By Amrit Subhadarsi, KIIT School of Law, KIIT University, Bhubaneswar
Editor’s Note: The Indian legal service market is still aloof and not open to foreign law firms opening offices in the country. This is not so in case of other sectors like banking, education, hospitality etc. 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. Interaction with foreign firms will definitely help Indian law firms to gain a good reputation and lead to increased pay packages for Indian lawyers. Moreover, Indian firms can stay ahead by outsourcing the foreign firms a part of their operations. Therefore, the time has come for India to open its legal services market for foreign firms.
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 also with India. Naturally, this requires compliance with the Indian laws to ensure that both the host country and the home country are satisfied with each other so that there is further flourishing of trade and services. The expansion of the Indian legal services market owes its current position to increased level of globalization and trade in goods and services between India and other countries. As more countries have engaged with India, the advice regarding documentation regarding setting up of the business, legal advice as regards the structuring of the business, the necessary sanctions and applications to be made, etc has to be provided by the lawyers. In this aspect, the legal profession therefore is not oblivious from being affected by increased level of interaction among countries. Therefore, expansion of legal services has both become necessary and inevitable. However the irony is that, despite so much of interaction between India and the rest of the world, the legal service market of the country has remained mainly aloof from the effects of globalization. This is not so in case of other sectors like banking, education, hospitality, or other sectors. The Indian legal profession is one of the most lucrative professions and currently more than 6 million advocates are practicing advocates in the country. The profession of advocates in India is governed by the Advocates Act, 1961 and also 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.
GATS, nature of legal services and the nature of the Indian legal services market
General Agreement on Trade in Services (GATS)
India is a member country to GATS or, General Agreement on Trade in Services, which came to existence after the Uruguay Round of Negotiations, and the agreement came into force on January 1, 1995, after the establishment of the World Trade Organisation (WTO). Prior to GATS, the General Agreement on Tariff and Trade (GATT) was only in existence and it provided for only trade in goods. When the World Trade Organisation (WTO) came to existence, there were several other agreements which were 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 applies to services sector and applies to 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. E.g, a lawyer providing legal advice through e-mail, or phone, etc. 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 service. Therefore, an Indian law firm, having a branch office in UK, would be a good example of this. It is important to note that GATS covers all major ways in which service suppliers serve their clients. 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 where 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 providing of 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 in recent times 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 the areas of 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 restrictions on the form of incorporation. An important aspect regarding law is that it has a national character because its part of local culture and life. This creates the main obstacle to 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
The Indian legal service market is still aloof and not open to foreign law firms opening offices in the country. A 2005 study categorises the Indian legal services market into law firms, in-house legal departments of companies and legal publishers and provides that law firms dominate the share. The Indian legal service market is obviously dominated by practicing Indian advocates and Indian law firms whose domestic demand from mainly the Indian corporate sector has been on the rise. The Indian legal profession received the impact of GATT treaties in so far as corporate legal activities are concerned. Legal activities in project finance, intellectual property, environment regulation, competition law, corporate taxation, infrastructure contract, investment law—all these were almost unknown before 1991-92.[iii] Leaving aside a few old law firms, a majority of law firms have their base in places like New Delhi or Mumbai and also to some extent in Bangalore. In recent times, 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 like, for instance being involved in 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, law graduates opting for a career in corporate law and legal process outsourcing emerging as an opportunity. Leading law firms like Fox & Mandal have a CSR section on its website that talks about providing free legal aid to the poor in the form of pro bono work.
Constraints to Opening up the Legal Service Sector
Surveys have shown that the Indian consumers of the services provided by law firms in India are relatively satisfied with their share of services. There is no such 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 also 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 liason offices in India and were granted permission under Foreign Exchange Regulation Act, 1973 to start liason activities only and not active legal practices.[iv] In 1995, 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 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 favour of petitioners. This case law has been one major constraint in opening up the legal service sector.
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 open to foreigners. The Indian government did come up with the Limited Liability Partnership Act, 2008, which provided for certain amount of 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 one of the main issues. 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 are stringent which prohibit entry of foreign firms into the country. For instance, there is an absolute bar on advocates from advertising and soliciting for any purpose and indicating area of specialization . It is submitted that the bar 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 BCI rules provide that multidisciplinary firms are not allowed to operate, and partnership firms are the only legitimate way to operate in India. Besides, law firms are banned from advertising in law directories. 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.
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 bring changes to its own regulations, particularly, with respect to advertising, as this leads to the consumer making a less informed choice. In place of stringent regulations, 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 Kanchi Kaushik
[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, Liberlisation 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