Thursday, May 31, 2012


Bilateral Investment Treaties being paramount in the present economy it is necessary to have a carefully well-worded investment treaty to avoid potential disputes. India as of today has signed Bilateral Treaties with 82 countries out of which 72 have come into force.[1] Many countries including India being lured by the concept of economic growth have signed many Investment Treaties to attract Foreign Direct Investments so as to develop its economy. They are under a blind perception that signing investment treaties will increase investments. Hence they enter into bilateral treaties without taking cognizance of any legal implications that would follow.

BITs can have far-reaching and typically negative implications for host country governments and citizens, because of the sweeping protections afforded to investors at the cost of domestic socio-economic rights and environmental standards.[2] One of the major problems with BITs is it allows private companies to file cases against governments, and consequently subject the countries to the risk of litigation by corporations from another country which is a signatory to the same agreement. India should initiate a comprehensive review of its existing investment treaties since recent cases have shattered the myth that its investment treaties are adequate to protect the interests of investors, their rights and responsibilities.[3]

India has recently lost its first ever and the only international arbitration that it faced under a BIT till date where White Industries initiated Arbitration against in India by using the “Dispute Settlement Clause” provided under Article 12 of BIPA between India and Australia. The tribunal found India guilty of violating the India-Australia BIT because the delay by Indian courts violated India’s obligation to provide White Industries with an “effective means’ for enforcing their rights.”[4] White Industries invoked the ‘Most Favoured Nations’ Clause (MFN) from India-Australia BIT which obliged India to provide effective means for enforcing rights in relation to investment. MFN assures equally favourable treatment to the investments by the nationals and companies of a contracting country, as the Government of the investee country would accord to the investors of any other country under any other BIT.[5] White Industries imported 'effective means' provision from India-Kuwait BIT through MFN in India-Australia BIT to use it against India. An important repercussion of this ruling is that undue delays in Indian courts in disposing matters related to a foreign investor can, potentially, violate India’s BIT obligations not due to the violation of ‘denial of justice,’ but due to a violation of the ‘effective means’ standard, which requires a lower threshold than ‘denial of justice.’[6]

Similarly Vodafone has threatened to initiate Arbitration against India under the India-Netherlands BIT owing to the retrospective tax laws that was proposed by the Indian Government.  The press release posed by Vodafone on 17th April 2012 says that “the retrospective tax proposals amount to a denial of justice and a breach of the Indian government’s obligations under the BIT to accord fair and equitable treatment to investors.” In addition our country has felt the impact of cancellation of 2G licences authorised by A. Raja in 2008. Companies like Telenor and Sistema which have suffered huge losses as a result of cancellation have served notices to our Government seeking a huge compensation for their losses. Failure to resolve the issues through negotiations or discussions would only lead to arbitrations under the respective BITs being signed with the countries.

            There are major problems with India’s old-style investment treaties and the similar investor-state dispute settlement system.[7] It is high time that India should depart from the traditional old-style investment treaty model which has lead to the many problems discussed above. Consequently India must draft foolproof Bilateral Investment Treaties which would favour the policy goals of our Government and prevent future arbitrations against India. Provisions such as “Most Favoured Nations” and “Dispute Settlement Clauses” must be carefully scrutinized before inclusion so as to prevent other Countries to invoke such provisions against our Government.

            Even if India adopts a strong investment treaty model, it will not solve its problems with existing bilateral treaties. Hence India must seek suitable amendments in the existing treaties through bilateral negotiations so as to improve the same. If such amendments prove to be time consuming, a notification could be sent by our Government of its interpretation of various standards contained in the treaties.

Certain modifications are necessary in our BITs to shield our Government from the adverse affects which could be created by our Bilateral Treaties with other nations. Our policymakers should not permit investor-state dispute settlement mechanisms in BITs through which a foreign investor can instigate an international arbitration against India. Furthermore India must altogether remove provisions such as MFN in future treaties or at least forbid the possibility of importing such clauses from earlier treaties signed by India. In addition ambiguous clauses which give wide scope for interpretation must be avoided as the same would give rise to unwarranted disputes which would ultimately strain the relationship between countries.

It is true that all countries including India that have signed an investment treaty is at risk of being sued. Dispute Settlement clauses are proving to be an invitation for other Countries to initiate arbitration against India. Therefore India will have to assess the various risks and benefits that arise out of its Bilateral Treaties. Recent cases have showed the risks involved are far higher than the merits such treaties have envisaged. Our Government must recognise the downside of these treaties and amend the same to avoid future complexities. Only through creations of effective Investment treaties can India avoid the catena of cases that might arise in the near future.

