Should foreign lawyers be allowed in India?

DEBATE

Mukul Rohatgi
Senior Advocate & Former
Additional Solicitor General

The lawyers community in India, which is 10 lakh or more, is furiously debating the pros and cons of the entry of foreign lawyers and law firms in India in 2006, pursuant to the World Trade Organisation (WTO) obligations. Most bar councils and bar associations have opposed the move expressing apprehensions that their bread and butter will be snatched away by foreigners.

I think the fears are unfounded. Let us see the scenario calmly. Lawyers are a part of the service industry, worldwide as well as in India. The reality is that services are procured from the cheapest and the most competitive source, given a basic level of quality and competence. This is a global practice.

In the Indian context, some examples are very telling. Apart from the outsourcing of work to BPOs or call centres, hospitals are catering to an increasing number of foreigners who come for short visits since medical services (including dental) are cheaper here and the doctors are competent.

Even in manufacturing, in the automobile industry, for instance, foreign companies are outsourcing their work to India and foreign brands are being manufactured here. Lakhs of Indian doctors are living abroad and this is steadily increasing. The same is true of engineers. Has anybody noticed that there is no influx of foreign doctors into India even though degrees such as FRCS, MRCP and MD from the US are recognised in India?

The point is that service personnel do not seem to be migrating from the developed or the western world to developing countries such as India. Similarly, if foreign law firms are allowed to open shop in India there will be no negative impact on lawyers and local law firms.

What will happen is that such firms will have a small percentage of foreign lawyers based in India but they will have to recruit local lawyers because one has to know and work in local conditions. The amount of bureaucratic hassles and red tapism we have here is nobody's business. Young lawyers will benefit immensely. Even experienced counsel will be sought after.

These firms will primarily deal with work involving joint ventures between Indian and foreign companies. The bulk of legal work in India is related to tax matters (sales tax, income tax, octroi and municipal taxes) and property matters which are governed by local land revenue laws. There is also a surfeit of local state laws, criminal cases, and personal laws like marriage, divorce, adoption and so on.

Foreign law firms will be like a fish out of water when it comes to such matters. Assuming that they do handle some of the work indicated above, then the bulk of their workforce will have to be Indian lawyers. Such Indian lawyers will also have an opportunity to work abroad with counterparts in such firms. Such is the effect of globalisation.

Physical barriers are fast becoming irrelevant. With the advent of the internet and sophisticated means of communications, India has become a hub of software technology. Infosys is the best example. Lakhs of Indian software experts are handling work outsourced from the developed world into India. Some of the top technology companies, such as Intel and so on, have set up base in Bangalore. They are recruiting Indians and not foreigners. There is no threat to the Indian software industry.

Indeed, Indian software engineers get a chance to go and work abroad with Intel and the like in the US and Europe.

Currently, even local lawyers and law firms are handling work outsourced from foreign law firms because of cheaper costs. With the advent of foreign law firms this work will increase. In turn, the local recruits to these foreign law firms will benefit.

Thus, I do not see a bleak future at all. I would like to allay the fears of the doubting minds. Finally, a word of caution.

Foreign lawyers should not be allowed to practice in Indian law courts until Indian lawyers are given the same privilege abroad. This is not because I fear a deluge but dignity and respect demands the same.

Raian Karanjawala
Sole Proprietor,
Karanjawala & Company

Before we allow foreign firms to come in, we need to look at a couple of issues. First, is there genuine reciprocity, and second, will opening up legal services to foreigners make the system (i) more cost effective; (ii) more accountable; and (iii) we need to understand who will be the real beneficiary.

The fundamental difference between foreign direct investment (FDI) in other areas and legal services is that the latter always postulates a long-term relation. The lawyer-client relationship is not a one-off "" you want to be able to get back to a lawyer five years later on a piece of advice given and to take a re-look at the same.

In the case of automobiles, for instance, you can leave the country if you don't sell enough cars. But in the case of a legal service, you have to be there for decades to be fair to your clientele. So if legal services are to be opened up, and a Clifford Chance is to set up shop here, it would necessarily be for decades.

The question is, therefore, for reciprocity to be genuine, I would also need an indefinite US visa for my entire family and myself and for as many lawyers as I think necessary to set up my practice without cumbersome terms being imposed. The question of genuine reciprocity would first have to be fully addressed before even contemplating allowing foreign firms to come in.

The question nevertheless remains does their induction make the system (i) more cost-effective; (ii) more accountable; and (iii) who will be the real beneficiary. There will be only a handful of lawyers who benefit by the entry as their salaries rise once they get employed in these foreign law firms.

Also perhaps even local law firms (which many believe will be hit the most) can get bought out at high prices but for the litigating public costs can only go up as we're talking of first-world lawyers coming in, who will charge dollar rates which will upwardly spiral the overall cost of legal services.

In the case of manufacturing units where FDI is allowed, and wages do go up, they form a very small part of costs, and so do not matter as much. In other cases, even while salaries go up, the manufacturing and other processes used help cut cost dramatically and so there is an overall public good. This is not true in the case of legal services.

Unlike in the case of retail, FMCG or automobiles, where multinationals typically lower their local prices to penetrate the market and sell below cost, in the case of legal services the same cannot happen as a law firm for comparable services has to be priced broadly the same in that region of the world.

If fees in the Mumbai branch were half those in the Hong Kong branch of a firm, clients from Hong Kong would simply move over to the Mumbai branch, thus jeopardising the Hong Kong operation.

Another issue worth keeping in mind (when seeing as to whether this is the right time to allow entry) is that while foreign legal firms can incorporate themselves as largely as they like and be a 500-partner firm, no Indian law firm can be incorporated as a limited liability firm (it can be only a partnership, with a maximum of 20 partners) and this naturally puts a cap to the capital accumulation that we have in relation to that available with a foreign legal firm.

So there is also a level playing field argument here. Even if we wished and full reciprocity was extended, I can think of just a handful of Indian legal firms that would have sufficient funds today to be able to set up offices in the US or Europe and even if they could, they would be miniscule compared to their counterparts. In my view, this is an inherent imbalance which needs to be rectified before allowing entry.

I think the issue of advertising also needs to be addressed. Abroad, where the firms will come from to service their MNC clients, law firms can advertise whereas Indian firms cannot. Sure, when these firms come to India, even they will not be allowed to advertise, but they can do so overseas and this again leads to an imbalance.