Enduring one of the most challenging periods in their lives, lawyers tell India Business Law Journal how their firms have been managing and how the violent disruption of the pandemic is forcing change. Gautam Kagalwala reports
In our previous year’s state of the market annual review, lawyers were reporting concerns of a slowing economy and in-house counsel becoming more independent. More than two-thirds of respondents to India Business Law Journal’s survey were worried that in-house counsel were handling more work internally.
None of us knew that the trials and tribulations of the market then would pale into insignificance next to the fallout from a health crisis that has since shaken the world. Lawyers in India have gone from a tough time to facing one of the hardest periods in their careers. In the face of economic malaise, traditional practice areas have floundered, but the lockdown has meant that the rescue raft of practice areas in times of crisis have been for the main part unresponsive while the legal system battles with overcoming infrastructural paralysis.
This was reflected in our survey this year of 38 law firms, as 68% of respondents anticipate law firm profitability to fall in comparison to the previous year. Similarly, 63% of respondents see an increase in price competition and undercutting among law firms in comparison to the previous financial year. Only 11% of respondents felt this activity was lower this year.
In terms of headcount, lawyers also had a pessimistic outlook, with 47% reporting that the number of lawyers working at firms in 2020-21 would decline in comparison to the previous year, while 45% felt the number would remain about the same, indicating that firms are not expected to expand. In contrast, only 5% believe the number of lawyers will increase at law firms in 2020.
Between 2019 and 2020, 41% of firms reported a reduction in headcount, with the largest being in the 0-15% range, while 59% of firms reported an increase in headcount with the largest being in the 15-30% range (see our chart: Headcount at law firms).
Number of lawyers
In comparison to the previous financial year, the number of lawyers working at Indian law firms in the 2020-21 financial year will be:
How do you think law firm profitability in the 2020-21 financial year will compare to the previous financial year?
Headcount at law firms
Change in number of lawyers between 2019 and 2020
Results based on figures from 30 firms. The median size of polled firms was 25 in 2020.
The news reflects gloomier economic data, as GDP dropped 23.9% in the April-June quarter compared with the same period last year. During economic downturns, litigation is expected to thrive, however, with the closure of the courts, judges are only looking at matters of importance and in the final hearing stage.
With such short notice in announcing the lockdown, one of the significant challenges for law firms was having to quickly transition their staff to a virtual workforce in order to ensure their safety and maintain work continuity.
“It became inevitable to incorporate secure internet facilities for a hack-free environment using the latest technologies for data protection and privacy,” says Abhijit Joshi, the managing partner at Veritas Legal. “The use of the latest applications to secure remote communication and virtual meetings became a prevalent norm in these [past] few months.”
Joshi says the limited physical interaction in this new mode of working has emphasized concerns over the mental health of lawyers. The firm offers its lawyers and their family members access to counselling services. Veritas Legal had organized a grand celebration for its fifth anniversary in March, which was cancelled due to the lockdown.
Bad time for business
M&A, litigation and real estate work have been affected the most. M&A transactional work witnessed a decline in new deals in the April-June quarter (Q1) due to business uncertainty and sharp changes in valuations. Commercial litigation became impractical for general matters as the courts were closed and parties turned to alternative modes of dispute settlement.
Real estate work declined and figures from the National Statistical Office (NSO) show a 50% downturn in construction in Q1. Similarly, the hospitality sector saw a decline in the number of transactions due to restrictions on physical movement.
“On the corporate M&A front, deals have slowed down, or have been deferred,” says Satish Kishanchandani, the managing partner at Pioneer Legal. “People have also been rethinking deals that were at the term-sheet stage. There was a general freeze, except in certain sectors where deals continued, though not at the same pace due to logistical and other practical considerations.”
Kishanchandani says the priority for clients in the initial two to three months was to realign their businesses to the new reality. “Deals were not a top priority. Internal legal issues such as continuity of business, employment, payment of wages and renegotiation of rents became a greater priority,” he says. The firm, which started in April last year and has four partners, limited its cost-cutting measures to only the partnership.
