The entry of foreign firms should herald more legal sector reforms

Foreign lawyers and firms will now be allowed to “practice foreign law and diverse international law and international arbitration matters in India on the principle of reciprocity" (i.e., the other country must also offer similar treatment to Indian lawyers and firms). They will be allowed to undertake corporate and transactional work, including advising clients on joint ventures, mergers and acquisitions and intellectual property matters, and drafting contracts. However, they will be restricted from offering advice on domestic law, participating in litigious matters or appearing before courts, tribunals and other authorities.

The BCI has commendably changed its stance and initiated what is perhaps the first step towards liberalizing India’s rapidly growing legal services market. As noted by the BCI Rules for Registration and Regulation of Foreign Lawyers and Foreign Law Firms in India, 2023, the standards and proficiency of Indian lawyers and firms are up to international standards and opening up the Indian legal market to global competition will ensure mutual benefits and the legal profession’s growth.

Moreover, it will have attendant benefits, such as promoting India as an international arbitration hub. Since foreign firms can engage Indian lawyers, the latter will benefit in terms of employment and retainership opportunities as well as remuneration and global exposure.

The new rules may be challenged in courts by bar associations or local lawyers who benefit from the entrenched status quo or have vested interests. While we await the final word on this issue, this is arguably an opportunity to discuss further reforms that could help create a robust, globally competitive and advanced legal sector in the country.

Allow FDI in Indian law firms: The next generation of reforms must be directed at allowing foreign direct investment (FDI) in the legal sector. Since persons not qualified to practise law in India are restricted from investing in a law firm, Indian law firms cannot receive FDI and must necessarily use their own money or domestic capital from other lawyers for investments and operations.

Given that almost all sectors of our economy have been opened up to FDI, including strategic sectors such as defence, railways, banking and insurance, it is unacceptable that Indian lawyers and law firms are not allowed to raise foreign capital. Also, restricting domestic law firms from accessing FDI will put them in an unfavourable position vis-a-vis foreign firms that are likely to have greater access to capital and can now operate in India. The Indian legal sector will benefit from better innovation, technology, price competition and quality of services that FDI can enable. For example, FDI will allow more Indian firms to invest in legal technology such as automated contracts or e-diligence facilities. Access to FDI will help local legal entrepreneurs create more startups. Therefore, the protection of India’s legal sector must give way to financial liberalization, with FDI preferably allowed under the automatic route. The BCI could amend regulations and professional standards for FDI in Indian law firms, while the government should make suitable policy changes to enable it.

Lift restrictions on solicitation and advertising: We must also initiate a conversation on possible third- generation legal market reforms to remove the bar on solicitation and advertisements by legal professionals. This is a touchy subject and has roots as old as the modern legal profession itself. The typical justification for these curbs is that law is a noble profession, lawyers act in the public interest of securing justice and hence, unlike other businesses, cannot solicit clients or advertise their services. Somehow, commercialization of the legal profession is viewed as undesirable and with suspicion. But this notion flies in the face of reality. The profession is already commercialized. Lawyers and law firms are in the business of serving clients and charge commensurate fees for their services. Most of the corporate and transactional work done by law firms is akin to other business services. We must also accept that lawyers and law firms are self-interested market agents who perform their duties within the confines of noble professional conduct. In any case, many of them also offer altruistic pro bono services.

Easing those rules would enable efficient price discovery in our legal market, since lawyers or firms could reveal their fees and charges upfront. Clients could then make superior decisions based on this information. Second, price discovery would allow more individuals and firms to enter the legal market if there are opportunities to be exploited, which in turn will help the market grow and offset some of the supernormal fees being charged by current participants. Once the issues of overpricing and under-servicing in the Indian legal market are solved, clients will be better off and the overall interests of justice would be better served. Third, freeing the legal market for client solicitation and advertisement of services will encourage market players to conduct market research and innovate, creating new business models that might offer superior services, as seen in advanced countries.

The legal sector has long remained insulated from India’s reform process. As the Indian economy is set to reach a size of $5 trillion plus in a few years, domestic demand for quality legal services is likely to rise. Effective legal advisory services and dispute resolution mechanisms are integral to a sound business environment and the ease of doing business.

Hence, the BCI, law ministry, policymakers and other stakeholders must make policies that will lead to growth, development and innovation in our legal market to better serve the interests of justice and the economy. Reforms that liberalize the country’s legal market are the way ahead.

Shrikrishna Upadhyaya is a lawyer who works as knowledge manager at The Takshashila Institution