SEZ Rules Relaxed To Allow Foreign Lawyers, Accountants? [Read Notification]

The latest SEZ Rules amendment removes exclusion of Legal Services and Accounting from ambit of ‘services’.

In what can be seen as a baby step towards opening India’s legal and accounting sector to foreign players, the Government of India has amended Special Economic Zone Rules which could make Legal and accountancy services from foreign entities possible in the Special Economic Zones.

A small Amendment

The amendment to Special Economic Zones Rules, 2006, which has been published in the Official Gazette yesterday, innocuously reads: “In the Special Economic Zones Rules, 2006, in Rule 76, for the words “professional services (excluding legal services and accounting) rental/leasing services without operators”, the words “professional services, rental/leasing services without operators” shall be substituted.”

Big Impact of Amendment

Rule 76 of the SEZ Rules, defines “services” to include various services including Professional Services. Although Legal services and accounting is a Professional Service, the earlier Rules had explicitly exempted it from the ambit of ‘Services’. That means, according to the earlier Rules, legal and accountancy services are excluded from ‘services’ which can be outsourced from overseas entities in the Special Economic Zones.  The Present amendment, apparently undoes that exclusion.

Indian Council For Research On International Economic Relations [ICRIER], in a ‘working paper’ published in December 2015, has stated that several countries, including India, have imposed restrictions on foreign business service providers in sectors such as legal and accountancy services, partly to protect their domestic service providers, which adversely affects trade in business services and the users of such services do not have access to the most efficient firms. “On one hand, there is significant opposition from domestic players and their professional bodies on allowing foreign investment in sectors such as legal and accountancy, on the other a number of mid-sized and large companies are in favour of foreign investment.”, the report reads.

In November, the Business Standard, quoting a PTI feed,  had reported that the Government might have to amend SEZ rules related to restriction on hiring of foreign lawyers and accountants for the smooth functioning of International Financial Services Centres.

The Letter by Bar Council of India Chairman  to Prime Minister and Union Minister of law and Justice alleging that some bureaucrats in the law ministry as well as the commerce ministry are trying to “usurp functions of the BCI” by bringing in foreign law firms through the back door, assumes significance in this context.

Read the notification here.