India: Open for business?

August 31, 2017

After much debate and anticipation, the liberalization of the legal sector now seems imminent.
Gautam Kagalwala speaks to lawyers about the arrival of foreign firms and other key
developments affecting the state of play in Indias legal market

T
he legal community is abuzz about the long-awaited arrival of foreign law firms in
India with Commerce Secretary Rita Teaotia conveying to law firms behind closed
doors that it was a top priority for Prime Minister Narendra Modi. Several lawyers
identified this development as a challenge for the legal sector when we queried them about the
areas of concern. The entry of foreign law firms is seen by many to be the biggest threat to the
existing law firms who have miles to go before catching up with the quality and delivery of the
better foreign law firms, says Srinivas Kotni, the managing partner of LEXport. Kotni blamed
the inadequacy of the legal education system for producing law graduates who are not able to
match the quality of their foreign counterparts. Optimists say the entry of law firms from around
the world would bring healthy competition and greater efficiency within the profession.

At the time of writing this article, the government was considering liberalizing the legal sector in
a phased manner with foreign firms allowed to set up in special economic zones such as the
Gujarat Financial Tech City. Shivpriya Nanda, joint managing partner at J Sagar Associates,
supports a phased opening of the sector. So far, many foreign law firms have been servicing
their India-based clients from other locations. Their arrival could be both a threat and a fantastic
opportunity for Indian firms. It will depend on how nimble the Indian law firms are in
restructuring their governance and strategy to deal with this issue.

Jaya Bhatnagar, the founder of Sieben IP, says foreign firms possess processes and systems such
as risk management systems which would make their journey to India expensive if they brought
their operating protocols here. The cost of upholding such a standard in India would result in
them charging much higher fees than expected. Moreover, they would have to sustain heavy
losses for a duration that may range from three to five years.

Insolvency and Bankruptcy Code

India has a low rank of 130 out of 190 countries on the World Banks 2017 Doing Business
index, which the government has expressed determination to improve. The World Bank has
similarly given India a low rank of 136 in the area of resolving insolvencies, and the passage of
the Insolvency and Bankruptcy Code, 2016 (IBC), is expected to improve this.

The introduction of the code and amendment to the Companies Act has led to formulation of
the National Company Law Tribunal (NCLT), which has merged various jurisdictions including
the erstwhile CLB [Company Law Board], BIFR [Board for Industrial and Financial
Reconstruction], AIFR [Appellate Authority for Industrial and Financial Reconstruction] and
company court of high courts, in the matters of mergers, demergers, amalgamations, revival,
restructuring, winding up and reduction of capital, says Ranjana Roy Gawai, managing partner
at RRG & Associates.

The code gives financial creditors the ability to assess whether the corporate debtors business is
suitable for revival or liquidation. Creditors are able to access the insolvency resolution process
via the NCLT, which will appoint an insolvency professional to operate the debtors business.
The IBC replaced a fragmented legal and institutional framework that had been delivering poor
outcomes for years for creditors and distressed businesses, says Rupin Pawha, managing
partner at Juris Legal. The IBC offers a time-bound resolution process aimed at maximizing the
value of a distressed business. This is expected to benefit not just the creditor and debtor
companies, but also the overall economy because capital and productive resources will get
redeployed relatively quickly.

The establishment of the NCLT is expected to reduce the load on the debt recovery tribunals,
which were reported to be handling over 95,000 cases as of October 2016. The NCLT in August
passed its first insolvency resolution order under the IBC, for Synergies-Dooray Automotive, in
response to a claim by asset reconstruction companies and other creditors. As per the resolution
plan, the company would be merged with its creditor Synergies Casting. The order shows that
the IBC is about reviving companies, not merely closing them.

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