Tides of change

India is often seen as a closed market guarded by a deeply protectionist government.

But as Anne Mizzi reports, the old attitudes are gradually being washed away

India's lawyers have earned an international reputation for riots and strikes that would make even Arthur Scargill blush.

Who could forget the image of protesting lawyers in full court dress breaking through police barricades before being brought down by tear gas in 1999?

More recently, the Indian national press reported that police attacked lawyers at a bar association meeting in a court in Uttar Pradesh.

But lawyers close to the market say things are changing - albeit slowly.

One thorny issue for the legal services industry has been the ban on establishing foreign offices in India.

The Indian bar has resolutely opposed lifting practice restrictions in the 1961 Advocates Act.

But there is hope of change.

Despite resistance from more conservative factions led by the old school commercial firms and litigators, a judicial reform bill proposing amendments to the 1961 Act was introduced to the Indian parliament in May this year.

If it is passed unanimously, foreigners will be allowed to practise as consultants if they pass a test.

Because of the restrictions, only one UK law firm maintains a base in India.

Ashurst Morris Crisp, which is embroiled in an on-going and long-term legal action against it and two US law firms over their presence in the country, has a New Delhi liaison office.

It must renew its licence each year and is prevented from practising law there.

Its case remains pending in the Indian courts.

The Indian bar is notoriously difficult.

A lot of firms do not publicise their Indian practice because they know how touchy it is, some working from the anonymity of hotel rooms.

Others have opted instead for joint ventures with locals to get around professional restrictions.

City firm Kennedys developed a novel way of doing so, setting up Kennedys Risk Management Company to operate alongside an Indian law firm run by former Kennedys partner Neeraj Tuli.

The two are located on the same floor of Delhi's prestigious DLF building but the Kennedys company does not provide legal services; rather it provides risk management services to the same clients as Mr Tuli.

But fortunately for the foreigners, there is another option.

Most are resting their hopes on World Trade Organisation talks.

Australia has taken a robust approach in the current round of talks and has tabled a proposal to allow foreign law firms to practise their own domestic law and international law, and become partners with Indian lawyers.

The Australian proposals would not give foreign lawyers automatic reciprocal rights of audience.

One lawyer close to the talks says: 'There is a lot of horse trading going on.

The UK doesn't have a right to put anything through because everything goes through the EU.

Now we are moving into a bilateral phase of discussion between the countries, so the UK may be able to negotiate a similar package through the Lord Chancellor's Department.'

The problem for English and Welsh lawyers is that firms in less expansionist member states are not as concerned about the issue and without their backing other issues will get priority.

The Law Society has launched a consultation process and plans to put pressure on India to remove the restrictions in the new year.

'We are consulting a number of large English and Welsh firms who have interests in India and are working out our strategic plan,' says Hugh McDermott, the Society's international policy executive for India, Asia and the Pacific.

'Until now, there hasn't been anybody in my role to target the country full-time.

India is starting to lag behind Asia.

Firms have spent quite a lot of money there over the years and have been frustrated as India has floundered about.

A lot of investment that might have gone into India has been redirected because of this.

Understandably, the government doesn't want to antagonise lawyers, but they have got to deal with services.'

The western liberal view is that India is a captive market with a deeply ingrained protectionist streak that is slow to change.

'Many of them know it is going to happen, but why should they encourage people to take bread out of their mouths?' reasons one UK partner.

Indian lawyers opposing change are worried that without protection, well-resourced UK and US aggressors will steal their livelihood and talent.

There are signs of a shift in attitude, with the consensus that globalisation is a reality and liberalisation an advantage.

Instead of shaking their fists at the coming waves of foreign lawyers, many firms are forging links with their common-law cousins.

Many young commercial lawyers back liberalisation, and Indian lawyers doing solicitor work have established their own Indian Law Association to distance themselves from barrister types.

This is seen as a positive move by reformists.

The market is seen by some as similar to Spain or Italy a decade ago, with young lawyers forming breakaway commercial practices to modernise and ingratiate themselves with foreign law firms.

Vijay Goel, London-based resident partner at Indian firm Singhania & Co, sees the benefits of a competitive market.

'I don't know why they are so afraid of being exposed to foreign law firms.

The same people continue to block reforms, but now that people see the benefits of reform, more and more of them are supportive,' he says.

'Initially, Indian firms were not organised and the market is not mature.

There are a lot of very small firms and chambers-style practices.'

Partnership reform proposals could see the 20-partner cap on Indian partnerships raised to 50.

But change will take time, in the Indian way.

Economic reforms started in 1991 have made some progress but the speed of privatisation has disappointed many foreigners.

Potential growth areas include IT, corporate, and oil and gas.

India has a huge power requirement but plans for huge power stations have stalled over finance because of the dollar/rupee exchange rate.

