… And two steps back - Phil Taylor

Indian liberalisation has progressed quickly in most areas resulting in one of the world’s fastest growing economies, but the legal sector has not kept up. 

It all seemed so hopeful in 1991. India was liberalising and had promised to restructure its economy as part of an IMF bailout package. Since then, India’s success story has become well known. Its GDP growth peaked at nine per cent in 2007, and is averaging 7.5 per cent; the country has moved steadily up the Index of Economic Freedom ranking; several Indian corporations have become significant global businesses, with one, Tata, even taking over well-loved British motoring icon Jaguar. But while economic progress has been rapid with a clear direction, the same cannot be said for legal sector reform.

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Early in the 1990s, there was considerable excitement among large law firms who were keen to expand into new markets. Ashurst set up a liaison office in New Delhi in 1994, with the Reserve Bank of India issuing it a licence. But things soon started to go wrong for the English firm and two US pioneers, Chadbourne & Parke and White & Case. ‘The legal advice we received from a top Indian law firm at that time was that we could convert into a branch office in six months to a year,’ says Richard Gubbins, who heads Ashurst’s India practice, but is, nevertheless, based in London. ‘But no sooner had we been given a licence than we were petitioned against by a lawyers’ collective, who were trying to close down our liaison offices.’

Slow motion

A writ was filed in 1995 (Lawyers Collective v Reserve Bank of India, Chadbourne, Ashurst, White & Case, and Others). The case eventually reached the Bombay High Court, which delivered its ruling in 2009 (not a misprint – the case did indeed take 14 years to reach closure), stating that the Bank had never had the authority to give the three firms their licences, and clarifying that the practice of law includes non-litigious matters. As the legal website Bar & Bench points out, the ruling did not change anything but did effectively restate the law to foreign firms: those not enrolled under the 1961 Advocates Act may not practise law in India. The door had never really been opened.

No sooner had the High Court ruled against the authority of the Reserve Bank of India than a new petition was filed in the Chennai High Court by an individual named A K Balaji. This one names 31 global law firms and other parties including an outsourcing company (see box: Outsourcing: a new front is opened). Balaji starts by submitting that ‘the legal profession in the country is governed by the Advocates Act, 1961 and the rules framed thereunder by the Bar Council of India’ and that section 29 of the Act allows only properly registered Advocates to practise law in India.


Meanwhile, Bar Council of India chairman Gopal Subramanium has given no indication of his willingness to let foreign firms in, and the government seems more disposed to focus on vote-winning reforms to the notoriously slow court system. This has left a bad taste in the mouths of some foreign practitioners. ‘To be honest, I’m disillusioned with how long it has taken for India to liberalise its legal market,’ Gubbins says. ‘The backdrop is that there’s quite a hostile environment to foreign law firms advising their clients in India.’

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Open hostility


The loudest voices in the debate tend to belong to those with a negative view of liberalisation, such as Lalit Bhasin, head of the Society of Indian Law Firms (Silf) and founder of Bhasin & Co. Speaking to IBA Global Insight, he echoes Balaji’s stance by basing his argument on the current law. ‘We’ve taken a consistent stand keeping in view the law in India as it stands today; the law does not permit any non-Indian to practise any form of law or engage in any practice of law in India,’ he says. ‘The law can be changed by Parliament, not by lawyers talking.’

According to Balaji’s petition, foreign lawyers also break the law when they fly in to speak with their Indian clients (even on foreign law matters). He states: ‘Moreover, the advocates from various foreign law firms are often visiting India and conducting seminars in various parts of our country. They are entering in to India through visitor’s visa [sic] but the actual intention of their visit is to indirectly market and earn money out of clients from India by way of seminars.’

 


The law does not permit any non-Indian to practise any form of law or engage in any practice of law in India
Lalit Bhasin
Society of Indian Law Firms

 

International arbitration has been attacked, too. Balaji disapproves of foreign firms ‘conducting arbitration in Indian Hotels’; meanwhile a 2009 civil suit filed by the Association of Indian Lawyers seeks a perpetual injunction against the London Court of International Arbitration in India to remove the words ‘London Court’ from its name as this gives a false impression of it being a UK court of law.

