22 Jun Internationalisation of the Indian Legal Services Market
Indian market is growing and many multi national companies have opened up offices in India in the recent past. Nearly half of the fortune five hundred companies in India have either opened their offices or their call centres. Indian companies are taking over companies abroad. With estimates of annual growth ranging between 7 and 9 per cent, India’s economy is one of the fastest-growing in the world.
Even more importantly, the type of economic activity that Foreign Law Firms are likely to profit from- such as large cross border deals- is growing even faster. A greater number of foreign clients are now involved in Indian transactions, too, which is why these firms want to establish a stronghold in India, to better serve their clients.
The Indian Bar Council has imposed restrictions on the activities of foreign law firms in recent years that have sharply curtailed participation of foreign law firms in the Indian legal services market.
India requires that anyone wishing to practice law must enroll as a member of the Bar Council and if that person happens to be a foreign national then he must belong to a country that allows Indian nationals reciprocal rights to practice in their country. Foreign Direct Investment is not permitted in this sector, and international law firms are also not authorized to open offices in India. Foreign services providers may be engaged as employees or consultants in local law firms, but they cannot sign legal documents, represent clients, or be appointed as partners.
In 1994, two New York-based and one London-based law firm had sought permission from the Reserve Bank of India (RBI) to begin liaison office activities in India to advise and assist non-Indian clients in connection with their activities in India and outside India. The three law firms, White & Case (New York), Chadbourne & Parke (New York) and Ashurst Morris Crisp (United Kingdom) were granted permission under the Foreign Exchange Regulation Act (FERA) to start liaison activities. However, in 1995, Lawyers’ Collective, a public interest trust set up by lawyers to provide legal aid, moved Bombay High Court challenging the right of foreign law firms to “practice law” in India. The High Court had held that the practices engaged by these firms amounted to “practicing the law” and hence were not to be permitted. The Foreign Law Firms had challenged this judgment to the Supreme Court, which remanded the case back to the High Court to hear and decide.
Today there are about 38 ‘magic circle’ firms with their liaison offices or referral relationships with their Indian counterparts, while others strike up informal associations.
For the purpose of regulating the legal service and the practising of lawyers in the courts the Indian legislature has enacted the Advocates Act which has provisions for the supervision of the legal arena.
Sec. 24 of the Advocates Act requires that only natural persons who are citizens of India can be enrolled as Advocates. This section also provides that apart from other provisions contained in the Act, a national of any other country may be admitted as an advocate on a State roll, if citizens of India, duly qualified, are permitted to practice law in that other country.
Sec. 33 of Advocates Act: Advocates alone entitled to practice: Except as otherwise provided in this Act or in any other law for the time being in force, no person shall, on or after the appointed day, be entitled to practice in any court or before any authority or person unless he is enrolled as an advocate under this Act.
Sec. 47 of the Advocates Act subjects of any foreign country, which discriminates against the citizen of India in the matter of legal practice, shall not be entitled to practice in India. It also empowers the Bar Council of India to lay down conditions subject to which foreign subjects may be recognized for being enrolled as an advocate.
Rule 2 of Chapter III under Sec.49 (1) (ah) of the Advocates Act reads as: An Advocate shall not enter into a partnership or any other arrangement for sharing remuneration with any person or legal Practitioner who is not an Advocate.
Even if a foreigner is allowed certificate of practice law in India, he has to secure permission from RBI if he desires to acquire foreign exchange and remit the same outside India under Sec. 29 and Sec. 30 of the Foreign Exchange Regulation Act, 1973. Although the Foreign Exchange Regulation Act has been repealed we have similar provisions in the Foreign Exchange Management Act, 1999 which is the successor of the previous Act.
Sec.11 of the Companies Act provides that a partnership or any other form of association with more than 20 partners if not registered as a company, shall be an unlawful assembly. Thus Indian law firms cannot have more than 20 partners.
Apart from all these barriers the legal fraternity in India is neither too interested in allowing their foreign counterparts to rub shoulders with them and is quite adamant and opinionated on the opposition of the globalization of the six hundred crore large legal service industry.
All these enactments, legislations and hostility make the legal services field a difficult sphere to tread on and also make the option virtually impregnable and highly unattractive for the foreign entities to set foot in the Indian legal scenario.
Change is in the air:
But the winds of change have started blowing and that too in the right direction. The Indian government is planning to liberalize its stand on the opening of the legal market and is keen on deciding to make it a level playing field. There has been a change in the government’s policy and course of action. The government is in favour of allowing foreign law firms and lawyers to open up offices in the country, although it has evoked mixed reactions amongst the legal fraternity. In terms of professional demand, there is a shortage of legal experts to the tune of 22%, according to a FICCI report. The Government has shown interest in making Limited Liability Partnerships (LLPs) a reality in India and has taken efforts to have an enactment in place to govern it. This would enable foreign law firms (as well as accounting firms) to have tie-ups and associate offices in India and can come into operation in this manner. The Bar Council is also looking into the requests for relaxing the constraints on advertising the legal profession.
