Non-Disposal Undertakings (NDUs) are generally signed by the debtor in favour of the
lender in relation to any loan obligation undertaken by the debtor. An NDU ensures that the debtor does not transfer the shares held by it in a company by way of outside arrangements such that the creditor is left without access to significant assets of the debtor.  NDU is mostly used in the stock market as shareholders, predominantly promoters, tend to undertake a loan against their shares in the company. Loans are taken with an understanding with the creditor that they will not alienate create any other form of encumbrance upon the shares, so creating a negative lien upon them.

Usually, the shares are transferred to an escrow demat account for the purposes of this arrangement of NDU, but the beneficial ownership over the shares does not change, thereby remains with the debtor and the creditor is also not able to dispose them off to clear off the dues (unlike a pledgee). NDUs are also popular in Banking industry such NDUs are coupled with a power of attorney (“PoA”) therebyappointing a security trustee. The NDU along with a PoAensures that there is a positive and a negative covenant in the arrangement such that if the fails to keep up with its dues against the creditor, the security trustee can exercise his powers under the PoA to alienate the shares in favour of the creditor. This is done ensure that appropriate disclosures are made with respect to NDUs within the scope of “encumbrances” to help investors in taking an informed decision.