Article Western Law

NORTHWESTERN UNIVERSITY SCHOOL OF LAW
PUBLIC LAW AND LEGAL THEORY SERIES NO. 1149
More than Best Friends: Expansion

of Global Law Firms into the
Indian Legal Market
31 Northwestern Journal of International
Law & Business 195 (2011)
Chris Vena
Northwestern University School of Law
Electronic copy available at: http://ssrn.com/abstract=1682638

More than Best Friends: Expansion of
Global Law Firms into the Indian Legal
Market
Chris Vena'
I. INTRODUCTION
Over the past half century, there has been an accelerating trend
towards liberalization in the legal services industry. International free trade
agreements have sought to promote open markets for legal services.' The
United States, United Kingdom, many European countries, Australia, Japan,
Russia, China, and Singapore have all opened their legal markets to foreign
law firms.^ India is something of an anomaly in this regard. Although it
has one of the world's largest economies and has benefited greatly from
* J.D. Candidate, 2011, Northwestern University School of Law. The author would like to
acknowledge Professor Jayanth Krishnan of Indiana University-Bloomington Maurer School
of Law for his ground-breaking work on this topic. Professor Karl Lutz of Northwestern
University School of Law for his guidance, and Siddharth Prasad LL.M., 2010,
Northwestern University School of Law and Karan Kalra, LL.M., 2010, Northwestern
University School of Law for their insights into the Indian legal market. He would also like
to thank the Editors for all of their hard work and his Tiends and family for their love and
support.
' See Christopher Whelan & Doreen McBamet, Lawyers in the Market: Delivering Legal
Services in Europe, 19 J.L. SOC'Y 49, 49-50 (1992); Orlando Flores, Note, Prospects for
Liberalizing the Regulation of Foreign Lawyers under GATS and NAFTA, 5 MINN. J.
GLOBAL TRADE 159, 178 (1996); Jumoke Akinjide, Globalisation of Legal Services - Fears
of African Countries 7 (^July 22, 2007) (tmpublished manuscript), available at http://
meetings.abanet.org/webupload/cormnupload/IC805000/sitesofinterest_files/Liberalization_
of_legal_services.doc.
^ Whelan & McBamet, supra note 1, at 49-50; Richard Lloyd, Firms Hungry for More
Lawyers in Russia, AM. LAW., Jan. 7, 2008, http://www.law.com/jsp/law/intemational/
LawArticleIntl.jsp?id=900005559418; Park Si-soo, Market Liberalization Needed for Local
Legal Service, KOR. TIMES, Sept. 24, 2009, http://www.koreatimes.co.kr/www/news/
include/print.asp?newsIdx=52406; John Corcoran, President, Law Council of Austl.,
Address at the Bond University 20* Anniversary Symposium: Law: A Global Practice -
Perspectives on the Internationalisation of Legal Services Markets 5-7 (June 16, 2009),
http://www.lawcouncil.asn.au/shadomx/apps/fms/fmsdownload.cfm7file uuid=065AE984-
lE4F-17FA-D2D7-678F901BAFF4&siteName=lca. Brazil allows foreign firms to open
offices but prohibits them from practicing local law. Don't Crack the Nut: Brazil's Closed
Legal Market Benefits Everyone, IFLRIOOO, May 28, 2008, http://www.ifir 1000.
com/Article/1938104/Dont-crack-the-nut-Brazils-closed-legal-market-benefits-everyone.
html. Korea is currently undergoing a phased opening to be completed in 2016. Park, supra.
195
Electronic copy available at: http://ssrn.com/abstract=1682638

Northwestern Journal of
International Law & Business 31:195 (2011 )
liberalization in many industries, India's legal industry remains closed.'
Competition for foreign capital with other developing nations, particularly
China, makes this an issue of paramount importance for India's
development.
This article will examine India's ban on the entry of foreign law firms
into its legal market and assess the implications of this policy on Indian
firms' ability to attract foreign direct investment (FDI). It will then
examine strategies that foreign firms currently use to participate in the
Indian market and their costs and benefits for the development of India's
legal and governance infrastructure. Finally, it will examin proposals for
liberalizing the market in light of their potential effects on India's ability to
attract foreign direct investment.
II. BACKGROUND ON INDIAN BAN OF FOREIGN FIRMS
A. The Lawyers Collective Decisions

In the early 1990s, India liberalized its economic policy, and foreign
direct investment began to flow into India."* Consequently, foreign law
firms began looking for ways to enter the market in order to better advise
their globalizing clients and to compete for a growling market of new Indian
clients.^ The Reserve Bank of India (RBI) granted limited "liaison
licenses" to Chadboume & Parke, White & Case, and Ashurst Morris
Crisp. ^ The 1961 Advocates Act requires that a practicing advocate be a
citizen of India except that "a national of any other country may be
admitted as an advocate on a State roll, if citizens of India, duly qualified,
are permitted to practise law in that other country."^ In keeping with this
restriction, the licenses granted by the RBI limited the foreign firms'
activities to those that did not amount to the practice of law. As suggested
by the "liaison" moniker, these activities included enhancing familiarity
with Indian markets, interfacing with Indian businesses and the Indian
government, and exploring possible cooperative initiatives with Indian
entities.^
In 1995, a public interest organization known as the Lawyers
Collective brought suit against the three foreign law firms under the
^ Jayanth K. Krishnan, Globetrotting Law Firms, 23 GEO. J. LEGAL ETHICS 57, 58-59
(2010). See Shishir Sharma, Issues Relevant for Foreign Companies Doing Business in
India, in DOING BUSINESS IN INDIA: CRITICAL LEGAL ISSUES FOR U.S. COMPANIES 273, 275
(Practicing Law Inst. ed., 2007).
"* See Sharma, supra note 3, at 275.
^ See Krishnan, supra note 3, at 58.
Ud
' The Advocates Act, No. 25 of 1961, 24(a), INDIA CODE (2010), available at
http://indiacode.nic.in.
See Krishnan, supra note 3, at 66.
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More than Best Friends
31:195(2011)
Advocates Act in the Bombay High Court.' They charged that White &
Case and Chadboume had brought in foreign lawyers who were working on
transactions, essentially using their liaison offices as fronts for full-fiedged
legal practices.'" One of the respondent firms admitted that it had been
using its liaison office for "drafting documents, reviewing and providing
comments on documents, conducting negotiations and advising clients on
intemational standards and customary practice relating to clients'
transactions.""
In its affidavit, The Bar Council of India unsuccessfully argued that
"practicing law" for purposes of the Advocates Act meant only practicing
Indian law and that foreign lawyers should be allowed to advise on and
draft documents govemed by intemational and foreign law.'^ With no
controlling authority on point, the court analogized to In re Roel, a case
decided in the New York State Court of Appeals. In that case, judgment
was upheld against a lawyer accused of violating New York criminal
prohibitions on practicing law without a license by giving advice and
drafting documents regarding matters of Mexican law.'^ The Bombay High
Court followed the New York court, reasoning that the purpose of a
licensing regime is to protect members of the lay public when they seek
legal advice and services, whether that advice or service implicates foreign,
intemational, or domestic law.'"* The court held that "rendering legal
assistance and/or... executing documents, negotiations and settlement of
documents would certainly amount to practice of law" and ordered the RBI
' Lawyers Collective v. Bar Council of India, Writ Petition No. 1526 of 1995,
MANU/MH/0846/1995 (Bombay H.C. Oct. 9, 1995) (Manupatra). The case was originally
heard in the Bombay High Court, which is primarily an appellate court, because India's High
Courts have original jurisdiction in matters where a petitioner is claiming that a statute has
been a violated. Krishnan, supra note 3, at 68 n.6O. For an overview of the Indian Judiciary,
see Indian Judiciary, INDIAN COURTS, http://www.indiancourts.nic.in (follow "Indian
Judiciary" hyperlink) (last visited Dec. 2, 2010) and COURT WEBSITES, http://www.
indiancourts.nic.in/sitesmain.htm (last visited Dec. 2, 2010).
'" Krishnan, supra note 3, at 68.
" Lawyers Collective, MANU/MH/0846/1995, H 3, at 9.
'^ Rajiv K. Luthra, Opening Up of the Indian Legal Market, Address at the 5th Annual
ITech Law Conference 45 (Feb. 20, 2009), available at http://www.luthra.com/Admin/pre
sentations/Images/ITech%20Law%20Coni%20Feb%2020%202009%20New%20Delhi.ppt.
" Lawyers Collective, MANU/MH/0846/1995, H 6, at 17-19 (citing In re Roel, 144
N.E.2d24(N.Y. 1957)).
'* Id. Interestingly, this rationale could easily be used to argue that Indian lawyers
working on matters of foreign law in the Legal Process Outsourcing (LPO) industry are
practicing law and are therefore advocates. That would mean that these businesses should
face similar restrictions in terms of corporate structure and ownership by non-advocates.
Since this would require a major reorganization of the legal outsourcing industrya result
that neither the protectionists, the govemment, nor the foreign firms wantthis implication
of Lawyers Collective is likely to be ignored. See infra notes 43-44, 139-40 and
accompanying text.
197
to investigate the licensees' compliance with the restrictions.''
The case was appealed to the Indian Supreme Court and sent back
dovra to the Bombay High Court in 1996, where it awaited ftirther action
for thirteen years.'* Finally, on December 16, 2009, the High Court of
Bombay announced its final judgment.'^ The court again relied on In re
Roel.^^ The court also had the benefit of relying on several similarly
reasoned cases (both from foreign courts and from the Indian Supreme
Court) decided during the long interim period between its decisions. ' The
Bar Council and respondent law firms argued on the basis of stmctural and
historical statutory interpretation, and constitutional precedent from the
Indian Supreme Court, that the Advocates Act of 1961 only regulates
lawyers engaged in litigious practice, specifically those appearing in the
Supreme Court and High Courts of India. ^^ However, the court
distinguished the constitutional precedents on the facts and rejected the
stmctural and historical statutory arguments for an approach based on plain
language and legislative intent.^' In so doing, the court seemed to be
motivated primarily by policy considerations:
[W]hen the Parliament has enacted the 1961 Act to regulate the
persons practising the profession of law, it would not be correct to
hold that the 1961 is restricted to the person practising in litigious
matters and that the said Act does not apply to persons practising in
non litigious matters. There is no reason to hold that in India the
practise in non litigious matters is unregulated.'^^
The court described non-litigious practice using the exact same

language as in its previous opinion, as "drafting documents, reviewing and
providing comments on documents, conducting negotiations and advising
clients on intemational standards and customary practice relating to the
client's transaction."^^ However, in mling on the validity of the original
RBI licenses the court seems to have implicitly expanded this mle.
The RBI only has statutory authorization to license offices for
activities "of a trading, commercial or industrial nature."^'' The court held
'^ Lawyers Collective, MANU/MH/0846/1995, fl 1, 12.

