Foreign Law Firms Entering the Indian Market - More Pros Than Cons

chillibreeze writer — Vrinda Maheshwari

The most hotly debated issue in the legal world in India these days, is the entry of foreign law firms into India. This essay will attempt to give a general overview of the issues involved and make the argument that foreign law firms (hereinafter FLF) should be allowed a free entry into the Indian legal realm.

Introduction: While the distinction between a barrister and a solicitor, as is seen in UK and other countries is not seen India, an invisible barrier does seem to exist in the legal realm today; top-drawer corporate and commercial work is done by city-based law firms that employ the services of advocates who predominantly specialize in transactional work. The other part of the spectrum is the litigation lawyers who do practice in courts, from the lowest level to the highest level. Since these FLFs are targeting the transaction side of business, it is the law firms that are opposing them the most. The legal profession in India is often nepotistic and it is these family run law firms that are making the loudest protest against the entry of FLFs.

The legal history of the debate: Under section 7(1) of the Advocates Act 1961, foreign law degrees are recognized by the Bar Council of India 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 same Act. (It will be argued that this is an unnecessarily harsh measure, and having standardized bar examinations, as is done in the USA or UK, is a better solution.)

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 (NY), Chadbourne & Parke (NY) and Ashurst Morris Crisp (UK) 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 HC 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 FLFs had challenged this judgment to the Supreme Court, which remanded the case back to the High Court to hear and decide. It is at this stage that proceedings currently lie.

The Entry of FLFs: Despite the resistance to their entry, 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: the London-based Clifford Chance and Baker & McKenzie, both have 180 lawyers each for India-related practice! These firms have also started recruiting from Indian law firms: top London firms like Clifford Chance, Linklaters have been recruiting from the National Law School of India University campus for some years now.

There has been a change in the government’s policy as well. 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 such law firms (as well as accounting firms) to come into operation. The Bar Council is also looking into the requests for relaxing the constraints on advertising the legal profession.

Liberalization and the global Indian legal market: With estimates of annual growth ranging between 7 and 9 per cent, India’s economy is one of the fasting-growing in the world. Even more importantly, the type of economic activity that FLFs 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. It is ironic that the once colonial India remains one of the only countries not conquered by the big London/New York firms.

There are numerous arguments to the opening up of the Indian market: increased professionalism may be the primary one, but reciprocity and international law obligations is definitely a strong one as well. 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 and the legal profession is also taken to be one of the services which is included in GATS. The entry of large MNCs into India has created a niche for foreign-Indian legal collaboration which can only take place if the Advocates Act is amended.

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 FLFs should not pose any problems.

So far as reciprocity is concerned level playing field and uniform code of conduct will have to be worked out. For example, there is a cap of 20 on the number of members of any law firm. However, with the introduction of LLPs this problem might be solved. Further, many western nations allow their lawyers to advertise whereas in India the lawyers are not allowed to do so. Local restrictions often exist: for example in California the FLF's were only permitted to deal in laws not specific to California. Even in countries like Singapore, Hong-Kong and Japan the FLC's are restricted to servicing only foreign firms. These practices, rules and regulations of other jurisdictions need to be studied thoroughly before being incorporated into the Indian system. Reciprocity should be clearly defined and must be effective. Also, the “single window services" concept of the FLFs, that is, services which not only include legal but also accountancy, management, financial and other advice to their clients may be problematic in terms of information being passed on to the wrong people. The code of ethics would need review to bring international legal practice under its purview.

Conclusion: The Indian legal profession has, in recent years, undergone a significant change, emerging as highly competitive and ready to move along with the ongoing wave of globalization. The interest of foreign law firms to open shop in India therefore is hardly surprising, since India offers a full range of legal services, of comparable quality, at literally a fraction of the price that would otherwise have to be paid. The rather conservative and so to speak "protectionist" stand of the Bar Council of India on the matter has, however, prohibited foreign law firms from operating in India. A number of the more established ones, perhaps unable to resist the immense potential of the Indian legal markets, and in anticipation of the "globalization of legal services" under the aegis of the WTO, are slowly (and quite discreetly) establishing their presence in India, this in a considerable number of cases taking the form of their entering into associations with Indian firms, and in the process, literally operating in India indirectly, despite the prohibitions against the same.

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.

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