Shilpi  Gupta
Shilpi Gupta
David A. Carpenter
David A. Carpenter
Raj N. Shah
Raj N. Shah

As the business climate in India shows signs of warming up to foreign investment, law firms are cautiously optimistic about what that could mean for clients and the legal industry.

“(Prime Minister Narendra) Modi has made it a top priority to re-engage,” said DLA Piper partner Raj N. Shah. “He has really re-invigorated everybody. There’s a renewed uptick among our clients in doing business in India.”

Shah, the firm’s India initiative U.S. co-chair, was in the country last month shortly after President Barack Obama’s second trip to India. There was a lasting energy and buzz after the visit, he said, which marked the first time a U.S. president had gone to the country more than once while in office.

The Modi administration’s first full-year budget proposal is being released this weekend, and many are keeping an eye on whether the pro-business reforms Modi talked about during his campaign will be priorities.

Shah said the interaction between Obama and Modi signals strengthening ties between the countries that may translate to more business investment in the country and Indian companies looking to expand internationally.

While the 2008 downturn in the global economy slowed the pace of business growth in India, David A. Carpenter, co-chair and a founder of the India practice at Mayer, Brown LLP, said he is seeing positive signs, such as the rupee gaining strength, since Modi came into power.

But he cautions that India has never been a place that acts quickly, and so far, progress has been quite reserved.

“You’re never going to see things happening overnight there. But from what I see from the Modi administration, I think they’re moving in a good direction,” he said. “The proof is in the pudding.”

Doing business sans office

Because the Indian bar prohibits international law firms from having offices in the country and bars foreign lawyers from practicing Indian law, firms have developed different strategies over the years to advise clients on international legal issues.

Generally, they partner with Indian firms to handle local matters. The India initiative at DLA Piper has eight attorneys who serve as liaisons between Indian firms and the firm’s clients and attorneys.

Shah connects with and evaluates Indian attorneys to provide referrals for his colleagues to firms that will match with their clients’ needs.

“We don’t mandate that any of our partners work with anyone in particular,” he said. “With the attorneys we have, we end up with a lot of different attorneys working with a lot of different firms in India.”

Shah, who focuses on complex commercial litigation, has represented Indian companies involved in cross-border transactions. The firm has helped clients in the media, oil and gas industries and has done work for large manufacturing facilities on inbound and outbound transactions.

Mayer, Brown formed its India practice group in 2004 and works in a similar fashion. Carpenter, whose practice focuses on mergers and acquisitions and joint ventures, said the lawyers they usually work with come from the country’s largest law firms, which tend to have 120 to 200 attorneys.

Indian law limits the number of partners allowed at firms, he said, so they aren’t as large as national firms in other countries.

Skadden, Arps, Slate, Meagher & Flom LLP also has a group of partners who are devoted to work in India. Partner Shilpi Gupta, whose practice includes mergers and acquisitions and corporate finance matters, said having connections to local firms is critical, particularly in handling the bureaucracy and regulatory environment in the country.

“From my perspective, M&A is M&A wherever you go, whether it’s Australia, India or the U.S. A lot of the same principles apply,” Gupta said. “But there are nuances you need to take into account. That’s where local counsel is extremely helpful in their expertise.”

If a client wants to operate a business in multiple cities, for example, separate business permits and tax registrations would apply in each location, as well as county or state permits, Gupta said.

In some cases, Carpenter has seen involvement from sub-regulators in matters — such as a real estate project that needed approval from a local fisheries board and a municipal board.

Corruption and transparency issues can also make it challenging for western investors to navigate. Although the caps on foreign investment have increased, he said there’s not a lot of free capital flow in and out of India because it all goes through a single source, the Reserve Bank of India.

The Indian government approved an ordinance last week to raise the foreign direct and portfolio investment in Indian insurance companies from 26 percent to 49 percent. Modi’s cabinet also floated a proposal in December that would allow foreign investors to purchase 100 percent stake in Indian medical device manufacturers without government approval.

Different cultural styles in handling business transactions also come into play. Carpenter and Gupta both said it takes more time to work on deals.

“(In India) once you get to a document, that’s when the real negotiations begin,” Carpenter said. “There’s less certainty that a deal will get done even when you have a term sheet in a good form.”

Taking those style differences into account and minimizing potential problems by setting expectations and making sure clients and attorneys are compatible with each other is a central part of Shah’s role.

The various challenges of doing business in India, including an 11½ time zone difference, haven’t stopped big transactions from getting done.

Last year, Gupta represented Visteon Corp. in its $265 million cash transaction to acquire the automotive electronics business of Johnson Controls, which has a portion of its operations in India.

In 2012, Carpenter worked on a $1 billion outbound transaction for an Indian gas and oil subsidiary, Hinduja Group, on its acquisition of Houston-based Houghton International.

DLA Piper advised the Indian government and the world’s largest coal miner, Coal India Limited, in the largest initial public offering in the history of Indian capital markets in 2010. The $3.43 billion IPO was also the third-largest IPO in the world that year.

“I think energy is going to be a big part of the activity and outward looking aspects of India,” Shah said.

Shah said he sees growth in the coal, shale, oil and gas industries and anticipates that India will look more to Africa, South America and the U.S. as demand grows. The country is also strong in information technology and has some of the largest consulting firms in the world.

India has always been strong in service industries such as call centers, Carpenter said, and he sees growth in telecommunications and manufacturing.

Indian companies will also continue to branch out internationally, and Carpenter cites Tata Technologies — an engineering services, product development and IT consulting company — as one example. The subsidiary of Mumbai-based Tata Group Worldwide opened an engineering innovation center in Troy, Mich., in 2013 to work on electric car technology.

“I think India will continue to thrive in the outsourcing business,” Carpenter said.

A shingle in Mumbai?

While clients will likely have more business in India in the future, the likelihood of international firms hanging a shingle there remains a mystery.

Shah said predictions are constantly changing, with some who say it could happen in about three years and others who believe it will be a decade or longer.

Carpenter’s impression is that the Bar Council of India, the regulatory body of the country’s legal profession, wants to maintain the status quo and that many Indian firms are concerned about outside competition.

In 2010, Indian lawyer A.K. Balaji filed a lawsuit in the Madras High Court against 30 international law firms alleging that foreign lawyers from the U.S., UK and Australia were illegally practicing in the country without a license.

BCI and the Indian government filed affidavits supporting Balaji’s arguments. Indian courts ruled that lawyers could fly in and out of the country to advise clients on foreign law. The case has since been on appeal.

But in comments published this week in the Business Standard, Lalit Bhasin, president of the Society of Indian Law Firms, said he is in favor of gradually opening up the legal sector to foreign law firms.

For now, attorneys said India is a great market and that their firms will continue to advise clients and operate under whatever regulatory model is in place in the country.

In addition to its work with clients, Mayer, Brown has also provided pro bono support to Indian companies and multi-national companies interested in corporate social responsibility programs, such as microfinance loans to individuals for business activities that benefit their local economies.

For Shah and Gupta, who are both of Indian descent and grew up in the U.S., working with clients on matters in India is personally gratifying. Gupta and his wife have family in the country and travel there frequently.

“To have the opportunity to work on transactions there, I really enjoy it,” he said. “It allows an additional connection to a place that’s very close to my heart.”