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‘Ludicrous’: 94% of foreign firms don’t actually want to open an India office in an SEZ reveals survey, cast doubt on gov plans

JSA recently launched in the Gujarat SEZ but foreign firms seem far less enthusiastic
JSA recently launched in the Gujarat SEZ but foreign firms seem far less enthusiastic

In an online straw poll of foreign law firm India group partners we conducted, 15 out of 16 (94%) responded that opening an office in a special economic zone (SEZ) in India “would not be interesting for us under any circumstances”, casting doubt over the government's current seemingly preferred approach to liberalise the Indian legal market by starting with SEZs.

Only one respondent opted for the response that they “would theoretically be interested” to open an SEZ office in India.

“Setting up a physical office in Gandhinagar is quite ludicrous!” commented one foreign law firm partner by email, referring to the Gujarat International Finance Tec-City (GIFT) - arguably one of India's most successful SEZs that had recently seen the first Indian law firm (J Sagar Associates (JSA)) set up shop there.

“For there to be any tangible benefit, offices should be permitted in metropolitan cities,” the partner added.

Another partner noted: “As a general matter, my personal assessment (and this does not include a view of any particular firm, including mine) is that SEZs would have a limited value as far as foreign firms are concerned.”

Yet another was similarly pessimistic about the value proposition of an SEZ-headquartered practice: “I cannot see how I could persuade management to open up in an SEZ and bear all the cost in our only being allowed to conduct international arbitrations in the first phase.

“Commercially, it does not make business sense if we are only allowed to practice law within the confines of the SEZ.”

“Indian law firms are already practising Indian law in the UK –Singhania & Co and more recently Lakshmikumaran & Sridharan (U.K.) LLP. ALMT and Fox Mandal were also in the UK for some years and therefore reciprocity should not be used to stall foreign lawyers practising in India.

Regulatory uncertainty

The Narendra Modi-led government has been very keen on liberalising the legal market to increase foreign investor comfort in the market as well as to create local jobs, though organisations such as the Bar Council of India (BCI) and the Society of Indian Law Firms (Silf) have been resisted the move, with Silf arguing that foreign firms should initially be prevented from hiring Indian lawyers.

In January 2017 the government had notified a rule change removing SEZs' restriction on legal services firms from operating within.

This was suspected to be a precursor to the government allowing foreign law firms to enter via that route, and has been repeatedly mentioned by the government in negotiations with stakeholders to be the preferred mode of entry of foreign firms.

However, there is still no clarity on whether any what any future regulations allowing firms to open in SEZs would look like.

Could they, for instance, offer their services to non-SEZ-based companies?

And how would a foreign firms' SEZ-based revenues be taxed in India, if at all? And what if anything would prevent a foreign firm from doing Indian law or India-related work from jurisdictions outside India?

There is also the remote possibility that the government may try to declare new SEZs purely for legal services, though the red tape involved there may be as complicated as simply amending the Advocates Act.

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