Abstract
The Code of Civil Procedure, 1908, was enacted with the objective of consolidating and standardizing the procedures of civil courts, thereby establishing a structured framework for managing civil disputes. However, the Code may be very extensive and its rules very detailed, it fails to define the true nature of what it means to be “Civil.” In my opinion, the term “Civil” is not just a legal classification; it is a solemn pledge to the civilized conduct of humanity’s interaction, a quiet guide to the judicial process with the principles of order, justice and Rule of Law.
In contemporary India, however, this noble pursuit is overshadowed by a staggering backlog of cases: About 34.5 million cases are in the trial courts, 5 million in High Courts and approximately 60000 in the Supreme Court. At a judicial conference, the 48th Chief Justice of India N. V. Ramana expressed his concern regarding this concerning issue; he pointed out that one of the reasons for such a backlog is a certain type of litigation in which financially powerful parties try to enjoin and hinder judicial processes by filing multiple actions throughout the judicial system.
Another factor which although quite important and interrelated with all these challenges such as overpopulation, shortage of judges, and bureaucratic procedures, is that the judiciary is reluctant to impose costs on litigants. This reluctance is in sharp contrast with the provisions of Civil Procedure Code and various judgments of Supreme Court of India which not only allow but encourage the court to award costs to discourage the abuse of the process of the court.
This paper aims at discussing and finding out the problems associated with the provision of costs within the Civil Procedure Code, evaluating the performance of the judiciary and proposing ways on how to improve on the implementation of this significant legislation.
Introduction
In India, civil litigation is a laborious and protracted process. The age-defying process of civil litigation is caused by several variables, the most prominent of which are vexatious and frivolous lawsuits that are the result of greed and dilatory techniques such as numerous adjournments.[1] A procedure for imposing costs has been established under the Code of Civil Procedure, 1908 (the Code) to discourage litigants from engaging in such unlawful conduct. By guaranteeing that a successful party receives fair and reasonable remuneration, these provisions seek to prevent needless adjournments and fraudulent or frivolous litigation. Despite express provisions under the Code the imposition of charges has been a much neglected and underappreciated feature. The repetitive usage of expressions like “parties to bear their own costs” or “no costs awarded” has compromised the goal and intention of the imposition of costs in civil action.
What Are Costs?
Although the Civil Procedure Code of 1908 does not explicitly define costs, they are described in Halsbury’s Laws of England as “the sum of money which the court orders one party to pay to another party in respect of the expenses of litigation incurred.” [2]In civil procedure, it is customary to include a request for the “costs of the suit” in plaints, applications, or petitions. While this request is frequently made, its legal basis is not always well understood.
In civil litigation, costs differ from damages or compensation. Costs refer to the monetary amount awarded by the court to the prevailing party to cover expenses related to the initiation or defense of the lawsuit.
Costs are defined and regulated by Sections 35, 35A, and 35B of the Civil Procedure Code, as well as by Order XXA. These provisions address the imposition of costs for several reasons, including:
- General costs awarded to the prevailing party.
- Compensatory costs imposed in response to false or vexatious claims.
- Costs related to delays in proceedings.
- Miscellaneous expenses, such as those incurred for typing and serving notices.
Costs encompass all litigation-related expenses that one party is ordered to pay to another. It is important to differentiate these costs from “fees,” which refer to payments made by litigants to court officers.
Evolution Of The Concept
The rule regarding costs in common law is fundamentally derived from statutory provisions. As Pollock and Maitland have observed in their discussion of pre-Edwardian legal practice, costs were not a prominent feature of legal proceedings[3]. Although successful plaintiffs could sometimes receive compensation for litigation costs along with other damages, the right of a victorious defendant to claim costs was statutory and recent. Historically, if a plaintiff failed in their claim, they faced consequences for presenting a false claim; however, the costs of a successful plaintiff were not explicitly addressed. Conversely, a losing defendant was not traditionally obligated to cover the plaintiff’s costs. Lord Coke noted that while the legal costs of the suit were recognized, expenses such as travel, and lost time were not covered.[4]
The litigious nature of Elizabethan England led to efforts to curb trivial lawsuits that imposed burdens on the courts. The development of cost awards for successful defendants progressed more slowly, because penalizing an unsuccessful plaintiff was considered sufficient to deter frivolous claims.
