Increased economic activity between India and Japan is creating new work for lawyers in both countries, but there is still a long way to go to facilitate cross-border legal market growth and expansion.  

In 1949, Japan was still shattered following World War II. As a gesture of conciliation, India’s then-prime minister, Jawaharlal Nehru, sent Indira to Tokyo to liven the people’s spirits. Indira, an elephant named after Nehru’s daughter and future Indian prime minister, brought “a ray of light into the lives of the Japanese people who had still not recovered from the defeat in the war,” says Japan’s Ministry of Foreign Affairs’ website. Japan and India signed a peace treaty and established diplomatic relations on April 28, 1952. This treaty was one of the first peace treaties Japan signed after World War II. From there started a journey that, apart from a few hiccups like during the Pokhran nuclear tests, never looked to end.

On the economic front, Japan has been India’s largest bilateral donor and has been extending loans and grants to India since 1958. As per the Factsheet on Foreign Direct Investment (FDI) Inflow provided by the Department for Promotion of Industry and Internal Trade (DPIIT), Japan is the fifth largest investor in India with cumulative FDI inflows of approximately $41.47 billion from April 2000 to December 2023.

There has reportedly been a significant increase in the FDI inflow from Japan to India on a yearly basis. As per the data provided by DPIIT, India received FDI of approximately $1.49 billion in 2021-22, $1.79 billion in 2022-23 and $2.73 billion from April 2023 to December 2023 from Japan. Currently, approx. 1,450 Japanese companies are operating in India in key sectors, including but not limited to manufacturing, automobiles, chemicals, defence, renewable energy, technology, and infrastructure.

And this bond is only growing deeper. According to a report by the Japan External Trade Organization, 63.3 percent of Japanese companies aim to increase their sales share in India within the next two or three years, and that number is further expected to escalate to 75 percent in the next five years. This enthusiasm is buoyed by India’s strong domestic demand, political stability, and highest diffusion index score of 44.4 points, indicating superior business performance.

“This is due to the emerging socio-economic and political situation. The need for diversified supply points from Japan’s perspective and need for partners beyond the traditional U.S.-Europe for India have been the main driver behind the closeness of the two Asian countries in recent times,” explains Ashish Jejurkar, a partner at Japanese law firm Atsumi & Sakai in Tokyo.

Niti Paul, a partner at Luthra and Luthra Law Offices, says that as a result of increasing cross-border investment, there has been more potential work for law firms. “Indian law firms are focusing on setting up or strengthening the existing designated Japan desks to accommodate the increasing inflow of work and to provide a contented tailored experience to its Japanese clients by delivering nuanced and culturally sensitive legal solutions,” Paul says.

MORE WORK FOR LAWYERS

This growing economic collaboration has seen a boom in the legal sector across both countries, as law firms and lawyers optimise to take larger chunks of work in the Indo-Japan corridor. And everybody has a role to play, says Rudra Kumar Pandey, a partner at Shardul Amarchand Mangaldas & Co who heads the firm’s Japan desk.

“In terms of Japanese investments in India, often, large-scale, multinational entities in Japan work directly and more closely with Indian lawyers for advisory and transaction-related assistance for their investment in India. On the other hand, certain small-scale or niche Japanese entities, typically, hire Japanese lawyers first, who in turn engage and work in tandem with Indian lawyers on the transaction,” Pandey says.

“While Indian lawyers are heavily involved in transactions pertaining to proposed investments from Japanese entities into India, the role of Japanese lawyers is also crucial in providing their insights on the best practices and policies that would be more feasible and would suitably cater to the specific requirements and preferences of the Japanese entities. Many Japanese lawyers, through their constant engagement with Indian lawyers, have also gained sufficient understanding and expertise of transactions in India,” he adds. Although, with increased client sophistication and measures taken by law firms to understand language and culture better, things are changing. “The happy change is to increasingly see Japanese companies wanting to engage directly with Indian law firms rather than through intermediary law firms in their home jurisdiction,” Jejurkar says. Legal experts in India say increasing investments has brought more work on clarifications under the foreign exchange laws, investment policies from Japanese clients.

“With significant liberalisation of India’s foreign investment policy in sectors such as defence, insurance, telecommunications, and pharmaceuticals etc., the foreign exchange laws, including the Foreign Exchange Management Act, 1999 read with its rules and regulations and the consolidated FDI policy of 2020 have gained traction,” says Pandey.

