Source: https://lawtimesjournal.in/liberalisation-of-legal-market-in-india/
Timestamp: 2019-04-21 21:09:01+00:00

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Aim – This article ventures upon explaining the pertinent need for Liberalisation of Legal Services in India. Our nation is increasingly becoming a strong global player in terms of ease of doing business. Despite the policy makers calling for foreign investments in India, the need for liberalisation of legal services in India remains to be go unnoticed.
“Globalisation is not something that we can hold off or turn off: it is the economic equivalent of a force of nature- like wind or water”, was quite truly said by William J. Clinton.
The integration with the global economies and opening up the respective economies by the respective countries has been a trend for the past decade or so. The developing countries are allowing the foreign players in their market and thereby, getting a significant boost to their economy. In the 1990s, India opened up its economy and liberalised the trade as part of the economic reforms and structural adjustment programmes and since then, the GDP of the country has grown by leaps and bounds. The service industry is a majority contributor to the GDP of India. Keeping this in mind, it is an interesting venture to note that the legal services market refused to adapt to the liberalising changes and maintained its protectionist stand over the years.
The demands for the legal services are booming, with the exponentially increased quantum of trade and service exchange between Indian and foreign firms. The cross-border transactions require a growing cadre of lawyers, who are well aware of the laws, not only existent in India, but also across the globe. There has been an increasing need of trained lawyers in specific areas of law, like Corporate Law, Intellectual Property Law and cross border M&As. Apparently, the layers in India are not enough to provide distinguished services in such fields and hence, it seems only plausible to open our legal services market. In such a scenario, the pressure has further mounted up on the Indian Lawmakers to open the lucrative Indian Legal Services market to foreign players.
The protectionist attitude of the Indian Legal Services market is quite visible with the high number of regulatory barriers that the foreign firms face. These include the requirement of citizenship to provide legal services, the requirement to be admitted by the Bar Council of India (BCI) for practicing any form of advocacy, the size and the expansion options of the Indian Law Firms are hindered, and the policy of non-advertisement by the Indian firms make them lose their feet as against the foreign players.
The opposition to liberalisation, as advocated by the BCI rests on mainly one argument that the Indian lawyers might not be able to compete with the specialised services that would be provided by the foreign firms, for the lack of financial means. There is also a fear of ‘Brain-Drain’ of the most talented of the Indian law students. In 2010, the Chairman of BCI, Gopal Subramaniam, had said in an interview that ‘legal profession is a mobile profession and the Bar Council cannot consider this profession as a business. It is a duty of the BCI to protect each and every lawyer of this country.
In the course of this paper, we shall see the jurisdictional and legislative intent behind the two competing stands, compare it with other jurisdictions across the globe, analyse the case laws by the Indian courts and explore few plausible solutions.
The Advocates Act, 1961 led to the establishment of the professional body called the Bar Council of India. It also established a common roll for all classes of legal practitioners called the Advocates and prescribed the qualifications required for admission into this profession. A person must be a citizen of India, not less than twenty one years of age and must have a LLB degree from an Indian University to be eligible for enrolment as an advocate. Further, to be an advocate at the bar, one has to clear the All India Bar Examination which was mandate in 2010.
The act brought about uniformity in the legal profession and was interpreted to mean that no one but an advocate can practice law in India. Further such advocate has to be a citizen of India. Thus, the act has been interpreted as prohibiting the foreign nationals from practicing law in India in any manner unless it fits into the exceptions laid down within the act itself. The foreign lawyers can practice in India on the basis of reciprocity or when permitted by the Indian Bar Council.
In 1991, India opened up its closed economy leading to the entry of multi-national corporations in India. Soon, Foreign Direct Investment (FDI) began to pour into India from around the world. India had singed the World Trade Organisation Treaty and the General Agreement on Trade and Tariffs (GATT) in the 1990s and thus, it was expected that India would liberalise its legal profession as well. But that did not happen and India continued to follow a protectionist regime.
