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Chennai writ losers: LPOs, CAs, secondments & logic. Winners: Invisible in-house & pragmatism

1960s Advocates Act: Kaputt?1960s Advocates Act: Kaputt?

The ruling in the Chennai writ petition was hailed as pragmatic for solving the nearly two-year-old deadlock foreign firms were in. But frankly it is likely to continue exposing the deficiencies of the 1961 Advocates Act in dealing with modern-day India. And it could possibly plunge a number of industries into a world of pain via the Bar Council of India (BCI).

On Tuesday the Madras High Court ruled that 31 foreign law firms and one legal process outsourcing (LPO) outfit were not practising law illegally in India.

For now, the ruling may have lifted out of limbo most foreign lawyers with business interests in India and returned the situation to the status quo: foreign lawyers can do limited non-Indian legal work here and arbitration.

But practically it leaves LPOs, accountancy firms and in-house lawyers in irreconcilable positions vis-a-vis the situation of foreign and domestic lawyers.

Quick history lesson

The Chennai writ was filed by local advocate AK Balaji in March 2010 on behalf of the Association of Indian Lawyers – a Tamil Nadu-based pressure group of lawyers formed around the same time as the action.

By July 2010 the Madras High Court had served notice on all 31 foreign law firms, including most of the big UK names such as Clifford Chance, Linklaters, Freshfields Bruckhaus Deringer and Allen & Overy, as well as US giants Davis Polk & Wardwell, Shearman & Sterling and White & Case. The LPO Integreon was also named.

The issue has history, as well as teeth.

Only four months earlier in December 2009, the Bombay High Court ruled in the Lawyers Collective case from 1995 against Ashurst, White & Case and Chadbourne Parke, that foreign lawyers were not allowed to practice law in India (and that they had to shut any offices they operated here, even if only for business development purposes).

Foreigners have potential under Act

Uncontroversially, the Lawyers Collective judgment reiterated the Advocates Act 1961 restriction that the only class of persons allowed to “practise law” are advocates.

According to section 24 of the Act, only Indian citizens can be enrolled with a bar council, “provided that… a national of any other country may be admitted as an advocate on a State roll, if citizens of India, duly qualified, are permitted to practice law in that other country”. Under section 47, the central government has the power to prevent foreigners from practising law in India if their country of origin “prevents citizens of India from practising the profession of law or subjects them to unfair discrimination”. The Bar Council of India (BCI) meanwhile, has the unfettered power to recognise other nationals to practise in India.

(That “reciprocity” door has so far apparently not been opened by anyone, ostensibly because most foreign jurisdictions have strict tests of admission to the bar whereas India had none. But it could be said that with the now more than one-year-old All India Bar Exam (AIBE) “reciprocal” conditions for being admitted in India and abroad are coming into existence. Strangely, almost no one in any camp seems to be making that argument.)

Collective gap

The big gap (some would claim major oversight) in the Lawyers Collective judgment was that no one was quite sure whether the Bombay High Court also intended to prevent international lawyers from practising their own law in India.

The effect of the Chennai writ petition was first filed, was to make all foreign lawyers who had ever worked in India antsy. But it also gave an opportunity to clarify this uncertainty, which the Madras court has done in part.

The bench headed by chief justice MY Eqbal on Tuesday handed down four main headlines: [download full judgment]

(i) Foreign law firms or foreign lawyers cannot practice the profession of law in India either on the litigation or non-litigation side, unless they fulfil the requirement of the Advocates Act, 1961 and the Bar Council of India Rules.

(ii) However, there is no bar either in the Act or the Rules for the foreign law firms or foreign lawyers to visit India for a temporary period on a fly in and fly out basis, for the purpose of giving legal advise to their clients in India regarding foreign law or their own system of law and on diverse international legal issues.

(iii) Moreover, having regard to the aim and object of the International Commercial Arbitration introduced in the Arbitration and Conciliation Act, 1996, foreign lawyers cannot be debarred to come to India and conduct arbitration proceedings in respect of disputes arising out of a contract relating to international commercial arbitration.