In 1607, a notable development occurred when it was established that defendants could recover costs in cases where plaintiffs would have been entitled to such costs had they prevailed. Significant modifications to the common-law rules regarding costs did not arise until 1875, with the introduction of the Supreme Court of Judicature Acts of 1873 and 1875. These Acts marked a major shift in the principles governing the award of costs.
Prior to these reforms, the principle of “costs following the event” typically required the losing party to bear the costs of litigation. However, Order 55 of the Rules of Court, as incorporated in the First Schedule of the 1875 Act, introduced a change by granting the court discretion over the costs of and incidental to all proceedings in the High Court, subject to certain exceptions. This change allowed the court to deny costs even to a successful litigant for justified reasons.
It was later adopted into the Indian Civil Procedure Code of 1908. Section 35(1) of the Code entrusts courts with full discretion and power to decide all questions relating to costs and to whom and to what extent costs are to be given. As a result, the provision serves to reinforce the fact that jurisdiction to award costs does not have to be confined by the court’s jurisdictional scope in its entirety.
The legislative framework underscores the importance of properly managing costs in litigation to achieve several objectives, awarding the winner with the loss of the loser, deterring malicious and unmeritorious suits, and providing for the latter since the party prevailing in the case is to be compensated for expenses borne in the process of the legal procedure. Through discretion that the law accords to the courts and the appropriateness of costs, the legal provisions seek to discourage frivolous litigations while at the same time not placing the successful party in a worse-off position financially due to the legal process.[5]
Provision Of Costs In CPC
Order XXA of CPC along with sections 35, 35A and 35B provides for awarding of costs in civil suits. These provisions capture different types of costs such as overhead costs, remunerations, costs arising from time loss and any other associated costs.
General costs are regulated by Section 35 of the Legal Aid Act, under which the judges have the right to grant costs to any of the parties of the lawsuit. Where costs are not awarded, the court has the responsibility of explaining why they came up with that decision. It is not the aim of awarding costs to punish the losing party or to compensate the winning party but to compensate the latter for the legitimate expenses that were incurred in the context of the litigation.
Compensated expenses are different from general expenses and are governed by section 35A CPC as well as are restricted to Rs. 3000 only. These costs are intended to offer an award to parties who have been involved in frivolous or malicious litigation as a way of deterring the same.
Section 35B deals with costs relating to any time wasted in the proceedings enabling the court to award costs in favor of the party who was caused to incur the delay. This provision has been introduced by the amendment in 1976 with the intention of reducing the financial loss caused by adjournments and procedural delays wherein the party responsible for such delays must compensate the other party. This section comes into play where a party is absent during a hearing or where he or she wants to delay the presentation of evidence. In such circumstances, it is the court’s responsibility to record the rationale for its decision concerning the recovery of costs.
Under Section 95 of the Code of Civil Procedure, 1908, the court is empowered to grant compensation up to Rs. 50,000 when it is ascertained that arrests, attachments, or injunctions were affected unlawfully.
Furthermore, Order XXA of the Code of Civil Procedure, 1908, the court may award costs in respect of specific expenses, including, but not limited to, the production of witnesses, typing and printing fees, and the service of notices. This provision encompasses miscellaneous costs incidental to the proceedings. It is imperative to note that the awarding of costs does not preclude the possibility of further civil or criminal liabilities being imposed upon the party against whom costs are awarded. Additionally, parties aggrieved by false claims retain the right to pursue supplementary legal actions for redress.
Inefficiencies In The Contemporary World
While the cost provisions under the CPC are intended to serve the interests of justice, they suffer from various flaws, and courts have historically been lax in enforcing these provisions. As a result, many unscrupulous parties exploit this situation, knowing that courts often award either very minimal costs or none to the successful party. Section 35A, introduced in 1922 and amended in 1976, was designed to penalize false and frivolous claims. However, its effectiveness as a deterrent is debatable due to the low upper limit of Rs. 3,000, which is far from reflective of actual litigation expenses.
Despite the Code’s specific provision for compensatory costs in frivolous and vexatious litigation, these cases frequently go unpunished. The provision, which requires costs to be imposed for such litigation, has become ineffective due to the Rs. 3,000 caps on costs, making it difficult for courts to award higher, more appropriate sums. Courts are often compelled to reduce costs to this nominal amount to comply with the Code’s restrictions.
An example of this can be seen in the case of Sanjeev Kumar Jain v. Raghubir Saran Charitable Trust & Ors, [6]where the Supreme Court noted that courts cannot award actual costs if the law does not permit it, as doing so would amount to judicial overreach. Similarly, in the Salem Advocate Bar Association [7]case, the Supreme Court expressed support for the awarding of realistic costs and suggested that the relevant rules should be amended to allow for such awards. As the law currently stands, there is no provision for awarding actual costs, and courts must adhere to the limitations set by Section 35.