India being a signatory to the General Agreement on Trade in Services (GATS), which is an organ of the World Trade Organization (WTO) and whose objective is to facilitate free flow of services across the world, is under an obligation to open up the service sector to Member Nations and the legal profession is also taken to be one of the services which is included in GATS.
“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. Since India is a responsible prominent and founder member country of the multilateral trading system, it must endeavour to abide by its commitment to the WTO.
With all these tribulations and the development of favourable environment, the advent of foreign law firms seems to be not quite far away. But before allowing the foreign law firms to operate on the Indian soil, there are a few grounds works which should be done in order to make it a smooth process for both the parties.
Some restrictions should be provided for the incoming firms which off course have to be reasonable enough to give them a fair chance in the light of “equality of opportunity”. Adequate safeguards and qualifications should be provided for besides reciprocity. Before the opening up of the legal profession, there is need to introduce advance-level legal courses in the country. We have enough talent and endeavour to beat anyone in the world. As long as the basic principles set out by International Bar Association, that is, fairness, uniform and non-discriminatory treatment, clarity and transparency, professional responsibility, reality and flexibility are met, the entry of the Foreign Law Firms should not pose any problems.
Anything that improves competition would be a welcome development. But there is going to be a long cause and effect list because of the entry of the foreign law firms. Sooner or later the trend of liberalization is going to takeover the restrictive mode of the Indian market. A close analysis of the changing scenario with respect to the entry of foreign law firms has to be done in order to arrive at the outcome as to what can be the benefits and how are we going to be affected by the homing prospect.
The arguments in the favour of making the legal services market transparent and open are:
The first and foremost to be affected would be the Indian law firms and lawyers. The immediate impact on Indian law firms would be of hugely increasing competition for work from foreign law firms. From the lawyer’s point of view, working with international law firms and opening up of this sector in India would throw open a gamut of opportunities for aspiring lawyers to learn, develop and further their careers. Any resistance is due to a rash assumption about the threat of competition. Moreover, allowing foreign private law firms in India will certainly help the lawyers get better job opportunities and break the monopoly of a handful private law firms working in India.
Indian citizens would also be affected as the entry of foreign law firms is expected to increase the professionalism and quality of conduct in the legal profession. As legal standards improve, the cost of legal services may go up but cannot go up significantly given the vast pool of legal professionals in India. It can very well be said that the Bar Association of India is fully cognizant of the un-savoury legal practices and will be able to regulate against them. Overall, the Indian citizens and the clients will benefit from the entry of foreign law firms as they will be facilitated by a wider array of expertise from the industry. They should also be allowed so that they bring with them a fresh brand of professionalism, competence and expertise that the legal profession here has failed to develop on their own.
The clients of foreign firms, mainly multinationals, would offer considerably higher pay package than those offered in India and the opening up of legal services would bring in foreign investment with them which in turn would be helpful and supportive in the overall growth of the economy. More to the point is that the foreign law firms will be ready to lend a hand in the creation of jobs in the legal market.
It will allow firms to outsource price-pressured commoditized and mid-level services to their own offices in India, rather than referring the work to other local firms, so keeping a tighter grip on quality and client service and improving communication and collaboration efficiencies. Apart from foreign law firms’ familiarity with global operations of foreign owned businesses, they also provide higher comfort to the headquarter staff of foreign businesses and permit flexibility in access to a variety of legal service providers.
Foreign law firms have tie-ups and associate offices in India with whom they continue to work. So, even if they have not set up offices in India, they have liaison offices or India departments that effectively do the work. If we allow them more transparency and open up the avenues for their full fledged offices it will not only help remove the ambiguity but will provide a ubiquitous disposition and will moreover concretise the prevailing concept.
Although the initiation of the foreign firms would come as a rude and uncouth shock to the most of the lawyers who consider the profession as their birth right but would be accommodating in curbing the personal fiefdoms in the field which is created by some of the family run partnership firms working on feudalistic lines, bereft of professionalism and vision.