(iv) The B.P.O. Companies providing wide range of customised and integrated services and functions to its customers like word-processing, secretarial support, transcription services, proof-reading services, travel desk support services, etc. do not come within the purview of the Advocates Act, 1961 or the Bar Council of India Rules. However, in the event of any complaint made against these B.P.O. Companies violating the provisions of the Act, the Bar Council of India may take appropriate action against such erring companies.

Pure pragmatism

The first point reflects the status quo and what is a fairly reasonable interpretation of the Advocates Act.

The second and third points will be welcome to most corporate lawyers, domestic and international. And even the staunchest opponents of legal market liberalisation, such as the Society of Indian Law Firms (SILF), never suggested that foreign lawyers should not be allowed to come to India to assist in corporate transactions, visit conferences or do networking. After all, Indian cross-border deals are big business for all.

The third point is perhaps the most pragmatic, since a reasonable man might wonder how arguing in arbitrations is not in any way the “practice of law”. In fact the judges were explicit in their practical approach by citing the government’s stated “national interest” of making India an international arbitration hub, which would clearly not be possible without foreign lawyers being allowed to arbitrate here.

After this, it starts to get very complicated.

Best friends or secondments doubtful

One obvious issue: the court told the parties that foreign lawyers may visit India for a “temporary period” on a fly-in-fly-out basis. What does this do to longer-term foreign secondees with Indian law firms? Notably former Clifford Chance India head Chris Wyman spent almost 16 months in India with then-best friend law firm AZB & Partners, building ties until November 2010.

Also on that note, what of best friend relationships between Indian lawyers and foreign firms? They usually paint themselves as preferential arrangements where foreign law firms invest significant time and know-how into their Indian partners. The Indian best friend promises client introductions and foreign legal work in return. All best friends wisely claim publicly that they do not provide any cross-border profit sharing, although a few are believed to have more complex financial structures in place that skirt the issue.

Perhaps the court and arguing counsel were wise not to get into those cans of worms.

LPO debacle

Point (iv) above does not adequately settle the question of the nature of LPOs, defining them simply as BPOs that do back-office work for foreign lawyers.

In fact, the arguments for Integreon’s counsel are summarised in paragraph 31 of the judgment, and not once in that paragraph is senior counsel Sriram Panchu recorded as using the term LPO. Instead he uses the abbreviation BPO – or at least business process outsourcing is what the judges seem to have understood counsel to be using. In the judges’ summary of counsel’s arguments, the “BPO” Integreon provides:

a wide range of customized and integrated services and functions to its customers which, inter alia, include word processing, secretarial support, transcription services, proof-reading services, presentation graphics, pitch support, concierge and travel desk support services, knowledge management, CRM database management and reporting, business development, IT training and support, HR administration, trend awareness, finance & accounting, billing, accounts payable, and general ledger, management reporting and analysis, payroll management, hiring and intake administration, project management etc…

The said services are not in the nature of practice of law in any manner whatsoever. It is the specific case of the 15th respondent that their firm does not practice law in any jurisdiction in the world, much less in India.

More than just conspicuous is the absence of words such as contract management and review, legal research and drafting, e-discovery, due diligence. These areas are the raison d’être of LPO without which there would be nothing to differentiate it from a BPO, and they explain why LPOs hire law grads.

Those services are also all listed on Integreon’s web-site.

One wonders why neither the judges nor Integreon appear to have accurately described, or even understood from a plain reading, what an LPO actually does.

LPO no longer under the radar

LPO’s saving grace, of course, must be that the vast majority of the large LPOs such as Integreon deliberately only work on foreign law issues and do not compete on most levels with the domestic legal profession. That has given the LPO industry a clear blue and unregulated ocean in which to expand.