" Krishnan, supra note 3, at 69.
" Lawyers Collective v. Bar Council of India, Writ Petition No. 1526 of 1995 (Bombay
H.C. Dec. 16, 2009), available at http://bombayhighcourt.nic.in/data/judgements/2009/
OSWP8152695.pdf
'* Id H 12.
"MKHii-n.
^ M 111124-35.
^'/.ini 48-53.
^^ Id H 54.
" / i / . 1141.
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that there is a fundamental distinction between professional and commercial

activity.^^ It then held that even liaison activities constitute professional
activity:
[T]he main activity at [the foreign firms'] liaison offices in India was
to act as a coordination and communication channel between the
head office / branch office and its clients in and outside India. Thus,
the activity carried on by the foreign law firms at their Head Office,
branch offices and liaison offices in India were inextricately [sic]
linked to the practise in non litigious matters.^*
Although the court did not directly say that such professional activity
amounts to the practice of law, it now seems likely that even non-advisory
activities such as soliciting clients are regulated by the Advocates Act of
1961 and are thus off-limits to non-advocates.^^
Fifteen years after the Lawyers Collective suit was originally filed,
there is still no final resolution, as another appeal to the Indian Supreme
Court seems imminent. ^^ A new lawsuit filed in the Madras High Court
will help to define the scope and application of Lawyers Collective}^ In
^* Id. \ All. Taken literally, this rationale eould also be used to argue that Legal Process
Outsourcing offices operated by foreign firms industry are inextricably linked to non-
litigious practice in other offices and therefore violate the Advocates Act. See supra note 14.
The polities of outsourcing make this interpretation unlikely.
^' Since Bar Council Rules prohibit foreign firms from forming partnerships with
licensed advocates or hiring them as full time salaried employees, see infra notes 141-42
and accompanying text, it seems that the only legal way for a foreign firm to gain Indian
clients would be through referrals from Indian firms, by contracting with a licensed advocate
to act as a solicitor (an ethically questionable arrangement whose prevalence has been
alluded to by some of the Indian lawyers I spoke to), or by direct solicitation of the firm by
the Indian client via phone or internet. The legality of this last activity has been called into
question by a recent lawsuit in the Madras High Court, which claims that websites of foreign
law firms that advert to their "India practices" are tantamount to advertisement of legal
services by those foreign law firms in India, which would ostensibly be a violation of
Lawyers Collective. Affidavit of Petitioner ^ 17, Balaji v. India, Writ Petition No. 5614 of
2010 (Madras H.C. Mar. 18, 2010), available at http://www.barandbench.com/userfiles/
files/File/madras hc_writ_petition.pdf [hereinafter Balaji WP]. Such advertisement would
also be a violation of Bar Council Rules if foreign firms were "advocates" and thus subject
to the rules.
14-year Epic Battle Draws to a Close as Bombay High Court Rules Against Liaison
Offices for Foreign Firms, BAR & BENCH, Dec. 16, 2009, http://www.barandbench.com/
index.php?page=brief&id=400&full=.
See supra note 27. The new action, reportedly sponsored by a Calcutta based trade
organization known as the Association of Indian Lawyers, alleges that despite Lawyers
Collective, foreign law firms continue to do business in India. Balaji WP, supra note 27,
K 11. Thirty-one foreign law firms as well as one LPO firm are named in the suit. Id. \ 13.
The complaint alleges that the law firms are violating the Advocates Act, the Bar Council
Rules, and immigration laws by maintaining India desks in neighboring countries, sending
foreign lawyers to India on tourist visas to do business out of hotels and lecture at seminars.
199
any event, the Indian courts are likely to be reticent to become the engine of
market liberalization, and something like the Lawyers Collective rule is
likely to govern until there is legislative or administrative action.^"
Of the three law firms originally granted licenses for liaison offices,
Ashurst maintained its office in India the longest. Chadboume closed its
office shortly after the 1995 High Court decision, and White & Case closed
up shop in the spring of 2008.^ Ashurst closed only after the High Court's
most recent decision voided its license.^^ Ashurst claims, however, that it
using LPOs as fronts for the practice of Indian law, and soliciting business through their
websites, /c/. HH 11-12,17.
^ See Lawyers Collective v. Bar Council of India, Writ Petition No. 1526 of 1995,1 59
(Bombay H.C. Dec. 16, 2009), available at http://bombayhighcourt.nic.in/data/
judgements/2009/OSWP8152695.pdf The proposed Legal Practitioners Bill, 2010 may be a
sign that such action is in the offing. Among other things, the bill would create a new
regulatory which would have supervisory power over "legal professionals other than those
covered by the Advocates Act, 1961." Legal Practitioners (Regulation and Maintenance of
Standards in Profession, Protecting the Interest of Clients and Promoting the Rule of Law)
Bill, 2010 ch. V (2010) available at http://lawmin.nic.in/la/NALSA.doc. The bill currently
contains the following list of such professionals:
1. Qualified lawyers who are not practicing advocates, doing legal services in their
Chambers.
2. Qualified lawyers engaged in drafting and conveyancing.
3. Income-Tax Practitioners.
4. Sales-Tax Practitioners.
5. Practitioners in Revenue Courts.
6. Customs clearance agents.
7. Customs and Immigration Law Practitioners.
8. Trademark attorneys / lawyers.
9. Patent attomeys / lawyers.
Id. Items 1 and 2 could be interpreted by a court as effectively overtuming Lawyers

Collective. See Foreign Law Firms Case Next on March 8: Petitioners May Amend the
Petition; BCl and UOI to Decide on January 29, BAR & BENCH, Jan. 24, 2011, http://
www.barandbench.com^rief72/1243/foreign-law-firms-case-next-on-march-8-petitioners-
may-amend-the-petition-bci-and-uoi-to-decide-on-january-29. Even if the language
currently in the bill is not interpreted to effectively overrule Lawyers Collective, the bill also
empowers the Central Government to add or delete any profession from the list, opening the
door for future administrative action. See Legal Practitioners (Regulation and Maintenance
of Standards in Profession, Protecting the Interest of Clients and Promoting the Rule of Law)
Bill, 2010 ch. V (2010). While this approach might be a step on the road to liberalization, it
seems problematic for Indian and foreign lawyers who engage in the same activities to have
separate regulators, and this might retard the integration of foreign firms into the Indian legal
sector that would be one of the chief advantages of liberalization. For a discussion of related
issues and for a proposed solution, see infra notes 131-32, 141-44 and accompanying text.
^' Krishnan, supra note 3, at 69.
^^ Ashurst Shuts Delhi Branch in Wake of Lawyers Collective Judgment, LAWYER, Feb.
19, 2010, http://www.thelawyer.com/ashurst-shuts-delhi-branch-in-wake-of-lawyers-
collective-judgment/1003508.article.
200
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had already been in the process of winding down its Delhi liaison office for
strategic business reasons.^''
B. The Limited Liability Partnership Act of 2008

The passage of the Limited Liability Partnership Act, 2008 (LLP Act)
in early 2009 has been touted as a significant step towards liberalization of
the Indian legal market. For example. Section 59 of the Act allows the
government to "make rules for provisions in relation to establishment of
place of business by foreign limited liability partnerships within India and
carrying on their business therein."^'* This ostensibly applies to foreign law
firms; however, comments from at least one government official indicate
that the LLP Act does not supersede the 1961 Advocates Act, and thus, any
activities carried on in offices established under the rules eventually
promulgated under the LLP Act will be subject to the same limitations laid
out by the Bombay High Court in the Lawyers Collective case.^^
Perhaps the most important reform of the LLP Act for legal market
liberalization is that law firms will now have the benefit of limited
liability.^* Thus, Indian law firms will be able to consolidate with less risk,
enhancing their ability to compete in an open marketplace, thereby relieving
some protectionist pressures. Also, the advantage of limited liability and
" Id.
^'' The Limited Liability Partnership Act, 2008, No. 6 of 2009, 59, INDIA CODE (2010),
available at http://indiacode.nic.in/.
^' See Swati Deshpande, Foreign Law Firms Can Register in India, Says Law Minister,
TIMES INDIA, Jan. 24, 2009, http://timesofindia.indiatimes.com/india/Foreign-law-finns-can-
register-in-lndia-says-Law-minister/articleshow/4023571.cms. Even if foreign firms could
conduct the ill range of liaison activities they were originally allowed under the RBI
licenses, liaison offices do not appear to be economically viable on their own. See supra
notes 31-33 and accompanying text. This may change as capital begins to flow out of India
as well as in, increasing the value of having a base of operations from which to court Indian
clients who need foreign and international law transactional services which could then be
performed offshore to maintain compliance with Lawyers Collective. Global finris currently
rely on referrals from Indian firms and freelance legal serviees brokers to recruit Indian
clients. Interview with Karan Kalra, LL.M. Candidate, Northwestern University School of
Law, in Chi., III. (Nov. 22, 2009).
'* Amit M. Sachdeva & Sachin Sachdeva, The Indian LLP Law: Some Concerns for
Lawyers and Chartered Accountants 4 (unpublished manuscript), available at
http://papers.ssm.com/sol3/papers.cfm?abstract_id=1423766.
' ' See Rajiv K. Luthra, India Needs to Evaluate Domestic Scenario Before Opening Up,
FIN. EXPRESS, Dec. 16, 2005, available at http://v*ww.luthra.com/pdf7fearticle_16_12_2005.
pdf. On the other hand. Professor Krishnan points out that the symbolic politics ofthe issue
for members of the litigation bar, not just competitive apprehension from transactional
lawyers, is a major obstacle to the entry of foreign firms into the market. Krishnan, supra
note 3, at 87-92. He also provides evidence that some Indian firms may already be ready to
compete in an open market. Id. at 64, 77, 82. In fact, the recent success ofthe 165 lawyer
Luthra & Luthra Law Offices and other top Indian firms supports the claim that some elite
Indian firms are ready for the global stage. See Indian Law Firms Top Global Charts in
201
the flexibility provided by the LLP form might also facilitate mergers
between Indian and foreign law firms in the event of market liberalization.^^
C. The Changing Nature of Legal Process Outsourcing

