India Business Law Journal – February 2012

In the limelight

The eyes of the world are on India. A series of court decisions, some triggered by corruption scandals of unprecedented scope, have upped the uncertainties of functioning and investing in the country

Add to this, the current government’s inability to move forward on any front. This is bad news for the rest of the world as it looks to India and other emerging economies to reignite a stalled global economy.

The Indian parliament, in particular, is racked by frequent disruptions and nearly 40 bills lie unattended. One area in which parliament and successive governments have made little progress is updating the country’s labour laws. As a result, India’s labour regime is out of sync with that in most other jurisdictions and investors are often caught off guard when confronted with a complex maze of Indian regulations.

This issue’s Cover story (Hard labour) shows that employers in India have little wiggle room when dealing with staffing issues. It provides practical examples of the ways in which labour laws in India differ from elsewhere and provides insights into the legal situations that employers face.

While most employers use contract labour to get around the complex maze of regulations, this too can be problematic. The result can be expensive industrial action.

But it’s not all bad news for investors. This issue’s What’s the deal? (Vodafone gets through) provides details of an eagerly awaited and significant ruling of the Supreme Court in the Vodafone tax dispute that has significantly boosted investor sentiment. Looking at what this pro-taxpayer ruling means for other companies, we detail other transactions that have similarly been caught in the taxman’s net and might benefit from this ruling.

While the ruling has been a setback for India’s tax authorities, it has provided much needed clarity on their jurisdiction. For, as the judgment holds: “Revenue [authorities] cannot tax a subject without a statute to support [their actions]”. However, as one of the three judges noted, this ruling could provide “food for thought to the legislature” to put in place legislation to “plug the loopholes” in the current laws. Will this prompt parliament to act?

An area where India has made a great deal of progress – thankfully with no need for help from parliament – is in outsourcing. In Vantage point (A symbiotic relationship), Ashish Arun, a founder and managing partner of Offshore Research Partners, a Kolkata-based legal process outsourcing company, explains that the successes and failures of a legal process outsourcing provider and its clients are increasingly intertwined.

This is remarkable as outsourcing companies – especially in the niche area of legal outsourcing – often depend on a few fickle clients and margins are low. But, as Arun says, outsourcing has helped change the face of the legal services industry. As a result, the structure of the law firm itself is undergoing change.

In some other jurisdictions this has meant that junior lawyers are often under pressure to justify their existence. This is not yet the situation in India, where we discover that junior lawyers face a different set of challenges (Survival of the fittest). They work long hours, face fierce competition, and enjoy little by way of mentoring.

Many junior lawyers speak of being thrown in at the deep end when they began their careers. India’s top law firms may need to do more to groom and nurture their young recruits if they are to get more out of them and attract the best new talent.

This issue includes special coverage of India Business Law Journal’s annual Indian Law Firm Awards (Intelligence report). Last year saw unprecedented market challenges, which propelled some law firms forward, while others fell back. To find out which firms finished the year ahead of the pack, our editorial team turned to clients and fellow practitioners, hundreds of whom nominated their top law firms.

As expected, and as in our previous three surveys for these awards, many of India’s largest full-service firms scored highly.

The prestigious award of Law Firm of the Year, 2011, goes to AZB & Partners, which picked up awards in 12 of the 20 practice areas covered. The firm was also a key adviser on 19 deals in India Business Law Journal’s 2011 Deals of the Year. This is a remarkable feat for a law firm that last year had to realign itself after two short-lived marriages – with Clifford Chance and Anup S Shah. Clearly, AZB & Partners knows how to stay on its feet in times of crisis.

Staying calm in a crisis is also vital for anyone who is currently managing a company in India. Yet as recent cases show, some managers may have reason to panic. There is an increasing incidence of senior executives being prosecuted for corporate wrongdoings. In some cases they are even being denied bail (No escape).

While this has prompted a growing debate on the vicarious liability of the management of a company, a more immediate problem may lie in how magistrates apply existing bail provisions. “We need better education and awareness among the magistrates,” says Suman Khaitan, managing partner of Suman Khaitan & Co.

Ultimately, the solution to the significant increase in directors’ liabilities may lie in companies carrying out better due diligence and also obtaining good insurance coverage.