The reason I have chosen this topic as it has been in my mind for many years now and in fact, I have around more than 100 legal case study to share which have always brought me to the question as to “why business entities don’t realize the value of Legal in their business” and when this was asked to those clients who are part of 100 legal case study the reply received was costs attached to Legal but the most important reply was “never thought that getting legal advice will be of any help” and further some of the states that they believed they could handle the issue better on their own without having legal background”. Hence, I thought of penning down my views to readers and business entities of “how to know the Value of Legal in their business” or can say “Valuation Statistics in their Business”
Case Study No. 1
In Year 2019, a referral Client approached our firm (Fireflies Legal LLP) for his business legal issues. During the meeting, it came to know that he is the business of renting out the computer devices and allied goods and there was a customer who was referred to him in networking club and since so, the client executed the order and supplied the order and total invoice generated was around Rs. 7 Lakhs. On questioning, as under, from our firm team end, following reply was received by Client:
• Any agreement executed = No
• Why no agreement executed = As someone trusted referred
• Any PO raised = No
• Why = Oral Order
• KYC of your customer = No
• Why no KYC = Never thought it will be required
• Any PDC = No
• Why no Security – trusted referred source
• Any email communication = No
• Any dispute raised by your customer = Yes
• What relevant dispute – Nothing but within 15 days raised
• Now What = no phone calls, no response and hence want to get legal for issuing notices
• Any prior legal advice = Never thought off
• Why never thought off = I heard that getting into legal actually kills business and also costs wise
One thing is clear from the above that our Client has been doing business purely on a trust basis and never gave importance to any legal advice or opinion. In fact, most of the Business Entities who does not give importance to the law aspect, look for free advice either on WhatsApp or online searches and if not, then under the shelter of relation approach for free advice but instead of doing so, better is to approach professional and get the work done and to know its value read how DREAM11 Owner have started their business and today it is more than 5000 crores business.
Due to this act of our Client, the only Legal Remedy left was and is to issue a legal notice and then wait for their reply which the customer never accepted as they shifted their place of business and now to approach court wherein the total costs will be around Rs. 85,000/- to Rs. 1,00,000/- for claiming recovery case. Upon knowing this, our Client stated that already Rs 7 Lakhs is pending and on that more Rs. 1 Lakhs will be a burden and that to Courts will take around 4 to 5 years, our Client decided to issue notice and wait and watch and post this compliance there was no update and the matter was closed with no further steps
Moral: To save small legal costs prior to executing the business deal with a customer, the Client now lost hope in getting the money of Rs. 7 Lakhs and a loss of Rs. 7 Lakhs in a turnover of 3 Crores is a huge loss
It is a fact that most of the Business Entities never give respect to “Legal Budget” or atleast getting Legal Advice on their business legal requirements and spending on legal costs and then they are ready to spend lakhs and lakhs on getting the recovery of their claims or else part.
What prior Legal Advice could have done?
• Preparation of Agreement Template with Arbitration Clause
• KYC of Customers with Cross Cheque if no PDC
• Credit History of Customer
• Bank Guarantee, an option
• Invoice with Terms
• PO vetting with Terms
• Email Communication process
• When to trigger the Default Customer
• Getting urgent relief under Section 9 of Arbitration Laws
• How to secure money in the process
The above factual story is a very common example of how to avoid spending small legal expenses, a proposed business deal ran into huge losses. One has to understand and realize that “LEGAL SPENDING IS ALWAYS EXPRESSED AS A PERCENTAGE OF THE BUSINESS REVENUE”.