In 2008, the worldwide legal services market was $581 billion,^' the
United States legal services market accounted for $252 billion'"' ofthat, and
the United Kingdom another $30 billion.'" In short, the common law system
dominates the global legal landscape. English is the lingua franca of global
trade and the most highly demanded language of proficiency for lawyers.'*^
India's developing economy, along with its large population of native
English-speaking and common law-trained lawyers, create cost incentives
that make India a unique place in the legal universe.
These facts may change the incentives for foreign firms to establish
offices in India under the LLP Act, even with the Lawyers Collective mle in
place. Many global firms have already begun using Indian based Legal
Process Outsourcing (LPO) companies to perform basic document review
and due diligence.''^ A trend has recently begun toward expanding the role
of offshore legal professionals to include research, legislative tracking and
analysis, and document drafting.'*'' Lawfirmswith their own LPO offices
are able to train Indian lawyers to perform more and more sophisticated
foreign and intemational legal work, thereby reducing the cost of^ providing
legal services in other markets where they need only maintain supervising
Project Finance, FiN. EXPRESS, Aug. 15, 2009, http://www.financialexpress.com/news/

indian-law-firms-top-global-charts-in-project-finance/502197/O; Indian Law Firms Still on
Top in Global Ranking: Survey, TIMES INDIA, Oct. 25, 2010, http://timesofindia.
indiatimes.convijusiness/india-business/Indian-law-firms-still-on-top-in-global-ranking-
Survey/articleshow/6806315.cms#ixzzl4zSlWbVW. While elite Indian firms may have
competitive expertise and reputational capital when it comes to project finance and private
equity transactions that involve primarily Indian law (after all, they have no competition), I
argue below that foreign firms' expertise in multinational cross border transactions, along
with their organizational expertise, capital resources, and the indirect effects of their
reputations, will allow them to significantly improve the Indian legal sector.
^* See infra text accompanying note 142.
^' DATAMONITOR, GLOBAL LEGAL SERVICES: INDUSTRY PROFILE 3 (2009).
'"' DATAMONITOR, LEGAL SERVICES IN THE UNITED STATES: INDUSTRY PROFILE 3 (2009).
'" DATAMONITOR, LEGAL SERVICES IN THE UNITED KINGDOM: INDUSTRY PROFILE 3
(2009).
"^ DAVID GRADDOL, THE FUTURE OF ENGLISH?: A GUIDE TO FORECASTING THE
POPULARITY OF THE ENGLISH LANGUAGE IN THE 21^^ CENTURY (1997), available at
http://www.britishcouncil.org/de/leaming-elt-ftiture.pdf
''^ Luke McLeod-Roberts, A&O Signs Outsourcing Deal with LPO Provider Integreon,
LAWYER, NOV. 18, 2009, http://www.thelawyer.com/ao-signs-outsourcing-deal-with-lpo-
provider-integreon/1002662.article.
*'^ Luke McLeod-Roberts, First LPO Conference Creates Debate, LAWYER, NOV. 23,
2009, http://www.thelawyer.com/first-lpo-conference-creates-debate/1002696.article.
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attomeys."^ For example, the American law firm SmithDehn LLP has
operated an Indian LPO subsidiary called SDD Global Solutions as a
Private Limited Company under the Indian Companies Act of 1956 for
several years."* SDD Global Solutions, unlike many other LPOs, engages
not only in document review and due diligence, but in legal research and
drafting under the supervision of lawyers in the U.S."^ This gives
SmithDehn a competitive advantage in its fee stmcture and generates
additional revenue by allowing its American clients to defend claims that
they would have to settle given traditional fee stmctures."^
The operational advantages of an LPO office, added to the marketing
and market exploration opportunities that a basic liaison office provides,
might make a combined LPO-liaison office economically viable where
operating a liaison office alone evidently was not. Indeed, Abhi Shah,
founder and CEO of Clutch Group, a leading LPO firm, remarked in recent
public comments that he saw LPO ventures as an opportunity for foreign
firms to get their feet on the ground in an otherwise closed market."^ The
LPO venture will be profitable in and of itself, and having a local footprint
allows the foreign firm to get the benefits of liaising within the limits of
Lawyers Collective. Best of all, the LPO venture allows the foreign firms to
iron out the logistical kinks of opening an office in a previously unexplored
country, to recmit Indian legal talent, and to pilot workfiow and supervisory
stmctures that would be usefiil in a post-protectionist context.
As Indian lavvyers working in LPO services engage in more
sophisticated legal work for clients in foreign markets, global political
pressure to allow foreign law firms into the market is likely to mount.
Furthermore, as legal and traditional barriers to legal offshoring break
down, transactional work will increasingly fiow to the markets that can
perform it most cheaply regardless of the law goveming the transaction.
Therefore, the best Indian lawyers will be drawn to lucrative opportunities
to serve foreign and intemational clients, while being prevented from
"*' See id.; Daphne Eviatar, Howrey Opens Office in India, Gives Clients Lower-Cost
Option, AM. LAWYER, Feb. 11, 2008, http://www.law.com/jsp/article.jsp?id=1202732098332
(arguing that an LPO is dissimilar to outsourcing since the work performed overseas is done
by the firm's own people who are trained and managed the firm itself); Profile - This is a
Different Kind of Law Firm, SMITHDEHN LLP, http://www.sddlaw.com/profile.html (last
visited Mar. 7, 2010) (detailing their innovative decision to outsource to India in an effort to
increase quality) [hereinafter SMITHDEHN, Profile]; Why Us? Why Your Company or Law
Firm Should Hire SDD Global Solutions, SMITHDEHN LLP, http://www.sddglobal.com/
presentation.htm#apart (last visited Mar. 7, 2010) (describing the team in India) [hereinafter
SMITHDEHN, Why Us?].
"^ See SMITHDEHN, Profile, supra note 45; SMITHDEHN, Why Us?, supra note 45.
'" SMITHDEHN, Profile, supra note 45; SMITHDEHN, Why Us?, supra note 45.
"* SMITHDEHN, Profile, supra note 45; SMITHDEHN, Why Us?, supra note 45.
"' Abhi Shah, CEO, Clutch Group, Address to the Northwestem University School of
Law South Asian Law Students Association: Legal Process Outsourcing: Opporttinities for
Law Students, Attomeys, and Law Firms (Jan. 15, 2010).
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harnessing their talent and experience to serve Indian clients and foreign
firms doing business in India. ^ The current market dynamics create a
situation where India will export its most valuable legal resources without
putting them to work on the home front.
III. LEGAL SYSTEM AS INFRASTRUCTURE: INDIA'S NEED FOR A

BIGGER, STRONGER TRANSACTIONAL BAR
A. The Current State of the Indian Legal SystemWidespread Corruption

and Inefficiency
India is "one of the most corrupt countries in the world."^' Despite
recent strides, the prevalence of corrupt practices imposes inflated
transaction costs on Indian firms and foreign firms alike and deters foreign
investment." Corruption is particularly problematic for multinational firms
subject to the U.S. Foreign Corrupt Practices Act (FCPA) since
involvement in economies with a high incidence of bribery and kickbacks
impose risk of criminal and civil enforcement and related derivative actions
in U.S. courts in addition to their inherent costs.^'
Foreign investors also face increased risk due to the state of crisis in
India's court system. It is estimated that there are 40,000 cases pending
before the Supreme Court, 3 million cases before the various High Courts,
and 25 million in the district courts.^" As a result of this backlog and the
inefficient procedures at its root, enforcing a contract in India takes an
average of 1,420 days (almost 4 years) as compared to an average of 517.5
days in developed countries.^' It takes an average of 7 years to resolve a
bankruptcy in India versus an average of 1.7 years for developed
countries. ^
India has four different national laws that separately regulate the
investment, industries, securities, and corporate aspects of foreign
investment." Additionally, India does not have a vertically integrated
'" See Chaitraly Deshmukh, Foreign Firms Make Black Coats See Red, PUNE MiRROR,
Dec. 29, 2009, http://www.punemirror.in/index.aspx?page=article&sectid=2&contentid=
2009122920091229012455625537280a3&sectxslt=.
^' Toral Patel, Comment, Corrupt Practices in India: No Payoff, 20 LOY. L.A. INT'L &
CoMP. L.J. 389, 389 (1998) (citing Rahul Bedi, Greed Achieves Recognition, S. CHINA
MORNING POST, July 18,1996).
" Interview by the editors with Yash Rana & Kyle Wombolt, Partners, Goodwin Procter
LLP, India Enters the Twenty-first Century, in METRO. CORP. COUNS., NOV. 2008, at 58.
" Patel, supra note 51, at 394-96, 402.
^^ Krishnan, supra note 3, at 70.
^' WORLD BANK, DOING BUSINESS 2011 (2010), available at http://www.doingbusiness.
org/ExploreEconomies/?economyid=89.
''Id
^' Rohit Sachdev, Note, Comparing the Legal Foundations of Foreign Direct Investment
in India and China: Law and the Rule of Law in the Indian Foreign Direct Investment
204
31:195(2011)
national foreign direct investment (FDI) approval process like some other
countries; after receiving national approval, an investor must negotiate the
idiosyncratic regulatory regimes of various states and localities.^^ These
and other bureaucratic and regulatory policy inefficiencies result in the fact
that it takes an average of 29 days to launch a business in India, as opposed
to 13.8 in developed countries. It takes 195 days to receive a construction
permit as opposed to 166.3 in developed countries. Registering property
takes 44 days as opposed to 32.7. Indian businesses spend 258 hours per
year preparing, filing, and paying taxes as opposed to 199.3 in developed
countries.^'
Although India has strong investor protection laws, the corrupt state of
the Indian legal system means that there is very little investor protection in
practice.*" This correlates with the relatively small size of India's financial
markets.*' So, not only does underdeveloped legal infrastructure create
risks that inhibit FDI, it also impairs India's ability to attract foreign
institutional investors, limiting portfolio investment through the capital
markets and deposits and loans by foreign banks.*^
B. The State of India's Transactional Bar

Aside from the general deficits of the Indian legal system and the risks
it poses to potential investors, the paltry size and relatively disorganized
state of the Indian transactional bar create another major concern. India's
general bar is sizable, with a total of almost 1 million lawyers enrolled with
the various state bar councils.*^ This dwarfs China's 190,000 lawyers*" and
even rivals the number of active attomeys in the United States.*^ However,
various commentators have estimated that the proportion of advocates
engaged in transactional practice is under ten percent.
Context, 2006 COLUM. Bus. L. REV. 167, 187 (2006).

