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Advent of Foreign Law Firms In India

Written by: Ashok Priyadarshi Nayak - 5th year, B.A.LL.B. (Hons.), Jamia Millia Islamia, New Delhi
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The opening of a legal firm by a Nigerian in Delhi has not only lawyers up in arms against the unauthorized practice but has also revived the decade-and-a-half-old debate over the more important question — should foreign lawyers be allowed entry into India?
It is often asserted that India has the potential to become one of the world's great legal centers in the 21st century, alongside London and New York. It has innate advantages in its common law traditions and English language capability. But until very recently India had not recognized the role that advisory legal services have to play in attracting foreign investment and developing a broader-based services economy.

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.

Legal “practice” is not defined in the Advocates Act but a reading of Sections 30 and 33 indicates that practice is limited to appearance before any court, tribunal or authority. It does not include legal advice, documentation, alternative methods of resolving disputes and such other services. Section 24 (i)(a) of the Act provides that a person shall be qualified to be admitted as an Advocate on the State Roll if he is a citizen of India provided that subject to this Act a national of any other country may be admitted as an Advocate on the State Roll if the citizens of India duly qualified are permitted to practice law in that other country.
Section 47 of the Act provides that where a country specified by the Central Govt. in this behalf by a notification in the Official Gazette prevents the citizens of India from practicing the profession of law subjects them to unfair discrimination in that country, no subject of any such country shall be entitled to practice that profession of law in India.

The basic principles set out by IBA on the question of validity of FLC’s are fairness, uniform and non-discriminatory treatment, clarity and transparency, professional responsibility, reality and flexibility. The guidelines laid down by the IBA are as follows:
“Legal consultant means a person qualified to practice law in a country (home country) and who desires to be licensed to practice law as a legal consultant without being examined by a body or an authority to regulate the legal profession in a country (host country) other than a home country, such a person has to apply to the host authority for a license by following the procedure for obtaining a license subject to the reasonable conditions imposed by the host authority on the issue of licenses. This license requires renewal. A legal consultant has to submit an undertaking alongwith his application not to accept, hold, transfer, deal with a client found or assigned unless the legal consultant does so in a manner authorized by the host authority to agree and abide by the code of ethics applicable to host jurisdiction besides to abide by all the rules and regulations of both the home and host jurisdiction.

It is open to the host authority to impose the requirement of reciprocity and to impose reasonable restrictions on the practice of FLC’s in the host country, that the FLC’s may not appear as an attorney or plead in any court or tribunal in the host country and the FLC’s may not prepare any documents or instruments whose preparation or performance of other services, is specifically reserved by the host authority for performance by its local members.

Many experts have given their views on entry of FLF’s and FLC’s in India pursuant to GATS. They are not opposed to the idea but it is suggested by them that some restrictions, adequate safeguards and qualifications should be provided for besides reciprocity.

The restrictions, if any, will have to be reasonable. Obtaining Indian law degree and practicing Indian law for a period to be stipulated for entry may be the only reasonable restrictions. Canadian model of University training, examination and articleship administered through a joint committee accreditation may be a viable solution. To follow the principle of non-discrimination, it may not be possible to impose any onerous restriction limiting the clientele, the nature of legal work, the fees to be marked, the form of fees (Rupees or foreign currency) etc. So far as reciprocity is concerned level playing field and uniform code of conduct will have to be worked out. Many western nations allow their lawyers to advertise whereas in India the lawyers are not allowed to do so. 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. The treatment meted out to FLC’s and FLF’s in other countries and the rules, regulations made to govern their practice in the foreign country should be thoroughly scrutinized before allowing the entry in India.

Even if reciprocity were allowed, no Indian firm would go abroad to conduct legal business not because it has no talent, competency or efficiency but economically it would not be a viable proposition. The Indian lawyers have no resources to set up an establishment in a foreign country nor will the Indian Government render any assistance to them to promote their business in a foreign country. Even the large population of non-resident Indians would not desire to patronize the Indian lawyers even though they may be experts in their own field because the resident lawyers having full knowledge of the law of the country would be available to them at reasonable price because for the legal experts from India apart from the fees charged for the legal consultancy/service they may have to spend on their traveling expense also. The legal service by calling Indian experts would be very expensive for the non-resident Indians and they may not get full effective service since the Indian legal consultants may not be very conversant with the laws applicable there. It is only if any Indian party is concerned in a dispute and the question relates also to Indian law that Indian legal Consultant would be invited to a foreign country and not otherwise. Such occasions will be rare. The picture is different in case of foreign firms who do business across national borders, due to globalization.

They demand foreign lawyers since they like to rely on the services of professionals in their own country who are already familiar with the firm’s business. If the foreign firms carrying on business in India require advice here on home country law, that can be made available to them by the Indian law firms or the Indian legal consultants. They can also prepare the legal documentation or provide the advisory service for corporate restructuring, mergers, acquisitions, intellectual property rights or financial instruments required by the foreign firms. These aspects will have to be seriously considered while considering the principle of reciprocity. Reciprocity should therefore be clearly defined and must be effective. It should be ensured that the rules and/or regulations laid down should be strictly complied with otherwise as is the experience, the rules remain on paper and what is practiced is totally different. The authorities either do not pay any heed to the violations or they overlook or ignore it as in the case of the Foreign law firms in India in the Enron deal, the permissions for such law firms to set up liaison offices came from the RBI which reports directly to the Finance Ministry. When these law firms violated the very conditions of being liaison offices the RBI overlooked or ignored it.

