Chief Justice of India Inclined Toward Entry of Foreign Law Firms

India’s fast track regime for FDI approvals has become a reality now with the publication of the standard operating procedures in this regard. An additional condition has been proposed in Mauritius which will add to the compliance for companies routing their FDI into India through the island nation. After a bit of silence, there were some reported activities relating to entry of foreign law firms in India.

Read More: What is Driving Change in Asia’s Legal Profession?

SOP for Processing FDI Proposals: The Government has published the standard operating procedure (SOP) for processing FDI proposals. The SOPs are based on draft prepared earlier, as reported by Asia Law Portal in June 2017. The salient features of the SOP are provided below:

• Proposals for foreign investment in sectors/activities requiring Government approval as per the Consolidated FDI Policy Circular of 2016, as amended from time to time, would be filed online on the revamped FIPB portal, rechristened as Foreign Investment Facilitation Portal.
• The applicant would be required to submit the proposal for foreign investment in the format as available on the portal and upload documents as per the list at Annexure-1 of the SOP.
• After the proposals are filed online, DIPP will identify the concerned Administrative Ministry/Department and e-transfer the proposal to the concerned Administrative Ministry/Department (Competent Authority) within 2 days.
• Competent Authorities for grant of approval for foreign investment for sectors/activities requiring Government approval has been provided:
• The detailed step by step procedure has been prescribed
• The time limits for processing the approvals are provided
• There is provisions for regular monthly review by Competent Authorities on the the foreign investment proposals pending with them, together with joint quarterly reviews by the DIPP.

Changes to Mauritius Global Business Licenses – Foreign portfolio investors (FPIs), offshore funds and other entities that invest in India via the Mauritius route will now have to satisfy any two of the secondary (or additional) substance conditions instead of just one to prove they have adequate commercial substance in Mauritius and are not just shell companies or post-box entities.

Mauritius-based entities engaged in investment activities typically opt for a Category 1, Global Business Licence (GBC-1 licence) as this enables them to take advantage of tax treaties entered into by Mauritius. A major chunk of India’s FDI flows in from such companies. During 2016-17, Mauritius was the top source of FDI into India, with inflows of Rs 1,05,587 crore (or 33% of total inflows). GBC-1 companies were always required to be ‘controlled and managed’ in Mauritius.

For this, they were mandatorily required to have at least two Mauritius-resident directors. Subsequently, GBC-1 companies were required to meet any one of the additional substance conditions — an office in Mauritius, an administrative full-time employee, resolution of disputes arising out of the constitution of the company (akin to the Memorandum and Articles of Association under Indian law) via arbitration, holding of assets (other than cash and securities) of $100,000, listing on a recognised exchange or having reasonable yearly expenditure.

Entry of law firms in India – There were some developments relating to entry of law firms in India recently.

• The Chief Justice of India (CJI), Jagdish Singh Khehar while speaking at a seminar in Delhi, advocated the entry of foreign law firms. He appeared to be in favour of the move but on reciprocal basis. “Now, it appears that the Bar Council of India and the Society of Indian Law Firms have agreed in principle with the government’s proposal to gradually open up the legal sector to foreign players, but insist, that this should be on a reciprocal basis,” the CJI said.
• The Centre has moved the Supreme Court seeking early hearing on a plea that has raised the issue whether foreign lawyers and law firms be allowed to practice in the country. The Ministry of Law and Justice, in its plea, termed the issue as “an important” and “urgent one” and said that the Bar Council of India (BCI) has framed rules on the subject, but it was waiting for the judgement of the apex court.
• Bar Council of India (BCI) recently rejected Law Commission of India (LCI)’s 266th report which favoured entry of foreign lawyers and law firms and recommended drastic changed in the manner of regulating the legal profession in the country. The LCI report and BCI’s opposition to it had been reported by Asia Law Portal in March 2017. After a two-day brain-storming session with various bar bodies of the country, BCI, which regulates legal profession and education in India, “unanimously decided to reject the draconian, anti-lawyer and undemocratic 266^th report of Law Commission of India in toto”. BCI secretary Srimanto Sen said, “It was further resolved that the government be requested to not consider the 266^th report of Law Commission of India at all.” BCI’s decision came a day after the CJI favoured entry of foreign lawyers and law firms, saying the opportunity should never be missed.