The Supreme Court has dealt a blow to moves to liberalize India’s legal market. What now for foreign law firms?

Rebecca Abraham reports

The Supreme Court has declined an opportunity to allow foreign law firms to open offices in India, but ruled that foreign lawyers can continue to visit the country on a “fly-in, fly-out” basis to advise clients on foreign law.

The 13 March ruling by a two-judge bench has also sparked some confusion by implying that foreign lawyers who visit India on a fly-in, fly-out basis may be subject to the Advocates Act, 1961, as well as the rules of the Bar Council of India and the Indian government. The ruling states “the contention that the Advocates Act applies only if a person is practising Indian law cannot be accepted”.

The long-awaited ruling was triggered by appeals to a 2012 Madras High Court decision, and another in 2009 by Bombay High Court. The former said that foreign law firms may “visit India for a temporary period on a fly-in and fly-out basis” to advise their clients on foreign law, while the latter had held that the Reserve Bank of India was not justified in granting permission to foreign law firms to open liaison offices in India.

Legitimizing the status quo

Initial reactions among international law firms have been muted, but amid the frustration there is also relief that the fly-in, fly-out model, which some foreign firms have been operating very successfully, has been legitimized.

Chris Parsons Chairman of the India Practice Herbert Smith Freehills 2

“I am pleased the Supreme Court has endorsed the current approach of fly-in, fly-out”, says Chris Parsons, chairman of the India practice at Herbert Smith Freehills. His firm is one of several that have built significant India practices on the basis of the fly-in, fly-out model, benefitting greatly from corporate India’s growing footprint.

“I’m happy that the status quo will continue,” says a Hong Kong based-partner at a leading international law firm with a large client base in India who did not want to be named. “There has been some discussion about the finer points made by the court, but I’m not reading much into it”.

Calls for action

Reaction within India has been more vociferous, with commentators calling on the government to act.

“People are saying openly that foreign law firms should now be allowed into India,” says Kaviraj Singh, the secretary general of the Indian National Bar Association (INBA). “Despite Modiji [Prime Minister Modi] saying foreign lawyers should be allowed in, nothing is being done by the Ministry of Law and Justice”.

Kaviraj Singh Secretary General Indian National Bar Association

Singh is appreciative of efforts being taken by India’s Ministry of Commerce and Industry, which has held meetings with stakeholders, including INBA. He says that officials at the joint secretary and additional secretary levels routinely host meetings to discuss the opening of the market. INBA, which says it has over 10,000 members, has consistently welcomed the entry of foreign law firms and sees it as an important tool for capacity building and providing employment opportunities for young lawyers.

In-house counsel are also making their voices heard. “The Supreme Court verdict has confirmed the current position, [but] the entry of foreign law firms should be allowed as international law advice is a critical part of global business today,” Sameer Chugh, the head of legal at Airtel, told India Business Law Journal. He adds: “Allowing casual visits from foreign lawyers on a fly-in, fly-out basis has been happening for a long time and is welcome as it enables Indian lawyers and business to seek face-to-face advice on foreign law.”

Lalit Bhasin President Society of Indian Law Firms

Lalit Bhasin, the president of the Society of Indian Law Firms, sees the ruling as positive. “The ball is now in the court of the government and the regulator,” he says. Bhasin, who has said he welcomes a “phased sequential approach” to the entry of foreign law firms, was previously a vocal opponent of any opening of the market. He has recently been at the forefront of discussions between the government and Indian law firms on how the legal market is to be opened.

Fly-in, fly-out

Fly-in, fly-out arrangements by lawyers at international firms have long been carefully choreographed to avoid getting into scrapes with the taxman.

A lawyer who routinely visits India to meet clients says that the finance department of his firm monitors trips to India. “Marketing trips don’t count, but apart from that we have to ensure that we are in India for less than 90 days [to avoid tax liabilities],” he says.

Some firms have been caught out in the past. A 2013 ruling by the Income Tax Appellate Tribunal in a dispute involving Clifford Chance reveals that Indian tax authorities had argued that provisions of the India-UK double taxation avoidance agreement, on the basis of which Clifford Chance sought to obtain credit for fees billed in relation to India-related work, were applicable only to individuals and not law firm partnerships.

There has also been concern in the past that fly-in, fly out visits might be deemed “practising”, with some foreign lawyers reportedly being advised by their law firms to turn off their smartphones while attending conferences in India, lest they are found to be practising law while in the country.

The Supreme Court ruling may add to these concerns. It states that fly-in, fly-out visits “only cover a casual visit not amounting to ‘practice’,” and that it is up to the Bar Council to take a decision in the event of a dispute over whether a foreign lawyer is doing more.

Muddying the waters

While the Supreme Court’s ruling has said there is no prohibition for foreign lawyers who come to India to take part in arbitrations, lawyers doing so may find themselves subject to Bar Council rules and the Advocates Act.

The ruling holds that if a matter is governed by an international commercial arbitration agreement, the conduct of proceedings may fall under section 32 or 33 of the Advocates Act. It also says that it is for the Bar Council or the central government “to make a specific provision in this regard, if considered appropriate”.

“The ruling has stopped short of providing unfettered access to foreign lawyers to come and conduct arbitrations in India … it has actually muddied the waters a bit,” says Ajay Thomas, an independent New Delhi-based counsel who is vice-chair of the ICC-India arbitration group.

A lengthy arbitration held in 2012, in what was India’s first advance loss of profit insurance claim, provides a typical example of foreign lawyers visiting India to take part in arbitrations. All three arbitrators deciding the claim in the dispute between Essar Oil and United India Insurance were lawyers from the UK, and both United India Insurance and its London-based reinsurers used UK lawyers. The hearings in the arbitration took place at the Trident Hotel in Mumbai.

A matter of time

In spite of this ruling, which shuts the door on foreign law firms setting up shop in India for now, most lawyers are confident that is it only a matter of time before they will be allowed in. The government for its part has taken small steps in that direction.

A January 2017 notification from the Ministry of Commerce and Industry amended the Special Economic Zone Rules, 2006, to remove a ban on the practise of law in special economic zones. Taking advantage of this, one Indian law firm, J Sagar Associates, has already opened an office in the Gujarat International Finance Tec-City, a special economic zone, and there is speculation that foreign law firms could follow.

But whether foreign law firms will ever be free to set up offices elsewhere in the country remains to be seen.

Parsons at Herbert Smith Freehills appeared less than eager when previously asked if his firm needed an office in India. He said a lot would depend on “what form liberalization takes” and that “if liberalization simply means an ability to open an office and practise foreign law, then … we do much of what corporate India wants us to do by being there regularly.”

Part of history

Foreign law firms continue to wait and watch while internal forces reach a resolution on how the market is to be liberalized.

Meanwhile, Karthikeyan N, a Chennai-based IP lawyer who was counsel to AK Balaji, the petitioner in the 2012 Madras High Court case that forced the Supreme Court’s hand on the matter, expresses his satisfaction that his client’s case “is now part of history”.

Karthikeyan clarifies that Balaji’s quarrel was not so much with the foreign law firms as with the lack of a regime to regulate them and says he is looking forward to the Bar Council finally being forced to act in this regard.