SC Reserves Judgment On Entry Of Foreign Law Firms To India: Read The Complete Court Room Exchange Of Final Day's Marathon Hearing
As the hearing in the Foreign Law Firms Case continued before the Supreme Court bench of Justice Adarsh Kumar Goel and Justice U. U. Lalit on Thursday, Advocate Nakul Dewan, appearing on behalf of the Global Indian Lawyers Association, resumed his submissions.
“Can an Indian Advocate partner with a foreign lawyer? In partnership, there is an element of agency; the master servant relationship does not remain”, inquired the bench.
The counsel drew the attention of the bench to Rule 2 in Chapter III of Part VI of the BCI Rules- “An advocate shall not enter into a partnership or any other arrangement for sharing remuneration with any person or legal practitioner who is not an advocate”.
“I need to remit money to acquire a particular asset in the Carmen Island. For that 4-5 lawyers of different jurisdiction do need to come together. ‘Sharing of remuneration’ in the Rule means sharing of profits. That is what is not permissible under Advocates Act”, advanced Mr. Dewan.
“So you are saying that the restriction is on sharing of profits and not coming together of lawyers for providing opinions etc”, asked the bench.
“It is like, say, I have a tax practice. And I hire a chartered accountant for advisory assistance”, said Mr. Dewan.
“The question is are you hiring the CA or is the client hiring the CA”, remarked the bench.
“I have a right to practice as an advocate. These restrictions thereon need to be construed very strictly”, submitted the counsel.
“So there are 2 elements- foreign lawyers dealing in foreign law, and foreign lawyers dealing in Indian law. You are not disputing the second element, but saying that foreign lawyers are entitled to give opinion or otherwise practice in connection with foreign law”, summed up the bench.
“Also, foreign lawyers may only deal in the law in which they are qualified. A UK qualified lawyer cannot touch upon US law”, added Mr. Dewan.
“How would instances of professional misconduct be handled in respect of foreign lawyers? The jurisdiction of the bar councils is only over the individuals enrolled as ‘advocates’ under the Advocates Act”, asked the bench.
“Section 36 of the Act of 1961 also empowers the BCI to discipline a lawyer whose name is not entered in any state rolls”, responded Mr. Dewan.
He also referred the bench to the Code of Conduct of the UK Bar Standards Board- “In connection with any foreign work you must comply with any applicable rule of conduct prescribed by the law or by any national or local bar of: the place where the work is or is to be performed; and the place where any proceedings or matters to which the work relates are taking place or contemplated; unless such rule is inconsistent with any requirement of the Core Duties...If you solicit work in any jurisdiction outside England and Wales, you must not do so in a manner which would be prohibited if you were a member of the local bar”
“For example, in an international commercial arbitration, the governing law is English law, the seat of arbitration is India, and the Indian firm/lawyer representing the party is not enrolled in Wales. Can such firm or advocate now deal in English law if, as per your submission, sections 29, 30 and 33 of the Advocates Act are only in respect of Indian law? Is there any convention or accepted practice on this?”, inquired the bench.
“An Indian Lawyer in India cannot advice on English law. In N.Y. Lawyers Country Assn. (Roel), it was observed that any advice the Mexican lawyer may give in New York may have an impact on the US statutory law. That is why the bar exists”, answered Mr. Dewan.
“No but sections 29, 30 and 33 do not envisage any restrictions so long as the territory is India”, said the bench.
At this point, Senior Counsel Dushyant Dave, representing the London Court of International Arbitration (LCIA), said that he shall cite content from text books in respect of the point of discussion.
Finally, Mr. Dewan said that by virtue of sections 24 and 47 of the Advocates Act a foreign lawyer cannot be forbidden from enrolling in India, on the principle of reciprocity, if a duly qualified Indian advocate is practising in the concerned country.
Thereafter, Senior Counsel Sajan Poovayya, representing respondent law firms, submitted, “‘practice’ includes contentious or litigious as well as non contentious or non litigious matters. Also, there is no incongruity between the Bombay and Madras High Court judgments”.
Supporting the Madras High Court judgment in so far as it permitted ‘fly in and fly out’ basis, he advanced, “foreign lawyers coming to India to advice on foreign law are not barred”.
