PROS AND CONS OF ESTABLISHING PROFESSIONAL RELATIONSHIP

BY INDIAN LAWYERS/LAW FIRMS WITH FOREIGN LAWYERS/ LAW

FIRMS.
The liberalisation process might never have been as advanced, but it remains a process fraught
with sensitivity.
As the economy of any country develops and incorporates with the economy of the world, there
emerges the requirement for synchronous development and joining of the lawful administrations
to manage the issues of exchange, business and so forth.
Legal services encompass numerous activities of economic and social consequences. Most of the
demand for legal services comes from business and organizations. Recently, increasing activities
such as corporate restructuring, intellectual property rights and cross border M&A's have forced
the industry to come up with sophisticated legal services. The question here arises that are we
ready to provide such services or is it better to open up the industry to experienced foreign
players? The national character of law has created some obstacles for cross-border trade in legal
services.
The Society of Indian Law Firms (Silf) meeting was held in Delhi on 11 th July to discuss its
response and position to the Governments proposal to liberalise the legal market, has seen the
body set up a high-powered committee without any fundamental disagreements voiced about the
next steps to take, according to several people who were present.
There appeared to be agreement from the 25 to 30 law firm partners present at the meeting that
before foreign law firms could enter, there would have to be a level playing field - i.e., formal
permission for Indian law firms to advertise and market themselves, including having proper
websites, as well as a formal framework for Indian law firms to incorporate as limited liability
partnerships (LLPs), according to attendees.
The new Indian government has pro-liberalization lawyers at the helm of the ministries of Law
and Finance. India has the third largest GDP as per the Purchasing Power Parity Index, and with
the new government having a clear reformist approach across industry sectors, there has been a
substantial and meaningful movement towards clarity in the legal sector as well.

The signs are that the proposition will contain a staged section technique for foreign law firms,
which will start with dynamic changes for fortifying Indian law firms and after that the steady
passage of worldwide law firms in all non-quarrelsome ranges of practice.
Over the previous decade, Indian firms have developed in both monetary and labour numbers.
The regular high points and low points of the business sector, global development of Indian
partnerships, presentation of new practice ranges, for example, competition law, cyber law, and
so forth., and a blend of discontinuity and in addition union of law offices have all helped the
Indian legal profession to develop in quality and gain from its encounters.
NEED FOR LIBERALIZATION
Liberalisation of the Indian legal market is nearly as old as the liberalised economy, and it is
closely linked with the Society of Indian Law Firms, which, alongside the law ministry and the
BCI, has been a favourite lobbying target of foreign lawyers seeking entry.
Rupa Chanda, an economics professor at the Indian Institute of Management, Bangalore, said the
problem is that the Bar Council of India does not want to give or gain access.
In such a situation, how do you effectively negotiate services agreements with other countries?
It is not like our lawyers are not being hired by other countries. If we allow foreign law firms in
India, we will generate knowledge and develop expertise in the area, she added.
While there has been divided opinion on the issue of opening up, many developments over the
years have brought up the need to liberalise the sector. Some of them are:
Increasing trans-national deals: It is no secret now that Indian companies are looking to tap
markets abroad. Additionally, sectors like IT, Biotechnology and BPOs work full time for
international clients, increasing the need for legal services spanning jurisdictions.
Specialized advisory: Specialised advisory is needed many a times and foreign companies more
often than not possess expertise in these. A recent example could be the licensing of 3G
spectrum.

