Saturday, 27 April 2019

Whether Advocate representing party before Arbitrator can enter in to contingent contract with party for his fees?

In his deposition at Exhibit-25 the said partner had admitted that before the arbitrator he had appeared as a counsel for the defendant. It is in the light of this piece of evidence that the defendant has sought to rely upon dictionary meaning of the word “counsel”.As per dictionary meaning of said word it means advise or assistance/one or more lawyer who represents a client. It is on this basis that it is urged that the said partner being a qualified Advocate, he was precluded from seeking remuneration on the basis of the outcome of the proceedings in which he represented the defendant.
12. In Re K.L Gauba (supra) the provisions of Section 23 of the Act of 1872 were considered in the light of a contingent contract entered into by an Advocate with his client. It is in that context and after finding that Mr. Gauba had represented his client as an Advocate, it was held that the contingent contract entered into between the said parties which created a financial interest in the subject matter of the cause on a successful determination of the suit was unworthy of the legal profession. On that basis it was held that the said agreement was opposed to public policy and the conduct of the said Advocate amounted to professional misconduct. The aforesaid decision of the Division Bench has been affirmed by the Honourable Supreme Court. In the matter of Re Mr. Gauba (supra) in paragraph 11 thereof it has been observed that the rigid English rules of champerty and maintenance do not apply in India but if such agreement had been entered into between third parties it would have been legally enforceable and good. It was 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 was not concerned. The Honourable Supreme Court however observed that it was not the question it had to actually consider.
13. The aforesaid observations though in the passing are in the nature of obiter dicta and hence binding on this Court. 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.
14. There is no evidence on record to indicate that the partner of the plaintiff-firm acted as an Advocate so as to represent the defendant in the arbitration proceedings. The learned counsel for the plaintiff has rightly relied upon the provisions of Order III Rules 1 and 2 of the Code along with Section 2(15) of the Code. Section 2(15) of the Code defines the expression “pleader” to mean any person entitled to appear and plead for another in Court and includes an advocate, a vakil and an attorney of a High Court. Order III Rules 1 and 2 presumes appearance before the Court as well as recognises agent. A ‘pleader’ has been defined in the Black's Law Dictionary as a person who pleads in Court on behalf of the another.
15. From the aforesaid it becomes clear that the partner of the plaintiff-firm had represented the defendant in the arbitration proceedings as a counsel. That representation before the arbitrator could not be said to be a representation before the Court. There is however no material on record to indicate that the said partner conducted the proceedings before the arbitrator as an Advocate. 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. The law as laid down in B. Sunitha (supra) therefore would not apply to the facts of the present case and there is no basis whatsoever to hold that the agreement dated 14/08/2007 under which the plaintiff was entitled to receive fees based on the outcome and valuation of the award was contrary to Section 23 of the Act of 1872. Point No.(i) is accordingly answered by holding that the agreement dated 14/08/2007 at Exhibit-31 was not hit by the provisions of Section 28 of the Act of 1872.

In the High Court of Bombay
(Before A.S Chandurkar, J.)

Jayaswal Ashoka Infrastructures Pvt. Ltd. v. Pansare Lawad Sallagar 

First Appeal No. 106 of 2015
Decided on March 7, 2019
Citation:2019 SCC OnLine Bom 578

The Judgment of the Court was delivered by
A.S Chandurkar, J.:— This appeal under Section 96 of the Code of Civil Procedure, 1908 (for short, the Code) has been preferred by the original defendant as it is aggrieved by the decree passed by the trial Court directing it to pay an amount of Rs. 1,28,37,817/- with interest at the rate of 9% per annum.
2. The facts as can be gathered from the plaint are that according to the plaintiff it is a partnership firm duly registered and engaged in providing consultancy services in arbitration matters. The defendant firm was engaged in construction works and was assigned Government contracts. On account of disputes between the defendant-firm and the State Government, the defendant approached the plaintiff seeking consultation over the issues involved. After such consultation the defendant agreed to avail the services of the plaintiff-firm in the arbitration proceedings. An agreement was accordingly entered into between the parties on 14/08/2007. As per that agreement the manner in which the defendant was to be represented in the arbitration proceedings was agreed to. One of the terms of the agreement was that the plaintiff would be entitled to 1% of the award amount up to Rs. 1,00,00,000/- and 1.50% of the award amount over the amount of Rs. 1,00,00,000/-. According to the plaintiff it participated in the arbitration proceedings on behalf of the defendant and based on the result of said arbitration proceedings, it raised a claim for an amount of Rs. 1,28,37,817/- for the amount due for the services rendered. As the aforesaid amount was not paid despite demand, the plaintiff filed suit for recovery of the aforesaid amount with interest.
