CA Kamal Garg

The corporate advisors play a very vital and the core role for the companies in respect of various advisory activities including representation before authorities. The corporate advisors generally are chartered accountants, company secretaries, cost and management accountants, advocates, tax practitioners, etc. Whosoever is the corporate advisor, one common element which is enshrined in all the form of advisory activities is the element of confidentiality, i.e. the information that comes to their possession as a result of their professional engagement should not be disclosed, except under a legal and/ or professional duty, or with the previous consent of the client. Accordingly, in this context a question arises that whether these professionals (i.e. corporate advisors) are entitled to professional privilege, and non-disclosure of information that comes into their possession as a result of their professional engagement. The question assumes special significance also because secrecy and non-disclosure are integral and these apply to all involved in a commercial relationship.

Sanctity of Professional Communications under Indian Evidence Act, 1872:

Professional communications (Section 126): 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.

Provided that nothing in this section shall protect from disclosure:

1. Any communication made in furtherance of any illegal purpose,

2. 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.

 It is immaterial whether the attention of such barrister, pleader, attorney or vakil was or was not directed to such fact by or on behalf of his client.

Explanation – The obligation stated in this section continues after the employment has ceased.


(a) A, a client, says to B, an attorney – “I have committed forgery and I wish you to defend me.”

 As the defense of a man known to be guilty is not a criminal purpose, this communication is protected from disclosure.

 (b) A, a client, says to B, and attorney – “I wish to obtain possession of property by the use of forged deed on which I request you to sue.”

 The communication being made in furtherance of criminal purpose, is not protected from disclosure.

(c) A, being charged with embezzlement retains B, an attorney to defend him, In the course of the proceedings B observes that an entry has been made in A’s account book, charging A with the sum said to have been embezzled, which entry was not in the book at the commencement of his employment.

 This being a fact observed by B in the course of his employment showing that a fraud has been committed since the commencement of the proceedings, it is not protected from disclosure.

Section 126 to apply to interpreters etc. (Section 127): The provisions of Section 126 apply to interpreters, and the clerks or servants of barristers, pleaders, attorneys and vakils.

Privilege not waived by volunteering evidence (Section 128): If any party to a suit gives evidence therein at his own instance or otherwise, he shall not be deemed to have consented thereby to such disclosure as is mentioned in Section 126, and if any party to a suit or proceeding calls any such barrister, pleader, attorney or vakil as a witness, he shall be deemed to have consented to such disclosure only if he questions such barrister, attorney or vakil on matters which, but for such question, he would not be at liberty to disclose.

Confidential communication with Legal Advisers (Section 129): No one shall be compelled to disclose to the Court any confidential communication which has taken place between him and his legal professional adviser, unless he offers himself as a witness in which case he may be compelled to disclose any such communication as may appear to the Court necessary to be known in order to explain any evidence which he has give, but not others.

Scope of provisions: As per Section 18 of the Indian Evidence Act, 1872, Statements made by a party to the proceeding, or by an agent to any such party, whom the Court regards, under the circumstances of the case, as expressly or impliedly authorized by him to make them, are admissions.

In respect of suitor in representative character – Statements made by parties to suits suing or sued in a representative character, are not admissions, unless they were made while the party making them held that character.

Statements made by –

(1)    by party interested in subject matter; persons who have any proprietary or pecuniary interest in the subject-matter of the proceeding and who make the statement in their character of persons so interested; or

(2)    by person from whom interest derived; persons from whom the parties to the suit have derived their interest in the subject-matter of the suit, are admissions, if they are made during the continuance of the interest of the persons making the statements.

Section 18 of the Indian Evidence Act, 1872, declares all persons to be competent witnesses, except such as are wanting in intellectual capacity. The question, therefore, arises what are the matters concerned with witness, i.e.:

1. Who can be a witness: It can be said that evidence must be given by legally competent witnesses. The ordinary individual is competent and presumed to be so. This law of competence is therefore, practically the law of incompetence consisting rules of exclusion.

2. Who can be compelled to be a witness: It has to be noted that the competency of a witness to give evidence is on a separate footing than the power to compel him to give evidence. A person may not be compellable to be sworn or affirmed, even though he is competent.

3. What questions witnesses otherwise competent and compellable can be compelled to answer: A person who may be generally compellable to give evidence, may yet be privileged in respect of particular matters (such as those contained in Sections 122, 124, 125 and 129 of Indian Evidence Act, 1872, respectively for, Communications during marriage, Official communications, Information as to commission of offences, and Confidential communications with legal advisers) concerning which he may be unwilling to speak. This is labeled as ‘privilege’. This privilege is generally based on the existence of some relationship or the nature of subject matter which justifies a bar against inquiry into particular matters.