A significant number of Indian law graduates are being recruited or are poached, either as associates or as trainees, by the leading law firms outside. For the last few years, the leading law schools have attracted the attention of foreign law firms in their campus recruitment programmes. So the moral of the story is clearly written on the wall that if we do not allow the foreign firms to cross the threshold they will take away the brightest of our law graduates nurture them and make us the victims of brain drain. This would make the legal field tantamount the engineering colleges where in the talent is poached by foreign companie
The reasons why the Indian legal market should not be unwrapped to the world are:
The opening of the Indian legal market is not only prejudicial to the interests of the Indian legal profession, but liberalisation also has important implications for the nation. The legal profession is instrumental to the administration of justice. To permit foreign lawyers to encroach on this extremely important aspect of a democracy could be contrary to public interest. A symbiotic system of co-existence that has succeeded in meeting every need of a client has always been in place. This system has worked well for decades and there is no reason why it will not work in the future.
The effect of the expansion of the market will be a shift by Indian corporate clients to foreign law firms who offer services on a scale that Indian law firms cannot presently match. Those Indian law firms that provide services in commercial law can expect to find themselves under severe competition, and perhaps even forced out of business. The fear then is that foreign law firms will end up eliminating their Indian competitors and will create a situation similar to that which exists in the field of accounting.
There is a stark difference between the nature of the legal tradition in India and those of the foreign firms, which are representative of a legal culture of ambulance chasers. Globalization and liberalization of the legal field is resisted on the ground that in India rendering legal advice is a service to society and hence there exists restrictions on soliciting and advising.
The Indian Law Firms argue that they are not prepared for the onslaught in the form of competition from global firms and the proposal to open up the legal service sector is premature as Indian law firms are at a nascent stage of development. Some firms also claim that allowing corporatisation will destroy the values of the local industry, turning lawyers into mercenaries.
There is no comparison between the legal sector and other sectors. No country has thrown open the sector overnight. Japan took 20 years. Korea has been deliberating for more than 10 years. And Japan, Korea and China had other reasons for liberalisation – language barriers, cultural differences and inherent inadequacies. US also has the most rigid rules on foreign firms. India, on the other hand, is quite self-sufficient. So, India should not be in such a tearing hurry to open up the market and rather give it a prudent thought.
It is a quest of balance of advantage. It is a common phenomenon in India that prior to liberalization of any sector, there is been widespread opposition for example the Insurance sector. The reason for this appear to be that corporate law remains more or less homogenous across borders. The fact remains that India is in the process of globalizing its economy. In the process, the legal market opening up to competition from the international legal market is rather inevitable. Instead of deliberating about the advantages and disadvantages of the legal markets being opened up to foreign firms, it is perhaps more sensible to accept that the entry of foreign firms in India is only a matter of time. This should be seen as an opportunity: for the law firms, of competition, and for the graduates, as a wider range of employment options.
Advocating protectionism is taking a parochial and myopic view. Parochial, because liberalization will only shut-shop for uncompetitive entities, which are a burden on the economy. Myopic because the long term benefits should be the driving consideration for policy makers. Liberalization of services involves fairly painful short-term adjustment costs, which requires that the institutional and regulatory environment be strengthened before hand. Once these are put in place the Indian economy can take the advantage of entire Asian market both drawing inwards and supplying outwards the services of legal professionals. If India held back, it risked “missing the boat” on a change that would give it access to needed legal expertise and increase the opportunities for local lawyers to do international work.
The matter regarding entry of foreign firms and lawyers into India requires in-depth deliberations and should be carefully considered in consultation with the Bar Council of India(BCI), All India Bar Association(AIBA), Supreme Court Bar Association(SCBA), Bar Association of India(BAI), Society of Indian Law Firms(SILF) and other bodies of the legal profession before a final decision is taken. In the light of the above discussion the following recommendations will be of great importance and will help the industry to take it further.
· The law ministry, the Attorney General’s office, the BCI and some leading Indian law firms and lawyers ought to form a committee and set up the rules for foreign lawyers practicing in India.
· The guidelines for advertising in law directories, maintaining websites, publishing of firms brochure, etc, ought to be streamlined.
· The law prescribing a limit of 20 partners should be reviewed and the concept of limited liability partnership adopted.
· Professional negligence insurance should be made compulsory for all lawyers.
Reference and bibliography:
1. Should foreign law firms get entry into India? By Dhananjay Mahapatra. ( http://timesofindia.indiatimes.com/articleshow/1309940.cms)
2. Law firms given hope of India breakthrough Michael. by Peel and Joe Leahy. (http://www.rediff.com/money/2008/jun/10india1.htm)
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- The Advocates Act,1961 (Act no. 25 of 1961)
- Foreign Exchange Regulation Act, 1973 (Act 46 of 1973)
- The Foreign Exchange Maintenance Act, 1999 (Act no 42 of 1999)
- The Companies Act, 1956 (Act no. 1 of 1956)
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Shyama Charan Vats