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Read the official gov’t minutes to blockbuster liberalisation meeting: Gov’t serious (but a tad confused about how)

Government clearly wants foreign firms in, but it doesn't seem to be sure how to go about things...

The government wants foreign law firms in, but should they enter via SEZs first or whatnow?
The government wants foreign law firms in, but should they enter via SEZs first or whatnow?

The commerce and law ministries are unequivocally in favour of opening up the legal sector to foreign lawyers as soon as possible, reveal the full minutes of the July meeting between ministries and lawyers, though the details of how this will be done remain uncertain.

Minister of state for law and justice PP Chaudhary said: “The Hon'ble Minister of State for Law & Justice expressed that broadly a decision has been taken for allowing the foreign law firms, there is no quarrel on this point.

“The second aspect is about the modalities, how it could be settled, there are so many issues. It can be in two ways, one is, once we have taken a decision that we should allow them then the second part, is how to allow them. Then we have to construct all the aspects, we can sort it, in short we can't take all the aspects into consideration and take a decision.”

As we had reported on 28 July on the date of the meeting, the ministries told the Bar Council of India (BCI) to lift advertising and other restrictions on domestic law firms in order to level the playing field before moving onto the next step of passing rules to allow foreign lawyers, seeking feedback from those present.

According to the minutes (read full minutes below), the representatives from the government were united in their intentions of opening the market, most strongly coming out in favour of a model where foreign firms would first be allowed to operate purely in special economic zones (SEZs), though they were not clear yet on exactly how this would take place and how restrictive operating conditions on foreign firms in SEZs would be.

“Twofold reform is required,” said commerce ministry secretary Rita Teotia, according to the minutes. “First is the domestic reform, i.e., providing conducive environment for foreign lawyers and legal firms to practice in India. However, totally opening up the entire legal scenario all at once to foreign players will be disastrous.

“It can be done only by allowing opening up of sectors of our legal system on a step by step basis. This will enable Indian players to have the opportunity to offer their services globally and to compete with the best in the world. As a beginning, the example of China can be replicated. China started with allowing foreign players in Special Economic Zones.”

The SEZ question

“Such global legal firms located within SEZ are not to offer any of their services outside the physical boundaries of the SEZ,” said commerce ministry secretary Teotia.

Of course, after the government made a subtle change to SEZ rules in January of this year, the big question mark over the SEZ model has been whether any foreign firms would be interested in operating exclusively within the confines of an SEZ.

Indeed, commerce ministry secretary Suresh Chandra noted: “The only issue which is remaining is the legal firms and the legal services and idea is that this is something exporting legal services from here and not to give any legal advice to either, other parts of India out side India SEZ or practice before courts.”

While the transcription is unclear, Chandra's point is sensible: should, as commerce secretary Teotia suggested, foreign firms in SEZs remain penned into the SEZ?

The Advocates Act questions

“So there are two issues, one is the eligibility of Section 24 and then reciprocity under Section 47,” explained Chandra in the minutes, referring respectively to 1) the Advocates Act restriction that advocates must be citizens of India under section 24, and 2) the power of the BCI (and the government that has identical rule-making powers to the BCI under section 49A(1) the Advocates Act) to make exceptions to section 24 if so-called “reciprocity” of practice in other countries exists.

Section 47 (reciprocity) states:

(1) Where any country, specified by the Central Government in this behalf by notification in the Official Gazette, prevents citizens of India from practising the profession of law or subjects them to unfair discrimination in that country, no subject of any such country shall be entitled to practise the profession of law in India.

(2) Subject to the provisions of sub-section (1), the Bar Council of India may prescribed the conditions, if any, subject to which foreign qualifications in law obtained by persons other than citizens of India shall be recognised for the purpose of admission as an advocate under this Act.

Chandra added, according to to the minutes (emphasis added):

Law Secretary was of the view that already there are provisions, to allow foreign lawyers to practice first of all to provide level playing field in the SEZ to achieve their objectives and targets we can allow to establish their offices provided there is a registration mechanism for them and with the conditions that the regulator as the Bar Council and the reciprocity is a notification issued by the Central Government.

On the issue of Section 47, he was of the view that this is permissible but we have to first get the order of the Supreme Court of India quiet early. In this regard, the Solicitor General of India has already been requested twice to expedite the case because there is a stay, and then only the fly-in and fly-out legal services are allowed. The Bar Council of India and the Law Ministry will come to a decision and issue notification under the Advocates Act in view of the other notification that they issued.

As reported last month, the government has asked for the “earliest possible” hearing in the pending AK Balaji matter before the Supreme Court; while there have been some delays with service, it seems unlikely that the Supreme Court will take too long before it probably decides that the government needs to take a call or make an amendment to the Act.