Additionally, it is common for courts to issue directions on costs without providing specific reasons, which not only contradicts the mandatory provisions of the Code but also undermines the purpose behind these provisions. The goal of streamlining civil litigation by discouraging speculative or frivolous suits through cost impositions is further weakened when parties are regularly instructed to bear their own costs.
Section 35 of the CPC establishes two key principles concerning costs:
- The court has the discretion to decide the costs of a suit and determine how they should be allocated between the parties.
- If the costs do not follow the outcome of the case, the court must provide specific reasons for this exception.
The second principle reflects the legislature’s intention to award costs to the winning party. When costs are not imposed, the court is required to explain the decision in its judgment. However, this requirement is often ignored in practice, as shown in various rulings. For example, in Amarendra Komalam v. Usha Sinha & Anr., [8]the Supreme Court remarked: “For the foregoing reasons, the appeal succeeds. Though it is eminently a fit case for awarding exemplary cost, we refrain from doing so. No costs.” Likewise, in Gayatri De v. Mousumi Cooperative Housing Society Ltd. & Ors[9]., the Court recognized that exemplary costs were justified but chose not to impose any, stating: “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.”
Many cases are resolved without awarding costs to the losing party, and courts seldom provide detailed reasons for such decisions. This lack of reasoning makes it difficult to discern the court’s logic, leading to uncertainty and undermining the legislative aim of the cost provisions. It is crucial for courts to either consistently award costs in accordance with the case outcome or explicitly state the reasons for deviating from this rule. Failure to do so risks defeating the objectives of compensating the winning party fairly and deterring unnecessary litigation.
Section 35-A of the CPC allows for exemplary costs to be awarded but caps the amount at Rs. 3,000, a figure that was raised from Rs. 1,000 in 1977. This sum, however, is inadequate by modern standards. In the Salem Advocate Bar Association T.N. vs. Union of India case, the Supreme Court pointed out this insufficiency, stating, “Further wherever costs are awarded, ordinarily the same are not realistic and are nominal.” The Court emphasized that the concept of actual costs should be both reasonable and practical, without being inflated or excessive based on what wealthier litigants might choose to spend. For instance, if a plaintiff spends Rs. 50,000 per hearing in a lawsuit seeking recovery of Rs. 2 lakhs, the court should not fully reimburse such high legal fees but rather award a reasonable sum[10].
In Sanjeev Kumar Jain v. Raghubir Saran Charitable Trust[11], the Supreme Court recognized the importance of awarding realistic costs but stressed that such awards must remain within the legal limits set by Section 35. The Court noted, “While we would like to encourage the award of realistic costs, which should be in accordance with law. If the law does not permit the award of actual costs, obviously courts cannot award actual costs… the relevant Rules should be amended to provide for actual realistic costs.”
The prevailing structure frequently results in substantial time and financial losses for the party that prevails, as nominal cost awards frequently fall short of covering the actual litigation expenses incurred. In cases such as Haryana Urban Development Authority v. K.C. Kad[12], courts have awarded modest fees, which are often directed towards charitable trusts or legal aid organizations rather than compensating the victorious party directly. This practice underscores a structural deficiency in adequately compensating plaintiffs who bear significant expenses due to the wrongful actions of another party.
Moreover, the Delhi High Court, in National Textile Corporation v. Kunj Behri Lal, underscored that “frivolous litigation clogs the wheels of justice, rendering it challenging for the courts to dispense swift justice to bona fide litigants.” [13]This observation highlights the critical need for reform in the allocation of litigation costs to ensure that justice is not only served but also perceived to be fairly administered.
In Ashok Kumar Mittal v. Ram Kumar Gupta, the court articulated a critical view of the extant system, noting that the imposition of nominal costs or the absence of cost awards in civil matters is manifestly unsatisfactory. [14]The court observed that such a system fails to serve as an adequate deterrent against vexatious or frivolous litigation motivated by ego or avarice or employed as a stratagem to delay proceedings. The court’s pronouncement suggests that a more pragmatic approach to the allocation of costs may be warranted to address these systemic deficiencies effectively.
