Despite best efforts, India Inc just isn’t able to contain this cost head

ET Intelligence Group: Ten of India’s leading companies together spent nearly Rs 10,000 crore towards legal costs in FY20. As India Inc is scampering to contain costs under most heads, this is one area where the costs have been climbing steadily and are likely to continue so over the years. These costs cannot always be budgeted and planned for. The total legal costs as disclosed by 78 of the Nifty-100 companies have increased at a compound annual growth rate of 10% in the past five years—a tad lower than the double-digit growth in revenues and total expenses. Tightening regulatory environment and emerging areas of risk for companies”Regulators have become strict and their supervision has increased,” said the head of legal services at a non-banking financial services company. “Consequently, cost of compliance as well as imposition of penalties have increased over the years.Data privacy laws and cyber security compliance are emerging areas that carry significant reputational risks for companies. “Our new practice of data privacy saw a lot of business in the form of companies seeking advice on the proposed law,” said Bhavik Narsana, partner at Khaitan & Co. High-level of globalisation of the business and increased ESG compliance results in higher legal costsThe list of the top 10 listed companies with the highest legal expenses predominantly figures companies from export-oriented sectors of pharma and IT on account of their exposure to international markets. For instance, Sun Pharma, the listed company with the highest legal costs, is involved in various legal proceedings including product liability, contracts, employment claims, Department of Justice investigations, anti-trust and other regulatory matters. Similarly, compliance to environmental, social and governance (ESG) norms is becoming an important business compliance. While cigarette-to-FMCG major ITC incurred the highest legal costs of Rs 462 crore in FY20 in its industry; agro-chemical company UPL spent over Rs 500 crore last fiscal. 79944582Pandemic-triggered litigationDuring pandemic, companies have moved their low-value, routine legal work from corporate law firms to in-house lawyers but there was increase in litigation on other issues related to contractual obligations. “On one hand, our firm saw decline in mandates from companies and had to work at discounted rates; on the other hand, we have had to hire more staff this year and been very busy with spate of litigation and advisory work related to rental and commercial contracts, employment-related issues and pre-insolvency and Sarfaesi Act transactions wherein attempts are made to save businesses from bankruptcy,” Narsana told ET. The legal proceedings related to bankruptcy code are likely to witness a spurt once the moratorium ends.The hope:The growth of online disputes redressal platforms and advent of global institutional litigation financiers in India have the potential to cut down the legal costs for small businesses as well as large companies.
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