It was held that liberalisation of this noble profession would increase the competition which the Indian Law firms will not be able to face. Thus, the Indian lawyers and law firms will lose their business to foreign nationals. Besides this, another hanging fear was based on the history of India and it was thought that if the foreign law firms are allowed it would lead to pseud-colonialism in India. It was believed if the foreign nationals are allowed to practice law in India it would hinder India’s sovereignty and force the Indian citizens to depend on them. These fears led to the continuous opposition against the liberalising of the Indian legal profession.
In 1994, three foreign law firms were granted special license by the RBI to set up ‘Liaison Licenses’ in India. Later, the Lawyers Collective filed a law suit against the three firms, the RBI and the Bar Council of India (BCI) on the grounds that the RBI did not have the authority to grant such permission, and the BCI failed to protect the nobility of the profession. The Bombay High Court agreed with the Collective’s interpretation of the act that it created the monopoly for the Indian Lawyers with respect to any form of legal work. This argued was in conformity with the opinion of BCI and the RBI as both were not in favour of the foreign lawyers and the law firms.
However, it was argued that the act did not apply to the non-litigious matters as the act related to only the advocates who practice in the Supreme Court, High Court or any other court in India. The foreign firms got around these restrictions and continued to practice in India from branch offices in Singapore and London until it was brought to the notice of the courts by a PIL by an Indian attorney named AK Balaji in 2010. In 2012, responding to the PIL, the Madras High Court adopted a more liberal approach and held that the foreign lawyers can practice in India on a “fly in and fly out” basis, this has been confirmed by the Supreme Court in its decision of March 2018. Thus, the foreign lawyers can come and give advice on strictly foreign law and participate in international arbitration. The case laws relating to the matter has been analysed in detail in course of the paper.
Unlike the other common law countries India has shown very few signs of embracing the foreign lawyers and the law firms. The main rationale of India behind opting such protectionist regime is to stem the increasing effects of globalisation into the legal profession. This is based on its experience with the British and fear of the competition from the foreign nationals that it believes India’s legal workforce while not be able to face. However, such competition is necessary for the overall growth of the legal professionals. It will ensure the quality services to the clients and will hopefully reduce the fees paid to the lawyers. Further, the liberalisation of legal profession will help India to attain a global name in the field of legal profession and education. Even the Law Commission in its working paper in 1999 while not commenting on this issue, recommended the creation of ‘a level-playing field for the Indian Lawyers’.
Law is a noble profession and thereby lawyers licenced and trained in one jurisdiction may not be easily allowed to practice in other jurisdictions. But with globalisation a significant change has occurred especially in common law countries which has created avenues for lawyers trained in one country to practice in other countries. This is done by either fully recognising the qualifications of these lawyers from their home countries or by subjecting them to host country’s qualification which recognises their home qualifications in the field of law.
United States has a federal structure where licensing is done at the state level by the respective state bar associations and not at the national level. Thus, the influx of foreign lawyers in each state is modelled differently to some extent. The foreign educated lawyers are required to fulfil the mandate of the respective state bar association to be able to practice in that state. United States on one hand has strict protectionist ideology with respect to foreign lawyers and foreign law firms while on the other hand some states allow the foreign educated lawyers to sit for the bar examination without attaining their qualifications locally.
On the protectionist end, we have about twenty-three states which set out strict regulations for a foreign lawyer to be able to practice but are explicitly opposed to foreign lawyers. These states require a foreign educated lawyer to attain qualifications from a Law School accredited by the American Bar Association (ABA) and as of now, the ABA has not accredited any school beyond the borders of the United States. The foreign lawyers start this process by getting their home degrees analysed and reviewed by the ABA. Subject to its approval, they are allowed to sit for the state bar examinations. In case the application is deferred they are required to complete the course at an ABA accredited law college which is in the form of one-year LLM program. Reciprocity is comparatively an easy way for the foreign lawyers to practice in these states.
