India Business Law Journal – November 2007

India’s agonizing decision

Corporate law firms and their clients in India and overseas may soon witness the beginning of a new era in legal services

There is growing momentum behind moves to open India’s legal market to foreign law firms. The debate is moving from “if” to “how”, “what” and “when”. The answers to these questions will shape India’s future legal landscape and determine the success or failure of this fundamental step. Previous efforts in the early 1990s ended inconclusively.

The goals are clear: For Indian and multinational corporations to have the best access to the legal services they need to grow their businesses and for India’s legal profession to develop and mature with the country’s economy rather than being smothered by foreign competition.

However the implementation raises many questions. Balancing safeguards with opportunities and establishing a regulatory framework neither too restrictive nor too permissive will not be easy. 

India Business Law Journal is eager to encourage constructive discussion and interaction between all of the key participants. Such debate provides an opportunity for all stakeholders to find common ground and to focus on identifying the optimal strategies for success.

We therefore solicited feedback from Indian and overseas lawyers and from in-house counsel at local and international companies (see Cover Story). Several key themes surfaced, the government’s approaches to which will define how any policy to open the market will take shape.

First and foremost among these themes is the urgent need for the local legal profession to be unshackled from outdated regulations and given the opportunity to develop to a stage from which it can compete with international players on equal terms.

Opinion appears united that changes to the legislation governing the profession must be made urgently. Specifically, amendments allowing law firm structures to move towards limited liability partnerships, along with appropriate tax treatment, and an end to the current 20-partner limit, are long overdue. The removal of prohibitions on law firm advertising and websites also come high on the list of “equalizing” measures.

Differences of opinion emerge on how many offices foreign law firms should be allowed to open, and where, and how large and staffed by what percentages of local and expatriate staff. There are also questions on how to prevent the domination of large international law firms.

More fundamental issues include whether foreign law practices should be required to enter into joint ventures with local firms, whether the same regulatory requirements will apply to all and whether Indian lawyers working for foreign firms will be permitted to advise on Indian law.

One point of near-unanimity is that courtroom work and domestic litigation should remain the sole preserve of Indian lawyers.

Surprisingly, foreign lawyers are in some cases more concerned than their Indian counterparts about the risks. Many have had their fingers burned in previous attempts at liberalization while others worry that foreign firms, which are unlikely to be allowed to practise Indian law, will nevertheless snap up the top local lawyers. This, they fear, may lead to a talent shortage among Indian law firms and perpetuate a decline in the standard of advice on Indian law.

Other sectors in India, accounting and insurance for example, have already been through a similar process of opening to foreign competition and emerged stronger from it. In the legal sector, fees would be likely to rise closer to international levels, along with wages and salaries. Indian lawyers would also find more opportunities to showcase their talent in the global marketplace; opportunities already enjoyed by their banking, consulting and accounting colleagues.

This month’s Intelligence Report (see The new financial architects) illustrates how greater expertise would not be amiss, particularly in the areas of securities-related laws and regulations. With the intricacies of Participatory Notes and any number of emerging funding vehicles and instruments, finance is an area where legal skills are vital to mitigate the risks of rapid change.

There are many lessons to be learned from other jurisdictions that have introduced similar reforms in their legal markets.

However, neither China – which had no legal profession to speak of when its reforms began in the late 1970s – nor the developed legal markets of London, New York, Singapore or Hong Kong provide exemplary models.

India must find her own path.

Turbulence is unavoidable and there will be losers, but all those who wish the profession well, including the vast majority of law firm clients, look forward to constructive discussions and the first steps in this long-overdue journey.