This article has been written by Jaskirat Singh, pursuing a Diploma in Advanced Contract Drafting, Negotiation and Dispute Resolution from LawSikho and has been edited by Oishika Banerji (Team Lawsikho). 

It has been published by Rachit Garg.

Introduction

Firstly we will start by going through the definition of Costs, strangely enough, this has not been defined anywhere in the Civil Procedure Code, 1908. So we refer to Halsbury’s laws of England 4th Edn., Vol 12, P 414 which defines it as “the sum of money which the court orders one party to pay to another party in respect of the expenses of litigation incurred.” The Civil Procedure Code 1908, was drafted more than a century ago and with that Section 35 (1) came into force which tells us that the courts shall have full power and discretion to whom and to what extent the costs are to be paid. The drafters of the Code even went so far to state that even the absence of jurisdiction does not deprive the court to exercise the power of costs. This makes abundantly clear the importance of costs that the drafters had in mind. The intention of the drafters and the purpose of cost was to -:

• Compensate the successful party at the behest of the unsuccessful one. 
• To avoid and more importantly, discourage unnecessary and frivolous proceedings. 
• As both parties had incurred expenses in contesting the proceeding, the successful party shall be compensated for expenses incurred by him.

This article is dedicated towards discussing costs with respect to the Civil Procedure Code, 1908 thereby highlighting on the different aspects of the subject-matter to its readers.

Principle behind the imposition of costs

The principle behind the imposition of costs was that the defeated party should bear the burden of the winning party’s case. The purpose of this section was amongst many other things to discourage frivolous litigation. But more than a century after coming into the force, this section has been rendered worthless. It is also worthwhile to note that the Apex Court has taken notice of this fact time and again and has rendered numerous judgments to the effect and purpose of the cost, one of which was in the Salem Advocate Bar Association v. Union of India (2005) wherein the Supreme Court observed that there was an unfortunate practice by the judiciary directing the parties to bear their own costs, which furthers that many unscrupulous parties could take advantage at the behest of the successful and ethical parties.

Even after more than two decades since this momentous judgment by the Hon’ble Apex Court, the trend of civil courts neither passing directions on costs or assigning reasons for the denial of the same has hardly changed. This clearly contravenes and defeats the purpose of costs and virtually renders Section 35 of the Code toothless. This has the direct effect of numerous litigants filing frivolous suits, applications and appeals without any fear of being penalized and has the ripple effect of increasing pendency of unnecessary litigation in addition to the constant harassment of rightful litigants. 

Other provisions relating to costs

Now that we have gone through the definition, purpose and effect of costs, let us have a look at other provisions of law relating to costs.

• Section 35 (2) – This puts a mandate on the courts to record reasons when costs are not awarded thereby binding the courts to always award costs or record comprehensive reasons for denying them. There can be realistic situations where the court may not award cost, for example, in cases where it finds that both the parties are at fault even though the suit goes in favour of one, or when the successful party incurred the  expenses because of its fault or delay. Or when the party does not come to the court with clean hands. 
• Order XXA:  The Order begins with the phrase “without prejudice to the generality of the provisions of the Code relating to costs”. Then, it proceeds to set out when the court may award costs. These are the factors to be taken into consideration while awarding costs and are the expenditures incurred before the institution of the suit, at the time of institution of the suit and during the trial as well.
• Section 35A: This provision of the Code was inserted by the Act of 1922 which gave the power to the Courts to impose costs on the parties which raise claims or defences that are false or vexatious. These costs are related to the false and frivolous nature of the plea raised in the proceeding by a party. In effect, it penalizes the conduct of the party who has set up a false or frivolous claim/plea and awards an additional amount under the head of costs. 

The only limitation being that a proviso was added to Section 35A (2) as well wherein the upper limit of Rs. 3,000/- (which was only increased with the Act of 1976, being Rs. 1,000/- earlier) was decided. Whatever the position in 1976 was, almost five decades since then, Section 35A with its ceiling limit of three thousand rupees can no longer be considered as a deterrent against frivolous or vexatious claims or defences. The amount that could be awarded to a party to the litigation under Section 35A has no relation to the actual expenses incurred by that party. The expression “compensatory” is not, in fact, appropriate. 

• Section 95 – Section 95 of the Code provides that where, the court is of the opinion that either an arrest, attachment or injunction has been made unjustly or there was no probable cause for instituting a suit. In these cases the defendant is entitled to apply to the court and the court can grant a compensation of an amount not exceeding Rs. 50,000/-.

• Section 35B of the Code inserted by Act of 1976: The ambit of Section 35B is to include costs for obtaining adjournment for any reason. It empowers the court to make an order requiring a party who is causing delay in the proceedings to pay to the opposite party the cost, which in court’s opinion is sufficient for their reimbursement. 

Section 35B which is indeed narrower than that of the scope of Section 35A covers two situations: 

1. Firstly, where a party to the suit fails to take a step required by him on the date of hearing. 
2. Secondly is obtaining an adjournment for producing evidence or “on any other ground”. In either event, costs can be ordered by the court. Section 35B requires reasons to be recorded for making.

