India Inc legal spending rises by 21% to Rs 63,807 crore in FY23

Legal expenses of India Inc. rose 20.98% in the last fiscal due to robust deal activities, heavy spending on disputes and increased compliance costs, according to the annual report of 3,972 companies listed on Indian bourses.

These companies spent ₹63,807 crore ($7.69 billion) in legal expenses for the year ended March 2023, up 20.98% from ₹52,741 crore in the previous year, data compiled by ETIG show.

Legal expenses include spending on litigation and arbitration, professional fees, regulatory filings, penalties, and general stamp duty among others.

"The term 'legal expenses' is very broadly interpreted by companies as an accounting entry. It does not refer merely to fees paid to lawyers. Companies tend to include government fines, penalties and the like also in 'legal expenses'," says Vishwang Desai, Managing Partner, Desai & Diwanji. "These fines, penalties and the like constitute a majority of the amounts shown under 'legal expenses'. Therefore legal fees will be a fairly small part of the amounts shown under 'legal expenses'."

"In addition, the Government, statutory authorities and courts have shown a higher tendency to impose greater and greater (than previously) fines and penalties in fit cases thus raising the amounts shown under 'legal expenses'," adds Desai.

The top five spenders in terms of legal costs in FY23 were Reliance Industries at (₹2,916 crore), Sun Pharmaceutical Industries (₹2,312 crore), Infosys (₹1,684 crore), Larsen & Toubro (₹1,512 crore) and Fortis Healthcare (₹1,399 crore).

"On account of the Covid overhang, companies were conserving cash in FY22 and deal-making and more importantly litigation, which was otherwise previously constrained due to government and judicial measures such as fewer investigations and penalties, limitation period moratorium and IBC moratorium may have increased significantly in FY23," said Avimukt Dar, founding partner of law firm IndusLaw.

"The removal of these factors and consequent increased compliance costs and penalties coupled with more in-person travel and meetings in India and abroad could have contributed to this increase," adds Dar.