In order to support companies that were about to enter a lengthy lockdown, several relief measures were being introduced from March. “The government has eased several norms, such as allowing companies to hold shareholder and board meetings through videoconferencing, extending limitation deadlines for income tax and corporate filings, facilitating court hearings by videoconference, and e-filings of court papers,” says Preeti Mehta, a partner at Kanga & Co. Mehta anticipates a southward trend for revenues at law firms. Her firm is looking to reduce expenses and has put fresh hiring on hold.
One of the significant relief measures was to add section 10A to the Insolvency and Bankruptcy Code, 2016, (IBC) in June 2020, which suspended the initiation of insolvency applications under sections 7, 9 and 10 of the IBC for an initial period of six months, extendable for up to a year.
“The intended consequence of the suspension was to prevent companies from being acquired at rock-bottom valuations,” says Jayesh H, the co-founder of Juris Corp. “However, the impact will be more for operational creditors, foreign lenders and bond investors, who depended on the IBC for their recovery process.”
Jayesh has seen a downward spiral for this practice area. His firm is carrying out its client work, team meetings and internal presentations virtually, and has also rolled out a virtual internship programme. “This was an initiative to reach out to the larger and dispersed student community,” says Jayesh. “Through virtual internships, Juris Corp aims to offer law students exposure to the practical application of the law and a taste of what it is really like to experience the day-to-day work of a city law firm.”
Lalit Bhasin, the president of the Society of Indian Law Firms, observes that the previous year was better and there was enough work to keep law firms busy. “The period between 1 January and 31 March 2020 had a huge adverse impact on business, the economy and the legal professional work,” he says. “During this quarter, litigation came to a standstill and even transactional work became insignificant due to the covid crisis.”
Bhasin says he expects the downward trend to continue in the coming year. “The covid crisis is continuing and we do not know when a post-covid phase will start.”
Deepto Roy, a partner at Shardul Amarchand Mangaldas & Co (SAM) says the firm was an early adopter of working from home. “The firm has shown great foresight in dealing with the crisis and has been protecting the remuneration of our lawyers,” he says. However, he admits that due to the current situation “there is expected to be an impact on partner take-home numbers”.
SAM’s Covid Response Team initially worked on transitioning the firm’s 700 lawyers and other staff to work from home. The team now focuses on ensuring the safety and well-being of staff, while ensuring business continuity. Staff at the firm have access to a “Doc-on-call” facility to get medical advice through teleconsultation. A special leave policy supplementing the existing leave policy was also introduced in case any member of the firm contracted the potentially deadly covid-19.
With a fall in revenues expected even outside the legal market, and the consequent decline in tax receipts for the treasury, Mukesh Butani, the managing partner of tax services firm BMR Legal, expects an “an aggressive approach from the tax administration that will redefine the outlook of the tax law vertical of legal services”. Butani says the change in the digital tax regime, which introduces a new 2% levy on digital transactions, has been the biggest development in this practice area. Large overseas tech companies and trade associations have been opposed to the move, but Butani says the changes have “resulted in greater client consulting engagements” for his firm.
Manoj Kumar, the founder of Hammurabi & Solomon Partners, says the pandemic has created a plethora of challenges for law firms. “A majority of law firms are facing challenges such as fewer inquiries, disturbed operations, stalled cash flow, increased fixed expenses, the risk of closing the business as well as stress and low morale.”
Kumar says his firm’s operations have been cloud-based for some time. “We already have sophisticated systems for client relationship management, legal practice management and team management. Our teams were quick to shift gears to remote working during the lockdown.”
Seeing a silver lining in the current situation, Siddharth Raja, the co-founder of Saakshya Law, says: “The situation will likely afford opportunities for law firms, in particular, to build capabilities and expertise in new and emerging practice areas.
