India Business Law Journal Article

Published on November 6, 2023

Our annual ‘State of the Legal Market’ survey finds that AI, specialist firms, discerning clients and the paired trends of fragmentation and consolidation are preoccupying the legal community. Katherine Abraham reports

Big changes are afoot in the Indian legal landscape with the arrival of foreign firms and the integration of artificial intelligence (AI) technology.

Old-fashioned lawyers who once struggled over basic computer technologies must now come to terms with AI for their firms, and there are fresh challenges as law firms pursue premium clients in an increasingly competitive environment.

On top of this, India’s legal system is progressing through a substantial overhaul. There is a legislative bill for a new principal law on criminal offences, Bharatiya Nyaya Sanhita. It has not just been Sanskritised in name, it has chosen a new course. The bill includes – but is not restricted to – repealing sedition, a new penal code against mob lynching, death for rape of minors, and first-time community service as a punishment for petty offences.

Another key legislative proposal is to replace the Code of Criminal Procedure with the Bharatiya Nagarik Suraksha Sanhita. Its bill proposes 533 sections in which 160 sections have been changed from the old code. Nine new sections have been added, while another nine have been repealed.

Behind the scenes, lawyers say they are expecting technology to freshen their business activities. There’s an optimism that AI applications could enhance reach and usage to help existing legal services through e-discovery, contract management and legal analytics.

Against this backdrop, India Business Law Journal surveyed law firms across the country for differing thoughts, ideas and challenges from a who’s who of the legal market.

Our annual survey on the state of the legal market has been done in conjunction with the release of the India Business Law Directory, which can be read in the pages that follow. This year’s survey received responses from 70 Indian law firms of various scales and specialties.

Bigger is better?

The legal market in 2022-23 witnessed a trend of law firm fragmentation alongside instances of practice consolidation. For clients, escalating numbers of mid-sized firms are bringing reduced costs; for traditional law businesses, it means increasing competition.

Notable recent mentions include the merger of Atlas Law Partners with Luthra and Luthra Law Offices. Atlas co-founder Harry Chawla became managing partner after the merger, bringing his team to form a robust combined entity with the Luthras.

Similarly, Saraf and Partners absorbed boutique real estate firm SRGR Law Offices; Akshat Pande’s Alpha Partners merged with Kolkata-based Fox & Mandal; and Prashant Mara’s BTG Legal merged with Advaya Legal to form BTG Advaya.

Further, Siddharth Raja, former co-founder of Samvad Partners, has merged his individual practice with Mumbai-based first-generation law firm Vertices Partners.

Foreign firms

It seems the arrival of foreign firms is occupying many minds in 2023. “The most significant development has been giving access to Indian markets to foreign law firms by the Bar Council of India,” says Nitu Agarwal, founder and partner at Mumbai’s YNSS Law Offices. “The big law firms may see a high attrition rate in the short term as the foreign law firms may have deeper pockets to pay a higher salary to acquire talent.”

Kritika Krishnamurthy, founding partner at AK and Partners in New Delhi, says: “Foreign law firms are now joining hands with Indian law firms to create hybrid entities that are capable of legal advisory internationally from one point.”

But Krishnamurthy says this is still going to mean stiff competition within the Indian market. “This has really brought the reality home for Indian law firms, especially mid-sized and small-sized firms, that survival can become an issue if services are not up to international standards,” she says. “These law firms could also be in direct competition with the top-tier law firms who were [previously] the point of contact to facilitate such advisory.”

The hiring and retention of the best legal talent is a huge challenge, according to Reena Khair, senior partner at Kochhar & Co in New Delhi. “The most significant development has been the substantial increase in the demand for legal services in India. This trend is visible both in respect of litigation and non-litigation work.”

However, Zulfiquar Memon, founder and managing partner at MZM Legal in Mumbai, draws back a little from the views of his counterparts. “I feel this is a highly anticipated space and many international players are eyeing the opportunity,” he says. “I am not sure if it is a significant development, but the news around international law firms getting clearance on their footprints in India gathered some traction for a while. I think there was some excitement related to this information. However, when we carefully examined the development, it was hardly anything relevant.”

In addition to foreign firms and AI, Gunita Pahwa, joint managing partner at S&A Law Offices in Gurugram, identifies alternative dispute resolution as a disruptor to traditional law business. “Mediation and arbitration are becoming more popular, particularly in commercial disputes,” she says.

Smaller and trendier

AK’s Krishnamurthy sees market signals that bigger may no longer be universally considered better. “The next big trend, which perhaps not many people are noticing, is the number of mid-sized and small-sized firms that are now present in the market,” she says. “They are all headed by partners from tier-one firms promising the same level of expertise at lower prices.

“Niche law firms, smaller in size, but where clients have access to equity partners for direct meetings and advisory, are being favoured by many foreign investors over a big setup where you deal with a principal associate or a salaried partner.”

