A misleading bar

Disallowing the Big Four from offering legal services is unconstructive

The Bar Council of Delhi’s directive to the Big Four accountancy firms not to offer legal services to their clients in India is a retrograde move that is transparently protectionist in intent. The Bar Council was acting on a petition filed by the Society of Indian Law Firms (SILF), which stated that foreign audit and consulting firms providing legal services in India contravene the Advocates Act, 1961. Accordingly, the Bar Council has asked EY, KPMG, Deloitte and PwC to submit a list of lawyers who have been hired by them to offer clients legal services. This directive appears to overlook the recommendations of an expert panel under the Ministry of Corporate Affairs (MCA) made in November last year that audit firms be allowed to offer their clients legal services and the Advocates Act be amended to accommodate this. The expert panel was set up in response to a complaint by the lawyers’ lobby in 2015. The MCA panel made a pertinent point in explaining its decision: It stated that multidisciplinary firms should be encouraged and to this end, auditors should be allowed to expand their portfolio of services. To this could be added the fact that allowing the Big Four to offer multi-disciplinary services also facilitates foreign direct investment, since most of them are service providers for the world’s largest multinationals. 

It is also difficult to overlook the double standards in SILF’s complaint. India law firms themselves have recently expanded to offer a suite of services that traditionally fall within the domain of audit firms, such as forensic audits, commercial due diligence and merger & acquisition services. Local law firms have argued that allowing Big Four audit firms to offer legal services creates a dangerous conflict of interest. These firms could well contravene their statutory fiduciary duties in scrutinising a clients’ accounts in the interests of acquiring mandates for consultancy and legal businesses. This is a valid argument that has gained credence with the implosion of IL&FS, Satyam, Global Trust Bank and so on, all of which have been audited by the Big Four. But those same risks are also embedded in the multi-disciplinary domestic law firms. The remedy for this lies in a law modelled on the Glass-Steagall Act that separated investment and commercial banking and served the US admirably for decades. 

By the same token, there is nothing to stop the MCA from restricting audit and law firms from offering clients a suite of services. This is not the first time domestic lobbies have attempted to block the entry of foreign law firms. In 2009, Lawyers’ Collective appealed against the Reserve Bank of India approval for a foreign law firm to open an office in India to act as a liaison with its clients in and outside India for providing legal services. The contention, which was upheld, was that the liaison activity in question “was nothing but practising the profession of law in non-litigious matters”. Though the letter of that ruling is unexceptionable, its timing was ironic, because India was then on its way to becoming a major back office for overseas legal services. Indeed, when India’s negotiating position in global trade and services has consistently been predicated on opening markets to Indian IT, accounting and related services, this would be a constructive approach.