The agreement is particularly important as the bidder has had access to the confidential financial information of the entity concerned. During the status quo period, a new agreement is negotiated, which generally changes the original loan repayment plan. This option is used as an alternative to bankruptcy or enforced execution if the borrower cannot repay the loan. The status quo agreement allows the lender to save some value from the loan. In the event of forced execution, the lender must receive nothing. By working with the borrower, the lender can improve its chances of repaying some of the outstanding debt. Some local leaders of the princely states have tried to buy time by declaring that they will sign the status quo agreement, but not the accession instrument until they have had time to make up their minds. In response, the Indian government considered that it would only sign status quo agreements with the states that joined the Union.  Until August 15, 1947, the agreed date and date of India`s independence, all but four princely states, which are Indian, signed about 560 of them, both the accession instrument and the status quo agreement with India. The exceptions were Hyderabad, a large state in central South India, which received a two-month extension, and three small states of Gujarat: Junagadh and its subsidiaries (Mangrol and Babariawad).  A status quo agreement can be reached between a lender and a borrower. It gives the borrower time to restructure its debts.
On the other hand, the lender provides for a certain moratorium on the payment of interest or principal loans. The state of Jammu and Kashmir, bordering India and Pakistan, has decided to remain independent. She offered to sign status quo agreements with both gentlemen. Pakistan immediately agreed, but India called for further talks. The draft status quo agreement was drawn up on 3 June 1947 by the political department of the British-Indian government. The agreement provided that all administrative agreements of “common interest” between the British Crown and a particular signatory state would be kept unchanged between the signatory regime (India or Pakistan) and the State until new agreements are concluded. A separate timetable set out issues of common interest. During the discussion, Jawaharlal Nehru, India`s future prime minister, expressed doubts about whether the agreement should cover only “administrative” issues. Mohammad Ali Jinnah, the future Governor General of Pakistan, spoke in his favour.  Hyderabad violated all the terms of the agreement: in foreign affairs, by carrying out intrigues with Pakistan, to which it secretly lent 15 million pounds; in defence, by building a large semi-military army; communication, through interventions in border traffic and transit traffic of Indian railways.  India has also been accused of violating the agreement by imposing an economic blockade.
It turns out that the State of Bombay unknowingly intervened from Delhi in deliveries to Hyderabad. The government has promised to take it with the provincial governments, but scholar Lucien Benichou says it has never been done. India also delayed India`s arms deliveries to Hyderabad, which was later de affirmed as a violation of the status quo agreement.  The Kalat Khanate, on the western outskirts of Pakistan, also decided to remain independent.