Legal costs of listed companies rose from ₹14,486 crore in FY14 to ₹22,705 crore in FY18, Capitaline data shows. Photo: HT
Mumbai: In the five-year period between 2013-14 and 2017-18, India Inc.’s legal and compliance costs have increased 56.73% from ₹14,486 crore to ₹22,705 crore. On a year-on-year basis, legal and other professional expenses went up just about 4%, shows a Mint analysis based on Capitaline data. Listed companies spend a fair share on professional fees, regulatory filings, penalties and general stamp duty, besides on litigations and arbitrations, and expansion in newer geographies.
In 2017-18, additional expenses following the rollout of the goods and services tax (GST) and the Insolvency and Bankruptcy Code (IBC) contributed to the rise in legal costs.
“There is a degree of maturity among domestic companies and they have understood that good legal services don’t come cheap and the cost of not complying is now very huge,” says said Chandubhai Mehta, managing partner of law firm Dhruve Liladhar and Co.
“Indian companies are also expanding overseas, which has also contributed to cross-border arbitration and litigation where the stakes are getting bigger.”
The top 10 spenders, which remained the same albeit not in the same order, accounted for ₹6,841.6 crore, or about one-third of the total expense in 2017-18. Mukesh Ambani-controlled Reliance Industries (RIL) topped the chart with ₹1,187 crore, down from ₹2,329 crore in FY17, but at par with its FY14 figures of ₹1,184 crore.
Email queries and phone calls to RIL seeking comments did not elicit any response till press time.
Infosys Ltd (₹1,043 crore), Kotak Mahindra Bank (₹823 crore), L&T Ltd (₹730 crore) and Motherson Sumi Systems (₹550 crore) were among the top five legal spenders.
Banking and finance, pharmaceutical, information technology (IT) and information technology-enabled services (ITeS) and energy sectors were the biggest spenders on legal and other professional services.
Sun Pharmaceuticals, Tata Consultancy Services Ltd, Oil and Natural Gas Corp. (ONGC), Grasim Industries and Hindalco are either yet to publish their annual reports or have not disclosed their legal costs.
Savitri Dadhich, a veteran lawyer and an independent director on three L&T companies, said stamp duty costs following an acquisition, besides rentals, contribute a great deal to rising compliance costs.
“M&A of assets or take over of companies, and litigation costs towards the very high fees of medium level and senior counsels, and solicitor firms, besides increased court fees, and prolonged litigation increases these costs,” adds Dadhich.
“Legal and professional costs may look huge but many firms are also including other professional services such as engaging consulting firms such as McKinsey and Co and BCG, or the Big 4 such as KPMG or Deloitte under this spend,” says Sanjay Ashar, partner at law firm Crawford Bayley and Co.
“In many instances, companies have counted various penalties, court fees and stamp duties that they have paid under this basket.”
Most companies are taking measures to bring down their legal costs.
While large conglomerates are building in-house capabilities by hiring veteran lawyers, others are building systems and processes that can help them keep the spiralling costs in check.
According to Rajiv Choubey, director-legal at ACC Ltd, a LafargeHolcim subsidiary, the Indian regulatory environment throws a lot of challenges and this is especially for brick and mortar industries. Legal heads and general counsels have been asked by the management to reduce legal costs. “Legal function of the companies are working to reduce costs by doing quite a bit of the work in-house and redefining legal strategies.”