LEGAL DUE DILIGENCE

An Investor Perspective

What Is Legal Due Diligence

Due diligence is the level of judgment, care, prudence, determination, and activity that a person would reasonably be expected to do under particular circumstances.

Due diligence assesses the risks and opportunities of a proposed transaction. it helps to reduce the risk of post-transaction unpleasant surprises. It also increases the possibility of achieving investment objectives.

Strengthening the Foundation

Growth

Due Diligence

Stability

Acquirer/ Joint Venture Partner/Investor

Investor is the one who proposes to take some stake in an existing Company.

Acquirer is the one who proposes to purchase majority of shares of an existing Company.

Joint Venture Partner is the one who joins hands to do business with other partner.

Why Legal Due Diligence

An acquirer/JV Partner would want to undertake legal DD to assess

Risks

Opportunities

Why Legal Due Diligence

History of Company

Informed decision about Investment

Reduces risk of Investment

Outstanding litigation against the company

Estimation of current and future liabilities

Estimation of compliance level of Company

Role of Law Firm in Legal Due Diligence

Assess the risk factors and investment

Interaction with management and auditor of Company To understand the operation of Company To understand the decision making hierarchy in Company Visit at Plant site To understand the compliance practice in company

Role of Law Firm in Legal Due Diligence

Company History & Background

Capital Structure & Evolution

Management & Key Managerial Personnel

Identification of laws applicable to Company

Corporate Compliance Management

Material Contracts & Agreements

Role of Law Firm in Legal Due Diligence

Outstanding Litigations Assets and Immovable Property

Registration and Licens

Insurance & Risk Management Human Resource IPR Others as per company

Companys History and Background

Age of company

Change in the name and address of company

Basics of company

Corporate Office and Plant location

Others

Capital Structure and Evolution

Authorized Share Capital

Issued/Subscribed/Paid-up Capital

History of Capital Evolution

Convertible or redeemable instruments

Management and Key Managerial Personnel

Details about Board of Directors

Profile of Board of Directors

Key employees like CEO/CFO of Company

Organization Structure of Company

Identification of laws applicable to company

Understand the business of Company

Understand the location of business

Prepare a list of laws applicable to company

Corporate Compliance Management

Corporate Compliance Management

Central laws

Industry specific laws

State laws

Central Laws
Company Laws and Rules and Regulations Securities Laws Environment Laws

Companies Act, 1956

SEBI Act, 1992

Air (Prevention and Control of Pollution) Act,1981

Other Rules and Regulations

Securities Contracts (Regulation) Act, 1956

The Environment (Protection) Act ,1986

The Depositories Act,1996:

The Water (Prevention and Control of Pollution) Act,1974 The Forest(Conservation)Act,19 80

SEBI(SAST) Regulations, 2011

Central Laws
Taxation Laws Industrial Laws Others

Central Excises Act,1944

Factories Act

Arbitration and Conciliation Act

Central Excise Tariff Act, 1985

Payment of Bonus Act

Contract Labor Act

FEMA

Central Sales Tax Act,1956

Prevention of Money Laundering Act, 2002 EPF ESI Gratuity Act Child Labour (Prohibition & Regulation) Act, 1986

Central Laws

Corporate Laws

Existing Board of Directors

Shareholders of Company

Power to take decision

Maximum investment/lo an to be given

Minutes/Stat utory Registers

Industry Specific Laws

Drugs and Cosmetics Act

Central Motor Vehicle Rules

The Batteries(Management and Handling) Rules, 2001 Petroleum and Natural gas Act Boilers Act Mines and Minerals Act Electricity Act

State Laws
Himachal Pradesh Motor Vehicles Taxation Act, 1972

Stamp Duty Act

The Madhya Pradesh Sale of Khaddar Act, 1953

The Uttar Pradesh State Commission for Women Act, 1997

Material Contracts and Agreements

All Exclusive Supplier Agreement

All Exclusive Customer Agreement

All Exclusive Sole Selling Agreements

All major and material Contract with Government

Lease Agreement All other major and material contract with any party affecting the business

Outstanding Litigations
Cases filed by Company

Cases filed against Company

Legal Notice received

Legal Notice issued

Cases filed against promoters

Assets and Immovable Property

Immovable Property- Original Title deeds

Lease deed/Rent Agreements

Motor Vehicles RC

Plant and Machinery warranty invoices

Other assets based upon Industry

Registration and License

Certificate of Incorporation
Direct Tax Registration Indirect Tax Registration Employer Based Registration Industry Based License IEC Code Environment Law Industry License Permission to carry on business by any statutory authority- Telecom License, Real Estate Development, Insurance Stock Broker, NBFC

Insurance and Risk Management

All insurance policies

Check whether assets are appropriately insured

Status of claims filed by Company against insurance Company

Identification of risk areas

Human Resource

Employer on pay roll

Contract labor employed

Key Managerial Personnel of Company

Plant and location wise employee of company

Intellectual Property Rights

Registered Trademark

Copyrights

Patent

Pending IPRs

Online Search about Company

Verify the following websites to know more about Company and defaults www.sebi.gov.in www.mca.gov.in www.watchoutinvestor.com www.crisil.com www.rbi.org.in www.nseindia.com www.bseindia.com www.google.com www.corporatelens.com* * Launching soon

Materiality or Non- Materiality

Any information which may affect the decision of investor for investment is said to be material.

Initial Discussion with investor about materiality of diligence

Defining the scope of diligence based upon discussion with investor Inform to Target Company about materiality of diligence

Financial Liability
Financial Liability under each Head

Fixed

Contingent

Investor wishes to be informed about financial liability in each part of diligence Estimation of penalty clause of relevant law

Estimation of liability, which may impose on Company, if arises

Role of Due Diligence

Although due diligence focuses on negative
information, the aim is not to raise obstacles to transactions, but rather to facilitate transactions by identifying problems and risks and by devising solutions to problems or mechanisms to reduce or manage the risks involved in acquisitions.

Thank You!
Arun Gupta Partner Corporate Professionals Advisers and Advocates D-38, South Ex-Part-1, New Delhi - 110 049, India, (B): 09810275571, +91 11 40622214

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