Riding a dynamic private sector in one of the world's most touted emerging economies, Indian law firms have rapidly evolved in recent years. Friederike Heine asks if this legal elite is ready to compete on the global stage

The Bandra Kurla Complex, a sprawling financial and commercial centre in North Mumbai, is being fashioned as the Canary Wharf of the Indian financial capital. It holds the National Stock Exchange, ICICI Bank, Citigroup and JP Morgan Chase, as well as an increasing number of India's leading law firms.

The hectic pace of economic activity in the complex commonly known as BKC is set against the backdrop of the bustling Dharavi slum, situated just opposite the complex on the other side of the Mithi River.

This labyrinth is made up of 60,000 structures, many of them shanties, with as many as one million people living and working on a triangle of land half the size of Manhattan's Central Park.

Dharavi is one of the world's most infamous slums – a cliche of Indian poverty. It is also a churning, industrious hive of workshops with an annual economic output estimated to be upwards of $600m (£382m) and growing fast.

It doesn't take much effort to find parallels between the juxtaposition of shiny modernism and a frenetic street-level economy and the dynamism of India's burgeoning legal market. Some of the country's most established law firms – including 'promoter-driven' Amarchand & Mangaldas & Suresh A Shroff & Co – have more than tripled their lawyer numbers since economic liberalisation in India in 1991, and have since become preferred advisers to the great and good of corporate India.

Yet some well-known practices still run as one or two-partner operations out of modest offices in South Mumbai, advising a handful of clients on matters ranging from acquisitions to family succession planning. Another group of firms, including top-tier players J Sagar Associates (JSA), Khaitan & Co and Luthra & Luthra, has moved to introduce modern business systems – in many cases emulating Western management models.

Yet other law practices still have hazy boundaries around subjects such as conflicts and obtaining licences and permissions and seem to be operating in a different world entirely.

Rapid expansion at some of the larger firms – organically and, increasingly, through lateral hiring – as well as a lack of training and institutionalised processes have resulted in very variable standards across seniority levels at law firms.

Adding to these structural tensions is the fragmented and regional character of the national legal market, not to mention the challenge of responding to the rising demands of a less deferential younger generation of lawyers.

All the while the economy continues to boom, potentially positioning India alongside China as one of the emerging economy giants. With a population of 1.2 billion, making it the most populous democracy in the world, India has rapidly become an international force in sectors like telecommunications, outsourcing, IT, steel and textiles.

Furthermore, the economy, estimated to be worth $1.84trn (£1.1trn) in 2011 by the International Monetary Fund, is expected to expand robustly in the years ahead, powered by a young population and a fast-expanding middle class.

"These are all classic behaviours you would expect from a market that is little over 10 years old," argues Reena SenGupta, who in 2001 founded UK-based RSG Consulting, which has in recent years been researching the Indian legal market. "A lot of the problems will be flushed out naturally as the market develops, but the question is whether the dominant firm leaders will succeed in building sustainable institutions."

Judging financial performance is difficult, given the relative lack of reliable data. However, a 2011 report by RSG estimated that the country's 40 largest law firms generated around $460m (£291m) in fees, with the top five firms of Amarchand, AZB & Partners, JSA, Khaitan and Luthra responsible for more than 40% of that total.

With no sign of Bar liberalisation in sight, Indian firms have had little to fear from international rivals but are increasingly being presented with a tricky calculation about how to manage their cross-border business.

Some of the more powerful firms, including Amarchand, have little incentive to be closely identified with a foreign partner and have the clear ambition to dominate their home turf.

But in truth, despite the outwardly bullish mood, many Indian lawyers concede that there will be challenges ahead as the profession matures and economic growth eventually slows. On this front, there is some cause for concern, with independent estimates that India's growth will this year slow to around 6% – high by Western standards, but a three-year low and beneath the 7%-plus growth rates many believe the country needs to sustain its social and economic status quo.

Fears regarding growth have reignited investor concerns that India's dynamic private sector will be hampered by the political inertia, poor infrastructure and corruption that have long plagued the country. Critics argue the country is a long way from matching the ruthlessly executed emergence of China as an economic power.

And not far beneath the confidence of Indian lawyers, it is not hard to detect a defensiveness about their status and ability to fit into a global legal market in which they cannot rely on Bar restrictions to shield their businesses.

