Dating with the concept of due diligence

In business gamut, due diligence has assumed the status of de rigueur, meaning fashion statement

Pic By TMR File 

It IS imperative to comprehend that chattels and businesses are not acquired by chance and not only by money or resources, but primarily by diligence and care. Those who followed the path of due diligence escaped not only the rage of mischief, destruction and detriment, but also gained immensely.

These statements are proclamations of facts and based on several case studies of business deals, mergers and acquisitions. There may not be any standard rule based on theory regarding the point of time when due diligence ought to be conducted in a business deal.

In some cases, the recce ensues even prior to the initial understanding, while in others after the basic arrangement and agreements. Whatever the scheduling of time may be, one feature is a rule of theory and practice, which is the acquirer or purchaser must employ and exercise due diligence resources to investigate the business entity to be acquired ahead of the final transaction.

Due diligence is integral to any kind or nature of transaction. In business gamut, due diligence has assumed the status of de riguuer, meaning fashion statement.

However, that is not what it is. Notwithstanding, whether the commercial transaction involves an asset acquisition, equity or stocky purchase, joint venture, amalgamation, licensing, takeover or merger, due diligence is more than vital to unveil and unravel the hidden facts.

History has proved time and again that those who were duly diligent during business transactions were either never distressed, or if ever were, they had gotten themselves sufficiently roofed. Conversely, those who did not give importance to due diligence got hapless, if not doomed, at some point in time in the future.

In every aspect of business, commerce and trade, due diligence holds a significant locus. The process of due diligence is a gateway to any new opportunity, whereas the lack of it is a getaway from the same.

Historically, care and caution were always measured as an integral part of any action. Anything which involved stake of human lives or monetary facets had to have a foregoing analysis of risks attached therewith. No wars and battles were ever fought without in-depth combat assessments. No fiscal investments were interminably made without a proper evaluation.

Due diligence has been in existence for centuries and epochs, though called by different names like assessment, evaluation, appraisal, estimation, analysis, pre-plans, review, projections and more.

With the passage of time, the whole structure of pre-planning in relation to commerce and business got to be more organised. It became formalised and was branded as due diligence. It became an essence of any commercial start-up, be it a transaction, facility or service.

Evolution
Due diligence has evolved as a condition precedent for establishing one’s genuineness or, in other words, viability.

It is germane to know that the concept of due diligence was first acknowledged in a formal sense under the Roman law as a legal maxim: “Vigilantibus et non dormientibus jura subveniunt”. It means that the law comes to the aid of those who are vigilant, and not those who are in slumber.

Whether it be the law of equity or legal balance of convenience in a dispute, the justice bends in favour of the diligent. All nations and jurisprudences of the world have adopted in many diverse ways this principle and maxim.

The embracing of the above maxim and principle by the courts of law worldwide in applying the rules of law has also established due diligence as a norm of sound business and trade practice. The exercise of diligence has multi-dimensional benefits, from mitigating risks to instituting indisputability — which are the origin and destination of due diligence respectively.

The traces of due diligence go back hundreds of years. The learned sage and wise man Gautama Buddha said: “Chaos is inherent in all compounded things. Strive on with diligence.” It is very much existent in the prevailing days, to say the least. Complexities can be unlocked and, if resolvable, can be resolved with this tool of due diligence.

In other words, due diligence and good fortune go hand in hand. In a natural progression, this legal principle got imbibed in the realm of commerce as well. In the commercial and business dominion, there is a very familiar expression used, which is called “caveat emptor”. This well-settled principle in law states that a person who buys something is responsible for making sure that it is in good condition and works accurately.

The elementary foundation of this principle is that the buyer buys at his own risk and therefore should inspect and assess merchandise himself for apparent flaws and faults.

Definition
Numerous statutes, laws, principles, rules and regulations all over the world use the term “due diligence” under various arrangements; however, there is no conclusive definition added to it. The term is used so commonly, however, with no settled applied depiction.

In plain and simple terms, due diligence is what we think it to be in a specific case or situation. The description and narrative of due diligence undergoes change on a case-by-case basis.

There is also no specific statutory definition given to due diligence, which is established as a uniform or universal phenomenon. A common dictionary meaning of the term “due diligence” still stands accepted in various judicial precedents and also by legal commentators worldwide.

Interestingly, the word “due” has two meanings, as per the common dictionaries.

“Due” means expected or requisite. In the second set of meaning, it means proper, right, correct, rightful, appropriate, apt, adequate, sufficient, enough, ample, etc. Ironically, both sets of meanings apply to due diligence. “Diligence” means care, attention, carefulness, conscientiousness, assiduousness, assiduity, industriousness, rigour, rigorousness, thoroughness, attentiveness, etc.

In combination, “due diligence” would mean requisite care, expected attention, sufficient care or proper attention. It is very much evident to say that both sets of divergent meanings of the word “due” fit in well with “diligence”.


Hemant K Batra, an India-based international legal and policy expert, is author of the recently released ‘Due Diligence’, a book discussing the manifestation and path of due diligence from a legal and business perspective.