'^/c^. at 210-12.
" WORLD BANK, supra note 55.
*" Allen et al.. Financing Firms in India 14 (Apr. 11, 2009) (unpublished working paper),
available at http://ssm.com/abstract=898066.
''Id
" See id
*' Krishnan, supra note 3, at 61.
^ Dick Thomburgh, China's Harassed Lawyers, INT'L HERALD TRIB., July 28, 2009,
available at http://www.nytimes.com/2009/07/29/opinion/29iht-edthomburg.html (last
visited Nov. 1,2010).
*^ AM. BAR ASS'N, NATIONAL LAWYER POPULATION BY STATE (2009), http://new.abanet.
org/marketresearch/PublicDocuments/2009_NATL_LAWYER by_State.pdf
'* You Just Cannot Stop the Entry of Foreign Law Firms, FIN. EXPRESS, Oct. 24, 2006,
http://www.financialexpress.com/news/you-just-cannot-stop-the-entry-of-foreign-law-
firms/181568/; Lawyers in India: Legally Barred, ECONOMIST, Apr. 24, 2008,
http://www.economist.eom/node/l 1090513?story_id=l 1090513; Luthra, supra note 12. See
Krishnan, supra note 3, at 6465 n.39.
205
Furthermore, various regulatory hurdles have stunted growth and
consolidation in the industry. Indian partnerships are technically limited to
twenty partners.*^ However, this fact seems overstated as an obstacle to
growth since both the Partnership Act of 1932 and the LLP Act allow
partnerships themselves to be partners, which in fact has been used in
conjunction with appropriate profit sharing agreements to effectively avoid
this limitation. ^^ Other handicaps include restrictions on marketing,
prohibition of contingent fee structures, and restrictions on law firm
borrowing. ^^
Most importantly, until recently, law firms had no way of securing the
protection of limited liability.'" Without it, equity partners in a law firm
face mounting risks as the business expands. Partners have unlimited
personal liability for the actions of other partners.'' As the number of
partners grows, the risk of a lawsuit that could place the partners and firm in
financial peril increases, and it is more difficult for each partner to
efficiently police the others.'^ This has the effect of increasing the cost of
growth and consolidation in the legal industry. ^^
C. Institutional Infrastructure and Foreign Direct Investment

The United Nations Conference on Trade and Development
(UNCTAD) defines foreign direct investment as:
An investment involving a long-term relationship and reflecting a
lasting interest of a resident entity in one economy (direct investor)
in an entity resident in an economy other than of the investor. The
direct investor's purpose is to exert a significant degree of influence
*' Luthra, supra note 37. There are some possible interpretations of the new LLP Act
which might eliminate this obstacle, but it is likely that ftirther legislative action is needed to
achieve that result. Sachdeva & Sachdeva, supra note 36, at 12-15; Krishnan, supra note 3,
at 79 n.32; Luthra, supra note 12, at 6.
** The Limited Liability Partnership Act, 2008, No. 6 of 2009, 5, INDIA CODE (2008),
available at http://indiacode.nic.in/; The Partnership Act, 1932, No. 9 of 1932, 4, INDIA
CODE (1932), available at http://indiacode.nic.in/; Krishnan, supra note 3, at 84.
*' Bar Council of India Rules, 2001, Gazette of India, pt. 6, ch. 2, 1(20), 4(36) (Sept.
6, 1975), available at http://lawmin.nic.in/la/subord/bci.htm; Luthra, supra note 37; see
Various Models of Opening Up: JETCO Report, Bus. TODAY, Jan. 27, 2010,
http://businesstoday.intoday.in/index.php?option=com_content&task=view&issueid=76&id
=13850&sectionid=25&Itemid=l [hereinafter JETCO Report].
See Luthra, supra note 37. But see Sachdeva & Sachdeva, supra note 36, at 14-15
(arguing that advocates could form a company under the Companies Act as long as all
shareholders are advocates). Note that the sub-partnership structure discussed above does
not allow liability to be segmented as partnerships have no separate personhood and are
pass-throughs for liability purposes. See supra note 67 and accompanying text.
" Krishnan, supra note 3, at 84.
''Id
"5ee/i/.,at84n.l65.
206
31:195(2011)
on the management of the enterprise resident in the other economy.

FDI involves both the initial transaction between the two entities and
all subsequent transactions between them and among affiliated
enterprises, both incorporated and unincorporated. FDI may be
undertaken by individuals, as well as business entities.^''
FDI is particularly important to India because it has a considerable

physical infrastmcture deficit it needs to overcome and foreign capital can
be channeled into those projects.^^ Govemance infrastructure has been
shown to be a predictor of^ increased FDI inflows.^^ Legal infrastmcture is
particularly important in reducing risk and transaction costs to investors.^'
Lawyers Collective is particularly critical in this context since foreign direct
investment is highly dependent on Indian securities and corporate law.^^
China, which has already liberalized its legal market, is far outpacing
India in the race for global capital.^' Some observers have argued that this
is due in large part to China's superior legal framework for FDI.^
However, India can make major strides in closing this gap in a short period
of time because of the snowballing effect of infrastmcture investment: more
infrastmcture leads to more FDI, which leads to more infrastmcture, and so
on.'
By entering the Indian market, global law firms are offering India a
kind of infrastmcture FDI. Global law firms themselves are a kind of
private infrastmcture that allows parties to fomi stable transnational
business relationships and to minimize transaction costs (e.g., provide
expertise in negotiating regulatory and tax regimes).^ Through their
'" Foreign Direct Investment (FDI), UNCTAD,, http://www.unctad.org/templates/

Page.asp?intItemID=3164&lang=l (last visited Mar. 8, 2010).
''^ India Should Focus on Infrastructure: Eversheds, EcON. TIMES, May 29, 2009,
available at http://economictimes.indiatimes.eom/India-should-focus-on-infrastructure/
articleshow/4594789.cms. Indian Law Firms Top Global Charts in Project Finance, supra
note 37.
'* Steven Globerman & Daniel Shapiro, Global Foreign Direct Investment Flows: The
Role of Govemance Infrastructure, 30 WORLD DEV. 1899, 1900 (2002).
" John Flood & Fabian Sosa, Lawyers, Law Firms, and the Stabilization of
Transnational Business, 28 Nw. J. INT'L L. & Bus. 489, 493 (2008). Anecdotal evidence
confirms that this is an issue in India. One Ameriean venture capitalist living and working in
India told me that there is less capital to invest after the recent financial crisis. He confirmed
that India's lack of legal and govemance infrastructure has made it rare to achieve an
acceptable retum on investment in Indian companies. As venture capital investors are forced
to be more conservative, a larger proportion of limited capital is going to China. Interview
with Jack McCambridge, Independent Private Equity and Venture Capital Consultant, in
N.Y.CN.Y. (Jan. 2,2010).
"* See Sachdev, supra note 57, at 187-91.
" Id at 168-69.
^^ M at 186-87.
*' See Globerman & Shapiro, supra note 76, at 1904.
*^ Flood & Sosa, supra note 77, at 494-99.
207
physical presence in markets around the world, they create transnational
organizational spaces in which clients' interests can be pursued.^^
Under current policy, the Indian market does make use of this valuable
resource, although with important limitations. Since they do not have
Indian offices, foreign firms generally do not advise on matters of Indian
domestic law because it is more cost effective for the client to go to an
Indian law firm. However, Indian clients and their foreign counterparties
can still use the expert intermediation of global law firms to stabilize
expectations since this process inherently involves choice of law,
jurisdiction, and arbitration clauses for each of the various elements of a
transaction. If the Indian client is willing to allow foreign laws and courts
to govem the agreement, they can benefit from the intermediation expertise
and reputation of global law firms. In effect, global law firms have already
entered the Indian market through their India desks located in Singapore,
Hong Kong, and other foreign offices.^''
Lawyers Collective imposes costs to Indian firms as consumers of
legal services; in order to work with global law firms, they must accept the
added costs that come with entering into an agreement govemed by foreign
law (e.g., geographic expense in the event of arbitration).^^ Also, they do
not have the benefit of developing a face-to-face relationship with their
counsel, since it is not economically viable for foreign law firms to
maintain liaison offices. ^^
More importantly. Lawyers Collective imposes costs on Indian firms
as consumers of capital. All parties in an FDI transaction are likely to be
represented by Indian law firms, at least concerning aspects of a transaction
or venture that are to be govemed by Indian law.^^ This compounds foreign
investors' lack of faith in the Indian legal system because, in navigating that
broken system, counterparties do not have the benefit of dealing with highly
reputed global counsel with whom they may have a pre-existing
relationship and residual tmst built up from interactions in other markets.
This perceived added risk should translate to higher demanded retums on
^^ James R. Faulconbridge et al.. Global Law Firms: Globalization and Organizational

