Opening Doors for Foreign Law Firm

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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Morris Crisp then sought permission from RBI under S. 29 of Foreign Exchanges Regulation Act, 1971 (“FERA”), since repealed, to set up a liaison office in India to conduct the activities of, amongst other, “coordination, communication between its head office, clients, various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.html2 http://timesofindia.indiatimes.com/india/Allow-us-to-work-in-India-Foreign-law-firms-to-SC/articleshow/46830584.cms3 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

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 ,

4 http://www.manupatrafast.com/articles/PopOpenArticle.aspx?ID=b079546b-f512-43fa-964d-3f6970127a26&txtsearch=Subject:%20Civil5 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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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 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 6 http://lexport.in/Articles/ArticlesNews21.pdf7 http://lexport.in/Articles/ArticlesNews21.pdf8 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.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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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. 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 �

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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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Bibliography

http://www.legallyindia.com/Law-firms/will-the-entry-of-foreign-law-firms-benefit-young-lawyers-rational-realities-expectations-and-opportunities

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-

law-firms-advocates-act-legal-sector http://www.thehindu.com/news/national/bci-agrees-to-centres-propsal-to-open-up-

arbitration-legal-services-to-foreign-law-firms/article7368041.ece http://www.nishithdesai.com/fileadmin/user_upload/pdfs/

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CEAF7E06D52E.pdf http://www.manupatrafast.com/articles/PopOpenArticle.aspx?ID=b079546b-f512-

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