1 | P a g e

Opening Doors for Foreign Law Firm

2015

Abhinav Trehan 11llb003

1/1/2015

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Opening Doors for Foreign Law Firm

Introduction

In the Globalization world where It is often asserted that India has the potential to become

one of the world's great legal centres in the 21st century, alongside London and New York1

With India emerging as a top destination for multinational companies and corporate disputes

on the rise2. While there has been divided opinion on the issue of opening up, many

developments over the years have brought up the need to liberalise the sector some of them

are Increasing trans- national deals, specialized advisory, reciprocity interests3

In the early nineties, it appears that some US and UK based law firms applied to the Foreign

Investment Promotion Board for permission to operate in India, which permission was

denied.

Foreign Law Firms namely White & Case, Chadbourne & Parke and Ashurt Morris Crisp

then sought permission from RBI under S. 29 of Foreign Exchanges Regulation Act, 1971

(“FERA”), since repealed, to set up a liaison office in India to conduct the activit ies of,

amongst other, “coordination, communication between its head office, clients, various

governments; establish business contacts, explore foreign investment opportunities in India

and other administrative functions”. The RBI granted permission under FERA, with certain

restrictions, such as, the liaison office shall not enter into contracts on its own name, its

expenses shall be met by its head office etc.

In 1995, Lawyers’ Collective , a public trust, filed a writ petition in the High Court against

the Foreign Law Firms and RBI. Some other interested parties joined in the proceedings,

either in support or against.

Petitioners argued that RBI has no power under S. 29 of FERA to allow any foreign law firm

to practice law in India, since practice of law is not in the nature of trade, commerce or

industrial activity (for which, RBI is empowered to allow setting up of liaison office). By

citing a plethora of judgments, from Indian Supreme Court as well as American and

Australian courts , Petitioners contended that the practice of law includes practice in both

litigious as well as non-litigious manner. Supreme Court of India has held that “The right to

practice, no doubt, is the genus of which the right to appear and conduct cases in court may

be a specie”.

The High Court held that: Since Foreign Law Firms’ parent provide legal advice to clients all

over the world, their liaison office in India, even though functioning as coordination and

communication channels, would also be conducting activities in relation to providing legal

advice. In other words, the activity of liaison office are “inextricably linked” to the head

office of Foreign Law Firms.

1 http://www.legalserviceindia.com/article/l158-Foreign-Law-Firms-In-India.html 2 http://timesofindia.indiatimes.com/india/Allow-us-to-work-in-India-Foreign-law-firms-to-SC/articleshow/46830584.cms 3 An IIMB MANAGEMENT REVIEW Initiative - http://tejas.iimb.ac.in/articles/23.php

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RBI’s authority under S. 29 of FERA is limited to granting permission to foreign entities to

set up a branch or liaison office in India for carrying any activity of trading, commercial or

industrial nature. Based on judicial precedents , the High Court held that since the practice of

law is a profession and not a business, trade or commerce, as covered under the scope of S.

29 of FERA.

Therefore, the RBI has no authority to grant permission to foreign law firms to establish

liaison office in India. The objects of the Advocates Act is inclusive and is meant to regulate

persons practicing law in any part of India as well as persons practicing the profession of law

in any court, including Supreme Court. If it were to be held that practice of law did not

include non-litigious practice, the purpose of Advocates Act would fail since any professional

misconduct of an advocate while conducting non-litigious practice would not be punishable.

High Court also directed the Government of India to act expeditiously in relation to the issue

of foreign law firms practicing the profession of law in India, as this issue has been pending

for over 15 years.

Qualification for practising law in India

The Advocates Act, 1961 specifies that only ʻadvocatesʼ as defined under the Act are entitled

to practice the profession of law in India. ‰

An advocate is defined as a person who enters into the rolls of a State Bar Council under the

provisions of the Act

The Advocates Act 1961 does not deal with or refers to the practice of foreign law. It neither

regulates nor prohibits the practice of foreign law in India. Then, can we ban something, not

covered under the Act.

Under Section 7(1) of the Act, the Bar Council of India recognizes foreign law degrees on a

reciprocal basis, and legal academics can teach and engage in legal research without any bar.

However, foreign nationals are prohibited from “practicing law” in India as per the Act.

