The passing of the Limited Liability Partnership (LLP) Bill by the Indian Parliament on 12 December 2008 could signify the start of a new chapter in legal history for the world’s largest democracy. The Bill, which was originally introduced in January 2006, is being seen as the first in a series of tentative steps towards opening up the Indian legal market.
The legislative move comes as continued and more audible calls are made for India to liberalise its legal services, and in so doing take full advantage of the many opportunities the international markets have to offer.
An inward-looking market
India has a well-established and independent legal system, which is modelled on British common law, and many of the laws introduced by the British before 1947 still form part of Indian law today. The court system is a three-tier one, with legislation beginning at district court level. A state-level system exists – with each state having its own High Court – plus there are a number of special courts and tribunals, which deal with a wide range of specifi c disputes, including the Company Law Board, the Insurance Regulatory Authority of India and Tax Tribunals. The Supreme Court of India is the highest court of appeal.
Traditionally, barristers and solicitors have been the two types of legal professional who can deliver legal services in India. Unlike other jurisdictions, these two roles are fused, and an advocate who is enrolled with the Bar Council of India is permitted to perform both duties, and often does.
When it comes to the practice of law, this remains very much the preserve of Indian lawyers. Under the Advocates Act 1961, only advocates enrolled in India are entitled to ‘practise the profession of law’ – which includes not only appearing before courts and giving legal advice as an attorney, but also drafting legal documents, advising clients on international standards and carrying out customary practices and transactions.
A legal challenge
But while foreign lawyers are not permitted to practise law in India, they may appear in court for specifi c cases, provided they have first obtained special permission from the court in question.
Likewise, foreign law fi rms are not allowed to open offices in India, but some do operate liaison outfi ts. Rules regarding the legal parameters under which such businesses are permitted to operate remain nebulous in legal terms. In 1994, two New York-based law firms (White & Case LLP and Chadbourne & Parke LLP) and one London-based firm (Ashurst – formerly known as Ashurst Morris Crisp) sought permission from the Reserve Bank of India (RBI) – the government authority that vets foreign investment in India – to start liaison activities in India. The firms proposed providing legal advice to non-Indian clients about their activities in India and in other jurisdictions. Permission was granted under the Foreign Exchange Regulation Act 1973 (FERA), but in 1995 following a legal challenge to the foreign firms by a public interest trust, High Court judges held that the RBI licence did not provide permission to ‘practise law’, only to establish a branch office to act as a communication channel between head office and its parties in India.
The three law firms appealed to the Supreme Court, and the court has in turn since referred the case back to the High Court to hear and decide. In the meantime, the Union Law ministry has expressed the view that drafting and drawing up legal documents and advising Indian clients on aspects of foreign or international law are not governed by the Advocates Act, and that foreign companies that establish offices in India according to the rules of the Foreign Exchange Management Act (FEMA – which came into force in June 2000, and is the less-rigid successor to FERA) can carry out such activities without any restrictions, or the need to enrol as advocates.
‘In the short term there is likely to be a bloodbath – with local firms feeling threatened by the arrival of foreign firms with deeper pockets’
Winds of change
While the impact of the outcome of the legal challenge mounted by the three foreign law firms will not be insignificant, more widesweeping changes to the Indian legal framework appear to be on the horizon. With the passing of the LLP Act, further secondary regulations could, once passed, mean that Indian law firms would be able to form an LLP – and therefore have no limit on the number of partners in a practice. Karnika Seth, attorney-at-law and partner at Seth Associates in Noida, India, explains that ‘Section 11 of the Companies Act prohibits a partnership consisting of more than 20 partners, unless it is registered as a company or formed in pursuance of some other law’. In addition, under the hoped-for regulatory changes, foreign law firms would be able to form an LLP, and foreign and Indian law firms would be permitted to form a new LLP, with the requirement that only one partner is resident in India.
