INTRODUCTION

The economic liberalisation policies adopted by the Government of India, after 1991, opened doors of opportunities for various multinational companies to enter the Indian market. The last two and half decades have resulted in billions of dollars of foreign investment coming into India.

The most important contributors have been technology companies, mostly from the United States and the European Union region. With the advent of foreign owned subsidiaries or joint ventures into the technology sector, the legal fraternity too responded and adapted rather well to suit the business needs. This article aims at some practical aspects of everyday challenges met by the in house legal advisers (Counsels) working for companies having ownership and control outside India (mostly United States and member states of the European Union) but have substantial presence in India. The objective of this piece is to identify the key issues and propose solutions for them.

TYPES OF CHALLENGES AND PROPOSED SOLUTIONS

The Counsel faces the uphill task of creating the same standards of contractual and legal compliance in the Indian company, as exists in the parent country. This is a reasonable expectation of most multinational companies because of obvious reasons of the need of global compliances and standardisation. However, the jurisdictions and the scale of economies of the western world are quite different from that in India. For instance, the customer due diligence process, the antibribery legislations and the employment laws in India are quite different in India than in many developed nations.

Moreover, there is a substantial cultural difference in how the legal department is viewed by the staff and leadership in India. Though Counsels in India are rapidly climbing the corporate leadership ladder, it will still take some more time before the Indian colleagues actually start fully accepting the Legal department’s correct professional position in the company’s hierarchy.

• Foreign Investment and Exit: In India, despite the government’s overt gestures at making it a world class investment destination, there is a lack of clarity of laws related to foreign capital entering and exiting India. To make matters even more complex, finding a subsequent exit route are a big challenge for a Counsel entrusted with managing the legal route to creating a path, aligned in harmony to the company’s expectations and the laws of the land. To propose a solution, the best strategy is to invest in sectors where there are sufficient rules and regulations or the apex court’s clear judgments related to the entry and exit of foreign capital. Asking for external counsel’s help in this case should not be frowned upon on a transaction basis. More often than not, a firm with a dedicated team with knowledge of the latest RBI, FIPB or other guidelines can do a better and focussed job than a Counsel who has to attend to other pressing matters.
• Intellectual Property Enforcement: Another aspect which Counsels face is the lack of sufficient legal infrastructure to capture and protect the intellectual property (IP) rights. This problem becomes even more pronounced in technology-based companies. Usually it is handled by internal assignment to entities where IP laws are well developed and the IP enforcement is well respected. For the time being however, a mutually acceptable iron- clad IP protection clause with sufficient clarity about the ownership resting with the service provider or the customer, as the case may be, should be a part and parcel of a contract.
• Unpredictability of the tax regime: Many companies move, merge or buy in India with certain presumptions about the taxation laws. While they are not wrong per se as they do their own internal tax related due diligence but in the recent past retroactive tax legislations have seen big companies floundering and actually suffering huge tax liabilities. In such scenarios, the Counsel’s task is to assess a particular sector and the risk of that sector’s tax regime coming under a scanner in the future. Easier said than done, but this aspect which has been actually ignored by the Counsel actually needs a thorough expert review.
• Corruption in the private sector: This is an often neglected area as far as the Indian business is concerned. Arguably, India stands as one of the most corrupt nations as per global surveys and corruption pervades even the corporate sector. Counsel’s challenge arises when he/she is perceived as a vigilante, while as a matter of fact; the Counsel is just being ethically compliant and legally upright. The corruption is very visible in the field where subcontractors, lead finders or private consultants are used to perform certain contractual obligations. A proposed solution is to not only set up internal audit committees chaired by the Directors. The Counsel can hold awareness sessions about the FCPA and the UK Bribery Act, and other such relevant global legislations and their plausible impact on the overall business of the company, even if the default occurs in India.
• Performance Pressure and Towing the Management’s line: The Counsel is under a perpetual “value-add” pressure and though the topic is highly debatable that what are the number-adds as far as the Counsel’s contribution is concerned, there is unanimity on the view that Counsels are extremely important for a corporation to exist in the changing world. However, internal pressures and organisational hierarchical tendencies sometimes take the Counsel’s time and energy from more important tasks. The delicate art of striking the right balance between the company and the legal duties comes in handy in such situations.

GENERAL ADVICE AND BEST PRACTICES WHEN FACED WITH CRISIS:

CONCLUSION