Chaudhary seemed to suggest that a BCI-led (let alone government led) amendment of the rules without a statutory amendment would not be sufficient:

in the case of amendment of law practice pleading outside the court, without amending the Advocates Act, even if Bar Council of India amends' the rule that is not enough, they have to go for an amendment of the Act. The concrete suggestions should come on the table and the Committee should consider all the aspects and give their recommendations how we can proceed further, what process are required to amend in the Advocates Act and vis-a-vis to the qualification and the examination.

The issue is important, some of the countries may be America and northern countries their education may be upto the level but other countries they are not upto the level, so how to allow them to practice in India. He said that all these modalities are required to be considered by the Committee constituted by the Law Ministry.

What else did the government say?

Law minister Ravi Shankar Prasad said (emphasis added):

India is becoming a big investment destination and is attracting the largest FDIs. Investments have gone up and due to this there is wide spread desire to get acquainted with the Indian Law among foreigners. There is also a need for reciprocation: our lawyers need to know more about the laws prevailing in other countries.

Therefore there is no doubt that our legal scenario has to be totally opened up. The President of the Society of Indian Law Firms and others had earlier raised certain issues and difficulties pertaining to Indian lawyers and law firms vis-a-vis opening up of the legal scenario of India to foreign players. Whenever reforms to open up India' s economy was made, initially the national economic scenario had initially undergone difficulties, but later on had always benefitted out of it. The message that Indian lawyers are the best has to go to the world.

At least part of the government's driving force in this appears to be arbitration; law minister Ravi Shankar Prasad said, according to the minutes: “The Hon'ble Minister stated that the Hon'ble Prime Minister is very keen to make India a hub of international arbitration and we have already undertaken to reform the Indian arbitration law. If India has to become a hub of international arbitration, then why don't the legal services come on board? He said that as you all know arbitration has across spectrums of arbitrations in the world.”

What did the legal professionals at the meeting say?

The Society of Indian Law Firms (Silf) chairman Lalit Bhasin had reiterated its multi-phrase approach, though only mooted two phases as opposed to the three that Silf had espoused a year ago when negotiations were in an earlier stage. Bhasin suggested at the meeting to first ‘level the playing field' by allowing Indian firms to advertise, legally have proper websites, etc; and second, “the foreign law firms can have some kind of adjustments with Indian lawyers similar to that of the Singapore Model”.

By contrast, the Indian National Bar Association (INBA) secretary general Kaviraj Singh simply called for opening up of the legal sector.

Salman Waris, founding partner of Tech Legis and fellow INBA member, said: “The right way forward is not to keep the doors closed and have them hire Indian lawyers. It is not practically possible to prevent exchange of backdoor legal services as they are already happened. We should allow foreign legal firms to come in. However there should be a regulatory body in India to regulate them. Foreign countries that allow Indian players within their legal system already have such regulatory bodies in their respective jurisdictions.”

Chitale & Chitale partner Suchitra Chitale said the market “should be opened up with the rider that there should be reciprocity”,

Cyril Amarchand Mangaldas Delhi partner Percy Billimoria noted that Indian law firms should be allowed to have “limited liability” while insisting on reciprocity, while partner Gauri Rasgotra asked for more information about the status and designation of foreign lawyers in India and Indian lawyers abroad.

However, P&A Associates managing partner Anand Pathak added that reciprocity with the US already existed, since he had been allowed to practice US law in the US.

Meanwhile, J Sagar Associates (JSA) senior partner Amit Kapur said: “Out legal system should open up”, but added that “a level playing field should be ensured” and that “domestic players should be allowed to strengthen themselves first and then open up”.

Luthra & Luthra senior partner Mohit Saraf noted that under the SEZ “India will not benefit from this and it will lead to several problems in level-building”.

Bar Association of India (BAI) president Prashant Kumar, however, said “SEZs harm the legal profession. We can allow foreign players to open law firms in India subject to the stipulation that these foreign players have to invest in India.Subject to this condition, legal services and legal technology development sectors can be allowed in SEZs”.

Finally, BCI chairman Manan Kumar Mishra, according to the minutes:

He sought sufficient time to discuss the issue of entry of foreign players in Indian legal system. He further stated that opening up has created a general fear in the minds of Indian lawyers that they are going to be jobless. While the BCI is not opposed to allowing foreign players in India the prime concern is regarding the mechanism of regulation. The BCI has no mechanism to regulate the reciprocity factor, this has to be looked after by the Government itself. It is the right of the regulator to decide what will be allowed and what not to be allowed. As on date there are different set of regulations for SEZs and for domestic sector.

Read the law ministry's full liberalisation meeting minutes

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