J 2021 SCC OnLine Blog OpEd 49 500086671 Stuupesacin 20230815 195603 1 6

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2021 SCC OnLine Blog OpEd 49
Impact of AI in Due Diligence and Law Practice
IMPACT OF AI IN DUE DILIGENCE AND LAW PRACTICE

by
Abhilekh Tiwari†
Introduction
Technological advancements in law practice have assisted the legal
professionals in many ways. Current law practice cannot be imagined
without legal technology. Previously, when the legal search engines and
databases were unavailable, it would have taken much more time in
legal research for case laws. One would have gone to different libraries
for research and finally would have found some relevant information. At
present, information is merely a click away. With technological
advancement AI, machine learning, natural language processing (NLP)
have also entered legal field. Artificial intelligence or AI is the capability
of machines to emulate human intelligent behaviour.1 AI can perform
complex tasks by applying human intellectual characteristics. Machine
learning is the mechanism through which a machine or a computer can
improvise its performance by analysing new information and patterns.2
Algorithm development is one such example of machine learning.
Natural language processing deals with human and machine
interaction.3 If computers and humans have alike language then it
would be very convenient for the legal professionals to develop software
for assistance. With development of these AI technologies lawyers can
have ease of work but there is a fear that with the advent of AI the
employment might be affected. Benefits might come with certain
disadvantage.
Anxiety pertaining to technology
There is a general misconception that technological advancements
will always bring unemployment, however it is pertinent to note that
technology as a discipline is in itself a field where workers and
professionals are required which in turn might increase the employment
rate. At present the anxiety that AI will take over jobs of lawyers is far-
fetched. That era is yet to arrive when works of AI would be credible
enough without human intervention. Lawyers are often concerned about
new technology, probably due to inability to understand it or may be
due to the apprehension that the technology might make their jobs
obsolete.4 However more a person understands the new technology,
more likely it is to get over with the fear. Prima facie, AI has an
impression of something as robots with human deception conquering
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over the jobs of human and having an ability to develop dominion over
the human race. We are oblivious of the fact that these technologies
have been developed by humans in first place. Further, AI does not
only mean robots, it is a science of computers having the ability to
perform certain tasks with human intelligence. AI and other
technological advancements have positively transformed the law
practice by making research and other tasks convenient and easily
accessible. Human intelligence used in the review of documents,
proofreading, due diligence, etc. cannot be replaced, though mere
assistance of AI can be used. It is pertinent to note that AI will create
jobs in the field of technology which in turn would increase
employment. AI cannot interact with clients by understanding the
issues or argue in court of law. Credibility of an individual is more than
AI as AI is the creation of humans ultimately. Though the next
generation lawyers should have certain technical skills as well.
Contemporary fields of AI usage
AI is being used for various purposes by the lawyers, due diligence
being one of them. Other purposes include automation, legal analytics
and prediction technology. Paper would be dealing with due diligence
part in an elaborated manner.
1. Automation
Automation is the technology that uses specific rules to carry out
tasks on the basis of decision trees that has a pattern which is followed
as per the query.5 This technology is used in advice systems in cross-
border acquisitions and financing guide that can give precise overview
of legal and financial development in any country. The guides can
quickly provide answer to specific queries.6 Automation technology can
also assist in developing drafting systems saving time and cost.
However, document creation is considered as general source of
livelihood for lawyers. Automated documentation can certainly reduce
costs but can affect the employment opportunities. Though automated
documents will require a proof read, still it can encroach on many jobs.
2. Legal analytics
Legal research is the skill that is a prerequisite for a successful
lawyer. Very general principal methodology is identifying the relevant
statutes and the provisions and applying the case law. The analytics
technology will be based on software that involves advanced predictive
technology like natural language processing and machine learning and
it can analyse data from many case documents.7 Previously, for such
information, the research was very time consuming and there was
human dependence for prediction of behaviours of particular Judge or
Bench for the deciding a case.
3. Due diligence
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One of the major tasks of lawyer is to review the documents, fact

