After an initial wave of force majeure queries triggered by the West Asia conflict, law firms now see companies and lenders grappling with a more complex question: whether the economic fallout—from rising input costs to supply-chain disruptions—could trigger scrutiny under material adverse change (MAC) clauses in financing agreements, even when there is no default.
“MAC provisions in financing documents are live instruments right now, not theoretical ones,” said Paridhi Adani, partner and head of the Ahmedabad office at Cyril Amarchand Mangaldas. “Lenders are reviewing their books. Companies that believe they have no immediate force majeure exposure may still find their banks asking questions.”
Unlike force majeure, which allows a party to pause or avoid obligations due to uncontrollable events like war, lockdowns or natural disasters, a MAC clause allows a party to exit or renegotiate a deal if a counterparty’s business or financial condition materially deteriorates.
While actual invocation of MAC clauses remains rare and legally difficult, lenders are increasingly using them as a basis to scrutinise exposure and reassess risk.
Lawyers say MAC clauses are currently in focus in sectors such as energy, aviation, shipping, infrastructure, chemicals and export-oriented manufacturing, which are heavily exposed to fuel costs, logistics and cross-border trade disruptions.
Adani added that this scrutiny is playing out differently across “layers” of the economy, each with distinct legal risk profiles—from energy infrastructure such as LNG terminals, city gas networks and ports, to industrial manufacturing, particularly pharma and specialty chemicals, where rising gas and input costs are squeezing margins and viability.
Rohit Jain, managing partner at Singhania & Co., cited the example of a Delhi-based manufacturing company that had entered into a power purchase agreement (PPA) to procure electricity, and is now renegotiating terms with its counterparty, “because the minimum guaranteed savings on the landed tariff are no longer being met due to higher costs”.
“Since the commercial viability of the project is now under question, the parties are trying to arrive at a middle-ground solution,” Jain added.
Lawyers said such stress at the project level is prompting lenders to examine financing documents for potential MAC implications. Private banks, non-bank lenders and private credit funds are stepping up scrutiny of such risks, particularly in structured and cross-border financing arrangements. Public sector banks remain relatively cautious and are focusing more on disclosures and covenant monitoring.
“The most common queries we receive from clients relate to whether, and in what circumstances, a MAC clause can be triggered,” said Charanya Lakshmikumaran, executive partner at Lakshmikumaran & Sridharan Attorneys, adding that borrowers are particularly concerned about lenders relying on MAC clauses to delay funding, refuse drawdowns, or seek renegotiation even in the absence of a default.
“Lenders, in turn, want clarity on the degree and nature of adverse impact required before a MAC can be legitimately invoked,” she said.
Lakshmikumaran also cited an example where a group of lenders raised MAC-related concerns about a Mumbai-based manufacturing and export company reliant on imported raw materials and overseas markets. Prolonged geopolitical disruptions led to shipping delays, higher freight and insurance costs, and volatile input prices, putting pressure on its working capital and cash flow projections.
While the lenders did not formally invoke the MAC clause, they sought additional disclosures on financial forecasts, customer contracts and contingency plans, and stepped up monitoring of covenant compliance during discussions on a proposed working capital drawdown.
Queries emailed to lenders such as SBI, Central Bank of India and IndusInd Bank on Wednesday were not immediately answered.
Lawyers caution that invoking a MAC clause remains legally difficult because the impact has to be serious, borrower-specific, and long-lasting enough to materially affect the business or transaction.
“Lenders have lower risk appetite, and debt deals are not competitive auctions like M&A,” said Bharat Anand, senior partner at Khaitan & Co. “For example, a war that affects all businesses may not qualify as a MAC under an M&A deal, but may qualify under a financing agreement.”
MAC clauses are coming into focus at a time when the West Asia war is creating a major energy and supply-chain shock for India. Disruptions around the Strait of Hormuz, through which nearly 35-50% of India’s crude imports pass, have raised concerns over fuel prices, LNG shortages and logistics disruptions.
For now, lawyers say, the trend reflects early-stage stress in credit markets, with lenders probing risks rather than pulling the trigger on MAC clauses.