scorecardresearch

Various models of opening up: JETCO Report, 2006

The UK-India Joint Economic and Trade Committee (JETCO) was set up in pursuance of the UK-India Joint Declaration made at London by the Prime Ministers of the United Kingdom and India on September 20, 2004.

Report of the Indian Team

January 23, 2006

Table of contents
 
I Introduction
 
The UK-India Joint Economic and Trade Committee (JETCO) was set up in pursuance of the UK-India Joint Declaration made at London by the Prime Ministers of the United Kingdom and India on September 20, 2004. The Indian Committee has been constituted by the Ministry of Commerce and Industry, Government of India to provide recommendations on the possibility of opening of legal services in India and issues involved in that regard.

The first meeting of JETCO was held in New Delhi on January 13, 2005. The British and Indian delegations were led respectively by H.E Kamal Nath, Minister for Commerce and Industry and the Rt. Hon. Mrs. Patricia Hewitt MP, Secretary of State for Trade and Industry.

In the joint statement after their meeting, the Indian and British Ministers welcomed the establishment of JETCO, of which they were appointed the joint chairmen. They agreed that there was considerable potential to increase trade and investment between their two countries and that JETCO would play an important part in this process. To this end, they further agreed (inter alia) "to set up a mechanism to examine the requirements on non-practice legal advisory services for enhancing trade and investment. It would include industry representatives and would submit its suggestions to the Ministers within the next six months". 

The British team represents only the legal profession in England and Wales and is not representative of the European Union of which it is a part. 

In pursuance of this agreement, two teams of five lawyers each were established.

The British team consisted of :-

Sir Thomas Legg KCB QC (Clifford Chance)

Mr Ian Scott (Ashurst)

Mr. Martin Harman (Pinsent Masons)

Mr. Alex Pease (Allen & Overy)

Mr. Hugh McDermott (Law Society).

The Indian team consisted of :-

Mr. Rajiv Luthra (Luthra & Luthra Law Offices)

Mrs. Pallavi Shroff (Amarchand Mangaldas & Co.)

Mr. Amarjit Singh Chandiok (Chairman, Delhi High Court Bar Association)

Mr. M.L Bhakta (Kanga & Co, Mumbai)

Mr. Chandra Uday Singh (Mumbai)
 
Meetings and agreement on reports

The teams have held three meetings together: a preparatory meeting in New Delhi on 26-27 April 2005, followed by fuller meetings in London on 25-26 May 2005, and in New Delhi on 19-20 September 2005.

These meetings, and the background papers and briefings which were exchanged between the two teams and the process of consultations with some of the Bar Associations, caused us to run over the six months requested by the Ministers (which we regret), but they enabled a full examination of the issues. The teams agreed that they would render separate reports to the JETCO Ministers, although each team would give the other the opportunity to see and comment on its report before it was finalised.

Accordingly, the following is the Indian team's report to the JETCO Ministers.

II Overview of the Indian legal profession
 
The right of lawyers and law firms to practice law in India is governed by the Advocates Act, 1961("Act"), which is also the statute regulating the legal profession in India. A perusal of the provisions (Sections 29 and 30) of the Act make it amply clear that only Advocates i.e. the legal professionals recognised under the Act are entitled to practice the profession of law. The relevant sections have been discussed below for ease of reference:

Section 2(1) (a) - An Advocate is defined as - "An Advocate entered in any roll under the provisions of the Act."

Section 24 provides that only an Indian Citizen has the right to practice and be enrolled as an advocate in India. However, a national of any other country may be admitted as an advocate, if citizens of India are permitted to practice law in that other country. 

Section 29-Advocates to be the only recognized class of persons entitled to practice law- Subject to the provisions of this Act and any rules made hereunder, there shall, as from the appointed day, be only one class of persons entitled to practice the profession of law, namely, advocates.

Section 30-Right of advocates to practice- Subject to the provisions of this Act every

Advocate whose name is entered in the state roll shall be entitled as of right to practice throughout the territories to which this Act extends, -

  • in all courts including the Supreme Court
  • before any tribunal or person legally authorized to take evidence; and
  • before any other authority or person before whom such advocate is by or under any law for the time being in force entitled to practice.

The issue whether the right "to practice the profession of law" would only mean the right to appear before courts and tribunals and authorities is presently sub judice before the Mumbai High Court in the matter of "Lawyers Collective vs. Chadbourne & Parke & others". Lawyers Collective filed a petition in Mumbai High Court against foreign law firms viz., Ashurst (UK), Chadbourne & Parke Associate (US) and White and Case (US). These foreign law firms had been granted permission by RBI under Section 29(1)(a) of the erstwhile Foreign Exchange Regulation Act, 1973 ("FERA") to establish liaison offices (as opposed to Section 30 of the FERA relating to grant of permission to practice any profession). 

It was alleged that instead of merely operating as liaison offices, these firms were indulging in active legal practice, in breach of the statutory requirements. 