3. The defendant filed its written statement denying the claim as made. It was denied that any amount of fees was agreed to be paid to the plaintiff as contended. It was denied that the agreement in question was accepted by the defendant and hence it was pleaded that the same was not binding on the plaintiff.
4. Before the trial Court the plaintiff examined it partner at Exhibit-25 and relied upon various documents. The defendant examined its authorised signatory and also relied upon various documents. After considering the evidence on record the trial Court held that the agreement at Exhibit-31 was duly proved by the plaintiff and that the defendant did not prove that the said agreement was merely a quotation. On these findings the trial Court by its judgment dated 26/11/2014 decreed the suit and directed payment of the decreetal amount with interest at the rate of 9% per annum. Being aggrieved by that decree the defendant filed the present appeal.
5. In support of the appeal Shri D.V Chavan learned counsel for the appellant made the following submissions:
(a) The suit could have been decreed on the strength of the agreement dated 14/08/2007 at Exhibit-31 as the said agreement was hit by the provisions of Section 23 of the Contract Act, 1872 (for short, the Act of 1872). It was submitted that since one of the terms of the agreement entitled the plaintiff to seek remuneration based on the result of the arbitration proceedings, that stipulation in the agreement was opposed to public policy. He referred to the agreement at Exhibit-31 and submitted that on its entire perusal it was clear that Item-7 of the said agreement on the basis of which the claim was made was opposed to public policy. It was urged that the partner of the plaintiff-firm being a qualified lawyer he was precluded from demanding and thereafter prosecuting the claim which was based on the outcome of the arbitration proceedings. Reference was also made to the dictionary meaning of the word “pleader” and “counsel” by referring to the Black's Law Dictionary and relying upon the judgments of the Division Bench of this Court In Re K.L Gauba1954 Cr.L.J 1531 and B. Sunitha v. State of Telangana(2018) 1 SCC 638, it was submitted that even if it was assumed that the partner of the plaintiff-firm did not act as a lawyer for the defendant, the same would not be material as the said stipulation in the agreement was hit by Section 23 of the Act of 1872. It was conceded that though this specific plea was not raised in the written statement, it being a mere question of law it was being raised in the present appeal and hence it required consideration. It was submitted by referring to paragraph 17 of the impugned judgment that this plea was argued before the trial Court.
(b) It was not proved by the plaintiff that the agreement dated 14/08/2007 was duly executed by the persons competent to represent the defendant-firm. He referred to the pleadings in the written statement and the deposition of the defendant's witness in that regard and submitted that there was no material on record to indicate that the said agreement was competently executed by the defendant.
(c) The stipulation in Clause-7 as regards “fees for award” would mean that said stage would be reached only when the award attained finality. That stage had not yet been reached and the amounts under the award had not been received by the defendant-firm. Hence the demand as made was premature in view of the Clause-7 and the trial Court was not justified in decreeing the suit based on the said agreement.
6. It was thus submitted that the judgment of the trial Court was liable to be set aside and the appeal ought to be allowed.
7. Shri Yash Maheshwari, learned counsel for the respondent on the other hand supported the impugned judgment. According to him:
(a) The partner of the plaintiff-firm was not a registered Advocate under The Advocate's Act, 1961 (for short, the Act of 1961) and hence there was no bar to receive any remuneration based on the outcome of the arbitration proceedings. He referred to the Bar Council of India Rules as framed under the Act of 1961 and especially Chapter-II in Part-VI of the said Rules and submitted that Rule 20 thereof was applicable only to an Advocate. He further referred to the provisions of Section 29 of the Act of 1961 to urge that the agreement in question did not foul of the provisions of Section 23 of the Act of 1872. Clause-7 of the agreement at Exhibit-31 could merely be described as performance based fees/incentives. He also referred to the provisions of Section 2(15) of the Code along with the provisions of Order III Rules 1 and 2 of the Code in that regard. According to him the judgment of the Division Bench relied upon by the learned counsel for the appellant was affirmed by the Honourable Supreme Court in the matter of Mr. G, a Senior Advocate of the Supreme Court, AIR 1954 SC 557. Since the partner of the plaintiff was not a legal practitioner as sought to be urged, there was no question of the provisions of Section 23 of the Act of 1872 being attracted. He then submitted that the said ground as urged in the appeal was not even raised in the memorandum of appeal and hence it did not warrant acceptance.
