India Closer to Allowing Foreign Law Firms to Practice

Posted by Reading Time: 5 minutes

By Dezan Shira & Associates
Editor: Tracie Frost

The possibility of foreign law firms to open offices in India took a step forward this week when reports emerged that the Bar Council of India (BCI) drafted rules to allow foreign lawyers to practice in India. The new rules would allow foreign lawyers and law firms to set up offices in India to practice non-Indian law, after registering with the BCI and paying registration fees of US$ 25,000 for individual lawyers and US$ 50,000 for law firms. Practitioners would also be required to make security deposits of US$ 15,000 or US$ 40,000 for individual foreign lawyers and law firms.

Under proposed changes, foreign lawyers would be allowed to do all non-Indian law transactional legal work and could hire Indian lawyers or go into partnership with Indian lawyers. Under the proposed rules, foreign lawyers would be allowed to work for clients with foreign headquarters in international arbitrations held in India. However, foreign lawyers would not be allowed to provide any legal advice relating to courts, tribunals, boards or statutory authorities.

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In the minds of many foreign governments and companies, not to mention many within the Indian legal and business communities, these long overdue rule changes would bring rapid improvements to the Indian business climate. India ranks 130 out of 189 countries in the World Bank’s Ease of Doing Business list. Several indicators that determine the World Bank ranking directly relate to the legal sector, such as enforcing contracts, resolving insolvency, registering property, and starting a business. By introducing foreign lawyers into India, many believe that the ease of doing business in India will improve. This improvement will come in part due to foreign competition in the legal sector, but more importantly, because international legal norms will be more readily adopted and practiced in India.

In the past 20 years, the Society of Indian Law Firms (SILF), which is a collective of India’s top corporate law firms and the only representative body for law firms of India, had stood forcefully against liberalization. However, in early 2015 SILF announced their support for a “phased, sequential entry” of foreign players into the sector. SILF proposed that the first phase involve information dissemination about foreign entry; the second phase of allowing entry of foreign firms would commence through reciprocity agreements when the first phase is achieved. At the same time, SILF expressed its opposition to accountancy firms taking up legal work in India, calling it “a threat to the legal profession, and to the independence of legal profession.” Additionally, SILF expressed opposition to any foreign direct investment into the sector.

Many analysts maintain that the “phased, sequential entry” proposal is tantamount to no progress at all, as it would take decades to implement any meaningful results. Meanwhile, the American Bar Association and groups from the UK and Australia have been in regular contact with BCI and the Government of India to encourage reform and to exchange ideas.

SILF, three other trade associations, the Ministry of Law and Justice and four other Indian ministries were invited to meet with BCI on July 5, 2016 to discuss the proposed rules. During this initial meeting, SILF highlighted some gaps in the regulations and agreed to propose their own suggestions within four weeks. The next meeting will be scheduled around August 10.

An important component of the proposed rules is to now allow foreign practitioners to provide legal advice relating to courts, tribunals, boards, or statutory authorities. This has been a major concern to the more than 1 million practicing lawyers in India, who fear that foreign firms will take up litigation practice on a district level. However, foreign firms consistently have said that their primary interest in practicing in India is to advise their clients within the country, and that they have no interest in competing in litigation, especially at a local district level. Indeed, foreign firms would face a competitive disadvantage at a local level.

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The question on the minds of many observers is, how quickly can liberalization occur? It all depends on the pace of work undertaken by BCI and the Government of India. This is only one of several significant developments facing the Indian legal sector.  BCI and the relevant governmental entities that will decide on the proposed reforms are already stretched to their limits, which will reduce their capacity to act on the proposed rules.  In addition, BCI is likely to use the question of reciprocity with various countries as a stalling tactic. Notwithstanding the increasing pressures from within and outside of India to hasten the process, it is unclear how promptly BCI will adopt and then implement rule changes in a way that meaningfully affects the legal profession. If the past is any indication of the future, the pace of change will be slow.

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