The Supreme Court on Wednesday restrained the Reserve Bank of India (RBI) from granting permission under the foreign exchange provisions to overseas law firms for setting up offices in India.

A bench of Justice R.M. Lodha and Justice Anil R. Dave said that the foreign law firms could not practice and open liaison offices in India.

This verdict came on a petition filed by Bar Council of India (BCI) challenging a Madras High Court order permitting foreign lawyers to visit India temporarily on a ‘fly-in fly-out’ basis for giving legal advice to their clients.

The bench ordered "It is clarified that the Reserve Bank of India shall not grant any permission to the foreign law firms to open liaison offices in India under Section 29 of the Foreign Exchange Regulation Act, 1973. It is also clarified that to practice in non-litigious matters in India, the foreign law firms, by whatever name called or described, shall be bound to follow the provisions contained in the Advocates Act, 1961."

The Supreme Court issued an interim order but did not stay a Madras High Court verdict against which the apex court was moved by the Bar Council of India (BCI). The two-judge bench of justices issued notices to 31 foreign firms, BPOs and LPOs (legal process outsourcing), returnable in 10 weeks. The high court had said BPO (business process outsourcing) units, which provide a wide range of customised and integrated services and functions such as word processing, secretarial support, transcription, proof-reading and travel support, do not come under the advocates act or the bar council rules. But the court had added that the BPOs could not go against the act, which means they cannot “practice” Indian law.

Hearing the appeal against the recent Madras High Court judgment, the Supreme Court today clarified that foreign law firms or foreign lawyers could not in any way “practice” Indian law, whether litigation or non-litigation work.

The bar council protested the high court's observation that the business process outsourcing (BPO) engaged in wide range of activities did not come under the purview of the Advocates Act, 1961 or the Bar Council of India rules. The BCI insists that any recognition to foreign lawyers should be done only on a reciprocal basis. Indian lawyers need to undergo local courses or pass tests in countries such as the US and the UK.

Senior counsel M.N. Krishnamani, appearing for the bar council, told the court that the judgments by two high courts first by the Bombay High Court and then by the Madras High Court needed to be clarified. The apex court, while acknowledging that there were grey areas in the Bombay High Court and the Madras High Court judgment, said: "We will clarify everything when we take up the matter."