However, at present there are five states, namely, California, New York, New Hampshire, Virginia and Alabama which allow the foreign educated lawyers to be licensed without attending the ABA accredited school. New York City is most favourable for the foreign lawyers followed by the state of California. Foreign Legal Consultancy (FLC) is rather popular amongst the foreign educated lawyers in United States where the lawyers are not allowed to appear in the courts but can render advice on international law and the home country law. This practice is quite similar to that of India.
United Kingdom tries to limit the influence of globalisation due to the fears of increasing immigration. There are separate set of rules for foreign lawyers coming from the member state of European Union and those coming from the other states. The foreign educated lawyers from outside the European Union are required to requalify in United Kingdom and have to meet all the requirements of the Solicitors Regulation Authority (SRA). As compared to this no formal requirements are imposed on the lawyers coming from within the European Union. This is because the citizens of the European Economic Area (EEA) can rely on EU Directive 77/249. These lawyers have better prospects of rising as compared to the lawyers coming from outside the EEA.
The foreign lawyers are expected to meet the legal professional standard that applied to the legal profession in general. England and Wales have maximum number of foreign lawyers who are free to practice the English Law, European Law, International Law and the Law of their respective states. They can do without attaining the titles of the solicitor and barristers. However, to practice as a solicitor or a barrister, the foreign educated lawyers who are not EU, EEA or Swiss nationals have to requalify by taking the Qualified Lawyers Transfer Test (QLTS). Further, such a lawyer should have practiced for at least two years in a common law country which includes on year of practice in England and Wales. By 2020, UK is likely to adopt the Solicitors Qualifying Examination (SQE) which will replace the Qualified Lawyers Transfer Scheme and lay down a single examination for qualifying as a solicitor in England and Wales.
A foreign lawyer can practice as a sole practitioner, in partnership with other foreign lawyers or English solicitors, as an assistant in a foreign law firm or under employment of an English Solicitor. To be able to practice as a partner, the foreign lawyers must be registered with the Law society of England and Wales as a “registered foreign lawyer” or a “registered European lawyer”. United Kingdom is rather liberal as compared to the United States with regard to the legal practice by the foreign lawyers and the law firms. Only the right to audience mandates the foreign educated lawyers to requalify in the state.
Japan plays a middle path between the protectionist regimes like India and the liberal regimes like the state of New York that would easily allow the foreign educated lawyers to practice law. Japan Federal Bar Association (JFBA) lays down the requirements for foreign educated lawyers. These foreign educated lawyers should have three years of experience in the legal area to be competent for registration under the JFBA. This is the only requirement that the foreign lawyers are obligated to comply, thus, the bar association of Japan is very liberal in comparison to the law society of India.
While India as of now allows the foreign lawyers to practice only on a ‘fly in and fly out’ basis, Japan has allowed the foreign educated lawyers to incorporate their profession. Foreign lawyers in Japan have shown a keen interest in the area of corporate law, real estate and the intellectual property related law. However, the foreign lawyers are allowed to practice only the home country law and the law of the specially designated country. Further, for appearing in the court the foreign lawyers have to complete the local LLM course and training. This is unlike India, where only the Indian citizens can take the bar exam.
Foreign Lawyers are required to requalify in Australia which is not a very simple process. However, for the lawyers trained and licensed in New Zealand it is fairly simple as the two countries have signed the Trans-Tasman Mutual Recognition Act 1997. Each state in Australia has its own regulatory body and the foreign lawyers have to meet their requirements. In all states the foreign lawyers are required to register themselves with the Legal Services Board Victoria which will issue the certificate only if their home country qualification is substantively equivalent to the Australian academic qualification.