Reciprocity interests: If Indian law firms want to take a cue from other sectors and expand
internationally, they should support the opening up. As Som Mandal, partner of Fox Mandal puts
it "...it is only fair and in the interest of reciprocity that foreign firms be allowed to practise in
India. Indian law firms are allowed to open offices and practise in many jurisdictions."1
CURRENT SITUATION: LEGAL ISSUES INVOLVED IN LIBERALISATION
The story of Indias reversed economic fortunes since it instituted liberalization of its regulatory
systems in 1991 is famous, and one that can be used to illustrate the extent to which a growth
oriented policy approach can turn around the circumstances of developing countries. Amongst
the industries that have grown exponentially since the reforms were initiated is the service sector,
which now constitutes a cornerstone of Indias GDP; in the wake of these developments, it is
interesting to note that the legal services market in India remains extremely reluctant to adapt to
the changing world.
The intransigent attitude of regulating authorities about opening the legal sector to foreign
investment is particularly inscrutable and ironic because of the demand for Indias legal services
growing as rapidly as it is. An increasing number of foreign and multinational companies are
entering the market here, with many Indian companies entering into cross-border transactions
with them. Consequently, the pressure on the Indian government to open its lucrative legal
services market to foreign law firms has mounted, but no significant changes to the rules for the
latters entry have as yet been attempted.
Paramount among the barriers to entry of foreign practice establishments in the country is the
Advocates Act of 1961, a statute that governs the practice of law in India. The key provision of
the Act is Section 29, which states that only advocates are entitled to practice law in India. To
be an advocate, one must also be an Indian citizen. This is subject to two narrow exceptions:

if another country permits Indian lawyers to practice in its jurisdiction, then lawyers
from

that

country

will

be

granted

reciprocal

privileges

in

India;

otherwise by special permission of the Bar Council of India which is the supreme
regulatory and representing body of the profession in the country.

While restricting the legal profession to Indian advocates only, the Act and other domestic
regulations - including BCI Rules, the Partnership Act of 1932 and the Companies Act of 1956 also impose some other regulatory restrictions on practicing the profession. These might be
summed up as restrictions on advertisement, partnership and fee-sharing, employment in a
foreign law firms, and capital-raising power to lawyers/ law firms apart from the obvious
matter of restriction on entry of foreign firms in the domestic market.
Legal service, like many other professional services, is a sector where regulatory barriers are
rather high. Some of the barriers to entry by foreign players are:
Citizenship: In India, legal services can be provided only by naturalized citizens or by citizens of
a country with whom India has reciprocity agreement (provided the law degree is recognized by
the Bar council of India (BCI)). Foreign firms that set up operations may not prefer to use the
services of Indian lawyers alone and they would want to bring in experts from different places.
Definition of Legal Practice: Legal Services can be classified as - i) counselling done by
solicitors, ii) pleading (representing the client in the court) done by barristers and iii) notarial
activities done by public notaries. The Advocates' Act 1961 integrated the entire profession and
all functions (counseling, drafting and pleading) under advocate's responsibility. The problem
with this structure now is that for practicing any form of advocacy, the person has to be admitted
by the BCI as an advocate. So even if India wants to liberalize only the soliciting activity, it faces
obstacles as per the current Advocates Act.
Multidisciplinary Practice: An advocate in India cannot enter into a partnership or any other
arrangement with a non-advocate. So, a corporate client who prefers a law firm to provide all
professional services like accounting, taxation etc. across jurisdictions may not find an Indian
law firm attractive.
Partnerships & Liability: Sec.11 of the Companies Act provides that a partnership 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. Also, Indian law firms do not have limited liability
requiring at least one equity-holder to be bearing unlimited liability. This limits the size and
expansion options of Indian law firms.
Advertising: Indian firms cannot advertise their existence in any form of media including
internet. This creates a non-level playing field compared to foreign firms that have extensive
websites and advertising flexibility. But developments in this regard seem to be heading in the
direction of allowing Indian firms to advertise with the BCI amending the rule.
PROS FOR THE INDIAN LEGAL PROFESSION
The Indian government is considering opening up its legal services sector for foreign firms to
practice in India. Both the Bar Council of India and Society of Indian Law Firms, bodies that
represent the legal sector in India, have agreed to the proposal on certain conditions. First there
should be a level playing field and second there should be mutual recognition agreements on
qualification and licensing in reciprocity. The proposal has many merits as well as some
reservations.
The merits of this proposition are:
Cost / Price: The availability of foreign lawyers would reduce costs to the Indian business
enterprises, since expenses on travel etc. can be avoided. So, even with similar absolute fees, the
overall cost the corporations incur will come down. But the dearth of well qualified lawyers
would mean that salaries will go up in the short run since foreign law firms will try to poach
talent. But this will not be sustainable in the long run since the price they charge to the client
may not go up by an equal amount. But when it comes to differentiators like legal services for
3G licensing etc. foreign law firms may charge a premium price.
Quality: In areas like international contract, arbitration etc Indian law firms are well established
and there are very few gaps in their services & quality. But in newer areas like water
privatization, foreign law firms are better suited to provide quality service because of their
experience and the nascent stage of such services in the Indian context. Also Indian law firms
lack professional practices since they are largely family owned. Foreign law firms, on the other