The submission of the foreign law firms before the High Court (and even before the Supreme Court) had been that the words "practice the profession of law" in Section 29 was restricted to mean 'appearing before courts, tribunals or quasi- judicial authorities' and that foreign law firms and lawyers should be entitled to practice law and if any restrictions should apply it should be limited to their right of audience before court, tribunals and quasi-judicial authorities. 

The Mumbai High Court in an interim order held that the words "practice the profession of law" has a very wide mandate and is not restricted to appearing before courts, tribunals or quasi- judicial authorities. Thus, any restricted meaning given to the word "practice" would only do violence to the language of the Act. The High Court was of the view that under the Advocates Act there is no distinction between 'solicitors' and 'advocates' and therefore only an Indian Citizen has the right to practice and be enrolled as an advocate/solicitor (including solicitors rendering only advisory services) in India. Therefore, only an Indian Citizen can be a solicitor/advocate under the Act. Pursuant to litigation, Chadbourne & Parke Associate (US) and White and Case (US) have withdrawn from India and Ashurst (UK) is the only firm which has a licenced presence in India.

The matter was appealed to the Supreme Court of India and it came before the Supreme Court in March, 1996. The Supreme Court did not, however, decide on the substantive issue but remanded back the matter to the Mumbai High Court. It has been recently restored to the list of cases and a final decision is awaited. There has however, been no further action in the matter yet.

Internationally, the legal framework governing foreign lawyers is as diverse as the countries. The practice of law in most countries, whether in common-law jurisdictions or in civil law countries can be categorized as either a litigation practice or transactional practice, i.e., lawyers appearing before courts (Barristers) vis-à-vis those lawyers drawing, executing legal documents or advising clients but not appearing in court (Solicitors). However, the dual system was abolished in India in 1976 and replaced with a unified system, wherein an Advocate would be the only recognized class of persons enabled to practice.

III Domestic Restrictions on Indian Lawyers
(a) Regulatory Restrictions
 
Development of the legal profession in India has been restricted on account of the   number of impediments in the current regulatory system which hinder Indian law firms from competing effectively against foreign firms. Some of the current restrictions, which severely limit the scope of growth in the legal profession, are 
 
(i) Form of Legal practice: Partnerships are the only permitted model of practice for law firms in India. 

(ii) Nature of Liability: Indian law stipulates unlimited joint and several liability for partners in a law firm. Modes of practice such as a Limited Liability Partnership ("LLP") or Limited Liability Corporation ("LLC") are not permitted.

(iii) Limitation on the number of partners to 20: This is stipulated under Section 11 of the Companies Act, 1956), which severely limits the growth and size of Indian law firms.

(iv) Prohibition on Information Dissemination: The Advocates Act and the Bar Council rules prohibits law firms from disseminating information about themselves, including any form of advertising, having entries in law directories, or maintaining websites, or any other form of promotion.

(v) Funding Schemes: Non-availability of any specific financial schemes for lawyers. 

(b) Need for Reform
 
The Indian team is of the view that the domestic regulatory reform in India, addressing the above limitations, is absolutely necessary in order to facilitate the growth of the domestic profession and sufficient time should be given for the Indian lawyers to organize themselves to meet the global challenges. The Indian team would call upon the Government of India to first provide a conducive regime to the Indian Advocates before considering any form of liberalization of the legal services. This would in effect allow consolidation in the legal profession and enable Indian Advocates to compete with global law firms on a level playing field.  

The basic reforms required pertain to the following:

(i) Restrictions on the Number of Partners: Section 11(2) of the Companies Act, 1956 that limits the number of persons in a partnership needs to be amended. 

(ii) Limited Liability Partnerships: The structure of the Indian law on partnerships does not allow for Limited Liability Partnerships (LLPs). The LLP itself will be a separate legal entity owned by the members which means that the LLP will be able to continue in existence independent of changes in membership.

Suitable amendments are required in the Advocates Act and the Companies Act to allow lawyers to constitute LLPs, which practices the profession of law. A law to this effect is currently being considered by the Government of India. 

(iii) Sections 10 and 47 provide for a capital gains tax to be levied at the time of conversion from a partnership to an LLP or LLC. The relevant sections of the Income Tax Act should be amended to provide for a one-time exemption from tax on capital gains as an incentive for such growth and liberalization.

(iv) Information Dissemination & Advertising: Rule 36 of the Bar Council of India Rules provide that an advocate shall not solicit his work or advertise, either directly or indirectly, by circulars, advertisements, touts, personal communications or interviews, or by furnishing or inspiring newspaper comments or producing his/her photograph to be published in connection with cases in which s/he has been engaged or concerned. Rule 37 provides that an advocate shall not permit his professional services or his name to be used in aid of, or to make possible, the unauthorized practice of law by any agency.

These provisions act as a restriction on growth of Indian law firms, and hinder their ability, for instance, to maintain websites that would provide insights into their practice areas. The Bar Council Rules need suitable amendment in order to facilitate information dissemination by Indian law firms. 
 
