2009 (12) TMI 1022 - HC - Income Tax

RBI unjustified in allowing foreign law firms liaison offices under Section 29 FERA 1973

LAWYERS COLLECTIVE Versus Bar Council of India, Bar Council of the State of Maharashtra and Goa, Bar Council of the State of Delhi, Bombay Incorporated Law Society, Bar Association of the Supreme Court of India, Bar Association of India, Union of India, Reserve Bank of India, Directorate of Enforcement, Central Board of Direct Taxes, Ministry of Finance, Chief Commissioner of Income Tax, Aaykar Bhavan, Bombay, White & Case, a firm of lawyers having, Chadbourne & Parke, a law firm, Ashurst Morris Crisp, Society of India Law Firms,

Bombay HC held that RBI was not justified in granting permission to foreign law firms to establish liaison offices in India under Section 29 of the ... Legality of permissions granted by the Reserve Bank of India to the respondent Nos.12 to 14 foreign law firms to establish their place of business in India (liaison office) under Section 29 of the Foreign Exchange Regulation Act, 1973 - Definition of 'practising the profession of law' under the Advocates Act, 1961 - In the present case, the core dispute is with reference to the permission granted by RBI to the respondents No.12 to 14 to open their liaison offices in India under Section 29 of the 1973 Act. The respondent No. 12 to 14 are the foreign law firms practising the profession of law in U.K. / U.S.A. and other parts of the word. However, even after establishing the liaison offices in India, the said foreign law firms have not enrolled themselves as advocates under the 1961 Act. What were the liaison activities carried on by the foreign law firms in India? - HELD THAT:- The respondent No.12 has further claimed in its affidavit in reply that their liaison activity inter alia included providing “office support services for lawyers of those offices working in India on India related matters” and also included drafting documents, reviewing and providing comments on documents, conducting negotiations and advising clients on international standards and customary practice relating to the client’s transaction etc. It is contended by the respondent No.12 to 14 that they never had and has no intention to practise the profession of law in India. Thus, from the affidavit in reply, it is evident that the liaison activities were nothing but practising the profession of law in non litigious matters. Whether the foreign law firms could carry on the practise in non litigious matters in India by obtaining permission from R.B.I. under section 29 of the 1973 Act? - 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. In fact, it is the specific case of respondents No.12 to 14 that the main activity at their liaison offices in India was to act as a coordination and communication channel between the head office / branch office and its clients in and outside India. 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 1973 Act 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. It is not the case of the respondents that in India individuals / law firms / companies are practising the profession of law in non-litigious matters without being enrolled as advocates under the 1961 Act. It is not even the case of the respondents that in the countries in which their head office as well as their branch offices are situated, persons are allowed to practice the profession of law in non-litigious matters without being subjected to the control of any authority. In these circumstances, when the Parliament has enacted the 1961 Act to regulate the persons practising the profession of law, it would not be correct to hold that the 1961 Act is restricted to the persons practising in litigious matters and that the said Act does not apply to persons practising in non litigious matters. There is no reason to hold that in India the practise in non litigious matters is unregulated. It is not in dispute that once a person is enrolled as an advocate, he is entitled to practise the profession of law in litigious matters as well as non-litigious matters. If the argument of the respondents that the 1961 Act is restricted to the persons practising the profession of law in litigious matters is accepted, then an advocate found guilty of misconduct in performing his duties while practising in non-litigious matters cannot be punished under the 1961 Act. Similarly, where an advocate who is debarred for professional misconduct can merrily carry on the practise in non-litigious matters on the ground that the 1961 Act is not applicable to the persons practising the profession of law in non litigious matters. Such an argument which defeats the object of the 1961 Act cannot be accepted. It may be noted that Rule 6(1) in Chapter III Part VI of the Bar Council of India Rules framed under section 49(1) (ah) of the 1961 Act provides that an advocate whose name has been removed by an order of the Supreme Court or a High Court or the Bar Council as the case may be, shall not be entitled to practise the profession of law either before the Court and authorities mentioned under section 30 of the 1961 Act, or in chambers, or otherwise. The above rule