Bhasin feels his argument is a strong one because it is based mainly on deference to the rule of law. But no pro-liberalisation advocate would dispute the legal status of foreign lawyers at present. Instead, they say, the debate should be focused on whether and how the law should be changed. Gubbins’ colleague Ronnie King, who heads Ashurst’s international arbitration group, points out that the 1961 Advocates Act and other related regulations seem out of date for a country that is now so internationally active. ‘The thing missing in the development process is a push by anyone in the political scene to change their statutes,’ says King. ‘There probably needs to be a legislative change in order to allow liberalisation to take place, but there doesn’t seem to be the momentum to do that.’

When presented with this rejoinder, opponents of liberalisation present some well-tested arguments. One is that Indian law firms are handicapped by strict Bar Council rules on marketing, and another that Indian partnership laws are inadequate. Jonathan Brayne, a partner of Allen & Overy in London and chairman of the firm’s India group, regards these as fair concerns but calls the arguments based on them ‘tactical’, to be differentiated from big picture philosophical and economic reasoning. He says that such technicalities could be overcome relatively easily once the key stakeholders have bought into the overall benefits of liberalisation.

Anand Prasad, co-founder of Trilegal, agrees, saying: ‘If the political will is there, these impediments can disappear in two weeks.’

A further objection is that the way of life for an honest, hard-working population will change dramatically if big firms are allowed to enter the market (just as might happen if a retail chain were allowed to set up in a small town full of family-run grocery stores). Bhasin, for example, complains that Indian accountancy firms were ‘wiped out’ by the entry of the international Big Four.

Martin Harman, a director of the UK India Business Council who has been involved in joint committee negotiations with India for several years, dismisses this objection. ‘That is entirely wrong because the majority of [Indian] lawyers earn their living from areas such as general litigation or conveyancing, into which international firms have no interest in entering,’ he says. ‘We’re happy to make that part of the negotiations, but it doesn’t suit those in the vanguard to allow that message to get through to… the lawyers. They see deregulation as a threat to their livelihood, whereas 95 per cent would not be affected and the other five per cent would find that competition would improve their practices.’

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Unheard voices


Harman’s comment brings up another, far more substantial, point in the debate. The anti-liberalisation camp says that Indian lawyers do not want change at all, and claims that groups such as Silf represent the majority in voicing this opinion. ‘My view is the predominant view,’ says Bhasin. ‘Within [Silf] there are people who have good reasons to say that we should help foreign firms come to India – we respect their views – but I’m giving as president of Silf the predominant view.’

But this claim disguises an important fact: the Indian legal profession is large, but is largely voiceless. Silf represents (as its name suggests) Indian law firms rather than individual lawyers who, according to one specialist, ‘don’t even know what is happening inside it’.

 


The Indian legal profession is large, but is largely voiceless


 

‘The people who are quietly wishing the situation to change most are the young able lawyers who are having to leave India to make careers because they don’t have connections to penetrate the partnerships of … family law firms,’ says King. ‘There is a very specific Indian interest group of young lawyers who are being kept out in the cold while the regime remains as it is at the moment.’

Many commentators agree that liberalisation is likely to benefit individual Indian lawyers greatly. Writing in Reconnecting Britain and India: ideas for an enhanced partnership (published in June 2011 by Jo Johnson, a UK Member of Parliament), Brayne draws comparisons with Japan. There, the number of registered local lawyers increased from 14,000 to 28,500 in the decade after liberalisation in 2000. The number of lawyers in Tokyo’s largest firm also increased sharply over the same period, from 50 to 480: perhaps India should expect benefits for its law firms, too. For Bhasin, this argument is nothing more than a red herring. ‘Indian lawyers have a sufficient market now,’ he argues. ‘The law students who complete their studies immediately get good opening in these quality law firms – not just in fly-by-night operators. We can match the competence of any foreign law firm; the opportunities are already here.’

Statistics seem to suggest otherwise. The country produces around 100,000 law graduates each year, while even India’s biggest law firm employs less than 500 lawyers and in-house legal departments remain relatively small.

