Bom HC | Not unlawful for an Advocate to enter into a “contingent contract” while appearing in capacity of a “counsel” in arbitration proceedings

Bombay High Court: A.S. Chandurkar, J., clarified that a contract whereby an advocate asks for the fee based on the outcome of the arbitration proceedings, wherein he acted in the capacity of a “counsel” for the party and did not appear as an “advocate”, is valid.

It is pertinent to note that such contracts (generally called a contract for a contingent fee) are held to be opposed to public policy and hence void under Section 23 of the Contract Act, 1872 where such contract is entered into by an Advocate with his client.

In the present case, the respondent was a partnership firm engaged in providing consultancy services in arbitration matters. They entered into an agreement with the appellant as per which, they were to represent the appellant in an arbitration proceeding. As per the terms of the agreement, the respondent would be entitled to 1% of the award amount upto Rs 1 crore, and 1.5% thereof over Rs 1 crore. Based on the result of the arbitration proceedings, the respondent raised a claim for an amount of over Rs 1.28 crores. However, the appellant did not pay the amount and the respondent filed a recovery suit which was allowed by the trial court.

An important question before the High Court was — whether the agreement was hit by the provisions of Section 23 of the Contract Act, 1872?

D.V. Chavan, Advocate appearing for the appellant urged that the partner of the respondent firm who appeared in the arbitration proceeding was a qualified advocate, and thus he was precluded from seeking remuneration on the basis of the outcome of the proceedings in which he represented the appellant. Per contra, Yash Maheshwari, Advocate representing the respondent submitted that the partner concerned of the respondent firm was not a registered advocate under the Advocates Act, 1961.

The Court discussed the decision of ‘G’, a Senior Advocate of the Supreme Court, In re, AIR 1954 SC 557 and noted that in Paragraph 11 of that case, the Supreme Court observed that there was nothing morally wrong, nothing to shock the conscience, nothing against public policy and public morals in such a transaction “per se” when a legal practitioner is not concerned. Also, such agreements are legally enforceable when entered into between third parties.

Noting that the “aforesaid observations” though in the passing are in the nature of obiter dicta and hence binding on this Court.”, the High Court observed, “The aforesaid observations are clear that with regard to such an agreement in which a legal practitioner is not involved, the same would be legally enforceable. It is thus clear that an agreement of the aforesaid nature if entered into by an Advocate would be against public policy and the same may not be so when third parties are involved.”

As per the Court, there was no evidence to indicate that the partner of the respondent firm acted as an “Advocate while representing the appellant; in fact, he represented them only as their counsel, and the representation before the arbitrator could not be said to be a representation before the Court. It was held: “Mere fact that the said partner happened to be a law graduate by itself would not be sufficient to conclude that the agreement entered into by him for being entitled to remuneration based on the outcome of the arbitration proceedings would render that agreement contrary and opposed to public policy and hence void under Section 23 of the Act of 1872.”

On such view of the matter, along with the decision on other points which also went against the appellant, the Court dismissed the present appeal and confirmed the decree passed by the trial court. [Jayaswal Ashoka Infrastructure (P) Ltd. v. Pansare Lawad Sallagar, 2019 SCC OnLine Bom 578, decided on 07-03-2019]