India Inc's annual legal costs hit ₹40K cr on rising M&A, IP cases

Law firms have bulked up to meet rising demand, recruiting hundreds of law grads from campuses as well as from rival firms. Additionally, partners at law firms have moved to corporate roles as their expertise becomes critical.

“Our estimate is that legal spending rose by more than 30%, with large law firms benefiting the most in revenue growth. The increased legal spending is in the areas of litigation, white-collar, investigations and regulatory matters," said Ritvik Lukose, the co-founder and chief executive of search and advisory firm Vahura, which specializes in legal and governance functions. Lukose estimated that in the last two fiscals, Indian firms would have spent around ₹40,000 crore on legal costs, each year.

Rising forensic cases, corporate disputes and changing startup regulations have also swelled demand for lawyers. Leading law firms said companies are working with them to determine the way forward on the new data privacy regime, which represents an additional investment for Indian companies.

“Indian companies’ legal spending over the last year is estimated to be north of ₹40,000 crore. This could go up significantly in the next two years due to the complexities of legal scenarios, especially with commercial activities including arbitration, disputes, transactions, capital markets and fundraising witnessing an increase after covid," Tina Gosar, chief financial officer, Khaitan & Co, said.

Meanwhile, law firms are expanding teams and making substantial investments in technology and training to increase efficiency. Top law firms including J. Sagar Associates, Cyril Amarchand Mangaldas and Trilegal are in the process of hiring hundreds of professionals.

“Cross-border transactions and litigations have increased. Employees are more aware of their rights and firms are depending more on law firms to help mitigate risk exposure. One expects labour code implementation and the new laws on gig workers to become another area where legal assistance will be required," said Pooja Ramchandani, partner (employment, labour & benefits) at Shardul Amarchand Mangaldas & Co.

For some companies, legal fees have escalated due to new regulations, particularly those related to privacy, data protection and technology. However, this rise has not been uniform across all companies.

“Companies operating predominantly in areas that are technology-focused have seen a dramatic increase in the cost of compliance. For more traditional corporates, cost of compliance, in fact, has reduced as they move from using external law firms to hiring in-house counsels specialized in their field of work," said Shoubhik Dasgupta, partner, general corporate, Pioneer Legal.

Legal expenses include fees for drafting agreements, ensuring compliance, consultancy fees, third-party counsel fees and arbitration fees.

“An insolvency and bankruptcy application initially cost somewhere around ₹5-6 lakh; however, this figure has now touched ₹25-30 lakh, which has led to corporates spending much more on legal costs," said a senior partner dealing with insolvency cases, on condition of anonymity.

Such costs increase much for bigger corporates involved in multiple litigations over a protracted period.

Across sectors, companies are adopting a mix of services, from general law firms, specialized firms, and in-house counsels. Legal experts said specialized expertise is required for cases involving white-collar crimes, forensic investigations, and matters being handled by Enforcement Directorate or the Economic Offences Wing.