 

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Breaking down barriers


There is a third stakeholder in the liberalisation issue: Indian companies, many of which have grown rapidly in recent years and are either operating globally or have plans to do so soon. Both sides of the debate agree that the market should decide what happens, but there is disagreement on just what that market wants.

The pro-liberalisation camp reasons that expanding Indian companies need access to high-quality legal advice from international law firms. ‘There is a degree of frustration that corporates can’t get access to the expertise they need. This is genuinely holding back progress,’ says Harman.

Prasad adds, ‘[Liberalisation] brings in competition, newer ways of thinking, newer ways of practising law, and a new culture in terms of how firms are owned and managed and deliver services to clients. Opening up the market will also enhance the quality of services that clients receive.’

 


There is a very specific Indian interest group of young lawyers who are being kept out in the cold while the regime remains as it is at the moment
Ronnie King
Ashurst

 

But Bhasin does not seem to recognise this. He feels that Indian companies can access all the advice they need from domestic firms such as his.

‘We already have excellent relationships with foreign firms, excellent mutual relationships which do not amount to any formalisation of reciprocity,’ he says. ‘This has worked to the satisfaction of us and the clients.’

For Sumesh Sawheny, a partner of Clifford Chance’s India group, this argument is a false one. ‘Then why create a regulatory barrier?’ he asks. ‘Open the market and let the clients decide. We strongly believe that deregulation will bring many benefits to Indian businesses as well as positive advantages to the profession domestically.’

It is easier to understand the position of those who are against liberalisation when it is seen against the backdrop of the Indian legal services market: an arena dominated by a few, long-established and often family-owned firms. As in any sector of any market, those in a strong position are keen to stay there.

‘A group that will lose out over time if liberalisation occurs is the oligarchic family structure which controls some of these firms,’ says King. ‘It’s really only a handful of people in a handful of firms – a model which does not exist in any other major economy of the world.’

In some ways, this discussion of Indian firms’ abilities is irrelevant. Most foreign lawyers would not deny that Indian firms can provide high-quality advice, and stress that they do not seek to compete directly by practising Indian law. They say they are pressing for an opening of the market in order to offer their clients lower cost foreign-law advice on their doorsteps.

Bhasin dismisses this as ‘absurd’, suggesting that firms that are pushing for Indian liberalisation should instead pursue ‘a better relationship’ and ‘need to have a better understanding and coordination without trying to uproot anyone’.

‘We have respect for the UK system, and have learnt from them, but this approach doesn’t fit in anywhere,’ he states. ‘We don’t want the East India Company to come back this century through another route.’

Many of the obstacles in the way of liberalisation are very real (although more than surmountable given sufficient resources and political will). However, it is clear that the debate involves emotion as well as logic. Faced with some deeply-held opinions, the pro-liberalisation camp must tread carefully, bearing in mind India’s history, if the dream of an open market is ever to become a reality.

 

Outsourcing: a new front is opened

For many, India is synonymous with outsourcing. A country with a population of over 1 billion and a large, well-educated workforce with good English language skills is well-placed to serve the needs of multinational companies wanting to save money. The newest arrivals in the sector are legal process outsourcing (LPO) companies, which began by servicing in-house legal departments. ‘Companies are not so willing to pay fees for work that need not be done by qualified lawyers in the first place,’ says Ganesh Natarajan, chief executive and co-founder of Mindcrest, a Chicago-headquartered legal services company with operations in several Indian cities. ‘They have outsourced significant pieces of other functions, so now it’s the turn of the legal departments.’

Law firms’ historic antipathy toward outsourcing began to change in late 2008 when the sudden economic downturn caused clients to increase their demands for lower legal costs. LPO companies can certainly provide them a useful service as they are particularly experienced in carrying out volume work. Mindcrest, for example, is often called on to review loan documentation for legal completeness, look through contracts as part of a due diligence exercise, or carry out document reviews in the litigation context.

