An acceleration clause is a contractual provision in a loan agreement, bond indenture, or debenture document that gives the lender or bondholder the right to demand immediate repayment of the entire outstanding principal — rather than waiting for the originally scheduled repayment dates — if the borrower breaches specified conditions. Common triggers for acceleration clauses include: failure to make scheduled interest or principal payments (payment default), breach of financial covenants (such as debt-to-equity ratio or interest coverage ratio falling below minimum thresholds), change of control of the borrower company without lender consent, insolvency or bankruptcy proceedings, and material misrepresentation in the loan documentation. In India, acceleration clauses are standard features of term loan agreements with banks and NBFCs, and in bond indentures for listed NCDs (Non-Convertible Debentures). When an acceleration clause is triggered, the full outstanding debt becomes immediately due and payable — typically forcing the borrower into either emergency refinancing or insolvency proceedings under the Insolvency and Bankruptcy Code (IBC). For equity investors, the risk of acceleration clause triggers — particularly covenant breaches — in a company's debt agreements is a significant credit risk indicator that can rapidly transform a liquidity concern into a full-scale financial crisis.
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