“For instance: corporate governance (at company board and senior management level, in particular); best commercial practices advisory; regulatory compliance; corporate restructuring (whether driven by creditors, or to unlock more value); and dispute resolution through mediation and negotiation, in particular.”
However, Chetan Thakkar, a partner at Kanga & Co, believes law firms looking to venture into new practice areas will overlap with other firm’s specializations. “In view of the general slowdown, we will see firms jumping their traditional work arena, scrounging for diverse work options. This may lead to undercutting of fees and a general drop in revenue for the legal sector.” Kanga, too, has scaled back on expenses in terms of fresh hires and salary increases.
Thakkar’s view is shared by the community at large, as 65% of respondents to India Business Law Journal’s survey foresee an increase in price competition and undercutting among law firms in comparison to the previous financial year.
Kumar, at Hammurabi, says clients have been asking for specialists to manage their matters. “The phase of generic legal service provider is almost over,” he says. “The law is so broad and spread across varied industry sectors that it is difficult to survive as a jack of all [trades] and master of none.”
In comparison to the previous financial year, where do you expect levels of price competition and undercutting to be among law firms?
Cutting costs, whether on infrastructure, office space or human resources, is a preoccupying thought for managing partners, and law firms are expected to slow down their expansion plans and look at adapting leaner working structures. Apurv Sardeshmukh, a partner at Legasis Partners, says this is due in part to the attitudes of clients that will impact the business and growth of many law firms. “As we move towards the end of the year and early next year, my guess is that clients and prospective clients will have a reduced appetite for hiring law firms and spending on legal matters, and may look to in-house legal teams to address issues.”
To make matters more difficult, some clients that continue to work with law firms are asking for a drastic reduction in fees. In these tough times, Srishti Ojha, a founding partner at Verist Law, says law firms might be tempted to work with clients with whom there is a pricing misalignment, but says this would be unsustainable in the long run. “We [as a firm] consciously look away from the very early-stage startup companies and businesses, which tend to have a commoditized view of the legal landscape, and for whom typically pricing is the key differentiator.”
Ojha says the firm is re-examining how much space is needed for its office premises, and how much it pays for rent.
“For law firms, documentation, books, files and client meetings were one of the major reasons for us to have large office spaces,” says Prashanth Shivadass, the managing partner at Shivadass & Shivadass Law Chambers. “We have now moved to a virtual system with all our books, files, meetings etc., being moved to a virtual space.”
Litigation goes online
In the initial period of the lockdown, courts were closed, but after it became apparent that the situation would last for a long time, they transitioned to hearing cases via virtual means. Lawyers who were only restricted to doing advisory work until then could start filing proceedings and participate in online hearings. The Supreme Court and high courts were quicker to adapt, with some courts having video-conferencing technology from before the pandemic. By comparison, district courts were severely affected.
“Online courts, online arbitration and mediation could be the ‘new normal’ for all of us going forward,” says Shiraz Patodia, a senior solicitor at Dua Associates. She says the virtual courts offer safer, faster and affordable access to justice, but also have their own set of disadvantages including “lack of access to the internet for everyone in society, risk to confidentiality, difficulty in building rapport with parties, difficulty in reading body language, and an absence of human insights and empathy”.
With more than 34 million cases currently pending before courts across India, Patodia expects the legal market to be deluged by both old and new cases once the pandemic is over. “Covid-19 can cause the closure of business units, manpower rationalization, disruption in supply chains, non-performance of contracts etc., all of which will add to existing caseloads in Indian courts.”
Bhumesh Verma, the managing partner at Corp Comm Legal, says the impact of covid-19 has been felt by almost all lawyers at firms big and small. “The profession has been set back by a couple of years,” he says. “Corporate transactions have dried up majorly, and courts and tribunals are barely functional, dealing only with urgent cases.”