Requirement of qualifying All India Bar exam introduced in the year 2010

(i) An advocate enrolled under section 24 of the Advocates Act, 1961 shall not be entitled to

practice under Chapter IV of the Advocates Act, 1961, unless such advocate successfully

passes the All India Bar Examination conducted by the Bar Council of India;

(i) Bar Examination shall be mandatory for all law students graduating from academic year

2009-2010 onwards and enrolled as advocates under Section 24 of the Advocates Act, 1961

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Principal of Reciprocity

The Act also lays certain provisions on reciprocity: ‰

Subject to the provisions of the Act, a national of any other country may be enrolled as an

advocate with the State Bar Council, if duly qualified Indian citizens are permitted to practice

law in that other country. ‰

In case any country restricts Indian citizens from practicing the profession of law or the

Indian citizens are prone to unfair discrimination in that country, then no person or national

of that country shall be entitled to practice law in India.

WTO Prospective

India being a signatory to the General Agreement on Trade in Services (GATS) which is an

organ of the World Trade Organization (WTO) is under an obligation to open up the service

sector to member nations.

'Services' would include any service in any sector except services supplied in the exercise of

governmental authorities as defined in GATS. "A service supplied in the exercise of

governmental authorities" is also defined to mean any service that is supplied neither on a

commercial basis nor in competition with one or more service suppliers.

Legal profession is also taken to be one of the services which is included in GATS. With the

liberalization and globalization policy followed in India, multinationals and foreign

corporations are increasingly entering India. Foreign financial institutions and business

concerns are also entering India in a fairly large number. Their business transactions in India

are obviously governed by the Indian law and the foreign law firms (FLF's) and foreign legal

consultants (FLC's) being not fully conversant with the Indian legislation require the

assistance of lawyers enrolled and practicing in India. This has led to the idea of entry of

foreign legal consultants and liberalization of legal practices in India in keeping with the

guidelines evolved by the International Bar Association (IBA) and the GATS. If this idea is

to be put into practice, the Advocates Act, 1961 which governs legal practice in India needs

to be amended.4

Under Article I.2 of the GATS, trade in services has been defined as supply of service by a

service supplier of one member through the commercial presence in the territory of any other

member. It is a general belief among global economists that GATS is inclusive in nature and

thus will create an integrated global market in services. This however, is not the only side of

the coin and even though GATS goes a long way in including developing nations in the

global market, the primary fear or apprehension this gives rise to is that such inclusion would

not be on equal terms5

4 http://www.manupatrafast.com/articles/PopOpenArticle.aspx?ID=b079546b-f512-43fa-964d-3f6970127a26&txtsearch=Subject:%20Civil 5 Bibek Debroy, Beyond The Uruguay Round: The Indian Perspective on GATT, Response Books A division of

Sage Publications India Pvt. Ltd., 1996.

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Indian government is unwilling to lose regulatory control over its legal services. There is

resistance from within the legal fraternity including large law firms on opening up the sector ,

GATS could limit the scope of national policy as WTO has the powers to impose trade

sanctions in case of non -compliance.

Cross border supply -Ȃ Services rendered from territory of one country to that of another

without movement of the service provider, e.g. legal plans sent by internet or wire or satellite,

electronically provided legal advice, etc. ‰

Consumption abroad Citizens of one country travel abroad to visit the supplier in order to

consume a service (e.g. a foreigner comes to India to consume the services of a Indian lawyer

or a law firm).6 ‰

Movement of a natural person the temporary stay of natural persons travelling as individual

professionals or as employees/partners of a foreign established law firm to do business.7

What Foreign Lawyers Want?

First, we need to establish what the foreign law firms would like from the Indian profession.

There are a number of key areas that UK lawyers' state they would like to practice if

permitted to enter India. These are :

Foreign firms do not wish to access those parts of the Indian market traditionally served by

local Indian lawyers. UK firms have no interest in this area, but wish to focus on advising

inward and outward investors in the international business community. The law society

agrees that court appearances should be restricted to nationally qualified lawyers.

• That English solicitors be permitted to offer English law advisory services (that is not

advocacy/ court work) in India without having to become members of the Indian Bar and

these advisory services cover home title, third country and international law. The English

solicitors be permitted to enter into partnerships with and employ Indian lawyers in India.

• That English solicitors be permitted to establish branch offices in India to offer advisory

services in English law.

Ethical Issues

There is a valid fear that conflicting ethical practices prevalent in foreign legal systems will

greatly disturb the balance in our law. One such example will be the charging of contingency

fees. However, it is submitted that since licenses for practicing are always made subject to

ethics, it is practically impossible for foreign lawyers and law firms to breach the ethical code

as they run the risk of being barred. One can also think of relaxing certain practices in some

fields.8 The risk of ethical breach is less at the top and more at the bottom of the professional

pyramid. One can hardly expect the foreign law firms to be interested anything below the top

6 http://lexport.in/Articles/ArticlesNews21.pdf 7 http://lexport.in/Articles/ArticlesNews21.pdf 8 US allows charging of contingency fees by patent attorneys, while Australia has come up with a new law by

which some particular lawyers and firms take contingency fees in insurance cases.

