Top compliance and procurement teams make effective use of litigation data in their supplier risk evaluation process during and after onboarding. Litigation data, or court-records as some call it, offers a wealth of information which can be used to ascertain the credibility and risk profile of counterparties – be it of any size, a small business / proprietor or even a private limited company.
It is considered best practice to run a court record screening of the entity that you’re looking to onboard, and also its promoters. We have seen many supply chains that have found having litigious entities, entities with economic offenses registered against them, entities with insolvency and bankruptcy incidents, sanctioned parties and more, unknown to procurement teams due to poor risk assessment processes.
There are various risk signals that you can identify through a court record search, such as economic issues, cheque bounce litigations, debt recovery issues, insolvency and bankruptcy applications filed against the party, criminal offenses, litigations with environmental and tax authorities, labor related litigations and much more.
The challenge is that there are over 7000 courts in India that make this data available for you to run these checks. It is nearly impossible to do this manually. An automation platform like SignalX drastically reduces the complexity in fetching and utilizing litigation data, including making it possible to filter relevant high risk litigations as part of the risk assessment process and generate a risk scorecard using this data to benchmark prospective suppliers.
Keeping a pulse on litigation data is an essential activity when it comes to monitoring risks associated with your strategic suppliers and trade partners. New litigations such as disputes between promoters, economic defaults, cheque bounces etc are critical information that helps you understand the health of your strategic suppliers and plan for contingencies in advance.
The following are the Key Indicators that you can look out for in your suppliers using litigation data.
- Cheque bounce related litigations
- Disputes with tax authorities.
- Disputes with GST authorities on tax evasion and defaults is an important signal.
- Disputes with Income Tax authorities on tax evasion and defaults
- Disputes with Customs authorities
3. Debt Recovery Applications filed against the party by any banks or financial creditors in the tribunals
4. Insolvency Applications filed against the party by operational creditors such as suppliers of the supplier and financial creditors such as banks and lenders.
5. Liquidation orders by the courts to the company and on any other ventures of the promoter have to be factored in when onboarding partners.
6.Criminal Litigations for fraud, cheating, causing harm and various other criminal offenses are critical signals to look for.
7.Labor related litigation is a key signal for understanding labor compliance issues that the entity has faced in the past.
8.Civil disputes such as disputes with customers on contracts, property disputes with landlords etc.
Having a well oiled and systemic third-party risk assessment program (“TPRM”) is necessary to ensure that sufficient due diligence is done before onboarding partners. An effective TPRM program shields a business from financial, legal, reputational and regulatory issues and ensures a resilient supply chain.
Implementing a risk based approach for due diligence is essential to identify and safeguard the business from suppliers and trade-partners that may expose you to financial, legal, reputational and compliance risks. Effective due diligence process starts with establishing criterias under which a supplier will be subjected to due diligence.
Utilizing data streams such as litigation records on entities and promoters is one of many aspects of a well rounded supplier risk assessment program. Join 200+ enterprises using SignalX in streamlining their supplier risk assessment process. Talk to us today.