However, the definition of an urgent case has been changing month by month, and as courts are able to expand their online capabilities, they are able to hear more matters. “A new order is likely to emerge for both litigation and non-litigation services, with less physical interactions, meetings, travel and more reliance on technology,” says Verma. During the lockdown period, he has allowed his lawyers to work flexible hours, and offered virtual internships to students.
IP firm LexOrbis was able to shift all of its lawyers to remote working mode within 12 hours of the lockdown announcement and, within 24 hours, was able to resolve any IT challenges that came up.
“We are grateful for the technologies that we started integrating in our firm in the past few years,” says Manisha Singh, a partner at LexOrbis. “Plans to uplift the whole IT infrastructure to enable seamless remote working are also in place. We were glad the online filing system at the Indian IP office was fully functional, and the IP offices and courts in India have almost started functioning as usual with the use of technology such as video conferencing.”
Shwetasree Majumder, managing partner at IP firm Fidus Law Chambers, adds courts have also allowed virtual hearings and electronic filings for fresh matters, and matters where all parties have consented to virtual hearings, in the past few months.
“This is particularly crucial for IPR [intellectual property rights] matters, where courts can hear and decide interim injunction applications in case of urgent disputes,” she says. “However, trial matters and matters where a party refuses consent for a virtual hearing continue to be stalled.”
Majumder’s advice for clients whose businesses have suffered, such as those in the hospitality industry, is to prioritize their legal work and not incur unnecessary expenses. On the other hand, she says food, pharmaceuticals and healthcare clients should be on the offensive against counterfeiters and infringers who are violating safety standards, or are engaged in activities detrimental to public health and safety.
Counterfeiting incidents have been on the rise in India in the past few years, with a recent report by the Authentication Solution Providers’ Association showing a 24% overall increase in 2019 compared with 2018, with Uttar Pradesh identified as a hot spot for such activities.
Fidus Law Chambers transitioned to working fully via virtual means before the lockdown was announced. “Every member of our team has firm-issued laptops, a practice we had in place already, especially keeping in mind the members of our firm who have young children,” says Majumder.
The firm has now allowed its lawyers to come to work on a purely optional basis and has organized private transport facilities so that its staff do not have to use public transport.
“We have also put in place a ‘buddy system’ to create a more institutionalized support structure among attorneys by drawing up a roster of buddies who keep a check on each other’s physical and psychological health,” she says.
Becoming tech savvy
The current situation has also pushed hesitant litigation and non-litigation legal professionals to embrace technology for the sake of their work. Prior to the pandemic, Indian law firms were seen as averse to digital technologies, even though this is seen as a core sector of Indian industry by other countries.
“Due to the current circumstances, we were forced into adopting technology as a necessity rather than a luxury,” admits Hari Narayan, a senior partner at United Maritime Law Chambers.
He sees a transition to a more paperless environment with greater use of digital contracts and virtual hearings. “To survive amid covid it is essential to adapt to new technology. More focus is being given for technology upgrades and training for lawyers to use technology.” Narayan plans to increase the firm’s visibility on social media and carry out knowledge sharing webinars in future.
“The most significant development in the past year has been the advent and use of technology in legal processes,” says PM Thimmaiah, a founding partner at MD&T Partners, “[whether it is] legal practice ERP [enterprise resource planning] software, contract management and compliance software, digital signatures, digital stamping or case rosters.”
Thimmaiah says the pandemic has created many challenges, but the use of technology has eliminated many of them. “Our knowledge management database is online with permission-based access to all our associates,” he says. “We have subscribed to online resources to support research and drafting. The use of online videoconferencing platforms to engage with our clients and associates has been in order, and we have also advised and facilitated clients on paperless execution of documentation.”
MD&T Partners plans to carry out work-from-home as much as possible and conducts regular meetings not only for work, but also to check on the well-being of the team.
PSL Advocates & Solicitors has invested in an artificial intelligence (AI) e-discovery software for its international disputes. The firm is also developing an interactive portal and mobile app for clients to track matters and communicate with the team.
