A bewildering array of restrictions makes it difficult for UK law firms to crack india’s lucrative legal services market, but a recently signed co-operation agreement may be a new dawn, finds Jon Robins


News that the Law Society has struck a ‘co-operation agreement’ with representative groups in India anticipating an opening-up of the profession has had City lawyers struggling to describe what has of necessity been the snail’s pace progress of legal diplomacy in one of the world’s most fiercely protectionist legal markets.



‘It is the first strand of a bridge being built over a raging torrent of misunderstandings and cultural differences. You can’t drive a vehicle over the strand of a bridge,’ comments Alex Pease, chairman of Allen & Overy’s India group. He quickly offers another image. ‘So far as the book of that liberalisation is concerned, we are at the end of the preface and yet to start the first page of the introduction.’



There have been countless false dawns over the last few years when it comes to opening up the Indian market, but things have appeared to be more positive of late, in part driven by the influence of the World Trade Organisation.



Chancery Lane signed what has been described as ‘a memorandum of understanding’ with the Society of Indian Law Firms and the Bar Association of India during talks last month of the Joint Economic Trade Committee (JETCO). This was set up by the UK and India in January 2005 as a mechanism for boosting bilateral trade and investment.



‘A thriving, independent, open, Indian legal market is in all our interests,’ said Law Society President Fiona Woolf at the time. ‘The agreement with the Society of Indian Law Firms and the Bar Association of India represents a significant step forward in our relationship with the legal profession there.’ Those two groups are both voluntary bodies; however they are considered to be influential.



Everyone on the UK JETCO team (which comprises the Law Society, Allen & Overy, Ashurst, Clifford Chance, Eversheds and Pinsent Masons) freely acknowledges just how painfully tentative the process is. ‘The people with whom we have signed this agreement are not regulatory authorities and they aren’t in a position of declaring the market open or not,’ explains Alison Hook, head of international at the Law Society. ‘But the point is that we’re engaging more fully with the groups in the profession that represent those who, perhaps, have a lot to gain but might be afraid of what the market opening might actually mean to them. We’re trying to get them to understand that it is very much in our interests for there to be a thriving independent and prosperous Indian legal sector.’



Lalit Bhasin, a past general secretary of the Bar Association of India and former president of the Society of Indian Law Firms, calls the agreement ‘a significant development’ because ‘it is the first attempt by the legal profession of the two countries to come together on a common platform to take advantage of historical ties’.



But he does not suggest that this is any kind of precursor to liberalisation. ‘It has nothing to do with the attempts on the part of foreign law firms to establish offices in India,’ he asserts. ‘That doesn’t seem to be possible, as the Indian profession takes the view that there is no level playing field.’



Mr Bhasin explains that substantial issues need be dealt with concerning restraints placed upon the profession under Indian law before they could compete with foreign firms. Most notably, the number of partners in an Indian firm cannot exceed 20 and firms can not advertise or ‘disseminate information’.



City firms might like to see themselves as evangelically spreading the good word about the benefits of globalisation, but commentators in India have likened the threat of foreign lawyers to a reincarnation of the British East India Company. To understand the concerns of the Indian profession, foreign lawyers need to be aware of its make-up.



Rajiv Luthra, managing partner of Luthra & Luthra, who chaired the Indian side of the JETCO talks, explains that less than 0.1% of India’s legal population has anything to do with commercial law and rest deal with litigation. ‘There are 800,000 lawyers in India and hardly 1,500 are business lawyers,’ he says. ‘That majority is totally against the entry of foreign lawyers into India.’



Most significantly, India’s regulatory body is categorically anti-liberalisation and appears to be unmoveable for the foreseeable future. Nor is it impressed with the idea of a ‘co-operation’ agreement.



‘It has been made clear, time and again, that any agreement or memorandum made with voluntary bodies like the Society of Indian Law Firms and the Bar Association of India aren’t binding on the legal profession, as they are not authorised to make any commitment on behalf of the legal profession,’ insists Shri Radhakrishnan, secretary of the Bar Council of India.



He takes issue with coverage in the UK press about the ‘dramatic breakthrough’ that occurred when the council was persuaded to join ‘negotiations on liberalisation’. Mr Radhakrishnan clarifies that, though the body was invited by the Ministry of Commerce and Industry to be on a committee, its sole purpose for agreeing to do so ‘was to make its stand more clearly visible against the entry of foreign lawyers in India in whatever form’.



So what could international law firms do to assure Indian lawyers that they are not after their jobs?



‘There are a whole lot of issues here,’ Mr Luthra replies. ‘One argument that we hear is, “We were ruled by the British and foreigners, and we don’t want to be ruled by them again”. I personally don’t see how they can be ruled by foreigners coming in and opening up law offices, but there is a perception.’ Another problem is that local lawyers ‘feel that these large law firms aren’t ethical and they will start playing games and bending rules’, he says.



Under the Indian Advocates Act 1961, advocates are the only people allowed to practise law in India. It used to be argued by international firms that although litigation was the monopoly of Indian advocates, other forms of legal activity were not. However, that position was challenged in 1995 by the Lawyers Collective, a Mumbai-based forum of lawyers that took legal action against foreign firms holding licences for liaison offices with the Reserve Bank of India (RBI) leading to Ashurst and US firms Chadbourne & Parke and White & Case all packing their bags. A recent decision by Linklaters to strike a referral arrangement with Thawar Thakore & Associates has again upset Indian lawyers, who see it as the latest example of foreign firms flouting the profession’s rules that ban foreign practice.



