From cross‑border trading structures to in-house emails, Jane Street’s review petition in the Supreme Court has turned a tax dispute into a test case on whether internal legal communications in India will be treated as privileged. The decision could shift how financial‑services players, FPIs and other corporations rely on their internal legal teams in the midst of tax and regulatory scrutiny.
The move comes on the heels of an October 2025 decision in which a three‑judge bench held that in‑house counsel do not qualify as “advocates practising in courts” under Section 132 BSA 2023, confining full privilege only to external advocates and leaving only protection under Section 134 for in-house counsels. Section 132 BSA protects communications with advocates, while Section 134 covers confidential communications with legal advisers.
The apex court’s decision to allow protection to in-house counsels only under section 134 BSA favours regulators as it reserves full scope privilege for communications with external advocates while leaving in-house counsel to employer communications only partially protected, this allows tax and enforcement agencies to treat internal mails and memos as discoverable evidence that could reveal corporate decision making and tax motives.
Jane Street, which operates Indian trading entities alongside offshore funds registered as FPIs in Hong Kong and Singapore, is arguing that internal emails and similar communications generated during the tax enquiry should not be freely available to investigators for probe. The case revives debate on whether India’s framework aligns with global standards like the UK and US, where in‑house counsel enjoy broader privilege.
Privilege carve‑out hits finance and foreign entities hardest
The finance industry already faces amplified risks under intent‑based laws like AML, transfer pricing, and GAAR, where internal legal assessments of purpose or suspicion become evidence. For foreign‑owned firms and FPIs which have to navigate cross‑border structures, treaty‑reliant routing and global legal memos, any loss of in‑house privilege could convert internal risk analysis conversations into ready‑made evidence across multiple jurisdictions.In Jane Street’s tax dispute, authorities sought internal emails amid SEBI’s July 2025 interim order, which barred the firm from Indian markets and ordered the impounding of INR 4,843.57 crore in alleged unlawful gains from index‑manipulation strategies involving large cash‑and‑futures buys to prop up Nifty 50 and Bank Nifty levels before shorting options. Parallelly tax authorities invoked GAAR to challenge profit‑shifting to Singapore and Hong Kong FPIs, alleging treaty misuse.
“For financial services and global trading firms like Jane Street, this carve‑out is not a minor technicality—it goes to the core of how internal legal risk is managed,” says Monika Dhingra, executive vice president (legal) at DLF Cyber City Developers. “These entities rely heavily on in‑house counsel for cross‑border structuring, complex tax planning, and real‑time regulatory compliance. If internal legal advice lacks the shield of privilege, firms may feel compelled to route sensitive work through external counsel, driving up costs and slowing decision‑making.”
“When privilege narrows, their risk exposure expands fastest, multinational groups face a privilege leakage effect,” said Sandeep Chowdhury, group general counsel at Suzlon Energy. “Foreign‑owned entities face privilege leakage: US HQ legal memos are privileged there but discoverable in India, then shareable globally via treaties. Domestic firms avoid this as their advice stays local with aligned privilege expectations. Multinationals might create evidence while trying to comply.”
Vinayak Mishra, general counsel at Lightspeed India contrasts India with the UK, US, Singapore, where in‑house communications attract privilege akin to external counsel. “The Indian position diverges from that expectation,” he said. “While laws should enable robust investigation by regulators and tax authorities so no one benefits from privilege being used to conceal wrongdoing, the current framework is onerous and may be counter productive.”
Governance risks and demand for reform
The Supreme Court’s reasoning in its October judgment that in‑house counsel are “beholden to their employer” means internal deliberations become discoverable, diluting the authority of in‑house counsel. India’s Income‑tax Bill, 2025, effective April 1, 2026, permits the income‑tax authorities, during search and survey operations, to access email servers, cloud‑based storage and social‑media accounts as part of a broader ‘virtual digital space’ under Section 247 of the new Act. This combination of a narrow privilege rule and broad digital‑access powers raises governance‑risk concerns.
Legal experts suggest that any email‑dump style sweeps in cross‑border tax probes should be pre‑filtered through independent‑privilege‑review mechanisms, privilege logs and keyword‑based screening, so that genuinely protected legal‑communications are not lumped into the investigative pool.
“To preserve India’s attractiveness as a commercial and legal hub, industry groups should seek statutory guidance that clearly protects professional legal advice whether from external or in-house counsel during multinational investigations, enforces proportionality in digital searches, and mandates uniform, predictable treatment of privileged communications. Without such protections, regulatory asymmetry arises, undermining ease of doing business, creating uncertainty for multinational enterprises, and weakening India’s position as a stable, predictable jurisdiction in cross-border tax enforcement,” said Ashok Kumar P, Chief Legal Officer at Ultratech.
Given that over INR 15.7 lakh crore is currently stuck in tax disputes and GAAR‑style reopening powers are being deployed more frequently, if this judgment narrows the ambit of legal privilege any further, foreign‑owned entities and MNCs may have a strong incentive to route sensitive matters to external counsel or structure communications in a way that minimises liability when internal‑legal communications surface in probes.
“If a company’s internal legal team cannot advise candidly on compliance and risk without that advice potentially being open to be produced in evidence in a probe, the quality of corporate governance itself is undermined,” said Mishra. “The public interest in empowering regulators and investigators and the public interest in well-governed corporations are not in conflict; they are complementary, and the privilege framework should reflect that.”
