2009 (12) TMI 1022 - HC - Income Tax

Summary

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.