There is evidence to back Krishnamurthy. Earlier this year, former Juris Corp partner Neeraj Dubey established his own firm, The Valid Points Law Offices, with big, nationwide plans. Similarly, Priyanka Chaudhari, former Netflix India director and counsel, launched her own independent practice this year. After 18 years, Jayashree Dasgupta departed from Dhir & Dhir to establish an independent litigation chamber in South Delhi.

Nishita Malik, a partner at Sumanto Basu and Associates in New Delhi, likewise identifies this as a trend. “There seems to be a shift from previously family/single person-controlled big law firms to smaller more dynamic firms having various highly skilled personnel at the helm,” she says. “The shift to a more egalitarian culture, where younger lawyers are set to lead and have the means and opportunity to advise on big transactions, is the development the legal services market in India is seeing now.”

Society of Indian Law Firms president Lalit Bhasin, the managing partner of Bhasin & Co in New Delhi, speaks of a turning tide in corporate business. “Law firms’ engagement with the company has seen a marked decline as companies rely more on their in-house legal teams, and only in extraordinary matters or in the field of litigation are law firms involved,” he says.

Akshaya Bhansali, a partner at Mindspright Legal in Mumbai, says India’s growth is reaching new heights with “a strengthening partnership between corporate and law firms in India”.

“Earlier this relationship was focused on providing legal solutions to the problems which the companies used to face; now the companies … first approach law firms to make legally sustainable plans,” she says.

S&A’s Pahwa suggests the relationship between companies and law firms has “evolved for the better” in a climate of increasing “transparency and appreciation of legal recourse”. “Prioritisation of pre-dispute stage strategies, advisory and risk assessment has improved,” she says. “The importance of regular communication and legal case reporting to companies and client management is better appreciated by law firms and companies.”

Zia Mody, co-founder and managing partner of AZB & Partners in Mumbai, observes general counsel are much more active in setting the terms of relationships between their companies and law firms. “The companies are very clear as to, in their mind, which law firm has the domain in which practice area,” she says.

MZM’s Memon agrees business is flowing towards responsive, agile law practices. “Clients who are small and medium companies who have regular businesses … lately have been preferring small boutique firms for their specialised legal assistance – for example IPR, employment, compliance, internal investigations and fraud,” he says.

“Many clients have actually stopped engaging with their firms and prefer smaller boutique practices run by erstwhile senior partners of large law firms, which turns out to be cost effective and easy to navigate.”

Pravin Anand, managing partner of Anand and Anand, pinpoints key developments

The most significant developments in the legal services market in India during the past year are below:

Technology integration. Law firms, legal professionals and courts have adopted legal tech tools for research, document management, case management and client communications. This trend is expected to continue, enhancing efficiency and facilitate public/client service.

The Mediation Bill, 2023. The bill requires people to try to settle civil or commercial disputes through mediation before going to court. The bill promotes mediation, enforces mediated settlement agreements at the will of the parties, provides a body for registering mediators, encourages community mediation and makes online mediation acceptable.

Emergence of alternative legal service providers. Besides traditional law firms, alternative legal service providers have gained ground. These include legal process outsourcing companies and legal tech startups that offer cost-effective solutions for tasks such as document review, contract management and legal research.

Regulatory changes. The introduction of the Advocates (Amendment) Bill, 2023, is aimed at the elimination of touts by empowering the courts to publish lists of speculated individuals acting as middlemen between clients and their legal representatives.

Virtual courts and e-filing. The pandemic accelerated the adoption of virtual court proceedings and e-filing systems in India. This digital transformation has continued to assist the courts, legal representatives and clients, making legal processes more accessible and efficient.

Legal education. Legal education and training programmes in India are evolving to meet the demands of the modern legal services market. Many institutions have offered specialised courses in areas like intellectual property, international law and cyber law.

Foreign firms. The Bar Council of India allowed foreign law firms to practise in India. However, it restricted their scope of operations to non-litigation areas such as advice regarding foreign and international law. The said provision safeguards the interests of the Indian clients as well as the legal practitioners.

Specialised practice areas. Law firms have been increasingly specialising in niche practice areas such as intellectual property, technology law, environmental law, and arbitration. Clients have been seeking specialised expertise for complex legal issues.

Ethical and professional standards. There has been a growing emphasis on ethical and professional standards in the legal profession. Initiatives have been taken to promote transparency, accountability and adherence to high ethical standards among legal practitioners.

 

AI: Asset or liability?

The pandemic has highlighted the importance of collaboration within law firms. Work-from-home lawyers can’t simply walk up to their colleagues’ desks, and law teams require efficient and effective tools to digitally collaborate in real-time. The introduction and inclusion of AI in moderate amounts has been a key development.

“The most significant development in legal services in India, I feel, is the use of AI in the legal field to make the legal system better,” says Mindspright’s Bhansali. “Technology has an important role … and, with young decision makers, India can improvise its judicial system.”