[1] Ministry of Finance: Government of India []
[2] India's Bilateral Investment Treaties: Worst fears realised, Jayati Ghosh, Frontline, Volume 29 - Issue 5, March 10-23, 2012
[3] ECONOMIC ANALYSIS: India's "Bilateral Investment Treaties": A New Form of Colonialism?, Kavaljit Singh, Global Research, April 30, 2012
[4] White Industries Australia Ltd. (Claimant) v. The Republic of India (Respondent), Final Award, 30 November 2011
[5] India’s Battle Under Bilateral Investment Treaties, Alishan Naqvee, LexCounsel Law Offices, April 2nd, 2012
[6] The White Industries Arbitration: Implications for India’s Investment Treaty Program, Prabhash Ranjan, Investment Treaty News, April 13, 2012
[7] India’s Many Investment Treaties Make it Vulnerable, IISD Commentary, January 2012, pg.2

This article was writen by Mr. B. Deepak Narayanan and Ms. K. Priyadarshini, interns at CNICA.

Friday, May 18, 2012

Fly In Fly Out Policy for International Law Firms 

International law firms are having to fight tooth and nail for the right to practise in India

India has been high on foreign firms’ lists of target countries for decades, but has also been a source of frustration. While the global legal market has been steadily opening up to international players - South Korea is the ­latest to allow foreigners in - India has remained stubbornly closed. And if some of the country’s lawyers got their way, it would ­become even harder for international firms to do business there.

At present the international firms ­operate ’India desks’ from their home ­jurisdictions. When Indian advice is required, they turn to Indian firms; when foreign advice is needed for ­Indian clients, they pick it up. ­Naturally, there is a need for lawyers to see clients for both inward and outward deals on the ground, so foreign lawyers ’fly in and fly out’ of India to do so.

Protection racket

But this way of doing business has ­always been controversial in some quarters of the Indian legal profession. In late 2009 the Bombay High Court ruled against foreign firms in a case brought by a group of Indian ­advocates, the Lawyers Collective, finding that the foreign firms should not have been allowed to set up ­liaison offices in India. The ruling led Ashurst to close its Delhi branch and international firms were forced to look for alternative ways of working in India.

However, less than a year after the Bombay decision, a further challenge to foreign law firms was launched, this time in the Madras High Court in Chennai.

The petition, filed by lawyer AK Balaji, asked the Indian government, the Reserve Bank of India and the Bar Council of India (BCI) to “take appropriate action” against a large group of named foreign firms plus “any other foreign law firms or foreign lawyers who are illegally practising the profession of law in India and forbear them from having any legal practice, either on the litigation side or in the field of non-litigation and commercial transactions, in any manner within the territory of India”.

The case took far less time to reach court than the 14 years between the filing of the petition and judgment in Bombay. In February this year Chief Justice Eqbal and Mr Justice Sivagnanam handed down their ­decision, which clarifies that “fly-in, fly-out” does not contravene India’s Advocates Act 1961.

The petition argued that there was “absolutely no scope” for foreign lawyers to practise law in India under the act or to enrol as advocates with any state bar, thus escaping regulatory oversight in the country. It also suggested that by flying in and out, foreign firms were earning client money while on visitors’ visas and were violating income tax laws.

The petitioner said foreign law firms treated the practice of law as “nothing short of a trade or business, far different from the nobility attributed to it by Indian lawyers”, noting that Indian firms are prohibited from advertising and marketing their services, whereas international firms routinely do so. He argued that even though Indian lawyers are able to practise in the UK and US, doing so incurs a significant cost and time burden.

Firms’ rebuke

The foreign law firms named as respondents by the petitioner included all of the magic circle, Ashurst, Eversheds, Norton Rose, Slaughter and May and a large group of US firms, ­including Arnold & Porter, Covington & Burling, Shearman & Sterling and White & Case. Australia’s Clayton Utz and Freehills were also named.

The firms’ responses to the petition were fairly uniform. All the firms pointed out that they did not have ­offices in India and did not practise Indian law; nor did they have any ­intention of practising Indian law. They also noted that, contrary to the petitioner’s claims, it remains fairly straightforward for Indian lawyers to set up representative offices in the UK and US or to requalify as UK ­solicitors or US attorneys.

The respondents also made the ­argument that restricting the fly-in, fly-out practice could have a detrimental effect on the Indian economy. Speaking for eight US firms, counsel Abhishek Manu Singhvi said that ­advising on foreign law was not banned by the Advocates Act.

“According to the learned counsel, by the present writ petition,” said the judgment, “the petitioner wants a ban by way of judicial legislation on the entry of foreign law firms in India, especially when there is no statutory ban in this behalf. This, he states, would have serious consequences on foreign investment in the country in this ever-expanding era of global economy.”