"Many law firms have achieved scale and become extremely powerful, but we have seen their quality deteriorating," says Akil Hirani, managing partner at Majmudar & Co, which was founded in 1943, with Hirani's father being recruited into the firm in the 1970s. "As clients become more sophisticated, such discrepancies will become more difficult to conceal."

A family affair

Law firm structures in India bear witness to the fact that hierarchy and status remain deeply-rooted in the national psyche. Commonly, national firms are ruled by a small pool of family members who receive the lion's share of profits.

Amarchand, founded in 1917 by Shardul and Cyril Shroff's grandfather, is a prime example of such familial clout. The firm's critics have long claimed that the Shroff family wields too much control, with the family still ring-fencing a large part of the equity.

It was only in 1995 that the firm began allowing non-family members into its profit pool when high-profile litigator MP Bharucha and his wife, corporate lawyer Alka Bharucha, joined the firm. (The Bharuchas subsequently left the firm to set up their own practice in 2008.)

Other partnerships including Desai & Diwanji, JSA, Khaitan and Anand & Anand still include family members, though their individual remuneration structures vary, with some treating family members in the same way as other equity partners and others taking a more proprietorial approach.

These traditional law firm structures are linked to the rapid development in India since economic liberalisation. In the early 1990s, many lawyers started out as sole practitioners, advising companies – often owned by entrepreneurial families themselves – as they began to expand. The firms started to grow organically, often bringing in family members to build out the practice.

As such, many Indian corporations and banks are firmly tied to one or two firms that have advised them since their inception. The Shroff brothers – Delhi-based Shardul and Mumbai-based Cyril – insist that this is a major reason other firms, especially international ones, find it difficult to challenge their relationships.

"We helped set up ICICI Bank over 60 years ago, and have been their preferred adviser ever since," comments Cyril. "A relationship like this does not erode easily."

Indeed, Amarchand has been instructed by India's largest private sector bank on all of its major transactions including its recent $1bn (£636m) Dubai bond issue and its 2010 merger with the Bank of Rajasthan.

Other Indian relationships tell a similar story. Senior partner Mohit Saraf at Luthra & Luthra has cultivated a relationship with Indian conglomerate Kingfisher – which owns India's leading brewery and one of its leading airlines – since the firm's inception in the 1990s.

"When you help a client with their first acquisition, it really binds you together," comments Saraf. "Since the early 1990s the relationship has expanded into a broad range of practice areas and to this day they refuse to use any other law firm."

Although the majority of firms claim to be moving away from such origins, several – including Amarchand – are very clear about the founding family's continuing role within the firm. "The founder family will never exit the firm completely," says Cyril. "There is a non-family component but we will continue to be influential."

If Amarchand's success was built around the Shroff family, many of the more progressive firms are built around a handful of powerful individuals.

In the case of top-tier practice AZB, the firm was built around a single lawyer: Zia Mody. The daughter of a former attorney general and a graduate of Harvard, Mody spent several years at Baker & McKenzie in New York before returning to India in the mid-1980s to launch her own practice, Chambers of Zia Mody, which eventually merged into AZB.

To this day, it is Mody who is regarded as the firm's dominant force. She is the face of the firm and looks after many of its major relationships, which include corporate giants Reliance Industries and Bharti Airtel. In fact, is it unusual to hear the Indian legal fraternity referring to AZB as anything but "Zia's firm".

The modernist movement

Despite the traditionalist way in which many of India's leading law firms are run, most practitioners go to great pains to underline their willingness to modernise.

Driving this desire is the generational shift underway at many of the top firms. Aside from the Shroff brothers, a large number of other key individuals are beginning to address the succession challenges that come with running what are locally referred to as 'promoter-controlled' firms, meaning those driven by a small cabal of senior lawyers who hold the key client relationships.

Jyoti Sagar, founding partner of JSA, is due to retire next year, with peers speculating as to whether M&A heavyweight and JSA managing partner Berjis Desai will do the same.

The recently-announced merger between traditionalist Mumbai practice Udwadia & Udeshi and burgeoning spin-off Argus Legal – which was formed in 2009 when Amarchand partner Krishnava Dutt set out on his own – has been perceived by many observers as a form of handover to a younger firm.

