The data protection law is likely to impose strict data management requirements, potentially slowing down AI adoption in the legal sector
Unlike many industries that have undergone significant digital transformation over the past decade in India, the legal sector has traditionally been slow to adopt technology because of its heavy reliance on professionals and the unstructured nature of legal data. Consequently, there are only a few legaltech startups in the country today.
While the rise of generative AI has started to change this by automating tasks like contract drafting, legal briefs, opinions, and filings, the seeds of transformation were sown during the Covid-19 pandemic. When lockdowns and court closures disrupted physical consultations, legal professionals and clients turned to online solutions.
This led to a big spurt in online consultations, paving the way for further adoption of tech in the system. Now, the arrival of generative AI has unlocked a wave of innovative online tools and solutions, pushing the sector's digital transformation even further.
"During the Covid-19 pandemic, when people were forced to adopt technology, this traditional mindset began to shift, even in the legal industry. Lawyers and the judiciary had to embrace technology, whether through e-courts or virtual hearings on platforms like Zoom. This marked the first widespread adoption of technology in the legal world," Himanshu Gutpa, the founder of Lawyered, said.
Before the pandemic, Gupta added, a few large law firms used legal research tools, but those weren't widely accessible. Since then, however, tech adoption has spread throughout the legal field in India. In fact, the country is seeing the rise of several early-stage startups that are partnering with these law firms to bring game-changing solutions to the table.
According to Kaushik Moitra, partner at Bharucha & Partners, corporate law firms have also started embracing AI tools in India, as these solutions can quickly and accurately process vast amounts of data, allowing legal practitioners to store, organise, and access their files with more ease.
Besides, just like other sectors, legal practitioners can leverage AI for mechanical and repetitive tasks so that they can allocate more time to strategy work, advocacy, and client engagement.
It is precisely for this work that Varun Khandelwal, an M&A lawyer at AZB & Partners, cofounded Jurisphere.ai last year.
Khandelwal said that his startup focusses on helping legal, tax, and regulatory teams manage data-intensive tasks that often create bottlenecks.
Currently, the platform has two main offerings -- legal research and multi-document analysis. These offerings allow legal teams to analyse documents quickly, provide recommendations, and offer advisory services.
Khandelwal is also working with in-house counsel teams of some of the largest companies and corporate law firms in India.
Meanwhile, some emerging startups have stepped up to bridge a gap on the citizens' side, as they are generally not proficient in the language of the law.
A prime example is Lawyer Desk, a legaltech startup, which started with a platform for advocates and practising lawyers but later launched a platform, Prajalok, to provide citizens with legal information, guidance, and resources, including case tracking.
"There is a huge opportunity in the country's legal sector because of the vast number of cases. Millions of cases are pending, primarily due to the extensive documentation required, and our courts are overwhelmed. As a result, our legal processes are choked, and documentation is cumbersome, spanning across all areas of law," Vikram Gupta, founder and managing partner of IvyCap Ventures said.
Giving a sneak peek into the larger problem, Gupta pointed out that more than 60 Lakh cases are pending in the country's 25 high courts, and of these, 4.5 Lakh cases are less than a year old.
Although a majority of legaltech startups are bootstrapped in the country, some have started to attract investors.
Last month, legaltech startup Jhana.ai, which provides an AI-powered legal research and drafting tool for Indian lawyers and law firms, raised $1.6 Mn. Another legaltech startup, DecoverAI, also secured $2 Mn in a seed funding round earlier this year.
"One of the immediate use cases for GenAI that comes to mind is law. We have evaluated several startups that are at fairly early stages. They're using GenAI to create legal documentation, summarise legal documents, and other similar tasks. However, after evaluating them, we've found that many of these startups are still in the process of refining their products to be truly effective," Ashwin Raguraman, partner, Bharat Innovation Fund, said.
Raguraman also noted that the startups that have received investment in India are mostly early stage, typically backed by angel networks or similar investors.
"The real potential of legaltech lies in achieving greater control and automation. For example, let's say we provide a term sheet. Can that term sheet be automatically converted into a full agreement using ChatGPT or a similar legal tech platform? This is where we want to see much more automation -- taking a cumbersome process like legal document creation and negotiation and significantly shortening the time required, both for creation and review, including risk identification. This level of automation is required to streamline the process," Raguraman said.
As per another late stage investor, legaltech in India is far from fetching big cheques currently. While several startups are emerging in the space, most of these have just started building the products and need to prove viability. Therefore, the legaltech startups will see investment only in the range of $1 Mn-$3 Mn, he added.
The investor believes that legaltech would become a more interesting segment if there's technology that can help reduce the immense burden on courts. The judicial system is under massive pressure, and the key challenge is how to achieve the speedy disposal of cases. If there's a technology that can assist judges and the entire court system, it could be a game changer.
"We are actively exploring this space and evaluating several startups that have the potential to scale significantly. While we see a huge opportunity, we are being cautious, paying close attention to the quality of both the founders and the products being developed," IvyCap's Gupta said.
He also believes that there's potential to create at least a few unicorns in this space. "Some startups are already on this path, although they are still in their early stages. From an investment perspective, I think this is an excellent time to get involved with startups," Gupta added.
Meanwhile, investment isn't the only challenge that legaltech startups are facing in the country. According to Moitra of Bharucha & Partners, lawyers handle sensitive client information, which limits options for data sharing and external storage.
Additionally, the upcoming data protection law will likely impose strict data management requirements, potentially slowing down AI adoption in the legal sector.
"Legal practitioners should exercise due diligence and implement all necessary safeguards when adopting AI technologies, ensuring compliance with all applicable regulations and professional obligation," Moitra said.
Secondly, the founder of a GenAI startup noted that the most trusted products among large corporate firms are currently emerging from the US.
To stay ahead of the curve, Indian legaltech founders need to develop more proprietary models and innovative solutions tailored to the Indian legal system to monetise their products successfully.
