India has opened its legal market, but regulatory uncertainties and domestic opposition give foreign law firms pause for thought. By Freny Patel
India’s Bar Council has at last agreed with repeated calls from the international legal community for the country to open its legal sector to foreign law firms but the fine print of the rules raises doubts about much-needed assurances of a phased approach to domestic players and lack the clarity sought by the global legal community.
India created history on 10 March when the country’s Bar Council finally gave its nod for the “gradual” opening of the legal sector to foreign law firms and foreign lawyers after more than a decade of objecting to the entry of foreign lawyers.
The issuance of the Bar Council of India Rules for Registration and Regulation of Foreign Lawyers and Foreign Law Firms in India, 2022, was clearly triggered by the UK-India free-trade agreement discussions and in the face of strong lobbying by the UK government and the Law Society of England and Wales.
Foreign lawyers and law firms can now practice foreign law, engage in international arbitration matters, and advise on international legal issues in non-litigious matters in India on the principle of reciprocity. While they can practice transactional and corporate work, such as joint ventures, M&A, intellectual property matters, and drafting of contracts, they will not be allowed to appear before any courts, tribunals, or other statutory or regulatory bodies in India.
However, within a fortnight of the Bar Council of India announcing the liberalisation of India’s legal market, several leading Indian lawyers – including Jyoti Sagar, chairman, and Amit Kapur, joint managing partner, of Jyoti Sagar Associates; along with Pallavi Shroff, managing partner at Shardul Amarchand Mangaldas; and V Lakshmikumaran, founder and managing partner, and L Badri Narayan, partner, at Lakshmikumaran & Sridharan – raised objections to the manner and timing of the opening up.
The opposition among Indian law firms concerns the manner in which the rules have been drafted and framed, without due consultation, and the lack of clarity about the scope of what’s permitted.
The concerns raised are primarily about first introducing domestic reforms to level the playing field, such as providing clarity on limited liability partnerships, and allowing business promotion and market development activities, Sridhar Gorthi, a founding partner at Trilegal, tells India Business Law Journal. “These simple reforms are a necessary precursor to the opening up of the sector to foreign law firms,” he explains.
While favouring liberalisation “in a fair, gradual and transparent way”, Khaitan & Co’s partner Rabindra Jhunjhunwala says that all stakeholders “would benefit from more clarity” and that a “consultative process would have been preferable”.
The opposition is “understandable”, says Nishith Desai, founder and owner of Nishith Desai Associates, given that there are many drafting errors and inconsistencies in the Bar Council rules.
Some Indian law firms fear that foreign law firms may engage in the surrogate practice of Indian law while others worry that their talent will be stolen by foreign law firms.
“The Indian Bar Council has given up its right in favour of foreign bars to act on issues of indiscipline or malpractice”, which no country does, Nishith says, but he is confident that the Bar Council of India will iron out the creases.
Ashok Lalwani, the head of India practice at international law firm Baker McKenzie, agrees that some ambiguities need to be ironed out before the Chicago-headquartered global law firm can consider setting up operations in India – notably, whether other enabling legislation or rule-making is required before international firms can open offices in the country.
The guarded approach adopted by the Bar Council of India and the subsequent opposition led by a few leading Indian law firms has seen the majority of law firms, both domestic and international, suddenly become tight-lipped.
After going through the initial statements from the Bar Council of India, the majority of foreign law firms have decided not to comment, given the uncertainty. This is also partly due to opposition from local law firms, the fear of litigation and the lack of clarity on when and how the sector will open up. Given the guarded approach adopted by the Bar Council, restricting what foreign law firms can do should they set up an office in India, the question being asked is whether the current practice of flying in and flying out is not still a better option?
Some international law firms that have perfected the “fly-in, fly-out” business model and have been making handsome profits through their India desk, are likely to think twice.
Baker McKenzie has been flying in and flying out to meet clients for the past 50-60 years. However, Lalwani says that there is only so much a law firm can do in terms of client servicing that way. He looks forward to the day when Baker McKenzie’s Indian clients can “just walk over to our local office”.
Other international law firms may not wish to get into the bureaucracy of maintaining an office and staff in India and paying domestic taxes of upward of 40%.
