By Dan Cooper and Helena Marttila

On 24th of August 2011, the Government of India’s Ministry of Communications & Information Technology finally issued clarification on the application of the 2011 Information Technology (Reasonable Security Practices and Procedures and Sensitive Personal Data or Information) Rules (the “Rules”). As we blogged here, much ambiguity has surrounded the interpretation and effect of the Rules, and companies with outsourcing activities in India have been concerned about the potentially wide scope of the legislation.

According to the Government clarification, the Rules apply to any company or person located in India that processes sensitive personal data (the application of the Rules to personal information more generally remains unclear). The Rules provide an exhaustive definition of “sensitive data”, which encompasses passwords, financial information, physical, physiological and mental health condition, sexual orientation, medical records and history, and biometric information.

However, the clarification further states that the obligations under Rules 5 and 6 (described below) do not apply to companies or persons that process sensitive personal data on behalf of any other company located within or outside of India, in other words, outsourcing arrangements are exempted from certain requirements under the Rules.

Rule 5 provides, among other things, that an Indian company or person that processes sensitive data must obtain the prior written consent of the “provider of information”. The Government has clarified that “provider of information” means any natural person who provides sensitive personal data to a company. Rule 5 also prohibits the Indian company or person who processes sensitive data to retain the data longer than is required for the purposes for which the information was collected or to use the information for any other purposes than for which it was collected. Further, Rule 5 requires companies to ensure that the personal data they process is accurate and to provide data subjects an option to withdraw their consent to the processing of their data.

Rule 6 restricts the disclosure of sensitive personal data to any third party unless (i) the individual whose data is being disclosed has provided his or her prior consent; (ii) the disclosure is permitted under a contract between the company and the individual; or (iii) the disclosure is necessary in order to comply with a legal obligation.

Therefore, if a company located in India or abroad outsources the processing of sensitive data to a service provider located in India, that service provider has no obligation to obtain consent from individuals before processing their data or disclosing it to third parties. On the other hand, if an Indian company provides services to and obtains sensitive data directly from individuals, it will need to obtain their prior written consent and comply with the other requirements set out in Rules 5 and 6 when handling their personal data.