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Conditional Fee Agreements in India

The legal landscape is characterized by its dynamic nature, adapting to the prevailing societal demands. The notion of equitable access to justice is far from monolithic; rather, it stands as a safeguard for societal well-being. Within this framework, conditional fee agreements emerge-a system wherein lawyers' remuneration is contingent upon the outcome of legal proceedings. Notably, as far back as 1907, these arrangements were deemed ultra vires, found to be contrary to both public policy and the ethical principles governing the legal profession.

Several years have transpired since the pivotal Supreme Court judgment in Bar Council of India v. A.K. Balaji and Ors., which prominently underscored the significance of third-party funding. Within this legal context, the concept of champerty, involving third-party funding contingent upon the outcome of legal proceedings, was deemed to align with the parameters set by the law governing litigations.

Notably, the judiciary's pronouncement in this case also illuminated an implicit caveat associated with such funding arrangements-a prohibition on advocates financially supporting the clients they represent in the same legal dispute. This prohibition, stemming from the proscription of conditional fee agreements, renders the specification of legal fees in a manner contingent upon or tied to the client's legal outcome as legally impermissible.

These agreements are commonly referred to as 'no win, no fee' arrangements. In this framework, a successful outcome for the client entails the lawyers receiving a previously agreed-upon percentage from the damages awarded by the court. Conversely, should the legal proceedings yield an unfavorable result, the lawyer would not be entitled to any fees.

Although the nine-member bench in the case of Ganga Ram v. Devi Das in 1907 was among the earliest to elucidate the illegality of conditional fee agreements, the Supreme Court at that juncture principally advanced the rationale of 'public policy' and 'legal ethics' to substantiate its position. A nuanced understanding of this prohibition came to light in the case of B. Sunitha v. The State of Telangana & Anr.

Here, the Supreme Court expounded that the role of advocates must be in harmony with the directive laid out in Article 39A of the Constitution, which pertains to equal justice and free legal aid. Furthermore, the court affirmed that the maintenance of 'minimum standards of the profession' is imperative for ensuring accountability.

Moreover, the case of V. C. Rangadurai vs. D. Gopalan and Ors saw the Supreme Court delving deeper into the nature of the relationship between advocates and their clients. Labeling this relationship as 'fiduciary,' the court underscored the paramount significance of consent and highlighted the indispensable need for advocates to exhibit a 'high degree of fidelity and good faith.'

The apex court, in K.L. Gauba v. State of Maharashtra, went on to specify how conditional fee agreements stand in contradiction to the stipulations outlined in Article 39A. The bench asserted that such remuneration methods prompt advocates to align their interests with the litigation's outcome, thereby subjectively altering their role. This susceptibility, the bench contended, might lead advocates to adopt ethically questionable approaches, ranging from concessions and shortcuts to potential bribery.

  1. Bar Council of India v. A.K. Balaji (2018) 5 SCC 379.
  2. Ganga Ram v. Devi Das 61 P.R (1907).
  3. Sunitha v. State of Telangana, (2018) 1 SCC 638.
  4. V. C. Rangadurai vs. D. Gopalan and Ors, 1979 SCC (1) 308.

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