Liberalization of India’s Legal Services Market and the Impact on the Legal Process Outsourcing Industry

Author: Mark Ross
UK attorney and Director of Business Development at LawScribe, Inc.
www.law-scribe.com
mross@law-scribe.com

I recently returned from the North American South Asian Bar Association (NASABA) conference. Out of all the sessions I attended over the course of the three day event by far and away the most thought provoking and certainly the one that sparked the most intense and combative question and answer session focused on the pros and cons of the opening up of the Indian legal services sector to foreign law firms. The position as it stands as of now is that the practice of law in India is governed by the Advocates Act of 1961. Foreign law firms are simply not allowed to engage in the practice of law in India.

Over the last decade we have seen the Western legal community look to find increasingly creative ways to circumvent these restrictions. A number of large multi-national accounting firms have set up offices in India and are clearly providing legal services to their clients, employing large numbers of Indian lawyers. Several foreign law firms have “Liaison” offices (permitted under current legislation) in India while others have developed affiliations with Indian law firms. We have also seen over the last couple of years the dramatic emergence of the Legal Process Outsourcing industry. Offshore Legal Process Outsourcing companies work alongside U.S. and U.K. law firms ensuring strict compliance with the restrictions on the unauthorized practice of law by providing “legal support services” to their clients which the U.S. and U.K. Law Firms ultimately take full responsibility for.

The esteemed panel of speakers at this fascinating session included one of the founders of the NASABA organization, Mukesh Advani of Zenith India Lawyers, Jaipat Jain, Partner at Lazare Potter Giacovas & Kranjac LLP and Yusuf H. Safdari of Pillsbury Winthrop Shaw and Pittman LLP.

I have personally been intrigued by the offshore legal process outsourcing industry now for the last 4 years, initially during my time as a solicitor and then partner at Underwoods solicitors and subsequently since joining LawScribe here in the U.S. It has been essential that I keep up to date on the developments within the Indian Legal sector and there have been numerous articles written in relation to this particular issue over the last few years.

There have been fact finding trips to the U.K. by eminent organizations including the All India Bar Association, Memorandums of Understanding entered into between the Bar Association of India and the Law Societies of the U.K., Australia and China and a bilateral working group on legal services set up by the respective governments of the U.S. and India. The Times of India even commented on Friday, March 9th 2007 that “India’s lucrative legal services market may finally be opened up to foreign law firms by the end of the year.”

At first glance the pressure mounting on the Indian government to open up the market to foreign law firms appears to be increasingly exponentially. To the untrained eye the liberalization of the market is imminent. It is clear to me that this is a somewhat naïve viewpoint and that there will need to be some substantial “in-house” changes before foreign law firms are allowed to formally set up shop in India.

The major reason why there are regulatory barriers in place is because of the perceived inability of the domestic Indian firms to compete with the major foreign firms that would enter the market once liberalized. The consensus among those reluctant to open up the market is that the best talent will be swallowed up by foreign firms. This will then have disastrous consequences on domestic firms who simply do not have the financial muscle to compete.

Is this an accurate picture of the state of the Indian Legal market? To answer this question it is important to have an understanding of the restrictions placed on domestic firms and why there is this perception that they are unable to compete with their U.S. and U.K. counterparts.

Currently Indian law firms are not permitted to have more than 20 partners. Indian law firms are also prohibited from engaging in any form of advertising whatsoever. This includes a ban on websites, brochures, television, radio etc. Furthermore law firms are also not allowed to obtain any form of financial assistance by way of bank loans. Due to these restrictions there is a feeling among many that Indian law firms will simply be unable to compete with the major U.S. and U.K. firms because they are not operating on a level playing field.

Mukesh Advani advocated a gradual liberalization of the market by initially persuading the Indian government to relax the restrictions on domestic firms. This would allow domestic firms time to increase in size and revenue in readiness for an opening up of the market to foreign firms.

The problem as I see it is that this line of argument assumes that foreign firms are standing still when we know this is clearly not the case. The firms that are investigating setting up liaison offices in India right now, or those that have already done so, are magic circle firms from the U.K. and AM Law top 50 firms from the U.S. These firms are growing at an exponential rate and will continue to do so. The other difficulty with Mukesh’s argument is that according to the many domestic based Indian attorneys I spoke to at the convention the reality of the Indian legal sector is somewhat different from what you might anticipate given the restrictions they are currently operating under. Lawyers across the globe are inevitably trained to both initially locate and then work through loopholes. This is what they are doing in India. Domestic firms are structuring themselves in a traditionally “Western” fashion, with trainees, junior associates, salaried partners and equity partners. Not only are they doing this but they are also associating with other domestic firms, and entering into relationships with firms in the U.S.

There was also a heated discussion around the point that the pool of highly qualified and talented attorneys capable of working on U.S. and U.K. related matters was somewhat limited. My experience with LawScribe and the Offshore Legal Process industry in general contradicts this point of view and I was vociferous in putting forward my own position in the question and answer session that followed. India is second only to the US in the number of qualified attorneys at around 600,000 with approximately 75,000 newly qualified attorneys emerging every year. Now I do agree that by no means all of this number have come from the country’s best law schools or are of a suitably high standard to work on U.S. and U.K. related matters. However, not all law-school graduates here in the U.S. or the U.K. are of the highest caliber. I worked at times, in utter exasperation alongside trainee solicitors and fully qualified solicitors in the U.K. wondering where on earth they had “developed” their legal writing skills. I believe that there is a substantial pool of highly talented individuals, graduating from top tier law schools in India, who with the right training and supervision are more than capable of working on U.S. and U.K. related matters within the offshore legal process outsourcing industry. When the market is eventually opened up these attorneys will be familiar with U.S. and U.K. law and able to work for these firms directly should they so desire.

What I came away with was an overriding impression that despite the plethora of articles, the Memorandums of Understanding and the agreements between governments that this is not something that is going to happen overnight. What I believe will happen is that U.S. and U.K. firms will continue to enter into relationships with Indian law firms and legal outsourcing companies. The Indian government in due course will relax the legislation on domestic firms however this will take time.

During some brief research I undertook prior to attending the session I came across an article entitled: “India may open the door to foreign practices under licensing agreement”. Given my reference earlier to the Times of India article from March 2007 one would be forgiven for assuming that this second quote was taken from another article written this year or possibly last year. This article was in fact published in the U.K. Law Society Gazette on July 6th 2001. For at least 6 years now we have seen articles being written, fact finding trips undertaken by important parties, Memorandums of Understanding and agreements being entered into between India and the U.S. and U.K.

Are we really any closer at all to the legislative liberalization of this huge market? What I do know is that the provision of offshore legal support services from Indian attorneys to U.S. and U.K. law firms and corporations will continue to flourish. Indian Law firms will only increase exploring methods of getting around the restrictions on their practices and U.S. and U.K. law firms will continue to enter into a wide variety of relationships both captive and contractual with their Indian counterparts, and Legal Process Outsourcing companies.

Although the legislation has not yet changed we are seeing right before our eyes the true liberalization of the Indian Legal market. The legal landscape in India is vastly different to what it looked like 5 years ago, and with or without legislative changes it will look vastly different in another 5 years.