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Imposition Of Costs By Courts: Judicial Trend And Critical Analysis

Indian Judiciary is excessively overburdened and the pendency of cases is bound to increase in the aftermath of the ongoing pandemic when Courts are hearing only urgent matters, if at all. Several urgent steps are long needed to reduce the Courts' case load and one such step is for the Courts to effectively implement the regime of costsŁ as provided under Sections 35, 35A and 35B of Code of Civil Procedure, 1908 (hereinafter referred to as śCPC').

The concept of Costs:

The term costs is not defined in the CPC. As per Halsbury's Laws of England "Costs" signifies the sum of money which the court orders one party to pay another party in respect of the expenses of litigation incurred. Except where specifically provided by the statute or by rule of Court, the costs of proceedings are in the Court's discretion[1].

The principle underlying the levy of costs was very well articulated in Manindra Chandra Nandi vs. Aswini Kumar Acharjya[2]:
"... We must remember that whatever the origin of costs might have been, they are now awarded, not as a punishment of the defeated party but as a recompense to the successful party for the expenses to which he had been subjected, or, as Lord Coke puts it, for whatever appears to the Court to be the legal expenses incurred by the party in prosecuting his suit or his defence...

The theory on which costs are now awarded to a plaintiff is that default of the defendant made it necessary to sue him, and to a defendant is that the plaintiff sued him without cause; costs are thus in the nature of incidental damages allowed to indemnify a party against the expense of successfully vindicating his rights in court and consequently the party to blame pays costs to the party, without fault.Ł

Thus, the cardinal principle for levy of costs is that the party to blame pays to the party without fault.

Basic provisions on Costs in the CPC - Sections 35, 35A and 35B:

Section 35:
Section 35 (1) stipulates that subject to prescribed conditions and provisions of law, the Court shall have full power to determine by whom and to what extent costs are to be paid.
Section 35(2) clarifies that where the Court directs that any costs shall not follow the event, the Court shall state its reasons in writing.

The Commercial Courts Act, 2015 has amended certain provisions of the CPC (including Section 35)[3] where it applies to any suit in respect of a commercial dispute of a Specified Value[4]. The amendment gives clarity on the manner and extent of imposition of costs by the Commercial Courts.

Section 35A: Compensatory costs in respect of false or vexatious claims or defences

Section 35A (1) stipulates that if in any suit or other proceedings [excluding an appeal or revision] any party objects to the claim or defence on the ground that it is false or vexatious to the knowledge of the party making it, and if thereafter, such claim or defence is disallowed, abandoned or withdrawn, the Court may make an order for the payment to the objector by the party by whom such claim or defence has been put forward, of cost by way of compensation.

Section 35A (2) inter-alia provides that Court shall not make any such order for the payment of an amount exceeding three thousand rupees or exceeding the limits of its pecuniary jurisdiction, whichever amount is less.

Section 35A (3) clarifies that no person against whom an order has been made under this section shall, by reason thereof, be exempted from any criminal liability in respect of any claim or defence made by him.

Section 35A (4) provides that the amount of any compensation awarded under this section shall be taken into account in any subsequent suit for damages or compensation in respect of such claim or defence.

The Commercial Courts Act, 2015 has amended Section 35A by omitting sub-section 2. Thus the Courts are no longer restricted to order costs only upto rupees three thousand for any Suit in respect of a commercial dispute of a Specified Value[5].

Section 35B: Costs for causing delay

Section 35B (1) stipulates that if on any date fixed for the hearing of a suit or for taking any step therein, a party to the suit fails to take the required step or obtains an adjournment for taking such step, the Court may make an order requiring such party to pay to the other party such costs as would, in the opinion of the Court, be reasonably sufficient to reimburse the other party in respect of the expenses incurred by him in attending the Court on that date, and payment of such costs, on the date next following the date of such order, shall be a condition precedent to the further prosecution of:
  1. The suit by the plaintiff, where the plaintiff was ordered to pay such costs,
  2. The defence by the defendant, where the defendant was ordered to pay such costs.
Section 35B (2) provides that the aforesaid costs, if paid, shall not be included in the costs awarded in the decree passed in the suit; but, if not paid, a separate order shall be drawn up indicating the amount of such costs and the names and addresses of the persons by whom such costs are payable and the order so drawn up shall be executable against such persons.