Publicly, the LPO giants are putting on a brave face (such as in this Wall Street Journal blog) and counting on continuing pragmatism. Pangea3 co-CEO Sanjay Kamlani, for example, told Legally India yesterday via an emailed statement:

“We are very pleased with the Chennai High Court opinion that foreign lawyers in India engaged in non-India law related legal services are not treated as engaged in the unauthorized practice of law in India under the Advocates Act.

“In addition the Court’s public policy position with respect to attracting international arbitration business in India is indicative of how any further rulings or determinations on the LPO industry are likely to materialize. 

“With over 30,000 new jobs created for lawyers in India that are in no way competitive with law firms practicing Indian law, we would expect any further rulings related to the LPO industry to be so favorable.”

In the end, in paragraph 62, the court defers responsibility: “It is seen that the Government in consultation with the Bar Council of India proposes to commission a study as to the nature of activities of LPOs, and an appropriate decision would be taken in consultation with the Bar Council of India.”

In the operative part of the judgment it also leaves the door wide open for the BCI to interfere in LPO: “In the event of any complaint made against these B.P.O. Companies violating the provisions of the Act, the Bar Council of India may take appropriate action against such erring companies.”

The LPO industry will certainly not be looking forward to greater BCI scrutiny, considering the body’s track record in regulating the rest of the profession and the narrow definition of LPOs as BPO that was left by the Madras High Court.

Finally, if the courts really believe that LPO lawyers do not “practise law” in any form, how is what an LPO lawyer does different from what foreign law firm lawyers do for the most part when they work in India? If there is a difference, it would be slight to the point of wafer-thin: foreign law firm lawyers sometimes sign legal opinions, or hold foreign law qualifications, or take clients out for lunch?

Chartering accounts

In paragraph 62, following senior counsel R Krishnamoorthy’s arguments for a number of UK law firms, the judges accept that law firms are basically not recognised as entities by the BCI, particularly in respect of non-litigation activities:

“Oversight of the Bar Council on non-litigation activities of such law firms was virtually nil till now, and exploiting this loop hole, many accountancy and management firms are employing law graduates, who are rendering legal services, which is contrary to the Advocates Act”.

This will worry many CA firms, some of which are known to have set up full-fledged legal departments that bill clients directly for their services. They are also beginning to eat into some lawyers’ pies.

If the BCI does act on this it would alienate the CA community and will have to answer the tough question of where consultancy work ends and legal work starts.

Creating in-house nonsense?

Along a similar line, the Madras court completely ignored the in-house legal community, which, however, deserves greater examination. If “practice of law” under the Act includes everything, including non-litigation work, then are lawyers working in companies’ internal legal departments practising law?

Many foreign lawyers are in fact happily employed by Indian companies as general counsel (GC) or in similar positions, working with and within the Indian legal system, drafting contracts, giving legal advice and instructing lawyers and counsel.

But according to the BCI, in-house lawyers are not lawyers: it expressly wants them to surrender their practising certificates.

The question arises of what is the main difference between an in-houser and a law firm lawyer? Is it because one is “employed” and paid by a company rather than a “retainer” in and paid by a partnership of lawyers? Then again, law firm Nishith Desai Associates employs its lawyers without retainer, while ICICI Bank allows its in-house lawyers to work on retainer after six months. And law firm partners also arguably get retained and paid directly by companies.

And if in-house lawyers should be completely exempt from BCI regulation, as they are, then how is a foreign lawyer giving basic and limited advice to an Indian company fundamentally different, whether on a temporary basis or full-time?

Misunderstandings

The above issues are not really about whether foreign law firms should be allowed to have offices in India, but they should lie at the heart of the profession. For one, there remains the lingering suspicion that the BCI does not fully understand, or has chosen to wilfully misunderstand, many sectors in the modern Indian legal profession. To that extent it has not been an effective regulator.

Meanwhile, the poor Madras High Court, following the example of the Bombay High Court, has done its best and bent over backwards in trying to make sense of the legal market through the lens of the 51-year-old Advocates Act.