In response to the pandemic, PSL is developing a custom iPhone/Android app and portal for internal workflow management and client relations. The portal will store all client files and documents on SSL (secure sockets layer) encrypted servers.
“The increased use of technology has been the most significant development in the Indian legal ecosystem,” says PSL’s managing partner, Sameer Jain. “This is in the form of team/workflow management, and courts changing the mode and manner of filing from physical to electronic means. India is also seeing, though slowly, the use of AI and machine learning in discovery and diligence.”
N Raja Sujith, a partner at Majmudar & Partners, agrees. “The use of technologies including AI will be accelerated in the coming year.”
Sujith says the transition to working from home means law firms are no longer constrained by their geographical confines. “The concentration of law firms in metro cities will see a change. Law firms will be able to hire good lawyers from small cities also, and some of the firms will develop working from home as a permanent strategy.”
Amit Kapur, a joint managing partner at J Sagar Associates (JSA), says: “We have already witnessed a significant digitalization in due diligence, contract review, legal research, e-discovery, prediction technology and document automation, while tools such as client portals and intranet-based collaborative platforms are becoming more sophisticated every day. Thus, as it is already a reality, it is inarguable that digital technologies will significantly change the practice of law.”
The lockdown has prompted everyone to work from home and avoid lengthy commutes. JSA used this time to train their lawyers and increase the familiarity of their staff with legal software. “The extra time that was saved on travel to the office was judiciously utilized for the training of attorneys and staff,” explains Vivek Chandy, Kapur’s co-managing partner at JSA. “Attorneys were trained on subjects related to their practice areas, and staff were trained on software applications such as legal formatting and Microsoft PowerPoint. Attorneys and staff continued to connect over Microsoft Teams. This has kept all the teams connected and engaged.”
Recruits who had obtained offer letters prior to the pandemic were onboarded online. Attorneys and other staff received promotions and pay raises as scheduled on 1 April 2020, but the joining of campus recruits was deferred from July to October 2020, and new recruitment and future pay increases have been put on hold.
How other firms are coping
For Algo Legal, being technology driven in its approach to working with clients paid huge dividends during the pandemic. “I feel there will be an acceleration in our trajectory, and an increase in our efforts to push boundaries and move swiftly on our legal tech roadmap of integrated solutions,” says Sandeep Kapoor, the firm’s managing partner.
He observes that clients are using this time to get law firms to move away from billable hour rates and onto retainer-based arrangements. “We will likely see a substantial number of firms exploring alternative pricing models, heralding a not-too-distant day when the billable hour will no longer be a viable pricing arrangement.”
Fox Mandal have adopted a “four Rs” strategy, as partner Santosh Vikram Singh explains. “We as a firm are taking this as an opportunity to: Revisit our systems and processes; reconnect with our colleagues and clients; reassess our strategy; and rekindle our energy.” The firm has utilized this time for knowledge building and stepping up engagement internally, and with clients.
K Singhania & Co has invested resources in expanding its use of technology, increasing its knowledge base to tackle future legal issues and keeping its lawyers motivated during the lockdown.
“With regard to our firm’s operations due to covid-19, we have heavily invested in data storage and security of data,” says Krrishan Singhania, the managing partner at K Singhania & Co. “This is the main focus of our investment. We will also market our firm profile by holding webinars and through knowledge sharing with our contacts and clients.”
Parth Contractor, the managing partner at Chambers of Parth Contractor, says in addition to virtual court hearings the pandemic has pushed firms in the disputes space to participate in virtual negotiations and arbitrations. The firm has reduced transaction advisory work to focus on its core strength of handling disputes.
“With things moving online, we expect a reduction in rents and the cost of deliverables, increased efficiency of the team and, most importantly, saving time,” says Contractor. “Sitting out of one corner in India, we will be able to deliver to clients based somewhere else, and conduct meetings and hearings without travelling. The world, therefore, becomes the market – geography doesn’t matter.”