Application of Section 35:

As per Section 35 (1), Court has discretion to order costs. Further, sub-section (2) is indicative of the legislative policy that ordinarily costs shall be awarded to the party who succeeds and if it is otherwise, the Parliament requires the court to record reasons for disallowing costs. Very often, the rule that costs should follow the event is observed in breach. Many of the cases are disposed of either by saying "no order as to costs" or "parties to bear their own costs."[6]

In the Salem Advocate Bar Association vs. Union of India[7], Supreme Court has observed:
The award of the cost of the suit is in the discretion of the Court. In Sections 35 and 35B, there is no upper limit of amount of cost awardable. Judicial notice can be taken of the fact that many unscrupulous parties take advantage of the fact that either the costs are not awarded or nominal costs are awarded on the unsuccessful party. Unfortunately, it has become a practice to direct parties to bear their own costs.

In large number of cases, such an order is passed despite Section 35(2) of the Code. Such a practice also encourages filing of frivolous suits. It also leads to taking up of frivolous defences. Further wherever costs are awarded, ordinarily the same are not realistic and are nominal. When Section 35(2) provides for cost to follow the event, it is implicit that the costs have to be those which are reasonably incurred by a successful party except in those cases where the Court in its discretion may direct otherwise by recording reasons thereof.

The costs have to be actual reasonable costs including the cost of the time spent by the successful party, the transportation and lodging, if any, or any other incidental cost besides the payment of the court fee, lawyer's fee, typing and other cost in relation to the litigation. It is for the High Courts to examine these aspects and wherever necessary make requisite rules, regulations or practice direction so as to provide appropriate guidelines for the subordinate courts to follow.Ł

It is an easily verifiable fact that Courts very often neither pass directions on costs nor assign any reason for the same. This is clearly in contravention to the mandate of Section 35 (2). Strengthened by such practice, some litigants, bereft of the fear of costs being imposed against them, unhesitatingly file cases as a time buying tactics knowing fully well that their case lacks merit. The result is harassment of the innocent litigant and piling up of unnecessary cases.

Further, a poor litigant who may have a meritorious case is apprehensive to litigate as after a long drawn legal battle, even if he manages to get a favourable order, the expenses he incurs on litigation cannot be recovered in the absence of directions as to costs. Thus, he prefers not to litigate. In a scenario where every litigant has a surety that even though it may be time taking, once he is able to get a favourable order (his case being meritorious) he shall be compensated for the cost of litigation too, he shall have a greater faith in the judicial system and more willingness to fight for his rights.

Some High Courts have provided in their Rules certain guidelines to aid the courts in the calculation of costs so as to ensure that ordered costs are actual or reasonable. For example the Karnataka High Court Rules provide that cost shall include loss of income during effective days hearing, conveyance charges and lodging charges, if any. Delhi High Court Rules provide the estimated advocate fees on pro rata basis depending upon the claim filed. However Rules would be rendered otiose if Courts do not change their attitude and start taking the provision of imposing costs more seriously.

Application of Section 35A:

In National Textile Corp. v. Kunj Behari Lal[8] Supreme Court has observed Frivolous litigation clogs the wheels of justice making it difficult to provide speedy justice to the genuine litigants.Ł

There are a large number of instances where the parties misuse the law and mislead the courts by filing false and vexatious pleas. In such instances also, Courts are reluctant to impose costs. Even if they impose costs, same are restricted to a partly sum of Rs. 3000/- which in present scenario is miniscule and hardly a deterrent.[9]

In Ashok Kumar Mittal vs. Ram Kumar Gupta[10] Supreme Court observed The present system of levying meagre costs in civil matters (or no costs in some matters), no doubt, is wholly unsatisfactory and does not act as a deterrent to vexatious or luxury litigation borne out of ego or greed, or resorted to as a `buying-time' tactic. More realistic approach relating to costs may be the need of the hour.Ł

It is shocking to note that the upper limit of imposing costs for filing false and vexatious litigation of Rs. 3000/- is yet to be amended in the CPC. Only for commercial cases under the Commercial Courts Act, 2015 this limit has been omitted.

