India Inc.’s legal and professional expenses continued to increase in the year through March 2016 as companies spent more on complying with new laws, battling litigation and signing big-ticket deals.
But the pace of expansion sharply decelerated. Total legal and professional costs for Indian public listed companies rose 7.3% from a year earlier to Rs 25,593 crore in 2015-16, according to a VCCircle study based on Capitaline data. That is down from a 25% increase in 2014-15.
The top 10 spenders remained the same, though not in the same order, and accounted for more than a third of the total expenses in 2015-16. Billionaire Dilip Shangvi-led Sun Pharmaceutical Industries Ltd topped the list with its expenses growing about 15% after tripling the year before when it had acquired local rival Ranbaxy Laboratories Ltd.
While Ranbaxy had been facing regulatory issues in the US, where it had agreed to pay $500 million to settle a dispute with the Food and Drug Administration before being acquired by Sun Pharma, Indian drugmakers in general have seen a rise in compliance costs in the world’s largest pharmaceutical market. Lupin Ltd was the other drugmaker in the top 10 list.
India’s three biggest software services exporters—Tata Consultancy Services Ltd, Infosys Ltd and Wipro Ltd—were also in the list, as were billionaire Mukesh Ambani-led Reliance Industries Ltd—India’s biggest private-sector company by revenue—and top telecom operator Bharti Airtel Ltd.
Energy and retail giant Reliance, which recently launched its telecom venture nationwide, saw its expenses jump 50%. Infosys, which has acquired a bunch of tech startups in recent months, spent almost 85% more during the year.
Indian pharmaceutical and IT companies, both of which get a significant portion of their revenue from the US, usually figure high in the list due to compliance issues and regulatory filings.
Among the top 40 spenders, the companies that saw a notable decline in their expenses included Adani Enterprises, Orchid Pharma, Max Financial, Punj Lloyd, Cairn India and Aban Offshore. Bharti Airtel, GMR and Reliance Capital also saw some decline. This helped arrest the growth of India Inc’s expenses.
Consumer durables maker Videocon Industries and wind turbine maker Suzlon Energy, which were in the top 10 in 2013-14, dropped out of the list the following year.
Paras Savla, partner at audit and consulting firm KPB & Associates, said companies usually include ‘legal and professional expenses’ under ‘other expenses’ in the profit and loss statement. He said that Schedule III of the Companies Act 2013 doesn’t provide any guidance on what is to be included in legal and professional expenses. “Various companies follow varied practices in this regard. It may include professional fees, regulatory filing fees and general stamp duty among other things,” he said.
Anand Desai, managing partner at law firm DSK Legal, said overall legal costs have gone up for many reasons including a rise in litigation for companies, and higher court and advocates’ fees for litigation.
“Also, with new laws such as the Companies Act, 2013, compliance has increased, and collateral matters such as sexual harassment policies and risk insurance, amongst others, are increasing the legal spend for India Inc.,” Desai said. “The number might look large, but if one sees the rise compared to last year it is quite reasonable taking inflation into account.”
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