"There is definitely a pattern emerging here. Indian law firms have recognised the importance of empowering younger partners to step up to the plate," says RSG's SenGupta (pictured). "It is not only a question of modernisation, but also of transferring the relationships and management responsibilities to talented younger lawyers."

The consultancy industry has already responded to a demand in this area. The likes of McKinsey & Company and Boston Consulting Group (BCG) have in recent years advised Indian law firms on everything from succession planning to 'intellectual marketing', client relationship management and IT strategy.

There is also a sense that the use of bluechip advisers has become something of a status symbol. While UK law firms generally have a jaded view of the benefits of using outfits like McKinsey and BCG after dabbling with such moves in the 1990s and early 2000s, Indian firms see the instruction of expensive management consultants as much as a statement to the market of their success as about drawing on operational guidance.

Firms including Amarchand, Luthra & Luthra, Khaitan and Trilegal have all called in consultancies over the past 18 months with a view to modernising their firms. Amarchand's year-long review, conducted by BCG throughout 2011 – as well as all of the 550-lawyer firm's previous consultancy exercises – was partly driven by the need to share power.

It resulted in a comprehensive management overhaul including the appointment of 11 new practice leaders as a part of ambitious plans to grow into a 1,000-lawyer firm over a three-year period and to increase its annual turnover to approximately $203m (£129m).

The Shroffs' rivals are cynical about the advice provided by BCG, with several stating that the consultants' conclusions were self evident. "The advice that Boston came up with after months of research was that Cyril and Shardul should work more closely together," comments one senior corporate partner. "It is common knowledge in the market that Amarchand's Delhi and Mumbai offices are practically separate firms and that they would be better-served working together."

Delhi-headquartered Luthra recently started working with consulting giant McKinsey in an effort to impose a modified lockstep and to modernise its knowledge management database and precedent systems.

Khaitan, often touted as one of India's youngest and most progressive firms, hired a consultancy last year with a view to overhauling its brand.

Trilegal, meanwhile, has opted for a British legal consultancy to advise it on a range of matters including a management revamp that could see the firm introducing a management committee with a number of subcommittees modelled on its alliance partner Allen & Overy (A&O). The firm is also considering whether to phase out its salaried partner rank.

"We never had an archaic system to begin with so [the consultants] are simply helping us to decentralise further and to prepare us for our next stage of growth," says founding partner Sridhar Gorthi.

"Hiring consultants is certainly a trend in India and a firm's choice of consultant is usually an indication of its motivation for doing so. These firms often want to demonstrate to the market that they are modernising by introducing transparent management systems."

Allies and adversaries

If governance remains something of a sore point for Indian law firms, also problematic is managing the realities of globalisation. Though the majority of domestic firms are proudly independent and insist that their businesses are not reliant on referrals from abroad, some concede that there is much to be gained from an international alliance.

AZB and ALMT Legal in the past year downgraded their 'best friends' relationships with Clifford Chance (CC) and Clyde & Co respectively to loose referral links.

In part, the willingness to split from international partners reflects the confidence of Indian law firms in their ability to prosper independently. Client relationships that used to be owned by international advisers have in many cases transitioned to their Indian counterparts – whose relationship partners have often done stints working abroad and many of whom are dual-qualified – with local lawyers arguing that the role of the Western middleman is slowly becoming obsolete.

"The number of referrals we receive from international firms is at an all-time low and currently constitutes only 15%-20% of our overall business," says Mumbai-based Cyril Shroff. "Growth within our firm is always linked with the Indian economy and less with the global markets. We have a hardwired notion of remaining independent and will never embark on an exclusive alliance relationship."

International rivals often counter such claims by arguing that the lack of modern processes and weaker governance of Indian firms will be exposed as they expand and move beyond the influence of a small band of founding partners.

"Those without a lockstep or some form of fair remuneration will find it increasingly hard to attract and retain talent," says Herbert Smith's India practice head Chris Parsons. "The quality within some of these firms differs greatly from partner to partner, which has inhibited firms wishing to build sustainable businesses and institutionalising."

And, for certain kinds of law firms, experience shows that a tie-up can help to modernise the Indian firm through shared use of practice support.