Further, he gave illustrations to elaborate his argument- “one, a New York lawyer, enrolled in the New York bar, comes to Bombay House to advice Tata on the purchase of Jaguar; two, American lawyers come to India to advice Infosys/HDFC on issuance of American Depositary Receipts (ADR); and third, foreign lawyers arrive in India to advice on Alternative Investment Market (AIM) listing to domestic enterprises”.
“Now let us see the reciprocal situations”, he continued, “say, Indian lawyers go to the US to advice on the Indian regulatory regime to aid the launch of YouTube TV or Apple TV in India. And Indian criminal lawyers visit other countries to advice extradition proceedings. Their situs of practice still remains India”.
However, He clarified, “No foreign qualified lawyer can practice before a court in India, except with the leave of the court as envisaged in section 32 of the Advocates Act. Court proceedings are to be treated different from arbitration and advisory services. The ‘fly in and fly out’ only applies to advise”.
“If there is any misconduct in such individual cases, the foreign lawyers shall be amenable to their bar and also the Indian legal regime”, Mr. Poovayya added.
“So you are saying at present there is no rule to bar the ‘fly in and fly out’ basis?”, inquired the bench.
“There is none. Although under section 49 of the Advocates Act, a rule maybe framed to require foreign lawyers to notify their arrival”, responded the Senior Counsel.
“However, any infraction from the regime of ‘fly in and fly out’ should be prosecuted. If a Mr. Smith settled in India for a year under the garb of ‘fly in and fly out’, the BCI shall intervene”, he added.
“What is the ‘fly in and fly out’ basis? If an American Lawyer comes to India every weekend, would that be ‘fly in and fly out’”?, inquired the bench.
“No, it must be one mandate, a specific task or an invitation”, replied Mr. Poovayya.
“What if an invitation comes every week? What regulatory constitutes the distinction between ‘practice’ and ‘fly in and fly out’?”, asked the bench.
“The regularity does not matter but permanency of establishment does. If the foreign lawyers works on a mandate from a hotel room and has no office in India, it will be regarded as ‘fly in and fly out’”, the Senior Counsel answered.
“In N.Y. Lawyers Country Assn. (Roel), the Mexican Lawyer had established an office in New York. If an American lawyer sets up office in India to practice American Law, that is forbidden by the Bombay High Court judgment. The Roel case is not applicable to the present matter”, he added.
However, he relied on the aforesaid judgment to the extent it was observed therein, “The omission of the Legislature to enact statutes licensing or regulating the conduct of foreign lawyers in practicing purely foreign law in this State, does not indicate that such conduct is prohibited by sections 270 and 271 of the Penal Law, but merely that the Legislature has not seen fit to subject them to regulation. Whatever the merits of such proposed legislation, it is not for us to enact it”.
In support of the ‘fly in and fly out’ regime, Mr. Poovayya cited the 1964 judgment of the Supreme Court of New Jersey in Appel v. Reiner- Plaintiff, a New York lawyer, who had not been admitted to the New Jersey Bar, furnished legal services to defendants, New Jersey residents, in a matter involving the extension of credit and the compromise of claims held by New York and New Jersey creditors. The Chancery Division concluded that there could be no recovery for services rendered in connection with the negotiations with New Jersey creditors because they constituted the illegal practice of law in this State. However, the Supreme Court observed, “Under the peculiar facts here present, having in mind the nature of the services to be rendered, the inseparability of the New York and New Jersey transactions, and the substantial nature of the New York claim, we conclude that plaintiff's agreement to furnish services in New Jersey was not illegal and contrary to public policy”.
“This is an inter-state situation. Ours is an international situation since we have a unified practice in India. But the principle is the same”, Mr. Poovayya added.
“What is the purpose of the monopoly conferred on the ‘advocates’ under the Act of 1961? To save the common man from falling prey to quacks. But mature clients procuring advisory services from foreign lawyers is not against public policy. If a Mr. White, a qualified lawyer, comes to India to advice the Union Carbide in relation to the Bhopal Gas Tragedy, the BCI objects. But if instead a professor arrives to do the same, then there is no issue as he comes as a layman”, commented the Senior Counsel.