4. What questions such witnesses can be permitted to answer: In certain cases, the law will not permit the witness to speak, even if he is willing. What the exception in such cases amounts to is not a privilege but a disability. A privilege can be waived but a disability cannot be waived. Privilege is an immunity or exemption conferred by special grant to certain class or individual in derogation of a common right. Usually, a privilege or disability is created by the law on the considerations of public policy.

Role of Chartered Accountants in relation to unlawful acts by their clients:

As per Clause 1 of Part I of Second Schedule to The Chartered Accountants Act, 1949, as amended by the Chartered Accountants (Amendment) Act, 2006, a member in practice shall be deemed guilty of professional misconduct, if he discloses information acquired in the course of his professional engagement to any person other then his client, without the consent of his client, or otherwise than as required by law for the time being in force.

The question of member’s liability when he is not directly involved in tax frauds committed by the client but he discovers such fraud in the course of his professional work, the action recommended to be taken by him is indicated below:

(i) There is no duty cast on the member either under the Criminal Procedure Code or by any other enactment, to inform the Income Tax Authorities about taxation frauds by his client;

(ii) Under Section 126 of the Evidence Act, a barrister, attorney pleader or Vakil is barred from disclosing such facts which come to his knowledge in the course of or for the purpose of his employment, except with the consent of his client;

(iii) It is not the duty of a member to protect a client from the consequences of his tax frauds, but on the contrary, it is a guiding principle of professional conduct to discourage tax evasion;

(iv) If the fraud relates to past year(s) for which the client was not represented by the member, the client should be advised to make a disclosure. He should be careful to ensure that the past fraud does not in any way affect the current tax matters;

(v) If the fraud relates to accounts etc., examined by him and reported upon on the basis of which tax assessment in the past has been made or is currently to be made, the client should be advised to make a complete disclosure. If the client refuses, then he should inform the client of his dissociation from the case and that he would report to the authorities;

(vi) In case of suppression in current accounts, the client should be asked to make full disclosure and in case he refuses, the accountant should make a complete reservation in his report and should not associate himself with the return;

(vii) There is no further duty as to disclosure when the services of the accountant are dispensed with before the accounts are completed or are reported upon.

The chartered accountant would be liable if he advises his client to commit any criminal offence or helps or encourages in the planning or execution of the same or conceals or destroys evidence to obstruct the course of public justice or assist his client in evading prosecution. Thus, in light of above, in case of unlawful acts of the client, a chartered accountant shall have the following duties:

(i) not to assist the client in committing any criminal offence or in reaping the rewards thereof;

(ii) consider the possible consequences on the true and fair view of the accounts which are being prepared or audited and the manner in which the report may be given on these accounts (whether clean report or qualified report etc.);

(iii) consider whether to continue with or dissociate from such client.

Judicial Pronouncements:

Provisions exist to protect the client: An explanation of the privilege provisions was provided by the Gujarat High Court in Gurunanak Provisions Stores v. Dulhonumal Savanmal and Ors. AIR 1994 Guj 31. The court stated that

“Neither a legal adviser nor his interpreter, clerk or even servant could be permitted to disclose any communications made to him in the course and for the purpose of professional employment of such legal adviser or to state the contents or condition of any documents with which any such person has become conversant in the course and for the purpose of such employment.”

The Court explained that the provisions existed to protect the client and not the lawyer. It also explained the rationale for the provisions, saying that they existed due to the impossibility of conducting legal business without the professional assistance and on the necessity in order to render that assistance effectual of securing full and unreserved communication between the adviser and the client. The court also clarified that instructions to counsel would qualify as privileged documents.

Protection only in respect of those communications which are made in the course of professional engagement/ employment: The court in the case mentioned supra, also stated the limitations that exist on the exercise of this privilege by virtue of the wording of the substantive provision of the statute. It said that the statute only protects only such communications as are made to the legal adviser in confidence in the course and for the purpose of his employment. However, they were quick to clarify that the absence of litigation or the lack of imminent litigation at the time the confidential communications are made will not constitute an excuse for its disclosure.

Obligation u/s 126 remains operative even after employment: The court also stated that the obligation incorporated in Section 126 will remain operative even after the employment and does not get terminated by the termination of the litigation or the death of the parties. This was only obiter in this case and the position on this point under Indian law does not seem to be decided.