(c) Size and Economic Power of Foreign Law Firms
 
There are three major factors which play a crucial role in the comparative advantage enjoyed by foreign lawyers, especially British and American lawyers:

(a) the structure of the sector, which in these countries relies on large and medium sized law firms, rather than on individual professionals; 

(b) the role of British and US law in international transactions and 

(c) the crucial role played by British and US companies in international trade.

The British legal profession is a major exporter of legal services, with £748 million exported directly from UK in 1998-1999 (excluding earnings generated by British lawyers holding UK Practicing certificated abroad). To increase its share of the global legal services market, the UK is establishing an industry-led forum to promote British law firms abroad by presenting a united front.

Having functioned in a limiting framework for the past fifty-years, the Indian legal profession is today ill-equipped to compete on par with international lawyers, who have grown their practices in liberalized regimes and have vast resources at their disposal. To illustrate this we have listed financial results declared by a few British firms, for the year 2005.  

Clifford Chance (Rank 1)

Turnover:     GBP 915 million (Rs.7, 436 Crores approx)

Total no: of fee-earners:   3,200

Profit per equity partner:   GBP 651, 000 (Rs.5 Crores approx)

Freshfields (Rank 3)

Turnover      GBP 780million (Rs 6,339 Crores approx)

Profit per equity partner   GBP 700,000 (Rs 5 Crores approx)

Total number of fee earners  2,709

Allen & Overy (Rank 4)

Turnover      GBP 666million (Rs 5,418 Crores approx)

Profit per equity partner   GBP 656,000 (Rs 5 Crores approx)
Total number of fee earners  2,314
 
Lovells (Rank 5)

Turnover      GBP 366million (Rs 2,976 Crores approx)

Profit per equity partner   GBP 427,000 (Rs 3 Crores approx)

Total number of fee earners  1,456

Denton Wilde Sapte (Rank 14)

Turnover     GBP 154million (Rs 1,255 Crores approx)

Profit per equity partner  GBP 279,000 (Rs 2 Crores approx)

Total number of fee earners  710 

Nabarrao Nathanson (Rank 23)

Turnover:     GBP 100 million (Rs.813 Crores approx)

Total number of fee-earners:    437

Profit per equity partner:  GBP 410,000 (Rs.3 Crores approx)

Trowers & Hamlins (Rank 50)

Turnover    GBP 44.2 million (Rs 359 Crores approx)

Total number of fee-earners   271

Profit per equity partner  GBP 278,000 (Rs 2 Crores approx)
 
Indian law firms would compare palely with even the last in the list of top 50 law firms in the UK in terms of size  (number of fee earners) and turn over. Based on an estimate, at the very most, there might only be around 3,000 advocates working in corporate law firms in the whole of India, compared to 3,200 lawyers in just Clifford Chance. The inequalities are stark and daunting. Any move to allow foreign lawyers into India, without providing the Indian Advocates an opportunity to prepare themselves for a liberalized regime, would in effect, jeopardize the interests of the Indian legal profession. 

In view of the above, it is imperative that prior to any liberalization of legal services, changes in the domestic regulatory framework for the practice of law is implemented. This will   enable Indian firms to consolidate their practice and compete effectively with international law firms.  

Having a well-developed practice of law is critical and important for the development of the legal system and judiciary in India.

A comparison is often made with China by people advocating opening legal services, which in the present case is a flawed comparison. Firstly, it may be noted that China did not permit practice of host state law (i.e. Chinese law) by Foreign Legal Consultants. Secondly, when the Chinese economy opened in the 1980's there was no organized legal profession or framework prevalent in China to guide and protect foreign investment. Chinese lawyers were relatively inexperienced at handling international transactions, which was exacerbated due to language barriers. Hence, it was imperative that the Chinese Government allowed foreign lawyers access to the market in order to comfort investors. India on the other hand has a well established legal jurisprudence and a good regulatory and investor protection framework. India's time tested institutions offer foreign investors a transparent environment that guarantees the security of their long term investment. These include a free and vibrant press, a well established independent judiciary, and a sophisticated legal and accounting system. 

Lawyers have played a crucial role on helping formulate policy to enhance foreign investment and to create a favorable environment for foreign investors. Despite limiting circumstances, Indian law firms in particular over the last few years, have displayed a youthful dynamism by re-inventing themselves to provide cutting edge legal advice. Leading firms in different jurisdictions have worked with Indian lawyers/law firms, who have several cross-country transactions in the fields of international commercial and financial law to their credit. To suggest that foreign investment inflow would measurably increase if foreign lawyers were allowed to practice in India, might be slightly misplaced and is certainly not supported by any credible empirical evidence. Significantly, even though foreign investors complain of several issues about doing business in India, a perusal of the wish-list of foreign investors in India does not even mention legal services. Quality of legal services provided by Indian law firms/lawyers has never been considered as a hurdle to investing in India. 