Spaces ofCross-Border Legal Work, 28 Nw. J. INT'L L. & Bus. 455,467 (2008).
*'' Krishnan, supra note 3, at 69-70.
*' See Flood & Sosa, supra note 77, at 495.
^* It has also been argued that Lawyers Collective imposes indirect costs on Indian firms
as consumers of legal services since the limited size and expertise ofthe bar impose a rent on
quality transactional services that would be eliminated by greater competition. Krishnan,
supra note 3, at 78; see also Faulconbridge et al., supra note 83, at 463-64 (arguing that two
major Indian cities are under-provisioned by global law firms due to regulatory obstacles).
*' See infra note 98 and accompanying text.
** This trepidation is evidenced by the time and expense that clients expend searching for
adequate Indian local counsel. See Legally Barred, supra note 66; John R. Dingess et al..
How to Select the Most Effective Local Counsel in India, CORP. LEGAL TIMES, Aug. 1997, at
28.
208
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the part of the foreign counterparty and deter marginal investment in India
when comparable investment opportunities are available elsewhere.
In addition to the direct contribution to institutional infrastructure
provided by global law firms' expertise as trusted relationship managers
and transaction cost engineers, the presence of foreign firms should have
positive indirect effects on global perceptions of the stability of the Indian
business environment. It is possible that the mere presence of foreign firms
in the market provides a kind of reputational capital that will increase
confidence in the Indian legal system and encourage foreign direct
investment.^'
Foreign firms would also directly contribute to India's legal
infrastructure by training Indian lawyers and offering better salaries.^" This
should allow an explosion in size and an improvement in quality of the
Indian transactional bar. The most promising young Indian lawyers, who
regularly leave the country to join international firms, would now stay in
India." Since foreign law firms do not normally work on issues of Indian
laweven in their offshore India desks^this means that the best Indian
legal talent is not contributing to the development of Indian law and
practice. But once foreign firms enter the Indian market, Indian lawyers
will have the opportunity to work on issues of Indian and foreign law. This
would end the professional isolation of the Indian transactional bar, which
many argue has left it without "afiallrange of expertise."'^
In addition to increasing the ability of the Indian market to retain and
train legal talent, liberalization advocates have argued that intensified
competition from global firms will "force underperforming Indian lawyer to
improve their practice, merge with their new competitors, or fold," thereby
raising the overall quality of the bar." In order to survive, Indian lawyers
will have to adopt the professional norms and practices of foreign firms.'''
This attrition process will result not only in increased professionalism and
better skills and practices but also a different approach towards client
relations. Lawyers practicing in global law firms are generally reputed to
have a more "commercial attitude" than those practicing in smaller local
firms.'^ Perhaps an increasingly competitive and commoditized
*' There is evidence that foreign investors seek out the added security provided by well-
reputed international professional services firms. For example, one Indian lawyer told me
that since the Big Four accounting firms entered the Indian market, foreign clients always
demand that audits be conducted by those accounting firms due to the firms' internationally
recognized reputations. Interview with Karan Kalra, LL.M. Candidate, Northwestern
University School of Law, in Chi., 111. (Nov. 22, 2009).
'" See Krishnan, supra note 3, at 78-79.
" Id.; Deshmukh, supra note 50.
'^ Krishnan, supra note 3, at 77-78.
" Id at 76.
'* Id at 76-77.
'^ Travis Nelson, Partner, & Erik Knudsen, Assoc, Kirkland & Ellis LLP, Address to the
209
environment in the Indian legal market would produce the same focus on
client needs that prevails in global firms.
An improved and enlarged transactional bar is important not only in
and of itself but also because it should have ripple effects that impact
governance infrastructure. Better and more transactional lawyers means not
only better transactional practice in terms of relationship and transaction
cost management but better law schools, better transactional laws, a better
FDI governance regime, better regulatory schemes and regulators, and a
better, less risky legal system overall.'* All of these factors will improve
India's governance infrastructure and attract FDI that can be used to
overcome India's physical infrastructure deficit.
Added risks from the inability to use familiar counsel, the inadequate
size and quality of the Indian transactional bar, and exposure to an
unfamiliar and inefficient legal and regulatory system will, ceteris paribus,
result in a higher price of foreign capital for Indian firms. It is unavoidable
that Indian law and Indian jurisdiction will apply in transactions involving
projects in India. As it stands, foreign investors cannot be guided through
these alien waters by established and trusted global law firms. Allowing
this to happen is the first step in building governance infrastructure that
eliminates these risks.
IV. MARKET RESPONSES TO LAWYERS COLLECTIVE
A. India Desks
Even given the constraints of Lawyers Collective, foreign firms can
work on matters of Indian law provided they do so from offices outside of
India. While many global firms have set up a so called "India desk" in
London, Singapore, or another foreign office, the work undertaken at those
offices concerns the international and foreign law elements of international
Northwestem University School of Law Intemational Law Society: Intemational Private

Equity Transactions (Jan. 12, 2010). The "commercial" attitude is that "no" is never the
answer to a client's demands. Id. This attitude, in effect, makes global firms better
transaction cost engineers and thus increases their value as private legal infrastructure.
'* As discussed above, China seems to have little trouble attracting FDI even given the
small size of its transactional bar. See supra notes 64, 79-80 and accompanying text.
However, China is open to foreign lawyers who can provide legal infrastmcture, and
govemance infrastructure is not as dependent on lawyers in the Chinese system as it is in a
common law system. See Sachdev, supra note 57, at 181-86. On the other hand, not
everyone is convinced that liberalizing India's legal market will improve govemance
infrastructure. See Interview by Aalok Wadhwa with Zia Mody, Partner, AZB & Partners, in
Mumbai, India, in HALSBURY'S L. MONTHLY, Sept. 2008, http://www.halsburys.in/foreign-
law-firms.html. Stopping the brain drain will also have benefits to India's civic and
institutional infrastructure since its most talented lawyers will be at home where they can
contribute to society through sitting on the boards of non-profits, providing pro-bono
services, and participating in other civic activities.
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transactions for their foreign and Indian clients.'' Using these offices to
perform work on matters of Indian law, while technically permissible, is
practically infeasible since the disparate labor costs make hiring a local
Indian firm to do that portion of a transaction governed by Indian law
cheaper than having it done by lawyers working in foreign offices.'^ If the
Lawyers Collective policy were not in place, this cost differential might
mean that Indian law firms would work on many of the foreign and
international law transactional elements. The current market dynamics
dictate that the foreign and international work that is being done in India is
mostly of the "grunt work" variety currently performed by LPOs. When
LPOs eventually progress to employing Indian lawyers for more substantive
work, that work will be performed within foreign-run LPO entities which,
under Lawyers Collective, cannot serve Indian clients, so Indian clients and
firms investing in India (in short, those who need work done under Indian
law) will reap none of the benefits from the development of this emerging
expert resource.''
B. Best Friends Agreements

In the wake of the Lawyers Collective decision, foreign law firms'
efforts to build a presence in the Indian legal market have taken the form of
"best friends" or "tie-up" agreements with Indian law firms. So far, at least
four foreign law firms have formalized relationships with Indian firms
(three British, one American, and one Sino-Singaporean).' A principal
" See Krishnan, supra note 3 at 69.

'^ Contrary to fears that the entry of foreign firms will result in a neo-colonial takeover of
India's legal system, id. at 34-35, 38-39, the best business strategy for foreign entrants into
the market will be to compete for the best Indian lawyers or to pursue joint ventures with
Indian firms; Indian lawyers will still have the most expertise in Indian law, and it's more
efficient for firms to hire Indian lawyers rather than train foreigners in Indian law.
Stewardship of the Indian legal system will remain firmly in the hands of Indians; the only
things that might change are the name on the shingle and, hopefully, the quantity and
expertise of those in charge.
" One might argue that if there is indeed unmet demand for quality legal work done
under Indian law, clients will pay a premium for it, and Indian law firms will thus be able to
compete with LPOs and out of country foreign law firm offices for top Indian legal talent.
This argument fails, however, because it ignores marginal opportunities for foreign investors
in other economies and Indian clients' inability to bid competitively with foreign clients.
""' George Beveridge, Dacheng Central Chambers Announces New Indian 'Best Friend, '
ALB LEGAL NEWS, Sept. 29, 2009, http://asia.legalbusinessonline.com/site-search/dacheng-
central-chambers-announces-new-indian-best-friend/37363. This trend has cooled lately as
economic slowdowns in the US and Europe have led to a paucity of international work for
Indian firms, leading them to focus on the domestic market. Paramita Chatterjee, Law Firms
Shy Away from Global Tie-Ups, EcON. TIMES, Sept. 6, 2010, http://economictimes.
indiatimes.com/news/news-by-industry/services/consultancy-/-audit/Law-finns-shy-away-
from-global-tie-ups/articleshow/6503339.cms. Clifford Chance and AZB & Partners
recently ended their best friends relationship. Joanne Harris, UK-Indian Firms'
Relationships in Stasis as Liberalisation Remains a Pipe Dream, LAWYER, Jan. 31, 2011,
211
partner of one of the Indian firms described the terms of the particular
agreement as "[the other firm] will refer its clients to us for any legal work
in India and vice versa, with the understanding that both law firms will be
free to decline brief if considered untenable.""" These best friends
agreements provide foreign firms with access to Indian clients, the
opportunity to enhance branding by giving the impression of expertise in
Indian transactions, and in some cases, the opportunity to train lawyers at
the Indian firm.'"^
Best friends agreements give foreign firms an opportunity to vet and
invest (by providing training and management advice) in local firms that
might become potential acquisition or joint venture targets when the market
liberalizes. '"^ The foreign firms receive a related benefit from the fact that
the tie-up gives the Indian firm an imprimatur of tmst in the eyes of foreign
clients.' '' Foreign firms deal with considerable uncertainty and expense in
selecting Indian counsel.'"' For example, The Economist provides the
following anecdote:
If you want to find the legal chiefs of big defence companies such as
Boeing or BAE Systems, a good place to start looking is the foyer of
the Taj Mahal Hotel in Delhi. The in-house legal bosses are in town
to appoint law firms to support their push into the Indian market, as
the government updates, its military equipment. They have to go in
person, rather than sending their usual lawyers, because of the 1961
Indian Advocates Act, which prevents foreign firms from practising
in the country. '^
The security and convenience provided by a formal tie-up between a
http://www.thelawyer.com/uk-indian-firms%E2%80%99-relationships-in-stasis-as-
liberalisation-remains-a-pipe-dream/1006793.article; Suzi Ring, Clifford Chance Calls off
India 'Best Friends' Relationship with AZB, LEGAL WK, Jan. 21, 2011,
http://www.legalweek.com/legal-week/news/1938877/clifford-chance-calls-india-friends-
relationship-azb.
"" Kian Ganz & Neha Chauhan, Vaish Makes Sino-Singaporean Best Friends, LEGALLY
INDIA, Sept. 30, 2009, http://www.legallyindia.com/20090930217/Law-firms/Vaish-makes-
Sino-Singaporean-best-friends.
'"^ See id.; see also Press Release, Clyde & Co, Clyde & Co Announces Association with
Indian Law Firm ALMT Legal (June 4, 2009), http://www.clydeco.us/news/articles/clyde-
and-co-announces-association-with-indian-law-firm-almt-legal.cfm.
'"^ See Ganz & Chauhan, supra note 101.
'"'' See Kian Ganz, How to Win a Friend and Alienate People, LEGALLY INDIA, July 28,
2009, http://www.legallyindia.com/20090728111/Analysis/How-to-win-a-friend-and-
alienate-people.
"" See Dingess, supra note 88 (recommending a five step process to narrow down the list
of potential candidates composed of initial inquiries, interview of representative clients,
preparing a "case for opinion," meeting to discuss the case with prospective counsel, and
consultation with U.S. counsel); Legally Barred, supra note 66.
"" Legally Barred, supra note 66.
212
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global law firm and an Indian firm eases those difficulties, making clients
more likely to do business in India. This in tum creates opportunities for
global law firms to profit from the resulting fransactions.
While a best friends agreement may improve the quality (or perceived
quality) of service that a global law firm can offer its clients and perhaps
generate business at the margin by reducing the risk and transaction costs of
intemational transactions, it provides the foreign firm with no quantifiable
retum. The Indian firm receives the referred business as well as the added
prestige of association with a global firm and access to training and other
resources ofthe global firm.
The balance of benefits may change as the outfiow of capital from
India increases and referrals from Indian clients seeking to use global firms
on transactions under foreign and intemational law grow. Still, best friends
agreements will always lead to an asymmetry in the Indian context since,
under Lawyers Collective, foreign firms are effectively forced to refer all
work to be done under Indian law, whereas Indian firms must only refer
work if they do not have the foreign or intemational law expertise to do the
work themselves.
Some global firms have relied heavily on best friends networks to
access foreign markets rather than opening foreign offices.'' Given open
market conditions, such strategies should be most sustainable in markets
where there are similar amounts of legal work to be done under either body
of law, thus ensuring a comparable bilateral referral fiow. If considerably
more work is done under the law of one country than the other, the firm's
optimal strategy would be to open an office in that country, hire lawyers
trained in its domestic law, and compete for business rather than relying on
domestic firms to refer transactions to be undertaken under foreign and
intemational law. Even Slaughter and May, which relies almost exclusively
on its network of peer firms for its global reach, has opened offices in
Beijing and Hong Kong.'^ This is likely due to the fact that given the
current FDI capital fiows and the size of the domestic market, there is more
profit to be made doing deals under Chinese law than on referrals for deals
under foreign and intemational law."" The economics of the Indian
situation are similar to those of China; thus, direct market entry is likely to
be a better long term strategy for foreign firms than the Slaughter and May
model.
Even with the workarounds of best friends agreements and India desks,
the critical thing that Lawyers Collective prevents is a foreign law firm
"" Faulconbridge et al, supra note 83, at 466-67.

