Entry of foreign law firms - what is not yet done in 20 years

Akshat Pande shares thoughts on the entry of foreign law firms in India and highlights the need for reforms of the legal sector.

I. Preparing the landscape

It was a grey rainy evening in the streets of London where I was working in a law firm as a young associate, when a lawyer friend informed us about the JETCO meetings going on between UK and India in 2005-06 and how it can lead to opening of legal sector of India and how our future lies in India with all those foreign firms rushing to open offices in India. This was a short conversation between friends while rushing from our office in Chancery Lane to catch the next underground.

It has been almost 20 years since and not much has happened on ground other than a string of litigation cases, few rules released to keep the candle burning and numerous meetings and announcements finally culminating into ‘Regulatory Hurdles’ and ‘Reconsiderations’ by regulatory bodies. This requires a serious thought as to why, in a country of 1.4 billion people, where the legal sector is worth over USD 7 Bn having about 1.9 million lawyers and counting and around 75000 students joining the profession every year out of around 1720 law schools, are we not able to have a clear policy decision to allow foreign firms to set up shop in India in some way or the other.

A lot has to be done to get our house in order and to make our legal industry current, as it is still fairly archaic, organic and unstructured and the profession is largely un-regulated, before any foreign interest can be expected. To solve a problem, the first step is to recognise and accept that there is a problem.

II. Who are the stakeholders?

It is said and widely discussed that Indian lawyers and law firms are the stakeholders in this entire debate about entry of foreign law firms. Well, is it so? Let’s see. In general, it is believed that Indian lawyers are represented by the state bar councils which inter alia have elected bodies or individuals taking care of the interest of the lawyers. Taking the example of Bar Council of Delhi, on its website, it is lucidly mentioned as to what are the functions of the Bar (https://delhibarcouncil.com/functions.php). It appears that the function of the Bar gets over once it hands over the enrolment of entrants into the profession and after that, it merely has tertiary functions such as conducting seminars, maintaining libraries, bringing about welfare schemes etc. Then how is it representing the interest of lawyers in such a nuanced and serious topic of allowing entry of foreign law firms. To the best of my memory, I have never received any communication, nor do I know of anyone else having received any communication from a state bar council asking for opinion or views of the lawyers on this topic or for that matter any topic, except receiving SMSs during elections. Then how are lawyers being represented in this entire issue.

There are other non-governmental societies and associations of lawyers and law firms who may have conducted few talks and seminars on this topic, but I am not a member of one nor anyone has reached out to me or anyone I know of to seek views and opinions on this topic. Probably, they are working with those who are members of the societies but to my understanding, as it forms a small percentage of legal fraternity, it cannot be called as representative. Therefore, it is not clear as to how the stakeholders wanting to discuss and close the matter of foreign law firm entry are being represented and who is deciding for us.

In a recent article on the topic in Economic Times published on July 29, 2024, it was stated that Bar Council is taking views from stakeholders to which Mr. Cyril Shroff of CAM was quoted to say “Every time I meet a global law firm, they ask me about it. It has become a joke. …..its a conversation of the deaf. We don’t even know who is making the decisions. Until we open up the competition to the best in class, we will remain a cottage industry.” I believe the conundrum cannot be more clearly set out. And if the stakeholders are not us and even not the big firms like CAM, who are the stakeholders, is not understandable at all.

III. Non-Contentious Practice of Law

The non-contentious law practice (i.e. working in corporate M&A, transactional, commercial advisory and non-litigation practice areas such as IP filing and prosecution) as well as working as an in-house lawyer in a company needs specific recognition under the laws governing the legal profession. At present, it is largely a self-governed area which has no statutory recognition or rules.

Furthermore, like litigation and arbitration, non-contentious law practice, transactional, IP and commercial legal advisory needs to be exclusive domain of lawyers and such work undertaken by other professionals should be barred. In absence of any specific laws in this regard, lawyers must face immense competition with other professionals, non-law firm firms and institutions. For this, an inter-professional regulatory cooperation is required so that there is a clear distinction of areas of practice and there is no overlap.

Considering that ‘non-law firm’ companies and large consultancy firms whose core practice areas different from legal practice, are anyways tacitly practicing non-contentious law in the cover of “transaction services”, they may might as well be allowed to run their own law firms or have a law firm subsidiary/affiliate entity with proper recognition so that lawyers’ get decent opportunity of working with them rather than working with them as non-lawyers after surrendering their practice certificates. Otherwise, it should be made exclusive domain of lawyers and law firms. It’s the grey area which begets inefficiencies in the market.

Foreign law firms look at non-contentious law practice with a lot of interest, in fact it being one of the top reasons to think of opening in India. If it remains a fluid and diluted market without proper regulatory regime around it, it will remain an unpredictable domain with cutthroat competition, in which firms will compete for talent and clients rather than giving quality service to client and opportunities to lawyers.