(d) Foreign lawyers in Asia
 
Before we consider the proposals of the UK team, it would be worthwhile to consider the applicable regimes for foreign law firms in other countries in South East Asia. Let us briefly examine the applicable regimes for foreign lawyers in South East Asia. A study of the various legal regimes in Asia will demonstrate, that countries which have allowed foreign lawyers into their jurisdictions, have only done so, in a very gradual and phased manner with the consensus of local representatives. Foreign lawyers, who were initially allowed to function in these jurisdictions, were subject to very strict operational criteria, which didn't allow them to employ local lawyers or practice local law. No Asian country has liberalized their legal services in the manner as being sought by the British team. A detailed overview of the regulatory frameworks in these countries is attached to this report as Annexure [A]. 

China

  • Foreign law firms can provide legal services in China only in the form of representative offices 
     
  • The representatives of the representative office are required to be practioner lawyers have practiced for not less than two years outside of China (a chief representative requires to have practiced for not less than three years outside China). 
     
  • Foreign representative offices and their representative offices are only allowed to conduct a limited number of activities, which do not encompass Chinese legal affairs

Indonesia  

  • Foreign law firms are not permitted to practice in their own name and are required to work with a local law firm. 
     
  • Indonesian law allows only Indonesian nationals who have graduated from an Indonesian legal facility or other recognized institution to join the local bar and practice law.

Singapore

  • Foreign lawyers are prohibited from practicing Singapore law. A foreign lawyer can practice foreign law in Singapore, including his or her home country law, a third-country law, or international law, without re-qualifying.
     
  • However, foreign lawyers are free to constitute an LLP to practice foreign law subject to the written approval of the Attorney-General's office. 
     
  • A foreign law firm cannot employ a Singapore qualified lawyer to practice Singapore law or hold shares of any kind in a Singapore law firm. 
     
  • Also, foreign law firms can only provide legal services in relation to Singapore law through a Joint Law Venture ("JLV") or Formal Law Alliance ("FLA") with a Singapore law firm, subject to a series of conditions and requirements, as detailed in Annexure A. 
     

Malaysia

  • Foreign lawyers are currently not permitted to practice in Malaysia.
  • A new draft legislation towards liberalizing the legal services sector proposes that foreign law firms will be allowed to establish Joint Law Ventures ("JLV") with Malaysian law firms.
  • As per the draft legislation the Malaysian firm shall have at least 70% of the equity and voting rights in the JLV.  
  • Further, a JLV shall only be entitled to engage in 'permitted practice areas'. 

Japan

  • Japan has fully liberalized its legal services sector as of April 2005. However, it will be interesting to get an overview of the Specific Joint Enterprise [SJE] model, which was previously the only vehicle for a foreign lawyer to establish a practice in partnership with a Japanese lawyer. We have provided an overview of the SJE in Annexure [A]. 
     

It is evident from the above that countries that have opted to liberalise their legal services sector, have done so in a very gradual manner, whilst simultaneously providing for an equitable transition to a global playing field. It is of paramount importance that the Indian Government harnesses the immense potential the Indian legal profession, but does so without compromising on the interests of Indian Advocates.

IV Constraints faced by Indian Lawyers under the UK Legal System

One aspect that has not been addressed in detail by this Committee is the issue of constraints faced by Indian lawyers under the UK legal system. The position of the British team has been that any foreign individual can enter England and Wales and start the practice of law. This simplistic proposition however does not reveal several regulatory requirements that in practice need to be complied with if a foreign person wanted to practice the law in England or Wales.

Theoretically speaking, nobody needs to be a solicitor, barrister or other recognized professional to practice law in England and Wales. Foreign lawyers can therefore practice English law, European law, public and private international law, and the law of their state/jurisdiction of origin to provide a local and global service for their clients. However, as will be discussed below, a certificate from the Law Society of England and Wales to the effect that a foreigner seeking entry for purposes of 'practice of the law' is a bona fide qualified professional is a pre-requisite for obtaining a visa. In other words, entry of a foreign lawyer is subject to regulatory scrutiny.

In addition to this, to develop an effective and respectable practice in law, use of the relevant titles for such practice would be desirable for any prospective foreign national. Indian legal qualifications are not automatically recognized for the use of titles such as 'Solicitor' or "Barrister'. The following are some of the restrictive features affecting the practice of law in England and Wales:

  • Only those duly qualified and certificated as solicitors or barristers in England and Wales can call themselves by those titles. Indian qualified lawyers can however take a prescribed examination- the QLTT to qualify as 'solicitor'. A pre-condition to this is a certificate from the Law Society of England and Wales certifying the eligibility of such candidate. Partnership with English solicitors is possible only if the foreign lawyer registers with the Law Society as a "registered foreign lawyer" or a "registered European lawyer".
  • A foreign lawyer does not have rights of audience in the courts. In county and magistrates' courts, rights of audience are usually restricted to the parties, their barrister or solicitor, though any person may be heard at the discretion of the court.
  • Certain limited areas are reserved to nationally qualified solicitors and barristers (and, in some cases, European lawyers registered under the Establishment of Lawyers Directive 98/5/EC). These areas include conducting litigation, drawing up court documents, rights of audience, property transfers and succession. Special rules also apply for all persons seeking to offer financial advice.
  • Immigration advice and immigration services are reserved to nationally qualified solicitors (and their partners and employees), barristers and legal executives, European lawyers registered in the UK under the Establishment Directive, other EU lawyers, and persons (including foreign lawyers) who are registered with the Office of the Immigration Services Commissioner.
  • Evidence of professional indemnity insurance that complies with the minimum terms and conditions set forth by the Law Society is a requirement for obtaining a practicing certificate from the Law Society. Solicitors are not permitted to practice without current professional indemnity insurance in force. Each firm, which is not a body corporate, is required to secure professional indemnity insurance with Qualifying Insurer(s) to a limit of indemnity of £2,000,000 any one claim. Most bodies corporate, such as LLPs, are required to obtain such insurance with Qualifying Insurer(s) to a limit of indemnity of £3,000,000 any one claim.

