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Step 10 - Penalties, Fines, and Risk Mitigation

Step 10: Penalties, Fines, and Risk Mitigation​

The Digital Personal Data Protection Act (DPDPA), 2023 is backed by strong enforcement measures. Non-compliance can result in hefty financial penalties and reputational harm. At the same time, the Act encourages organizations to adopt preventive practices to reduce risks.

1. Types of Violations that Attract Penalties​

The DPDPA specifies different categories of violations. Examples include:

Failure to Protect Data: Not implementing reasonable security safeguards (Rule 6).

Example

A bank suffers a breach exposing customer account details due to poor encryption.

Failure to Notify Breaches: Not informing the Board and affected individuals within 72 hours of discovering a breach (Rule 7).

Example

A pharma company delays reporting a leak of clinical trial data.

Ignoring Data Principal Rights: Refusing or failing to respond to requests for access, correction, erasure, or consent withdrawal.

Example

A social media platform continues to send targeted ads even after users withdraw consent.

Non-Compliance by Significant Data Fiduciaries: Failure to conduct audits, appoint a DPO, or perform Data Protection Impact Assessments (Rule 12).

Example

A large e-commerce platform classified as an SDF does not conduct mandatory audits.

Disregarding Orders of the Data Protection Board: Not complying with directions issued after an investigation.

2. Quantum of Penalties​

Penalties are designed to be proportionate to the seriousness of the violation.

Penalties
  • Up to ₹250 crore for failing to adopt reasonable security safeguards.
  • Up to ₹200 crore for failing to notify a data breach.
  • Up to ₹150 crore for violating the rights of Data Principals.
  • Up to ₹50 crore for non-compliance with Board directions or other procedural failures.
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Note: The exact amount will depend on factors such as the nature of the violation, number of individuals affected, whether it was repeated, and the corrective steps taken.

3. Consequences Beyond Fines​

  • Reputational Damage – Customers may lose trust if their personal data is mishandled.
  • Operational Impact – The Board can direct organizations to stop or restrict data processing.
  • Investor and Market Reaction – Publicly reported breaches or penalties may reduce investor confidence.
Example

If a crypto exchange is fined ₹150 crore for mishandling KYC data, it may face withdrawal of customers and loss of business credibility internationally.

4. How to Mitigate Risks (Practical Steps)​

Organizations can reduce their exposure by adopting the following measures:

  • Conduct Quarterly Audits – Internal and external audits to identify compliance gaps early.
  • Implement Security by Design (Preferred ZTA) – Encrypt sensitive data, apply access controls, and run penetration tests regularly.
  • Maintain Breach Response Plans – Create a step-by-step plan for investigating and reporting breaches within 72 hours.
  • Employee Training – Train staff to understand DPDPA, recognize phishing, handle personal data responsibly, and escalate incidents quickly.
  • Strong Vendor Management – Insert data protection clauses in vendor contracts and quarterly audit high-risk vendors.
  • Document Everything – Maintain detailed records of consents, data flows, retention, and breach responses. Documentation can serve as evidence of good faith efforts if investigated.

Example Scenarios​

Example

A bank may reduce penalties by showing it encrypted customer accounts but suffered a sophisticated hack despite precautions.

Example

A hospital chain can prove mitigation by demonstrating that it anonymised old medical records before a breach.

Example

A stock broker that immediately notifies both the Board and clients within 72 hours of a trading data breach may avoid higher penalties.

The penalties under DPDPA are not symbolic. They are designed to be large enough to change corporate behavior. But organizations that can show evidence of reasonable safeguards, timely reporting, and good faith compliance efforts are more likely to receive leniency.

Compliance, therefore, is not just about avoiding fines — it is about building resilience, protecting customer trust, and ensuring long-term business sustainability.