Cost-benefit Analysis A Must Before Choosing An Action Plan in Corporate Fraud Situations, says Anand Prasad

BW Legal World: Thanks, Mr. Prasad, for taking out time for this e-interview. You have always been known as a renowned corporate lawyer. Please tell us a little about your professional journey- when it started and the offices you were initially associates with.

My inspiration to be a lawyer came from the fictional character of Perry Mason. However, since I was an Army kid, with nobody in the family or friend circuit in the field of law, I did not know how to get started into legal practice. That introduction and push came from a much-respected professor in my law school, who introduced me to an advocate-on-record in the Supreme Court. 

I started legal practice in the year 1991. After a few months, one of my dad’s colleagues introduced me to Dr. N. M. Ghatate, Senior Advocate. I worked with Dr. Ghatate and one of his former juniors, Mr. S.V. Deshpande, for a couple of years and practiced civil, constitutional and criminal law in the Supreme Court. 

I then moved to Gagrat & Co., where I continued practicing constitutional law, but also got into the practice of company law, tax and other business laws. In this phase, I appeared extensively in the Delhi High Court, the Company Law and FERA boards, the indirect tax and MRTP tribunals, the BIFR, consumer courts, etc.  None of this was Perry Mason kind of work, but it was hugely enriching from a professional and personal perspective. I also got to work closely with some of the best senior counsels in India, including Fali Nariman, G. Ramaswamy, Soli Sorabjee, Ashok Desai, Harish Salve, Arun Jaitley, RF Nariman, etc. which was immensely motivating and rewarding.      

BW Legal World: How did the move to corporate law happen?

The mid 1990s witnessed the opening up of the Indian economy and the consequent rise of corporate and transactional law in India. Suddenly junior corporate lawyers were getting paid significantly above their buddies in the litigation space. Though I enjoyed my life as a commercial disputes lawyer, the need for financial self-sustainability, pushed me into the direction of corporate law. 

In early 1996, I joined Dua Associates, which was one of the best corporate/transactional law firms in India. My tryst with joint venture and shareholders agreements, M&A, project finance and corporate banking transactions and legal due diligence started in this phase.  Dua was where I met Akshay Jaitly and Rahul Matthan, with whom I went on to establish Trilegal in late 1999/early 2000. Joining us in setting up Trilegal were others, including Sridhar Gorthi and Karan Singh, who were Mumbai based and knew Rahul from their days in law school.      

BW Legal World: How did the idea of setting up your own law form come about? Please also tell us about the kind of work which you handled in the firm.

While at Dua, I realised that the clients had begun to push for a big change in service levels. They needed their legal advisors to provide not just pure technical legal advice, but advice that took into account business realities and provided clear business direction. In addition, clients were desperate for faster turn-around timelines. At the time, none of the Indian law firms were adequately responsive to this emerging need of the client community. This is where we, i.e. the guys that set up Trilegal, saw an opportunity and responded by establishing a firm that would be responsive to these needs. 

In conceptualising the firm, we brought in a couple of other aspects into the mix, (i) a collaborative approach to servicing clients and practice building; and (ii) using transparency and meritocracy as a tool to bring in and retain talent. 

The nature of practice focus for Trilegal changed over time, and in some ways followed trends in the economy. The early years had an energy, infrastructure, finance, banking, corporate and tech advisory focus. In a few years, the firm had refocused its practices and M&A, private equity, restructuring and dispute resolution became significant practices. The period of 2012 to 2014 saw the firm’s practice expand into the areas of legal compliances and white collared crime. My last few years in the firm saw a growth in the tax, competition, capital markets and insolvency/restructuring practices. In sectoral terms, one might describe the firm’s practice being focused on telecom, IT including IT-enabled, banking and finance, energy and infrastructure, defence, manufacturing, retail, real estate and hospitality.        

BW Legal World: What were your reasons for leaving Trilegal? 

The easy choice for me was to stay in Trilegal forever. The firm was successful, continued to gain in market presence and made terrific profits. However, the firm’s success removed me from the real world of India. In some ways, I felt guilty for having broken away with the success firm. While, along with my colleagues at Trilegal, we had broken the glass ceiling and built a strong institution which reflected the new India, on account of the firm’s commercial focus, this institution was incapable of serving the common people. Trilegal was very successful, created wealth for many of us from non-elite backgrounds, but by itself was an elite institution. 

This underlying desire to contribute to the common man’s India pushed me into a few years of political adventurism. I resigned from my firm and quit commercial legal practice. My confidence in letting go of my firm came from the fact that over the last decade and half, we had managed to build a firm that could out survive its founders and continue on the path of commercial success without having to rely on its founders in any serious manner. It brings me immense delight that this confidence has been playing out in the firm.      