And Enron's demise has hit the Indian power sector hard.

Capital markets are not faring much better, although Linklaters has just advised Standard Chartered Bank as lead manager of the issue by Indian power supplier BSES of $120 million (80 million) credit-enhanced convertible bonds, the first equity-linked offering from India in almost two years.

'In India, a lot of practice areas have come to a grinding halt.

Because the market is down, nobody is keen on pushing,' says Nikhil Metha, who headed Linklaters' India practice until May this year and is now a corporate tax partner in the London office of US firm Cleary Gottlieb Steen & Hamilton.

Lynne McCaw, head of City firm Denton Wilde Sapte's India practice, points out that the country has the advantage of a stable, predominantly agrarian economy.

She contrasts this with the more volatile manufacturing-based Asian economies.

But, although she describes the Indian courts as 'very good', she admits: 'Everything takes a long time in India.'

Despite drawbacks, India is widely accepted to be a promising emerging market.

Its population is more than a billion, overheads are low, and it is a gateway to Asia.

Tony Khindria, partner in the London office of consultants Lexindia and former head of Indian legal affairs at communications firm Alcatel, says there is potential for international legal practices.

'India has a very large, well-educated work force.

Vast numbers of people speak English and labour rates are very low,' he says.

'Everyone has been thinking for years there is going to be a critical level of development and it's going to take off.

That hasn't happened yet.'

Traditionally, much of the investment was from UK companies in India.

But now an increasing trend is for business to come the other way.

'Because of the English language, it's a bit of a soft landing for Indian investors,' says Steven Metti of Invest UK, which promotes the UK abroad.

While the battle to achieve reciprocity in practice rights goes on, and, UK-based Fairmays Solicitors (part of the Merricks LLP) has concentrated over the past seven to eight years in developing its services for the Indian companies which have made substantial investments into the UK and other EU member states.

Dina Dattani, a Fairmays solicitor and consultant and member of the Law Society's India task force, says: 'With the US economy slowdown and the advantage of being able to access the financial markets in London and Europe, a large number of Indian corporates have set up offices in the UK as their first point of entry into the EU markets.

'Several of these have raised capital in both the the London Stock Exchange by way of global depository receipts [which allow domestic shares to be sold worldwide through bank branches] as well as in other exchanges such as Luxembourg.'

Fairmays now acts for some of the large Indian companies - from various sectors, including telecommunications, IT, manufacturing, banking, insurance and power - which have been investing substantial sums of money into the UK and other European countries.

The firm, which claims that 40% of its clientele is Indian-based, recently held a Diwali party for clients in recognition of its burgeoning Indian practice area.

Mr Goel agrees.

He says that when Singhania opened in London 12 years ago, its clients were mainly UK investors.

Now he says nearly 40% of work comes from Indian businesses coming to the UK.

As a result of this change, Lexindia is now hoping to recruit English-qualified lawyers in London.

'We think that's going to be a lucrative market,' says Mr Khindria.

The firm is also investing in a New York office.

Although the Indian legal system is based on the English, cultural differences make the business environment a potential minefield.

Indians are known for being shrewd at business, but they avoid borrowing money and saying 'no' to requests.

In negotiations, Indian teams will defer to their boss and negotiators will not respond well to an aggressive stance.

Backing down is seen as losing face.

And if cultural differences, local opposition, cumbersome process and a slow economy were not enough, City lawyers in India need to be aware of possible tax pitfalls.

If a firm works in India for more than 90 days each 12 months, it is slammed with a hefty tax bill.

Last year, Clifford Chance and Linklaters lost a case brought against them by the Indian tax authorities under these provisions.

Clifford Chance has appealed to the Indian high court to allow the case to return to the income tax tribunal for a further finding of fact.

The firm insists it proved the work was not carried out in India.

The tribunal had decided that foreign law firms are only taxable on earnings for work done in India.

But it is presumed that work for Indian clients or on Indian projects is carried out in India.

As the firms were unable to rebut this presumption, they had to pay Indian tax on income generated by their Indian practice group.

Ms McCaw says it is essential to do your homework.

'The law is pretty vague,' she admits.

'But we haven't found it a major stumbling block because we were aware of the pitfalls.

It's just one of those things that India has got to learn: you can't expect support and investment if you treat people that way.'

So while the obstacles remain, law firms continue to fly in lawyers when needed from London, Hong Kong or Singapore.

London is a popular base and lawyers involved in India get used to regular flying.

'The Indian people who count in business still look to London,' points out Ms McCaw: 'The days of the Raj are over but London is still at the centre of things.'

So while lawyers continue to jet back and forth to India, like the mighty Ganges, the Indian market flows forward slowly.

Anne Mizzi is a freelance journalist