Immigration and Entry Requirements

A foreign lawyer seeking to practice law in a self-employed capacity, and who is not a EU, EEA or Swiss national requires an 'entry clearance'. The two basic pre-requisites for this are:

1. Letter of No-Objection from the Law Society of England and Wales for their 'letter of no objection'. This is a Government requirement designed to prove that the applicant is a bona fide qualified lawyer. The Law Society requires to assess the applicant's professional qualifications and authorization to practice in India. The applicant is then required to undertake to conform to the Law Society's standards of legal practice in the United Kingdom, and will not hold him or herself out as a solicitor.

2. Evidence of financial standing needs to be established before the nearest British Embassy, High Commission or Consulate for an entry clearance.

To state the obvious, any entry of foreign professionals into India would have to be accompanied by reciprocal arrangements in the UK that would ensure, at a minimum ease of entry, stay and practice of the legal profession by Indian lawyers in the UK, whether by establishing a commercial presence or by way of temporary movement for short durations of time.

V Proposal of the British Team
Summary of Option A

The British proposal was received from Sir Thomas Legg dated July 29, 2005. The main features of the British team's proposal are as follows;

1. Foreign lawyers should be permitted to provide their professional services in India. This freedom should, however, be subject to limitations and conditions, and it should be introduced in stages.
 
2. Only those qualified and certificated, as Indian advocates should be entitled to practice under that title.
 
3. Certain types of legal work should always be reserved to Indian advocates and other recognised professionals. These reserved areas should include rights of audience and advocacy in courts, submitting court documents on the record, conveyancing of land, drawing trust deeds and settlements, and preparing applications for the administration of deceased persons' estates. Advising on immigration law and acting for clients in immigration matters should also be reserved to Indian advocates.
 
4. Foreign lawyers intending to practice in India should be required to register with the appropriate Indian Bar Council, and should be subject to its basic professional code and to its disciplinary jurisdiction. Foreign lawyers will also remain subject to their own home state code and regulatory body. Where there is a conflict, the Indian rule should prevail as regards practice in India. The foreign lawyer's home state regulatory body should be required to act in co-operation with the Indian regulatory authority, and on request to enforce its penalties. The Law Society of England and Wales is ready to work with the Government of India and the Indian Bar Council to develop the necessary measures to ensure a satisfactory and effective regime to govern English lawyers working in India.
 
5. Foreign lawyers intending to practise in India could be required to produce evidence that they or their parent firms had sufficient funds to establish themselves in practice, and to meet any normal liabilities they might incur. This evidence might take such forms as a bank letter confirming the firm's financial standing, or the firm's annual accounts. In the case of individuals, it might take such forms as bank statements over a 12-month period, etc.
 
6. Foreign lawyers should be able to give advice to their clients on a 'fly in-fly out' basis. They should be permitted to enter India as visitors for immigration purposes if they are coming to confer with legal colleagues or clients, and should be able to receive a single or multiple entry visa for that purpose.
 
7. During a first and transitional stage of three years, foreign lawyers in India would be eligible for a 'limited license' to practice the law of their own jurisdiction, international law, and the law of any other country in which they are qualified. They would be able to negotiate and draft contracts governed by Indian law and to advise generally on such matters, including incidental points of Indian law, but would not be permitted to issue formal opinions on Indian law.
 
First stage 

8. During this transitional period, foreign lawyers could practise on their own or in partnership with other foreign lawyers, but not with Indian advocates. They could employ Indian advocates but, while so employed, the licenses of such Indian advocates to practice Indian law, including advocacy in court and the issue of formal opinions, would be suspended.
 
9. This transitional period would allow time for the Indian Government and Parliament to change the law so as to allow the Indian legal profession to be able to compete with foreign lawyers in the relevant fields on an equal footing. In particular, this would involve removing the restrictions on numbers of partners and advertising.
 
10. This period would also give an opportunity for Indian law firms, if they wished, to train their partners and staff in English and international commercial law. The Law Society of England and Wales has committed itself to offer this training in India, and expects to be able to begin early in 2006. The result will be that, at the end of the transitional period, Indian firms who wish to do so will be a position to offer the same services as any foreign firms.
 