clearly shows that the chamber practise, namely, practise in non litigious matters is also within the purview of the 1961 Act. Counsel for the Union of India had argued that the Central Government is actively considering the issue relating to the foreign law firms practising the profession of law in India. Since the said issue is pending before the Central Government for more than 15 years, we direct the Central Government to take appropriate decision in the matter as expeditiously as possible. Till then, the 1961 Act as enacted would prevail, that is, the persons practising the profession of law whether in litigious matters or non litigious matters would be governed by the 1961 Act and the Bar Councils framed thereunder, apart from the powers of the Court to take appropriate action against advocates who are found guilty of professional misconduct. Thus, we hold that in the facts of the present case, the RBI was not justified in granting permission to the foreign law firms to open liaison offices in India under Section 29 of the 1973 Act. We further hold that the expressions ‘ to practise the profession of law’ in section 29 of the 1961 Act is wide enough to cover the persons practising in litigious matters as well as persons practising in non litigious matters and, therefore, to practise in non litigious matters in India, the respondent Nos.12 to 14 were bound to follow the provisions contained in the 1961 Act. The petition is disposed of accordingly with no order as to costs. Issues Involved:1. Legality of permissions granted by the Reserve Bank of India (RBI) to foreign law firms under Section 29 of the Foreign Exchange Regulation Act, 1973.2. Requirement for foreign law firms to enroll as advocates under the Advocates Act, 1961 to carry out liaison activities in India.3. Definition of 'practising the profession of law' under the Advocates Act, 1961.Detailed Analysis:1. Legality of Permissions Granted by RBI:The petition questioned whether the RBI's permissions to foreign law firms (respondents No.12 to 14) to establish liaison offices in India were legal under Section 29 of the Foreign Exchange Regulation Act, 1973. The court noted that the foreign law firms applied to RBI between 1993 and 1995 to open liaison offices in India. The RBI granted these permissions with specific conditions, such as not undertaking any trading or commercial activities and not earning any income in India.The court observed that the liaison activities described by the foreign law firms included coordination and communication between their head offices and clients, which inherently involved providing legal services. The court concluded that these activities were professional rather than commercial or industrial, and thus, the permissions granted under Section 29 of the 1973 Act were inappropriate. The court emphasized that professional activities are distinct from commercial activities, citing the Apex Court's decision in M.P. Electricity Board V/s. Shiv Narayan.2. Requirement for Enrollment as Advocates:The second issue was whether foreign law firms could carry out liaison activities in India without being enrolled as advocates under the Advocates Act, 1961. The court examined Sections 29, 30, and 33 of the 1961 Act, which collectively establish that only advocates enrolled under the Act are entitled to practice the profession of law in India.The court held that the term 'practising the profession of law' includes both litigious and non-litigious matters. Therefore, foreign law firms engaging in non-litigious legal activities in India must be enrolled as advocates under the 1961 Act. The court rejected the argument that the 1961 Act only applies to litigious matters, stating that the Act's purpose is to regulate all legal practitioners to maintain high standards of professional conduct.3. Definition of 'Practising the Profession of Law':The court clarified that 'practising the profession of law' encompasses a wide range of activities, including giving legal advice, drafting documents, and providing other legal assistance. The court cited various judgments to support this interpretation, including decisions from the New York Court of Appeals, the Supreme Court of South Carolina, and the Supreme Court of Western Australia.The court also referred to the Advocates Act, 1961, and the Bar Council of India Rules, which regulate the conduct of advocates in both litigious and non-litigious matters. The court emphasized that the 1961 Act aims to ensure that all legal practitioners, whether engaged in court practice or chamber practice, adhere to high professional standards.Conclusion:The court concluded that the RBI's permissions to foreign law firms under Section 29 of the 1973 Act were unjustified because the activities carried out by these firms were professional rather than commercial. The court further held that foreign law firms must be enrolled as advocates under the Advocates Act, 1961, to practice law in India, including non-litigious matters. The court directed the Central Government to expedite its decision on the issue of foreign law firms practicing in India.The petition was disposed of with no order as to costs.