"If there is one thing I would have done differently if I were to embark on the best friends relationship again it would be to make better use of CC's databases and knowledge management systems," concedes Mody (pictured). "We could have really benefited."

The particular nature of the Indian firms that have terminated their alliance relationships over the past year is perhaps a reason for their respective splits – both AZB and ALMT were too large to thrive on a diet of referrals from a single foreign practice.

Alliances put together by the likes of Linklaters and A&O, in contrast, have been widely touted as successful, owing partly to the fact that their Indian referral partners' respective headcount remains relatively small and the progressive outlook of the local practitioners.

Talwar Thakore & Associates, a firm set up in 2007 with the intention of becoming Linklaters' local referral partner, has become one of India's leading firms by turnover and has acted alongside the magic circle firm on deals including BP's $7.2bn (£4.4bn) joint venture with Indian energy giant Reliance Industries.

Narayan Iyer, who is in the process of taking over management of the practice in the run-up to the retirement of the firm's founding partners, Shobhan Thakore and Suresh Talwar, at the end of the financial year, is confident that the Linklaters/Talwar Thakore model will go from strength to strength.

"We know who we are and we know where we are going, which not a lot of Indian firms can say about their strategy," he comments. "The intention from the outset has been to create a niche boutique that clients can access in precisely the same way as Linklaters. The variable quality of Indian legal services in the 1990s was something that Linklaters wanted to avoid."

Talwar Thakore's Mumbai office has the distinct look and feel of the magic circle firm, with the exception of a few Indian paintings mounted on the walls. Even Iyer himself, who spent several years in Linklaters' Singapore office before joining Talwar Thakore alongside India practice founder Kunal Thakore in 2009, sees himself as a Linklaters man.

"In the market our model is viewed sceptically because they see us as an extension of Linklaters, but people are starting to recognise our strengths following our roles on some landmark deals," he says. "An alliance needs to be underpinned by merger ambitions or else it will fail, and of course we would not take any major management decisions without consulting Linklaters first."

Trilegal's association with magic circle firm A&O is viewed as similarly successful. Founded in 2000 by four National Law School (NLS) graduates, the firm has become known as one of the more forward-thinking law firms in India.

"We recognised that some of the older firms weren't flexible enough to keep up with changes in the market, both in terms of responsiveness and compensation structures," says founding partner Gorthi (pictured). "The founders agreed that the glass ceiling at some of the other firms was inhibiting career progression and we wanted to create a meritocratic path for aspiring lawyers."

Gorthi acknowledges that since entering into an alliance with A&O in 2008, the firm has significantly developed its human resources and knowledge management systems.

"At our current level of growth it would have been hard to maintain quality across the board without the help of our referral partner," says Gorthi.

Despite the fact that these two firms' alliance models are viewed as successful, many traditional practitioners exhibit a degree of snobbery about such arrangements.

"These alliances only work because the Indian firms in question don't have their own growth story – they are simply bolt-on practices for their British partners," says one partner. "The Zias and Cyrils of this world would not be able to work on this basis."

Consolidation and fragmentation

Foreign partners with a focus on India have long predicted a period of consolidation among domestic law firms. Plenty of local veterans argue, however, that the hierarchies prevalent at the leading law firms will confine this trend to smaller firms.

"Consolidation in the top tier is simply not possible," says Nikhil Chandra, chief executive at Indian legal services provider Rainmaker. "Individuals are the motors of these firms and it is hard to see why it would make sense for these partners to cede control through a merger."

This was evidenced when India's largest-ever merger between expansive Fox Mandal and Little & Co unravelled last year. After a longstanding dispute between the two practices, the firms ended their five-year-old merger and recently relaunched as separate businesses.

Nevertheless, consolidation is still expected through acquisitions, with medium-sized firms looking to acquire two to three-partner firms to speed up their growth.

"What may be a trend is for firms to buy in teams with certain expertise," says Linklaters India practice head Sandeep Katwala. "Some leading lawyers take the view that by becoming larger, they will become unattractive to international firms should deregulation occur."

Last month, Mumbai-based family firm Udwadia & Udeshi announced its intention to merge with burgeoning spin-off Argus Legal to create a 60-lawyer firm with offices in Mumbai, Delhi, Calcutta, Bangalore and Chennai.

