SC: Advocate’s Fee based on Percentage of Result of Litigation is Illegal

December 06, 2017

Sunitha v. State of Telengana & Anr.

Date of Judgment: December 05, 2017

In this recent judgment, the Supreme Court has made a scathing attack on high fees charged by legal professionals and categorically held that Advocate’s fee based on percentage of result of litigation was illegal. The Supreme Court in the case delved into detailed analysis of professional misconduct by Advocates in charging exorbitant fees from litigants and that claim based on percentage of subject matter in litigation could not be the basis of a complaint under Section 138 of the Act.

Background: In the case, Appeal was preferred against order passed by High Court of Hyderabad, whereby the High Court declined to quash the proceedings initiated against the appellant under Section 138 of the Negotiable Instruments Act, 1881.

In the case, the proceedings were initially commenced by the Respondent, an advocate and in whose favour the appellant had executed a cheque allegedly towards his fee. However, the same was dishonoured. The appellant contended that Section 138 of the Act was not attracted in the case as there was no legally enforceable debt. The appellant alleged that she had already paid a sum of Rs.10 lakhs towards fee and the cheque was taken from the appellant by way of abuse of position and the impugned transaction was void under Section 23 of the Indian Contract Act, 1872  as claim for fee based on percentage of the decretal amount was unethical. The Appellant further alleged that the respondent had sent an e-mail whereby he claimed his fee to be 16% of the amount received by the appellant.

Thereafter, the impugned cheque was dishonoured on account of insufficient funds and complaint was filed by the Respondent under Section 138 of the Act. When the case came before the High Court, appellant’s main contention was that charging percentage of decretal amount by an advocate was hit by Section 23 of the Contract Act  being against professional ethics and public policy, the cheque issued by the appellant could not be treated as being in discharge of any liability by the appellant.

However, the High Court held that Advocates’ Fee Rules were only for guidance and there was no bar to fee being claimed beyond what is fixed under the Rules.

Bench’s Verdict

The Supreme Court in the case allowed the Appeal.

Three Issues taken by the Apex Court in the case were:

  1. Whether fee can be determined with reference to percentage of the decretal amount?
  2. Whether the determination of fee can be unilateral and if the client disputes the quantum of fee whether the burden to prove the contract of fee will be on the advocate or the client?
  • Whether the professional ethics require regulation of exploitation in the matter of fee?

In absence of independent proof, issuance of cheque could not furnish cause of action under Section 138 of the Act in the context of an advocate or client– The Bench made reference to the case of C. Manohar v. B.R. Poornima, wherein it was held that no presumption could arise merely by issuance of a cheque that amount stipulated in the cheque was payable towards fee. In absence of independent proof, issuance of cheque could not furnish cause of action under Section 138 of the Act in the context of an advocate or client. The Court in the case opined that Legal profession is essentially service oriental. Ancestor of today’s lawyers was no more than a spokesperson, who rendered his services to the needy members of the society, by putting forth their case before the authorities. Their services were rendered without regard to remuneration received or to be received. With the growth of litigation, legal profession became a full time occupation. The trend of the legal profession has changed … profession has almost became a trade. There is no more service orientation. The relationship between the lawyer and the client is one of trust and confidence. The client engages a lawyer for personal reasons and is at liberty to leave him for the same reasons.

In the aforesaid case, it was further held that to attract penal provisions under Section 138 of the Act, a cheque must have been drawn by the accused on an account maintained by him with a banker for payment of any amount of money to another person from out of that account for the discharge in whole or in part, of any debt or other liability due. That means, the cheque must have been issued in discharge of debt or other liability wholly or in part. The cheque given for any other reasons not for the satisfaction of any debt or other liability, even if it is returned unpaid-, will not meet with penal consequences Section 138 of the Act.

Advocate’s Fee in reference to percentage of the decretal amount is illegalIn this context, reference was made to In the matter of Mr. G. A Senior Advocate of the Supreme Court[1], wherein the Supreme Court held that the claim of an advocate based on a share in the subject matter is a professional misconduct. Rule 20 of Part VI, Chapter II, Section II of the Standard of Professional Conduct and Etiquette reads “An advocate shall not stipulate for a fee contingent on the results of litigation or agree to share the proceeds thereof.” Thus, mere issuance of cheque by the client may not debar him from contesting the liability. If liability is disputed, the advocate has to independently prove the contract. Claim based on percentage of subject matter in litigation cannot be the basis of a complaint under Section 138 of the Act.

In view of the above, the claim of the respondent advocate being against public policy and being an act of professional misconduct, proceedings in the complaint filed by him have to be held to be abuse of the process of law and have to be quashed.

That having committed a serious professional misconduct, the respondent could not be allowed to avoid the adverse consequences which he may suffer for his professional misconduct. The issue of professional misconduct may be dealt with at appropriate forum.

Commercialization of Legal serviceIn this context, Supreme Court made reference to the case of Tahil Ram Issardas Sadarangani v. Ramchand Issardas Sadarangani, wherein the Court had noted the trend of increasing element of commercialization and decreasing element of service.

In V.C. Rangadurai v. D. Gopalan, this Court observed that confidence of the public in the legal profession was integral to the confidence of the public in the legal system. Commercialization to the extent of exploiting the litigant and misbehavior to the extent of browbeating the Court, breach of professional duties to the court and the litigant on the part of some members of the legal profession, affecting the right of the litigants to speedy and inexpensive justice, need to be checked.

Law Commission on Role of the legal profession in strengthening the system of administration of justice– The Commission in its 131st Report examined the Role of the legal profession in strengthening the system of administration of justice. The Commission reported that fee charged by some senior advocates are astronomical in character. The corporate sector is willing to retain talent at a high cost. That the role of the legal profession in strengthening the administration of justice must be in consonance with the mandate of Article 39A of the Constitution of India ( Equal Justice and Free Legal Aid)  to ensure equal opportunity for access to justice. The legal profession must make its services available to the needy by developing its public sector. The Commission also recommended that Maintenance of irreducible minimum standards of the profession is a must for ensuring accountability of the legal profession. Referring to the lawyers’ fee as barrier to access to justice, it was observed that it was the duty of the Parliament to prescribe fee for services rendered by members of the legal profession. First step should be taken to prescribe floor and ceiling in fees.

The Supreme Court Bench noted that though the 131st Report was submitted in the year 1988, no effective law has been enacted to regularize the fee or for providing the public sector services to utmost needy litigants without any fee or at standardized fee.

That mandate for the Bench and the bar is to provide speedy and inexpensive justice to the victim of justice and to protect their rights. The legal system must continue to serve the victims of injustice.

The Court also made reference to 266th Report dated 23rd March, 2017 of the Law Commission, wherein the Commission considered the issue of review of regulatory framework of the legal profession and prepared the Advocates (Amendment) Bill, 2017.

The Supreme Court’s verdict in the case is an essential one as it renders an in-depth analysis of professional misconduct by Advocates. Two legal principles that the Supreme Court settles in the instant case are:

  • Advocate’s Fee based on Percentage of Result of Litigation is Illegal
  • Claim based on percentage of subject matter in litigation could not be the basis of a complaint under Section 138 of the Act.

 

 

[1] (1955) 1 SCR 490

About the Author

Shilpi Sharan

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Shilpi Sharan is the Editor at Vakilno1.com – an Advocate with extensive knowledge in myriad fields of Law. She has a flair of writing and has legal publications in national and international law magazines to her credit. She focuses on legal research and aims at raising public awareness of laws in India.