“Is it possible to indulge in chamber practice without being enrolled?”, the bench asked Senior Counsel C. U. Singh, representing the BCI. “There may be exceptions”, he replied.
“Does the principle of reciprocity apply to chamber practice? If a retired Pakistan judge sets up chamber practice in India, BCI will have an objection”, asked the bench.
“It cannot. So far as opinion work is concerned”, replied Mr. Poovayya.
Thereupon, the discussion veered to whether the provisions of sections 29, 30 and 33 of the Advocates Act of 1961 extend to arbitral tribunals.
“The restrictions in these sections do not apply to arbitral tribunals. Else, International Commercial Arbitration cannot be conducted at all”, Mr. Poovayya advanced, adding, “in technical commercial arbitrations, the arbitrator could even be an engineer. Section 18 of the Arbitration and Conciliation Act of 1996 only contemplates an equal opportunity of being heard to both parties. international commercial arbitration may be carried out even by a layman”.
Senior Counsel Arvind Datar cited the 1963 judgment of the Supreme Court in Mazdoor Sabha v. Hind Cycles wherein a distinction between a statutory arbitrator under section 10A of the Industrial Disputes Act of 1947 and a private arbitration was drawn and it was held even the former is not a tribunal under Article 136 of the Constitution.
Mr. Poovayya also referred to the 2006 apex court judgment in Paramjeet Singh Patheja v. ICDS, wherein it was observed that The expression 'Court' in the context of Article 136 denotes a tribunal constituted by the State as a part of the ordinary hierarchy of Courts which are invested with the State's inherent judicial powers.
Further, Mr. Poovayya quoted Rule 45 of the Indian Council of Arbitration Rules which says, “...where the dispute is purely of a commercial nature, the parties shall have no right to be represented by lawyers except where, having regard to the nature or complexity of the dispute, the arbitral tribunal considers it necessary in the interest of justice that the parties should be allowed to be represented by counsel, attorney or advocate”.
“But this Rule would be struck by section 30 of the Advocates Act, as in the Karnataka case decided by Justice Chinappa Reddy”, remarked the bench, indicating the judgment in H. S. Srinivasa Raghavachar v. State of Karnataka.
“No, it will not. While rendering that judgment, Justice Chinappa Reddy did not have sections 18 and 19 of the Arbitration Act staring him”, responded the Senior Counsel.
“By virtue of sections 19 and 24 of the Arbitration Act, even a layman could be the arbitrator and appear for parties. So there can be no bar on foreign lawyers”, he added.
Concluding his argument, Mr. Poovayya remarked, “in fact the Madras High Court has extended protection to the Indian lawyers by stopping at International Commercial Arbitration”.
The counsel appearing for the RBI, in context of the Bombay High Court judgment, advanced, “We had granted permission to the foreign law firms only in respect of specific activities. Liaisoning activities are different from advocacy”.
“Before granting the permission, you should have checked if the legal regime entitled you to allow the setting up of branch offices. You could not have confined yourself to FERA and washed your hands off”, remarked the bench.
Mr. C. U. Singh also quoted the Bombay High Court judgment in the same context- “It is not the case of the foreign law firms that the activity carried on by their liaison offices in India are different from the activity carried on by them at their head office and the branch offices world over...Thus, the activity carried on by the foreign law firms at their Head Office, branch offices and liaison offices in India were inextricately linked to the practise in non litigious matters. Section 29 of the FERA of 1973 relates to granting permission for business purposes and not for professional purposes and, therefore, the RBI could not have granted permission to these foreign law firms under Section 29 of the 1973 Act”.
“Sections 30, 33 and 45, using the terms ‘court’, ‘Authority’ and ‘person’, are limited in their application to court practice. When we deal with international commercial arbitration touching on foreign law or the ‘fly in and fly out’ basis, we do not envisage practice of the nature of court appearance”, noted the bench.
In his turn, Senior Counsel Arvind Datar prayed before the bench to uphold the ‘fly in and fly out’ regime. In respect of arbitration, he quoted the stance of the Government of India before the Madras High Court- “...the Government of India, in their counter affidavit dated August 19, 2010, have stated that the contention raised by the petitioner that foreign law firms should not be allowed to take part in negotiating settlements, settling up documents and arbitrations will be counter productive...”