“The upsurge in strategic transactions between the Japanese and Indian entities have brought various laws to the frontage, such as antitrust law, competition law, securities law, tax law, real estate law, data privacy and bankruptcy and insolvency law, amongst others. Further, in light of increased attention of Japanese entities towards compliance, and increase in transactions involving listed companies in India, in particular, antitrust law, securities law, anti-corruption law and compliance-related aspects of laws have gained significant traction in matters involving Japanese investments in India, in light of their complex procedural requirements,” adds Pandey. But apart from these traditional practice areas, lawyers are also seeing a new kind of demand from the digital market.

“Amongst other drivers discussed above, collaborations concerning digital ICT technologies and the setting up of the first India-Japan startup hub in Bengaluru are not only strengthening ties between the two nations but also paving the way for novel areas of legal practice and specialised services. As these collaborations deepen, we are witnessing the emergence of specific new branches of legal work directly linked to these international partnerships. Key among these are legal frameworks and advisory surrounding cryptocurrencies, 5G, block-chain, quant computing, data privacy, and artificial intelligence,” Paul says. “Blockchain’s transformative potential in finance, supply chain management, and beyond, necessitates a legal framework that can address its unique challenges and opportunities. For India and Japan, this represents an area ripe for collaboration, where harmonising legal standards and fostering bilateral legal expertise in blockchain could facilitate safer and more efficient cross-border transactions,” adds Paul.

 

“There is increased demand from Japanese companies for regular support in corporate secretarial matters, routine business contracts, business licensing and day-to-day compliance. For Indian companies operating in Japan, it is the Human Resources sector followed by business contracts.”
— Amit Jejurkar, Atsumi & Sakai

 

From a Japanese firm’s perspective, the increase in demand is directly a result of increasing business operations in India and vice versa.

“Apart from the traditional area of corporate law, which includes M&A and JVs, there is increased demand from Japanese companies for regular support in corporate secretarial matters, routine business contracts, business licensing and day-to-day compliance. For Indian companies operating in Japan, it is the Human Resources sector followed by business contracts,” Jejurkar of A&S explains.

Apart from this, SNG & Partners, which recently launched a Japan desk, says that in the firm’s experience of working with Japanese clients, the latter look for more than simply legal advice.

“What the Japanese companies are looking for is hand-holding and correct guidance. Japanese people are very professional and thorough in their work and believe in building long-term relationships. They expect their lawyers to also act as strategic business advisors apart from representing them in legal matters,” says SNG’s managing partner Rajesh Gupta.

There has also been a rise in collaborative exchange programs between Indian and Japanese law firms to understand cultural and language touchpoints better.

“In order to further enhance legal cooperation on complex business transactions between Indian and Japanese entities, and to serve our Japanese clients in a more strategic and focussed manner, there are lawyers exchange programmes whereby various Japanese law firms send their lawyers to our firm on a secondment basis, and vice versa, we send our lawyers to these Japanese law firms on secondment basis,” Pandey at SAM explains.

 

“What the Japanese companies are looking for is hand-holding and correct guidance. Japanese people are very professional and thorough in their work and believe in building long-term relationships. They expect their lawyers to also act as strategic business advisors apart from representing them in legal matters.”
— Rajesh Gupta, SNG & Partners

 

Paul at Luthra adds, “We understand the significance of fostering collaborative relationships and have actively been engaging in knowledge exchange initiatives by regularly organising webinars, seminars, and conferences that serve as platforms for in-depth discussions, the sharing of valuable insights, and the cultivation of meaningful relationships with our Japanese counterparts.”

Luthra also recently participated in an exchange program with a Japanese firm where the lawyers of both firms, on a reciprocal basis, would have the opportunity to immerse themselves in the legal environment of the respective jurisdictions, gaining practical experience and insights that enrich their expertise, Paul explains.

WAIT AND WATCH

Despite this vast economic potential, and law firms on both sides of the map investing heavily in growing their India/Japan desks, there have been few firms that have taken the step of setting up shop in the other nation.

Many Japanese firms, including Mori Hamada & Matsumoto, Nagashima Ohno & Tsunematsu, Aderson Mori & Tomotsune, Nishimura & Asahi, Atsumi & Sakai, Kitahama Partners and TMI Associates, have a dedicated India practice but no immediate plans of setting up shop in the country.

TNY Legal became the first Japanese firm to announce an India office launch last year, following the opening of the legal market by the Bar Council of India. But, this has not served as a precedent in getting more Japanese firms to the sub-continent.

