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This article, like many others, was first published exclusively for long-term supporters, 4 hours before everyone else got to read it.

Do you check your privilege? We have, and found potentially huge future problems with CBI raiding Nirav Modi docs from CAM

The privilege offered by TV’s Saul Goodman of Breaking Bad is not actually privilege, even in India
The privilege offered by TV’s Saul Goodman of Breaking Bad is not actually privilege, even in India

As expected, after we had broken exclusively last week that Cyril Amarchand Mangaldas (CAM) had been visited by the Central Bureau of Investigation (CBI) about Nirav Modi, the mainstream media, keen on anything NiMo-related at the moment, didn’t take long to jump on the story.

But the real potential significance of the raid could have huge repercussion and has largely been ignored so far.

It is a question of privilege, and this is an area that most corporate law firm lawyers and partners have nearly no clue about, one in-house lawyer tells us.

He's only half-joking.

Why did a raid happen?

The CBI soon began officially confirming the raid to media, shedding some more light on the reason for the CBI invading a law firm, whose work product for clients should typically be protected by privilege.

CBI director Alok Verma told Mint: “When Nirav Modi’s premises were searched last week, it was found that there were certain documents of huge importance at the law firm. Those documents were recovered last week itself.”

While it's not impossible that the CBI went for a simple fishing expedition at CAM, let's take that statement at face value for now and assume that the CBI somehow found out that certain documents were with the law firm.

According to our information, CAM had been instructed by Modi several weeks before the PNB scam hit the public eye, on a banking-related matter, and we understand that the original mandate related to advising companies in which Nirav Modi holds stakes, such as Firestar Diamond where he holds a small equity stake, about how they would be affected by the scam.

This soon resulted in the firm also carrying out forensic work related for Modi, and obtaining certain documents.

It seems like standard work that clients go to lawyers for, so why could privilege not apply in such a case?

CAM declined to comment on all questions we put to them relating to this article, so we have pieced things together from what we know so far.

What is privilege?

Privilege is underpins everything in the legal system. If everything a client tells or shares with his or her lawyer, is at risk of later being used against the client, then it becomes impossible to actually get decent legal advice.

Privilege is fundamental to the role a lawyer plays in society.

Section 126 to 129] of the Indian Evidence Act, 1872, is the only law that really governs privilege in India. The obligation not to disclose information is on the lawyer and their clerks and other staff, with certain exeptions:

126: Professional communications.—No barrister, attorney, pleader or vakil shall at any time be permitted, unless with his client’s express consent, to disclose any communication made to him in the course and for the purpose of his employment as such barrister, pleader, attorney or vakil, by or on behalf of his client, or to state the contents or condition of any document with which he has become acquainted in the course and for the purpose of his professional employment, or to disclose any advice given by him to his client in the course and for the purpose of such employment.

Lalit Bhasin's document storage theory

The earlier-referenced Mint story quoted Society of Indian Law Firms (SILF) president (and law firm owner) Lalit Bhasin, who said: “Without linking the current situation, any communication that the law firm does with their clients are privileged and they have right to protect it.

“But if the client uses the firm’s office premises to keep their documents, that doesn’t fall under such privilege and investigation agencies can look into such documents.”

The case Bhasin seems to be making is a case where a client is using a law firm nearly entirely as a secure storage facility, using a mandate as a front, shipping documents to the law firm that have nothing to do with the ongoing mandate.

One senior counsel, who deals in criminal matters and PILs but declined to be identified, disagrees that there was even a document storage exemption. “It's kept for a client, not for the purposes of storage, because the lawyer wants to keep it,” he says simply.

In Cyril Amarchand's case, we understand that the documents in question were actually related to the ongoing matter, so this is unlikely to apply.

So, assuming that prima facie that the documents the CBI confiscated were privileged, how did CAM cooperate with the CBI and voluntarily disclose them?

Section 126 exemptions: Fraud?

Exempt from privilege under section 126 are communications “made in furtherance of any illegal purpose” - i.e., [tiny Breaking Bad spoiler coming up], the fictional lawyer Saul Goodman using privilege to assist in laundering his client Walter White's drug money.

Besides not involving methamphetamine, that's unlikely to have been the case here, according to our information. “Unless the lawyer is party to a fraud and the lawyer is himself accused of fraud, correspondence between lawyer and client in relation to legal proceedings is privileged,” explains former J Sagar Associates (JSA) partner and now independent counsel Somasekhar Sundaresan, clarifying that he is not commenting on this or any case in particular.