(b) The finding recorded by the trial Court that the agreement at Exhibit-31 was competently executed was based on the evidence on record. No grievance whatsoever was raised by the defendant in that regard during the arbitration proceedings and such challenge had no merit.
(c) The interpretation of Clause-7 as sought to be made by the appellant was incorrect. According to the learned counsel the remedy available under Section 34 of the Arbitration and Conciliation Act, 1996 could not be termed as an appellate remedy.
8. It was likely that an award even if passed would not be executed though it had become final. It was thus submitted that on the arbitrator making his award, Clause-7 of the agreement would come into operation and the claim as made by the plaintiff-firm was thus enforceable. It was then submitted that the defence as raised by the defendant was frivolous and in fact amounted to an abuse of the process of the Court. Since the defendant had protracted the matter by raising a frivolous and fanciful defence, it was submitted that exemplary costs should be imposed on the defendant. In that regard reference was made to the decisions in Ramrameshwari Devi v. Nimrala Devi(2011) 8 SCC 249 and Padmawati v. Harijan Sewak Sangh(2012) 6 SCC 460. It was thus submitted that the appeal was liable to be dismissed with exemplary costs.
9. In the light of aforesaid submissions the following points arise for adjudication:
(i) Whether the agreement dated 14/08/2007 was hit by the provisions of Section 23 of the Act of 1872?
(ii) Whether the agreement dated 14/08/2007 was competently executed?
(iii) Whether the fees payable were only after the award attained finality?
10. I have heard the learned counsel for the parties at length and with their assistance I have perused records of the case.
As to point No.(i)
11. In this regard if the written statement filed by the defendant at Exhibit-21 is perused it can be seen that there is no specific defence raised therein that the agreement dated 14/08/2007 was hit by provisions of Section 23 of the Act of 1872 on the ground that it entitled the plaintiff to seek remuneration on the basis of outcome of the arbitration proceedings. Hence, merely on the basis of the contents of Exhibit-31 the aforesaid aspect as to the said agreement not being lawful is required to be considered. In the agreement dated 14/08/2007 there is reference to providing professional services at the instance of the plaintiff-firm in the proceedings before the arbitrator. The said agreement has been signed by a partner of the plaintiff-firm. In his deposition at Exhibit-25 the said partner had admitted that before the arbitrator he had appeared as a counsel for the defendant. It is in the light of this piece of evidence that the defendant has sought to rely upon dictionary meaning of the word “counsel”. As per dictionary meaning of said word it means advise or assistance/one or more lawyer who represents a client. It is on this basis that it is urged that the said partner being a qualified Advocate, he was precluded from seeking remuneration on the basis of the outcome of the proceedings in which he represented the defendant.
12. In Re K.L Gauba (supra) the provisions of Section 23 of the Act of 1872 were considered in the light of a contingent contract entered into by an Advocate with his client. It is in that context and after finding that Mr. Gauba had represented his client as an Advocate, it was held that the contingent contract entered into between the said parties which created a financial interest in the subject matter of the cause on a successful determination of the suit was unworthy of the legal profession. On that basis it was held that the said agreement was opposed to public policy and the conduct of the said Advocate amounted to professional misconduct. The aforesaid decision of the Division Bench has been affirmed by the Honourable Supreme Court. In the matter of Re Mr. Gauba (supra) in paragraph 11 thereof it has been observed that the rigid English rules of champerty and maintenance do not apply in India but if such agreement had been entered into between third parties it would have been legally enforceable and good. It was 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 was not concerned. The Honourable Supreme Court however observed that it was not the question it had to actually consider.