"Mid-tier consolidation can surely catapult growth for law firms," says Desai & Diwanji corporate partner Vishwang Desai. "Whatever the size, however, combining two cultures is often a big challenge. It is unlikely that a small group of individuals with unabridged power will give that up just for the sake of creating a brand."

Growing frustration with the hierarchies in Indian law firms has also led to a slew of talented practitioners setting out on their own. A striking 15 of RSG's Indian top 40 law firms were formed in the past decade, with many of them now successfully challenging the more established players.

The NLS model, which was originally conceptualised in the 1990s, has also fuelled this trend. Many argue that it has created an elite band of aspiring lawyers who are recognising that traditional firms do not offer straightforward meritocratic career progression and are therefore setting out on their own (see Indian legal education – a level playing field? below).

"In an entrepreneurial, immature market such as India, the scope for setting up a brand-new firm now and potentially being a leading firm in 10 years' time is immense, although not easy," argues SenGupta. "One of the reasons there are so many young firms setting up is because they feel disempowered at the top firms and want to strike out on their own."

This was certainly the motivation for Vishnu Jerome, who resigned from AZB last year and subsequently started up the law firm Alliance Legal with fellow NLS Bangalore graduates Priyanka Roy and Ravi Kumar from JSA and Talwar Thakore respectively.

"Alliance Legal is one example of a firm that is really challenging the traditional players," says Rainmaker's Chandra. "Successful spin-offs like this one will only encourage other talented lawyers to do the same."

Beyond protectionism? The challenges ahead

The rapid evolution and expansion in India's legal market looks set to maintain its grip on the imagination of international law firms – particularly the leading London practices determined to maintain competitive advantage in the South Asia region (see International firms – who is making inroads? below).

Yet despite the rapid emergence of India as an economic power, the extent to which the country's commercial law firms have yet laid the foundations to sustain them in a phase in which India truly integrates with the global economy remains debatable.

While liberalisation pushed through in 1991 cut back the hardline protectionism and bureaucratic state interference that had scarred India's economic development, such forces remain prevalent benchmarked against comparable Asian economies.

India remains arguably the most restrictive major legal market in the world – with no prospect in view that foreign law firms will be able to open even representative local offices. In comparison, China has deftly managed the trick of allowing foreign firms sufficient entry to enable national law firms to acquire valuable skills and help the legal profession to mature.

India has achieved nothing as astutely calibrated, leaving a profession a little too accustomed to protectionism and the clubby, chaotic and impenetrable dynamic of doing business locally to prosper.

Indeed, the risk remains that international business – notoriously wary of getting caught up in India's slow-moving court system – will push to have Indian legal matters handled in foreign jurisdictions. Without any prospect of liberalisation, more work could migrate to rival Asian markets, as has already begun to happen with the emergence of Singapore as a hub for India-related arbitration and capital markets work.

Despite the strong growth prospects and considerable progress that has been made by many, there is a sense that Indian law firms have a long way to go before seizing the opportunities that await beyond their own borders, with many firms showing little interest in the global market.

"Indian legal business remains a strictly domestic affair," says Milbank Tweed Hadley & McCloy India practice leader Sanjeet Malik. "[But] they will have to look beyond their own borders to sustain the next phase of growth."

Perhaps even more important will be managing the increasingly evident friction between the entrepreneurial and dynamic spirit that marks out many younger Indian lawyers and the rigid hierarchy some of the larger firms still seek to maintain. Without some accommodation between both sides, it is hard to see how Indian law firms can build and renew the institutions that can compete with international rivals or even weather the passing of a handful of influential founders.

As SenGupta concludes: "What the market needs is continued professionalisation and a reduction of the sole proprietorship approach."

"Indian law firms are slowly being stirred out of their sleep – they are seeing the importance of building institutions, rather than just making money," says one India practice head at a major Wall Street firm. "Many of the problems with quality and hazy attitudes to conflicts will resolve themselves as clients become more sophisticated, but those that succeed in building institutions will become the leaders of tomorrow."

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Indian legal education – a level playing field?

The face of post-independence legal education in India has changed dramatically since the inception of the National Law School (NLS) model just over 20 years ago. The model replaced the variable standards of legal education with a new generation of law schools that offer a more rigorous five-year degree.