For example, if Party A emerges victorious after a protracted 12-year legal contest against Party B, and the court finds that Party B’s claims were baseless and vexatious, Party B may only be ordered to remit a nominal sum of Rs. 3,000. This amount is significantly insufficient compared to the substantial legal expenses incurred by Party A and the considerable time lost due to Party B’s unwarranted allegations. Therefore, the current cost provisions fail to serve as an effective deterrent.
Jurisdiction High Court As An Appellate Authority
In the context of addressing inefficiencies in the existing cost provisions, the issue arises regarding whether the High Court possesses appellate jurisdiction and the authority to render decisions under Article 142 or Article 226 of the Constitution.
Consider the following hypothetical scenario: In June 2021, the Delhi High Court ordered renowned actress Juhi Chawla to pay a fee of Rs. 2000,000 (twenty lakh rupees). Subsequent to this order, Ms. Chawla, either inadvertently or intentionally, posted the link to the hearing on social media. This action led to widespread public attention and resulted in numerous disruptions during court proceedings, including individuals appearing randomly and even performing a song from one of Ms. Chawla’s films. This led to significant judicial time wastage, as the dissemination of the hearing link to the public resulted in substantial disruptions during court proceedings. A suit to recover exemplary costs was thus filed.[15]
Firstly, it is pertinent to note that several High Courts in India do not possess original civil jurisdiction, thereby precluding the direct initiation of civil proceedings within their purview. Such original civil jurisdiction is exclusively vested in the High Courts of Delhi, Bombay, Calcutta, Madras, and Himachal Pradesh, which permit the direct filing of civil suits. Conversely, other High Courts primarily function as appellate forums in relation to civil cases.
As previously delineated, the Code of Civil Procedure (CPC) stipulates regulations concerning litigation expenses, including limitations on the costs that may be awarded in instances of frivolous or vexatious litigation. Specifically, Section 35A of the CPC prescribes a cap on the awardable costs, setting the maximum amount at Rs. 3,000 for such proceedings.
High Courts possess the authority to adjudicate claims as fraudulent or vexatious, dismiss such claims for inadequate court expenses or other grounds, and impose costs up to Rs. 3,000. However, the imposition of costs exceeding this amount may be perceived as an overreach of judicial authority. It is important to emphasize that High Courts must strictly adhere to the provisions of the Code of Civil Procedure (CPC) and are precluded from invoking Article 226 while exercising their ordinary original civil jurisdiction.
The recent case involving Juhi Chawla exemplifies a deviation by the Delhi High Court from the cost limitations prescribed by the Code of Civil Procedure (CPC). [16]The Supreme Court has consistently reaffirmed the restriction on the authority of High Courts to impose costs in civil matters under the CPC. In Ashok Kumar Mittal v. Ram Kumar Gupta & Anr., the Supreme Court criticized the Delhi High Court’s imposition of Rs. 1 Lakh in costs on both the plaintiff and defendant for perjury. The Court emphasized that High Courts must adhere to the cost limitation specified in Section 35A of the CPC.[17]
In Sanjeev Kumar Jain v. Raghubir Saran Charitable Trust, the Delhi High Court imposed costs amounting to Rs. 45 lakhs, deviating from the statutory cost limit established under the Code of Civil Procedure (CPC). The Supreme Court subsequently overturned this decision, directing that the respondent be required to pay only the Rs. 3,000 statutory limits as prescribed by the CPC. [18]The Supreme Court underscored that the High Court must adhere to this statutory limitation. Furthermore, in Vinod Seth v. Devinder Bajaj[19], the Supreme Court reaffirmed that courts are bound by the statutory cost restrictions set forth in the CPC and cannot deviate from these limitations based solely on a belief that doing so would be equitable or just.
Suggestions
Recognizing the limitations and inefficiencies of the cost’s regime under the CPC, the Supreme Court of India has repeatedly urged that the provisions be revised, and a more practical approach adopted by the legislature.
The Supreme Court has specifically recommended that:
- the current upper limit of INR 3000 under the CPC be increased to at least INR 1 lakh to provide a stronger deterrent against false or vexatious suits.
- Courts should award realistic costs rather than nominal ones, meaning costs that reflect the actual expenses typically incurred by a litigant, including what a standard advocate might charge in a similar case.
The 240th Law Commission Report also supports the Supreme Court’s stance, recommending that the cost ceiling under Section 35A(2) of the CPC be raised from INR 3000 to INR 1 lakh to better combat frivolous litigation. Despite these recommendations from the Supreme Court and the Law Commission, they have yet to receive legislative approval.
