One law firm in a year: Why're foreign legal groups shying away from India?

Uncertainties and ambiguity surrounding the regulatory landscape despite a year passing since the Bar Council of India's notification is making the foreign law firms anxious

Nearly a year after the Bar Council of India's (BCI) decision to permit the entry of foreign law firms into the nation, foreign law firms have shied away from entering the Indian legal market. With only one firm making headway in the last year, the progress on foreign collaborations with Indian legal firms is yet to make a definitive start. 

Indian law firm Link Legal's partnership with Dentons, one of the world's largest law firms, announced in May last year, seems more symbolic than substantive, as described by media reports. It does not signify a genuine "entry" into the Indian legal market, but rather appears to be a preliminary agreement or, more so, a branding exercise, media reports have claimed.

Why are foreign law firms hesitant in entering India?

According to reports, there is still considerable uncertainty and ambiguity surrounding the regulatory landscape despite a year passing since the BCI's notification. Alongside the anticipated revised regulations, industry experts have claimed that there is a pressing need for clarity regarding the taxation of revenues generated by international law firms in India. Stakeholders across the board are adopting a cautious "wait-and-see" approach.

Mohit Saraf, founder of Saraf and Partners law firm, said that foreign law firms are wary of BCI Rules permitting their entry as they do not wish to submit themselves to BCI’s disciplinary jurisdiction. “These rules framed by BCI hardly confer any benefit to foreign lawyers planning to open offices in India…Unless these rules reflect global best practices, we expect foreign lawyers to continue practising on a ‘fly in and fly out’ basis,” Saraf said.

Highlighting the lack of clarity regarding taxation, Jayesh H of Juris Corp Advocates and Solicitors said, “The tax authorities have sought to attribute a PE in India on  the basis of the number of man days partners of a firm have spent in India on marketing and executing cross border transactions. Then the subsequent regulatory pronouncements by BCI have caused confusion to say the least.”

Ruby Singh Ahuja, senior partner at Karanjawala & Co., said, "The ambiguity and lack of certainty is the core reason for the reluctance of foreign law firms to operate in India. There is no clarity on the scope of practice allowed for foreign firms which is acting as deterrent at present."

What are the guidelines for foreign law firms to operate in India?

In March 2023, the BCI issued a set of rules and guidelines allowing foreign law firms to operate in India under certain conditions. These regulations permitted foreign lawyers to handle matters related to foreign and international law, including arbitration, while expressly prohibiting them from practising Indian law or engaging in litigation. 

They were also permitted to undertake transactional work, such as corporate matters, on a reciprocal basis, but were restricted from involvement in property conveyance or title investigation tasks. Registration with the BCI, valid for five years, was mandatory for foreign lawyers or firms.

The notification sparked extensive discussions within the industry and government, with feedback solicited from international law firms. Subsequently, a revised draft of the rules was expected to be formulated.

Pushback from Indian law firms

Opposition from India's legal community, primarily comprising small and mid-sized entities and firms, has complicated matters. This opposition was evidenced by a petition filed by eight lawyers in the Delhi High Court, challenging the BCI's notification on the grounds of conflict with provisions in the Advocates Act of 1961 and a landmark Supreme Court ruling in the AK Balaji case.

The BCI had defended its notification by asserting that the entry of foreign lawyers and firms would not undermine Indian counterparts' competence. "The practice can only be done by advocates enrolled but foreign law firms can have a limited role and they can come on fly-in and fly-out basis. They will be governed by certain pre-requisite conditions," the counsel appearing for BCI said.

Nonetheless, the petition argued that the BCI lacked the authority to grant such permissions and raised concerns about foreign market influence undermining the justice system.

In February this year, the Delhi High Court directed authorities to respond to the petition filed by several lawyers within four weeks, scheduling further hearings for April 24. During the proceedings, the court questioned the BCI's counsel on how the council could breach a 2018 Supreme Court judgement that prohibited foreign law firms or lawyers from practising, both in litigation and non-litigation matters, in India.