Cyril Shroff: Deregulating India's legal market

The liberalisation of the legal service sector is undesirable at this point in time.

The pressure from overseas to open up the legal service sector to foreign law firms has mounted recently. Much debate and speculation now surrounds the subject with the law ministry being tentatively inclined to favour the liberalisation of the legal service sector. However, the majority of Indian law firms are strongly opposed to the proposal to open up the area. There are also issues of national interest that must be considered before proceeding to liberalise the sector.

The proposal to open up the legal service sector is premature. The extensive debate and consultation that should have preceded such a move has yet to take place. An expert body needs to examine it. This is a matter that will affect not just the legal profession but also the nation at large. The industry players must be consulted and engaged in a meaningful way. Any decision-making process should also occur within the framework of the WTO and GATS negotiations, especially since India has not included legal services in its current offer in the WTO and GATS negotiations. That is to say, the decision cannot be made in a unilateral or bilateral process but only through the designated multilateral process. Moreover, the proposals of two Joint Economic and Trade Committees are yet to be considered. The issue is also before the Bombay High Court and a decision as to whether foreign law firms are permitted to practise law in India is impending. The final outcome of this case must be awaited before proceeding in any way.

Further, in relative terms, Indian law firms are at a nascent stage of development. They are practising the "profession and cottage industry of law" in comparison with the proportions that foreign law firms have assumed in their practice of the "business of law". As matters stand today, Indian law firms have a disadvantage in matching the sheer organisational magnitude and financial means that foreign firms command because of history and because Indian firms are subject to various restrictions. Indian law firms are not permitted to organise themselves in any form other than an unlimited partnership. They cannot have more than 20 partners and cannot advertise or raise capital. Even assuming that the proposed Limited Liability Partnership Act will permit law firms to take the form of limited liability partnerships (LLPs), the migration to this form from a partnership needs to be recognised by the professional authorities and besides, such migration has enormous tax implications, thus making the option unattractive.

Foreign firms, on the other hand, are not encumbered by such limitations. Therefore, the regulatory status quo with regard to Indian firms cannot remain and the creation of a level playing field is the need of the hour. Liberalisation without first putting Indian firms on an equal footing will be unfair and will put them at a competitive disadvantage. Creating a level playing field is a precondition to moving further. No sector in India has been opened up with the regulatory framework loaded heavily against the local players. Why the legal field?

Besides being prejudicial to the interests of the Indian legal profession, liberalisation also has important implications for the nation. The legal profession is instrumental to the administration of justice. To permit foreign lawyers to encroach on this extremely important aspect of a democracy could be contrary to public interest.

There is no pressing need to permit the entry of foreign firms. If better advice on foreign law is an argument in favour of liberalisation, it is important to note that whenever clients in India have required advice on foreign law, Indian firms have always found a way to liaise with foreign firms to bridge the hiatus on a reciprocal basis. A symbiotic system of co-existence that has succeeded in meeting every need of a client has always been in place. This system has worked well for decades and there is no reason why it will not work in the future. If the credentials of Indian firms in adequately servicing their clients in every area of law and every aspect of their transactions are in doubt, one can look at the fact that the offshoring of legal work to India is burgeoning, and this bears sterling testimony to the capabilities of Indian firms. There is an inconsistency in the government's argument. It is clear that the sole pressure is that of a lucrative market and market access. Nothing else.

If the liberalisation of the legal service sector is unavoidable, it should be done in a gradual and phased manner. Robust safeguards must be put in place to protect the interests of Indian firms at every stage and particularly during the period of transition. Foreign firms should be permitted to engage in the non-contentious practice of foreign law alone and should not be permitted to hire local lawyers. The device of surrogate firms must be carefully monitored and prevented. Foreign law firms should also be subject to the same regulatory regime as Indian law firms and the Bar Council should wield the same control on them as on Indian firms. The law ministry's proposal to regulate foreign lawyers directly rather than through the Bar Council is conceptually unsound. How can there be two systems? There can only be one.

A similar gradual process of liberalisation has been followed in Japan, which took 20 years to completely liberalise its legal service sector. China is following suit in a similar manner and so is Korea. In fact, English firms had protested loudly when the Americans entered London. Why do they sing a different tune when they go abroad themselves? Most of the states in the US permit foreign lawyers to practise only on the most stringent conditions still. In the light of this global experience, even if liberalisation is a necessary evil, there is no need to rush the process without full consideration. Only India seems to be rushing ahead without following due process. Why?

In conclusion, the liberalisation of the legal service sector is undesirable at this point in time. The law ministry's proposal in its current form cannot be accepted. Moreover, there are issues of process and national interest to be taken into consideration. There is no pressing need to liberalise the sector. Who except the foreign firms have asked for this? No matter what course adopted for liberalisation, the fact that a flourishing Indian legal profession is crucial to the economic, social and political well-being of the country should not be forgotten. The interests of Indian law firms should not be compromised. The vision of the profession must necessarily include independent Indian firms as well and the conditions to enable it must first be created. But that requires a lot more vision and empathy for the Indian bar.