hand have better process and documentation standards. Hence the overall quality can be expected
to go up.
Brain Drain: The fear of brain drain is uncalled for. Students from premier law schools in India
who take up jobs abroad have intentions to come back. This short term brain drain phenomenon
can be reversed in the long run if the sector is opened up and more opportunities are available
here. This would also make people start returning to India. A case in point is Australia and New
Zealand. When they opened up initially they lost lawyers to UK and US firms. As a consequence
the native firms strove to become more competent and started attracting the best talent again.
Areas of Interest: It is found that foreign lawyers are interested in transactional services wherever there is corporate documentation involved or value of transaction and margin is fairly
high like Mergers and Acquisitions, International law et al. Therefore foreign law firms may not
be interested in litigation which is of major interest to the Indian firms today.
Employment: Currently, foreign law firms employ graduates from NLS which clearly brings out
that Indian graduates are perceived on par with others in this field. Also for practicing Indian law
(if allowed to), foreign firms will have to recruit Indian lawyers. Therefore, to a certain extent it
can be said that employment opportunities will be created. Legal Process Outsourcing (LPOs)
will also benefit hugely and consequently offer better salaries to students of tier-II and tier-III
law colleges to attract talent.
Regulatory Aspects: Advertising in the legal sector is not allowed by the Bar Council of India.
Advertising should be, per se, allowed in a restricted manner so that it does not get misused. This
will also ensure the profession gets the required respect. As for partnerships, some believe that
the 20 partner restriction is not a barrier because the law firms can always become companies.
Even the big four accounting firms have done well in India with this restriction. But
nevertheless, to ensure a level the playing field in terms of the size of the firms, Limited Liability
Partnership bill has to be passed before opening up.
CONS FOR THE INDIAN LEGAL PROFESSION

India has huge potential to emerge as knowledge house of world. Service which comprises about
60% of GDP can be big contributing factor in export. Legal services can play a prominent role in
this. Liberalization of legal services should be done in calibrated way without disrupting existing
system.
There are many challenges that the Indian legal sector itself faces many restraints and constraints
in the form of non-allowances of having website, brochures etc, limitation of number of partners
in the legal firms etc.
Indian law firms would have to face undue competition and disadvantages because they are not
financially strong as large international law firms and have no sufficient requisite experience to
compete against them.
Some factions of the lawyer community are opposing the provision as they cite the example of
Indian accounting firms which have gone into oblivion. The invent of the foreign multidisciplinary firms in legal firms, like accountancy firms etc, will wipe out Indian firms. Also,
FDI will risk the subversion of national interest by global firms.
CONCLUSION
While advocating liberalisation, there is no denying the fact that measures have to be taken to
level the playing field between foreign and Indian law firms.
The legal sector, thus should be expanded in two phasesFirst, opening the sector India itself which will make Indian firms competition.
Second, allowing foreign firms in the non-litigation segment on the basis of reciprocity so that
Indian forms get opportunities to expand globally.
Moreover, Indian firms must consolidate, professionalize, differentiate, acquire soft skills and
achieve a global footprint in order to compete sustainably in a liberalized environment against
well-established global players
In a globalized world, the proposal of liberalizing the Indian legal sector is not out of place and
in fact beneficial for the legal fraternity in the long run. If the foreign firms confirm to the same

rules and regulations as the Indian law firms, there is no strong reason why the sector should not
be opened up.