The year 2009 saw mixed signals on business law and policy fronts. The New Year cheer on Press Notes 2, 3 and 4 fizzled with the implementation in sectoral tangles. But the year end's breaking news, the Bombay High Court judgement in the Lawyers' Collective case threatens to be a showstopper. The Court decision dwells on fundamental issues impacting our turf, whether foreign law firms can carry on non-litigious activity in India, the regulation of the legal profession, and in a macro-perspective, the judicial interpretation of restrictions in establishing liaison offices in India.
A writ petition was filed in "public interest" 15 years ago seeking a declaration that the RBI permissions under Section 29 of FERA to three foreign law firms to set up liaison office(s) (LO) in India was bad in law. The law firms' defence was that the proposed activities, being that of coordination, establishing communication channels, etc, did not amount to carrying on legal practice.
The petitioner's case is based on the premise that the right to practice includes non-litigious practice as well, therefore coming under the purview of the Advocates Act, 1961 (Act). This became a paramount issue for determining whether the establishment of LOs tantamounted to permitting foreign lawyers to "practice" in India, to which the counter was that "non-litigious practice", was not covered by Section 29 of the Act. Non-litigious work has been defined to include drafting, advising, giving opinions, due diligence, etc., which, according to the defendants' submissions were not covered by Section 29.
This stance stands demolished on the strength of the catena of rulings to the contrary, of the Indian Supreme Court and courts of diverse jurisdictions. Such interpretation would expose clients to a situation of non recourse in case of wrong advise by an unlicenced lawyer. Bar Council enrolment is not restricted to right of audience, it's the lawyer's licence. The Courts have consistently held that suspension of licence can only be imposed by a competent regulator, and an advocate's practice other than court appearances, necessarily involves non-litigious work. The High Court's reasoning and decision on this point is unassailable. It is not feasible that a section of legal professionals, foreign entrants or locals, can be permitted to operate in a non regulated environment.
On the other hand, the revocation of the RBI approvals appears to lay down a dangerous precedent. Section 29 of the erstwhile FERA, 1973 empowered the RBI to permit any foreign person to carry on, acquire any business, or establish any place of business in India. It is an anomaly that permission for an LO, which could not carry on business activity by the very nature of the approval, was clubbed under this section. Confusion was also created with reference to the reliance on Section 30 of FERA prohibiting foreign nationals from carrying on "practice of a profession" without RBI approval. Interpreting the difference in language, as Section 29 refers to trading commercial and industrial activity, and Section 30 refers to "professional" activity as well, the Court held that no foreign law firm could be permitted to establish a liaison office in India, without considering that Section 30 is applicable to individuals. The Court has also attached weightage to the fact that the defendant firms had initially approached FIPB and on certain statements is affidavits in holding that the LO activities were nothing but practice of Indian Law.
It is not clear to what extent this ruling will be binding on regulators and courts, particularly as the definition of LO still contains the reference to “commercial / trading/industrial activity”. The cross-border activity context has changed drastically since the case was filed, services sector has opened up, and talks of opening up the legal services are ongoing. How can legal and other professional firms be prohibited from establishing LOs? Other than providing communication and information channels, such offices act as local contact for Indians requiring overseas legal assistance. Should Indian investors be denied this benefit? The policy makers should consider clarifying this accordingly, and moderate this ruling to applicability in personam on this point at least.
Kumkum Sen is a partner at Rajinder Narain & Co., and can be reached at kumkumsen@rnclegal.com
