Making inroads into India

The relative stability of India has made it an attractive proposition for firms looking to do business there, writes Leo Schulz. Leo Schulz is a freelance journalist. In India, a deeply and intensely politicised country, small groups can hold up progress for long periods and the whole country may have to wait while a few individuals express their opinions.

Successive governments have started, stopped, sped up and slowed down the process of economic liberalisation.

The now famous $2.8bn Enron Dhabol power project in Maharashtra (the province of which Bombay is the capital), was given the go-ahead by the Congress Party, promptly cancelled when the BNP won the provincial elections, and finally revived under stricter conditions, following no fewer than 20 law suits.

But it is not just litigation that is taxing the lawyers there. Western lawyers wishing to practise in India, mainly to take advantage of the increasing flows of inward investment – currently running at $2bn a year but expected to rise above $10bn – have found themselves embroiled in a nightmarish tangle of political pressures and legal and regulatory restrictions.

Having established offices in Delhi and Bombay under licences provided by the Reserve Bank of India, three western firms, White & Case, Chadbourne & Parke and Ashurst Morris Crisp, are now being sued by the Bombay Lawyers’ Collective, which claims that their licences are invalid and that, if they are valid, their terms were breached. In particular, the suit alleges that they were “practising law” without being registered with the Indian Bar, as required under the Advocates Act 1961.

Kumar Shankardass, a senior advocate in Delhi and a past president of the International Bar Association, says: “The licences they obtained are meant for industrial and commercial companies which want to establish liaison offices. Liaison means liaison, but what the firms really wanted were branch offices.”

All three firms insist their activities were legal and within the scope of their licences. All three, however, have followed advice to scale down their activities within India and to confine themselves strictly to “liaison”.

White & Case and Chadbourne & Parke, although keeping their offices open, have withdrawn their qualified staff, while Ashursts maintains only one assistant in Delhi.

As one observer says, White & Case at one time was keeping 20 lawyers busy in India, and this, perhaps understandably, ruffled feathers.

The situation went from bad to worse when the Bombay High Court, in an indicative, non-binding judgment given before sending the case to the Supreme Court in Delhi, came down on the side of the plaintiffs, declaring that under the 1961 Act anyone “practising law” in India had to be a member of the Indian Bar. “The practice of law under the Advocates Act means advocacy in the courts,” says a UK lawyer who has followed the case in detail. “The Bombay High Court took it to mean advice on all aspects of law in India. But lots of people advise on law in India – accountants on tax law, architects and surveyors on planning law, for example.”

Although Shankardass points out that he is personally of the “liberal school” and would like to see foreign lawyers practising freely in India, he feels that the suit uncovers legitimate problems which need to be resolved.

He says: “I agree that the act only relates to lawyers who appear in court. But if foreign lawyers come to India to act as advisers, the question arises, how are they to be regulated, who will discipline them and how do we go after them?”

The case has now been referred back from the Supreme Court to the High Court in Bombay, where it awaits a definitive judgment.

Political change has also meant that the central government will no longer provide “fast-track” approval for infrastructure projects, nor will it give financial guarantees. However, although they may have been stung, and may be inclined to tread more carefully in future, UK and US lawyers remain largely enthusiastic about the potential of India.

“There’s a great deal going on,” says Andrew Thomas, an associate at Chadbourne & Parke in London.

“It went into the doldrums after Dhabol, and the loss of the fast track has been a problem. Instead of central government guarantees, power boards are having to pay funds into escrow accounts and it is now the small-to-medium-sized projects which are going to be successful. But since the currency problems in South East Asia, India is seen as being much more stable, and there has been a huge rise in activity.”

But Ashursts partner Ian Scott agrees: “The turmoil in the rest of Asia left India unscathed, so that it is now seen as a safer, more stable market.”

Raj Pande, a partner at White & Case who handles Indian assignments from Singapore, is pragmatic about the withdrawal of government guarantees.

He believes that the decision was financial rather than political, pointing out that the original announcement was made two years ago. He says: “There has been a lot of clamour about guarantees, but you can see by the government balance sheet that they couldn’t do it.”

Growth in the Indian economy is also bringing work to Indian law firms in London. “There has been a very healthy pick-up,” says Shalini Agarwal, a London partner in Singhania, one of the larger Indian law firms. “There is certainly a lot of business. A lot of UK companies are interested in India, either for direct investment or in joint ventures.”

In common with most commentators, Agarwal believes the process of economic liberalisation will continue. “There have been a few hiccups, but it is nothing major. It is very unlikely that the reforms will be reversed.”

“The reforms are moving forward,” adds Pande, “albeit slowly.”

As the process of wider economic liberalisation continues, most observers feel that the way will open for foreign lawyers. “Clearly, when a company comes to India with a large investment,” says Shankardass, “it wants to talk to its own lawyers.”

“It will come in due course,” agrees Agarwal. “There will be delays and bottlenecks, but as more companies come, they will demand access to their lawyers.”