Practice of law and its regulation

By M H Ahssan

Does the Best Friends agreement allow back-door entry to foreign lawyers? It perhaps does, but it is all the more important to recognise legal services as business rather than a noble profession.

Earlier this year, one of the largest global law firm Clifford Chance (CC) announced a “best friend” relationship with AZB & Partners. And sure enough, sections of the legal fraternity saw red when the announcement was made.

But CC is not the first magic circle law firm from the UK to enter such arrangements in India with domestic firms. Last year, another magic circle firm Allen & Overy (A&O) forged a similar relationship with Trilegal, a firm set up by a group of young lawyers. Linklaters, which belongs to the same league, precedes both CC and A&O in India. The firm has been working with Mumbai-based Talwar Thakore & Associates for about two years now and last August it tied up with Dhall Law Chambers, an outfit floated by former Competition Commission member Vinod Dhall.

There are several similar arrangements in existence between foreign and domestic law firms, a few in niche areas such as insurance laws. Legal circles are abuzz with stories of a few other large foreign law firms that have relocated partners of Indian origin from offices in London to India, helped them set up firms in their individual names and even bankrolled their operations. Such firms are said to be a front for the foreign firm, in a country where only its citizens, holding law degree from recognised colleges and universities, and enrolled with a bar council of a state, can practice.

There is ambiguity whether “best friends” agreement or exclusive referral relationships are allowed between domestic firms and foreign law firms. Sections of the legal circle, particularly those favouring liberalisation of legal services, contend that there is nothing in the Advocates Act, 1961 read with the Bar Council of India (BCI) rules to prevent such cooperations between firms. That is because such agreements are clean in legal terms—there is no joint venture or sharing of profits or fees for cross referrals and the Indian firms have standalone balance sheet. Besides, most of the best friends/referral relationship are non-exclusive in nature, ie, notwithstanding an arrangement between a domestic and a foreign firm, neither are necessarily bound to refer their clients to each other for cross border transactions.

On the other hand, those opposed to such arrangements, which includes many top commercial law firms, argue that these arrangements facilitate foreign legal firms backdoor entry into India. The Society for India Law Firms (SILF) in a statement issued after a late February meeting—incidentally just a month after CC-AZB relationship was announced—said: “SILF is strongly opposed to the entry of foreign law firms into India, by any means, direct or indirect, implicit or explicit, surrogate or otherwise by whatever name called including but not limited to referral arrangements, co-operation agreements, best friend arrangements or the like.”

The BCI too is opposed to permitting foreign lawyers to practice in India (The council regulates only individual lawyers and not firms). And, it has made its stand clear in an affidavit before Mumbai High Court in an ongoing case filed by Lawyers’ Collective (originally in 1995) opposing entry of foreign firms. Sure enough, SILF and the BCI are opposing entry of foreign lawyers and law firms for different reasons. The BCI’s opposition arises primarily from regulatory and disciplinary concerns while that of SILF comes from fears of losing clients and talent to the large foreign firms.

“It will be a battle of unequals,” states Kochhar & Co chairman and managing partner Rohit Kochhar, adding, “The Indian firms do not have deep pockets and cannot compete with its foreign counterparts on recruitment, marketing strategy and sophistication of business development.”

Pro-liberalisation lawyers such as Fox-Mandal Little managing partner Som Mandal, however, interpret extant regulations to say that any foreign law firm can open 100% consultancy and confine themselves to practice of foreign law. “But it is wrong when these firms hire Indian lawyers to advice on Indian laws.” Anyway, the Mumbai High Court is due to set to give its verdict on entry of foreign law firms soon.

Further, even if the verdict favours foreign law firms, India is unlikely to liberalise legal services immediately, although some easing is likely in due course. Informal relationships such as cross referral/best friends agreements benefits both parties as well as clients. In particular, young firms stand to gain the most from such associations. “Rather than learning the ropes by a hit-and-trial method, which would mean we take about 30-40 years to get to any degree of sophistication, such relationships help us avoid reinventing the wheel,” says Trilegal partner Anand Prasad. His firm has gained in the form of inputs on technology deployment, training and administration since the relationship was forged. Young lawyers from Trilegal are sent on secondment to A&O offices for 3-6 months to upgrade their legal skills, much of which otherwise is picked up on the job. But these relationships do have their flip side. Some competitors of A&O, who have referred work to Trilegal, have become chary doing so now. But that was bound to happen, even when agreements are non-exclusive.

Some of the opposition to liberalisation will get watered down if the BCI were to amend its rules. One of the grouse of Indian law firms is that they are not allowed to advertise, have marketing material, brochures or business development group. The restriction on hosting a website was lifted only last year, but there too, the council is behind the curve. As the council recognises and regulates only individuals and not firms, individuals are allowed to have website where only basic information can be published.

Limitation on size of partnership is another matter—The Indian Partnership Act, 1932, allows a firm to have only 20 partners. The Limited Liability Act, 2008, should provide some respite on that although BCI has some reservation. The BCI chairman Suraj Narain Prasad Sihna felt that LLP will allow back door entry to foreign lawyers. Nevertheless, the BCI has planned to meet after the general elections to consider demands for liberalisation of the service, take a view on referral agreements and spell out what is allowed within the definition of practice of law, Sihna said.

But, a real change in regulation and liberalisation of legal service can happen only when the profession is also recognised as a business instead of just a noble profession.