2017 (12) TMI 395 - SC - Indian Laws

Proceedings initiated against the appellant u/s 138 of the NI Act - professional misconduct on the part of an advocate - charging fees as percentage of reward - Held that - 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. After the hearing was concluded, learned counsel for Respondent No.2 mentioned the matter to the effect that Respondent No.2 wanted to withdraw the complaint. An e-mail to this effect was also handed over to Court. The same has been kept on the record. However, we did not permit this prayer. Having committed a serious professional misconduct, the respondent No.2 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.

Issues Involved:
1. Legally enforceable debt under Section 138 of the Negotiable Instruments Act, 1881.
2. Ethicality and legality of advocate fees based on a percentage of the decretal amount.
3. Fiduciary relationship and professional misconduct of advocates.
4. Regulation and standardization of advocate fees.

Detailed Analysis:

1. Legally Enforceable Debt Under Section 138 of the Negotiable Instruments Act, 1881:
The appellant contested the High Court's decision to not quash proceedings under Section 138 of the Negotiable Instruments Act, 1881, arguing there was no legally enforceable debt. The appellant claimed that the cheque was taken under duress and that the fee demanded by the respondent was exorbitant and unethical. The High Court had dismissed the quashing petition, stating that the Advocates' Fee Rules were only for guidance and did not bar claims beyond the fixed amount.

2. Ethicality and Legality of Advocate Fees Based on a Percentage of the Decretal Amount:
The appellant argued that charging a fee based on a percentage of the decretal amount violated Section 23 of the Indian Contract Act, 1872, being against public policy and professional ethics. The Supreme Court examined this issue, referencing various judgments that condemned such practices as professional misconduct. For instance, the Bombay High Court in Re: KL Gauba and the Supreme Court in Mr. G., a Senior Advocate of the Supreme Court, held that fees contingent on the success of a case undermined the profession's status and were unworthy of the legal profession.

3. Fiduciary Relationship and Professional Misconduct of Advocates:
The appellant alleged that the respondent exploited the fiduciary relationship by forcing her to sign the cheque. The Supreme Court highlighted that the relationship between a lawyer and client is one of trust and confidence, and any fee agreement based on a share in the subject matter of litigation is professional misconduct. The Court referenced Rule 20 of Part VI, Chapter II, Section II of the Standard of Professional Conduct and Etiquette, which prohibits advocates from stipulating fees contingent on litigation outcomes.

4. Regulation and Standardization of Advocate Fees:
The judgment discussed the broader issue of regulating advocate fees to ensure access to justice, as mandated by Article 39A of the Constitution. The Court noted the recommendations of the Law Commission of India, which suggested that the Parliament should prescribe a floor and ceiling for legal fees to prevent exploitation and ensure that legal services are accessible to all. The Court emphasized the need for legislative changes to strengthen the regulatory mechanism for the legal profession, ensuring accountability and adherence to professional ethics.

Conclusion:
The Supreme Court quashed the proceedings against the appellant under Section 138 of the Negotiable Instruments Act, 1881, stating that the claim of the respondent advocate was against public policy and constituted professional misconduct. The issue of professional misconduct was left to be dealt with at the appropriate forum. The Court also underscored the need for legislative reforms to regulate advocate fees and uphold professional ethics, ensuring access to justice for all citizens. The appeal was disposed of accordingly.

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