BW Legal World: Why did you establish AP & Partners? 

In leaving Trilegal, while I diluted my focus on commercial legal work, I continued to operate as an independent counsel. As an individual practitioner, I now had the ability to indulge myself in socially useful legal practice (to the exclusion of PILs, which I consider an abomination to the constitutional idea of segregation of state powers). Meanwhile, my experience with direct grass root politics got me to accept my inadequacies for the job and realise that I ought to stay with what I did best, practice law.  

It was in this period that a few former colleagues brought me into some interesting and unique pieces of legal work, i.e. corporate fraud situations, where I was required to assist the victims of the fraud, all in my capacity as an independent counsel. These were heavy assignments and required me to rely on the support of a few former colleagues from Trilegal, who had left the firm and had been practicing law independently.  

Working together we realised the fun we were having and decided to progress our relationship into a partnership structure. Hence, in October 2019, Sandeep Das, Moksha Bhat, Arjun Sinha and I decided to set up AP & Partners. On account of the work we were doing as a collective, and our past experience as corporate, M&A, policy, disputes, criminal law, government policy, shareholder and investor rights lawyers, the new firm decided to focus on specific areas of practice. One, representing clients in difficult situations, including investors that were victims of corporate frauds, and two, acting for Indian promoters either exiting businesses or raising cross-border finance, and providing general corporate/strategic advice.   

BW Legal World: What do you seek to achieve as AP & Partners? 

Our hope is to get recognised by the market as a go-to firm for dealing with complicated situations. In addition, as a go-to firm for Indian promoters, particularly professionals that have turned promoters and the emerging corporate promoter class that prefers playing by the book. 

The intent is not to take on all kinds of legal work, i.e. not to be full service, but to try and focus on specific kinds of legal work. Personally, I am hoping to continue to operate in the counsel mode (i.e. where other lawyers look to engage me for specialist legal or strategic assistance, including to represent them in dispute situations).  

BW Legal World: Which are the key practice areas of the firm?

In line with our focus on special situations, white collar crime, corporate fraud, shareholder disputes, enforcement and restructuring of investor rights and insolvency and restructuring are inevitably key areas of interest for firm. 

On the corporate side, we are working on a number of M&A and PE deals as sell side counsel, and in seeking to enforce sell side deals.  In terms of sectors, we do a fair bit of work for clients in the TMT, financial services, energy, real estate, auto ancillaries, and defence sectors. 

BW Legal World: Why do you consider AP& Partners better placed to do white collar crime and corporate fraud matters, compared to others?

Special situations require a different approach than how traditional law practices are structured. We take a task force-based approach where lawyers with complementary competencies and skills work together with a problem-solving mindset. To make this possible, at least two partners work on each matter we take on. As a result, you have multiple perspectives on the same issue. This allows us to deliver greater value to clients. 

This approach is unlike a typical large law firm, where you could engage a corporate lawyer for an M&A transaction and a litigator for a dispute, here you need a team of specialists working together. A siloed approach doesn’t work here and can in fact be a recipe for disaster. Teamwork is crucial to success in such matters. We partner and work closely with client management and their other advisors such as media strategists and financial advisors as a task force.

As commercial lawyers with significant transactional and advisory experience, we have a greater appreciation for business and commercial issues. We look at issues from a business perspective, with an understanding of what market standards are and what kind of transactions take place. That commercial background combined with our criminal and commercial disputes practice together form the basis of our white-collar crime/fraud practice. 

Crucially, for such matters, we are also sensitive to the business implications of any given strategy in a dispute as it plays out in the public domain. For example, if a listed company is involved, how would a proposed plan of action impact share price. 

BW Legal World: Why are you well placed to act for Indian companies and founders on the sell side?

We have spent most of our careers as buy side lawyers or representing large international businesses and foreign financial institutions. We know how acquirers and investors think and approach  issues. We understand how regulators and courts think about and approach issues. We are bringing this expertise to sell side representation to level the playing field. As an example, a lot of times people try to push across onerous terms as market standard. This is particularly common in indemnity discussions. We understand where sellers get squeezed in such negotiations and where they can push back.

Our task force approach helps to bring a wider perspective to the table. We feel that this is a big differentiator. Along with that how we use our fee model to make it more business oriented for clients. 

BW Legal World: What are the larger issues that come up in corporate fraud and white collar crime matters?