“What is the legal basis for ‘fly in and fly out’?”, inquired the bench.
“Section 33 of the Advocates Act is the basis. The section allows individuals who are not ‘advocates’ to deal in law , for instance, Chartered Accountants. Chamber practice, consultation and opinion works do not take place before ‘Authority’, ‘person’ or ‘court’”, Mr. Datar responded.
He also referred to section 55 of the Advocates Act, safeguarding the rights is existing legal practitioners like pleaders and vakils.
“‘Authority’, as used in section 30 of the Advocates Act, means a statutory authority, like SEBI. ‘Person’ also does not extend to arbitral tribunal”, he said.
Elaborating on his submission, Mr. Datar said, “in section 3 of the Evidence Act of 1872, ‘court’ does not include arbitrators legally authorised to take evidence. Evidence before an arbitrator may be by way of statement, an affidavit is not necessary. There is no application of section 191 of the IPC regarding perjury in arbitral proceedings”.
A ‘person legally authorised to take evidence’ requires statutory backing. Like section 133 of the Income Tax Act of 1961”, he added.
“So does an arbitral tribunal not have the backing of the Arbitration Act?”, the bench posed the question.
“No, an arbitral tribunal has its origin in an arbitration agreement; it is subject to party autonomy”, replied Mr. Datar.
“By virtue of section 19 of the Arbitration Act, CPC and the Evidence Act do not apply to arbitration. So an arbitral tribunal is not a judicial tribunal”, Mr. Datar continued.
Requesting the bench to view the Advocates Act from 1961 perspective, he advanced, “When the Advocates Act was enacted, all tribunals, except for the Income Tax and Sales Tax tribunals, were under the Judiciary. Thus, the word ‘tribunal’ in section 30 of the Advocates Act should not be understood as private tribunal but judicial tribunal. In the same context, please see section 28 of the Indian Contract Act of 1872”. Section 28 of the Contract Act renders void agreements in restraint of judicial proceedings, while the Exception 1 appended thereto exempts arbitration agreements.
Explaining the difference between arbitral tribunals and courts and other tribunals, he cited the 2011 Supreme Court judgment in Booz Allen and Hamilton Inc v. SBI Home Finance, wherein it was observed, “Arbitral tribunals are private fora chosen voluntarily by the parties to the dispute, to adjudicate their disputes in place of courts and tribunals which are public fora constituted under the laws of the country. Every civil or commercial dispute, either contractual or non-contractual, which can be decided by a court, is in principle capable of being adjudicated and resolved by arbitration unless the jurisdiction of arbitral tribunals is excluded either expressly or by necessary implication”.
“Let ‘person’ for the purpose of section 30 of the Advocates Act of 1961 take its colour from section 32 of the Act, otherwise the term shall be too wide”, advancer Mr. Datar.
Finally, Mr. Datar submitted before the bench a compilation of judgments on the meaning of ‘practice of the profession of law’, including Aswani Kumar Ghosh v. Arabinda Bose (1952) wherein it was held that ‘practice’ implies ‘acting and pleading’.
Praying before the bench to uphold the Madras High Court judgment in respect of international commercial arbitration and ‘fly in and fly out’, he submitted, “Any prohibition on ‘fly in and fly out’ regime can be only by way of an act of the Parliament and not by any rule framed under section 24(1) of the Advocates Act”. In the same behalf, he cited the Sudeer judgment.
Senior Counsel Guru Krishnakumar drew the attention of the bench to three aspects of section 33 of the Advocates Act- “one, the phrase ‘any other law for the time being in force’; two, to correlate the Arbitration Act of 1996 with the language of section 33 of the Advocates Act of 1961; and three, to read the Advocates Act in the light of its specific objectives of streamlining class of persons for practice of the law as well as legal education and in context of the changed times”.
“Sections 29, 30 and 33 repeatedly use the phrases ‘practice the profession of law’ and ‘right to practice’, all these phrases are to be understood in the light of section 30”, he continued. The bench concurred with him on this.
