May 2, 2008 1:15 PM

Indian Court Ponders Opening Legal Market to Foreign Firms

Posted by Richard Lloyd

The opening of the Indian legal market has been predicted for so long that it's starting to feel a little like the Red Sox's lengthy quest to win the World Series after 1918. Hope springs eternal--but sometimes the wait seems cruelly long.

A court case currently being heard in Mumbai's high court offers foreign law firms the latest tantalizing hope of getting a foot in the door of the closed-off Indian legal market. The case, which begun at the end of last year, pitches the Ministry of Justice--largely in favor of some form of liberalization--against the Lawyers Collective, an organization representing the concerns of a large chunk of India's legal community, most of whom are against any softening in stance.

At the heart of the case is an interpretation of the Indian Advocates Act 1961, which has ensured that only Indian firms can practice law in the country. The Ministry of Justice argues that this restriction applies only to local--Indian--law and that international practices such as the London elite firms should be able to practice foreign law in India.

The court is believed to be close to ruling. However, a final hearing that was scheduled for April 25 has been postponed until July 16. Whatever the result, it's likely to be appealed to the Supreme Court in New Delhi.

Although few overseas lawyers are predicting fundamental change overnight, there is some cautious optimism. "I think this will result in some sort of liberalization in the market in the next two to five years," Doug Peel, head of White & Case's India group, says. Exactly what form such a liberalization would take is unclear, but most leading international practices would like to be able to advise on New York or English law matters from downtown Mumbai or New Delhi.

"I don't think we'll see any changes this side of the next general election in India," says Ian Scott, a consultant at Ashurst. An Indian election is slated for some point before May 2009. "How it moves after that will depend on the new Government and in particular the new Minister of Justice," Scott says.

The current case is the latest twist in the long-running saga involving the Indian legal market. In the mid-1990s, White & Case was one of three foreign firms--the others being the U.K.'s Ashurst and Chadbourne & Parke--that were sued by a group of Mumbai-based lawyers who asserted that the trio, all of whom had liaison offices in the country to provide on-the-ground logistical and marketing support, were actually illegally practicing in India.

In an interim order, the Mumbai high court found in favor of the local lawyers, but in 1996 India's Supreme Court ruled that it should conduct a full hearing to look at the regime governing foreign firms. That investigation never took place. The current litigation is seen as an attempt by the Ministry of Justice to get the clarification that the Supreme Court demanded.

Of the original foreign trio, only Ashurst still has a liaison office in the country, staffed by a nonlawyer. Chadbourne pulled out after the original Mumbai ruling, while White & Case shuttered its liaison office in March 2008.

Improvements in communications mean that, even in the current regulatory climate, staying close to Indian clients doesn’t require a presence on the ground, Peel says. Until recently, he was London-based; he now heads the India group from Singapore. Like many firms, White & Case has been handling Indian corporate and project finance work from overseas, while maintaining links with a number of local practices such as Amarchand & Mangaldas & Suresh A. Shroff & Co. Other firms, such as Linklaters and Boston's Brown Rudnick, have formed very close alliances with local Indian firms to cater for the demand in legal services from India's booming economy.

All that remains to be seen is whether the current steps by the Ministry of Justice ultimately resemble the Red Sox's near miss of 1986 or their 2004 triumph.

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