Looking east: India is a very lucrative market for foreign firms. A still from the US TV soap on lawyers, The Practice

The face off continues. On November 20, the Bombay High Court postponed hearing a case about foreign law firms doing business in India to December 15. Three days later, the Confederation of Indian Industry (CII) held a closed-door meeting on the issue in Delhi, with commerce ministry officials and lawyers (both supporters and opponents of the move) in order to find a meeting ground. That didn't help, either.

The issue has been hanging fire since the mid-1990s, when foreign law firms were allowed to set up liaison offices in India but couldn't do business here. Amid allegations that they were violating this rule, the Mumbai-based Lawyers' Collective filed a writ petition in the Bombay High Court. The court directed the Reserve Bank of India to investigate whether the firms were breaching foreign exchange rules. Separately, the income tax authorities sent notices to some companies. Three firms left the country, while London-based Ashurst Morris continued with its liaison office.

The issue has been discussed at bilateral business fora between India and the United States and United Kingdom, but didn't make any progress given the lack of participation by lawyers. The simmering issue burst out again when in September the law ministry first called the lawyers opposing the move and told them to respond to a working paper on liberalising the sector by the month-end. Before that could happen, it filed an affidavit before the Bombay High Court backing the idea and citing commitments made to the World Trade Organisation (WTO) to bolster its case. The commerce ministry, however, has not made any commitment to the WTO on legal services but is in favour of a gradual opening up.

Meanwhile, foreign law firms are busy preparing to hit the ground running whenever the doors to the Rs 60 crore commercial legal services market are thrown open. With foreign investment pouring into a rapidly growing economy and Indian businesses conducting more foreign transactions, India is an extremely attractive market for overseas law firms. So they've set up India practice desks at their head offices, have been hiring Indian lawyers and law graduates and forging ties with Indian law firms.

"Our current desire is to invite an Indian law firm to join our firm and we look forward to changes in the regulatory environment which will permit this," says a spokesperson of the London-based Baker & McKenzie. It's a sentiment shared not just by several other foreign law firms but by some Indian firms as well. "I have five global firms that are ready to take a stake in my company the day the market opens up," says Hemant Batra, senior partner at the Gurgaon-based Kaden Borris Partners. Several partners of existing law firms also see the entry of foreign law firms as providing them more opportunities for upward mobility.

Foreign law firms already have an enviable client list of Indian companies. They have been advising them on, among other things, mergers and acquisitions abroad, private equity deals and global public issues. They also educate their foreign clients on Indian legal issues, referring them to Indian firms for work to be done in India.

As a result, the India practice of these firms is growing steadily. Many firms have set up formal India desks at their headquarters, the biggest being the London-based Clifford Chance and Baker & McKenzie, both of which have 180 lawyers each for India-related practice. Baker & McKenzie's India group had been around for several years but the rising India-centric business prompted the company to set up a formal India Focus Group in June. Two other firms with reasonably-sized India desks are Ashurst Morris (with 30 lawyers) and Stephenson Harwood (with 20, though there could be close to 40 lawyers working for Indian clients on particular cases). According to Worldlaw Profiles 2008, a publication on the world's law firms and legal markets, the New York-based White & Case has 10 partners and 10 associates in its India group. Between June and November, Baker & McKenzie added 40 lawyers to its India Focus Group, while Stephenson Harwood's India group has grown by 50 per cent in the last three years.

That's throwing up new employment avenues for Indian lawyers. Stephenson Harwood, for example, has 20 lawyers who were either born in India or are from Indian communities in Britain or East Africa. The company hasn't yet recruited directly from Indian law colleges (though it's open to the idea). Nor has Ashurst Morris, which prefers to hire experienced lawyers from India. However, Clifford Chance has been recruiting directly from Indian law schools. "We have found the quality of the best Indian law graduates to be comparable with the best graduates from leading law schools in the UK," says global public relations head Anne Groves.

In addition, foreign firms also have worked out associations with some Indian firms, many of which are cloaked in secrecy. Worldlaw Profiles 2008 lists some of them. In January, the London-based Linklaters and Mumbai-based Thawar Thakore & Associates entered into a mutual referral arrangement. While such arrangements are common, Worldlaw Profiles says this is the first to be publicly acknowledged. Two other firms which have formal associations with London-based firms (Kelley Drye & Warren and Kennedys, respectively) are the Mumbai-based Wakhariya & Wakhariya and the Delhi-based Tuli & Co. But the nature of the relationship is not known.

Such relationships are making Indian law firms, under pressure also because their lawyers are being poached, hot under the collar. Using these Indian associations, foreign law firms, they allege, are advising Indian and foreign clients on Indian law, which they are not supposed to. "This is surrogate practice using Indian firms," fumes a leading and influential opponent of the liberalisation of the sector. "When the sector is opened up, all they will have to do is change the name."

Several Indian law firms know that foreign lawyers will eventually be allowed to practice in India. "But first give us a level playing field; liberalise the rules for domestic law firms," says Krishna Sarma, managing partner at the Delhi-based Corporate Law Group.

The Indian Partnership Act allows only 20 partners at law firms; foreign firms have hundreds of partners. Indian law firms can't advertise or have websites, a constraint foreign firms don't face. "How can we compete with our hands tied," asks Lira Goswami, partner at Associated Law Advisers, Delhi.

The ball is now clearly in the government's court.
Courtesy: The Telegraph