Artificial Intelligence (AI) is reshaping contemporary library automation and management by transforming how libraries organise resources, retrieve information, support users, and manage institutional collections. This paper examines the integration of AI technologies, including machine learning, natural language processing, automation, predictive analytics, and AI-enabled user support systems, within modern library management systems. It adopts a doctrinal and analytical legal approach to assess the operational benefits and regulatory risks of AI-driven library services, particularly in relation to data protection, copyright compliance, algorithmic accountability, and user privacy. The paper finds that AI can substantially improve cataloguing, semantic search, multilingual access, digital archiving, recommendation services, and resource allocation, thereby reduce manual workload and enhance accessibility for diverse users. However, these advantages are accompanied by significant legal and ethical concerns, especially where libraries process user search histories, borrowing patterns, reading preferences, and behavioural data through automated or predictive systems. The study argues that such practices must be evaluated under the Digital Personal Data Protection Act, 2023, read with the Digital Personal Data Protection Rules, 2025, and within the broader policy framework of responsible AI governance emerging in India. The paper recommends that libraries adopt privacy-by-design systems, transparent consent mechanisms, human oversight, copyright-compliant digitisation practices, and safeguards against algorithmic bias. It concludes that AI should not be treated merely as a tool for automation, but as a regulated institutional technology capable of strengthening libraries as intelligent, inclusive, and legally accountable knowledge infrastructures