Failure on part of client to claim privilege does not amount to “express consent”: The Court also spent some time on what constitutes express consent to waive privilege. It observed that a failure on the part of the client to claim privilege, in this case under cross-examination, does not amount to “express consent” given by him to his legal adviser to disclose confidential communication, which is otherwise privileged under section 126. This is in furtherance of the idea that privilege is the rule and not the exception, and the exception must be strictly construed. Otherwise unscrupulous lawyers would keep disclosing information about their clients finding some way or the other of claiming that consent was implied.

Privilege extends to written communications also: The Court then explained that the privilege extends to written communications between the two parties and hence covers contents of documents perused in connection with the case. It also went into the exceptions to the rule of privilege, dealing with both the provisos in section 126. It then observed that a document doesn’t lose its stature of being privileged just because the relationship comes to an end, and can only be brought to an end with the waiver of privilege by the client, with this waiver having to be express.

The court also explained the difference between sections 126 to 128 and section 129, stating that the former deals with the protection afforded to the lawyer from being called to the stand while the latter deals with the protection afforded to the client from revealing information provided by his lawyer to him. The former is therefore not only a prohibition on the information being taken from the lawyer, but also entails the power of the Court to prohibit the lawyer from revealing particular information. The same obviously doesn’t apply to the latter is the client has the right to disclose any information. The legal adviser is obliged to claim the privilege unless the client has given consent. Failure to do this may amount to professional misconduct.

Sections 126 and 129 of the Evidence Act protect the communications between a lawyer and client made during the employment of the lawyer. In the opinion of the Bombay High Court, these provisions by necessary implication protect the documents prepared by the client in anticipation of litigation either for seeking legal advice or for using them in that litigation Larsen & Toubro Limited vs. Prime Displays (P) Ltd., [2003] 114 Comp Cas 141(Bom).

Express consent of the client must in order for privileged information to be divulged: Further, section 126 clearly requires that there be express consent of the client in order for privileged information to be divulged. It is not enough that the client fails to assert or claim that the communication is privileged Mandesan v. State of Kerala, 1995 Cri LJ 61 (Ker). This is probably provided in order to ensure that clients do not unwittingly or unknowingly waive privilege as it might be antithetical to their interests. Clearly the legislature intended to provide high procedural requirements that must be met before a lawyer can testify as to confidential information.

Nature of documents u/s 129: The conditions under section 129 are that the document must be in the nature of both internal legal advice and also opinions of counsel as well as in anticipation of litigation Larsen & Toubro Limited vs. Prime Displays (P) Ltd., [2003] 114 Comp Cas 141(Bom).

It was argued in the L & T case, and accepted, that the rationale underlying Section 129 is that a person should be entirely free to consult his legal advisers and claim absolute privilege with respect to confidential communications with him.

Coverage of section 129 is much wider and goes beyond barrister, attorney, pleader, etc.: Further, section 129 has been specifically left broad by the use of the term “any legal advisor” and not barrister, attorney, pleader or vakil, as other sections use. This implies that the coverage of this section is also broader.

The statute itself limits the scope of the privilege both in terms of the substantive conditions required to be fulfilled as well as exceptions to the rule. The first exception is with respect to communication for an illegal purpose. This illustration clarifies that if a person asks a lawyer for help in forging a deed the communication is not privileged communication. This is clearly in consonance with the purpose of privilege being granted, and therefore is perfectly understandable. In the United Kingdom, this exception is narrower. The purpose of the communication must not only be illegal, it must also be criminal.

Communication from a third party meant to be transmitted to the client, also considered privileged: In Superintendent and Remembrancer of Legal Affairs, West Bengal v. S. Bhowmick AIR 1981 SC 917, the Court held that any communication that had instructions from the client was privileged, including, as was the case in the particular factual matrix, notes on the examination in chief of a witness for the other party. Communication from a third party to the lawyer, meant to be transmitted to the client, is also considered privileged if it was information connected to the general purpose of the legal advice Balabel v. Air India, AIR 1993 SC 1246.

Salaried employee who gives his employer legal advice would be in the same position: The privileges mentioned in Sections 126 and 129 are designed to secure the clients confidence in the secrecy of his communication. Any breach of the confidence is a stigma not only on the individual concerned, but is also likely to have effect on credibility of the profession as a whole Council of Institute of Chartered Accountants of India v. B Ram Goel, [2002] 111 CompCas 355 (Delhi).

