If you are considering a joint venture, acquisition, merger, or Foreign Direct Investment (FDI) proposal, you need to be sure that your partner is honest and reliable, and that you have correctly assessed any potential liabilities. This is most important in India, where corruption is rife. If your business partner is of any size, check their credentials in internet, newspaper, and magazine articles as well as business databases and public records. If your partner is a relatively new or small company, they may not yet have a paper trail; in either case, you should conduct a formal due diligence exercise. This may raise suspicion and discomfort for smaller firms with no international experience, but explain to them if necessary that companies from other countries have different disclosure obligations and regulatory requirements.
If you are asking your potential partner to complete a voluntary self-disclosure document, it is important that the answers are self-warranted as true and attached to your contract or joint venture agreement with indemnities if they are later found to be false. However, you may choose instead to appoint a company to carry out a due diligence process for you. In either case this process should include an investigation into the company's business interests and commercial track record, and any political affiliations, litigation history, or criminal history, or any pending liquidation or recovery proceedings against the company or its directors. Larger companies in India now use data rooms for conducting due diligence, especially when competitive bidding is taking place between several interested parties. Until recently, this involved placing all relevant data in a physical room, and allowing all interested parties equal access at an agreed time and date. However, technological developments and the increasing number of cross-border mergers and acquisitions have led to the development of virtual data rooms, where the information can be accessed online.
These have many advantages if you wish to buy into an Indian company: they can be accessed from your home country, saving time and travel; they provide fast "search" facilities; data is available 24/7; and non-disclosure disputes are minimized. However, if you use this system for due diligence on a company, bear in mind that you may be granted different levels of access from other buyers, and also that the vendors are able to track your activity on the site. This may provide them with more information about your level and areas of interest than you would like. According to the World Bank, investor protection is better in India than for the region in general, and on a par with OECD (Organization for Economic Co-operation and Development) countries. Transparency of transactions in India is greater than that of the 30 member countries of the OECD. If you are forming a joint venture, consult with the National Foundation for Corporate Governance for the latest regulations and guidance on Indian best practice.
Ask your partner to sign up to a "nothing to hide" statement of intent that will bode well for your future relationship. As a foreign business visitor, you may never come into contact with India's politicians, but you do need to be aware of their pervasive role in Indian society, and that they can be of help or hindrance to business. Politicians regularly get involved in matters beyond their remit: intervening with local power officials, for example, when they threaten to disconnect electricity cables to slums where power theft is rife. The officials invariably concede. Contact with politicians is as much a dilemma as with corrupt officials. Having a relationship with a senior politician will raise your status considerably, and may make business easier-there will be fewer problems if you are known to have powerful connections. But you must also consider the wisdom of becoming less remote and more engaged in local matters, and whether it is another matter best left to your Indian partner.
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