Default Disclosure explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
One missed instalment, cured a week later, still has to be disclosed. Two separate provisions produce that result, and they cover slightly different ground.
The Schedule III default disclosure requirement
Under the head Borrowings, period and amount of default as on the balance sheet date in repayment of borrowings and interest shall be specified separately in each case.
Three elements are prescribed: the period of default, the amount, and separate specification for borrowings and for interest. And the threshold is absolute — even one default by a company would create an obligation to disclose the period and amount of default.
Schedule III looks at defaults as on the balance sheet date. A default cured before the year end is outside it.
Ind AS 107 para 18 reaches further back: if there was a default during the reporting period, an entity shall provide a disclosure even if the default was remedied before the financial statements were approved for issue.
So a company that missed a payment in month four and cured it in month five discloses nothing under Schedule III and must disclose under Ind AS 107 — the general principle that Schedule III disclosures are in addition to and not in substitution of Ind AS disclosures resolving the overlap.
The rationale is that a default is information about the borrower's liquidity whether or not it persisted. Reporting only year-end defaults would let a company that was repeatedly late but current at 31 March report a clean position.
Breaches, as distinct from defaults
Ind AS Schedule III requires separate disclosure for default, as on the balance sheet date, in repayment of borrowings and interest but does not require any disclosure of breaches.
Ind AS 107 para 19 fills that gap, but narrowly. It requires disclosure of only those breaches made during the reporting period which permitted the lender to demand accelerated repayment and were not remedied on or before the end of the reporting period.
| Default (para 18) | Breach (para 19) | |
|---|---|---|
| What | Failure to repay principal or interest | Covenant breach permitting accelerated repayment |
| If remedied during the year | Still disclosed | Not disclosed |
| Cut-off | Remedied any time before approval | Remedied on or before the reporting date |
A cured breach disappears; a cured default does not. That asymmetry is deliberate — failing to pay is a fact about performance, while breaching a covenant that the lender then waives is a matter the parties have resolved.
Which borrowings the default disclosure covers
The word "loan" has been used in a more generic sense. Accordingly the default disclosure applies for all items listed under the category of borrowings such as bonds and debentures, deposits, deferred payment liabilities, etc. — and not only to items classified as "loans" such as term loans.
That closes what would otherwise be an obvious gap. A missed debenture interest payment or an overdue public deposit is as much a default as a missed term loan instalment.
The classification consequence
Default sits alongside, but is separate from, the current/non-current question. A breach that gives the lender the right to recall the loan raises the classification issue under Ind AS 1 para 74 — while the default itself, whether or not it changes classification, is disclosed here.
Common mistakes
- Limiting the default disclosure to defaults subsisting at the balance sheet date.
- Confining the disclosure to term loans.
- Reporting a combined default figure rather than principal and interest separately.
- Disclosing all covenant breaches, including those remedied before year end.