and exercise appropriate care in carrying out task related to advisory,
investments, mergers and acquisitions, real estate work. AI can ease
the work related to e-discovery, contract review and background
research. Usually, these tasks take a lot of time that can lead to issues
of deadlines.
Kira systems is one such company that provides for the AI solutions
to the law firms.8 It automatically extracts and analyse important
points from a contract which can be helpful in carrying out due
diligence. Apart from due diligence, AI solutions pertaining to
compliance, finance, lease abstraction is also provided.
AI in M&A due diligence
The main issue of AI in due diligence is that of its impact on lawyers,
whether it will positively impact or not. In due diligence certain steps
are essential like background search regarding any pending litigation or
financial liabilities and identification of potential risk due to merger.
The main aim of due diligence in M&A is to detect the potential
issues that may come up in any transaction. The company acquiring
will be requiring certain disclosures form the target company to identify
and allocate the risks involved before acquiring the business. Parties to
the transaction sign the confidentiality agreement and then the target
company provides the relevant documents. Gathering the relevant
documents can be a difficult task as there can be different offices or
locations from where the document is to be collected. This could also
lead to missing out of an important document. Acquirer then sends a
list of the documents that are required to be uploaded in the virtual
data room, for this target company has to digitise the documents. After
the documents have been uploaded, the counsel of the acquiring
company reviews the documents and analyse the risks related to pre-
existing liabilities and consequences. If the parties have consensus
then they sign the letter of intent.
Due to large amount of electronically stored information, background
search has significantly changed. Now the information can be searched
online, for example regarding pending litigation, the court's website can
be searched and other information about the company can be obtained
through the Ministry of Corporate Affairs’ website. Despite information
being electronically stored due diligence can be a time consuming and
lengthy process. Previously lawyers had to go through thousands of
paper documents but at present ESI (electronically stored information)
management system can conveniently perform the tasks.9 This
technology can be used in M&A due diligence process as well for
disclosure which can be then used in risk allocation and establish
further steps.10 A study conducted by one of the makers of AI due
diligence technology, LawGeex stated that AI can be better in finding
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errors and analysing risk in non-disclosure agreements.11 Further, it

was found in that study that it took about 92 minutes for an average
lawyer to review five agreements with 85% accuracy whereas AI
reviewed all five agreements in 23 seconds with 94% accuracy.12
Automation technologies, reflective random indexing can assist in M&A
due diligence. In reflective random indexing a system learns to deduce
on the basis of previous works.13 AI and machine learning process can
prioritise, classify, organise and identify documents that are to be
disclosed according to the business agreement with an increased
efficiency and less cost.14 Major amount of lawyer's fees is generated
due to the investment of expensive hours in document review.15
Concerns regarding AI in due diligence
There are two aspects attached to the use of AI technology in due
diligence. First, that an individual will be more credible than a machine.
Machine is created by humans so in case of error an AI system cannot
be held liable. Second important aspect to note is that a human can err
in performing tasks but a machine does what it is programmed to do, it
can carry out tasks more efficiently so chances of error due exhaustion
is very minimal. Ultimately, AI cannot in itself perform tasks in
isolation, it is made to assist human not replace them. The client
company might have an opinion or a preference regarding the lawyers
using or not using AI. Some might prefer AI equipped technology as
there is less chance of error and increased efficiency, others on the
other hand might go for the regular mechanism that does not include
AI.
Software failure and lack of proper training of AI can also lead to
missing of vital information and it should be noted that a software
being made liable for an error is highly questionable.16 Further, the
sensitive confidential information might be exposed due to the threat of
cyber attack and viruses. Furthermore, the question of attorney client
privilege might be questioned in certain jurisdiction. Firms opting for AI
technology must not be willing to invest only on AI technology but also
on appropriate human resource to train such software or else it might
backfire the purpose for which it was established. AI can certainly be
used as a tool of assistance but cannot replace lawyers.
Conclusion
AI in due diligence and law practice is a field yet to be discovered.
There can be different opinion regarding AI in legal profession that it
can be cost effective and convenient or will invite unemployment. It is
pertinent to note that AI ultimately develops from human mind so the
idea of AI replacing human is still a mystery. The technology in the
field of law aims to assist the lawyers and not replace them with robots.
In medical science, the operation, even of conducted through robotics
technology, even then the machine is operated under the supervision of
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the qualified doctor. Further, even if AI technology affects employment,

