Entry of Foreign Law Firms: How Indian lawyers can be better protected

Entry of Foreign Law Firms: How Indian lawyers can be better protected

Bar & Bench

Payal Chawla

The liberalization of the legal sector is now imminent, and on the anvil. The first phase is expected to begin as early as the end of the month, with a focus on giving impetus to the domestic legal sector in a bid to create a level playing field with foreign law firms. This phase shall also include the run up to phase three, where foreign law firms may be permitted to practice non-litigation Indian law and commercial arbitration.

This window to get our house in order is expected to take approximately five years. Although measures are proposed for phase one, they just may not be enough.

Foreign law firms have been eyeing the Indian market since the early 1990s, when they set-up liaison offices with RBI approval. These were subsequently closed, pursuant to a 2009 ruling of the Bombay High Court.

Fears that Indian law firms will be taken over, lose talent & legal costs will escalate are not unfounded. Like the Indian consulting & accounting sector, which is now entirely dominated by the Big Four, indigenous firms will struggle at Tier 2. Parallels are also drawn to the insurgency of business into the medical profession.

However, India has a WTO commitment and is also viewed as one of the most lucrative legal markets. From India’s perspective, becoming an arbitral destination is a priority. It is, therefore, no wonder there is pressure to liberalize.

The tide began to turn in 2012, when the Madras High Court permitted foreign lawyers to advise on foreign law on a ‘fly-in fly-out’ basis.  In 2014, the Commerce Ministry proposed a phased-wise opening to non-litigious services and international arbitration.

In Phase 1, the domestic legal sector is proposed to be strengthened, by permitting basic advertising and providing clarity on LLP conversions. Foreign firms can continue on the fly-in fly-out basis, but must end ‘surrogate’ legal practice. In Phase 2, foreign lawyers may be permitted a presence, subject to advising only on foreign law. In Phase 3, they may be permitted to practice Indian non-litigation law, subject to reciprocity and the achievement of a level playing field.

However the draft Bar Council of India’s Rules, unfortunately, do not reflect the phased opening, as envisaged. Fortunately, the constituents are working on plugging the gaps.

To truly compete, more is required than currently proposed. Funding, for instance, continues to elude lawyers, primarily due to the prohibition to partner with non-lawyers. Funds are imperative to upgrade offices, technology and remuneration of lawyers. A funding platform, say of PE funds, purely for law-firms and other funding vehicles, created, funded and driven by lawyers, for lawyers, may be the solution. This would unlock a huge potential business and employment opportunity, currently untapped. If structured on an arms-length basis, even designated Senior Counsel could be brought into the fold, as potential investors. Legal insurance is another business opportunity waiting to be tapped.

Foreign lawyers can charge contingency fees (usually 30%), value billing (fees and percentage of value), percentages (fixed value), which is prohibited for Indian lawyers, who struggle with hourly/capped fees. Unless this prohibition changes with immediacy, there can never be a level playing field. The current enormous financial gap will only continue to widen.

The already scarce and exorbitantly priced real estate, particularly near the courts, will be taken over by foreign law-firms. It is imperative that Bar Councils protect the court circumference, and work with the government for the provisioning of offices around the courts for Indian lawyers.

The Bar Council of India must create an adjudicatory body for non-payment of dues to lawyers, who are reticent about approaching courts for their dues. The Bar Council must prescribe minimum threshold fees (practice year-wise), maximum credit limit period, and mandate written contracts with clients detailing agreed fees and payment plans.

The Bar Council of India and Bar Associations must also undertake an informational drive for the public about the beneficial aspects for Indian lawyers, the path breaking work of the judiciary in the shaping of India, and the potential dangers of foreign lawyers, particularly if the interpretation of the Constitution were to fall in their hands. This Government has already had a brush with the foreign agenda through NGOs. Let us not continue re-living our history.

One final word, most WTO member countries have made no request to practice Indian law and are limited to practicing corporate and international law.

Let us not be over-enthusiastic to offer more than is requested.

The author is the founder of JusContractus, a Delhi based full-service law firm. This article is for general information and not intended to be legal advice and the readers are advised not to act upon it as such.

The views expressed above are solely those of the author.

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