16.3 Promoter and beneficial-owner background diligence
Bureau tells you whether the promoter has a credit history of repaying. It tells you very little about whether they are litigious, whether they have failed in prior businesses under different names, whether they sit on the boards of struck-off companies, or whether they are subject to regulatory action. For loans of material size, these matter as much as bureau.
This page covers the diligence beyond bureau.
Promoter litigation check
Section titled “Promoter litigation check”Sources
Section titled “Sources”- Court-case databases — e-courts (
ecourts.gov.in), Supreme Court / High Court / District Court portals. Search by name + dob / pan / address combinations. - Vendor-curated litigation databases — Probe42, Karza, Tofler, Crawled-court-data providers.
- NCLT / NCLAT databases — for insolvency / bankruptcy proceedings.
- DRT databases — Debt Recovery Tribunal cases.
- MCA strike-off & disqualification records.
- Wilful defaulter lists — published by CICs and on RBI website.
What to look for
Section titled “What to look for”- Civil disputes as defendant (financial; commercial).
- Criminal cases (fraud, cheating, dishonour of cheque under Section 138 NI Act).
- NCLT — IBC proceedings against the promoter or their entities.
- DRT — recovery proceedings.
- MCA director disqualifications — director disqualified under Section 164 of Companies Act.
- Cheque dishonour (Section 138 NI Act) cases — even small ones indicate payment risk.
Disposition
Section titled “Disposition”| Pattern | Action |
|---|---|
| Pending serious criminal case (fraud, cheating, IBC) | DECLINE |
| Multiple Section 138 cases (active) | DECLINE or REFER |
| Single Section 138 case settled and disposed of | REFER with note |
| Civil commercial dispute (small) | Acceptable with disclosure |
| DRT case against the promoter or entity | DECLINE typically |
| Director disqualification | DECLINE |
| Litigation as plaintiff (active) | Soft consideration only |
Operational
Section titled “Operational”- Run litigation check at application and at renewal.
- Use multiple sources (e-courts + vendor) — coverage gaps exist.
- Manual review of any hits — name matches are noisy.
- Document the disposition: case ref, status, lender’s view, disposing analyst.
Promoter professional / business history
Section titled “Promoter professional / business history”Sources
Section titled “Sources”- MCA director history — what other companies has the promoter been a director of? Status of those companies?
- Linkedin / public CV verification — declared employment matches LinkedIn.
- Industry-association membership — local Chambers of Commerce, trade associations.
- Reference checks from prior business associates (where borrower discloses).
What to look for
Section titled “What to look for”- Prior companies struck off by MCA — suggests pattern of abandoning entities.
- Resigned director within last
12 monthsfrom a struggling company. - Multiple parallel directorships — if material, suggests dilution of attention.
- Concentration of group entities — promoter sits on board of related entities; map for group-exposure analysis.
Disposition
Section titled “Disposition”| Pattern | Action |
|---|---|
| Prior companies under IBC / struck-off (multiple) | DECLINE or heavy REFER |
| One prior strike-off (small dormant entity) | Acceptable with explanation |
| Active across many entities | Map for group exposure; cap |
| Recent resignation from financially distressed entity | REFER for context |
Promoter social presence
Section titled “Promoter social presence”Sources
Section titled “Sources”- Public Linkedin profile — for professional context.
- Public Facebook / Twitter / Instagram — business pages, professional posts.
- Google search by name + city + entity — surfaces news mentions, reviews, blog posts.
- Caution sources: complaints sites (consumer complaints, Mouthshut), regulatory press releases.
What to look for
Section titled “What to look for”- Adverse news mentions.
- Regulatory action announcements.
- Customer complaints at scale.
- Personal lifestyle indicators that contradict declared business modesty (this is a soft signal — be careful of bias).
Disposition
Section titled “Disposition”- Adverse news confirmed → REFER for context.
- Regulatory action confirmed → typically DECLINE.
- Customer complaints at scale → REFER; investigate root cause.
Operational
Section titled “Operational”Light-touch. Spend 10 – 15 minutes per major-ticket borrower; document findings.
Beneficial-owner (BO) graph completion
Section titled “Beneficial-owner (BO) graph completion”Why this matters
Section titled “Why this matters”Under PMLA, every natural person owning >= 25% (companies) or >= 15% (partnerships, trusts) — directly or indirectly — must be identified and KYC’d. For layered ownership (holding companies, multi-tier groups), this means tracing through the layers to the ultimate natural persons.
Process
Section titled “Process”- Map immediate shareholders from MCA filings.
- For each corporate shareholder, fetch its shareholding (if a company) — recurse.
