The Indian Legal Service Market And GATS

By Amrit Subhadarsi, KIIT School of Law, Bhuvaneshwar

EDITOR’S NOTE:-

This piece analyses the prospect of liberalization of the Indian legal service market in light of India’s international commitments under the General Agreement on Trade and Services( GATS). The Advocates Act,1961 and the Bar Council Of India Rules have placed stringent prohibitions on foreign firms entering the Indian market as well as the solicitation of clients by counsels. Such restrictions have decelerated several developments of the legal front as a result of which the Indian market is losing out on better infrastructure and a better knowledge-base.

INTRODUCTION

The Indian legal services market is growing at a considerable speed. As a result of increased globalization, there has been an indirect effect on the legal services market as more and more firms are willing to do their businesses in India and with India. Naturally, this requires compliance with the Indian laws to ensure that both the host country and the provider- country are satisfied with each other and trade and services flourish. As more countries have engaged with India, the need for legal advice with respect to documentation, structuring of the business, the necessary sanctions and applications to be made has increased. Therefore, expansion of legal services has both become necessary and inevitable. However the irony is that, despite so much interaction and exposure, the legal service market of the country has remained mainly aloof from the effects of globalization. This is not so for other sectors such as banking, education or hospitality. The legal profession is one of the most lucrative professions and currently more than 6 million advocates practice in the country. The profession governed by the Advocates Act, 1961 and the rules prescribed by the Bar Council of India (BCI), which is the regulatory body for the legal profession of India. The nature of the legal service market in India is such that it is vastly represented by national law firms and Indian advocates practicing in the court of law. A reading of the provisions of the Advocates Act, 1961 shows that only natural persons who shall be enrolled by any State Bar council and have a law degree from a recognized University and are citizens of India can practice law as a profession. This has been a major hindrance in the entry of foreign law firms into the country. Though, India is a member country of the General Agreement on Trade in Services (GATS), it has not taken enough steps to liberalize the legal service sector.

NATURE OF THE INDIAN LEGAL SERVICE MARKET

General Agreement on Trade in Services (GATS)

India is a member country to GATS or, General Agreement on Trade in Services, which came into existence after the Uruguay Round of Negotiations. The agreement came into force on January 1, 1995, after the establishment of the World Trade Organization (WTO). Prior to GATS, the General Agreement on Tariff and Trade (GATT) which governed trade in goods was operative. When the World Trade Organization (WTO) came to existence, there were several agreements annexed to it, one of which was the GATS. Because, GATT came into existence much before GATS, the legal profession has largely been aware about trade in goods rather than trade in services. GATS governs trade in all kinds of services ranging from engineering, architecture, accounting, tourism, investment and also legal services. The GATS provides for different modes of supply of services through its framework. For instance, in cases of cross border supply, both the service supplier and the user remain in their confined territories and only the service crosses boundaries. Similarly, services can be obtained by way of consumption abroad, where for instance, an Indian company travels abroad for seeking legal advice. The third kind of provision of service, can be where, for instance, the service provider establishes a commercial presence in the country where it seeks to provide the service. Such as an Indian law firm having its branch office in UK. Cross border trade and the temporary movement of natural persons are the two most important modes of supply of legal services under GATS. Because of this, firms know where they stand with respect to dealings with foreign clients. Every member of GATS has the right to demand justification from another with regard to any deficiency in commitments by any other member state and can have recourse to a dispute settlement process when a member does not conform to its commitments.

Nature of legal services

At present, there are twelve sectors classified by GATS under which services can be provided. One of the categories is provision of business services, which is further divided into six categories. One of these sub categories is providing of professional services, which also includes legal services. According to the above mentioned categorization, legal services can include within its ambit legal advisory and representational services, drafting or legal documentation with respect to criminal law, pleading before a court of law and out of court work like interviewing of witnesses. Pleadings before a tribunal or a statutory body functioning as an adjudicatory authority, and drafting of commercial contracts also come under legal services. The legal services sector has witnessed steady growth in recent times as the focus has been on corporate restructuring, privatization, cross border mergers and acquisitions, intellectual property rights and competition law.[i] Most of the demand for legal services stems from business law and international trade. Typical market access limitations in the legal sector include restrictions in the movement of professional, managerial and technical personnel, and on the form of incorporation. This hinders cross border trade in legal services.[ii] However, so far as India is concerned, there is no prescribed definition for ‘legal services’ and hence, being a member of GATS, India is obligated to follow the definition provided in the WTO classification.

The Indian legal services market

A 2005 study categorizes the Indian legal services market into law firms, in-house legal departments of companies and legal publishers. The market is obviously dominated by practicing advocates and law firms whose domestic demand has been on the rise. Legal activities in project finance, intellectual property, environment regulation, competition law, corporate taxation, infrastructure contract, investment law—were almost unknown before 1991-92.[iii] In recent times, the demand for corporate litigation has been rising, leading to opening up of more and more law firms throughout the country and also on the employment front, more number of senior and junior advocates are being employed. The current Bar Council of India (BCI) guidelines prevent firms or practicing advocates to advertise their profession and so more firms have taken innovative ways to advertise such as organizing moot court competitions, conducting workshops and seminars, being involved in pro bono work, among other things. Other important trends include legal service going online with legal process outsourcing emerging as an opportunity.