The Commercial Courts Act, 2015 introduced significant amendments to the provisions of costs specifically for commercial disputes, providing a potential solution to the challenges associated with awarding costs. The accompanying Schedule to the Civil Procedure Code, 1908 revises the application of Section 35 related to costs, granting courts considerable discretion in determining its allocation.[20]
These amendments are encapsulated in three clauses. Section 35(1) introduces the concept of “reasonable costs,” which includes expenses incurred by witnesses and other necessary costs associated with the legal process. The second clause mandates that the losing party pay the costs incurred by the winning party. The third clause outlines factors to be considered by the court when determining the costs payable by the unsuccessful party. Importantly, the previous Rs. The 3,000/- cap on costs has been removed, enabling the application of reasonable costs. The Act also allows courts to address unnecessary litigation without requiring a formal application from the parties involved.
The Law Commission’s 253rd Report highlights that both the Commercial Courts Act, 2015 and Section 35 of the CPC, 1908 are influenced by the recommendations of the Commission’s 240th Report, marking a significant milestone[21]. The extensive research and expert insights from the Supreme Court played a crucial role in shaping these provisions, which aimed to address the deficiencies in the existing framework for awarding costs. These reforms have modernized the approach to costs, freeing lower courts from outdated rules and enabling the appropriate imposition of reasonable costs on the losing party.
Conclusion
The need for legislative reforms to address deficiencies in the costs framework under the Code has been long overdue. Aligning the costs regime under the Code with analogous provisions in other statutes, which impose no limitations on the amount of costs that can be awarded, would be a significant improvement. However, until such reforms are enacted, the courts when awarding costs, courts must consider various factors such as court fees, lawyers’ fees, the duration of the proceedings, and suitable restitution for the successful party. The recommendations made in the 240th Report of the Law Commission should be fully implemented to create a more robust costs framework under the Code. In line with the Supreme Court’s recommendations, the rules of the respective High Courts should also be amended to ensure that costs awarded are more reasonable and reflective of the actual expenses involved.
Reforming the costs regime would help prevent frivolous cases from overwhelming the system and ensure that the costs framework under the Code is not merely a theoretical construct but an effective deterrent against misuse.
Author: This article is written by Rashi Mungre.
[1] Ministry of Law, The 240th Law Commission Report on ‘Costs in Civil Litigation’, May 2012.
[2] Halsbury, Giffard, H.S. (1921) Halsbury Laws of England Vol 12. 4th edn. P414.
[3] Goodhart, A.L. (1929) ‘Costs’, Yale Law Journal, 38(7), pp. 849–878.
[4] HISTORY OF ENGLISH LAW (1911)Vol 12 (2d edn. p597.
[5] Pawar, P. (2021) Costs regime in civil litigation in India – a paper tiger, Civil Law – Litigation, Mediation & Arbitration – India. Available at: https://www.mondaq.com/india/civil-law/1077022/costs-regime-in-civil-litigation-in-india-a-paper-tiger#authors (Accessed: 11 September 2024).
[6] Sanjeev Kumar Jain v. Raghubir Saran Charitable Trust,(2011) Sanjeev Kumar Jain v. Raghubir SC 1285
[7] Salem Advocate Bar Association vs Union Of India 2003 (1) SCC 49
[8] Amarendra Komalam v. Usha Sinha & Anr., 2005 (11) SCC 251
[9] Gayatri De v. Mousumi Cooperative Housing Society Ltd. & Ors 2004 (5) SCC 90
[10] supra
[11] supra
[12] Haryana Urban Development Authority v. K.C. Kad 2005 (9) SCC 469
[13] National Textile Corporation v. Kunj Behri Lal (2011) 100 CORLA 18.2
[14] Ashok Kumar Mittal v. Ram kumar Gupta, (2009) 2 SCC 656.
[15] Garg, R. (2023) Litigation costs : A lost cause, iPleaders. Available at: https://blog.ipleaders.in/litigation-costs-a-lost-cause/ (Accessed: 11 September 2024).
[16] Ms. Juhi Chawla & Ors. vs Science And Engineering Research Board AIR 2021 DEL 1081
[17] supra
[18] Id
[19] Vinod Seth vs Devinder Bajaj (2009) 01 DEL CK 0232
[20] The Commercial Courts Act, 2015, $35, No.04, Act of Parliament, 2016 (India).
[21] Law Commission of India, Report no. 253 on Commercial Division and Commercial Appellate Division of High Courts and Commercial Courts Bill, 2015.