But there is general reciprocity throughout Australia. Australia is favourable to lawyers possessing the English Law degrees who are required to attain only the Graduate diploma or certificate in Australian law. The foreign lawyers cannot appear in courts and cannot advice on Australian law. However, they can practice the home country law or the international law on their own, in partnership or even in incorporated firms. Thus, Australia is essentially a protectionist regime though more flexible towards the foreign lawyers as compared to Indians.
In 2010, the Bombay High Court had to decide the legality of permission granted by the Reserve Bank of India (RBI), wherein RBI had granted permission to two foreign law firms to set up liaisoning offices in India. The facts of the case were pretty simple. Two foreign law firms, based in USA and UK, and having branch offices in different parts of the world has applied to the RBI during the period of 1993 to 1995 seeking permission to open their liaison offices. The RBI granted them the permission, upon setting up conditions which restricted them from directly practicing law in India.
There were two issues raised in the case. Firstly, whether the permission granted by RBI to the foreign law firms legal and valid. Secondly, assuming such permission was valid, whether the foreign law firms could carry on their liaison activities in India only on being enrolled as advocates under the Advocates Act, 1961 or to put it simply, whether practising in non-litigious matters amounts to ‘practising the profession of law’ under section 29 of the Advocates Act, 1961.
It was held by the court that the permission granted by the RBI was not justified and the expressions ‘to practice the profession of law’ was wide enough to cover the persons practising in litigious matters as well as persons practising in non-litigious matters, hence the foreign firms must fulfil the conditions under the 1961 Act, in order to practice law in India.
This judgment has faced criticisms by the legal fraternity, which has been laid out here. The court had mistaken in stating that none other than advocates can draft legal documents. If it is applied as it is, then, the CAs, company secretaries, engineers and the non-enrolled law graduates, who do draft a majority of legal documentation work, shall be left at bay. The court had accepted the view of government who stated that practising law meant practicing in the courts itself and in doing so, it demeaned the work and the existence of millions of legal and para-legal persons engaged in providing legal services outside the courts. As regard to the permission of the RBI was concerned, on a counter stand, the permission granted by them could also be seen as valid because the RBI had already stated terms that the liaison office can neither render service nor generate income, which had not been breached by the law firms, hence, the question of “practicing” profession of Law does not really arise. Moreover, in this case, the judiciary did not make it clear whether the foreign lawyers can practice foreign law in India, which was later dealt with in the next case.
The case came before the Madras High Court when a writ petition was filed by an association of advocates, claiming that the foreign lawyers and the foreign law firms were ‘practising the profession of law’ in India, in contravention of the 1961 Advocates Act, and a plead was put forth to restrict them from any legal practice, irrespective of them being litigation or non-litigation side, and even the commercial transactions within the territory of India.
It was held by the Court that the foreign law firms or the lawyers are not allowed to ‘practice the profession of law’ in India either on litigation or non-litigation side unless they fulfill the conditions under 1961 Act and the Bar Council of India Rules. The Lawyers Collective v Bar Council of India case was upheld by the court. The Court then added a rider saying that the above being held true, no foreign law firm or lawyer was barred from giving legal advise to their clients in India regarding the foreign law or their own system of law and on a variety of other International Law issues. They were allowed to visit India for a temporary period, on a “fly in and fly out” basis, for the above purposes. The court, further, stated that the foreign lawyers and law firms were not barred from conducting arbitration proceedings in respect of disputes arising out of a contract relating to international commercial arbitration, as in the case of Vodafone International Holding BV v. Union of India.
The court also clarified that the BPO companies providing a wide range of customised integrated services and functions, including word-processing, secretarial support, transcription services, proof reading services, etc. do not come within the purview of the 1961 Act and the Bar Council of India Rules.
This case seen as a landmark case where the tide began to turn in favour of the foreign law firms and lawyers in India. The Madras High Court has made a positive effort into liberalising the legal field and opened the doors for the foreign law firms and lawyers. The temporary permission to work in India, gave a breathing space to the foreign law firms and lawyers, and it was also instrumental in in upholding the goal of the Indian Government to make India a hub for International Arbitration.