Referring to the judgment in Bharat Petroleum, he said that all contracts for international commercial arbitration envisage the applicability of 3 potential systems of law.
When Mr. Krishnakumar stated that limiting the arbitration proceedings to advocates enrolled under the Act of 1961 would be a very narrow view in today’s times, the bench inquired if he was suggesting merely natural persons or even foreign law firms. “That does not matter. It could vary on a case to case basis”, he replied.
He also quoted the Law Commission 266th report repeating that if foreign law firms are not allowed to participate in negotiations, settling up documents and arbitrations in India, it would have a counterproductive effect on the policy of the government of India to make India the hub of international arbitration.
In response to the query posed by the bench regarding the control of the BCI over instances of professional misconduct by foreign lawyers, Mr. Poovayya repeated that if they do not follow local rules, it would be an impropriety.
Mr. Dewan reiterated his arguments regarding section 36 of the Advocates Act and the UK Bar Standards Board.
Mr. Krishnakumar said that the foreign lawyers shall be governed by their respective bar council rules and could be sued in their respective jurisdiction, to which the bench remarked, “Who will go to sue you there?”.
When Mr. Datar stated that the BCI’s jurisdiction is limited to ‘advocates’ enrolled under the Act of 1961, the bench said that ‘fly in and fly out’ arrangement should be conditioned on the control of the BCI.
Another advocate, appearing for a respondent law firm, not having an office in India but operating on a ‘fly in and fly out’ basis, advanced that ‘practice’ is to be understood as a continuous activity, that the Advocates Act deals only with Indian law, the Arbitration Act gives liberty of procedure and choice of representation to parties, and section 28(1)(b) of the Arbitration Act entitles parties to international commercial arbitration to engage a lawyer who is an expert in any foreign law.
Mr. Dushyant Dave, representing the LCIA, submitted that organisation has been known as ‘Court’ since 1922 and the term is not to be understood colloquially.
“There is a complete absence of credible arbitration institutions in India. We have 99% ad hoc arbitrations. The LCIA India was set up to ameliorate the situation but it did not turn out to be economically viable, so it was closed down. So the present SLP has become infructuous and may be disposed off. But please reject that prayer therein that no foreign lawyer can engage in practice including arbitration”, he advanced.
In support of his argument, he referred to various portions of the Madras High Court judgment- “International arbitration is growing big time in India and in almost all the countries across the globe”. He also reiterated the stand of the government of India as discussed above.
“In international commercial arbitration, there cannot be a prohibition of any kind as it is voluntary; the state has no role. Anybody can appear. A foreign lawyer comes as an authorised representative of the party. If a party sends a non lawyer from abroad, he would anyway not be under the BCI’s control”, he continued.
Quoting from a textbook, he submitted that in international commercial arbitration representation does not need to be qualified at the seat of arbitration.
He cited a case law wherein a New York lawyer appearing in a California court was held to be engaging in unauthorised practice of law as he was not enrolled in the Californian bar, but the court clarified that the rule would not apply to International Commercial Arbitrations.
Relying on the text book Redfern and Hunter, he advanced that parties may also be represented by engineers and commercial men.
He also referred the LCIA Rules welcoming persons from any country, ICC Rules providing for an ‘authorised representative’ of the parties as well as the Rules of the American Arbitration Association (AAA).
Relying on section 11 of the Arbitration Act, he said that a person of any nationality could be an arbitrator. Consequently, there could be no bar on the representation.
He reiterated the provisions of sections 19 and 28 of the Arbitration Act.
“So the Advocates Act does not apply to international commercial arbitration?”, inquired the bench.
“No. There is no offence of perjury, no application of section 191 of the IPC. In any instance of professional misconduct, the arbitral tribunal has the inherent power to restrain the concerned lawyer from future proceedings. Further, the tribunal may also make a recommendation in that behalf to the respective bar council”, he responded.
Indicating section 34(2)(a)(iii) of the Arbitration Act, providing a ground for setting aside of the arbitral award if a party is “unable to present his case”, Mr. Dave submitted, “If a party is not allowed the representation of their choice, it would serve as a ground for challenge of the award”.
Referring to section 44 of the Act of 1996, he traced the origin of its section 34 to the New York Convention and the Geneva Convention.