Some are of the view that instead of being perceived as a threat to lawyers, this should be seen as a move to raising standards within the profession but with reciprocal arrangements. The legal profession as it was practiced years before by the legal stalwarts did have a very high standard. However, today that standard of profession is nowhere to be seen or experienced. Legal profession has also become totally commercialized with no human or moral values. The standard has gone down considerably. However, the fees charged have tremendously increased, disproportionately to the service rendered to the clients. No effort is being made in any corner to set the wrong or malpractices which have crept in in the legal profession. On this background, what would be the “raised standards”? If at all the standards are raised, would the entire class of legal practitioners in India benefit or will it be only a small section of the legal practitioners who would be able to take advantage of the new situation? In that case, can this move be said to be in the interest of the legal practitioners?

The situation so far as the FLC’s are concerned would be completely different since all the FLC’s who aspire to come to India will get equal treatment whereas the Indian legal practitioners would be deprived of equality in profession. Besides the FLC’s will have foreign clients and even though they are allowed to practice in India with a reasonable restriction of obtaining law degree in India, for some time definitely they will need Indian lawyers to get their work done. With the resources at their end and with the higher exchange rate in currency, they will be able to hire and retain young lawyers with substantial pay packages, though as compared to their fees in their country it would be much lower, with the result that good reputed Attorney’s/Solicitor’s Firms in India would lose their good hands and their work may suffer. Law Firms in U.S.A have funds equal to the annual budget of the State of Maharashtra. With such resources, in a short time, such FLF’s would do away with the existing law firms in India. On this background would our law firms withstand the competition and the quality of service, is an important question to be examined.

The U.S and some other advanced countries have large law firms operating on International scales which are primarily business organizations designed to promote commercial interest of their giant client corporations. The size, power, influence and economical standards of these large international law firms would definitely affect the legal system of our country adversely. We cannot match howsoever far we may stretch it, their size, power and most importantly economical standard. There is a limitation here on the number of partners in an Attorney’s/Solicitor’s firm. The number is restricted to 20 under the Partnership Act, which restriction is non-existent in a foreign law firm. To bring uniformity this limitation will have to be removed allowing for more partners, increasing of funding and manpower.

Moreover the FLF’s have “single window services” meaning services which not only include legal but also accountancy, management, financial and 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 FLF’s and 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 multidisciplinary partnerships may look attractive but the crucial question is whether the quality of services and accountability of systems can be maintained? The code of ethics needs review to bring international legal practice under its purview.

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.

With the globalization and liberalization policy not only foreign businessmen have come to India for investment but even the foreign goods and products such as agricultural products and other goods have entered the Indian market. The Indian goods and products have to face a tough competition with these foreign products which are cheaper though may not be better in quality. The result is that the Indian agriculturists and merchants are seriously prejudiced in their business. We also have the example of Enron which was in news where the Indian law was modified without probably realizing the adverse effect it would have on the electrical companies in the State. The agreements signed with Enron do not appear to be in the interest of the State or the Nation. However, such matters are thought of only later and not when the actual action is taken. With the present experience, it is felt that we should not be carried away with the idea of raising our standards or of being on par with the other developed countries where the guideline of reciprocity may be followed and the FLC’s and FLF’s would be allowed to enter the country. We have to be very alert and watchful and think well in advance to do away with any lacunas or loopholes in the rules and regulations that may be introduced to safeguard the interest of the lawyers in our country.

One more point which may need consideration is about the countries who would be interested in India. Would these countries be the members of the World Trade Organization or would even the non-member countries be allowed to enter India? If the entry is restricted to only the members of the WTO and if any non-member country desires to enter India, would the entry be denied merely on the ground that it is not the member of the WTO or whether the non-member would be allowed entry to show our fairness and equality of treatment? Thus many countries may be interested in coming to India due to the liberalization; globalization and privatization policy followed in India but the chances of the Indian firms going out of India to enter any foreign country would be remote. The principle of reciprocity may be introduced on paper but may not be effectively followed.

It may be mentioned here that the “Lawyer’s Collective” has filed a public interest litigation before the Mumbai High Court questioning the phrase “practice the profession of law” under section 29 of the Advocates Act. The respondents in their petition include some of the FLF’s which had set up their own liaison offices in India. It is needless to point out that all the above points may be discussed and examined in the above petition, the result of which is awaited.

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 if one may use the word, "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. An issue that has therefore started to attract the attention of not simply Indian lawyers, but also law school grads, is the likely consequences of the entry of foreign firms in India. Shall this help an already growing Indian legal market, or shall it only mean a job loss for Indian law grads?

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. However, this should not mean that their operations should nor be regulated, since otherwise they may just push out the Indian firms. For law school grads, their presence in India could well translate into an increasing range of job opportunities, apart from their presence in India significantly influencing the way in which the Indian legal market evolves in the 21st century.

The author can be reached at:
Added Date: 30 Jan 2008



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