‘My personal view is that I don’t think Linklaters is incorrect or on the wrong side of the law,’ says Mr Luthra. ‘Nothing stops them under our current law from having “best friends” relationships. But the way it is being sold to the bankers and the market, and the criticism that I’m hearing, is that it is a Linklaters office and you can go there and get your job done. They might not be sharing profits and doing all the things that will put them on the wrong side of the law, but it’s the practice of law that creates the problem.’ Linklaters declined to comment.



It is ‘not about Linklaters but these little hiccups are what causes the mistrust’, Mr Luthra adds. He has written to the Law Society ‘to ask your members to refrain for the time being’ from such ventures.



There are moves to deal with the stumbling blocks that prevent the creation of the ‘level playing field’, as Indian firms put it, between them and the international firms. A Bill is currently going through the Indian parliament to introduce limited liability partnerships, which will increase the cap from 20 to 50 partners. But Alison Hook comments: ‘There will still be some way to go beyond that in terms of opening up.’



The more insurmountable hurdle will be the restrictions on advertising and publicity. Rajiv Luthra illustrates the problem by reference to a recent debate where he was asked to speak up on the issue. He was given 25 minutes for his speech, but made his point in three minutes. He simply told delegates that he had ‘a very dear friend who needs to be divorced in Kochi. Can anyone recommend a lawyer?’ Not one hand went up, he recalls. ‘I said “there are 300 leaders of our profession here, including the Chief Justice, and no one can tell me where to go. How do you expect a normal layman to do this?”’ According to Ms Hook, there are more requests for information about Indian firms at the Law Society than for any other jurisdiction ‘because there is so little information about them available’.



How do Indian lawyers respond to the charge that it is an aggressively protectionist profession? Not unreasonably, Lalit Bhasin points out that the UK profession has gone through pretty much the same process of reform; and India is simply ‘following the rules’ on advertisements, for example, that ‘we inherited from the British system’.



‘We aren’t taking an obstructionist view but a practical view,’ he says. ‘We’re not at all opposed to the entry of foreign law firms as part of the globalisation process which is going on, but first there has to be a level playing field. There is no objection in principle.’



‘If you want to annihilate the Indian profession, yes, open it up, and three months later there will be no Indian firms left,’ says Rajiv Luthra. He cites the experience of chartered accountants, which suffered when the likes of Ernst & Young and KPMG set up shop in India. ‘There were a lot of accounting practices which all got annihilated. Now it is five firms who run the roost and everyone else barely exists,’ he adds.



Meanwhile, there is sympathy for Linklaters from other big firms. Martin Harman, chairman of Pinsent Masons, says: ‘I appreciate that it ruffled a few feathers, and to that extent it isn’t to be encouraged, but equally it seems born out of a sense of frustration. We have been having these chats for over two years and we don’t seem to be making a huge amount of progress.’



Many UK firms are not too despondent about the intransigence of the Indian profession, believing instead that commerce will succeed where diplomacy has so far failed. ‘If India is looking to invest $320 billion in its infrastructure over the next five years, as we heard on the JETCO delegation, it wants a substantial part of that, maybe a third, to come from foreign investment,’ says Alan Jenkins, chairman and head of international at Eversheds. ‘Foreign investors and their banks are going to feel much more comfortable investing their money if they can be accompanied by the professional advisers who know their business. The Indian government recognises that opening up to the rest of the world and being welcoming to foreign investment requires liberalisation of services as well.’



A partner at another London firm reckons that the biggest financing deals ‘require sign-off from international law firms’. She says: ‘This is what the international financing community demands. Those firms with international experience are the necessary insurance that gives those deals the level of comfort they want. If the Indian legal fraternity opens up quickly, Indian firms will soon be regarded in a similar light.’



Allen & Overy’s Alex Pease considers that the Indian profession could be well placed to give UK and US firms a run for their money. His tongue-in-cheek message to the Indian profession is: ‘Every single day you put off liberalising your legal market, you are postponing untold wealth and success.’ The lawyer argues that ‘the centre of gravity’, as far as the common law is concerned, could shift from London to India if the profession opened up. ‘Why should a South American client instruct an English law firm at £500 an hour to do a deal which could be done in Delhi for £100 an hour to the same quality?’ he asks.



But how important is India to the global law firm? India is one of the two really major growth economies at the moment, the other being China, says Clifford Chance’s Chris Wyman. ‘It is one of the so-called BRIC [Brazil, Russia, India, China] countries, which are seen as the new economic powerhouses. It is noticeable that India is the only one of those countries where we don’t have a presence. We see it as an anomaly and… given the chance, we would want to be there pretty quickly.’



Herbert Smith regards India as ‘a very serious aspect of our international business’, according to Nimi Patel, the firm’s India partner. Herbert Smith acted for Tata Steel on its £6.2 billion acquisition of Corus, and Essar on its proposed acquisition of Hutchison Whampoa’s interest in Hutchison Essar, which she claims are ‘two of the largest-ever deals involving Indian companies’.



‘It is a vitally important market,’ agrees Martin Harman. ‘There is a government that has committed to spend $320 billion on infrastructure over the next five years, and a firm like ours specialises in infrastructure development and all the ancillary things that go with that.’ Pinsents advised Delhi International Airport Limited on the £614 million development of Delhi International Airport. It is the second such project the firm has worked on, the other being the international airport at Hyderabad.



So when might the first crack of light be seen in the opening up of India? ‘That’s a difficult question, because it moves at a very asymmetric pace,’ answers Alison Hook. ‘Sometimes it seems to be happening quickly and then it all slows down. What is significant now is that the Indian government itself appears to have grasped the nettle. I expect there to be some movement this year, where we will start to see the crystallisation of the timetable.’



City firms seemed resigned to a wait, however. Chris Wyman says gloomily: ‘We aren’t expecting any miracles.’



Jon Robins is a freelance journalist