Quite a few have voiced concerns that they might end up sinking sizable amounts into India without making adequate returns given the premium office rents in Mumbai and Delhi, not to mention that they will likely need to cut down on their fees. If they might not be profitable, they say, what is the point of setting up in India at all?
Krrishan Singhania, managing partner and founder of K Singhania & Co, says that foreign law firms entering the Indian market will need to reduce their legal fees to compete with Indian lawyers. By doing so, they could provide affordable legal services Indian businesses which are doing business abroad. This would enable these businesses to expand their operations globally.
An amendment to India’s 60-year-old Advocates Act is another hurdle.
The current legal framework in India may need to be amended to accommodate a new category of foreign lawyers who can participate in the practice of law in the country, subject to specific rules and regulations governing their practice, Singhania tells India Business Law Journal. “Creating a level playing field for Indian and foreign lawyers is essential to ensure fair competition and protect the interests of Indian law firms and lawyers,” he says.
The 266th Law Commission Report, which reviewed the provisions of the Advocates Act, 1961, regarding the practice of law by foreign lawyers, stated the need for “enabling provisions in the Advocates Act”, with the Bar Council of India needing to frame rules to recognise and register foreign law firms and foreign lawyers in India as a separate category of legal practitioners. Otherwise, the rules may be open to challenge.
Singhania suggests that the 1961 act could be amended to create joint venture companies between foreign law firms and Indian law firms to practice in their respective areas of expertise. “As long as there is clarity, even with partial opening up of the sector, there may be a lot that foreign firms can do that will justify setting up practice in India and running it viably,” Gorthi says.
Even in markets like China, Japan, Korea and Singapore where some reasonable restrictions apply, foreign firms have invested and done well, especially in cross-border investment transactions, capital markets, and international arbitration, he adds.
India is currently the fifth largest economy worldwide and aims to become the third largest with a USD5 trillion economy by 2047 when the country celebrates 100 years of independence.
Given its size, its global importance and increased foreign direct investment requirements, India will be a market that cannot be ignored by global law firms, not when billions of dollars in M&A deals take place annually.
Several domestic and foreign lawyers interviewed say that leading global law firms – the likes of Baker McKenzie and Herbert Smith Freehills – would be among the first few to take the plunge and set up a physical presence in India with the opening up of the legal sector.
Being on the ground and getting closer to Indian corporations would improve client service, given how many of the Indian companies are large multinationals with global operations, says Lalwani.
Raghu CV, group general counsel at Samvardhana Motherson Group, views opening up the Indian legal sector to foreign law firms as being beneficial to local corporates, too. A lot of Indian corporations wanting to expand globally stand to benefit by being able to find a suitable international law firm, which they can get to know beforehand. “It would be easier to ascertain their competence level and area of specialisation if they have a presence in India,” Raghu points out.
Even from international clients’ perspective, it would help for international law firms like Baker McKenzie to have a presence in the domestic market “as we would be living and breathing India, staying close to new developments and able to provide more nuanced and bespoke advice,” says Lalwani.
“We like to be in-market as we would like to provide seamless, full-service advice in all the markets in which we are present,” he says.
A top lawyer with one of the leading European law firms agrees that despite the uncertainties and challenges, “we need to think about India as our clients do”. Being on the ground, near clients and the regulators, will help deepen relationships, the lawyer says. “Those of us who know India really well are comfortable with the uncertainty but there will be other law firms that might look at the regulations and perceive them to be a bit tricky,” he points out.
While there is a lack of clarity, at least the announcement made by the Bar Council of India signals the government’s intention of opening up the legal sector at some stage. “Whether it is tomorrow or after one or two or five years, basically, the door has been opened,” says the founder of a leading Indian law firm.
“Foreign law firms will face pressure from their clients to enter the Indian legal market given India’s size, which cannot be ignored,” says a Southeast Asia-based lawyer. The majority of them are unlikely to set up large operations and could well replicate the South Korean model with a one-man show, he adds.
Foreign law firms will have to be mindful of the uniqueness of the Indian market given the competitive edge that local law firms with strong legacies have, both in terms of relationships and in attractive pricing, says Shuva Mandal, managing partner at Fox Mandal & Associates.