Special situations create a complex set of factors that need to be dealt with urgently and on multiple fronts. For example, for a corporate that is a victim of corporate fraud, how do you go about looking to recover funds or pursuing wrongdoers? How to you rebuild trust with shareholders/public that their money is safe with you? How to you demonstrate to regulators and law enforcement authorities that the management was diligent and there were no lapses at their end? How do you raise funding and ensure business continuity in such a situation?

While these issues can be complex and quite challenging, with experience, you learn to navigate these difficult situations. It is this experience that we bring to the table.

BW Legal World: Please tell us about some of the critical issues that come up when you are acting for Indian promoters.

A critical issue for founders is the allocation of risk. Founders need to assess valuations offered keeping in mind the risk coverage (by way of indemnities) the acquirer is asking for. Promoters should carefully assess what risks they are being asked to assume. As such, where a promoter is selling the company, promoters need to have clear and capped indemnities to ensure a clean exit.

Another key issue is how is value/price being paid out. In any situation where performance based earn-outs or payments are involved, founders must think of securing their eventual pay out. While trust is central to any relationship, it is also important to put in place some basic safeguards such as golden parachutes, minimum payouts, etc.

BW Legal World: What are the options for a victim of corporate fraud? How does a victim deal with such a situation?

This would depend on who the victim is and the nature of the offence. There are often a range of options that are available, both civil and criminal. For example, in addition to a civil suit for recovery, the victim may look to initiate criminal prosecution by approaching law enforcement agencies. Typically, you would see such actions being initiated in parallel. 

Before initiating any such action, it is important to develop a clear long-term action plan and then follow through with the plan. When electing any specific course of action, it is essential that the team managing the situation undertakes a cost-benefit analysis to evaluate the strategy in terms of potential costs (including legal expenses, impact on the business, etc), the likelihood of success and potential drawbacks (such as foreclosure of any options by going down a given path), and the possibility of a negotiated settlement of the dispute.

BW Legal World: In such situations, what are implications for the larger business group?

A crisis impacting a company within a larger group can have a significant impact on other group companies. For example, large groups often cross-collateralise debt. It is also common for group companies to give corporate guarantees for each other. A default by any one company then creates risks for the entire group. 

While group companies offering security to each other is not by any means unusual, often at the heart of these financial contagion type issues are corporate governance lapses. For example, Indian promoters often do not view group companies and their boards as independent decision makers. Unfortunately, in the Indian context, the culture of managers saying no to the promoter/boss is still not that strong. So, we end up with situations where companies are giving guarantees or security for debt that put them at risk.

BW Legal World: Any recent interesting engagements of the firm?

There are a bunch of interesting things that we are working on right now. For example, we advised the new management of a large non-banking financial services group on the overall strategy with respect to actions to be taken against their erstwhile promoters for corporate fraud and restructuring their businesses. In another instance, we have advised large international financial investors on situations where they have been victims of corporate fraud.   

Other interesting assignments include acting on a few of exit transactions for Indian promoters, on a significant shareholders dispute, and while collared crime prosecutions.  

We are also advising a number of e-commerce companies on law and policy issues, particularly in the context of the emerging regulatory framework for e-commerce. A lot of this is bet-the-company where we are helping these companies develop strategies crucial to their future success.  

BW Legal World: What are the most significant legal issues that have come up recently in your view?

The IBC is of course a major development. While the kinks are still getting worked out, it has been transformative in that there is now a clear and present risk for Indian companies and promoters. If you fail to pay your debts on time, there is now a real consequence. The IBC also presents an opportunity for lenders to act more decisively to recover debts. 

In addition, fall outs from largescale banking and corporate frauds have also come to dominate the legal space. 

On the technology side, India is in the process of putting in place a regulatory architecture for its data economy. As a nation we are defining what is private data, who should own it, who can sell it, who will regulate data. This is a defining issue that could be quite disruptive for a lot of industries in the long run.

BW Legal World:  How is practice of law changing in India? 

A big change is that large commercial disputes have largely moved to specialised tribunals like the NCLT and to arbitral tribunals. As a result, there is now a need to be more detail oriented as tribunals typically have the resources to get into issues more deeply. The level of preparation needed for matters is now much greater.  I expect that this would result in litigations working more closely with commercial lawyers who have a deeper understanding of the commercial aspects of these transactions.

Consumers are also becoming more sophisticated with large and very capable in-house teams. While earlier you would see a lot of in-house teams play a more passive role coordinating between business and the external legal advisors, now most companies will only engage a law firm where it is not possible to undertake the work in-house such as for large M&A transactions or special situations. 

Looking ahead, I expect that foreign firms will be allowed to set up in India. That will have a major (and largely positive) impact on legal practice in India as they will bring global best practices to the Indian legal market.

