Costs

Sec 35 of CPC 1908

(1) Subject to such conditions and limitations as may be prescribed, and to the provisions of any law for the time being in force, the costs of an incident to all suits shall be in the discretion of the Court, and the Court shall have full power to determine by whom or out of what property and to what extent such costs are to be paid, and to give all necessary directions for the purposes aforesaid. The fact that the Court has no jurisdiction to try the suit shall be no bar to the exercise of such powers.

(2) Where the Court directs that any costs shall not follow the event, the Court shall state its reasons in writing.

“Compensatory costs in respect of false or vexatious claims or defenses”

(1) If in any suit or other proceedings 2[including an execution proceeding but 3[excluding an appeal or a revision] any party objects to the claim or defence on the ground that the claim or defence or any part of it is, as against the objector, false or vexatious to the knowledge of the party by whom it has been put forward, and if thereafter, as against the objector, such claim or defence is disallowed, abandoned or withdrawn in whole or in part, the Court, 4[if it so thinks fit], may, after recording its reasons for holding such claim or defence to be false or vexatious, make an order for the payment to the object or by the party by whom such claim or defence has been put forward, of cost by way of compensation.

*[(2) No Court shall make any such order for the payment of an amount exceeding 5[three thousand rupees] or exceeding the limits of its pecuniary jurisdiction, whichever amount is less:

Provided that where the pecuniary limits of the jurisdiction of any Court excercising the jurisdiction of a Court of Small Causes under the Provincial Small Cause Courts Act, 1887 (9 of 1887), 6[or under a corresponding law in force in 7[any part of India to which the said Act does not extend]] and not being a Court constituted 8[under such Act or law], are less than two hundred and fifty rupees, the High Court may empower such Court to award as costs under this section any amount not exceeding two hundred and fifty rupees and not exceeding those limits by more than one hundred rupees :

Provided, further, that the High Court may limit the amount which any Court or class of Courts is empowered to award as costs under this section.]

(3) 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.

(4) The amount of any compensation awarded under this section in respect of a false or vexatious claim or defence shall be taken into account in any subsequent suit for damages or compensation in respect of such claim or defence.]

Costs for Causing Delay

(1) If, on any date fixed for the hearing of a suit or for taking any step therein, a party to the suit

(a) fails to take the step which he was required by or under this Code to take on that date, or

(b) obtains an adjournment for taking such step or for producing evidence or on any other ground, the Court may, for reasons to be recorded, 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

(a) the suit by the plaintiff, where the plaintiff was ordered to pay such costs,

(b) the defence by the defendant, where the defendant was ordered to pay such costs.

Explanation.- Where separate defences have been raised by the defendant or groups of defendants, payment of such costs shall be a condition precedent to the further prosecution of the defence by such defendants or groups of defendants as have been ordered by the Court to pay such costs.

(2) The costs, ordered to be paid under sub-section (1), shall not, if paid, be included in the costs awarded in the decree passed in the suit; but, if such costs are 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.]

The Object of awarding costs is to indemnify a party against the expense of successfully vindicating his rights in Courts. Costs , as a penalty cannot be imposed beyond the costs of the suits.

Three Important points while awarding costs

Discretion of the Court
Full power to determine by whom and out of what property
If no is awarded, then reasons in writings

The Court having no Jurisdiction can also award Cost. , A court returning the plaint for presentation to the proper court can grant costs against the plaintiff.

The Court has a discretion to award costs against a legal practitioner who has been found guilty of professional misconduct.

The section provides that the costs of suits and application shall be in the discretion of the court and ordinarily the Appellate Court would decline to interfere with the order of cost passed by the lower Court.

It is settled that an appeal lies for costs only when the costs are awarded by a Decree

Other Provisions in the CPC , that expressly provides for Costs are-

Costs of Interrogatories Order – XI ,R – 3
Costs of Proof Of a Documents O – XII ,R- 3
Costs of an application to set aside Sale O –XXI , R- 72
Costs of a withdrawal of a Suit O – XXIII , R -1(3)\
Costs on Payment into Court O – XXIV , R – IV
Costs of next friends and guardians , O – XXXII , R – 4 & 9
Costs in Pauper Suits O –XXXIII , R – 10,11 & 16
Costs In Mortgage Suits – O –XXXIV
Costs In Interpleader Suits – O XXXV , R -3

240Th Report On Costs In Civil Litigation By Law Commission In India

Pursuant to the observations made by the Supreme Court in three cases – Ashok Kumar Mittal (2009), Vinod Seth (2010) and Sanjeev Kumar Jain (2011), the Law Commission has taken an in-depth study and had interaction with the judicial officers and lawyers at the conference held in some of the States.