“The market, which seemingly is huge, may eventually not yield the kind of economic benefits that these firms will want to see,” says Mandal. Only a few firms may withstand the unique local complexities, and some may just keep a skeletal presence for global marketing purposes, he adds.
Despite India’s enormous potential, foreign law firms remain cognisant of regulatory risks and are likely to adopt a cautious approach by entering the market incrementally, says Karan Sharma, Asia Pacific partner with Aquis Search, a Hong Kong-headquartered recruitment agency.
Liberalisation of the sector in a phased manner that includes reforms in the domestic legal market will benefit the entire profession and contribute significantly to its growth, Gorthi says. He is optimistic that the entry of foreign law firms will help to expand the size and scope of the Indian market and benefit everyone in the long run.
Raghu says that opening up the legal market will not only give local law firms a level playing field, but the role of general counsel will equally be recognised. This is a much needed and well deserved change, he says. General counsel “have more in-depth knowledge on businesses than external counsel, which positions general counsel to better advise management”.
The opening up of the Indian market is expected to create significant opportunities for cross-border transactional lawyers, as foreign funds and companies investing in Indian companies can engage their preferred international law firms. This may lead to high-profile partner moves along with their teams to these newly established setups, says Sharma. This could result in an increase in demand for specialised legal professionals in the areas of M&A, intellectual property and international trade, he adds.
Jhunjhunwala agrees that the first impact will be on talent, with several Indian lawyers tempted to join international firms. However, much “depends on what they will actually be allowed to do there”, he adds.
Motherson’s general counsel, Raghu, does not anticipate a mass exodus towards foreign law firms because “Indian law firms are just as good”.
“Dual-qualified lawyers can anticipate a rise in their compensation as foreign firms establish their presence, along with a general increase in salary figures across the board,” Sharma anticipates.
Srishti Singhania, a senior associate at K Singhania & Co, agrees and says that aspiring lawyers are likely to be the primary beneficiaries of these reforms and can expect various benefits including increased global exposure, higher fees for their services, opportunities to advise on a wider range of legal issues, and a broader range of career options.
The entry of foreign law firms is likely to raise the level of professionalism, competency and expertise as per global practices in the Indian legal sector, she says. “This will reinforce our legal practice system and encourage high-quality work among our local lawyers.”
The second big impact will be “the way international and Indian firms collaborate and compete” on referrals, tie-ups, and mergers, among other aspects, Jhunjhunwala says. Based on the Bar Council rules, international firms will not be able to practice Indian law, and hence will still need to partner with local law firms for Indian legal requirements relating to any particular situation.
Baker McKenzie’s Lalwani does not see that changing very much. As the market opens up, he says there is a great opportunity for Indian clients to have greater access to international counsel and a greater opportunity for many Indian lawyers who went overseas for their education that came back to practice international law. However, “it is a grey area as to what an Indian lawyer engaged by an international law firm can do”, he adds.
Jhunjhunwala anticipates that the transition phase will create a lot of turbulence in the market and some Indian law firms may not survive. “However, there will also be tremendous opportunities for Indian law firms to seize,” he says.
While the impact on the Indian market may be limited “as foreign law firms would only be able to practice foreign law, and to an extent arbitration matters”, Desai says the psychological impact of liberalisation of the legal market would raise service and management standards of Indian law firms.
“Khaitan & Co could look for ways to expand its services and find opportunities to attract talent from peer firms not as well-prepared to handle this transition,” Jhunjhunwala says.
Top Indian law firms might be able to command a premium for their work, given the narrow gap in quality and the significant price differential clients are willing to pay global firms currently, Jhunjhunwala anticipates.
Desai agrees that legal fee scales will rise, and expects the liberalisation of legal services to help Nishith Desai Associates make more friends with foreign law firms, provide complementary skills, and do joint projects.
“If properly managed, Indian firms will be able to provide better service at a relatively lower cost to international clients”, even though they will be able to charge slightly higher rates than today, Desai points out.
Srishti Singhania anticipates that foreign law firms would establish alliances with boutique Indian dispute resolution law firms, which would bring together the diverse expertise of foreign law firms and the specialised skills of Indian boutique dispute law firms, and improve client service.
“These partnerships will not only promote cross-border collaboration but also enable the exchange of knowledge, skills and best practices between the two legal cultures,” says Srishti Singhania.
