June 01, 2015

Global Litigator: Director and Officer Liability in India

India presents many opportunities, but rapidly modernizing laws require a litigator's full attention.

Almost 25 years have passed since India ushered in a new era of commercial liberalization and reform. This continuous and gradual opening up of the economy, driven by a robust growth in domestic consumer demand, has resulted in an influx of foreign investment, which in turn has strengthened private Indian companies.

This impressive story of economic growth, however, also has its dark side. Like most jurisdictions, India is no stranger to corporate fraud and scams. Because of significant cultural differences in how Indian companies function vis-à-vis their international counterparts, Indian companies are often seen as less professional. Though the scenario may be changing, the “family business” outlook of many Indian enterprises and an occasionally lackadaisical approach to various compliance and disclosure requirements continue to prevail. Siphoning of funds through related-party transactions, accounting irregularities, and corruption are just a few of the common, unfortunate trends that are prevalent in Indian companies.

Be it Satyam, Lilliput, or NSEL, numerous instances of management and promoter-driven fraud have come to light. The concern surrounding director liability has also been highlighted by the arrests of Stefan Schlipf, the managing director of BMW India Financial Services, and William Pinckney, managing director and chief executive officer of Amway India, along with two other directors.

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