13. The aforesaid observations though in the passing are in the nature of obiter dicta and hence binding on this Court. 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.
14. There is no evidence on record to indicate that the partner of the plaintiff-firm acted as an Advocate so as to represent the defendant in the arbitration proceedings. The learned counsel for the plaintiff has rightly relied upon the provisions of Order III Rules 1 and 2 of the Code along with Section 2(15) of the Code. Section 2(15) of the Code defines the expression “pleader” to mean any person entitled to appear and plead for another in Court and includes an advocate, a vakil and an attorney of a High Court. Order III Rules 1 and 2 presumes appearance before the Court as well as recognises agent. A ‘pleader’ has been defined in the Black's Law Dictionary as a person who pleads in Court on behalf of the another.
15. From the aforesaid it becomes clear that the partner of the plaintiff-firm had represented the defendant in the arbitration proceedings as a counsel. That representation before the arbitrator could not be said to be a representation before the Court. There is however no material on record to indicate that the said partner conducted the proceedings before the arbitrator as an Advocate. 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. The law as laid down in B. Sunitha (supra) therefore would not apply to the facts of the present case and there is no basis whatsoever to hold that the agreement dated 14/08/2007 under which the plaintiff was entitled to receive fees based on the outcome and valuation of the award was contrary to Section 23 of the Act of 1872. Point No.(i) is accordingly answered by holding that the agreement dated 14/08/2007 at Exhibit-31 was not hit by the provisions of Section 28 of the Act of 1872.
As to Point No.(ii)
16. In this regard it is to be seen that DW-1, Satish in his deposition has clearly admitted that Jairam Raman and Anil Gandhi were assisting and representing the defendant in the arbitration proceedings. The Company had through its authorised representative executed a special Power of Attorney at Exhibit-75 in favour of these two persons. The burden to prove that these two persons were not competent to enter the agreement dated 14/08/2007 or that they were not representing the defendant-Company was on the defendant. However, there is no such evidence is brought on record by the defendant. Moreover, the trial Court has observed that the said witness had avoided to give proper answers with a view to conceal the truth from the Court. It is on that basis that the agreement at Exhibit-31 came to be signed by the authorised representatives who in turn engaged the plaintiff-Firm to represent the defendant in the arbitration proceedings. In the light of the evidence on record it is clear that the agreement dated 14/08/2007 was competently executed by the authorised signatories who were empowered by the defendant. Point No.(ii) is answered accordingly.
As to point No.(iii)
17. In this regard it is to be seen that as per the agreement at Exhibit-31 the fees in question were to be paid after passing of the award. Clause-7 in that agreement reads “fees after award”. There is no indication in the said agreement that only after the award as passed attains finality and the amount under award is received by the defendant-Company that such fees would be payable. There is again no evidence on record to justify the contention sought to be raised by the defendant that the fees were payable only after the award attained finality and that the Company received the amount under award. It is rightly submitted on behalf of the plaintiff that even if an award becomes final the same may not be executed and therefore the contention sought to be raised by the defendant was neither logical nor practicable. In that view of the matter point No.(iii) is answered by holding that the fees were payable after the award was passed as stated in the agreement at Exhibit-31. However this does not mean that the award has to attain finality or that it has to be executed.
18. The learned counsel for the plaintiff sought imposition of exemplary costs on the defendant in view of the fact that the defendant did not comply with the terms of the agreement dated 14/08/2007 and instead raised frivolous defences to defeat the right of the plaintiff. It was submitted that even in absence of any triable issues, the matter before the trial Court was prolonged for no justifiable reasons. It is found that the defendant-Company sought to dispute its liability under the agreement. It took recourse to various provisions of law in that regard and according to the learned counsel for the defendant the entire amount under award had not been received by the Company. The defendant has failed in proving those defences. In the facts of the case I do not find that it is a case for imposing exemplary costs on the defendant. The appeal is however liable to be dismissed with costs.
19. In the light of aforesaid discussion there is no reason to interfere with the judgment of the trial Court. First Appeal No. 106 of 2015 is thus dismissed with costs. The decree passed by the trial Court stands confirmed. After period of eight weeks from today it is open for the decree-holder to proceed with the execution of the decree.
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