India may be one of the last jurisdictions in the world to liberalise its legal market – a move that will be a game-changer, as it would improve competition and enable the growth of the Indian legal market.
Change is unlikely to take place overnight considering the reciprocity requirements that will necessitate certification. Leading Indian law firms urging the Bar Council to ensure a level playing field for domestic law firms, and the possible requirement for an amendment to the Advocates Act, may delay the opening up of the sector. However, the writing is clearly on the wall and there is no going back.
BAKER MCKENZIE READY FOR ACTION
As the Bar Council of India announced the opening up of the legal market to foreign players, Ashok Lalwani, head of the India practice at Baker McKenzie, admits he is “pleasantly surprised” and pictures the firm’s Indian clients could soon “just walk over to our local office”.
Viewing the glass as half full despite the guarded approach adopted by the Bar Council, Lalwani is optimistic as he tells India Business Law Journal that being on the ground would help the firm get closer to the client and “improve client service”.
Baker McKenzie has a fairly large inbound and outbound practice serviced by about 300 lawyers across more than 40 countries outside India.
Singapore-based Lalwani says that, given the scale of its India-focused team, the possibilities with the Indian market opening up “are hugely exciting”. Baker McKenzie is one of the leading international law firms when it comes to India-related work, and considers several of the country’s largest multinationals as its clients.
From the Indian clients’ perspective, liberalisation of the Indian legal market would enable international law firms such as Baker McKenzie “to be closer to our clients and make it easier for them to access local law advice in jurisdictions other than India”, says Lalwani, who also heads the international capital markets practice in the Asia-Pacific.
From the international clients’ perspective, being on the ground will help, “as we would be living and breathing India, staying close to new developments, and be able to provide more nuanced and bespoke advice”.
Lalwani’s optimism greatly contrasts with the tight-lipped approach adopted by the majority of foreign law firms interviewed. Many global law firms were initially thrilled with the Bar Council announcing the opening-up of the market, but subsequently became guarded following the open opposition from several Indian law firms through the Society of Indian Law Firms.
Lalwani agrees that some ambiguities need to be ironed out before the firm can consider setting up operations. “We are looking to get some clarity on whether other enabling legislation or rule-making is required before international firms can open in India,” he says.
Like most overseas law firms, Baker McKenzie is reviewing the Bar Council’s announcement in detail and considering its implications for the firm and the industry more broadly.
“The biggest help would be to have more clarity and certainty on what international law firms can do, how to comply with the Bar Council rules, and how these rules will operate,” says Lalwani, echoing the albeit anonymous sentiment of the majority of foreign law firms.
Greater clarity will ensure that international firms looking at opening offices in India will face lesser regulatory risk and will be less concerned about the unknown, Lalwani explains.
He lists various decisive factors that will influence its entry into India. The biggest hurdle facing the industry today is the lack of clarity and certainty in terms of what overseas firms can and cannot do, and how that will help clients.
“Whether it makes sense for our firm and for our clients to take the next step is currently being evaluated internally,” he says. Baker McKenzie is also looking into what strategy it should adopt, because opening an office has costs associated with it both in terms of personnel and premises, he says. The question being asked by most firms is whether the investment makes sense in terms of returns and improved client service and access.
Being on the ground does not mean that foreign law firms will break off ties with their Indian counterparts. “We will still need to continue to work with our Indian law firm partners for Indian law advice,” says Lalwani.
Being physically present would benefit Baker McKenzie’s Indian clients in terms of delivering a seamless service across the world, and being able to attend meetings together with its Indian law firm partners, he says. “It will enhance the quality of legal service that we can provide to both Indian and international clients.”
Based on the Bar Council rules, international firms will not be able to practise Indian law, and hence they will still need to partner with Indian law firms for Indian legal requirements relating to any particular situation or matter. Lalwani does not see that changing very much.
Baker McKenzie likes to be a one-stop, full-service firm and provide seamless advice. “That’s our DNA and how the firm grew up with its first office in Chicago, followed by a second in Venezuela, because that is what our clients needed,” says Lalwani.
It will take time for international firms to be able to offer full-service advice in India. But Lalwani is hopeful: “We understand that greater liberalisation will happen over time … we will be patient and comply with the local rules.”
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