'"* Offiices, SLAUGHTER AND MAY, http://www.slaughterandmay.com/where-we-work/
offices.aspx (last visited Nov. 1, 2010); see Faulconbridge et al., supra note 83, at 466.
"" Chong-En Bai, The Domestic Financial System and Capital Flows: China, WORLD
BANK (Sept. 15, 2006), http://siteresources.worldbank.org/rNTCHIINDGLOECO/
Resources/TheDomesticFinancialSystemandCapitalFlows-China.pdf.
213
working on Indian soil. This effectively prevents foreign firms from
working on transactions under Indian law at all and gives Indian firms a
slight competitive advantage in terms of price for international and foreign
law work that partially offsets their lesser pedigree and expertise in those
areas. As discussed above, best friends arrangements are not likely to be
very profitable for foreign firms given the differential referral flow. More
than anything else, they are preludes to a merger when it becomes
possible. "
V. TOWARD LIBERALIZATION
A. Loopholes in the Current Regime

The entry of foreign firms into the Indian legal market appears to be
inevitable. Best friends agreements have allowed Indian and foreign firms
to form strategic alliances that may be precursors to mergers.'" Often these
alliances involve the secondment of employees between firms, ostensibly
for training purposes."^ Foreign firms serve Indian clients from India
desks in foreign offices.'" Foreign firms can perform legal work for
foreign clients in India through the creation of LPO offices."'* In short, the
only thing that foreign law firms cannot do is Indian legal work in India.
Arguably, even that barrier is breaking down. International accounting
firms, for whom the Indian market is already open, may be doing tax and
trust and estates consulting that would otherwise be done in law firms."^ It
is also possible that so called "management consultancy" or "risk
management" firms could be formed to disguise the delivery of legal
services."* There is evidence that the Lawyers Collective rule is not being
enforced in the face of this obvious ruse. For example, the international
"professional services firm" Dezan Shira & Associates provides "foreign
direct investment business advisory, tax, accounting, payroll and due
diligence services for multinational clients in China, Hong Kong, Vietnam
and India.""^ On another part of its website, Dezan Shira notes, "We
provide pre-incorporation regulatory and tax advice over market entry,
business incorporation and tax structuring, contractual advice and drafting,
ongoing maintenance issues such as tax, accounting, transactions and
"" See Press Release, Clyde & Co, supra note 102 (explaining that an international firm
and an Indian firm in a best friends arrangement plan on merging once it becomes legal).
' " Id
"^ See, e.g., id.; Foreign Lawyers, FOXMANDAL LITTLE, http://www.foxmandallittle.
com/foreign_lawyers.html (last visited Mar. 8, 2010).
' " See supra note 97 and accompanying text.
' ''' See supra notes 3-44 and accompanying text.
"^ Krishnan, supra note 3, at 90 n.20I.
" ' See Sachdeva & Sachdeva, supra note 36, at 15.
' " DEZAN SHIRA & Assocs., http://www.dezshira.com (last visited Dec. 3, 2010).
214
31:195(2011)
compliance, in addition to legal and financial due diligence, mergers and

acquisitions and related issues.""^ Despite the remarkable resemblance of
these activities to the "practice of law," Dezan Shira has successfully
managed to open offices in Delhi, Kolkata, Mumbai, Bangalore, and
Chennai."^ In the Mumbai office, they even employ an Indian "Legal
Associate."'^" This policy has the effect of opening the market but only to
those willing to engage in subterfuge. Furthermore, since these
professionals are not recognized as advocates, they are not subject to
regulation by the Bar Council.'^' The policy also ensures that the largest
and most successful providers of legal services are precluded from entering
the market. Thus, it subjects Indian law firms to increased competition but
without reaping the benefits to legal and govemance infrastmcture that
would come from opening up to large global law firms.
The longer India pursues its protectionist policy, the longer foreign
firms will find back door ways to participate in the Indian market.'^^ The
costs of this regime are inefficiencies in the delivery of legal services to
Indian clients, stunted growth in the legal sector, a suppressive effect on
^'^ About Us, DEZAN SHIRA & Assocs., http://www.dezshira.com/about-us.html (last

visited Mar. 8,2010).
' " Offices, DEZAN SHIRA & Assocs., http://www.dezshira.com/content/offices (last
visitedMar. 8, 2010).
'^^ Mumbai Office, DEZAN SHIRA & Assocs., http://www.dezshira. com/mumbai-
office.html (last visited Mar. 8, 2010).
'^' See The Advocates Act, No. 25 of 1961, 16(3), 49(g), INDIA CODE (2010),
available at http://indiacode.nic.in.
'^^ This point is only bolstered by the allegations of the recently filed Balaji suit, which
demonstrate the difficulties inherent in the enforcement oi Lawyers Collective. Its allegation
that foreign firms subvert the law by operating India desks out of nearby countries, while
true, has no remedy that Indian authorities can enforce. See Balaji WP, supra note 27,1[ 11.
This backdoor participation has another disadvantage, namely, that it costs India tax revenue.
Clifford Chance and Linklaters are currently litigating their tax liability for services
delivered to Indian clients from abroad. After Clifford Chance, Now Linklaters in the Tax
Net: ITA T Rules Delivering Services to Clients in India is Taxable; New Angle to A.K. Balaji
V. Ashurst et al?, BAR & BENCH, July 19, 2010, http://www.barandbench.conVbrief/2/845/
after-clifford-chance-now-linklaters-in-the-tax-net-itat-rules-delivering-services-to-clients-
in-india-is-taxable-new-angle-to-ak-balaji-v-ashurst-et-al. Even if such services are held to
be taxable, it is unclear what incentives these firms have to pay. Furthermore, it is likely that
other firms, particularly non-U.K. firms, are not subject to a similar tax treatment and that
their India related activities will continue to be taxed by foreign jurisdictions rather than by
India. M. Padmakshan & Almas Meherally, U.K. Law Firms May Have to Pay Tax on All
Profits from India Ops, EcON. TIMES, July 20, 2010, available at http://economictimes.
indiatimes.com/personal-finance/tax-savers/tax-news/UK-law-firms-may-have-to-pay-tax-
on-all-profits-from-India-ops/articleshow/6189328.cms; see also ITAT Ruling: UK's
Linklaters Liable to Pay Rs 23cr Tax, NEWS CENTER, July 20, 2010, http://www.
moneycontrol.com/news/cnbc-tvl8-coniments/itat-ruling-uks-linklaters-liable-to-pay-rs-
23cr-tax_471128.html. There is also the prospect of tax revenue that would be indirectly
generated as a result of foreign firms increasing their economic activity on Indian soil, e.g.,
hiring of local support staff.
215
International Law & Business 31:195(2011)
Indian governance infrastructure, and the loss of regulatory control over
legal services. Abandoning protectionist policies will not only allow
increases in the efficiency, capacity, and ability of the Indian legal sector,
but it will also ensure that foreign participation is appropriately regulated
and managed.
B. Proposals for Liberalization

