Tarikh pe tarikh: Can contingency fees mitigate Indian litigants’ woes?

In India, contingency fee arrangements in lawsuits, where lawyers charge fees based on the outcome, are explicitly prohibited under the Bar Council of India (BCI) Rules. Specifically, Rule 20 of the Standards of Professional Conduct and Etiquette, under Section IV, Chapter II, Part VI of the BCI Rules, forbids advocates from charging fees contingent upon litigation results or agreeing to share the proceeds of litigation. The rationale behind this prohibition is ostensibly to maintain professional independence, prevent potential conflicts of interest, and uphold the dignity of the legal profession.

However, this rationale sounds a tad droll, especially when juxtaposed with the ground realities of the Indian legal system.

The Indian judicial system is plagued by inefficiency, with cases often dragging on for years, even decades, due to frequent adjournments (Tarikh pe Tarikh) and procedural delays. Lawyers, whose fees are typically tied to appearances or time spent rather than outcomes, have little incentive to expedite proceedings. This reality challenges the notion that prohibiting contingency fees upholds ethics or enhances justice. Instead, it raises fundamental questions about access to justice and the alignment of incentives in the existing legal framework.

Consider the example of a litigant pursuing an insurance claim of ₹50,000 denied by an auto insurance company, notwithstanding the legitimacy of the claim. Let’s say the case takes two years to resolve, involving multiple, say eight, adjournments. Ultimately, the court rules in favour of the claimant, awarding ₹60,000, including ₹6,000 in litigation costs and ₹4,000 in compensation for mental anguish. On paper, this appears to be a victory. However, the litigant incurs upfront legal fees of ₹20,000 and additional charges of ₹2,000 per court appearance for each adjournment, amounting to ₹36,000. Factoring in other incidental expenses like travel and documentation, the litigant’s net recovery falls significantly short of the original claim amount. Meanwhile, the insurance company merely pays the claim it was obligated to pay initially, saving on interest over two years.

The prohibition particularly impacts economically disadvantaged litigants who cannot afford substantial upfront and periodic legal costs. This effectively bars them from seeking justice, regardless of their claims’ merit. Contingency fee arrangements could enable these litigants to pursue legitimate claims without bearing prohibitive initial costs, democratizing access to quality legal services and empowering marginalized groups to assert their rights against institutional exploitation.

Beyond access issues, the current fee structure fundamentally misaligns incentives. Lawyers, guaranteed payment regardless of outcomes, may benefit from prolonged litigation through additional appearance fees. This system not only fails to encourage efficient resolution but actively rewards delay. Contingency fees would realign these incentives by linking lawyer remuneration to client success, encouraging more diligent and expeditious case handling.

The absence of contingency fees also stifles competition among legal practitioners. Without alternative fee structures, lawyers face little pressure to innovate or reduce costs, leading to artificially inflated legal fees. Allowing contingency arrangements would introduce market dynamics, fostering efficiency and affordability in legal services. Critics of contingency fees often argue that such arrangements could encourage frivolous litigation. However, this concern appears unfounded. Lawyers operating on a contingency basis are unlikely to take on weak cases with slim chances of success, as their payment depends on winning. Conversely, the current system, where lawyers are paid irrespective of outcomes, creates no deterrent against pursuing meritless claims.

The prohibition on contingency fees also restricts freedom of contract between lawyers and clients, reflecting a paternalistic approach that assumes clients cannot make informed decisions about fee arrangements. This paternalistic stance ignores the fact that many advanced legal systems successfully incorporate contingency fees while maintaining high professional and ethical standards. Countries like the United States where contingency fees are common, demonstrate that these arrangements can coexist with well-functioning legal practices through appropriate regulatory frameworks.

The ban on contingency fees also has implications for India’s international competitiveness. In cross-border litigation and collaborations with foreign law firms, the absence of contingency arrangements creates obstacles, potentially deterring international firms from engaging with Indian counterparts. This is particularly relevant in commercial litigation, where contingency fees could incentivize legal representation for complex, high-stakes cases. Addressing this gap would enhance India’s appeal as a destination for resolving international legal disputes.

Ethical concerns surrounding contingency fees, while valid, are not insurmountable. Many jurisdictions have successfully implemented measures to mitigate risks associated with such arrangements. Regulatory frameworks can ensure transparency, cap fees, and protect clients from exploitation. For instance, mandatory written agreements detailing the terms of contingency arrangements, cooling-off periods allowing clients to reconsider, and dispute resolution mechanisms can safeguard against abuse while promoting fairness.

The prohibition of contingency fees reflects an outdated approach that prioritizes abstract ideals over practical realities. It disproportionately affects marginalized litigants, perpetuates inefficiencies, and erodes confidence in the justice system. Reforming this framework to allow contingency fees would enhance access to justice, align incentives, reduce frivolous cases, and improve India’s global standing in legal matters.

Several steps are necessary to implement this reform. The Bar Council of India Rules should be amended to permit contingency fees with clear regulations defining permissible structures. The Advocates Act, 1961, must explicitly recognize such arrangements, providing oversight and accountability. Provisions in the Civil Procedure Code 1908 should be revised to accommodate contingency agreements and mandate their disclosure to courts.

A robust regulatory framework would include measures such as maximum caps on contingency fees for different types of cases, mandatory written agreements outlining the terms, and transparency requirements to ensure clients are fully informed. Additionally, mechanisms for resolving disputes between lawyers and clients would be essential to maintain trust in the system. Such a framework would strike a balance between promoting access to justice and upholding professional ethics.

In conclusion, the prohibition on contingency fees in India represents a missed opportunity to address systemic inefficiencies and inequities in the legal system. Allowing such arrangements, with appropriate safeguards, would democratize access to justice, incentivize efficiency, and align the legal profession with modern standards of accountability and fairness. Reforming this aspect of the legal framework is not just desirable—it is imperative for building a justice system that truly serves its people.