Present situation

The 48^th Chief Justice of India, NV Ramana, at a judicial conference showed concern for the grave situation of the pendency of cases in India and further stated that one of the primary reasons for huge backlogs “is a specific type of litigation wherein parties with resources attempt to frustrate the judicial process and delay it by filing numerous proceedings across the judicial system”. Further classification of the pendency of cases make it explicitly clear that 87.6 % of these cases are pending in the subordinate courts whereas the 12.3% are pending in the high courts. 

Currently the Indian judiciary is heavily burdened with litigation and one of the primary reasons that is always swept under the radar is the reluctance of courts to order costs which is contrary to the mandate of the civil procedure and the numerous judgments of the Apex Court. It was held in SALEM ADVOCATE {supra} that to prevent frivolous and vexatious suits in addition to preventing unreasonable delay costs must be imposed and the practice of awarding realistic costs shall be adopted instead of awarding nominal costs. 

The Supreme Court in Ashok Kumar Mittal vs. Ram Kumar Gupta (2008) held that currently the system followed by the courts whereby meagre or no costs are awarded is far from a deterrent and not at all satisfactory and it is a need of the hour that a more realistic approach should be followed.

Additionally, Supreme Court in Manindra Chandra Nandi vs. Aswini Kumar Acharjya (1921) was of the opinion that the most important factor at the time of awarding cost must be to compensate the successful party instead of punishing the unsuccessful one.  

Research in a certain demographic

The following findings were made out after around thirty judgments of the various district courts in Delhi (additional district judges) were gone through:. Out of the 30 civil suits judgments observed in Delhi District Courts it was found that only in two judgments the court had awarded nominal costs and in five judgments the costs of the suit was awarded for the plaintiff . Whereas in the rest of judgments there was either no comment upon the cost or parties to bear their own costs was mentioned by the trial courts. Again, This is against the mandate and in complete contravention to S.35 of The Code.

The category wise breakdown of all the judgments concerning costs is mentioned hereinbelow – :
Parties to bear their own costs – 12
No order as to costs – 8
No mention of costs – 3
Nominal costs awarded – 2
Costs of the suit is also awarded for the plaintiff – 5

Majority of the cases are disposed of either by stating “no order as to costs” or “parties to bear their own costs.” In addition going through these judgments it has also been quite apparent that reasons are seldom recorded for not awarding the costs.

Suggestion to further solidify law of costs

The 240^th Law Commission Report by Justice P V Reddi titled “Costs In Civil Litigation” was released on 9^th May 2012 under the observations made by the Supreme Court in three cases – Ashok Kumar Mittal (2009), Vinod Seth (2010) and Sanjeev Kumar Jain (2011). The threefold goal of the commission was to provide realistic costs to the successful parties, curb frivolous and vexatious litigations and to discourage unnecessary adjournments. Some of the most important recommendations made by the commission are enlisted herewith – : 

• Concerning Section 35A of the Code the ceiling limit of Rs. 3,000/-  needs to be enhanced to Rs. 1,00,000/-. In addition “exemplary” shall be substituted with “compensatory”.
• Further Section 95 of the Code needs to be amended in order to raise the ceiling from Rs.50,000/- to Rs. 1,00,000/-.
• The costs for seeking an adjournment must be high and in addition, a uniform approach shall be developed for trial courts.
• The principle of costs shall follow the event and must be followed by courts more seriously.
• Costs awarded to a successful party shall be realistic and reasonable. 

Factors to be taken into consideration while awarding costs 

Finally coming to what the court has to consider when deciding on the quantum of costs, some of the factors are mentioned hereinbelow -:

• Time spent by the successful party in the proceeding – Civil litigations take a long time and therefore this time has to be compensated for, the longer the trial is delayed should be reflected on the costs awarded by the courts to the successful litigants. 
• Court fees – Litigants spend a huge amount on the court fees and it is only just that the same should also be taken into account during the decision on costs.
• Lawyers’ fees – The most substantial part of an expense incurred by the litigant is towards the professional fees of a lawyer, now even though there is no standard expense for this criteria but nevertheless a realistic cost must be awarded in this front as well.
• Typing and documentation costs – Even though this does not form as a substantial part of the expense, it should be taken into consideration as well.
• Costs of transportation and lodging – In cases relating to more than one jurisdiction this factor can come into the picture as well, although a rarity but this should be taken cognizance of in certain cases as well. 
• Expenses incurred on the witness – No trial is complete without witnesses being examined therefore any costs incurred on or on behalf of the witness must be accounted for as well.
• Any other incidental cost as well.

Conclusion 

After 115 years of the inception of the Code of Civil Procedure, 1908, the time is long overdue to make the necessary amendments to the law of costs taking into consideration the recommendations of the Law Commission and numerous judgments by the Hon’ble Supreme Court. If the changes are not made, this will unfortunately result in rendering the law related to costs toothless with an increased timeline for pendency and the further increase in the pendency of civil litigation. 

References

1. https://www.ndtv.com/india-news/nearly-5-crore-pending-cases-in-courts-over-69-000-in-supreme-court-3768720#
2. https://www.news18.com/news/explainers/explained-cji-ramana-says-4-5-crore-cases-pending-heres-what-has-been-fuelling-backlog-3977411.html
3. https://prsindia.org/policy/vital-stats/pendency-and-vacancies-in-the-judiciary

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