CONSTRAINTS TO OPENING UP THE LEGAL SERVICE SECTOR

Surveys have shown that the Indian consumers of the services provided by law firms are relatively satisfied with their share of services. There is no strong voice of dissent among the recipients of such services regarding allowing foreign law firms to set up offices in India, and it is only professional bodies like the Bar Council of India and the government who have been reluctant to open up the legal service sector to foreign firms. The first issue is that the entry of foreign law firms in the country has been subject to controversy since 1995 when, firms like Asherst of UK and White and Case and Chadbourn and Parke of the US, set up liaison offices in India and were granted permission under Foreign Exchange Regulation Act, 1973 to start liaison activities only and not active legal practices.[iv] In 1995, the Lawyers’ Collective, a public interest trust set up by the advocates to engage in free legal aid, moved the Bombay High Court challenging the right of foreign law firms to practice law in India. Their main contention was that practicing law would include not only appearance before the Court as pleaders, but also drafting legal documents and advising clients. The Central government, on the other hand, contended that the Advocates Act prevented foreign lawyers from practicing law in court, and from giving advice to clients. However, the Bombay High Court gave a wide interpretation to “practice of law” and gave the judgment in favor of the petitioners.

Another issue is that of lack of political will of the Indian government and that of the Bar Council of India to come up with updated policies and regulations so that the legal service market can be opened up to foreigners. The government did come up with the Limited Liability Partnership Act, 2008, which provided for foreign investment but till date there is no clarity as to how much stake can be offered to foreign investment. Similarly, the Bar Council of India’s approach has been not clear. It is still against foreign law firms setting up offices in the country as it apprehends that there might be stiff competition from foreign firms owing to their better infrastructure, better knowledge and developed skills of legal drafting and documentation. This is why the Indian government did not enter into successive rounds of negotiations as mandated by the WTO rules.[v]

Another major issue is the stringent provisions of the Advocates Act, 1961 and the BCI regulations. So far as the Advocates Act is concerned, Section 24 is the key deterrent. The Section states that only advocates recognized under the Act can practice law and a person shall be qualified as an advocate on a state roll, provided that the person is a citizen of India and has obtained a law degree from a BCI recognized college/university. Subject to other provisions of the Act, a national of another country may be permitted to practice law, if citizens of that country, duly qualified are allowed to practice law in that other country. Similarly, Section 33 of the Act states that except for situations provided for in the Act, or any other law for the time being in force, no person shall on or after the appointed date be entitled to practice law unless he is enrolled as an advocate under the Act. The Advocates Act, 1961 allows only natural persons to practice law as advocates and not juristic persons.

In addition to the above, the Bar Council of India regulations prohibit entry of foreign firms into the country. There is an absolute bar on advocates from advertising and soliciting for any purpose and indicating area of specialization. It is submitted that the ban on advertising has created a situation which is adverse to the interest of the patrons of this legal service, since non – advertising precludes the consumers from making an informed choice.[vi] Further, the BCI rules expressly prohibit advocates from sharing remuneration with any other person by way of an arrangement in the form of a partnership and hence, in other words, lawyers are precluded from entering into arrangements with non -lawyers. The Rules provide that multidisciplinary firms are not allowed to operate, and partnership firms are the only legitimate way to operate in India.. It is interesting to note that the Law Commission of India had recommended in one of its reports for amendment of certain sections of the Advocates Act, 1961 so that regulations put forward by the BCI could be eased.

CONCLUSION

It can be said that the foreign law firms must be allowed to set up offices in India because as a member of WTO, and as a signatory to the GATS, it is the binding obligation of India to liberalize the legal service sector so that the foreign law firms be allowed to set up offices and provide solicitation services to clients. Accordingly, the BCI should amend its own regulations, particularly, with respect to advertising, as this leads to the consumer making a less informed choice. The BCI can instead introduce new rules with respect to anti-competitive practices and therefore differentiate between law firms’ advertising and anti-competitive practices. Introduction of foreign law firms by restricting them to solicitation purposes only, will only help the Indian legal service market by getting access to quality knowledge, and quality level of skilled legal drafting. Moreover, Indian firms can stay ahead by outsourcing the foreign firms a part of their operations. Interaction with foreign firms will definitely help gain good Indian law firms a good reputation and lead to increased pay packages for Indian lawyers. Clearly, going by the above reasoning, India should open its legal services market to foreign firms.

Edited by Raghavi Viswanath

[i] TRADE IN LEGAL SERVICES, A CONSULTATION PAPER ON LEGAL SERVICES UNDER GATS, Ministry of Commerce, available at http://commerce.nic.in/trade/consultation-paper-legal-services-GATS.pdf, last seen on 24/03/2014

[ii] TRADE IN SERVICES: OPPORTUNITIES AND CONSTRAINTS, Indian Council for Research on International Economic Relations, available at http://www.icrier.org/pdf/NLMitra.PDF, last seen on 25/03/2014

[iii] Supra, note 2

[iv] Sarthak Sarin, Liberalisation of the Indian legal sector: An imperative need of the day, 3(1) Indian Law Journal (2008), available at http://www.indialawjournal.com/volume3/issue_1/article_by_sarthak.html, last seen on 25/03/2014

[v] Bharat Vasani, Opening up of Indian Legal Service Sector, Business Today (07/02/2010), available at http://businesstoday.intoday.in/story/opening-up-of-indian-legal-service-sector-vasani/1/5182.html, last seen on 25/03/2014

[vi] Supra, note 4

 

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