Are The Bar Council's New Rules On Foreign Lawyers A Game Changer?

The regulator of the Indian legal profession, the Bar Council of India (BCI), published the "Rules for Registration and Regulation of Foreign Lawyers and Foreign Law Firms in India, 2022" last week. By doing so, it reversed its long-held position against the entry of foreign lawyers into India. While this may be one step in the right direction, many more reforms are needed for an efficient market for legal services in India.

Section 29 of the Advocates Act, 1961, allows only "advocates," i.e., citizens of India with Indian qualifications (with some limited exceptions), to practise law in India.

After the economic reforms of 1991, Indian firms were keen on receiving foreign investment, and some were expanding their footprint abroad. Transactions became more complex, and the need for lawyers well-versed in British, European, American, and even Japanese commercial law became clear. To tap into this demand, some British and American law firms set up "liaison offices" in India for "coordination and communication" between Indian clients and the firm’s head offices in London and New York. These firms were given licences to operate in India by the RBI with some conditions, chiefly that they were not permitted to earn any income from services rendered in India.

Reactions from the Indian legal fraternity to these developments were mixed. Some lawyers noted that the move would improve the quality of transactional lawyering and help Indian law students get jobs in these firms. Many others remained wary, fearing that this would endanger the nobility of the legal profession. The BCI, for its part, was unsure of how it could regulate these firms.

The courts had similar concerns. In Lawyers Collective vs. Bar Council of India (2009), the Bombay High Court interpreted the term "practise" in Section 29 of the Advocates Act to cover "both litigation as well as non-litigation services." Since foreign law firms are not subject to the Advocates Act, they cannot practise law in India and could not establish a permanent presence in India. The licences granted to them by the RBI were cancelled, and the liaison offices were closed.

This was followed by the Madras High Court’s decision in AK Balaji vs. Union of India (2011), which restricted the scope of foreign lawyers to advise Indian clients only on a "fly in, fly out" basis. This meant that foreign lawyers could only render advice to clients in India regarding foreign law and represent them in international commercial arbitrations. The Supreme Court upheld the decision of the Madras High Court in 2018.

The BCI can now grant licences to foreign law firms to open offices in India and hire foreign as well as Indian lawyers for a five-year period after they complete a 12-step registration process. The Rules require the BCI to prioritise firms from countries where Indian citizens are allowed to practise law (e.g., the UK, US, Australia, Canada, etc.).

However, these firms, even if they retain Indian lawyers who are otherwise qualified to practise in India, can only provide legal advice on their country’s domestic law and on "diverse international legal issues". They are not allowed to take up courtroom-related (‘litigious’) work except for international commercial arbitrations.

The BCI can discipline foreign lawyers in cases of misconduct by referring the case to the disciplinary authority of the firm’s home country or by taking action on its own, ranging from an official reprimand to suspension of registration as a foreign lawyer with penalty and costs.

At the outset, we note that the BCI Rules may not provide full clarity on applicable law as long as the Supreme Court ruling in AK Balaji still stands. Section 29 of the Advocates Act must be amended to clarify that foreign lawyers can provide legal advice and representation to the extent allowed by the Rules.

As such, the rules signal a turn towards a freer flow of legal services. The segment in which foreign law firms operate in India is small but growing. While expanding this segment would have positive spillover effects for all players, two groups in particular stand to gain.

First and most importantly, Indian corporate clients gain easier and more efficient access to the world’s best law firms without having to leave India. For foreign investors, the change would reduce the cost of doing business in India. For Indian businesses, it would reduce the cost of doing business abroad. Given that several process-based legal services have already been outsourced to India due to cost advantages, this regulatory change brings with it the possibility that even more legal services could be outsourced to India. Secondly, graduates of Indian law schools can now seek placements with the Indian offices of the top foreign law firms after gaining the relevant qualifications.

While the Rules represent a step in the right direction, they are only a small part of the path towards reforming the market for legal services. The BCI should consider undertaking much-needed reforms to build capacity and establish sound regulatory processes to become a world-class regulator of the profession.

The BCI and the state bar councils currently face fundamental issues like not having an accurate sense of the number of validly licensed lawyers practising as "advocates" in India. More work is needed on addressing the lack of standards to determine the quality of lawyering and on increasing transparency in the disciplinary process against lawyers who commit misconduct.

There are also issues specific to these rules that make them unclear. A week after the rules were published, the BCI issued a subsequent clarification that foreign firms can render advisory work on foreign laws only for their foreign clients in India. This contradicts the proviso to Rule 3 of the Rules: foreign firms are not barred from advising clients in India on foreign and international laws. On the point of BCI’s imposition of a penalty in cases of misconduct, their counterparts in other countries (e.g., England) allow for deregistration and compensation in cases of misconduct but not penalties. A similar approach has been recommended for foreign insolvency professionals in India by the Committee on Rules/Regulations for Cross-Border Insolvency, Ministry of Corporate Affairs. We note that the BCI could consider conducting public consultations before issuing rules, which could prompt the early discovery of such issues.

The BCI’s intention in promulgating these rules is to "promote the growth of the legal profession in India... and address concerns about the flow of FDI." This is, of course, welcome. However, the BCI needs to undertake more urgent and immediate measures to develop its regulatory capacity. If India is to welcome foreign lawyers, the Indian regulator should adopt the best global practises in regulation.

Karthik Suresh is a researcher at XKDR Forum, Mumbai. Varsha Aithala is a doctoral candidate at the National Law School of India University, Bengaluru.

The views expressed here are those of the author, and do not necessarily represent the views of BQ Prime or its editorial team.