These 13 law schools, which operate stringent entry exams, combine a degree in law with a strong commitment to improving the country's existing legal infrastructure, a major challenge for a country with nearly a million lawyers.

Previously, few aspiring lawyers without the relevant personal networks or family connections were entering the domestic legal market. In addition, the mixed quality of legal training before the introduction of the NLS meant that the standard of entrants – both academically and commercially – was relatively low.

"The introduction of the NLS model has certainly had a game-changing effect on the legal market as a whole," says Rainmaker chief executive Nikhil Chandra, who two years ago was instructed to oversee the recently-introduced National Bar Examination. "There are so many talented and ambitious lawyers coming through the ranks who are challenging the traditional law firm structures."

The majority of the top law firms recruit largely from NLSs, with only a few looking beyond this comparatively tiny elite for talented youngsters.

"Graduate recruitment takes a lot of management time and we look mainly in these schools for new associates because there is a quality assurance," says AZB & Partners partner Zia Mody. "However, we do also look at our local law school in Mumbai for candidates who are rooted in the city and therefore more likely to stick around."

Not only has the new model levelled the playing field, it has also enabled female lawyers to work their way through the ranks, with a large number now having made it to partnership at the top law firms.

"Our experience is that there is an increasing level of family support for women entering the profession," says Amarchand & Mangaldas & Suresh A Shroff & Co's Cyril Shroff (pictured). "We recruit more women than men at entry level, and some attrition is inevitable, so we end up with a balance of men and women at partner level."

Despite the huge progress triggered by the creation of this leading band of law schools, the model has its critics, with some stating that the schools have not met the ambitions that encouraged their consciously rushed growth.

"Having graduated from Bangalore Law School myself, I can safely say that graduates coming out of these schools are not commercially-minded," says one Mumbai-based partner. "They are academically excellent individuals but it is their prospective employer that has to transform them into good practitioners."

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International firms – who is making inroads?

The number of international advisers that have made significant inroads into the Indian market remains small, with practitioners both in the US and the UK stating that the key distinction lies in the history and experience a firm has in the country.

"Late entrants into the market struggle to build relationships," says Linklaters' longstanding India head, Sandeep Katwala (pictured). "Indian companies are sophisticated and many are global in outlook. Hence, I do not think it is a question of culture – perhaps more one of long-term relationships in a market where relationships really do matter."

The consensus among India-facing practitioners is that Clifford Chance (CC), Linklaters and Herbert Smith, as well as a select band of US firms, have made the early running in this highly-coveted market.

Research compiled for RSG Consulting's 2011 India report confirms this anecdotal evidence. The UK-based consultancy canvassed a total of 260 companies active in the country on international law firms' activity in India and who they had most recently instructed, as well as interviewing 30 of the top Indian law firms regarding their preferred referral partners.

As in RSG's previous reports, Linklaters led the field convincingly with a strong brand awareness among India's financial institutions and corporates. CC and Allen & Overy, followed closely by Herbert Smith and Ashurst, were also named as firms with high profiles.

Interestingly, Freshfields Bruckhaus Deringer was not mentioned in RSG's report this year, though its longstanding India chief Pratap Amin is benchmarked as having one of the strongest individual profiles in the market.

Of the US firms with significant India practices, Shearman & Sterling, Simpson Thacher & Bartlett and Kirkland & Ellis were among those most cited by clients. Of the firms to more recently focus on India, Jones Day and White & Case were acknowledged to be winning an increasing amount of work.

While UK firms generally received the highest rankings, there was a similar number of US firms further down the list. Each group made up 39% of client mentions respectively.

"British firms really do have the first-mover advantage because of the historical links between the two countries," says AZB & Partners' Zia Mody. "They have put time and effort into building these relationships and a lot of them have a genuine passion for India."

European firms featured less heavily in the rankings, constituting only 10% of client mentions. Asian and Middle Eastern involvement in the market was negligible at 3% of mentions respectively.

Ashurst's Richard Gubbins concludes: "India truly is a relationship-driven market and getting to know the key decision makers is a large – and time-consuming – element of breaking into the market. This requires a lot of air miles and a genuine understanding of Indian culture."

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