Shaking Up The Rule Of Lawyers – Bar Council’s nod to entry of foreign law firms, even if the scope is restricted, will likely drain large Indian law firms of both talent & clients

Source: The post is based on the article “Shaking Up The Rule Of Lawyers – Bar Council’s nod to entry of foreign law firms, even if the scope is restricted, will likely drain large Indian law firms of both talent & clients” published in The Times of India on 17th April 2023.

Syllabus: GS – 2: Structure, organization and functioning of the Executive and the Judiciary.

Relevance: About BCI’s decision to permit foreign law firms.

News: The Bar Council of India (BCI) recently permitted foreign lawyers and law firms to practice in India.

About the BCI decision to permit foreign law firms

What are the advantages of BCI’s decision to permit foreign law firms?

Not impact majority of Indian lawyers: The regulations do not adversely affect more than 99% of the 20 lakh strong Indian lawyer population.

Permitted Limited Liability: Indian law firms (ILFs) are not allowed to be Limited Liability Partnerships. Instead, they can only do partnership firms with unlimited liability. This was a major roadblock for foreign law firms to set up offices in India. But the new regulations have permitted FLFs to be constituted as LLPs.

Enlarge FLFs in India: MNCs always prefer to use the same law firms worldwide. Hence, MNC clients in India will migrate as soon as such FLFs set up in India. This will compel FLFs to rethink having a presence in India.

Further, Fees charged by ILFs are likely to come down.

What are the challenges in BCI’s decision to permit foreign law firms?

Increase surrogacy of FLFs: Some FLFs that had set up offices in India were compelled to exit, following adverse court judgments. Some of them have established surrogate models in India. Such a surrogate firm would be manned only by Indian lawyers and satisfy the criteria for being classified as an Indian firm. Under the new BCI regulations, this surrogacy may proliferate.

Brain drain from ILFs: In most ILFs, only about 50-plus attorneys constitute the A-team or the super performers, who are the most precious asset of the firm. FLFs will target these A-teams, with substantial increase in tax-efficient remuneration; opportunities to move to foreign offices; participation in the international profit pool, etc.

Impact ILFs: Corporate India will be willing to pay high fees if the service is excellent. Many such corporates will therefore move to foreign firms to avail a better quality of service. Many large Indian transactional law firms are likely to lose both their star players and their star clients.