But did the drafters in 1961 envisaged giant in-house legal departments, magic circle lawyers flying in and out, CA firms doing law, international commercial arbitration, huge Indian corporate law firms run as businesses and LPOs?

No. But even if the Supreme Court ultimately hears this case – and it very well might according to the BCI chairman’s statement reported by Mint today, rumours that the Chennai advocates camp or the foreign firms might appeal – the fact of the matter is that the Advocates Act still remains desperately unfit for its present-day purpose, no matter how hard it may try to dodge the tough questions.

Photo by JD Hancock

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Like +1 Object -0 gaga 24 Feb 12, 10:39
Best thing to do is return to the UK model: have barristers and solicitors. Allow foreigners to work as solicitors.
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Like +0 Object -0 AM 24 Feb 12, 10:45
"trying to make sense of the legal market through the lens of the 41-year-old Advocates Act."

51 year old, not 41.
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Like +2 Object -0 Indian lawyer 24 Feb 12, 15:58
Frankly a big rotten egg on the face of those that had motivated this litigation. They probably had hoped that Madras High Court would be the convenient forum for preventing foreign lawyers to ever set foot in India, while they would happily try and emulate international law firms by drafting English law documents and getting English/NY firms to sign off on English/NY Laws, all the while not employing any English / NY lawyer or having any insurance policy worth the name!

Well now by the clarity provided on arbitration, they have been hit where it hurts the most, juicy arbitration mandates coming under threat of Englis / NY arbitrators!! Await the sharks..

SILF and others may publicly say so(and LI may believe this to be true) but no Indian firm is ever happy to see any international firm in India, no matter the reason.

I do feel sorry for Mr. Bhasin, though. He does claim to have a robust arbitration practice...
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Like +0 Object -0 Madrasi 24 Feb 12, 17:07
A minor distinction can be drawn between in-house lawyers and third-party lawyers insofar as in-house counsel are by definition biased in favour of their employer... they do not offer independent legal advice as a consultant would.

You are absolutely right about the AA 1961 being hopelessly inadequate. The logical solution to this entire tamasha is for the BCI to introduce a system of 'Registered Foreign Lawyers' in India. Everyone would be happy-- foreign lawyers could practise foreign law while explicitly undertaking not to practise Indian law. The BCI would get more opportunity to regulate-- keeping the power-hungry assholes who run the country happy. And fat registration fees could be levied on the poor sods whose fate has condemned them to become foreign lawyers in this desert of insanity. More moolah for Rainmaker to somehow get its hands on (j/k).
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Like +0 Object -0 haha 24 Feb 12, 17:29
dont expect any reforms during UPA rule. ***king useless government.
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Like +0 Object -0 Anonymous 25 Feb 12, 07:40
The judgement completely overlooks the real nature of legal process outsourcing. The court has been hoodwinked into believing they do business processing and not law. What are 30000 lawyers in this industry doing! Surely not secretarial work. Of course they practice law. The judgement should definitely be appealed on this point and lpo firms thoroughly exposed. It's a fraud on the statute. Maybe the judges should have visited the offices of the big lpo firms to know what is going on in reality . It's a joke to call it b p o , !
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Like +0 Object -0 Anonymous 25 Feb 12, 07:43
Wonder what it does to the business case for Amss arbitration center. Apart from being a unsound proposition I think this judgement changes the dynamics . Mr. Shardul Shroff should stick to doing Amss work instead of going off on flights of fancy .
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Like +0 Object -0 abc 25 Feb 12, 10:06
There is a rumour that the petitioners will appeal. I also heard from a very reliable source that certain regional political parties are being contacted by the anti-liberalisation lobby. There are some fixers-cum-lawyers in these parties who control lawyers associations. The anti-liberalisation lobby is banking on a hung assembly in 2014 and will use these regional parties to block reforms.

I think India should now be kicked out of the G20 and WTO. If you want to be different from the rest of the world then don't be a part of such groupings.
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