It may be mentioned that the 240th Law Commission Report on Costs in Civil Litigation had specifically recommended for increasing the limit from Rs. 3000/- to Rs. 1,00,000/- It had also recommended to substitute the word ścompensatory' with śpunitive' to portray the true legislative intent. The Law Commission had further observed that in Section 35A, costs can only be imposed if a party raises objection that the claim or defence is false and vexatious to the knowledge of the party by whom it has been put forward. On this, the Commission had recommended that Courts should have the power to award exemplary costs on its own if it is of opinion that the claim or defence is false and vexatious; even if no objection is raised by a party. These amendments are yet to see the light of the day.

Surprisingly, there have been instances when Courts themselves observed that case required imposition of costs, yet courts declined to impose costs, for example:
  1. In Amarendra Komalam vs. Usha Sinha & Anr.[11], Supreme Court held:
    For the forgoing reasons, the appeal succeeds. Though it is eminently a fit case for awarding exemplary cost, we refrain from doing so. No costs.
  2. In Gayatri De vs. Mousumi Cooperative Housing Society Ltd. & Ors.[12], Supreme Court held:
    The appeal stands allowed. Though this case is eminently a fit case to award exemplary cost, we, by taking a lenient view of the matter say no cost.
  3. In Sumer vs. State of U. P.[13], the Supreme Court held:
    Ordinarily a curative petition of this nature deserves dismissal by imposing exemplary cost on the petitioner, but in the present case, we refrain from imposing cost, considering that the petition arises out of a criminal appeal.

Such tendency needs to be discouraged and costs should be imposed where it is patent that frivolous case or appeal is filed as a time buying tactic or more other flimsy reasons.
It is also seen that Government & Public Sectors Undertakings frequently file appeals in a perfunctory manner, sometimes inordinately delayed, wasting the precious time of Courts.

In some instances Courts come down heavily for such lax attitude and impose exemplary costs, for instance in:
State Of Uttar Pradesh vs Sabha Narain [SLP (C) Diary No. 25743/2020 judgment dated 22.01.2021] the SLP was filed with delay of 502 days and the Supreme Court observed Looking to the period of delay and the casual manner in which the application has been worded, we consider appropriate to impose costs on the petitioner(s) of Rs.25,000/- for wastage of judicial time which has its own value and the same be deposited with the Supreme Court Advocates on Record Welfare Fund within four weeks.Ł

Such strict measures go a long way in deterring the filing of patently unmeritorious and delayed appeals especially by state bodies and deserve must be applauded.

In one remarkable Judgment, the Supreme Court, anguished at the filing of totally bogus SLP directed that all personnel including the counsel who advised the government to file the SLP must pro rata bear the cost of Rs. 10,000/-[14].

A classic case where Supreme Court, in an extremely well-articulated Judgment dwelled on the need for curbing unscrupulous litigation is Ramrameshwari Devi & Ors vs Nirmala Devi & Ors.[15] where it was inter-alia observed as under:
34. According to Dr. Mohan[16], in our legal system, uncalled for litigation gets encouragement because our courts do not impose realistic costs. The parties raise unwarranted claims and defences and also adopt obstructionist and delaying tactics because the courts do not impose actual or realistic costs.

Ordinarily, the successful party usually remains uncompensated in our courts and that operates as the main motivating factor for unscrupulous litigants. Unless the courts, by appropriate orders or directions remove the cause for motivation or the incentives, uncalled for litigation will continue to accrue, and there will be expansion and obstruction of the litigation. Court time and resources will be consumed and justice will be both delayed and denied.

45. We are clearly of the view that unless we ensure that wrong-doers are denied profit or undue benefit from the frivolous litigation, it would be difficult to control frivolous and uncalled for litigations. In order to curb uncalled for and frivolous litigation, the courts have to ensure that there is no incentive or motive for uncalled for litigation. It is a matter of common experience that court's otherwise scarce and valuable time is consumed or more appropriately wasted in a large number of uncalled for cases.

54. While imposing costs we have to take into consideration pragmatic realities and be realistic what the defendants or the respondents had to actually incur in contesting the litigation before different courts. We have to also broadly take into consideration the prevalent fee structure of the lawyers and other miscellaneous expenses which have to be incurred towards drafting and filing of the counter affidavit, miscellaneous charges towards typing, photocopying, court fee etc.