Arbitration creation

The growing importance of arbitration to India was also discussed by the court. The Indian government has stated that it wants to make India a hub for arbitration, but counsel pointed out that if foreign lawyers were not allowed to come into the country to advise on international issues related to a dispute, the arbitrations would have to go elsewhere.

“We find force in the submission made by the learned counsel appearing for the foreign law firms that if foreign law firms are not allowed to take part in negotiations, for settling up documents and conducting arbitrations in India, it will have a counterproductive effect on the aim of the government to make India a hub of international arbitration,” agreed the judges, who also called this a “far-fetched and dangerous proposition”.

Similarly, the judges agreed that if foreigners were banned from coming into India to advise on their own laws, this would create a “manifestly absurd situation”, as Indian lawyers are trained only in domestic law and not in any foreign law.

Concluding, they dismissed the petition and said there was nothing in Indian legislation preventing international firms from flying in and out, nor anything stopping an outsourcing company such as Integreon, which was named in the petition, from providing non-legal services out of India.

The decision was welcomed by the foreign firms as well as a number of Indian lawyers. Dua Associates partner R Senthil Kumar, who acted for the group of US firms led by White & Case, thinks in principle most ­Indians accept the practice.

“The bulk of people in law firms who actually have a practice that ­involves foreign laws are okay with foreign lawyers flying in and out to practise foreign law,” Kumar says.

What’s the problem?

Foreign lawyers agree that to date there have been few issues on the ground in India.

“We’ve not encountered people having difficulties with us being in India on that basis,” reports Herbert Smith executive partner Chris Parsons, who heads the firm’s India group. “On the contrary, we’ve found Indian lawyers to be very welcoming and I hope pleased to see us and ­others.”

But at the end of April the BCI filed an appeal to the Supreme Court of India. Indian legal news websites ­reported that the BCI’s counsel, ­Ardhendumauli Kumar Prasad, said the issues should not have arisen in Madras as they had already been dealt with in Bombay - something that the Madras judges disagreed with. The BCI did not answer The Lawyer’s request for comment on the matter.

Quite how long the case will take to get to appeal is uncertain, with the Indian court system not renowned for being particularly speedy.

Brit grit

Another possible aspect of appeal could come from Clifford Chance, which was grouped in the case ­alongside Ashurst, Bird & Bird, Clyde & Co, Eversheds and Linklaters. ­Partner Sumesh Sawhney says the judgment was unclear on whether foreign lawyers are banned from practising non-Indian law in India.

“If that’s the case, we consider it to be unnecessarily and unreasonably restrictive and we believe it would be a misreading of the Advocates Act, which we don’t believe was ever intended to address the question of the practice of non-Indian law,” says Sawhney. “We’re currently considering whether an appeal to get clarity on these points is appropriate.

“What also remains to be addressed by the Indian authorities is the bigger issue of collaboration and partnership between Indian lawyers and international law firms, and of international firms advising on ­Indian as well as non-Indian law.”

Clasis Law partner Sakate Khaitan says he welcomes the judgment as a clarification of what many firms are already doing. Clasis formed an association with Clyde & Co in April 2011 and has its own London office in the UK firm’s City building. Khaitan himself is based at the UK office and is dual-qualified in India and the UK, but agrees with the Madras judges that Indian lawyers working in India are not in a position to provide foreign advice.

“I don’t know of any Indian lawyer residing in India and practising Indian law who has the ability to advise on UK or US law as proficiently as an international firm,” Khaitan states.

He adds that stopping the fly-in, fly-out practice would not benefit India on a global scale.

“It would be very difficult for a lot of the multinational clients operating in India if the Supreme Court were to stop fly-in, fly-out. Clients would need to travel, making it more expensive for Indian corporates,” Khaitan points out.

While in the short term he thinks it would benefit firms with UK offices, such as Clasis, ALMT Legal and Fox Mandal, ultimately Khaitan, like much of the market, hopes the Supreme Court upholds the Madras judgment.

Road to nowhere?

However, the longer-term goal of an opening-up of the Indian market and permission for international firms to launch offices there still seems a long way off.

“We continue to believe that the ­removal of restrictive barriers in the Indian legal market will bring direct benefits to the Indian economy and to Indian businesses and bring ­positive advantages to the profession domestically, and we look forward to a time when the Indian government is ready to take concrete steps in this direction,” says Clifford Chance’s Sawhney optimistically.

In brief

Everybody wants to be in India, but a battle continues to be fought over the extent to which foreign lawyers can work there. A recent judgment in the Madras High Court was set to rubber-stamp the practice of flying in to offer foreign advice, but with an appeal pending, what does it mean for international business in this key market?