Lawyers’ Fees: [Supreme Court wants CAP] [Litigation Funding is Legal] but [Percentage Fee is Illegal]

I personally of the view that in India, Legal Profession is too costly and in fact such is the fee charged that for MSME and Start-ups and individuals and middle class and poor people it is almost not possible to approach Court for any remedy and this is totally against the concept of legal services at least in India and hence there shall be a law to regular the Legal Fees and there has been a debate going around since a long time but yet is pending.

There is no doubt that the Legal Profession has become a pure commercialized business and the same has been acknowledged even by Bombay High Court in its Judgement passed in one of the cases being argued as to whether Service Tax is made applicable for Lawyers and Law firms or not. That is the different story that Bombay High Court allowed Service Tax being charged to Lawyers and Law firms but the Supreme Court stayed the same. I personally feel  that there is no reason to run from the fact that the Legal Profession is a commercialized business and profit-making business. Here I am only discussing the wrong logic of Courts and of various experts when it comes to stating on Lawyer Fees.  

Hon’ble Supreme Court in Sunitha Vs State of Telangana & Anr made a scathing attack on high fees being charged by Legal Professionals and categorically held that Advocate’s fee based on a percentage of the result of the litigation was illegal (Dated: 05.12.2017). Hon’ble Supreme Court favors a law to check the growing commercialization of the legal profession and to “prescribe floor and ceiling in fees” to ensure the poor were not nudged out of the justice delivery system. “It was observed that like public hospitals for medical services, the public sector should have a role in providing legal services for those who cannot afford the fee,” the bench said, citing the 131st law commission report. Hon’ble Supreme Court has also called the Centre to regular Legal Profession and to Cap Legal Fees.

From the above reading, the Supreme Court has agreed that the Legal Profession has become a pure commercialized business and hence there is no reason as to why no GST is being made applicable to Lawyers and Law firms. However, further, the Supreme Court is in favor of putting the limit on the High Fees charged by the Lawyers which is a good intention but at the same time have not made Litigation Funding illegal and in fact, have favor Litigation funding.

Litigation funding, the term means the third party who will fund the case for Aggrieved Party and this is very much a common factor in foreign litigation. However, this term is not common in India, and in fact, there are certain sections who have started this funding but there are many criteria to understand the concept of Litigation Funding/Third Party Funding as executing any agreement without understanding will lead to disaster in terms of monetary understanding and sharing.

How actually this Litigation Funding works?

If A has a case and is not intending to take a risk but has a good case, then, in that case, A can be referred to Funders who normally do not take the case until they find that the case of A is good and also the Opposite Party is in position to make the payment and once their due-diligence report is done, an agreement will be executed and in that agreement, normally the terms are that if A wins the case, then A has to pay a certain percentage of money to funder party and if lost, then A does not have to pay anything.

Whether to opt for or not?

The concept is not good for all legal matters and especially not for recovery matters where the matters are straight forward as assuming the case of the Aggrieved Party is strong then it is always better to speak to Legal Advisor and take the case without getting with Litigation Funding as assuming the matter is funded, then paying certain percentage may not be beneficial.

Litigation funding is also called as Third-Party Funding. In 2015, the Supreme Court in “Bar Council of India v. AK Balaji”, clarified the legal permissibility of Third-Party Funding in litigation and observed that “There appears to be no restriction on third parties (non-lawyers) funding the litigation and getting repaid after the outcome of the litigation.”. As on date, there is no legislative instrument that regulates such funding. However, the (Indian) Code of Civil Procedure, 1908 as amended by a few Indian states including Maharashtra, Karnataka, Gujarat, and Madhya Pradesh, expressly acknowledges the role of the financier of litigation costs of a plaintiff and sets out the situations when such financier may be made a party to the proceedings. TPF has also received favorable reference in the report of the High-Level Committee to review the Institutionalization of Arbitration Mechanism in India (2017). The Bar Council of India Rules does not explicitly prohibit litigation funding by advocates. However, it has been noted in one of the cases that “a conjoint reading of Rule 18, Rule 20, Rule 21 and Rule 22 indicates that advocates in India cannot fund the litigation on behalf of their clients.

One needs to understand that even the third-party funder who will fund the cases will charge on a percentage basis as for them this will be a business and if so, then allowing the Lawyer to charge the fee on a percentage basis is not illegal and in fact, the best the government can do is to bring the fixed percentage on percentage and ensure all money being made via Banking system so that there is clarity on fees being charged. There is no reason or logic is made when the Litigation Funding is made legal and percentage illegal as Litigation Funding is as risky as making percentage fee-based work legal. But instead of making it illegal is not the correct step. There is no doubt that in today’s era, all the lawyers are using Technology and are paying online to ensure their presence and in fact, there are many online platforms such as Urban claps, Just dial, Path legal, BNI, etc who ensures a lawyer to give clients and they charge commission and hence stopping this will not make any good steps for a lawyer and their growth. Bar Council has to think about the future of the legal system and its manner of advertisement as there cannot be any bar to not allow them to work. There is nothing secret that all the magazines now are paid and all the interviews and publishing of articles are paid and in fact, awards are also paid and is used as an advertisement and hence the recent circular regarding the independent research entity giving the category of position in the market.

It is very much relevant to note that due to COVID 19 Lockdown, the economy is surely not good but coming to the economy of Legal market, there is no second thought that post lockdown, it will not be possible for the SME, individuals, start-ups to make the regular payment to Lawyers for their matter and at the same time making percentage fee illegal will only make them find Litigation Funders whom no doubt will ensure a hefty commission for helping them which is not the intention of the Law and if so, then the reason for not allowing commission-based fee to Lawyers seems illogical. All the businesses are affected by Lockdown and this has indirectly affected the Lawyers as neither the Lawyers can charge a percentage fee from clients to make them feel comfortable and leaving them to charge a low amount which is not good for making their profession sustain in the ever-increasing costs.

I believe let’s make the Taxation rules be made applicable for Law firms having turnover of more than 50 Crores and mandatory payment of fees via Bank in majority manner and a change in an advertisement for Lawyers and other aspects. Not sure why such issues are left pending since long

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Qualification: LL.B / Advocate
Location: Maharashtra, IN
Member Since: 01 May 2020 | Total Posts: 39
I have been in Law Practice since more than 15 Years . My practice areas include: (a) Drafting of Commercial and Non-commercial Agreements/Contracts; (b) Recovery Matters before all Forums/Courts; (c) Arbitration and Conciliation; (d) Cross-Examination, Admission and Interim Stay; (d) Devising Strat View Full Profile

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March 2021