Indian firms need to work harder to protect secrets

The top court’s 31 October clarification in the Indian Evidence Act will fundamentally reshape how corporates handle internal legal communications, lawyers told Mint.

According to them, the judgment narrows the scope of legal privilege for in-house counsels, leaving them vulnerable to questioning by probing agencies, a protection that practising advocates continue to enjoy.

“This judgment may prompt a major rethinking in companies sharing sensitive information, which they want to be treated as privileged communication,” said Somdutta Bhattacharyya, partner at law firm Argus Partners.

“We may see less documentary information being shared with in-house legal teams and such information being shared verbally instead, or directly with external counsels,” Bhattacharyya said.

A bench comprising Chief Justice B.R. Gavai, Justice K. Vinod Chandran and Justice N.V. Anjaria delivered the ruling while deciding suo motu whether lawyers can be summoned by investigating agencies in criminal matters.

It was after the Enforcement Directorate, in June, summoned senior advocates, including Arvind Datar, while probing the issuance of Employee Stock Option Plans (Esop) by Care Health Insurance to former Religare Enterprises chairperson Rashmi Saluja.

Limited confidentiality

While the court reaffirmed that practising advocates are protected under client-attorney privilege, it ruled that in-house counsel employed full-time by companies cannot claim such protection under Section 132 of the Bharatiya Sakshya Adhiniyam (BSA).

The court said that since in-house lawyers receive regular salaries and are economically dependent on their employers, they lack the professional independence required to qualify as “advocates” under the Advocates Act. Their financial and structural ties with their employers distinguish them from external lawyers, who operate independently and therefore qualify for full privilege.

However, the top judicial body clarified that while in-house counsels are excluded from Section 132, they are entitled to limited confidentiality protection under Section 134 of the BSA.

Section 132 grants full legal privilege to practising advocates, protecting client communications from disclosure, while Section 134 provides limited confidentiality to legal advisers, such as in-house counsels, without full privilege protection.

In effect, communications between a company and its in-house counsel are not privileged, but communications made by an in-house counsel to an external lawyer on behalf of the company remain protected.

In effect, communication with in-house counsel is not privileged, but any communication that the in-house counsel makes to an external lawyer on the company’s behalf remains protected.

Every email or memo to a general counsel may now be treated as potential evidence, said Rishabh Gandhi, founder of Pune-based law firm Rishabh Gandhi and Advocates. “Merely marking a document ‘privileged and confidential’ will not suffice,” he said.

Companies may now face higher legal costs as they will have to rely more on external lawyers for sensitive matters, such as litigation, investigations, regulatory issues, and cases involving potential criminal liability, according to law firms.

“The shift may bring some overall cost-related implications, particularly for mid-sized companies that previously leaned on in-house teams for cost efficiency,” said Gauhar Mirza, partner at Saraf and Partners.

Indranil D. Deshmukh, partner (head of disputes) at law firm Cyril Amarchand Mangaldas, said companies now need to review the structure of their in-house legal teams and consider redesignating senior in-house counsel as retainers or legal consultants rather than full-time employees, although such restructuring may not fully resolve the issue.

This rise in dependence on external counsel comes as companies are already incurring substantial expenses on legal and compliance costs. Mint reported on 3 March that Indian companies’ legal expenses are expected to ₹60,000 crore”>cross ₹60,000 crore in 2024-25, driven by rising compliance demands, digital transformation and growing deal activity.

In 2023-24, Indian companies’ aggregate legal expenses stood at ₹52,568 crore, up 17% from ₹44,920 crore a year ago.

The top 50 companies accounted for ₹21,389 crore of this expenditure in 2024-25, reflecting a 17.4% growth. Law firms expect double-digit increases to continue for the next few years.

The Vahura In-House Counsel Compensation Report 2023–24 found that mid-level corporate lawyers with 8-10 years of experience earn a median annual salary of ₹41 lakh, while senior professionals draw around ₹80 lakh. General counsels command a median package of ₹1.59 crore, with top earners exceeding ₹2.6 crore.

What could companies do?

Law partners are advising clients to tighten internal legal protocols, route sensitive matters through external counsel, restrict written communication on high-risk issues, clearly mark confidential documents and involve external lawyers in key meetings to preserve privilege.

“Boards and key managerial personnel will need to be particularly careful about how they document and minute discussions concerning sensitive legal matters,” said Deshmukh of Cyril Amarchand Mangaldas.

Clients have also been advised by law firms to review and update document and data retention policies, particularly on employee devices, to ensure that non-privileged or sensitive drafts are not retained indefinitely.

“The better approach would be for boards to create formal legal committees and invite independent counsel when necessary, thereby protecting both governance transparency and privilege integrity,” said Gandhi of Rishabh Gandhi and Advocate.