Back door is legal here

Even the recession did not affect lawyers in India. Clients still have to chase them," says Bharat Vasani wryly. General Legal Counsel to Tata Sons, Vasani is not griping about the good fortune of his legal brethren. As a daily consumer of legal services, he just gets frustrated some days.

The services that Vasani and his group demand are mainly commercial law—the fine print of mergers and acquisitions, fundraising and other such transactions. In India, only a handful of lawyers do such work and an even smaller number are experts in cross-border deals. As a veteran of the Tata Group’s many global deals, Vasani is familiar with the work of both the Indian and the foreign law firms (FLFs). He is all admiration for the FLFs’ technology-based infrastructure, client support systems and their superior drafting and documentation skills, not to mention their enormous knowledge of complex, global transactions.

"When FLFs promise a document by a certain deadline, I have yet to come across an instance when they have failed to deliver, something which happens with alarming regularity with Indian law firms. They (FLFs) are pathological about meeting deadlines," says Vasani, before adding, "It is not fair to say that we want foreign investments (FDI) but not foreign law firms."

Vasani is not the only big votary of allowing foreign law firms into India. Shachindra Nath, Group Chief Operating Officer of Religare Enterprises, says the group ends up hiring foreign law firms in addition to Indian law firms, while looking at many transactions, simply because such services are not available locally. And of course, the company ends up paying the cost of two law firms acting on its behalf. This is in stark contrast to other services such as banking or auditing where local arms of foreign entities provide efficient and competitive services locally.

Foreign law firms, however, are not allowed to practice in India despite the visible advantages. Anachronistic as it may sound, but a recent Bombay High Court judgment interprets the existing law to iterate that foreign law firms are not permitted to practice in India.

However, the reality is, as Vasani says, FLFs are present in almost all big transactions in India, even if it is through their lawyers in New York, London or Singapore. "They are often writing the prospectus for fundraising in India."

Harish Salve, noted lawyer and former Solicitor General, believes that the judgment resolves issues which may not be of any real significance in the present scenario. In any case, the ruling comes on a petition filed 15 years ago. "The issues raised in the high court were on the premise that a foreign law firm would directly practice in India—which I do not think reflects the correct perspective," he says.

What brings FLFs to Indian shores and keeps them there are the rising cross-border transactions that India Inc. is involved in. In 2006, 2007 and 2008, outbound M and A activity alone of Indian firms amounted to $55 billion (Rs 2.5 lakh crore). When Bharti looks at a transnational deal with MTN, it necessarily has to go beyond Indian law firms to source the relevant expertise. White and Case, one of the firms affected by the decision, had voluntarily closed its liaison office earlier, but partner Nandan Nelivigi says: "India remains a very important market to many of our clients, and thus to our firm, and we will continue to service the legal needs of our clients in compliance with all applicable laws."

The current situation, where the ground reality is at variance with the policy, will force informal alignments. Salve is candid when he says, "for the present, foreign law firms have to first hook up with an Indian law firm that provides legal advice—or at least bills it for providing legal advice and help— and once this is done it does not matter who does how much of the work involved in structuring the transaction."

Such possibilities have led to suspicions within the legal fraternity of the recent trend of "Best Friends" relationships (see box). Participating law firms are quick to assert that these loose arrangements are not a surrogate practice of law. Suresh Talwar of Talwar, Thakore and Associates, says that their tie-up with Linklaters is very transparent and within the legal framework. "Linklaters has no financial involvement in the Indian firm." He is, however, clear that the tieup is a forerunner to bigger opportunities when the sector is liberalised and has done much to upgrade the firm’s processes.

Clearly, everybody is waiting for a new policy. The government, the key protagonist in this drama, remains impassive, barring the sharp tilt shown by it when H.R. Bhardwaj was Law Minister, in an affidavit in 2008. Current Law Minister Verappa Moily, however, is more calibrated than his predecessor.

On the judgment, he is laconic even though the court has directed the government to clarify the policy: "We are seized of the matter. We continue to work on the issue. As of now, there is no progress." He remains sympathetic but ambivalent on the issue overall. "There is genuine fear on the part of our firms. I personally feel we should not be frightened. We should build our own capacity—physical infrastructure and legal education. Our youth are quite competent," says Moily.

