The Indian government, in consultation with the Bar Council of India (BCI) and the Society of Indian Lawyers (SILF) has given its go-ahead to a proposal allowing foreign law firms to enter India on a reciprocal basis. This marks a significant shift in the government’s policy towards the issue of liberalisation of the legal services sector in India, which has so far been virtually closed to outsiders. At present, foreign lawyers face stringent restrictions on operating within India.
The Advocates Act, 1961, which governs the legal profession in India, does not permit foreign lawyers to practice law in India unless their home jurisdiction also grants reciprocal privileges to Indian lawyers. Unfortunately, no foreign law firm has been able to enter India on the basis of reciprocity, which has been interpreted as granting practicing privileges to Indian lawyers without any entry barriers such as qualifying bar exams (as was the case in India). Further, the Act does not specifically regulate the practice of foreign law in the country.
This is not to say that foreign law firms have never made their presence felt in India. In the 1990s, a handful of law firms including Ashurst, Chadbourne & Parke and White & Case, opened up liaison offices in the country. Unfortunately, after a hard-fought court battle for domestic law violations, they were forced to close shop (Lawyers Collective v Bar Council of India). Undeterred by this setback, foreign law firms have found alternate means of tapping into the Indian market by either setting up dedicated Indian desks in Singapore or London, or by entering into “best friend” referral relationships with Indian firms.
However, these are at best stopgap measures when what is needed is a complete overhaul of the archaic rules and regulations that have stymied the growth of the Indian legal industry. The current proposal by the Indian government on the gradual opening up of the legal sector is a step in the right direction.
The government has recommended a phased entry for foreign lawyers spread over a period of five to seven years. This process will be enabled by:
- Domestic reforms. These include the removal of restrictions on marketing and advertising of legal services, entering into fee-sharing agreements and using corporate entities like LLPs to practise law. The objective of these reforms is to ensure that domestic lawyers and law firms are able to compete on a level with foreign law firms. Undoubtedly, this will be a crucial and perhaps the most time consuming phase of the reforms process.
- Opening international arbitration and mediation services to foreign lawyers. Interestingly, this has already been partially dealt with by the Madras High Court in A. K. Balaji v Govt. of India. Hailed by many as India’s first step towards liberalisation, the decision gave recognition to the right of foreign lawyers to temporarily enter India on a “fly-in and fly-out” basis to conduct arbitrations and advise their clients on foreign and international law. While the spirit and intention of the decision is laudable, it has failed to address some of the loopholes in the Act (for example, the issues of “reciprocity” and the regulation of the “practice of foreign law”), which is why the current reforms and amendments are extremely important (especially since the decision has already been challenged before the Supreme Court of India). SILF has indicated that it would like to see BCI tackle the issue of reciprocity by signing mutual recognition agreements on legal qualifications with other countries.
- Allowing foreign lawyers to provide non-litigious and advisory services on issues of foreign and international law. Litigation services will continue to remain the exclusive domain of Indian lawyers. Recent reports have suggested that India is likely to follow Singapore’s model of liberalisation by giving access to a limited number of foreign law firms in select areas of law through licenses and joint ventures (with local firms).
Although the nuances of the proposal are still being worked out, BCI and SILF have expressly stated that they will not support foreign direct investment in the legal sector or allow multi disciplinary practices such as E&Y, PWC, Deloitte and KPMG to provide legal services in India.
A lot depends on how well the Indian government is able to tackle the issue of domestic reforms. The sentiment was aptly summarised by Mr. Cyril Shroff, Managing Partner, Cyril Amarchand Mangaldas in an interview to the International Bar Association (IBA) in 2013 when he said:
“…liberalisation should result in an outcome where there is a place for everyone including domestic firms and international firms practising in India. So it has to be a measured, mature pace, which needs a lot of statesmanship not only from the Indian bar, but I think also from the politicians and equally from the international bar.”
The Indian legal sector needs to first get its own house in order before it embarks on the process of liberalisation. Unless Indian law firms are well equipped to handle competition from their foreign counterparts, the process of reform may lose support from BCI and SILF, which are the driving forces behind this movement for change.
Benefits of liberalisation
As one of the fastest growing economies in the world, India cannot afford to keep its legal system insulated. The liberalisation of legal services would provide a strong impetus to foreign investment and infrastructure development in India. It is no coincidence that places like Singapore, Hong Kong and the UK, listed at the top of the World Bank Ease of Doing Business index, provide open legal systems for foreign lawyers to practice in their jurisdictions. Apart from the obvious growth in employment opportunities for legal professionals in India, the presence of foreign lawyers will boost investor confidence in the Indian market, enable foreign lawyers to better serve their clients’ Indian interests and allow Indian companies to gain easy access to foreign legal advice on outbound transactions at competitive rates.