55. The other factor which should not be forgotten while imposing costs is for how long the defendants or respondents were compelled to contest and defend the litigation in various courts. The appellants in the instant case have harassed the respondents to the hilt for four decades in a totally frivolous and dishonest litigation in various courts. The appellants have also wasted judicial time of the various courts for the last 40 years.

56. These appeals are consequently dismissed with costs, which we quantify as Rs.2,00,000/- (Rupees Two Lakhs only). We are imposing the costs not out of anguish but by following the fundamental principle that wrongdoers should not get benefit out of frivolous litigation.

Though the Court has expressed that it is imposing cost not out of anguish, yet the observations as highlighted above clearly portray the miserable state of affairs and Courts distress on the situation of mounting frivolous litigations.

Application of Section 35B:

Though the provision exists to impose costs on seeking adjournment, same is routinely ignored and matters are adjourned for personal difficulties of the advocates, clients and witnesses etc. and matters drag on for years. Its high time that Courts strictly apply this provision and all adjournments be granted with costs (subject of course to very rare exceptions).

Supreme Court in Vinod Seth vs Devinder Bajaj & Anr.[17] observed that Section 35B providing for costs for causing delay is seldom invoked and that it should be regularly employed to reduce delay.

240th Law Commission Report also recommends that:
  1. There should be a minimum cost for adjournments.
  2. If both sides seek adjournment, cost should go to Judicial Infrastructure Fund.

When Courts ought to show restraint on imposition of costs:
While imposing heavy costs, Courts must also look into the paying capacity of the litigant and ensure that a poor client does not suffer. Supreme Court in Vinod Seth v. Devinder Bajaj[18] observed that no person with genuine claim should suffer and costs must not to deter a person of the weaker section

Conclusion:
In Sanjeev Kumar Jain vs Raghubir Saran Charitable Trust[19] Supreme Court had pragmatically observed that the assessment of costs has developed into a detailed and complex procedure in developed countries and in some instances costs awarded are more than the amount involved in the litigation itself. However in India it is not possible or practical to spend the amount of time that is required for determination of actual costs as done in those countries, when we do not have time even to dispose of cases on merits. If the Courts have to set apart the time required for the elaborate procedure of assessment of costs, it may even lead to an increase in the pendency of cases.

There can be no disagreement with the above observations. However, Judges have the acumen to arrive at a realistic value of costs, without following the scrupulous processes of developed countries, depending on the number of hearings, the prevalent average advocate fees in that court etc. Hence though actual or exact figure may not be arrived at, the costs ordered should reassure the successful party that it has not suffered by litigating his just cause.

Though imposition of just costs in every matter will require devoting of some more time by the judges in each case, which may appear to be counter-productive initially, but once it becomes a practice it will go a long way in discouraging the frivolous litigation and reduce the pendency of cases.

End-Notes:
  1. Halsbury's Laws of England, 4th Edn., Vol 12, P 414
  2. ILR(1921) 48 Cal 427
  3. Section 16 read with Schedule of the Commercial Courts Act, 2015 (w.e.f. 23.10.2015)
  4. Section 2 (1) (i) of the Commercial Courts Act, 2015
  5. Section 2 (1) (i) of the Commercial Courts Act, 2015
  6. 240th Law Commission Report ô Costs in civil litigation [para 4.2 (d)]
  7. [(2005 6 SCC 344)]
  8. AIR 2010 Del 199
  9. Except Suits under Commercial Courts Act, 2015
  10. (2009) 2 SCC 656
  11. (2005) 11 SCC 251
  12. (2004) 5 SCC 90
  13. (2005) 7 SCC 220
  14. State of Kerala vs. Thressia & Anr. (1995) Suppl. (2) SCC 449]
  15. CA Nos. 4912-4913/2011 (Arising out of SLP(C) Nos. 3157-3158/2011) ô Judgment dated 04.07.2011
  16. Dr. Arun Mohan was the Amicus Curiae in the matter
  17. (2010) 8 SCC 1
  18. ibid
  19. JT 2011 (12) SC 435

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