The Reserve Bank of India (RBI) in November 2020 issued a notification directing authorised dealer (AD Category-I) banks not to grant approval to any branch office, project office, or a liaison office of foreign law firms under the Foreign Exchange Management Act (FEMA), 1999 for the purpose of practising the legal profession. Category I authorised dealers are those banks which are permitted to do current and capital account transactions in accordance with directions issued by the RBI from time to time. They can buy and sell foreign exchange for specified purposes.
In 2015, the Supreme Court of India stated that advocates, enrolled under the Advocates Act 1961, alone are entitled to practise law in India. The apex court had clearly stated that the foreign law firms or foreign lawyers cannot practise law in India. In its interim orders dated July 4, 2012 and September 14, 2015, the Supreme Court had directed RBI not to grant permission to any foreign law firm after a writ petition was filed by law graduate and member of Madras High Court, AK Balaji.
Following the direction of the SC, the RBI issued a circular in October 2015 instructing all the AD Category-I Banks not to provide fresh permissions or renew the permissions that were already granted to any foreign law firm for setting up a liaison office in India until the policy had been reviewed based on the final disposal of matters by the Supreme Court. The RBI used its powers under sections 10 (4) and 11 (1) of FEMA, 1999.
Section 10(4) in the FEMA 1999 states that an authorised person shall, in all his dealings in foreign exchange or foreign security, comply with such general or special directions or orders as the RBI may, from time to time, think fit to give, and, except with the previous permission of the central bank, an authorised person shall not engage in any transaction involving any foreign exchange or foreign security which is not in conformity with the terms of his authorisation under this section.
Section 11(1) of the FEMA 1999 States that the RBI may, for the purpose of securing compliance with the provisions of this act and of any rules, regulations, notifications or directions made thereunder, give to the authorised persons any direction in regard to making of payment or doing or desisting from doing any act relating to foreign exchange or foreign security.
The circular also stated that foreign law firms (or companies) or foreign lawyers, including the persons who are residing outside India, are prohibited from establishing law firms, including branch offices, project offices, liaison offices, or other place of business in India in order to practise the legal profession.
Background
Lawyers Collective vs Bar Council of India (2010) In 1994, the RBI granted special licence to three foreign law firms to establish ‘liaison licences, in India. This decision of the RBI was challenged by the Lawyers Collective which filed a law suit against the three law firms, the RBI, and the Bar Council of India (BCI) in the Bombay High Court.
The petitioners contended that RBI did not have the authority to give such permission, and the BCI also failed to conduct its duty properly.
The court agreed with the petitioners and said that the permission granted by the RBI was not justified as the expressions ‘to practise the profession of law’ was wide enough to cover the persons practising in litigious matters as well as persons practising in non-litigious matters. Hence, the foreign firms must fulfil the conditions under the Advocates Act of 1961, in order to practise law in India.
The legal fraternity criticised the court judgement on the following grounds:
- It was a mistake on the part of the court to state that none other than advocates can draft legal documents. What is to be done about Chartered accounts (CAs), company secretaries, engineers, and the non-enrolled law graduates, who draft a majority of legal documentation work.
- In giving such a judgement, court had accepted the view of the government that practising law meant practising in the courts itself and, in doing so, it demeaned the work and the existence of the legal and para-legal persons engaged in providing legal services outside the courts.
- The permission given by the RBI could be considered valid as the RBI had already stated that the liaison office can neither render service nor generate income, which then had not been breached by the law firms.
- It was not clearly stated in the judgement whether the foreign lawyers can practise foreign law in India.
Further to the above case, the following case, concerning this issue, came up in 2012 at the Madras High Court.
A.K. Balaji vs the Government of India (2012) In a writ petition in the Madras High Court filed by A.K. Balaji on behalf of an association of advocates, it was claimed that the foreign lawyers and foreign law firms were ‘practising the profession of law’ in India in violation of the Advocates Act 1961. The petition requested the court to restrict them from practising in India, whether on the litigation or the non-litigation side, and even relating to commercial transactions within the territory of India.
The court upheld the petition by stating that the foreign law firms or the lawyers could not ‘practise the profession of law’ in India either on litigation or non-litigation side unless they meet the conditions laid under 1961 Advocates Act and the Bar Council of India Rules. However, the court added a rider saying that foreign law firms or lawyers were not barred from giving legal advice to their clients in India regarding the foreign law or their own system of law on a variety of international law issues. The court also allowed those lawyers to visit India for a temporary period, on a ‘fly in and fly out’ basis for the above purposes. Besides, the court stated that the foreign lawyers and law firms were not barred from conducting arbitration proceedings in respect of disputes arising out of a contract relating to international commercial arbitration.
It was also clarified that the BPO companies providing a wide range of customised integrated services and functions, including word-processing, secretarial support, transcription services, proof reading services, etc., do not come within the purview of the 1961 Advocates Act and the Bar Council of India Rules.
The case is considered a landmark as it led to liberalisation of the legal field and opened the doors for the foreign law firms and lawyers.
The foreign law firms and lawyers got a breather as they were given temporary permission to work in India. This was also instrumental in upholding the goal of the Indian government to make India a hub for international arbitration.
But this judgement by the Madras High Court too suffered from some loopholes. Hence, the matter reached the Supreme Court of India in 2015 through an appeal.
BCI vs. A.K. Balaji and Other (2015) The main claim raised by the BCI was that the judgement in the above case was not in accordance with the judgement in the Lawyers Collective case, which had clearly stated that the presence of foreign law firms and lawyers was not welcome at all in the Indian legal services market.
The Supreme Court then modified the orders of the Madras High Court and extended the powers of the BCI and stated: “In case of a dispute whether a foreign lawyer was limiting himself to ‘fly in and fly out’ on casual basis for the purpose of giving legal advice to their clients in India regarding foreign law or their own system of law and on diverse international legal issues or whether in substance he was doing practice which is prohibited can be determined by the Bar Council of India.”
It further said that the foreign lawyers and law firms have no absolute right to conduct arbitration proceedings in respect of decisions arising out of a contract relating to international commercial arbitration, but they can do it if the relevant arbitration institutions allow such practice by foreign lawyers.
The Supreme Court also said that the BPO companies providing such services as stated in the Madras High Court judgement cannot be provided a blanket exemption by merely labelling their services in such a manner that they would be beyond the purview of the Advocates Act of 1961 or the rules of the Bar Council of India. If the services that they are providing amount to ‘practice of law’ then the Advocates Act of 1961 and the rules of Bar Council of India are applicable.
In essence, the judgement of the Supreme Court retained all the progressive holdings of the high court and, thereby, restored the status quo on the issue of liberalisation of Indian legal market.
Conclusion The Government of India has expressed strong intent to open up the Indian legal market to the foreign counterparts. In February 2015, the union government had initiated talks with the BCI to allow foreign law firms to enter the Indian legal sector. In 2016, the BCI had drafted rules for allowing foreign lawyers and law firms in India. However, the final decision on the roadmap of how to go about it is still under discussion and a final outcome is awaited.