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Sunday, December 10, 2023

India cracks the door open to foreign law firms, but restrictions abound

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In 1991, when India opened up its economy to foreign investment, then finance minister Manmohan Singh quickly dispelled fears that this could hurt Indian industry. “We must not remain permanent captives of a fear of the East India Company as if nothing has changed in the past 300 years,” Singh said in his famous budget that year. He went on to say that India was capable of dealing with foreign investors on its own terms, and that Indian industry had come of age and was ready to compete with foreign investment.

He was right. That’s reflected in the fact that almost all sectors are now open for foreign direct investment or FDI. Perhaps the only segment that has held out for so long has been the Indian legal services industry. 

That door has been cracked open, though not fully, with the Bar Council of India finally paving the way for foreign lawyers and firms to set up shop here. It is a guarded opening up, with entry limited to transaction or corporate work on a reciprocal basis. 

For now, foreign lawyers cannot appear before tribunals besides statutory or regulatory boards, according to the Bar Council of India Rules for Registration and Regulation of foreign lawyers and foreign law firms in India. Essentially, this would mean allowing only chamber practice or work in areas such as international legal issues and arbitration issues here.   

This liberalisation comes in the backdrop of the India-UK free trade agreement, which has been in the making for a while. The two countries have long been negotiating to allow UK lawyers and legal firms to get a foothold in India, whose economy is projected to be in the world’s top three. 

The UK legal services industry views the Indian market as potentially lucrative, considering the country’s domestic growth, the presence of a number of foreign companies and cross-border transactions, besides a higher share of the growing number of arbitration cases. Before the BCI rules were unveiled, the best foreign lawyers could hope to do was to come in and out of India for a brief time, in line with a ruling by the Indian Supreme Court. 

The new rules could help obviate the need for many companies here with an international presence or overseas partners and trade links to spend money meeting foreign lawyers at other jurisdictions to beat such restrictions. There is also the promise of Indian legal talent being tapped by foreign firms or lawyers starting to grow their operations here by partnering with boutique or medium-sized law and legal advisory firms, especially in the commercial and regulatory segments. 

It also has the potential to boost the standard framework for commercial arbitration and best practices and, over time, create an enabling environment for a globally competitive and credible international arbitration centre. The Singapore International Arbitration Centre (SIAC) has emerged as the go-to centre for many Indian companies given its location, efficiency and speed. The easing of rules by BCI now offers both an opportunity and a challenge. 

But it also may be a little too early to celebrate. For one, the BCI and the government will have to overcome possible resistance by a larger body of lawyers. There could also be a legal hurdle in the Advocates Act of 1961, which sets out the norms for legal practice. Perhaps that is why the council and the government have opened the door just enough to get the free trade agreement off the ground, hoping to ease the rules later as has been the case in many other sectors. 

The opening up of the Indian legal services sector should also serve as an opportunity to reflect on the country’s contract enforcement system, the pace of arbitration and litigation, and the cost to the economy. Surely India’s lawyers and law firms have the talent and capability to take on this challenge.

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