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of such a structure. 9

Moreover the foreign legal firms (FLF's) have 'single window services'

meaning services which not only offer legal but also accountancy, management, financial and

other advice to their clients. The multidisciplinary partnerships will cater to the needs of the

clients in the above-mentioned different fields. Such partnerships may endanger the ethics of

the legal profession as confidential information may be passed out within the partnership to

the non-lawyer professionals. This would prejudicially affect not only the clients but also the

lawyers since the independence of the lawyers would be compromised. Once the foreign legal

firms (FLF's) and foreign legal consultants (FLC's) are allowed entry into India, the Bar

Council of India will have to make rules and regulations also for such multidisciplinary

partnerships or single window services.

The foreign law firms may seek license for full and regular legal practice like that of Indian

lawyers or they may come for a limited practice of consultancy for foreign partners on home

country laws. Accordingly, the rules and regulations will have to be framed to meet both

these situations. The FLF's who intend to come for regular legal practice may have to be

subjected to immigration and citizenship laws. Those who seek limited practice may enter

into partnerships with the home country law firms without any scrutiny from the organized

legal profession. It is therefore necessary that a transparent, fair and accountable system be

evolved to regulate and control the internationalization of legal practice.

Commercial Restriction

FDI in legal services is not permitted ,International law firms are not allowed to establish

offices in India and Indian advocates are not permitted to enter into profit sharing

arrangements with the persons other than Indian advocates

Advocates Act 1961 does not permit foreign law firms to operate in India ,Foreign Law firms

are prohibited from giving any legal advice that could constitute practicing of Indian law

under the Advocates Act 1961 ‰

Foreign Law firms are barred from practicing domestic law due to barriers such as

qualification requirements

Pros and cons of Indian Legal Profession:

The Indian legal profession will have the following advantages: ‰

Increase in competency, professionalism and expertise among the Indian lawyers/law

firms

Improvement of the quality of the legal services ‰

Increase in the employment avenues for the Indian lawyers ‰

Impressive pay package and better work conditions/culture

Increase in the internship opportunities for the students

Many corporate lawyers already welcome the idea of international law firms being

allowed.

9 A working paper by Dr. Madhava Menon presented at Bar Councilors' seminar on Trans-National Legal

Practice and GATS: Issues and Challenges, 26th October, 2002.

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Indian lawyers and law firms are already making their presence felt in international

forums like WTO and foreign arbitrations

Cons

Domestic restrictions have stunted development of legal profession in India ‰

Ability to compete effectively against foreign firms has been hindered due to the

current restrictions ‰

Only a few firms in India having the expertise to handle commercial work for

multinationals‰

Indian legal education still needs to adapt to a global governance architecture

Lawyers will have to acquire interdisciplinary legal learning and knowledge in the

areas of comparative law, intellectual property, corporate governance, human rights,

international trade and alternative dispute resolution

Current Legal Position

Interim Order of the Supreme Court of India of 4th July 2012 in Bar Council of India v. A.K.

Balaji 10‰

Reserve Bank of India should not allow foreign law firms to open liaison offices in

India ‰

ʻPractice of lawʼ comprises of consultation, legal drafting, litigious and non litigious

matters‰

To practice non litigious matters, foreign law firms to be bound by the provisions of

the Advocates Act, 1961

The Bar Council of India, the statutory body regulating the legal profession in India, has

decided not to permit foreign lawyers into India subject to: ‰ a more detailed and rational

scrutiny in the light of opinions, and ‰ points of view of different stakeholders ‰ Several

issues related to the presence of foreign lawyers and law firms in India require clarity and

hopefully the Supreme Courtʼ s final ruling will ponder on them.

10 [S.L.P. (CIVIL) NOS. 17150Z17154 OF 2012]

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A working paper by Dr. Madhava Menon presented at Bar Councilors' seminar on Trans-

National Legal Practice and GATS: Issues and Challenges, 26th October, 2002.

http://lexport.in/Articles/ArticlesNews21.pdf

http://www.legalserviceindia.com/article/l158-Foreign-Law-Firms-In-India.html

http://articles.economictimes.indiatimes.com/2015-07-24/news/64817197_1_foreign-

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http://www.manupatrafast.com/articles/PopOpenArticle.aspx?ID=b079546b-f512-

43fa-964d-3f6970127a26&txtsearch=Subject:%20Civil