- Continue until ultimate natural persons identified.
- Compute effective ownership % by multiplying through chains.
- Identify all natural persons above thresholds.
- KYC each.
What complicates BO mapping
Section titled “What complicates BO mapping”- Layered holding companies — common in family business structures.
- Foreign-investment vehicles — overseas BOs need FEMA-aware diligence.
- Trusts in the ownership chain — trust beneficiaries may need to be identified.
- Nominee shareholders — shareholding documents may name nominees rather than beneficial owners; trace to actuals.
- Bearer shares (rare in India) — undisclosed BOs.
- Karza, Probe42, Tofler for MCA + shareholding chain lookup.
- Internal BO graph builder in admin to visualise multi-tier.
Compliance
Section titled “Compliance”- Every BO
>= 25%(or 15% for partnerships) must be KYC-verified at sanction. - Sanctions / PEP screening for each BO.
- Document the BO graph as part of the diligence file.
Group-borrower mapping
Section titled “Group-borrower mapping”A borrower may be the leading face of a group of related entities. Lending to the borrower carries group risk. Single-borrower exposure caps (25% of Tier-1 capital) are easily bypassed if group lending isn’t aggregated.
Per RBI Master Direction – Scale Based Regulation, group borrower is defined broadly to capture entities under common control.
Mapping
Section titled “Mapping”The platform identifies:
- Common promoters / directors across entities (via MCA director-history).
- Common shareholders above threshold.
- Common addresses / mobiles / bank accounts (operational signal of related entities).
- Borrower-declared group structure (sometimes shared in CA-led applications).
What it affects
Section titled “What it affects”- Group exposure cap —
40%of Tier-1 capital for NBFC-BL. - Risk policy — group with multiple recently-failed entities is decline-worthy even if the immediate borrower looks clean.
- DPDP compliance — collecting data across group entities needs care.
Wilful defaulter check
Section titled “Wilful defaulter check”Source
Section titled “Source”- CICs publish wilful defaulter list quarterly.
- RBI publishes lists periodically.
Action
Section titled “Action”- Match on PAN + name + DoB — any hit is DECLINE.
- Director-level wilful defaulter — if a director on the borrower’s board is a wilful defaulter at another entity, decline or DEEP REFER.
CIBIL Commercial / MSME bureau
Section titled “CIBIL Commercial / MSME bureau”In addition to the consumer bureau, commercial bureau pull on the entity shows:
- Other lender exposures to the entity (concentration check).
- DPD on commercial facilities.
- Suit-filed cases against the entity.
- Restructured / sub-standard / doubtful classifications at other lenders.
This is part of standard underwriting but also feeds diligence — if other lenders have classified the entity NPA, decline.
RBI / SEBI / regulatory enforcement actions
Section titled “RBI / SEBI / regulatory enforcement actions”- RBI Show-cause / Inspection findings against the entity (rare; mostly applicable to other NBFCs / regulated entities the borrower may be).
- SEBI enforcement actions against listed entities or directors.
- CCI / Competition Commission actions.
Look for these in publicly-reported regulatory press releases.
Insurance company watchlists
Section titled “Insurance company watchlists”- General insurance company claim-fraud lists (rare to access).
- Travel-fraud / health-fraud (uncommon in SME lending context).
Tax / regulatory standing
Section titled “Tax / regulatory standing”- Income tax demand outstanding — large pending demands suggest pressure.
- GST overdue dues — beyond invoicing; GST liability payment status.
- PF / ESI compliance — for entities with employees; persistent default suggests cash-flow stress.
- Stamp duty / property tax overdue.
These come from various sources — borrower-declared, IT records (limited public access), GST portal (partial).
What the platform must store
Section titled “What the platform must store”For each diligence run, the platform stores per borrower / per BO:
- Sources checked.
- Findings (hits / no-hits).
- Dispositions.
- Approver.
- Date.
- Next-due-refresh date.
This forms the diligence file, retained per record-retention.
Periodic refresh
Section titled “Periodic refresh”- Litigation check: at application + annually for active borrowers + on EWS.
- MCA director status: at application + every renewal.
- Wilful defaulter check: at application + quarterly (when new lists published).
- Sanctions / PEP: at application + annually + on alerts.
- BO graph: at application; on disclosed change.
Compliance touchpoints
Section titled “Compliance touchpoints”- PMLA — BO identification, KYC.
- KYC MD — sanctions / PEP screening.
- Fair Practices Code — promoter / BO data used for decisioning must be reasonably reliable.
- DPDP — every diligence data point is personal data.