Despite being a principle designed to further the ends of justice the provisions relating costs suffer from a number of defects and Courts have generally been negligent in implementing the provisions in practice. The present post aims to analyse this issue and is divided into three parts – part one will detail observations made by the Supreme Court regarding some issues concerning S. 35, part two will discuss some amendments recommended by the Law Commission as part of its 240th report and part three will explore a new solution to the problems afflicting costs.
S. 35 – Observations of the Supreme Court
The Supreme Court has analysed the problems plaguing S. 35 and 35-A in a line of decisions beginning with its pronouncement in the 2005 case of Salem Advocate Bar Association, Tamil Nadu v. Union of India,[2] which was a matter that dealt with the operationalisation of S. 89 and associated provisions of the CPC that were introduced by way of amendments.
The Court in this case made some important observations when discussing the part of the judgement relating to costs, stating that unscrupulous parties were taking advantage of the fact that only nominal or no costs were being awarded to the successful party.[3] The apex Court came down on the practice of civil courts ordering parties to bear their own costs despite the presence of S. 35(2) of the Code, which states the general rule that costs ought to follow the event in civil matters. If in a particular case courts do not impose costs on the party then they are under an obligation to provide reasons in writing for the same, but this is a rule that has rarely been follows by the courts themselves.[4]
The Supreme Court next dealt with the matter in 2009 in Ashok Kumar Mittal v. Ram Kumar Gupta,[5] where the Court noted that the present system of imposing costs no longer acted as a deterrent to the sort of frivolous litigation that has become standard practice as a ‘buying-time’ tactic.[6] However, the Court refrained from examining the matter any further, restricting itself to making a suggestion that a more realistic approach needed to be taken with respect to costs.
The aforementioned cases saw the Supreme Court highlight the need to amend the provisions relating to costs, however it was only in the 2010 case of Vinod Seth v. Devinder Bajaj[7] that the Court concretely discussed the purpose behind the law of costs. According to the two-judge bench costs are supposed to act as a deterrent to vexatious litigation, ensure compliance with the provisions of the Code, provide indemnity to a successful litigant for expenses incurred by him and encourage parties to adopt ADR to resolve their disputes, while also ensuring that access to courts is not obstructed during this process.[8] The Court also highlighted aspects of the provisions relating to costs that had become infructuous in light of inflation, and particular reference was made to the ceiling of Rs. 3,000/- imposed by S. 35-A in respect of costs for false and vexatious litigation. Ultimately, the Court urged the legislature and Law Commission to re-visit and overhaul the relevant sections in order to make the administration of justice easier and more effective.[9]
Proposals to Amend S. 35 – The 240th Report of the Law Commission of India
The aforementioned decisions were significant in that they highlighted the issues pertaining to the law of costs, however the case that actually prompted a response from the government was the 2011 matter of Sanjeev Kumar Jain v. Raghubir Saran Charitable Trust.[10] This was due to the fact that the Law Commission had made submissions in the case and published its 240th Report after the decision was given, in which the provisions relating to costs were discussed and amendments were recommended to improve their effectiveness.
Key to these suggestions was the finding of the Commission that restrictions on actual costs were the result of outdated High Court Rules rather than an inherent limitation expressed by S. 35 itself, and consequently, the need was expressed to amend these Rules along the lines of the judgements rendered in Salem Advocates and Sanjeev Kumar. Another area of concern flagged by the Commission pertained to the rules concerning advocate’s fees, which continue to bear little relation to the inflation that characterises the current economic reality. The amounts prescribed in this regard are so meagre that any litigating party must consider this to be a ‘sunk’ cost, which cannot be recovered even in the rare instance that costs are imposed on the unsuccessful party.
Further, the Commission recommended changes to the terminology employed in S. 35-A of the Code, noting that costs imposed by the section were punitive and not compensatory as the provision suggests. Consequently, the Commission adopted the recommendation of the Court in Sanjeev Kumar and proposed that the term ‘compensatory’ in the section be changed to ‘exemplary’, in order to better convey the weight of the costs purported to be imposed by the courts on the unsuccessful party.[11] The ceiling of Rs. 3,000/- imposed by the section was also flagged as needing revision in the fact of inflation, and a limit of 1,00,000/- was proposed as a more appropriate limit. Finally, it was suggested that courts have the power to impose costs on their own without requiring an objection from either party, in order to more effectively guard against the menace of frivolous and vexatious litigation.[12]
The Commercial Courts Act, 2015 – A Potential Panacea?
While amendments along the lines of the Law Commission’s suggestions may not be feasible a potential solution may have presented itself in the form of the Commercial Courts Act, 2015.
The Schedule annexed to the Act provides for the substitution of S. 35 of the Civil Procedure Code, 1908 with a new provision pertaining to costs, which gives the Court full discretion to determine (a) whether costs are payable by one party to another, (b) the quantum of those costs, and (c) when they are to be paid.[13] The Explanation attached to the new S. 35(1) makes it clear that the term ‘costs’ implies the imposition of reasonable costs after taking into account the expenses of the witnesses and the legal fees involved, and S. 35(2) provides the general rule that the unsuccessful party is to pay the costs of the successful party.[14] The Illustration to the section makes it clear that the court can make a finding of vexatious litigation on its own without requiring an application by the parties; whereas S. 35(3) enumerates the factors to be kept in mind when imposing costs on the unsuccessful party.[15] Further, the limit of Rs. 3,000/- imposed under S. 35-A (2) of the Code has also been removed by the Schedule, clearing the path for the imposition of reasonable costs.
The significance of the new S. 35 is that it is based on the recommendations given by the Law Commission in its 240th Report, a fact that is highlighted by the Commission in its 253rd Report upon which the Commercial Courts Act, 2015 is based.[16] The drafters of the Act of 2016 benefited from the erudite observations of the Supreme Court and the exhaustive work put in by the Commission in analysing the law of costs, ultimately emerging with a provision that cures the law of costs of the many defects that have plagued it over the years. It frees the courts from the shackles of timeworn High Court Rules that have so far limited the imposition of just and fair costs on the unsuccessful party, and in doing so clears the way for the provision to compensate successful litigants for their efforts in making their case.
Conclusion
When utilised correctly costs are a major source of relief for a plaintiff or defendant who would otherwise have to hope for a favourable judgement in order to recoup his expenses, and the time has come for the legislature to take the necessary steps and amend the provisions governing the concept.
It
is no longer necessary to implement a detailed framework of the kind proposed
by the Law Commission; all that is now required to effectively amend the provisions
relating to costs is the substitution of S. 35 of the Code with its corollary
in the Commercial Courts Act of 2015.
[1] Halsbury, Laws of England, Vol.12 414 (4th Ed., 2006).
[2] Salem Advocate Bar Association, Tamil Nadu v. Union of India, (2005) 6 SCC 344.
[3] Ibid.
[4] Supra note 3.
[5] Ashok Kumar Mittal v. Ram Kumar Gupta, (2009) 2 SCC 656.
[6] Ibid.
[7] Vinod Seth v. Devinder Bajaj, (2010) 8 SCC 1.
[8] Supra note 9.
[9] Ibid.
[10] Supra note 1.
[11] Ibid.
[12] Ibid.
[13] Commercial Courts Act, 2015, §35.
[14] Ibid.
[15] Ibid.
[16] Law Commission of India, Commercial Division and Commercial Appellate Division of High Courts and Commercial Courts Bill, 2015, Report No. 253, (January 2015), available here (Last visited on August 11, 2019).
This article is written by Manasvin Andra of NALSAR, Hyderabad.
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