DOCTORINE OF DUE DILIGENCE
Introduction of Due Diligence:
Due Diligence is a process of thorough and objective examination that is undertaken before corporate entities enter into major transactions such as mergers and acquisitions, issuing new stocks and other securities, project finance, securitization, etc. One of the key objectives of due diligence is to minimize, to the maximum extent practicable, the possibility of there being unknown liabilities or risks. The exercise is the multi-dimensional and involves investigation into the business, tax, financial, accounting and legal aspects of an issuer.
Definition of Due Diligence:
"Due diligence" is a term used for a number of concepts involving either an investigation of a business or person prior to signing a contract, or an act with a certain standard of care. It can be a legal obligation, but the term will more commonly apply to voluntary investigations. A common example of due diligence in various industries is the process through which a potential acquirer evaluates a target company or its assets for acquisition.
* Due diligence can be defined as:
1. The examination of a potential target for merger, acquisition, privatization, or similar corporate finance transaction normally by a buyer.
2. A reasonable investigation focusing on material future matters.
3. An examination being achieved by asking certain key questions, including, how do we buy, how do we structure the acquisition, and how much do we pay?
4. An investigation on the current practices of process and policies.
5. An examination aiming to make an acquisition decision via the principles of valuation and shareholder value analysis.
* DUE DILIGENCE IN INDIA:
The practice of undertaking a formal due diligence investigation is of comparative recent origin in India and was mainly imported as a process by foreign…...