Second stage 

11. In the second and final stage, after a level playing field had been established, foreign lawyers would become eligible for a 'full license'. This would permit them, in addition to the freedoms in the transitional stage, to enter into partnership with, and employ, Indian advocates, whose own freedom to practise would no longer be curtailed. The only exception would that be that such Indian advocates would be unable to exercise rights of advocacy in the courts. This would allay concerns that international firms would be able to undertake advocacy in the Indian courts through Indian advocates in the foreign firm.

12. However, firms including licensed foreign lawyers would have to have a managing partner who was a qualified Indian advocate, who would be in charge of that office of the foreign firm. He would be responsible to the regional or international management of the firm for the running of the office, and responsible to the Bar Council of India for its compliance with Indian law and professional codes.
 
13. Foreign lawyers joining an existing Indian partnership could be required to show that they will receive a share of the firm's profits, by providing a written statement of the terms on which they are joining the partnership.
 
14. The conditions of full licences would preclude exclusive arrangements with Indian advocates who were not partners in the international firm or employed by it. This should overcome the concern that Indian firms might in some way be required to link up with foreign firms, to the detriment of the Indian firms and/or clients.

15. It is essential to this model that the Indian Government should commit itself in advance to offer a full license regime at the end of the specified transitional period. Only in this way can all concerned, foreign and Indian lawyers, know where they stand, and act and invest accordingly.

Views and concerns of the Indian team on option A
 
1. Pursuant to the proposal, Indian qualified lawyers, who will give up their sanad (enrolment certificate i.e. the license to practice), would be employed by foreign lawyers. As per the law, only Indian qualified lawyers (Advocates enrolled at the state bar councils and who have a certificate of enrollment) are entitled to practice the profession. Those who give up their Sanad (enrolment certificate) are not advocates and are not be entitled to advise on Indian law issues. If Indian and foreign lawyers without a sanad seek to draft and negotiate contracts relating to Indian law, they would be in breach of the law and would also be misleading their clients with regard to their capability of advising on Indian law.
 
2. Although, a phased entry is being proposed, the mere fact that foreign lawyers will be allowed to draft and negotiate contracts governed by India law, shows that foreign lawyers want to advise on Indian law - (they cannot negotiate contracts without advising on Indian law) even though law does not permit them to do so. This would also indicate that they  want to tap into the Indian market from day one contrary to their stand that they do not intend to practice Indian law in phase 1.  The presence of foreign law firms in India competing with local law firms for Indian clients during the consolidation phase, would in-effect, defeat the intent with which this model is being proposed, to provide Indian firms an "equal footing".
 
3. Foreign law firms, with their deep pockets would be have an inherent advantage over Indian firms, and would be able to enhance this initial advantage with the assistance of Indian lawyers they employ.
 

4. The question is can or rather, should foreign law firms be permitted to advise on Indian law, especially when they are not qualified to do so. The intent seems to clearly indicate that foreign lawyers/law firms want to advice on India law even in Stage -1.
 
5. Once foreign law firms are allowed to enter the Indian market, the cost for legal services would increase substantially.

6. If foreign lawyers/law firms are allowed to negotiate contracts involving Indian law , it would not be surprising to see more and more contracts  being governed by foreign law. This would mean that when disputes arise over such contracts, Indian clients would need to seek the advice of foreign lawyers. It would indeed be unfortunate if such a situation were to arise.
 
7. Although, it is generally stated that the work of Senior Counsel would not be affected, it is likely that their work would also be affected. Contracts drafted by foreign firms in India would be governed by foreign law, whilst Indian Senior Counsel would not be qualified to advice on foreign law. Also, it is not unknown for foreign law firms to handle arbitration advocacy in-house, hence denying Senior Counsel an opportunity to develop their practices.
 
8. It appears that the intention of foreign law firms, is to do all work, corporate as well as litigation by shifting towards foreign forums and stipulating foreign laws as governing law. It will, in effect, have the undesirable effect of re-establishing the dual system in India. An Indian Advocate is his own Solicitor and Barrister. Allowing foreign law firms/lawyers to prepare briefs and also advise counsel, would only result in movement of all litigation matters to their preferred jurisdictions, to have all matters handled under one roof. This would affect the vast majority of Indian Advocates, who litigate for a livelihood.
 
9. To understand the iniquitous nature of implementing the proposed liberalization, one must understand the consequences. If the British model is implemented in India under the current scenario, Indian law firms/lawyers would be in a transitional and consolidating phase for the next five years (assuming that the reforms requested for have been implemented simultaneously), during which, Indian law firms/lawyers would not be able to compete on an equal footing with foreign lawyers/law firms. The presence of foreign law firms at this juncture would be a destabilizing factor for the Indian profession.
 
10. Foreign law firms would not hesitate to function under the limited license model, as they would use the Stage -1 opportunity to attract the best of talent with a variety of benefits. To attract talent, foreign law firms would gradually draw people away from Indian firms with better perquisites. Thereby, breaking existing law firms, who in order to sustain operations, would either need to down-size or be forced to link up with foreign firms in some exclusive way.

11. There is a strong sentiment amongst various members of the profession that permitting foreign law firms would be a beginning of Neo Colonialism. The Bar Council of India, the apex body representing the interest of Indian Advocates has on various occasions expressed their apprehensions in allowing foreign lawyers/law firms into India. The perception of the members of the Indian Bar is that the intention of the foreign law firms is to take over practice in India.
 