IV. Practice of only foreign law

The recent rules prescribe that the foreign firms which are setting up office in India will practice only foreign law and will not advise on Indian laws. Such a requirement neither makes regulatory nor any commercial sense, both from the point of view of the firms as well as clients. Why will an international law firm open a foreign office to practice its domestic law and not provide same services from its own office and how does it make any commercial sense to them. Even if they do, it will cost the Indian clients more as the law firm will have to account for the high costs of providing same service from a foreign office. Purely on commercial considerations, this requirement is flawed.

An Indian client, wanting to receive legal advice on say German laws, will always be better off (both financially and professionally), if it receives legal advice from a German lawyer, based in Germany, providing such service from her office in Germany. If the regulator has placed this requirement to protect the interest of Indian lawyers and law firms so that the foreign firms do not compete with them, that’s also a misplaced argument, since firstly a foreign firm advising on Indian laws will end up depending on Indian lawyers and hire them, thereby increasing opportunities for Indian lawyers. Secondly, the Indian firms will typically be less costly as compared to a foreign firm and clients would typically go to them.

Therefore, this artificial protection is only harming the Indian lawyers and law firms. In fact, the rules also prescribe that the foreign law firms cannot engage/ employ Indian lawyers or enter into joint ventures with Indian firms. This further reduces opportunities for Indian lawyers. Such an approach again poses a question as to who the real stakeholders are here.

V. Structure

Currently, the Advocates Act and the Bar rules only permits sole proprietorship and general (unincorporated) partnerships as acceptable structures for law practice. It doesn’t recognise any incorporated structures such as LLP, Private Limited companies etc. For foreign firms to practice in India, it is important to specifically permit at least LLPs as acceptable structures to set up a law practice in India.

In addition, it is also important to permit law firms to have revenue sharing arrangements with other professionals such as CA and audit firms so that there can be formal, legal and proper associations between professions and not tacit understandings which confuses everyone and also ensures that no one encroaches on other’s domain of work. Non-law firms giving legal advise on non-contentious issues do not even take responsibility of their advice, further exposing the client to risks.

VI. Reciprocity

The discussion around reciprocity is also very interesting to note, which essentially says that if a country doesn’t allow Indian law firms and lawyers to work in their jurisdiction, their law firms should also not be allowed to set up in India, which essentially means that if law firms from such countries wish to engage lawyers from India, they can neither do it in their country nor they can do it in India, which further reduces opportunities for Indian lawyers. Indian legal market should be open irrespective of whether anyone offers reciprocity or not, since there is no reason to ban someone just because they have not allowed us. Reasons in favour of opening legal markets are to make available more opportunities for Indian lawyers and law firms and to make available foreign law firms to Indian clients within India. It is not to settle some score with an uninviting bar of a country.

VII. Contingency practice

The Bar Council rules specifically prohibit advocates not to represent a client in a matter in which the advocate has a conflict of interest. It essentially means that the advocate should not be acting against the interest of the client to protect their own interest which is laudable. The Rules also require that an advocate should not charge on success basis and fee should be independent of result of a matter. This should be re-thought about, since in contingency practice, lawyers are interested in the positive result of the matter in favour of the client to get their success fee.

In fact, in certain types of legal services such as consumer cases, product liability cases, RERA cases, medico-legal cases, services to startups, where it is a question of access to justice or where capability of paying legal fees is low, such a practice should be specifically permitted and encouraged. This will not only ensure greater justice and better legal representation for those who cannot afford legal fees upfront but also ensure better fees for lawyers. If contingency practice is permitted, not only lawyers but everyone will benefit and it will also make a good case for foreign firms to set up in India who have established systems and processes for a contingency practice.

VIII. Conclusion

It is a request to the regulators and the Government to look at this topic with seriousness and with an intent to make the legal sector modern and up to date for Indian lawyers so that foreign law firms can enter and compete with not only extremely capable lawyers and law firms which we are but also in an eco-system which provides more professional opportunities to the lawyers so that Indian law firms and lawyers can also have a level playing field. For this, not protectionism but merit and competence is the answer. Following suggestions need priority to uplift our legal sector:

1. Recognising law firms as a structure of law practice
2. Recognising legal non-contentious, transactional, commercial legal advisory, exchange control, regulatory and IP practice areas as exclusive to lawyers
3. Allowing LLP structures for law firms
4. Permitting non lawyers to partner with lawyers:
   1. As investors
   2. Cross profession partnerships such as CA, CS, architects, science professionals
   3. Partnership between law firms and ‘non-law firm’ firms so that legal work can be handled by law firms.
5. Professional indemnity insurance
6. Periodic professional development exams and renewal of membership based on results
7. Different course or certifications after LLB for in house lawyers/GC/In-house counsels
8. Having formal courses and certifications for paralegals and legal secretaries
9. Social security measures for lawyers employed with law firms or solo practitioners.
10. Permitting advertising (including proper websites without disclaimers) for select areas of practice like family law, consumer cases, product liability cases, RERA cases, medico-legal cases, services to startups, secretarial and regulatory practice, private client practice, handling investor's claims for individual investors investing in listed companies.
11. bar to facilitate inter-state tie-ups, hold region based and inter-region seminars and enable lawyers to collaborate.
12. Specifically permitting contingency or success based fee structures for some areas of practices.