Foreign Law Firms to be Allowed in Indian SEZs?

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By Pritesh Samuel

In another sign that the government is keen to allow to foreign law firms and accountants in India, the government on January 3 amended the Special Economic Zone (SEZ) rules which may make legal and accountancy services from foreign companies possible in SEZs.

The amendment was published in the Official Gazette, which says, “In the Special Economic Zones Rules, 2006, in Rule 76, for the words “professional services (excluding legal services and accounting) rental/leasing services without operators”, the words “professional services, rental/leasing services without operators” shall be removed. In other words, such services may be outsourced to foreign entities in such SEZs.

Foreign lawyers have predicted that the Gujarat International Financial Tec-City (GIFT) could be the first SEZ where foreign law firms can set up in, followed by another one which is planned in Mumbai.

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Nationalist opposition

The Bar Council of India (BCI) has opposed the move and stated that it will lodge protests with the ministry of law and justice over the government’s move.

Naturally, domestic lawyers are concerned that big foreign law firms and legal process outsourcers (LPOs) will set up in SEZs – previously regulations barred foreign law firms in the country, let alone SEZs. However, the ruling would also allow domestic law firms to operate in SEZs.

Despite the ruling, the Advocates Act, 1961 says that law can only be practiced by Indian nationals and firms. Judgments by the Bombay and Madras high courts have reiterated that foreign firms are not allowed to practice in India.

The Economic Times, however, quoted the head of GIFT, Dipesh Shah, who said, “The new amendment allows not only Indian law or accountancy firms to set up a base in GIFT, but even multinationals can directly advise upon international disputes or arbitration by setting up a base there.”

The government will have to clarify as foreign law and accounting firms risk running their firms amid unclear regulations as the rule does not explicitly mention foreign law firms. Foreign companies, however, can take relief that despite BCI’s opposition, the government remains committed and is likely to support such firms, particularly in Gujarat’s SEZ.

The Society of Indian Law Firms (SILF) –  a collective of India’s top corporate law firms, and the only representative body for law firm of India –  has also strongly opposed the move. SILF maintains that the liberalization of the legal sector should be done in a phased manner and should be done internally. For example, at present law firms cannot advertise or have websites, and the SILF believes these norms should be phased out slowly

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Positive direction

To be safe and provide full clarity, the government will have to amend the Advocates Act or come up with a new law. While the changes are small, it is a much awaited one and will help India in making it a better place to do business. While further clarification is sought, allowing foreign law firms to operate in SEZs might just work, paving the way for the sector to open up throughout the country

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