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Back door is legal here

The Bombay High Court has stalled the entry of foreign law firms--for now. But it was acting on a case 15 years old. And times have changed.

Shalini S. Dagar        Print Edition: February 7, 2010

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."

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