Associates, In-House Counsels & Advocates

Kavya Nagaraj, Associate, Tatva Legal, on drafting legal due diligence report

Kavya Nagaraj graduated from National Law University, Jodhpur in 2013. During college, she was on research work and has penned down a number of paper for various seminars. She also has an excellent series of internships with a mix and match of law firms and corporations. Soon after graduation, she joined Tatva Legal and at the time of this interview worked as an Associate there.

In this interview she talks to us about:

  • Legal due diligence report and drafting of the same.
  • Drafting skills one must acquire.
  • Challenges faced while drafting an agreement.
  • How can one learn to draft a legal opinion.

Tell us about a legal due diligence report and drafting of the same.

Due Diligence is a broad spectrum of investigative procedures in relation to an acquisition of a company’s shares or of assets in a commercial context, a joint venture project, a debt transaction, a financing transaction, the issue of securities or other general pre-contractual inquiries.

The legal due diligence report is a standard, detailed / brief (depending on the client preference) report comprising of particular sections relating to a detailed review of the target company and its business.

Every Law Firm has a unique style of drafting, be it agreements or reports. In my experience of drafting one, the legal due diligence report consists of particular sections detailing the target company’s mechanism. To name a few sections, the report will include: general corporate, borrowings / lending, agreements, licenses, real estate, insurance, personnel, intellectual property etc.

The main agenda is to get a clear picture of the activities of the target company, relating to the transaction and how it affects the client.

What complexities are faced while preparing a due diligence report?

During the process of conducting a due diligence of a target company, the lawyers representing the company and the client will have series of discussions in which the complexities, be it minor or major can be resolved amicably. If any such complexity is not resolved, the parties may decide to drop the transaction.

Sometimes a transaction drops solely because a company would not have complied with all the rules and regulations which are necessary for a transaction. For that reason, Due Diligence is now finding deserved place in Indian Statues. Mandatory provisions have been introduced for conducting due diligence. This definitely makes it easier to both the parties in conducting a due diligence and completion of a transaction.

 How can one acquire drafting skills?

One can be good at drafting only by experience. In my opinion, everybody has a unique style of drafting because of the language used, way of expression etc. So, one should be able to give the reader a clear picture of what they want to express or convey in an agreement. Being a lawyer, you tend to read a lot of agreements / contracts / opinions etc., which are involved in a transaction. Gradually, one will have an idea about what an agreement will consist of, which would help in drafting one on their own.

What is the difference between corporate due diligence and due diligence relating to property?

Corporate due diligence is related to a Company, LLP, Partnership Firm, a Promoter etc. whereas, the due diligence relating to a property is an investigation regarding the marketable title of such property, which is being dealt in a transaction. Property due diligence involves tracing of title from the beginning, examination of the revenue records and the permissions obtained by the concerned authority in relation to the property. The conclusions will be given accordingly.

 What is the difference between corporate legal team and litigation?

There is definitely a big difference between the two. Corporate legal team will mostly focus on the corporate transactions like due diligence, drafting, review of agreements, providing legal opinion etc., whereas, a litigation team focuses on the process involved in a lawsuit, like the trial, hearing, legal action etc.,.

In my opinion, both the teams work in a totally different manner. I have had a wonderful experience with the litigation teams during my internships. Right now, I am working with a corporate team. The work and the effort involved in both the teams are enthusiastic in their own way.

 What challenges are faced while drafting an agreement?

Lawyers draft numerous agreements. The kinds of agreements we draft can vary from a simple two page agreement to an incredibly complex hundred-page tome.Of course, the complexity of an agreement depends on the type of the transaction.

The main thing to keep in mind while drafting is ‘clarity’. A poorly drafted agreement increases the likelihood of litigation, and makes it a liability to all the parties involved.

Lawyers who draft agreements should develop a drafting system, one that ensures that all key provisions are actually included. They also need to know how the key provisions should be crafted.

One should be up-to-date on the current law and best practices regarding the transaction and should be aware of the range of strategic and tactical options so that he/she can advise the clients on the pros and cons of each.

It is important to manage the clients’ expectations, i.e., what the client wants to see in an agreement; and should avoid unnecessary provisions which are out of context; and should ensure that the agreements achieve the clients’ purposes and are enforceable under the law.

 What are the common agreements you often draft?

Sale Deed, Agreement to Sell, Lease Deed, Mortgage Deed, Development Agreement, Power of Attorney, Termination Agreement, any other agreement, as per the requirement of the client.

How can one learn to draft a legal opinion? What challenges are faced while drafting?

Legal opinions are used in a variety of situations. It is basically an opinion from the Lawyers expressing the legal conclusions or legal analysis of a particular transaction or a matter which is relied on by the addressee of the opinion.

A legal opinion solely depends on the preference of a client. It may be needed for some transactions and for some it may not be necessary. The client specifically mentions about a particular area in which they need clarity on; the opinion given by the lawyers will depend on that.

A legal opinion consists of an outlook on whether certain transaction documentation is valid and enforceable in a particular jurisdiction and complies with the local law of that jurisdiction. It may also be regarding satisfaction of certain conditions precedents in the transaction documents and will usually be required by the lenders to give them reassurance that the legal effect of lending in the transaction concerned is what they expect it to be.

Drafting of a legal opinion, again, differs from firm to firm. A draft of a legal opinion might include particular sections namely: the background, documents examined, scope of the opinion, the opinion, assumptions and qualifications.

The addressee of a legal opinion will be expected to and will actually rely on the accuracy of the opinion for the purposes of evaluating the legal risks of the transaction or the project. If the opinion subsequently turns out to be inaccurate or misleading in any way, the addressee of the opinion may be entitled to bring an action against the law firm issuing the opinion. A firm’s liability will depend on the wording of the opinion, however, it is for this reason that opinion will only be given after appropriate procedures have been completed by the firm in question and will usually expressly include certain assumptions and reservations upon which the opinion is made.

What to keep in mind while drafting a legal opinion? Can you give some high top tips to draft a legal opinion?

It is important to keep certain factors while drafting a legal opinion.

The basic factor is the applicable law. One should have a clear cut idea about the law which is applicable to the particular transaction and should be able to identify the issues in compliance of the same.

Identification of legal risks is also equally important so that the addressee would consider further and evaluate.

Nowadays, because of advancement in technology, the clients would have already done a research on the basic issues and the law before offering the transaction to a law firm. So, it is inevitable for the lawyers to make an extra effort in giving flawless opinion regarding the transaction.

 

 

 

 

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