S&A’s Pahwa believes an AI-supported legal system “will have a better reach and utilisation” as humans test the newfound limits of machines and India’s Digital Personal Data Protection Act kicks in. “In addition, online dispute resolution platforms, legal-tech startups, legal digital media and legal publishing platforms have also evolved and transformed,” she says.

“It is a transformative phase driven by technology and new developments, which I believe will enhance the efficiency, accessibility and effectiveness of legal services.”

A vast majority of participants seem inclined towards the inclusion and adoption of AI for legal ease. “With the adoption of AI, instead of spending hours on data collection, the time saved could be used for roles that require greater intellectual engagement,” says Rashi Suri, managing partner at Upscale Legal in New Delhi.

But, it seems one must tread carefully. “Technology backed by AI needs to be adopted with abundant precaution,” says Suri. “AI-backed machines function only on the basis of information fed to them and they also need to be taught how to process that information.”

Better legislation, less interference

With general elections due in April 2024, the Indian government has been working quickly to pass legislation. This has stirred both the bar and bench.

“Many laws and policies have led to ambiguities causing uncertainty,” says Sumanto’s Malik. “It would be preferable for the overhauling of various legislation to be done from a more holistic approach with inputs from the relevant industry/sector players.”

“India is on the cusp of a major leap forward,” says Gautam Khurana, managing partner at India Law Offices in New Delhi. “Our general elections scheduled for 2024 would be the most important factor that would influence the Indian market.”

Upscale’s Suri says that instead of only introducing laws and legislation, the government should first reduce regulatory complexity. “The government should consolidate the laws and agencies … thereby reducing regulatory complexity, encouraging formalisation of the workforce and enhancing flexibility for employers,” she says.

Hitesh Soni, founder of Hitesh Soni & Associates in Mumbai, has a similar opinion. “The government ought to make efforts towards the establishment of a unique window that will be staffed by experts who are able to contribute to the enhancement of corporate governance,” he says.

YNSS’ Agarwal elaborates. “The government needs to consider having a single window clearance for registrations, licences and clearances required for incorporating and operating a company in India,” she says. “The regulatory regime in this aspect needs streamlining to a large extent.”

SILF’s Bhasin plumbs for clarity and consistency in subordinate legislation. “Rules and regulations keep on changing every year,” he says. “This should be avoided, and a clear-cut provision should be made that there would be no change for the next five years.”

Macro challenges

India has been on the front foot with proposing new legislation, but legal industry experts believe policymaking is far from policy implementation.

“While the government brings in industry-friendly policies and a non-adversarial tax regime, it is the implementation which is really bad at ground level,” says Ashok Dhingra, senior partner at Ashok Dhingra Associates in Gurugram. “Corruption is one of the major challenges, which is not abating.”

Adding to this, there are “inconsistencies” in the regulatory framework. “There are instances of incoherence in the regulatory framework where one agency is not in sync with the laws and framework of another agency, which may be in control of the same industry,” says Upscale’s Suri. “This needs immediate attention to make India a friendly investment destination.”

Then there are the problems that are familiar to countries around the world. “Among India’s many macro challenges, moderate demand and high inflation are the most concerning,” says S&A’s Pahwa. “In April 2023, the Asian Development Bank projected growth in India’s GDP to 6.4% in fiscal year 2023 … and rising to 6.7% in FY2024.”

AZB’s Mody offers a basket of contributory factors including “the geopolitical uncertainty generally, the state of the US economy and its infection effect on India”.

Other issues highlighted by lawyers include unemployment, disparity in the legal education system and the legal market, and students who fail to meet industry standards.

“The World Bank’s Ease of Doing Business index ranks countries based on how well they protect property rights and regulate businesses,” says Pravin Anand, managing partner at Delhi’s Anand and Anand. “India’s ranking in the Index was 63rd for 2022, which is a significant improvement from being ranked 77th in 2019.”

Anand has a list of ideas for the Indian government, including: “reduced transaction costs, faster project implementation, enhanced predictability, encouragement of real estate development [which can] boost economic growth and create jobs, fostering land market efficiency, and attracting foreign investment apart from supporting small and medium-sized enterprises, reduction in corruption, and modernising and digitising land records as part of property acquisition reforms”.

Geopolitics

Ashok Dhingra says he has not seen a decrease in any practice area, but Zia Mody notes “general market conditions in India and globally” have affected capital markets practice, while data protection and privacy has newfound enthusiasm from “new legislation high awareness”.

Suri brands India as a new “global capability centre”. “Given India’s large technical talent pool, many global corporations have established their captive centres in India in the past decade or so,” she says.

Khurana says Indian businesses face risk from a high dependency on imports and rapid changes in geopolitical circumstances. “India’s supply lines are still dependent and need protection over the next three to five years, till the transition can take place successfully,” he says. On the flip side, he says “the new cycle of investment has brought a rush to launch new products and manufacturing. This seems to be triggering M&A transactions.”