Senior Counsel C. U. Singh, making submissions on behalf of the BCI, said that the government of India changed its stance in the four affidavits filed before the Madras High Court.
“Finally, in the counter filed on 17.11.2011, it is stated that the Government of India has decided to support the stand of the Bar Council of India that the provisions of the Advocates Act of 1961 would apply with equal force to both litigious and non-litigious practice of law, and it is only persons enrolled under section 24 of the Act, who can practice before the Indian Courts”, quoted Mr. Singh from the judgment.
Stating that a provision akin to section 19 of the Arbitration Act has also been incorporated several other statutes including the Industrial Disputes Act and the Family Courts Act, he drew the attention of the bench to subsection (4) of the said section 19, conferring jurisdiction on the arbitral tribunal to determine the relevancy, admissibility, materiality and weight of any evidence.
Mr. Singh indicated section 24 of the Arbitration Act, dealing with the authority of an arbitral tribunal to decide whether to conduct oral hearing or written proceedings.
In respect of section 27 of the Act of 1996, he said since an arbitral tribunal is not authorised to issue summons, it may seek the assistance of the court in the collection of evidence. Relying on its subsection (5), laying down that any person who fails to so attend before the tribunal, refuses to give evidence or otherwise commits contempt thereto shall be liable to like penalty as they would incur in suits tried before the court, he remarked, “It cannot be argued that an arbitral tribunal is not legally authorised to take evidence”.
Further, Mr. Singh explained the meaning of the phrase ‘practice of law’, as contained in Rule 2(xx) of the BCI Rules on Legal Education of 2008, to include court proceedings, tendering advice, drafting and even participation in Alternative Dispute Resolution.
He also referred to Rule 3 providing that The State Bar Council shall enroll as Advocate only such candidates, who have passed from such institution as approved by the Bar Council of India.
“So you are suggesting that section 29 of the Advocates Act extends to even opinion works? The definition of ‘advocate’ under 1961 Act implies one whose name continues on the rolls of a state bar council. But that is not the case in respect of retired judges who still tender opinions. Even Article 124(7) of the Constitution only prohibits acting and pleading. So opinion must not fall within the ambit of ‘practice’”, the bench noted.
Continuing, Mr. Singh stated that section 32 of the Advocates Act deals with permission which may or may not be granted, it is not as of right. Also, any such permission is only on respect of appearance and not acting or pleading.
He insisted that the liberty as to nationality under section 11 of the Arbitration Act applies only in respect of the arbitrator.
Indicating the phrase ‘or by any other law’ in section 33 of the Advocates Act, he advanced that if that was the legislative intent, an express provision could have been incorporated in the Arbitration Act as it exists in the Consumer Protection Act, Family Courts Act, the Industrial Disputes Act etc.
“What if institutional arbitration permits by way of a rule a foreign lawyer? What if parties enter into an express agreement to be represented by foreign lawyer?”, asked the bench. “The grounds for challenge under section 34 of the arbitration Act are available only within the ambit of the law of India. You cannot say that you will not be governed by indian law on conduct; the choice of law exists only on the subject matter of arbitration”, Mr. Singh responded. “The law of the seat of arbitration has to apply”, added Mr. Dewan.
Thereafter, Mr. Singh drew out the stark contrast between the regulatory regimes in India, the USA and the UK. “In India, there is an express Bar on advertisement and solicitation while the US permits lawyer to lawyer solicitation; contingency fee is allowed in the UK and USA but prohibited in india; there is a ban on third party funding of litigation in india but the same permitted in the west; and partnerships with non lawyers are not allowed in India but are accepted there”.
“Under the UK courts and legal services act of 1990, the provisions under the municipal law regarding inter alia profession conduct and discipline are also binding on foreign lawyers”, he submitted.
“Most states even within the USA do not permit the ‘fly in and fly out’ arrangement”, he remarked.
Citing the example of how with the coming of the international CA firms, Indian firms gradually disappeared, he refuted the argument of the respondents in favour of liberalising the space for lawyers and law firms.
The hearing in the matter concluded on Thursday, with the bench granting one week time to the parties to file supplementary written submissions.