Based on this principle, it has been held that a salaried employee who gives his employer legal advice would be in the same position as someone who is an advocate whose services are hired for a particular legal matter Municipal Corporation of Greater Bombay and Anr. v. Vijay Metal Works, AIR 1982 Bom 6. Hence, these provision has been extended to apply to in-house counsel as well. This seems to follow from the principle that the law is based on, as it is clear that the need for the privilege extends to anyone seeking to give meaningful legal advice.

Exception does not apply in cases where the advisor was not acting in his professional capacity: The Andhra Pradesh High Court has also held that the exception does not apply in cases where the advocate was not acting in his capacity as an advocate Gara Padmanabham v. Neti Narasimha Sastry and others, 2000 (6) ALT 364. So, for example, when the advocate was witness to a sale agreement in his personal capacity, he can be called upon to give evidence with respect to that agreement

Another situation that has come before the courts is one where the advocate is examined in order to prove a fact that is not a confidential fact. In such cases, for example when an advocate is to be questioned about the service of a notice on the opposite party, the court has held that the privilege provided under section 126 is not violated P.G. Anantasayanam and others v. P.G. Anantasayanam and others, 1998 (2) ALT 675. Again in Rev. Fr. Bernad Thattil v. Ramachandra Pillai, 1987 Cr L.J. 739,  the same question arose and it was pointed out that whatever was written or was stated in the notice was evidently the substance which was meant for being disclosed to others and more particularly to the other side. The rational for this seems to lie in the fact that the attorney client privilege has been created as a specific exception to the general obligation to give evidence, and therefore it is to be as limited as possible. Since the information in question here is anyway public, there is no benefit to extending privilege to cover these situations. No client will in any way disclose less to his lawyer due to the fact that this information is public. Therefore, privilege is not extended to cover these situations. However, inquiries of this nature must be limited to questions about matters that are not confidential, and the lawyer must not answer questions that go beyond this.

Privilege under section 126 is qualified privilege and not absolute privilege: In one case the High Court of Mysore was faced with a situation where section 126 was used as a defence to defamation Deepchand v. Sampathraj, AIR 1970 Mys 34. The lawyer argued that he had made the defamatory statement on the instructions of the client, and therefore he was not liable for the same. The court held that privilege under section 126 is qualified privilege and not absolute privilege, and therefore the situation would not be covered by section 126 of the Act. The reasoning would obviously be based on the same principle as discussed above that when the statement is intended to be made public anyway, then neither the attorney nor the client can hide behind the shield of attorney client privilege.

Code of criminal procedure need to be applied harmoniously: Another important provision of law relevant to the existence of attorney client privilege is section 91 of the Code of Criminal Procedure 1973. This provision allows a Court to order any person in possession of any document to produce the same before the Court. While the section specifically exempts its application to sections 123 and 124 of the Indian Evidence Act, the same is not true of sections 126-129. This suggests that the intention of the legislature was to have section 91 of the Code override these provisions. One alternative suggested by some cases Ganga Ram v. Habib Ullah, 37 Cri L.J. 113; Public Prosecutor Madras v. Menoki, AIR 1939 Mad 914 is to use section 162 of the Evidence Act to harmoniously construe the two provisions. This can be done as section 162 allows the Court to decide whether particular documents presented before the Court are to be admissible as evidence or not. Therefore, even when disclosure of a document is made pursuant to section 91 of the Code, the document can be ruled inadmissible thus protecting the intent of section 126 in part. However, this might not allay all the fears that a client may potentially have, as the decision on whether to allow the document as evidence is left to the judge.

Relationship between advisor and client is often considered a fiduciary relationship: In V.C. Rangadurai v. D. Gopalan, V.C. Rangadurai v. D. Gopalan, AIR 1979 SC 281, the court, speaking through Justice Sen, had held that relationship between an attorney and his client is a personal relationship involving the highest trust and confidence. As a result, the relationship is often considered a fiduciary relationship, creating upon the attorney the duties that come with such a relationship. An advocate must be considered more than just an agent of the client, as his role and duties go beyond that. The Courts have also noted that a breach of this privilege by lawyers affects not only the individual lawyer, but also the credibility, and therefore the ability of the profession as a whole, The Council of the Institute of Chartered Accountants of India, New Delhi v. Mani S. Abraham, AIR 2000 Ker 212.

Compiled by FCA Kamal Garg. He is the member of ICAI. He is engaged in IFRS – Audit and Advisory, FEMA, Valuation and XBRL Services. He can be approached at [email protected]

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