“If the lawyer himself is accused, then it is a standard worldwide and universally quite clear that he is not immune from being tried on the ground that he is a lawyer,” he says. “But absent that element, the space occupied by a client with a lawyer is sacrosanct.”

The second fraud-related exception to privilege is (emphasis added):

Any fact observed by any barrister, pleader, attorney or vakil, in the course of his employment as such, showing that any crime or fraud has been committed since the commencement of his employment.

In other words, this would not cover Modi's alleged fraud preceding the mandate, which went to CAM only long after the frauds were allegedly committed (unless there is some other fraud at play that is not in the public domain, considering the timing of the mandate, this also seems very unlikely to apply).

Even if there's privilege, how do you stop the CBI barging into your office and taking stuff?

This is not the first time that Indian law firms have been raided. In 2009, we reported on ALMT Legal and AZB & Partners getting raided by the tax department relating to clients and offshore tax structures. The firms cooperated back then, we had reported.

And around 8 to 10 years ago, recalls Nishith Desai, managing partner of Nishith Desai Associates, his firm was raided, with the CBI confiscating not just documents but also computer servers.

“What happened was, at that time they were looking for some client things, and they came [to us] and thought we were chartered accountants,” Desai tells us. “Then we pointed out to them [the things they took] are all privileged.”

“They returned the files without opening,” he says.

However, it's not necessarily easy saying no to India's top cops when they're right in your office.

“It is not at all routine or usual for this to happen. So, how to react would not be an easy decision,” says Sundaresan, again making clear that he is not commenting on CAM's or any other case. “It is possible that an enforcement agency may potentially threaten that accusations of involvement and collusion would follow.”

But he adds: “If a law enforcement agency barges in, then it is for the person protected by the law to assert his right to the protection... For example, you could rush to a court and seek a stay. You could examine if there is a search warrant.

“It would be odd for a magistrate to issue a search warrant against a lawyer without a prima facie case of collusion and involvement in fraud being made out.” However, he adds that such scenarios are “outlier situations”, that could well lead to the “development of jurisprudence”.

While not aware of the facts of the case beyond what's in the public domain, the unnamed senior counsel speculates: “They [CAM] have actually, according to me, just handed over the documents. They could have protected it, and said, I'm not handing it over. then they would have had recourse to a court order.”

So, if the documents are actually covered by privilege, then what?

For one, CAM could prima facie have violated section 126, though it would be for the client (i.e. Modi) to seek enforcement or damages (with no obvious remedies or sanction spelled out in the Evidence Act for breaching confidence).

Possibly, the client could also launch a Bar Council of India (BCI) complaint, though the risk of that actually causing any problems to anyone are as remote as Modi returning to India anytime soon.

But, perhaps more importantly, if any privileged documents the CBI recovered are of “huge importance to the prosecution”, as the CBI claimed they are, this should almost certainly mean that lawyers defending Modi and other scam-accused will challenge whether those documents are actually admissible in court.

And that's where things could get really tricky on several fronts.

If the defence lawyers are successful in establishing that those documents were privileged, then the prosecution can not use them as evidence and the case against Modi and alleged co-conspirators may weaken or fall apart. The alternative is for the CBI to use those documents only for its own background information, and reconstruct other evidence in parallel, assisted by the potentially privileged documents.

“The problem is that nobody has taken it up properly, but any tainted illegal act by the police doesn't render the criminal prosecution void,” comments the senior counsel. “That's a major problem in India, though not the US.”

But the alleged fraud took place so many years ago that much other documentary or hard evidence may be non-existent by now. So, if a lot - or even everything - hinges on the inclusion of these documents, this could delay the entire case significantly.

There's “not a huge amount of case law” in the area, notes former Trilegal partner and now independent counsel Anand Prasad about privilege, which is not often litigated on or tested in court (the well-known Larsen & Toubro case on privilege is not directly on point, other than sowing confusion about whether in-housers have privilege (they probably don't)).

So if establishing the existence of privilege becomes tricky in this case, NiMo & co could very well go all the way up to the Supreme Court. Success in court would depend on the nature of what's been taken, says Sundaresan. “I don't think you can have a slam dunk answer on the consequence without regard to facts.”

“If this ever snowballs into something significant, we'll have our first big and real test case on our hands, which could be precedent-setting,” adds Prasad.

Desai notes that he thinks it is “important that this issue is addressed”, “otherwise the faith in legal system will go away”.

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