Keeping in view the triple goals of

(i) ensuring realistic and reasonable costs to the successful party,
(ii) curbing false and frivolous litigation and
(iii) discouraging unnecessary adjournments, the recommendations have been made.

To felicitate expeditious realization of costs pending appeals, amendments to law has been suggested.

The Court has a discretion to award costs against a legal practitioner who has been found guilty of professional misconduct.

This is what the Supreme Court said in Ashok Kumar Mittal’s case:

“9. 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. Whether we should adopt suitably, the western models of awarding actual and more realistic costs is a matter that requires to be debated and should engage the urgent attention of the Law Commission of India.”

Similar views were echoed in Vinod Seth’s case. The Supreme Court observed as under after discussing various aspects relating to costs:

“53. The lack of appropriate provisions relating to costs has resulted in a steady increase in malicious, vexatious, false, frivolous and speculative suits, apart from rendering Section 89 of the Code ineffective. Any attempt to reduce the pendency or encourage alternative dispute resolution processes or to streamline the civil justice system will fail in the absence of appropriate provisions relating to costs. There is therefore an urgent need for the legislature and the Law Commission of India to revisit the provisions relating to costs and compensatory costs contained in Section 35 and 35-A of the Code.”

The common thread running through all these cases is the reiteration of three salutary principles:

(i) costs should ordinarily follow the event;
(ii) realistic costs ought to be awarded keeping in view the ever increasing litigation expenses; and
(iii) the cost should serve the purpose of curbing frivolous and vexatious litigation.

It is worth quoting Justice Bowen in Copper vs. Smith (1884). He said: “I have found in my experience that there is one panacea which heals every sore in litigation and that is costs”.

“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

The provision for costs is intended to achieve the following goals, as pointed out by the Supreme Court in Vinod Seth vs. Devinder Bajaj, supra

“(a) It should act as a deterrent to vexatious, frivolous and speculative litigations or defences. The spectre of being made liable to pay actual costs should be such, as to make every litigant think twice before putting forth a vexatious, frivolous or speculative claim or defence.

(b) Costs should ensure that the provisions of the Code, the Evidence Act and other laws governing procedure are scrupulously and strictly complied with and that parties do not adopt delaying tactics or mislead the court.

(c) Costs should provide adequate indemnity to the successful litigant for the expenditure incurred by him for the litigation. This necessitates the award of actual costs of litigation as contrasted from nominal or fixed or unrealistic costs.

(d) The provision for costs should be an incentive for each litigant to adopt alternative dispute resolution (ADR) processes and arrive at a settlement before the trial commences in most of the cases. In many other jurisdictions,

(e) The provisions relating to costs should not however obstruct access to courts and justice. Under no circumstances, the costs should be a deterrent, to a citizen with a genuine or bona fide claim, or to any person belonging to the weaker sections whose rights have been affected, from approaching the courts.”

The award of costs is generally not considered to be a penalty but a method used to reimburse the other party the expenses of litigation. However, the costs imposed on a party for indulging in frivolous or vexatious litigation stand on a different footing. The general rule is that that the unsuccessful party would be ordered to pay the costs to the successful party. Thus, the rule has been coined to “costs follows the event”, which means that the court will usually order that the loser of the litigation pays the winner’s costs. However, the court has the discretion to award or not to award the costs.

“This discretion must be exercised judicially; it must not be exercised arbitrarily but in accordance with reason and justice”.

The Supreme Court having noted that Section 35 of the Code does not impose any ceiling on the quantum of costs to be awarded, indicated that the object of Section 35 can be achieved by the following two measures: (i) Courts levying costs following the results in all cases (non-levy of costs should be supported by reasons); and (ii) appropriate amendments to Civil Rules of practice relating to taxation of costs to make it more realistic in commercial litigation.

Further, as regards Sections 35A and 35B, the Supreme Court made the following observations in Vinod Seth’s case:

“The provision relating to compensatory costs (section 35A of the Code) in respect of false or vexatious claims or defences has become virtually infructuous and ineffective, on account of inflation. Under the said Section, award of compensatory costs inflation and vexatious litigation, is subject to a ceiling of Rs. 3,000/-. This requires a realistic revision keeping in view the observations in Salem Advocate Bar Association (II) (supra). Section 35B providing for costs for causing delay is seldom invoked. It should be regularly employed, to reduce delay.”