This matter reached the Supreme Court after through an appeal in the above analysed case. The main contention raised by the BCI is that the judgement in the above case is not in consonance with the judgement in the Lawyers Collective case, which had clearly aimed at not having the presence of foreign law firms and lawyers at all in the Indian legal services market.
The Supreme Court, further went on to say that the foreign lawyers and law firms have no absolute right to conduct arbitration proceedings in respect of decision arising out of a contract relating to international commercial arbitration but, can doit only if the relevant arbitration institutions allow such practice by foreign lawyers.
They went on to state that the BPO companies providing such services as stated in the Madras High Court judgement, cannot be provided a blanket by merely labelling their services in such a manner that it would come beyond the view of the Advocates Act, 1961 or the Bar Council of India Rules. If the services that they are providing amount to ‘practice of law’ then, the 1961 Act and the Bar Council of India Rules will be applicable.
In effect, the Supreme Court upheld all the progressive holdings of the High Courts and thereby, restored the status quo on the issue of liberalisation of the Indian legal market. The counsels arguing for the foreign firms have been saying that in the era of globalisation, not opening the Indian legal services market to foreign players is not a pragmatic approach and it would dissuade the foreign investors from investing further in India.
Liberalisation has been, historically, beneficial for India as an economy and there exists a strong case for it to happen in the legal services market as well. Firstly, it would lead to increase in competition and thereby, the growth of the Indian Legal System and Legal profession. International level competition shall increase the pace of economic development and would enhance the capacity and the quality of services. There would also be an opportunity for the Indian lawyers to branch out internationally and there is a strong belief amongst various analysts and scholars that opening up the legal market would lead to an increase in the employment opportunities for Indian lawyers with better pay and work conditions.
The clients would be benefitted because the foreign firms entering the Indian set up would charge less to attract business. Moreover, when the travel costs are reduced, then, the costs of services shall go down. A number of Indian Law firms have established offices in various other jurisdictions and hence, it would only be fair to allow the foreign firms to operate in India. There are specific areas of law that is not so well developed in India and hence, it would be in the interest of all to allow the foreign law firms and lawyers to provide services in such cases.
The current government of India has expressed strong intent to open up the Indian legal market to the foreign counterparts. The Narendra Modi government had initiated talks with the BCI in February, 2015, to allow the foreign law firms to enter the Indian legal sector. They came up with an agreement and pursuant to which, in 2016, BCI drafted Rules allowing foreign lawyers and law firms in India. Right after the judgement in the A.K. Balaji case was delivered by the Supreme Court, the government took pro-active steps to facilitate dialogues with the BCI, in order to come up with specific rules and guidelines to allow the foreign law firms and lawyers to practice in India. Fruitful consequences of the endeavour is awaited.
The most plausible solution to the issues stated above is to open up the markets to the foreign law firms and lawyers in a phased manner, which has been described below.
In the first phase, there is a need to liberalise the domestic market. This requires reform in laws to allow more number of partners to a law firm and removing restrictions on advertising. The next phase could compromise the restricted entry of foreign firms. This could include clearly defining the areas of law that the foreign law firms and lawyers can provide services in, not allowing the foreign firms to form Joint Ventures, defining the ratio of foreign to Indian lawyers in the law firms and granting market specific number of licenses to the foreign lawyers and firms. In the final phase, the foreign law firms can be allowed to expand in India, by means of granting permission to set up joint ventures in India and by creating laws and means of profit sharing between Indian and foreign law firms and lawyers.
The Indian lawyers need toconsolidate, professionalise, differentiate, acquire soft skills and achieve a global footprint, in order to sustain themselves against the well-established global players. There is an immediate need to buckle up for the Indian firms and lawyers because liberalisation of Indian legal services market is bound to occur, and it seems to be happening sooner than later.
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