Jejurkar chalks this down to a cautious approach by the Japanese, given the lack of regulatory certainty around Indian laws allowing law firms to enter the market. The decision has also been challenged in the courts, and firms are taking a “wait-and-watch” approach before they take any concrete steps. “A Japanese firm would like to support the businesses operating in India by having a local presence. However, in the absence of notified regulations by the Government of India, it is still in a wait-and-watch mode,” Jejurkar explains. Paul explains that while there is clear economic incentive for Japanese law firms to set up shop in India, “to further facilitate and enhance the collaboration between Indian and foreign law firms, additional regulatory adjustments and clarifications might be necessary.”

“Expanding the scope of permissible legal work to include more areas of non-litigious matters may be evaluated by the regulator,” Paul says.

“Also, a more transparent and streamlined registration process for foreign lawyers and law firms could encourage more foreign entities to consider practicing in India. Lastly, fostering a more collaborative environment through the establishment of official platforms or forums for interaction between Indian and foreign law firms could facilitate better understanding and cooperation,” she adds.

Pandey echoes these thoughts, adding that currently, only a representative office may be viable for a Japanese firm in India.

“With the liberalisation of India’s legal sector, it is likely that Japanese law firms may consider entering the Indian legal market. However, as of now, the physical presence of Japanese law firms on Indian soil is likely limited to having a representative office of such Japanese law firms in India. At the same time, Japanese law firms, akin to their counterparts in UK and U.S. would await further clarity on the policies and laws pertaining to entry of foreign lawyers in India. Therefore, further clarity is awaited in relation to the recent reforms enabling entry of foreign lawyers in India,” Pandey explains.

There are also some who are concerned about the level of competition in the Indian law firm sector that may come from liberalisation of the market. “Of course, we would love to see the sector grow and evolve as long as the growth is symbiotic for Indian lawyers and law firms as well, who should be allowed a level playing field with their foreign counterparts in terms of relaxing some restrictions. If India is to continue to grow as a global superpower, it will need to balance the interest of domestic lawyers and law firms along with welcoming our foreign counterparts through the liberalisation of the legal sector,” SNG’s Gupta explains.

But what about the other direction? What are Indian law firms’ plans for the Japanese market? Paul says Japan is a fertile market for Indian law firms looking to expand their international footprints. “Japan’s economic landscape is characterised by a competitive and stable business environment that is increasingly adopting a global outlook. This, combined with Japan’s position as a prominent player in sectors such as robotics, factory automation, and semiconductors, underscores the nation’s commitment to innovation and technology,” Paul explains.

“Given that there is a vast potential to unearth by establishing a presence in Japan, Indian law firms are increasingly considering the regulatory landscape and exploring avenues for entry into the Japanese market, primarily through strategic collaborations and reciprocal arrangements with established law firms in Japan,” she adds.

CHALLENGES IN THE FUTURE

While economic growth is strong, stark cultural and language differences, different legal and judicial systems often confuse investors on both sides of the relationship.

“India is a common law country, and Japan is a civil law country. The way of looking at matters from a legal perspective is fundamentally different. There is still a perception that foreign companies face difficulties to effectively pursue legal remedies in Japan. Meanwhile, Japanese legal experts still find it difficult to understand the federal structure of India. The constant changes and tweaking of laws in India compounds the problem,” explains Jejurkar.

One prominent area of concern is investment protection, says Paul. “The anticipated surge in Japanese investments in India’s infrastructure, manufacturing, and technology sectors necessitates the establishment of robust legal framework that ensures the protection of intellectual property rights, ease of repatriation, lessen compliance burden, lower tax incidence, obviate fraud and offer efficient dispute resolution mechanisms to maintain and boost investor confidence,” she adds.

Another problem faced by Japanese clients in India is the favourable treatment given to local manufacturers for public procurement.

“The current regime of public procurement in India is chiefly driven towards indigenisation and preference for local manufacturers, with various terms and conditions for foreign investors such as lowest commercial bid condition, performance guarantee from foreign parent entity, and compulsory transfer of technology etc., which have impacted greater participation by the Japanese entities in public procurement projects in India. Despite such limitations, there have been several cases where the Japanese companies have participated in public procurement in India and are doing fairly well,” Pandey says.

Bureaucratic delays can often turn away Japanese clients, explains SNG’s Gupta. “With continued economic expansion, it must be ensured that Japanese companies looking towards India or expanding their footprint in India receive bare minimum – if not no – bureaucratic delays and the correct legal and business advise from inception so as to ensure the growth of a successful business.”