In the business environment, organizations rely on third-party vendors for various services which often involve processing of personal data.
Under the recently enacted Digital Personal Data Protection Act, 2023 (“DPDP Act”), organizations can engage third-party vendors to process personal data on their behalf under a valid contract. However, the responsibility for ensuring that personal data is processed lawfully, securely, and in compliance with the law still rests with the organization. This makes vendor privacy due diligence an important compliance requirement, not just a contractual formality. Here are 7 critical questions that businesses must ask before onboarding a vendor:
1. Where is the personal data stored?
- Organizations should clearly understand where personal data is stored throughout its lifecycle. Vendors should disclose whether data is stored on cloud infrastructure, on-premises servers, mapped to specific geographic regions, in India or outside.
- Businesses should also seek clarity on backup locations, disaster recovery sites, and whether personal data is replicated across multiple jurisdictions. Understanding where data is stored helps organizations assess legal obligations, data localization requirements, and security risks.
2. Where is the personal data transferred?
- Under the DPDP Act, any personal data may be transferred outside the territory of India subject to specific requirements laid down by the Central Government. Therefore, businesses should clearly understand whether personal data is stored in India or transferred internationally.
- Organizations should assess whether transfers are restricted to approved jurisdictions, whether encryption and access control safeguards are implemented during transfer, and whether contractual arrangements adequately govern international access and processing of data.
3. What are the technological and organizational security measures that you have in place?
- Under the DPDP Act, businesses must protect personal data in their possession or control, including data processed by a vendor on its behalf, by implementing reasonable security safeguards to prevent data breaches. Vendors must have appropriate data security measures, protocols to control access to data, data leakage prevention, network security, and information security management system.
- Organizations should also assess whether the vendor has appropriate controls across the entire data lifecycle, including collection, use, storage, sharing, transfer, archival, and deletion of personal data as part of its end-to-end data processing activities.
4. Do you engage sub-processors or third parties?
- Many vendors rely on third-party service providers for hosting, analytics, cloud infrastructure, or support operations. Vendors should disclose these sub-processors, the services they perform, extent of access they have and whether data is transferred outside India.
- Organizations should also seek details regarding the specific storage locations used by such sub-processors. Further, organizations should ensure end-to-end compliance by incorporating sub-processor obligations into Data Processing Agreements.
5. What is your data retention and deletion process?
- Businesses must ensure that vendors erase personal data once it is no longer required. Organizations should ask vendors how long personal data is retained, the retention policies followed, and how data is securely deleted once the purpose of processing is completed or consent is withdrawn.
- Personal data should not be retained unless required by law. A clear deletion process helps reduce storage-related risks and demonstrates compliance with storage limitation principles.
6. How quickly will you notify us if a personal data breach occurs?
- In the event of a personal data breach, the vendor must immediately notify the business, which is then required to notify the Data Protection Board and affected individuals. In certain contractual arrangements, the vendor may also be required to give notice to the Board and affected individuals directly. Timely breach notification is critical to ensure compliance with statutory reporting obligations and to reduce legal, operational, and reputational risks.
- Vendors should clearly define breach escalation timelines, communication protocols, incident response procedures, responsibilities of regulatory reporting, investigation, containment and remedial measures.
7. Are your employees trained to handle personal data?
- Employees handling personal data should receive regular privacy and data protection training to ensure they understand their responsibilities. Organizations should assess whether vendors conduct periodic awareness programs on secure handling of personal data, access management, incident reporting, confidentiality obligations, and cybersecurity risks.
- Businesses should also verify whether role-based training is provided to employees handling sensitive or large volumes of personal data and whether vendors maintain records or certifications of such training activities. To explore our training courses, please click here.
Under the DPDP Act, companies are legally responsible for ensuring that vendors process personal data securely, lawfully, and for authorized purposes, failing which penalties of up to ₹250 crore may apply. Data Processing Agreements must set out clear vendor obligations around data retention, breach notification, and cross-border transfers. By asking the right privacy, security, and governance questions, businesses can identify compliance gaps, reduce regulatory and reputational risks, strengthen accountability, build greater trust with customers, partners, and stakeholders.
To learn more about strengthening vendor privacy compliance and implementing robust data protection practices in your organization, explore our Data Privacy Services page.
