The legal arms of the Big Four accounting firms, until now seemingly unconstrained in their rapid expansion across Asia, have hit a major stumbling block in India.

This month, after receiving complaints from local law firms, the Bar Council of Delhi, a professional regulator, told the auditors in no uncertain terms that they must “refrain from engaging in any [law] practice.”

Foreign law firms are not only barred from practicing local law in India, but also from establishing offices in the country. Similar restrictions are supposed to also apply to the Big Four. But allegations that they are indeed illegally practicing law are surrounded by legal ambiguities—grey areas that have made the firms' legal offerings in the world's largest democracy less visible than in Hong Kong, Singapore and China, where the accounting giants have quickly absorbed local firms into their global networks.

So far, all four firms have denied wrongdoing. But all four have marketed their legal services in India.

In 2015, the Big Four's Indian legal offering caught the eye of the Society of Indian Law Firms, a self-proclaimed professional association representing the interests of law firms in India. In a petition made to the Delhi Bar Council, SILF's New Delhi-based president Lalit Bhasin laid out details of what he alleged was the Big Four's illegal practice of law in India.

Specifically, Bhasin alleged in the petition that the Big Four are using two methods to engage in practices that violate the Indian Advocates Act. Lawyers at Deloitte and PricewaterhouseCoopers give non-litigation advice mainly in relation to tax, compliance and regulatory matters, he said. EY and KPMG have advisory practices as well, but also have exclusive alliances with Indian law firms PDS Legal and Advaita Legal, respectively.

Bhasin said in his complaint that the alliances, which the accounting firms' legal arms commonly use in Asia, allow EY and KPMG to practice law “in a surrogate manner.” Among the specifics he detailed, Bhasin said that PDS and Advaita lawyers attended partner meetings held by EY's and KPMG's global networks, participated in client meetings, and cross-referred work to each other. He also noted that the Indian law firms and the accounting firms shared office space, infrastructure and resources.

Both the EY and KPMG alliances are well-known in India's legal community. In fact, EY officially acknowledges PDS as an affiliate. KPMG has kept its relationship with Advaita more discreet. Mumbai-based PDS has more than 70 lawyers across offices in Pune, New Delhi and Bengaluru, as well as in Mumbai; the firm has been associated with EY for more than six years. Advaita was co-founded in 2013 by a former KPMG tax partner and has since had a close relationship with the accounting firm.

Lawyers are divided about whether the alliances constitute a violation of the law.

“It's a grey area,” said a former Big Four partner in India. “We know that PDS is entirely EY, yet if you look at the structure, they're different and have tried to disassociate with each other,” he said, noting that the firms recently made efforts to have different office spaces and email domains.

Complying with the letter of the law?

A lawyer with one of the Indian affiliate law firms said that despite market perception, his firm complies with all regulatory requirements to practice law in India.

“It's an exclusive relationship and there is nothing illegal about it,” the lawyer said. “There is nothing illegal for an accounting firm to tell a law firm that 'we will give you all your clients [and] you stop work for anyone [else].'”

The Indian firm lawyer said the relationship between the affiliate firms and the Big Four firms is similar to the best friend relationship foreign firms like Allen & Overy and Clifford Chance used to have with India's Trilegal and AZB & Partners, respectively. Both relationships ended as India moved away from liberalizing the legal market. To date, foreign law firms still are not permitted to open offices in India.

Some lawyers say the legality of the form of the alliance is beside the point; the substance of the relationship is what really matters. The lawyer who works for one of the affiliate firms and another lawyer who recently left one of the affiliate firms said both firms had recently been questioned about their relations with the Big Four. The questioning “caused a lot of anxiety and apprehension” at one of the firms, one of the lawyers said, adding that many are not confident that the relationship with the accounting firm is entirely legal. In fact, the lawyer said he left in part because he was not confident of the firm's legal standing in relation to the Big Four.

Both PDS and Advaita are experiencing departures. PDS' Delhi-based managing partner Tarun Gulati is leaving the firm after being appointed senior counsel by the Allahabad high court. At Advaita, former Delhi partner Atul Dua left after joining only one and half years ago with 20 lawyers. And both firms' co-founders, former KPMG partner Sunil Moti Lala and former Delhi managing partner Sujit Ghosh, have also resigned.

