single statute but is a pervasive standard of care, with its jurisprudence closely linked to the concept of Notice. For instance, Section 3 of the Transfer of Property Act imputes notice to a person who willfully abstains from an inquiry they ought to have made regarding a property. In corporate transactions like mergers and acquisitions, it is a structured process covering financial, legal, tax, and operational aspects. It connects to the Companies Act, 2013, where a Secretarial Audit under Section 204 requires a Practicing Company Secretary to conduct due diligence on a company's compliance. Furthermore, the Securities and Exchange Board of India (SEBI) mandates due diligence for merchant bankers in public issues and requires listed entities to report on their supply chain due diligence through the Business Responsibility and Sustainability Report (BRSR).
The mechanism has recently been amended by several key legislative changes. The Digital Personal Data Protection Act, 2023 (DPDP Act), introduced a new category of due diligence risk, particularly concerning successor liability for data non-compliance in acquisitions. The Competition (Amendment) Act, 2023, introduced the Deal Value Threshold (DVT) of INR 2,000 crore in September 2024, expanding the scope of transactions requiring merger control approval from the Competition Commission of India (CCI). Additionally, the Information Technology (Intermediary Guidelines and Digital Media Ethics Code) Amendment Rules, 2026, imposed new due diligence obligations on intermediaries to prevent the creation or dissemination of "synthetically generated information" (SGI).