Clifford Chance and India’s AZB & Partners have ended a “best friends” referral agreement, the Mumbai-based Legally India blog reports.

The alliance between the firms was announced with considerable fanfare at the beginning of 2009, as Legal Week reported at the time. Foreign firms are barred from having offices in India, so the Clifford Chance-AZB deal, like a similar 2008 arrangement between Allen & Overy and Indian firm Trilegal, was seen as a potential model for international firms hoping to get around the restrictions and a possible precursor to a full-fledged merger once the Indian market opened up.

But dwindling prospects for such an opening helped kill the alliance, a Clifford Chance partner told Legally India’s Kian Ganz. Two years ago, liberalization of the Indian legal market seemed imminent, but momentum for the change has since dissipated in the face of enormous resistance in the Indian legal profession.

In the meantime, the agreement has produced fewer referrals than expected, both because of the global economic downturn and because many Indian clients have been reluctant to move from existing relationships with international firms. Though the deal between Clifford Chance and AZB was never exclusive, an AZB partner told Ganz that ending it would nonetheless make it easier for his firm to work with other international firms.

According to Legally India, the end of the alliance has been widely rumored in the Mumbai legal scene. Plans to wind it down by the end of February were apparently accelerated to address rampant speculation.

The two firms will remain “good friends.” Clifford Chance remains committed to opening an Indian office whenever regulations will permit.