12. There are several restrictions that Indian lawyers face if they were to establish legal practice in the UK. This has been discussed in Part IV of this Report. Reciprocity should be given to Indian Advocates to practice in the UK in line with the requirement of the Indian Advocates Act.
 
13. The limited license model also does not require foreign lawyers to register themselves with the Bar Council of India. This would raise serious issues as to disciplinary proceedings in the event of such law firms committing any irregularity with their clients. It may also be noted that all International and regional instruments envisage the right of the concerned regulatory body to prescribed requirements such as registration and further qualifications (examination and/or minimum practice requirements) before any form of practice in the host country may be undertaken. For example reference may be made to IBA General Principles, EC Directives (Establishment and Diplomas), NAFTA Model Rules (Section 3), Canada Protocol, ABA-Brussels Bar Agreement, ABA Model Rules. This requirement is not peculiar to legal profession but even applies in case of engineers (See agreement on mobility of Professional Engineers within Canada) and Chartered Accountants (reciprocal arrangements between institutes of Canada and US).
 
14. A fair opportunity must be given to Indian law firms/lawyers to be allowed to consolidate to either have the option of remaining a national law firm or to be in a position to bargain effectively with foreign law firms if they wish to eventually consolidate with a foreign practice.
 
15. We feel that Option A proposal would be indeed be a difficult proposal to sell to the Indian profession, considering the inequalities inherent in the system. We strongly feel the limited license model would, at present, be an unviable option.
 
16. Pursuant to the concerns above, the Indian team strongly suggests a phased liberalization to be implemented, incorporating the "level playing field/equal opportunities" concept.
 
Option B - Regulated Joint Ventures
 
The main features of the JV model proposed by the Indian team included the following.

  • Foreign lawyers should be permitted to practice in India, but only in conjunction with a group of Indian lawyers, as a joint venture. 
     
  • The practice areas of such joint ventures should be limited to 'corporate advisory services' and 'alternate dispute resolution' (arbitration and conciliation); 'representational and advisory services' with respect to courts and tribunals should not be permitted. 
     
  • 'The Indian party shall have the management control in India'; and the managing partners and/or key personnel of the joint venture would have to be Indian advocates. 
     
  • 'Such joint ventures may take various forms but the controlling interest must be in the hands of the group of Indian advocates. The foreign investment/participation limit may be capped at 26% initially'. 
     
  • Each member of the Indian group would have to fulfill prescribed requirements, such as ten years of practice and a set minimum income. 
     
  • Indian advocates should be permitted to share fees with the foreign lawyers in the joint venture. 
     
  • Detailed rules should be made to regulate the provision of temporary and permanent services by the foreign lawyers in the joint venture, as well as 'full' and 'limited' licensing. 
     
  • Existing Indian restrictions on advertising and numbers of partners should be relaxed. 
     
  • Alternative forms of association, such as limited liability partnerships and companies, should be permitted in India (as they are in the UK, in the case of limited liability partnerships), and might well be suitable vehicles for joint ventures with foreign lawyers. 
     
  • Reciprocity should be required of the foreign lawyer's home state with regard to freedom of Indians to practice law there. 
     
  • 'The Indian party should be allowed to be a partner in the global practice of the foreign party as well and must be granted sufficient and equal opportunities for the future'. 
     
  • Foreign lawyers practicing in India should be subject to regulation by the Bar Council of India; there should be provision for co-ordination and consultation with the home state regulatory body; and the home state regulatory body should recognise and enforce penalties imposed by the Bar Council of India on foreign lawyers from its jurisdiction.

Views of the British team on option B are paraphrased below:
 

  • The British team recognises that this proposal offers a possible avenue for foreign lawyers to provide their services in India. However, it is in essence so narrow, and so beset with conditions and restrictions that make it unattractive to foreign lawyers, that it seems unlikely to achieve any significant benefits, either to them or to India. Moreover, the joint venture approach has been tried in other jurisdictions and in our view has generally failed. 
     
  • Our concerns about option B are centered on two main areas: problems about joint ventures generally, and problems about the specific proposals that 'the foreign investment/participation level may be capped at 26% initially', and that 'the Indian party shall have the management control in India'. Problems about joint ventures generally 
     
  • The joint venture approach may seem natural to a country that is considering the liberalisation of legal services, especially in relation to what may seem the similar example of corporate enterprise. In practice, however, it fits badly with the work and culture of professional lawyers. Every nation which has adopted a joint venture approach at the outset of a liberalisation programme - as in the cases of Singapore, China and Japan - has either abandoned it, or is in process of abandoning it, in favour of a more comprehensive and effective form of liberalisation. 
     
  • Joint ventures are more restricted than others in the work they can take on, because the two separate firms combined are more likely to have conflicts of interest with or about a potential client than a single firm, however big, would have. 
     