The recent reaffirmation of the Lawyers Collective rule has increased
pressure on the political process to find a solution to the liberalization
question.'^^ There have been many proposals for how liberalization should
proceed. A detailed examination of such proposals is a topic for another
paper. However, the leaders of India's legal industry identify three
principal considerations in devising a liberalization policy: a) liberalization
should be postponed to allow for the relaxation of restrictions and the
strengthening of domestic law firms; b) liberalization should be gradual; c)
all lawyers in India should be subject to the same regulatory authority.'^''
This comment suggests that a fourth consideration should be added to the
list: liberalization policy should be consistent with the aim of promoting the
development of India's transactional bar and improving its governance
infrastructure.
This fourth consideration sometimes conflicts with those identified by
industry leaders. For example, the Indian report suggests that domestic
legal reform would take two years, and that another five years should be
allowed for Indian firms to consolidate and grow.'^^ It has been more than
four years since the Indian Team made these recommendations, and the
majority ofthe regulatory reform it sought has yet to be even initiated.'^*
Seven additional years is a long time to wait for a nation that is in a race
with China to attract global capital. Furthermore, policy should be aimed at
quickly and efficiently strengthening legal infrastructure, not particular law
firms. Opponents of liberalization invoke fears of neo-colonialism to
justify protecting local firms.'^^ Cyril Shroff, Managing Partner of
' " Akshaya Mukul, UK Pleads for Foreign Law Firms, Bar Council Adamant, TIMES OF
INDIA, Dec. 30, 2009, http://timesofindia.indiatimes.com/india/UK-pleads-for-foreign-law-
firms-bar-council-adamant/articleshow/5392616.ems.
'^'' JETCO Report, supra note 69.
' " Id
'^' The limited liability provided by the LLP Act has eliminated the most serious barrier
to growth and consolidation. In any case, India's legal sector can benefit to the same degree
if these reforms are undertaken as liberalization occurs. With the excepfion of lifting
restrictions on bank financing, they should not significantly affeet competition between
foreign and Indian firms. For example, contingent fees have no bearing on transactional
work. The marketing restrictions only affect firms' ability to attract Indian clients; FDI
clients are foreign multinationals for the most part.
'^' E.g., Cyril Shroff, Deregulating India's Legal Market, Bus. STANDARD, NOV. 1, 2007,
http://www.business-standard.com/india/storypage.php?autono=302899. It should be noted
216
31:195(2011)
Amarchand & Mangaldas & Suresh A. Shroff & Co., a major Indian law
firm, writes:
As matters stand today, Indian law firms have a disadvantage in
matching the sheer organisational magnitude and financial means
that foreign firms command . . . .
Besides being prejudicial to the interests of the Indian legal

profession, liberalisation also has important implications for the
nation. The legal profession is instmmental to the administration of
justice. To permit foreign lawyers to encroach on this extremely
important aspect of a democracy could be contrary to public
interest.'^^
This reasoning is fiawed on two counts. First, the organizational and

financial means of foreign law firms is precisely the reason to invite them
into the Indian market where they can bring those resources to bear to
improve legal infrastmcture and hopefrxUy to indirectly improve govemance
infrastructure. Second, participation of foreign firms in the legal sector
does not imply that foreign lawyers will dominate the legal market. As
explained above, a major reason that foreign law firms want to open offices
in India is so that they can hire Indian attomeys. The argument that these
lawyers will be beholden to their foreign employers also fails. If foreign
firms are to be successflil in training, attracting, and retaining top Indian
lawyers, then they will have to bring on some Indian partners and provide
their associates with the opportunity to compete for equity partnership
positions.'^^ In fact, the language and posture of firms who have formed
best-friends arrangements suggest that the first wave of foreign firm entry
into the legal market will be accomplished by mergers with local firms.'
In short, although the new offices may bear the name of foreign firms, they
will be, in large part, Indian undertakings.
The promotion of the rapid development of India's transactional bar
also conflicts with the industry leaders' emphasis on gradual liberalization.
This consideration has led to proposals for the multi-phased introduction of
foreign firms, sometimes including temporary or permanent restrictions on
foreign firms' practices, and the promotion of temporary formal joint
ventures between Indian and foreign firms.'^'
that there is a growing faction of Indian lawyers, including partners at major law firms who
are in favor of liberalization, whose voices are often drowned out by the more organized
opponents. See Kian Ganz, Two-Year Itch, LAWYER, Sept. 6, 2010, http://www.thelawyer.
com/1005400.article.
'^* Shroff, 5M/7ra note 127.
See, e.g.. Press Release, Clyde & Co, supra note 102.
JETCO Report, supra note 69; Krishnan, supra note 3, at 93-98.
217
Proposals that restrict foreign firms' practice areas would prevent
Indian lawyers who work for foreign firms from practicing in India's
courts. While this allays fears of neo-colonialism and might appeal to the
trial lawyers, who are perhaps the greatest political force opposing
liberalization, it blocks some of the synergistic effects between legal and
govemance infrastmcture described above. Many of the best Indian
lawyers will be attracted to foreign firms where they will have the
opportunity to work and become experts in areas of both Indian law and
foreign law. These practitioners should not be excluded from any part of
the system where they can put their expertise to use.
Under a system of phased liberalization with a period of forced joint
venture, foreign lawyers temporarily co-operate with an Indian firm in
practicing Indian law. This may allow them to gain enough expertise in
Indian law that when the joint venture phase ends, they can directly recmit
and supervise Indian associates rather than merging with their respective
joint venture partners. This is precisely what happened in the liberalization
of Singapore's legal sector.' ^ There is evidence that the Lawyers
Collective regime has had similar effects; some foreign firms may now be
so entrenched in delivering legal services through their foreign based India
desks that they no longer need the advantages provided by a best friends or
joint venture arrangement.'^^ Ironically, a policy that is meant to maintain
domestic control of law firms can lead to the exact opposite result.
The Indian leaders' third consideration, maintaining regulatory control
of legal services, does not confiict with the promotion of the goal of
developing the transactional bar. Proper regulatory oversight is essential to
maintaining the quality of service, particularly in a country plagued by
cormption.
Overtures from the Indian govemment indicate that liberalization will
most likely come in the form of the Bar Council's adoption of new
procedures for admission of non-Indian citizens under the provision in the
Advocates Act that allows non-Indian citizens to be admitted as advocates
provided their home country allows "duly qualified" Indian lawyers tbe
same privilege.'^'' The ABA has also recently indicated its support for this
"^ Ben Moshinsky, White & Case Drops Friend to Go It Alone in Singapore, LAWYER,
Mar. 2, 2009, http://www.thelawyer.com/white-and-case-drops-niend-to-go-it-alone-in-
singapore/136955.article; see also Krishnan, supra note 3, at 96-97.
''^ See Harris, supra note 100; Ring, supra note 100.
'^'' The Advocates Act, No. 25 of 1961, 24(a), INDIA CODE (1961), vol. 25, available at
http://indiacode.nic.in; see also Neha Chauhan, Chennai Writ v Foreign Firms Adjourned:
Manu Singhvi Says Writ Politically Premature; BCI Wants Another Meeting, LEGALLY
INDIA, Jan. 25, 2011, http://www.legallyindia.com/201101251719/Law-firms/chennai-writ-v-
foreign-firms-adjoumed-manu-singhvi-says-writ-politically-premature-bci-wants-another-
meeting; Interview by Anil Padmanabhan, Liz Mathew & Nikhil Kanekal with Veerappa
Moily, Law Minister of the Gov't of India, in New Delhi, India, / Want Lawyers to be
Global Players, in LIVEMINT.COM, Jan. 30, 2011, http://www.livemint.com/2011/01/
218
31:195(2011)
approach to liberalization."' Exactly what qualifications a country would

be allowed to demand (e.g., admission on passage of a bar exam or the
requirement of additional education) before being excluded from
"reciprocal" status is unclear. An additional difficulty would arise from the
fact that many countries that produce foreign lawyers (particularly the U.S.
and the U.K.) have multiple jurisdictions and licensing authorities with
diverse stances on the admission of Indian lawyers. Given these
complexities, the Bar Council would have to exercise considerable
discretion in negotiating bilateral bar admission reciprocity with foreign
bars. Unfortunately, the statute is not worded in such a way as to make it
clear that the Bar Council has such discretionary authority with regard to
this requirement."^ This opens up the possibility of a new round of legal
challenges from protectionist factions, which, given the state of the Indian
judiciary, could be extremely protracted."*
Even if particular foreign lawyers are admitted as ftall advocates and
allowed to engage in the practice of law on Indian soil (whether limited to
foreign law or not), current Bar Council Rules make it difficult to imagine a
corporate structure that would allow foreign firms to operate in India to the
extent necessary to modernize and transform the sector. The LPO industry
has employed a corporate structure whereby the foreign firm creates a
company under the Companies Act and then hires Indian lawyers as
employees rather than partners."' This structure is unavailable to law firms
because of a Bar Council rule that states in relevant part that "an advocate
30221128/Veerappa-Moily-I-want-lawyer.html?h=Al; Malathi Nayak, Bar Council Mulls

Rules for Entry of Foreign Law Firms, LIVEMINT.COM, Nov. 3, 2008, http://www.livemint.
com/2008/11/03001137/Bar-Council-mulls-rules-for-en.html.
' " Letter from Stephen N. Zack, President, Am. Bar Ass'n, to The President of the
United States (Nov. 3, 2010), available at http://www.abanet.org/poladv/letters/intlaw/
201 Onov3_ltrtopresident.pdf
'^*' Thirty-two U.S. jurisdictions (including the leading U.S. commercial states, such as
New York, California, and Illinois, as well as the District of Columbia) have adopted the
ABA's Model Rule for Licensing and Practice by Foreign Legal Consultants. Id. at 2.
According to the ABA President,
[t]his regime allows licensed lawyers from outside the U.S., including Indian
lawyers, upon acceptance of a registration with the local bar or court, to maintain
an office in the United States and advise clients, face to face or otherwise, about
the laws of their home country without passing any examinations or undergoing
any training in the United States.
Id.; see also MODEL RULE FOR THE LICENSING AND PRACTICE OF FOREIGN LEGAL
CONSULTANTS (2006), available at http://www.abanet.org/cpr/mjp/FLC.pdf
' " 5ee The Advocates Act, No. 25 of 1961, 24(a), INDIA CODE (1961), vol. 25,
available at http://indiacode.nic.in.
"* See Krishnan, supra note 3, at 70-71.
' " See, e.g., SMITHDEHN, Profile, supra note 45; SMITHDEHN, Why Us?, supra note 45.
219
shall not be a full-time salaried employee of any person, govemment, firm,
corporation or concem."''"'
In any case, this solution is impractical for a variety of reasons.
Foreign lawyers wishing to work in the Indian office would have to sever
ties with the foreign partnership, be admitted as advocates, and take a
position as a retainer of the company. The LPO-style stmcture also
provides no solution to the problem of allowing retained lawyers a chance
to compete for partnership. This would prevent firms from being able to
properly attract and retain associates. The LPO-style stmcture would also
hinder the merger of foreign and Indian firms, thus retarding the
consolidation that is needed in the industry. Furthermore, it would create a
seemingly unfair and politically awkward outcome. Prohibition on mergers
would increase competition to elite Indian firms without giving them a
chance to cash in on the businesses they have built. Preventing Indian
lawyers from participating in the ownership of foreign firms, either through
merger or advancement, brings fears of neo-colonialism to life.
The Bar Council Rules also provide that "an advocate shall not enter
into a partnership or any other arrangement for sharing remuneration with
any person or legal practitioner who is not an advocate."'"' If an individual
'""Bar Council of India Rules, part VI, ch. 2, 49, (2001), available at
http://lawmin.nic.in/la/subord/bci_index.htm. This rule probably needs some attention from
the council since its breadth as worded is not only problematic in the liberalization context
but makes it impossible to,employ associates in a law firm or for a non-law firm to employ
in-house counsel. Lawyers in India are hired on a retainership basis in law firms (i.e., they
are professionals associated with an organization rather than employees and receive no
pension or other employee benefits). In-house lawyers may have to give up their bar license
(which under Lawyers Collective should make them technically ineligible to provide the kind
of advice their employers likely hired them for).
Note that given the broad Lawyers Collective definition of the practice of law, LPO
employees could be required to be advocates under the Act. Therefore, LPO ventures so
organized are seemingly in violation of the Bar Council Rules for the same reasons that a
similarly organized law firm would be. This issue may be brought out in the pending Balaji
case, which names an LPO, Integreon Managed Solutions, Inc., as a defendant. Balaji WP.,
supra note 27. The complaint accuses foreign firms of using LPOs as fronts for practicing
Indian Law. Id. H 12. However, as the suit develops, the issue may arise as to whether
Lawyers Collective dictates that LPO employees be licensed advocates regardless of whether
they are practicing Indian or foreign law. The rationale of Lawyers Collective seems to
indicate that it would, but the different political and economic dimensions of the LPO
situation may lead to a different outcome. For now, it is at least apparent that Indian
advocates have taken aim at LPOs. It makes sense for Indian advocates to push for LPO
employees to be covered by the Act, since this would force Indian ownership of LPOs, thus
promoting their expressed goal of maintaining control over the nation's legal infrastructure.
"" Bar Council of India Rules, part VI, ch. 3, 2, (2001), available at
http://lawmin.nic.in/la/subord^ci index.htm. This is not an unusual rule, and many
American jurisdictions have similar provisions in their codes of ethics. See, e.g.. MODEL
RULES OF PROF'L CONDUCT R. 5.4 (1983). The particular wording of the Indian mle is
unusual because it does not make clear that what is prohibited is the sharing of "legal fees"
so that in-house counsel and foreign partners are accommodated. See ABA Comm. on
220
31:195(2011)
partner in a foreign law firm is admitted as an advocate, then he can no