More importantly, SILF claimed that EY and KPMG share fees with their respective alliance firms, a direct violation of the Advocates Act, which bars advocates from “enter[ing] into a partnership or any other arrangement for sharing remuneration with any person or legal practitioner who is not an advocate.” In KPMG's case, Bhasin claimed, non-Indian member firms were involved in sharing revenue from the legal practice in India.

The lawyer who recently left one of the alliance firms confirmed the revenue-sharing scheme between his former firm and its partner Big Four firm. “On paper, you will not find common partners [between the two firms], but there is this understanding,” the lawyer said. “Why [else] would [the Big Four firm] invest in [the law firm]?”

A Mumbai-based spokesperson for KPMG said SILF's allegations are “baseless,” referred to the firm's 2015 response to the same complaint, and declined to comment further. “In our response, we specifically stated that KPMG does not represent or hold itself out to be a legal firm or a firm of lawyers or legal experts, nor is it engaged in the practice of law,” the spokesperson said.

EY, PDS and Advaita did not respond to a request for comment for this article.

An alliance by any other name…

Deloitte and PwC do not operate with alliances in India, although they still get accused of carrying out the unauthorized practice of law. And both firms have promoted themselves as providing legal services in India. A 2015 brochure of Deloitte Legal—the accounting firm's global legal network—included India, while recent marketing materials by PwC Legal say the firm “operates a non-regulated offering” in India.

A Mumbai-based spokesperson for Deloitte said the auditor is not a firm of advocates and does not engage in any practice prohibited by applicable laws and regulations. And Tony O'Malley, PwC's Sydney-based legal services head for Australia and the Asia Pacific, who will become global leader of the accounting giant's entire legal services network June 1, said he is “confident that PwC is not practicing law in India.”

Two former senior lawyers from Deloitte and PwC confirmed that they did provide advisory services, including regulatory matters, but did not represent clients in court. Non-trial advisory work, according to one of the former lawyers, is also a grey area—there's disagreement on whether that type of work is only reserved for advocates.

In his complaint, Bhasin insisted that only advocates are allowed to practice Indian law, which includes both litigious and non-litigious matters. To support his claim, Bhasin cited case law, including the 2012 landmark decision by the Madras High Court in A.K. Balaji v. Government of India, where the Chennai-based court established the “fly-in, fly-out” arrangement for foreign law firms doing clients' work in the country. In the same decision, the court also held that: “Foreign law firms or foreign lawyers cannot practice the profession of law in India either on the litigation or non-litigation side, unless they fulfill the requirement of the Advocates Act and the Bar Council of India Rules.”

Indian lawyers joining the accounting firms have to surrender their licenses and can no longer practice law. The Big Four, according to former lawyers, retain practicing lawyers by contract; these lawyers provide a variety of advisory corporate and commercial law services to clients while not being considered employees by the accounting firms.

Fear of the Big Four?

Apart from the Big Four's expansion across Asia, lawyers say the Bar Council may also be concerned with increased competition felt by small and mid-sized law firms, which in India make up the vast majority of the legal profession.

“Top firms are conscious of their quality and don't mind competition,” said a former Big Four senior lawyer. “But the small and mid-sized firms—they definitely have a disadvantage.”

This is true in other markets. Last year, Law.com affiliate The Asian Lawyer reported that smaller local firms tended to be the first to feel the pinch as the Big Four rapidly expanded in Singapore's legal market because the pie for domestic law work will get smaller.

The Delhi Bar Council has scheduled a hearing for SILF's complaint in July. If the outcome of the case does find the Big Four in violation of the law, the dispute might get referred to the accounting firm regulator for possible violation of accounting guidelines, said the lawyer currently working at one of the affiliated law firms.

The Big Four then should be “very concerned about a client suing them for negligent service and cheating,” the lawyer said.

And no matter the outcome, it is clear that the Bar Council is taking the matter more seriously than four years ago when the complaint was first filed. “There appears to be more resolve this time to get to some conclusion,” a former Big Four partner said. “It'll come to litigation. Firms will go to the high court.”