Jeff Blount, Vice-Chair of the IBA Asia Pacific Forum and a partner at Fulbright & Jaworski LLP based in Hong Kong and Beijing, has been following events in India closely. His firm operates out of 16 offi ces worldwide and does, he affi rms, an amount of work in India. Blount expects that foreign fi rms will be allowed to set up shop there in the next one to five years and believes that ‘like China, India is a huge developing market that will present some interesting strategic opportunities for big firms’. He adds that the opening up of the market will result in ‘big, complex transactions that will be good for local lawyers and the markets overall’.
Shalini Agarwal, a partner at ALMT Legal in London and Corporate Counsel Forum Liaison Officer, IBA Immigration and Nationality Law Committee, sees other advantages to liberalisation. ‘As an Indian fi rm based in London we see the opening up of the market as something that will help the Indian legal market to mature. It will also raise standards, and give Indian lawyers the opportunity to operate internationally as well as nationally.’ The benefits, she believes, will filter through to clients who will be able to access the national as well as international expertise of lawyers.
‘India is a huge developing market that will present some interesting strategic opportunities’’
Jeff Blount Fulbright & Jaworski LLP
And the changes, many believe, are long overdue, especially when examined in the context of other aspects of the Indian economy. Agarwal points out that ‘India has liberalised its industries. They were once closed but are now open to foreign investment’. She highlights two areas that have undergone vast change in recent years. ‘The retai and insurance sectors were insular with an inward concentration designed to insulate them against economic collapse’ but they have since opened up, with US company Aon being the first insurance broker to be licensed in India via a joint venture in 2003. The British high street retailer Marks & Spencer fi rst opened in Delhi in 2001 and has gone on to operate a chain of stores in the region. The world’s largest retailer, Walmart, is to enter the Indian market by means of a 50:50 joint venture with Bharti Enterprises, and is due to commence trading as a wholesale cash and carry operation in 2009. According to Agarwal, the legal sector, unlike other parts of industry, ‘has not kept pace with international developments’.
But Agarwal believes that some changes are already apparent in the Indian legal market. ‘There has been a shift away from family-run proprietorships in the last six to seven years. Before, firms were either run by individuals or were a family-run concern’, but this is no longer an accurate picture of the market. ‘The requirements of Indian clients have changed. They have become more savvy and more international in their outlook; so fi rms like ours have mushroomed in the last seven to ten years.’
Agarwal highlights the particular benefits that liberalisation would bring to her firm. ‘Our vision has always been one of growth. We were a firm of fi ve people based in London when we started out in January 2000, but we have grown to 90 lawyers and now serve clients nationally and internationally, with five lawyers in London and the rest based in India.’ Her firm, she adds, would not rule out strategic alliances with international law firms as a route to further expansion.
In Blount’s view, the changes could bring about ‘attractive potential merger/joint venture candidates among Indian firms’ and would enable his fi rm to ‘be close to their clients and serve them on the ground, and do things differently than local firms’.
Other side of the coin
But it would be fair to say that not everyone is enamoured with the idea of a liberalised legal market. Blount points out that for Indian firms, there would be ‘temporary competitive setbacks, depending on the local legislation’ and that some form of protection would need to be put in place for these firms. Agarwal meanwhile believes that ‘in the short term there is likely to be a bloodbath – with local firms feeling threatened by the arrival of foreign firms with deeper pockets competing for work’.
Still firmer views are expressed by Lalit Bhasin, Managing Partner at Bhasin & Co in New Delhi, president of the Society of Indian Law Firms and executive president of the India Law Foundation. According to him, the changes would offer ‘no benefi ts at all – on the contrary they would interfere with our system of administration of justice’. He believes that there is no demand for foreign law firms by Indian business, adding that ‘the so-called planned changes are not acceptable to the Indian legal profession’.
But whichever side of the legal divide firms or individuals may sit, any changes, affirms Blount, ‘like all things, will be done in a deliberative manner according to the rule of law’. And he remains upbeat about the future: ‘These are exciting developments that people have been waiting a long time for. It will be good for companies, good for Indian firms and good for international legal practice. It will bring expertise to the country and introduce new techniques, opportunities and points of view.’http://www.ibanet.org/Article/Detail.aspx?ArticleUid=3E29B776-5906-4B28-8969-341C5F267C15
‘The opening up of the market will help the Indian legal market to mature’