There is no shortage of staff for LPO companies (see the statistics in the main article), which leaves them with a luxury of numbers; Natarajan says he need only shortlist between 10 and 15 per cent of all applicants in order to find sufficiently talented individuals. He sees the LPO industry as providing a new career option to those graduates who are unable to break into the tight circles of traditional Indian firms. ‘With us, they have a career in the legal business, but not as a lawyer,’ he says.

The expansion of the LPO market serving Western firms is also leading to an increased demand for Western legal education. Nicole Shroff, admissions counsellor at St Francis School of Law (an online law school which allows overseas students to earn a JD and sit for the California Bar), says the college has seen ‘a huge uptick’ in the number of Indian applicants it receives. ‘As the LPO market has increased, the need to educate LPO attorneys has also increased because the clients of LPO firms want attorneys who are subject to the ethical standards concomitant with being admitted to a US Bar,’ she says.

Even outsourcing companies have not found themselves immune from the ire of opponents of liberalisation. Integreon, which has operations in Mumbai and New Delhi, was also named in A K Balaji’s 2010 writ, which states:

‘[S]ome of the international law firms has their office in India and practices Indian law by calling themselves as LPO. They are running a law firm in India without obtaining any prior permission from Indian government and the concern authorities … This is complete violation of our country’s… laws… rules & regulations… This kind of activities of foreign law firms have to be found and blacklisted.’ [sic]

This vehement, if rather inaccurate, attack should perhaps not unduly worry outsourcing providers. Sources with knowledge of the lawsuit say that Balaji was motivated by a desire to keep the legal liberalisation issue bogged down in the courts. After the Bombay High Court ruling in Lawyers Collective v Reserve Bank of India and Others, some opponents of liberalisation sensed that the discussion could quickly become a political one that could be settled during the courts of international trade negotiations. Reasoning that nothing could be done if the matter was before the courts (India takes sub judice very seriously), the 2010 writ was filed to move the debate back out of the political arena.

It would seem politically unwise for the government to pursue an industry that is creating a significant number of jobs in India, and analysts think it is very unlikely that the LPO industry will be forced to shut down as a result of the present lawsuit. The government will also be considering the effect that the ongoing debate is having on India’s reputation; but whether it will be strong enough ever to push through the necessary legislative changes in the face of such vehement opposition remains to be seen.
 

 

Best friends… for a while

Seeking ways of capitalising on the potential of the Indian market, many global law firms have chosen to form so-called best-friend alliances with local firms. Non-exclusive relationships concluded over the past few years include Allen & Overy and Trilegal, Clifford Chance and AZB Partners, Clyde & Co and Clasis Law, and more recently Ashurst and the newly-formed Indian Law Partners.

Some of these friendships have thrived, while others have cooled off. To take one example, Clifford Chance abandoned its practically exclusive arrangement with AZB in January 2011. According to Clifford Chance partner Sumesh Sawheny, the uncertainty over India’s stance toward foreign firms played some part in the decision. ‘When we entered into the relationship there were certain expectations that India would liberalise in 18 months to two years, and therefore we’d be able to transport the best friend arrangement into something more, in one way or the other,’ he says. ‘This sort of arrangement can only have a limited shelf life. When it was becoming apparent that liberalisation was not likely to happen very soon, we both felt it would be better for our firms as well as for our clients [to] loosen the ties of the relationship.’

Clifford Chance’s new strategy is to operate independently and invest in growing its India expertise outside of the country. The firm now employs more than 40 Indian lawyers worldwide.

By contrast, in February 2011 Allen & Overy and Trilegal announced that their relationship would be continuing as a permanent one. A&O partner Jonathan Brayne says that the mutually beneficial arrangement was never made through a desire to get referrals from Trilegal, but instead to find a way of providing clients with ‘the same kind of integrated service experience they get from A&O’s offices in, say, Germany or New York.’

Clyde & Co, meanwhile, has had an interesting experience. Its original best-friend arrangement was formed with ALMT Legal in 2009. Five partners of ALMT left in April 2011 to form their own firm (along with a Clyde & Co partner), ending the arrangement. Not to be deterred, Clyde then made friends with the new firm, Clasis Law, only to lose a partner to the start-up a few months later.

 

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Phil Taylor is a freelance writer and editor. He can be contacted at phil@phiine.com

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