He also asks the rhetorical question: "Are we not losing business when our companies and banks are going overseas?" Religare's Nath agrees. "Local talent does not get exposed to the global transactions and the ILFs are not able to generate revenue and fee from their Indian clients going overseas," he adds. The upsides of liberalisation are many, including greater demand for junior lawyers, which would leave them better paid.

Part of the reason for the government's wariness comes from vociferous dissent expressed by the Bar Council of India and other sector bodies like the Society of Indian Law Firms. The main reason, earlier, was the adverse impact such a move could have on the employment prospects of roughly 1.2 million lawyers practising law in India. Fact, however, is that there is no conflict between the two. Most of the lawyers in India are litigation lawyers, i.e., lawyers who appear in court, whereas FLFs seek an advisory or non-litigious work related to commercial transactions, an underserved area in India.

The UK has been one of the most forceful proponents of the liberalisation of Indian legal services, mainly due to the surfeit of legal talent there and close similarities between English and Indian laws. And hence, comes for special attention from the opponents.

Shardul Shroff of Amarchand and Mangaldas says there are 10,000 lawyers unemployed in England, which is three times more than the entire commercial law firm employment in India. He believes that the Indian government should first address the constraints binding the Indian law firms (ILFs), before it considers opening up.

He reckons it is still a tremendously uneven field as Indian lawyers are not allowed to advertise, raise capital from institutional sources, or have more than 20 partners in a firm. "There are no rules in place for professional conduct in relation to Limited Liability Partnerships. A five-member firm cannot be compared with a 500-member firm. Today, if you take the international law firms, they are limited liability companies or LLPs. They can raise capital from the market. Companies in Australia are listed. Where is that in India? How do you expect a David to fight Goliath?" Shroff asks.

These are valid points, but these are issues which can be resolved with some serious thought. Some action is visible on the LLP front. The rest can be tackled in a gradual, phased, clear roadmap towards liberalisation. There seems to be a thaw though, in sight. From outright rejection, the Bar Council's resistance has consolidated around an even playing field.

Chairman, S.N.P. Sinha says: "We don't feel shy of give and take in this matter." Sinha refers to one of the big demands for reciprocity, whereby Indian lawyers could also practice overseas. He is hoping for a detailed dialogue in the coming months. Countries like China, Indonesia and Malaysia offer different templates for opening up. Rajiv Luthra of Luthra and Luthra, who as Chairman of UK India Joint Economic and Trade Committee (JETCO), has studied many of them, says: "Let us not be ostriches. Opening up legal services will be good for the country. The stated position of the government of India as a GATT signatory is to open up services."

Maybe the government is waiting to use legal services as a negotiating tool at the World Trade Organisation talks, or maybe this little item is not high up on its agenda. Whatever be the case, the ball is in the government's court. And indecision can sometimes be costly. Sample Singapore's aspiration to become an international arbitration centre. As long as it remained closed and insular, it marred its own chances.

So what next? The case could go to the Supreme Court, but since the matter has been referred back to the Union government, the best bet of the FLFs would be to avoid legal recourse and stick to lobbying.

Creating a Flutter

In December 2009, the Bombay High Court upheld the existing restrictions on foreign law firms.

• The Case: In the 1990s, RBI permitted three UK law firms to set up liaison offices. The Lawyers Collective challenged this in court.
• The Nub: Was RBI's permission valid? Can foreign law firms work here without being enrolled under the Advocates Act of 1961?
• The High Court rules: Under the Advocates Act, lawyers have to be enrolled with the Bar Council to practice or even give advice.
• Rejected: The argument of foreign firms that "practice of law" means only court-based legal work and not transactional or advisory work.

Best friends
Non-financial arrangements between foreign and Indian law firms are mostly for referrals. Examples:

• Talwar Thakore and Associates (TTA) tied up with Britain's Linklaters.
• Britain's Allen and Overy has a non-exclusive referral tie-up with Trilegal.
• UK's Clifford Chance allied with AZB and Partners for a non-exclusive relationship.

Advantage FLFs

• Help bring best practices and knowledge management.
• Their repository of knowledge is enormous.
• They help get more investment into the country.
• They enjoy global footprint and extensive reach.