ARTICLE
17 September 2024

The Significance Of Background Checks And Due Diligence In Indian Corporate Dispute Cases

AC
Ankura Consulting Group LLC

Contributor

Ankura Consulting Group, LLC is an independent global expert services and advisory firm that delivers end-to-end solutions to help clients at critical inflection points related to conflict, crisis, performance, risk, strategy, and transformation. Ankura consists of more than 1,800 professionals and has served 3,000+ clients across 55 countries. Collaborative lateral thinking, hard-earned experience, and multidisciplinary capabilities drive results and Ankura is unrivalled in its ability to assist clients to Protect, Create, and Recover Value. For more information, please visit, ankura.com.
In India's corporate landscape, disputes involving individuals can stem from various issues such as contractual breaches, fraud, or competitive conflicts.
India Corporate/Commercial Law

In India's corporate landscape, disputes involving individuals can stem from various issues such as contractual breaches, fraud, or competitive conflicts. Conducting rigorous background checks and thorough due diligence on the parties involved is crucial, providing critical and relevant information to substantiate legal cases. This article explores the significance of various components of background checks and due diligence in corporate dispute cases.

Open-Source Intelligence (OSINT)

Open-Source Intelligence (OSINT) involves the collection and analysis of publicly available information to aid in decision-making. In corporate disputes, OSINT can provide valuable insights into an individual's activities, reputation, and behaviour. This includes:

  • Social Media Analysis: Monitoring social media platforms can reveal a lot about an individual's personal and professional interactions, opinions, and public perception. It can also uncover any negative publicity or potential red flags that might be relevant to the dispute.
  • News and Media Reports: Articles and news reports can provide historical context and highlight any previous disputes or legal issues involving the individual.
  • Public Records: Accessing public records such as property ownership, criminal records, and court records can provide a deeper understanding of an individual's legal standing and personal history.

Government Database Checks

Government databases are treasure troves of information that can be crucial in corporate disputes. These checks ensure that the information is legitimate and verified by authoritative sources. Key areas include:

  • Regulatory Filings: Examination of corporate filings with regulatory authorities, including the Security and Exchange Board of India (SEBI) and Ministry of Corporate Affairs, to verify compliance and governance practices.
  • Litigation History: Review of court records to identify any legal disputes or litigation involving the subject, indicating potential patterns of legal issues.

Financial Tracking

Financial tracking involves scrutinizing an individual's financial health and transactions to uncover any discrepancies or signs of misconduct. This includes:

  • Credit Reports: Analysing credit reports can provide insights into an individual's financial stability and history of debt management practices.
  • Transaction History: Reviewing transaction records can help identify any suspicious activities, such as unusual transfers or discrepancies in financial reporting.
  • Asset Verification: Checking for the existence and ownership of significant assets can reveal hidden wealth or financial obligations.

Source Information

Incorporating source information into background checks ensures that all gathered data is credible and reliable. This involves:

  • Verification of Sources: Cross-referencing information from multiple sources can help verify its accuracy and authenticity.
  • Interviews and Expert Consultations: Speaking with colleagues, former employers, or other relevant individuals can provide additional context and firsthand insights into the individual's character and behaviour.
  • Document Analysis: Examining contracts, agreements, and other legal documents can uncover critical details relevant to the dispute.

Case Example

Background

Ankura was recently retained by our client to carry out an extensive Due Diligence and Business Intelligence check utilizing Open-Source Intelligence (OSINT) on an individual and his entity on behalf of a large UK entity. The primary objective was to conduct a thorough investigation into the Subject's background, focusing on their commercial activities, financial standing, and any past instances of credit defaults or regulatory infractions. The client needed to ensure that there were no hidden risks or red flags that could adversely impact the potential investment.

Role

  • Comprehensive Data Collection: Ankura conducted an extensive search across multiple databases, including subscription-based sources, social media, corporate records, and litigation databases, to gather all relevant information on the Subject.
  • Analysis of Financial and Commercial Dealings: Ankura analysed the Subject's commercial activities, including directorships, business partnerships, and financial transactions, to identify any irregularities or risky behaviours.
  • Legal and Regulatory Scrutiny: Ankura reviewed litigation records and regulatory databases to uncover any past or ongoing legal actions or regulatory non-compliance involving the Subject.
  • Reputation Assessment: Ankura conducted a media analysis, focusing on English-language publications, to assess the Subject's public reputation and identify any negative coverage or potential reputational risks.
  • Global Risk Screening: Ankura utilised global sanctions, bankruptcy, and law enforcement databases to ensure that the Subject was not involved in any activities that could pose significant risks to the investment.
  • Detailed Reporting: Ankura compiled all findings into a comprehensive report, providing the client with a clear understanding of the Subject's background, including potential risks and red flags.

Impact

  • Informed Decision-Making: The detailed report enabled the client to make an informed decision about whether to proceed with the investment, considering the identified risks.
  • Risk Mitigation: By uncovering a past credit default and questionable business practices, Ankura's investigation helped the client mitigate potential financial and legal risks.
  • Enhanced Due Diligence Process: The thorough background check reinforced the client's due diligence process, ensuring that all aspects of the Subject's history were carefully evaluated.
  • Protection of Client Reputation: The identification of negative media coverage and reputational risks allowed the client to take proactive measures to protect its brand and public image.
  • Compliance Assurance: The investigation confirmed that the Subject was not involved in any regulatory or legal violations, providing the client with peace of mind regarding compliance with relevant laws and standards.
  • Strategic Decision Support: The insights provided by Ankura supported the client in making a strategic investment decision, balancing the potential benefits with the risks identified during the background check.

Conclusion

Background checks and due diligence are indispensable tools in corporate dispute cases, offering a comprehensive understanding of the individuals involved and helping to uncover potential risks, verify information, and support informed decision-making. The case example demonstrates the importance of these processes in identifying hidden risks, such as past credit defaults and questionable business practices, which could have jeopardized the investment. Additionally, it highlights how thorough due diligence can protect a client's reputation by proactively addressing potential reputational risks and ensuring compliance with legal and regulatory standards. These key takeaways underscore the critical role that background checks and due diligence play in fostering a culture of transparency and accountability in the corporate landscape.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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