BW Legal World: How are law firms changing? 

There has been a proliferation of commercial law firms in India. Law firms are also becoming more sophisticated, in terms of how they service clients, how they organise themselves and so on. I expect that this process will continue in the years to come. Partners today are far more empowered. For example, participation in the equity pool is now available to a lot of partners than was the case earlier, where most partners would be salaried partners. Firms just on account of their sheer size can no longer rely on a single rainmaker – this has also led to more partner empowerment. Clients are also becoming smarter about which lawyers to go to within a firm. While firm brand names matter, their relevance is reducing. I suspect this is why we see a lot more partner moves these days.

In terms of broad market trends, work in certain practice areas is much more standardised than was the case let’s say 5 years ago. We have some firms that are focused on such standardised work and are very good at it. There are other firms that are looking to go up the value chain and do more sophisticated higher end work. I expect that there will be a greater differentiation between firms that are doing more high-end work and those that are doing some of the more templatised work.

A second key trend is technology. While we are yet to see this change, technology will have a disruptive impact on the practice of law. Immediately, technology will generate efficiencies within law firms. This could make a lot of the more repetitive or templatised work redundant. That said, as technologies such as AI are adopted by regulators and law enforcement agencies, compliance and enforcement risks will increase and the market for legal services should also grow.

Client expectations from Indian law firms are also changing. While Indian law firms were typically viewed as local counsel with international law firms acting as transaction counsel. Now it is much more common to see Indian law firms acting as lead counsel in a lot of cross border transactions. This is a reflection of confidence in Indian firms. 

Another trend I see is that as clients grow more sophisticated and the focus on quality increases, partner-associate leverage will start going down. 

BW Legal World: What are the kinds of partnership models that are emerging?  

Broadly, there are three. The first kind is a meritocracy where profits are divided on the basis of a fairly robust formula. This is what you may call an “eat what you kill” model. The second model is a meritocracy where profits are divided on the basis of a formula but there is a level of subjectivity included such as recognition of contributions to the firm, seniority etc. A smaller category of firms will have profit distributions that are purely subjective or based simply on seniority (what is called a “lock-step”). 

The first category will have the most amount of internal competition, which if not managed, can have negative effects for the firm and for the client’s service experience. My sense is that firms with a simple lock-step tend to be more collaborative and collegiate in their functioning. That said, simple lock steps also carry their own challenges. For example, how do you keep senior lawyers engaged and motivated to continue to bring in business for the firm. 

There are other issues as well. For example, how transparent is the profit-sharing system – whether every partner knows what the others make. Similarly, how is the management structured? Is it elected/unelected? If elected, does the firm have formal elections or softer elections (without formal firm wide campaigning). As such there is no one size fits all solution to this question. Firms evolve structures based on their specific needs. 

BW Legal World: Dispute resolution in India tends to be costly and slow. Would increasing the number of quality legal service providers help reduce dispute resolution timelines and cost?

I don’t think so. The bottleneck here is the court/tribunal system. No doubt, a lot of efforts are being made on this front, but we are not there yet in terms of efficiency both in terms of cost and time. A key issue remains the appointment of retired bureaucrats and judges on adjudicating bodies, who come with a different mindset shaped by the judicial system over years. Unless India is able to bring in experts who are more commercially oriented this would be difficult to change.  

Increasing the number of quality law firms could contribute to disputes advisory and pre-disputes decision making. It could also help with the wider adoption of mediation and conciliation. However, for this to be possible, there should be a clear financial cost for bringing needless or frivolous disputes, which is not the case here today. Parties will only look to settle if the financial consequences of losing are high. While they are certainly making efforts, Indian regulators don’t seem to approach this issue from this perspective as yet.

BW Legal World: Lastly, coming back to AP & Partners, what differentiates it from other law firms in the same or similar practice areas? 

In terms of servicing clients, our attempt is to have two partners, if not more, look at any significant pieces of legal work. That way the client will benefit from multiple mature legal heads coming together. This approach will not work for clients seeking assistance with regular issues and will bring value to situations that are complex.   

Additionally, having worked in the past with hourly rates and fixed fees, our sense has been to attempt a new approach to charging professional fees, i.e. the value billing approach. Our attempt is to bring a sense of satisfaction and fairness to a client when they pay for our services. This does not mean cheap, but a level of fees the client will not grudge paying. We hope to avoid clients looking for inexpensive lawyers, the exception being where our assistance is sought in a social or community context.  

(Mr. Anand Prasad is the Managing Partner of AP & Partners. The firm was recognized as one of the Rising Stars 2019 by the India Business Law Journal.)