not all jobs of lawyers can be replaced in near future. Uniform
governing law might be required in future for governing AI technology.
We are still a long way from robot lawyering era. There are many
questions regarding the equal access to the essential technology
required for lawyers. The education system for a law degree has to be
uniform and technology must be taught to them to cope with the
progressive technologies.
———
† Pursuing BA LLB (Hons.), 8th semester, Institute of Law, Nirma University.
1 Intelligence, Merriam Webster Dictionary.
2
Machine Learning, Merriam Webster Dictionary.
3
Dr Michael J. Garbade, A Simple Introduction to Natural Language Processing, Becoming
Human, (13-6-2020, 10 : 02 a.m.), <https://becominghuman.ai/a-simple-introduction-to-
natural-language-processing-ea66a1747b32>.
4 Brandy Jo Lea and Prof. Kevin P. Lee, Artificial Intelligence in the Legal Profession, Campbell
Uni. J. (December 2018).
5
Thought Leadership, Artificial Intelligence and the Future for Legal Services (13-6-2020,
01 : 05 p.m.),
<https://www.cliffordchance.com/content/dam/cliffordchance/briefings/2017/11/artificial-
intelligence-and-the-future-for-legal-services.pdf> at p. 4.
6
Id.
7 Supra Note 4.
8
Kira (14-6-2020, 11 : 05 a.m.) <https://kirasystems.com/>.
9 Ben Klaber, Artificial Intelligence and Transactional Law : Automated M&A Due Diligence,
UMIACS (14-6-2020, 2 : 00 p.m.),
<http://users.umiacs.umd.edu/˜oard/desi5/additional/Klaber.pdf> p. 1.
10 Id.
11
Joe Dysart, AI Removes the Drudgery from Legal Due Diligence, ACM News (14-6-2020, 5 :
10 p.m.), <https://cacm.acm.org/news/233886-ai-removes-the-drudgery-from-legal-due-
diligence/fulltext>.
12 Id.
13 Trevor Cohen, Roger Schvaneveldt and Dominic Widdows, Reflective Random Indexing and
indirect inference : A scalable method for discovery of implicit connections, Journal of
Biomedical Informatics 43 (2010) 240-56,
<http://users.umiacs.umd.edu/˜oard/desi5/additional/Klaber.pdf>.
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14
Supra Note 9.
15 Justin Evans, Use of Artificial Intelligence During Due Diligence Creates a Global View of a
Target Company, Intellectually Jay (14-6-2020, 8 : 35 a.m.),
<https://www.intellectuallyjay.com/2018/02/use-artificial-intelligence-due-diligence-creates-
global-view-target-company/conclusion>.
16 Javier Tortuero, Artificial Intelligence and M&A Due Diligence Current Trends, NYSBA (14-6-
2020, 10 : 46 a.m.),
<https://nysba.org/NYSBA/Sections/International/Events/2017/Corporate%20Wedding%
20Bells%20Cross B p. 3.
Disclaimer: While every effort is made to avoid any mistake or omission, this casenote/ headnote/ judgment/ act/ rule/
regulation/ circular/ notification is being circulated on the condition and understanding that the publisher would not be
liable in any manner by reason of any mistake or omission or for any action taken or omitted to be taken or advice
rendered or accepted on the basis of this casenote/ headnote/ judgment/ act/ rule/ regulation/ circular/ notification. All
disputes will be subject exclusively to jurisdiction of courts, tribunals and forums at Lucknow only. The authenticity of
this text must be verified from the original source.

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SCC Online Web Edition, © 2023 EBC Publishing Pvt. Ltd.

Page 1 Tuesday, August 15, 2023

2021 SCC OnLine Blog OpEd 49

Impact of AI in Due Diligence and Law Practice

IMPACT OF AI IN DUE DILIGENCE AND LAW PRACTICE

One of the major tasks of lawyer is to review the documents, fact

errors and analysing risk in non-disclosure agreements.11 Further, it

the qualified doctor. Further, even if AI technology affects employment,

1 Intelligence, Merriam Webster Dictionary.

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