  • Joint ventures are less durable structures than partnerships, and they effectively allow both parties to walk away from the arrangements more easily than with partnerships or incorporated legal practices (as has happened in some recent cases in Singapore). 
     
  • By contrast, the presence of foreign firms 'on the ground' under their own names and in their own capacities does significantly more to promote international investor confidence and thus inward investment. 
     
  • Joint ventures can require firms and work areas to be segregated into 'domestic' and 'foreign' domains. This is inefficient, and prevents skill transference for local lawyers, who do not gain direct exposure to international legal work. 
     
  • Joint ventures have further disadvantages for the local lawyers involved. They are denied a variety of benefits in terms of status, respect, remuneration, training, and career prospects. Partnership in an international firm affords the opportunity to achieve high and consistent professional standards by integrating lawyers trained in numerous jurisdictions, but in a single working culture and ethos. This opportunity is not available to joint venture partners. This inequality strikes at the root of the collegiate atmosphere that the best firms wish to create. It also affects both motivation and recruitment, making it harder for international practices to hire and retain the best locally qualified lawyers. 
     
  • In a joint venture, there is not the same identity of interest as there is in the local office of a single cohesive international partnership, where everyone is working for the benefit of the partnership as a whole. This identity of interest and spirit is vital to a high-quality and cost effective service to the client. This aspect is especially important, in view of India's ambitions to attract substantial foreign direct investment. Such investors are likely to have established and trusted adviser relationships with international law firms. The potential conflicts and compromises which are an inherent feature of any joint venture arrangement are likely to be a significant disincentive to such investors appointing a joint venture firm, and will consequently act, to that extent, as a deterrent to investment.
  • All these drawbacks impact disadvantageously on clients, in terms of both speed and quality of service, and cost. For these reasons, most joint venture offices have remained small, and none of them has proved as successful in achieving growth as the offices of international law firms that did not enter into joint ventures. 
     
  • We therefore think that the joint venture approach represents an earlier, and in our view now discredited, model for liberalisation. Moreover, it does not offer some of the protections that we understand to be sought by Indian firms. Indeed, it has the potential to discriminate against the small to medium-sized law firms that may not have the necessary attractions to, or connections with, international law firms. Problems about capped level/management control 
     
  • Even if the unsatisfactory joint venture approach were to be considered for India, we have serious concerns about the separate proposal that the 'foreign investment/participation level may be capped at 26% initially'. We understand that a similar limit is applied to some foreign corporate enterprises in India, and that 26% has some significance in Indian company law; and we can appreciate that it may well make sense in that context. But in our view it makes little sense in the context of legal services provided overwhelmingly by self owning partnerships. 
     
  • We remain unclear about exactly what the principle means and how it would be applied in the legal services context. But it would seem to imply that both the investment of the foreign firm, in terms of all forms of resources (human, technical, financial, etc), and the profits which the foreign firm could make from the joint venture, would be limited to 26% in the first instance, though the proportion might be increased later. In our view, this would give rise to serious difficulties. 
     
  • It is important to bear in mind that what a law firm provides is a professional service, backed by a professional reputation. Its capital very largely consists of the knowledge, skill, experience and 'know-how' of its partners and professional staff. In an international firm, this is a worldwide cross-border asset, supported by the technical capacity that enables it to be brought to bear for the benefit of its (mainly) corporate clients. Such a firm is totally engaged, in terms of reputation and risk, as well as profit, in every transaction at every location at which it operates. The proposition that it should invest (and risk) 100% of its asset for a return limited to 26%, and without management control, is seriously unrealistic. The Singapore joint venture system has effectively failed with a return limit of nearly double, at 50%. 
     
  • There are further questions. Would the Indian partners of the joint venture be responsible, not only for 74% of the capital investment - which is a heavy item in international commercial practice, in terms of people and IT equipment, etc. - but also for all losses? What value would the Indian partners in the venture give in exchange for the foreign firm's 26% investment? How would it be valued? If the Indian partners were seeking to be paid for further tranches of equity through a price calculated by reference to future profits, the foreign firm would be paying for goodwill it had helped to generate by its own preexisting reputation. Of course, detailed working up of the joint scheme would no doubt produce answers to some of these questions. We do not see how these answers can be reassuring, because the problem lies with the disproportionately small limit, and the practical problems of applying it. 

Response of the Indian Team on the views of the British Team on Option B
 
The British team in its Report has recognized our fundamental point of departure and difference, which is that it would not be possible to begin with a position whereby foreign lawyers can enter India on their own and employ Indian advocates, and engage in most areas of corporate advisory services, including contract documentation and negotiation governed by Indian law. 

The Indian proposal for a joint venture partnership between foreign and Indian lawyers is one based on the ground realities in India, wherein the Indian legal profession is predominantly resistant to the idea of entry by foreign law firms. 

As a concept, therefore, the proposal for a joint venture is not a unique one. It is rooted in the flexibilities recognized at the multilateral level under the WTO's GATS Agreement and in the phased liberalization process followed by most countries including in the legal services sector. The offers made by several countries on legal services under the GATS negotiations, including several EC Member states, is reflective of this position.