Indian companies are expanding in-house legal teams
Expensive hourly billing rates by top corporate law firms in India have seen legal costs escalating for most companies
Recently, when a JSW Steel Ltd-led consortium had almost clinched the deal for Monnet Ispat & Energy, another hurdle came up. The bankruptcy tribunal insisted on including small operational creditors as well, something that was not considered before. JSW Steel’s in-house legal team led by group general counsel Rajiv Bakshi stepped in, helping the consortium make a quick decision and raise its bid by ₹ 25 crore. JSW ended up bagging the Monnet Ispat deal.
Like JSW, several large corporate groups are bolstering their in-house legal teams as they seek to make quick decisions while navigating legal and regulatory quicksand.
When Tata Sons appointed Shuva Mandal as the group general counsel in July last year, the management was looking for someone who could lead the transactions, restructuring and joint ventures from the front. The Tata group has since completed numerous transactions.
Last year, after Mandal’s induction, Tata Steel Ltd and German steelmaker ThyssenKrupp AG agreed to merge their European steel operations and Tata Sons sold its consumer mobile business to Bharti Airtel Ltd.
In May, Tata Steel acquired Bhushan Steel Ltd (BSL) through its wholly owned subsidiary Bamnipal Steel Ltd (BNPL) under the insolvency process. Earlier, in February, the group also decided to merge subsidiaries Tata Housing Development Company with Tata Realty and Infrastructure Ltd (TRIL). Mandal’s involvement turned out to be very crucial in saving time and money for the group, say industry observers.
Deals, particularly those related to stressed assets, are becoming more complex because the Insolvency and Bankruptcy Code (IBC) is still evolving. NextMAds
Simultaneously, India Inc is also learning to deal with other new laws and provisions, including the goods & services tax (GST), the Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013, and the amendments in the Arbitration Act.
At the same time, expensive hourly billing rates by top law firms has seen legal costs escalating for most companies. Hence, there is a steep increase in demand for in-house counsels who can execute faster or provide legal opinions in double-quick time and thus help boardrooms take faster decisions. This is different from the earlier crop of in-house lawyers who primarily acted as the firm’s interface with the law firm. The earlier in-house lawyers were also rarely involved in deal-making or live transactions.
In the past quarter, six lawyers from law firms have switched to in-house roles. Recently, Shaswata Dutta, former counsel at Trilegal, joined Asia Situation Group as executive director. Similarly, Godrej & Boyce Manufacturing has hired Amit Kolekar, an associate partner with Mumbai-based law firm Rajani & Associates to head its legal team’s real-estate advisory service. thirdMAds
When food tech start-up Zomato, which became part of so-called unicorn club in February, felt the need to hire an in-house lawyer, it chose G.T. Thomas Phillippe, partner of full-service law firm Khaitan & Co. as general counsel rather than poaching from a rival.
“Companies are looking to expand their legal teams mainly at mid-to-senior levels. Lawyers who are expert in M&A, joint venture and restructuring, among other things, are the most sought after,” said Karl Fernandes, partner and head of in-house practice group at legal recruitment firm Vahura.
“Most companies are looking at specialist hires or expertise in certain areas. Also, there is a certain need to build a strong in-house team that is hands-on,” Fernandes said.fourthMAds
All the listed companies on Indian bourses have spent collectively about Rs33,941 crore (over $4.7 billion) on legal and professional costs in FY 2018, according to data compiled by Capitaline. This is 5.6% (Rs32,132 crore) higher compared to a year ago period but almost 20% more than the Rs28,328 crore that all the listed companies spent in FY2016. The sharp jump in legal costs over the past two years can be attributed mainly to GST and IBC.
JSW did not respond to an email request for comment, while Shuva Mandal declined to comment. Currently, most conglomerates, including the Tata group, Reliance Industries and Bharti Airtel, are looking to hire more in-house lawyers along with many multinationals with major India exposure, many industry observers said.
Rajiv Choubey, director-legal at ACC Ltd, a Lafarge-Holcim subsidiary, said the role of the in-house legal team is becoming increasingly important for all leading corporates and especially where the business is highly regulated or for companies that are operating in the infrastructure space. “Business today is exposed to a variety of risk; risk of compliance, regulatory approvals, contractual disputes in the recent past had a huge bearing on the performance of companies, apart from the reputation aspects,” said Chaubey, adding that more companies are focusing on in-house competency to reduce legal costs.
During FY18, Dilip Shanghvi promoted Sun Pharmaceutical spent Rs1,615.31 crore, highest among publicly traded companies on legal and compliance. This was followed by Reliance Industries (Rs1,187 crore), IT major Infosys Ltd (Rs1,043 crore), Kotak Mahindra Bank (Rs823 crore) and Larsen & Toubro Ltd (Rs730.79 crore).
“Indian companies are increasingly following the western model and internalising tasks that are repetitive in nature. We go to law firms for specialised advisory or work. The nature of business has changed quite a bit in last few years with increased regulation and compliance,” said Naveen Raju, general counsel of Mahindra & Mahindra Group. “From a governance perspective, internal legal is becoming very important to assure the management that everything is in order. We have separate teams for litigation, M&A, IP and trademark among other practice groups,” said Raju.
The Tata Group employs around 700 lawyers, while Mahindra & Mahindra has around 60 lawyers in the parent company and it has more than 400 lawyers at the group level. ICICI Group, which includes the bank, insurance businesses, securities and ICICI Venture, employs around 300 lawyers. In comparison, India’s biggest law firm by number of lawyers is Cyril Amarchand Mangaldas with a bench-strength of around 650 lawyers.sixthMAds
According to Ravi Singhania, managing partner of Delhi-based law firm Singhania & Partners, in-house departments have become more sophisticated than what they used to be three to five years ago. Also, companies have now started paying their in-house lawyers almost at par with law firms, which has also induced the migration of talent from law firms to listed companies.
“Now companies have started hiring partners of law firms, which was very rare until just a few years ago and these partners are bringing the sophistication and quality of firms to in-house,” said Singhania, adding that companies are still accessing law firms but only for residual work. “Even in M&A deals, companies do initial work in-house and reach out to law firms only for specific things, like approvals from Competition Commission or Sebi, as per the deal’s requirement,” said Singhania.
“Having an in-house legal team allows for true business partnering, resulting in superior advice in a timely and cost-efficient way,” said Sree Patel, executive director, legal & government affairs at Mondelez International (India). “In-house legal teams have a deep understanding of the business, earning them a seat at the table, rather than acting as mere advisors,” said Patel.seventhMAds
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First Published:22 Oct 2018, 04:57 AM IST
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