India: Towards A New Costs Regime

Last Updated: 12 October 2016
Article by Ananya Kumar and Divyam Agarwal

"The suggestion to the legislature is to formulate a mechanism that anyone who initiates and continues a litigation senselessly, pays for the same. It is suggested that the legislature should consider the introduction of a "Code of Compulsory Costs.... The effort is only to introduce consequences, if the litigant's perception was incorrect, and if his cause is found to be, not fair and legitimate, he must pay for the same" Subrata Roy Sahara v Union of India, (2014) 8 SCC 470.

Cost has been defined by 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. Awarding costs of a proceeding, unless limited by statute or rule of law, are within the discretion of the court / tribunal hearing a matter.

For the last 39 years, Sections 35 and 35-A of the [Indian] Code of Civil Procedure, 1908 ("CPC") have capped costs that can be awarded in favour of a successful party to Rs.3,000/-.While the unamended Arbitration & Conciliation Act, 1996 did not provide for a ceiling on costs, arbitral tribunals were ordinarily guided in this regard by the provisions of the CPC.

As any litigant would affirm,and as pointed out by Justice (Retd.) A.P. Shah in the 246th Law Commission Report,a ceiling of this nature bears no relation to the actual expenses incurred by a party in litigation. As a result, the cost regime in our legal system has neither proved to be a deterrent for vexatious litigations, nor has it come to the aid of innocent litigants, who are forced to incur heavy expenditure to prosecute or defend a case.

The archaic nature of the costs regime was adversely commented on in various decisions of the Supreme Court, which expressed a need for urgent review of the legislative provisions qua award of costs in civil matters.

Following there from, in May 2012, the 240th Report of the Law Commission of India, titled 'Costs in Civil Litigation', proposed amendments to various provisions of the CPC, including Section 35- A.The Law Commission opined that costs in civil proceedings should be realistic and such that they curb frivolous and protracted litigation. Despite the recommendations of the Law Commission, Section 35- A was not amended.

However, two recently promulgated legislations, viz., the Arbitration & Conciliation (Amendment) Act, 2015 ("AA Act") and the Commercial Courts, Commercial Division and Commercial Appellate Division of High Courts Act, 2015 ("CC Act"), both of which came into force on 23 October 2015, have attempted to remedy this position.

Amendment to Arbitration costs regime The 246th Report, while noting that arbitration, much like traditional adversarial dispute resolution, can be an expensive proposition, observed that: "The loser-pays rule logically follows, as a matter of law, from the very basis of deciding the underlying dispute in a particular manner; and as a matter of economic policy, provides economically efficient deterrence against frivolous conduct and furthers compliance with contractual obligations."

Accordingly, the 246th Report suggested insertion of provisions detailing the costs to be awarded in proceedings under the Arbitration & Conciliation Act, 1996 ("Arbitration Act").The suggested amendments were intended to replace the existing Section 31(8), where the tribunal's power to award costs was found. Based on the recommendations contained in the 246th Report, the AA Act has amended Section 31(8) and inserted Section 31-A in the Arbitration Act, which gives the Tribunal the power to determine whether costs are payable by one party to another and the quantum of such costs. The explanation to Section 31-A (1) reiterates the preamendment position that "costs" would include the fees and expenses of the arbitrators, Courts and witnesses, legal fees and expenses, administration fees and any other expenses incurred in connection with the arbitration, court proceedings or the award. Section 31- A (2), which is an addition, thereafter stresses on the "loser pays" principle. Section 31-A (3) sets out the circumstances that the tribunal/court is required to keep in mind while awarding costs, including factors such as conduct of the parties, the frivolity of the respective cases put forward by the litigants and whether a reasonable settlement offer has been refused.

Insertion of the latter two provisions is an attempt to toughen the existing costs regime and bring it in line with international practices.

Costs in Commercial Matters Section 2(1)(c) of the CC Act has classified disputes arising out of 22 distinct kinds of transactions (including such further transactions that the Central Government may notify) as "commercial disputes", and has provided for the constitution of a Commercial Division and a Commercial Appellate Division in every High Court to deal with matters falling in these categories, and having a subject value of more than a specified value, which is to be at least One Crore Rupees.

The CC Act also amends various provisions of the CPC,insofar as they apply to commercial matters, which includes Sections 35 and 35-A. These changes are based on the 253rd Law Commission Report, which in turn referred to and relied upon the 246th Report. The 253rd Report recommended that the law should be amended to ensure that costs necessarily follow the event in all cases, except where the court gives reasons in writing. It also recommended that the legislature should amend Sections 35 and 35-A of the CPC by adopting the model of costs proposed in the amendments to the Arbitration Act. These recommendations have been accepted by the legislature in the CC Act.

The CC Act seeks to provide a remedy to the bona fide litigant by incorporating a 'cost to follow the event' regime under Section 2 of its Schedule. This Section provides a replacement provision for Section 35 of CPC, which defines costs in a manner that is analogous to the newly introduced Section 31A of the Arbitration Act. Section 35-A (2), where the cap of Rs.3,000 finds place, has been specifically omitted by the CC Act. Once again, akin to Section 31-A,the conduct of parties has been made a relevant factor while deciding on the issue of costs and courts are empowered to impose costs even against the successful party for portions of the claim/defence which are found to be frivolous.


While the power to award costs in itself is not a huge departure from the earlier position, Section 31-A (2) and (3) of the Arbitration Act and Section 2 of the Schedule to the CC Act have strengthened and taken the costs regime in arbitration and arbitration related proceedings, and in commercial matters, respectively, beyond what was contemplated by the CPC, and into the realm of reality.

This new regime is akin to and inspired by Part 44 of the Civil Procedure Rules (CPR) of England and Wales, and similar to the practices followed in jurisdictions like Singapore, the United States and even the rules of certain arbitral institutions like the International Chamber of Commerce.

It is a significant and landmark step towards curbing vexatious litigation, reducing pendency of cases and also adequately compensating bona fide litigants. The 246th Report, while proposing amendments to the Arbitration Act, had stated that: "The Commission has, therefore, sought comprehensive reforms to the prevailing costs regime applicable both to arbitrations as well as related litigation in Court ... and it is hoped and expected that judges and arbitrators would take advantage of this robust provision, and explain the "rules of the game" to the parties early in the litigation so as to avoid frivolous and meritless litigation/arbitration."

The "rules of the game" appear to have changed. For these "rules" to have true meaning, though, they will need to be enforced strictly. At the same time, detailed and sufficient application of mind is a must while adjudicating on costs, so that while vexatious litigation is deterred, access to justice is not impeded or seen to be impeded. It is also high time that Sections 35 and 35-A of the CPC are amended, to apply not just to commercial matters, but to all civil litigation.

This article originally appeared in The New Statesmen.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:
  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.
  • Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.
    If you do not want us to provide your name and email address you may opt out by clicking here
    If you do not wish to receive any future announcements of products and services offered by Mondaq you may opt out by clicking here

    Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

    Use of

    You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


    Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

    The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


    Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

    • To allow you to personalize the Mondaq websites you are visiting.
    • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
    • To produce demographic feedback for our information providers who provide information free for your use.

    Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

    Information Collection and Use

    We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

    We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

    Mondaq News Alerts

    In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


    A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

    Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

    Log Files

    We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


    This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

    Surveys & Contests

    From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


    If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


    From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

    *** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


    This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

    Correcting/Updating Personal Information

    If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

    Notification of Changes

    If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

    How to contact Mondaq

    You can contact us with comments or queries at

    If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.

    By clicking Register you state you have read and agree to our Terms and Conditions