A slowing economy, a spate of regulations including General Anti-Avoidance Rules (GAAR), Budget proposal to tax several cross-border transactions retrospectively, mobile telephony companies? review petitions in the Supreme Court and multinational companies invoking bilateral treaties with India are adding new business to Indian law firms.
?Under the current circumstances, the practice area around disputes is flourishing in comparison to transaction services like M&As that have taken a back seat,? said Neerav Merchant, associate partner at Mumbai-based law firm Majmudar & Co, which helped drug maker Wockhardt recast debt in a corporate debt restructuring scheme.
Companies which have borrowed heavily to grow are finding it tough to repay due to lack of adequate cash flows, forcing them to recast debt under CDR. CDR happens when a company goes through financial distress and is unable to meet its loan repayment obligation to multiple institutions.
Power project developers and airline and airport operators are finding it tough to repay their debt. Lawyers say both banks and borrowers are approaching them to amicably resolve issues around loan defaults or restructuring.
?Law firms help corporates understand their rights in case of a default or loan restructuring,? said Viney Kumar, executive director, corporate, at IDBI Bank. ?There are several clauses in a loan around levies in case of defaults, payment schedule etc that need legal interpretation.?
The quantum of loans approved for recast by the CDR cell rose nearly 35% to R150,225 crore by end of March, 2012, over the previous year. The actual amount of debt restructured during 2011-12 was R39,311 crore, 500% more than the previous year. Some law firms are setting up special cells to deal with loan restructuring.
CDR is a mechanism evolved by the Reserve Bank of India to help a company banking with multiple institutions under consortium arrangement. Through CDR, multiple banks and financial institutions are given surety on repayment to a certain extent.
The legal battle between mobile telephony operators and government regulators are adding fresh business.
?On the litigation side, telecom companies are seeking assistance on broader aspects such as cancellation of licences and the interpretation of Trai recommendations,? said Trisheet Chatterjee, partner at law firm J Sagar Associates. The firm helps many companies file review petitions in India?s apex court.
Legal cases have risen after the Supreme Court ordered cancellation of 2G licences. Norwegian telecom company Telenor, whose Indian subsidiary?s licence was cancelled, is already fighting a legal battle with its Indian partner Unitech claiming damages for cancellations.
The Budget proposal to retrospectively tax such cross-border transactions has also made lawyers busy. After the new Budget proposal, several companies, which had done cross-border transaction, are seeking legal opinion as they could come under tax man?s scanner. SABMiller?s acquisition of beer maker Foster?s India, and London-listed copper and aluminium maker Vedanta?s purchase of a majority stake in Sesa Goa are some of the past transactions.
Vodafone International bought the Indian business operations of Hutchison Telecom International through the sale of a Cayman Islands-based firm CGP Investments (Holdings).
?We are not seeing an abnormal increase in workload, but the current environment is opening up new opportunities,? said Rabindra Jhunjhunwala, partner at Khaitan & Co. ?Tax structuring is the flavour of the season and the corporate world, private equity players and foreign institutional investors are seeking legal counsel to understand the implications of GAAR. Though GAAR has been postponed by a year, there is plenty of uncertainty around it,? he added.