longer be in a partnership with his foreign partners who, while lawyers, are
not advocates under the Advocates Act. This problem would also prevent
Indian associates from progressing to the partnership level in foreign firms.
It would also hinder foreign firms in merging with Indian firms, since that
too would result in a partnership of advocates and non-advocates. Since
both problematic rules are really aimed at ensuring that law firms are
controlled by lawyers, these issues could be resolved by amending the rule
to allow advocates to partner with non-advocates so long as they are
lawyers admitted to the bar somewhere in the world.
A similar approach, and perhaps the best one, is to allow lawyers
both foreign and Indian^who are admitted as advocates under the
Advocates Act to form an Indian LLP with a foreign LLP as an additional
partner. LLPs, unlike conventional partnerships, are entities distinct from
their partners. Therefore, an advocate can be in a partnership with an LLP
without being in a partnership relationship with every member of that LLP.
It is unlikely that a foreign LLP itself could be admitted as an advocate.'""^
However, a well-crafted exception could be added to the Bar Council Rules
that allows advocates to be partners with approved LLPs although that LLP
is not itself an advocate.
Under this proposed solution, the Bar Council would have full
regulatory authority over foreign lawyers since under Lawyers Collective
they would have to be admitted as advocates to perform the transactional
services that make the Indian market so attractive.'''^ The Bar Council
could also meet its objective of ensuring the professional independence of
lawyers by careftilly screening the foreign firms allowed to be partners in
Indian law firms.
The selective LLP approach has the added advantage of allowing
gradual liberalization by admitting one firm at a time rather than by creating
two classes of law firms (foreign and Indian). This obviates the need to
place restrictions on foreign firms' practice areas that could hamper positive
Ethics & Prof 1 Responsibility, Formal Op. 01-423 (2001) (discussing the permissibility of
forming partnerships with foreign lawyers).
'""^ 5ee Sachdeva & Sachdeva, supra note 36, at 16.
''" The Advocates Act, subjects advocates to the power ofthe Bar Council disciplinary
committee and allows the Bar Council to identify foreign institutions capable of granting a
qualifying law degree. 5ee The Advocates Act, No. 25 of 1961, 16(3), 49(g), INDIA CODE
(1961), vol. 25, available at http://indiacodc.nic.in. If the court had reached a different
conclusion in Lawyers Collective, holding that foreign lawyers are not "advocates" under the
Advocates Act because transactional work on matters of foreign and international law is
deemed not to constitute "the practice of law," a considerable unregulated gap would be
created that the legislature would have to scramble to fill. The three originally licensed law
firms could immediately begin providing transactional services from Indian offices, and
other global firms could take advantage of the LLP Act to open Indian offices and follow
suit. Meanwhile, there would be no regulatory body for these "non-advocates" and no way
to provide gradual, orderly market liberalization without timely legislation.
221
ripple effects on govemance infrastmcture. It also avoids the joint venture
model which could, in the long mn, disincentivize mergers between Indian
and foreign firms and result in less Indian control of legal infrastmcture.
The most appealing aspect of pursuing liberalization through the
administrative policy of the Bar Council is that it obviates the need for
legislative action. However, simply admitting a few foreign lawyers as
advocates will do little to liberalize the legal sector. To develop a legal
profession that is capable of providing complex legal services on the scale
needed to support India's rapid economic development, the Bar Council
will also have to modify its mle on partnerships with non-advocates. In
fact, liberalization of regulatory restrictions on Indian law firms might be
asor even more importantto the growth and development of India's
legal infrastmcture as the entry of foreign firms.''*''
VI. CONCLUSION
A recent quote from Gaurav Dani, founding partner of the Bangalore-
based firm Induslaw, sums up the situation nicely:
[Liberalization] will provide us with good, healthy competition,
which will help us improve our systems. . . . [T]he reality is that
foreign firms are needed because of the current dominance of four or
five firms in our market. The future for the Indian legal sector is
firms that are institutional rather than family-runand the market's
big enough to take it.''*^
India needs to continue to attract foreign capital to invest in its

physical infrastmcture and its broader economy. Intemational law firms are
a kind of private infrastmcture that minimizes investors' risks and
''*'' See supra notes 64-70 and accompanying text; Luthra, supra note 37; Eric L. Martin,
Note, Liberalization and Cravathism: How Liberalization Triggered the Reorganization of
the Legal Profession in Germany and Japan, 43 STAN. J. INT'L L. 169, 171 (2007). Martin
examines the development of legal infrastmcture in the U.S., U.K., Germany, and Japan,
concluding that:
As economic and legal liberalization occurs within a nation, by which I mean the
lessening of state involvement in the economy and the loosening of restrictions on
the legal profession, businesses inevitably require the more complex legal services
that larger firms can provide. Meeting this demand necessitates reorganization
along Cravathist stmctural principles.
Id. Martin provides examples of how the failure to liberalize the legal sector at the same
pace as the broader economies stunted the growth and competitiveness of German and
Japanese firms. Id. at 182-84, 192-94. Finally, Martin notes that "eompetitive pressures
[from foreign firms] undoubtedly advance convergence" of a nation's legal infrastmcture to
the global norm. Id. at 171.
"^ Ganz, Two-Year Itch, supra note 127.
222
31:195(2011)
transaction costs. India's legal infrastmcture is currently underdeveloped

and inadequate. India also suffers from subpar govemance infrastmcture;
there is widespread cormption in all branches of govemment and crippling
inefficiency in its courts and agencies. Boosting the quality of legal
infrastmcture will reduce the costs of investing in India and will help attract
global talent. Stronger legal infrastmcture will lead to improved
govemance infrastmcture. In short, foreign law firms are offering India a
sort of FDI in the form of their legal expertise, organizational experience,
and financial resources. India must find the political will to accept this
investment. Liberalization should proceed in a way that ensures regulatory
oversight of the legal industry and allows Indian lawyers substantial
ownership ofthe resulting legal infrastmcture. However, any plan for legal
market liberalization should be consistent with the goal of improving legal
and govemance infrastmcture.
223
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NORTHWESTERN UNIVERSITY SCHOOL OF LAW

PUBLIC LAW AND LEGAL THEORY SERIES NO. 1149

More than Best Friends: Expansion

Electronic copy available at: http://ssrn.com/abstract=1682638

Electronic copy available at: http://ssrn.com/abstract=1682638

II. BACKGROUND ON INDIAN BAN OF FOREIGN FIRMS

A. The Lawyers Collective Decisions

The court described non-litigious practice using the exact same

'^ Lawyers Collective, MANU/MH/0846/1995, fl 1, 12.

that there is a fundamental distinction between professional and commercial

Id. Items 1 and 2 could be interpreted by a court as effectively overtuming Lawyers

B. The Limited Liability Partnership Act of 2008

C. The Changing Nature of Legal Process Outsourcing

Project Finance, FiN. EXPRESS, Aug. 15, 2009, http://www.financialexpress.com/news/

III. LEGAL SYSTEM AS INFRASTRUCTURE: INDIA'S NEED FOR A

A. The Current State of the Indian Legal SystemWidespread Corruption

B. The State of India's Transactional Bar

Context, 2006 COLUM. Bus. L. REV. 167, 187 (2006).

C. Institutional Infrastructure and Foreign Direct Investment

on the management of the enterprise resident in the other economy.

FDI is particularly important to India because it has a considerable

'" Foreign Direct Investment (FDI), UNCTAD,, http://www.unctad.org/templates/

^^ James R. Faulconbridge et al.. Global Law Firms: Globalization and Organizational

IV. MARKET RESPONSES TO LAWYERS COLLECTIVE

Northwestem University School of Law Intemational Law Society: Intemational Private

B. Best Friends Agreements

" See Krishnan, supra note 3 at 69.

The security and convenience provided by a formal tie-up between a

"" Faulconbridge et al, supra note 83, at 466-67.

A. Loopholes in the Current Regime

compliance, in addition to legal and financial due diligence, mergers and

^'^ About Us, DEZAN SHIRA & Assocs., http://www.dezshira.com/about-us.html (last

B. Proposals for Liberalization

Besides being prejudicial to the interests of the Indian legal

This reasoning is fiawed on two counts. First, the organizational and

approach to liberalization."' Exactly what qualifications a country would

30221128/Veerappa-Moily-I-want-lawyer.html?h=Al; Malathi Nayak, Bar Council Mulls

partner in a foreign law firm is admitted as an advocate, then he can no

India needs to continue to attract foreign capital to invest in its

transaction costs. India's legal infrastmcture is currently underdeveloped

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