Champerty agreements and MOU to influence government outcomes are void as opposed to public policy.

The dispute concerns 22 grounds of land in Mogappair Village.

The appellant, O. Muthu, entered into a Memorandum of Understanding (MoU) on 28.07.2010 with M.K. Phandian and D.Balan (the purported agreement holders) to retrieve the land from Land Acquisition and Urban Land Ceiling proceedings using his "influence with the Government".

The original owner’s legal heirs (Respondents 1 & 2) were not parties to this MoU.

A retired Deputy Collector, acting as Sole Arbitrator, passed an award on 23.03.2015 directing the Respondents to pay Rs. 24,00,00,000/- as compensation to the appellant.

A Single Judge of the Madras High Court set aside the award under Section 34 of the Arbitration and Conciliation Act, holding the agreement was a champerty and opposed to public policy.

The appellant challenged this before the Division Bench.

1. Whether the Memorandum of Understanding dated 28.07.2010 was a champertous agreement and opposed to public policy under Section 23 of the Indian Contract Act.

2. Whether an arbitration award based on an unlawful agreement and passed without evidence of damages is patently illegal and liable to be set aside.

The Court primarily applied Section 34 of the Arbitration and Conciliation Act, 1996, regarding the setting aside of arbitral awards on grounds of public policy and patent illegality.

It relied on the principle of Champerty, defined as a proceeding where a stranger bargains to carry on a suit in consideration of a share of the subject matter.

The Court specifically cited Rattan Chand Hira Chand v. Askar Nawaz Jung (Dead) (1991) 3 SCC 67, which establishes that agreements to influence authorities or solicit litigation are unenforceable, void ab initio, and opposed to public policy.

The Court found that the MoU was legally untenable because it tasked the appellant with "negotiating" with the Government and "accommodating senior counsels" to retrieve land in which the contracting parties (Phandian and Balan) had no established title.

The Court observed that the owners of the land were not parties to the MoU, yet the Arbitrator erroneously bound them to pay a massive sum.

Furthermore, the Court determined that the Arbitrator awarded Rs. 24 Crores—significantly exceeding the original consideration of Rs. 1 Crore—without any evidence or legal basis, characterizing the entire arbitration process as a fraud played upon the respondents.

The agreement was deemed a champerty because it involved a third party (the appellant) speculating on litigation for financial gain.

The Court held that the MoU was unlawful, void ab initio, and opposed to public policy.

The Arbitrator’s award was declared a "fraud" and unenforceable.

Consequently, the Court imposed exemplary costs of Rs. 50,000/- per appeal on the appellant, payable to the Tamil Nadu State Legal Services Authority, with directions for revenue recovery if unpaid.