India Inc’s Annual Legal Costs Hit ₹40k Cr. On Rising M & A & IP Cases

Introduction

In the recent past, there has been an increased trend towards the rise in aggregate legal expenses of the Indian companies which has hit around Rs. 40,000 Crores due to an increase in trends of Mergers and Acquisitions, intellectual property law cases, corporate compliances, and other miscellaneous legal endeavours.

Additionally, the upsurge and increase in the legal expenditures of the companies is also a result of the corporate restructuring schemes along with other instances that have required the resolution of disputes.

Understanding the Increase In Annual Legal Costs

The Indian business market is indeed highly dynamic for both small producers as well as multinational corporations. Since the market trends have a profound impact on the markets at large, the companies constantly make attempts to secure their assets, whether they are tangible, intangible, or intellectual property rights along with striving for further mergers, amalgamations, acquisitions, and combinations to form alliances, improve supply chains, enter into collaborative ventures and ensure better profit mechanisms for themselves.

Since the expansion of the business market in India through the inflow of various international players in the market and cut–throat competitive strategies adopted by everyone, it has become a pre–requisite for any organization aspiring to grow in operations and expand their profits to undertake combinations. For instance, various telecom operators merged in recent years owing to the increase in competitive practices in the industry such as Vodafone and Idea which became Vi. This has significantly given rise to the need for lawyers in the business domain toc carry out numerous legal activities such as due diligence, trademark, patent and copyright infringement prosecution suits and numerous other legal activities.

With the advent of upcoming technological trends, there has also been an upsurge in research and development expenditures of product or technological companies or those organizations that are engaged in manufacturing technical products to secure patents for their innovations which requires a significant number of financial resources and legal expertise that cannot be achieved without lawyers.

Therefore, numerous law firms have also shifted their focus towards planning and development in these fields with an increased number of partners, associates and other attorneys planning to migrate towards the areas of such practice. Secondly, due to the law of demand and supply, there has been an increase in cost of such services in the legal market owing to demand by a greater number of business houses and organizations planning to avail such services.

According to recent data provided by various sources, there has been an exponential increase in the professional/legal fees of the firms by around 24% as compared to previous financial years which amounts to Rs. 73,000/- crores. In the financial year 2022 – 2023, there was an upsurge in the legal fees of various organizations at the rate of 14.7% while in the year 2019 – 2020, there was a growth of 12.9%.

Moreover, it has also been observed that the biggest business houses and firms of the country including Reliance Industries, Tata Consultancy Services (TCS), Larsen and Toubro (L & T), Infosys, Kotak Mahindra Bank and Sun Pharmaceutical Industries have been majorly involved in the allocating significant part of their budgets towards legal expenditures and payments of external legal consultants. In some of these companies, the legal expenditure has nearly doubled owing to the rise of patent litigations, dispute resolutions, inter–industry and cross–industry combinations which include mergers and amalgamations, takeovers, spin–offs etc.

In the recent past, there have also been numerous instances of breaches of data privacy and information technology issues with various giant corporations that have resulted in losses of sensitive data and lowering the company image in the market. In order to prevent such instances, attempts have been made to take legal recourses towards preventing the breaches of such data and information by engaging external legal counsels. Other legal expenses of such firms and companies have also included arbitration and dispute resolution costs, filing costs, compliance costs and penalties payable to parties and stamp duties.

Conclusion

The financial implications and costs associated with any legal operation for organizations are substantial that involve not only the questions of costs of engaging external legal consultants and litigation expenses but also risks of losses towards non – compliance with the statutory requirements.

The recent trends in increase towards legal expenses by companies towards dispute resolution, intellectual property litigation, mergers and amalgamations and other legal activities prove the same fact by way of evidence towards such facts. This will, however, undoubtedly result in increase of opportunities towards the legal sector and booming demands for lawyers across the country.

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