Security for Costs: Civil Aspects Compared with Criminal and Arbitration
In litigation, the usual position in relation to costs is that the unsuccessful party will be ordered to pay the successful party's recoverable costs. Such costs may be substantial, especially when dealing with cases involving a foreign element which gives rise to additional costs, e.g., travel, expert evidence on law, etc. While a defendant may be confident of their ability to defend the claim, they may nevertheless have concerns about potential difficulties in seeking to recover costs provided for in any costs order against the claimant. The purpose of a security for costs order, an interim remedy, is to alleviate that concern by requiring the claimant to pay money into court, or to provide some other form of security, as a precondition to being able to continue with the claim. Where an order for security for costs is made, the proceedings will often be stayed, pending payment or provision of security.1
EXPLANATION OF THE PROVISION
Rule 1 of Order 25 of the Code of Civil Procedure 1908 (hereinafter as "CPC")2 in India provides for the taking of security for the costs of the suit. It states that the court may, at any stage of the suit, order the plaintiff to give security for the payment of the costs of the defendant. This is at the discretion of the court.3 This power may be exercised by the court on an application by a defendant or suo motu (on its own motion).
In the following circumstances, however, the court shall make such order:4
- where the plaintiff resides outside India or where there are two or more plaintiffs and all of them reside outside India; and
- where the sole plaintiff or none of the plaintiffs has sufficient immovable property within India other than the suit property.
Rule 10 of Order 41 provides for taking of security for costs of appeal.5
The object of the rule is to provide for the protection of the defendants in certain cases where, in the event of success, they may have difficulty in realising their costs from the plaintiff.6 It is a discretionary power which can be exercised only in exceptional circumstances, where it is shown that the exercise of power is necessary for the reasonable protection of the interests of the defendant.7
An order for security of costs may be passed by the court either suo motu (of its own motion) or on application of the defendant and must be a reasoned one. The provisions of this order apply even to a minor plaintiff.8
If the security is not furnished within the time fixed or extended, the court shall dismiss the suit unless the plaintiff or plaintiffs are permitted to withdraw therefrom.9 Sub-rule (2) of Rule 1 empowers the court to restore the suit dismissed under sub-rule (1). The dismissal shall not, however, be set aside without giving notice to the defendant.10
COMPARISON WITH CRPC AND ARBITRATION
The Criminal Jurisprudence
The Section 359 of the Code of Criminal Procedure mentions security for costs in the non-cognisable cases. As per the said Section, the Court, if it convicts the accused, may, in addition to the penalty imposed upon the accused, order him to pay to the complainant, in whole or in part, the cost incurred by him in the prosecution, and may further order that in default of payment, the accused shall suffer simple imprisonment for a period not exceeding thirty days and such costs may include any expenses incurred in respect of process-fees, witnesses and pleader's fees which the Court may consider reasonable.11
In the case of the State of UP v Nitin Agnihotri,12 a writ petition was filed in the nature of certiorari for quashing the FIR registered under Section 366 of the Penal Code, 1860.13 In the FIR it was stated that the accused along with his mother and sister had abducted the daughter of the Respondent. The FIR was subsequently quashed by Hon'ble High Court and an order was passed that Shri Manoram Agnihotri and his wife were to be released, and security was to be provided to Nitin Agnihotri and his wife and the authorities were to ensure that the aforesaid persons were not harassed in any way. The High Court thereafter in the concluding para of the judgment held that it was a fit case where cost of Rs 50,000 was to be imposed against the State and Respondent.14
However, the Hon'ble Apex Court stated that the impugned order of the High Court so far as it relates to the imposition of cost is founded on no basis. There is not even a finding recorded that the police officials were remiss in any way and/or had committed any lapse during investigation. In the absence of any reason having been indicated by the High Court as to why the Court felt necessary for imposing cost, the direction for payment of cost cannot be sustained and is set aside.15
Before parting with the case, the Hon'ble Apex Court stated that we would like to indicate that the courts should not impose cost in the manner done in the present case without recording any finding as to why imposition of cost was considered necessary. Unless any lapse on the part of any authority is found and opportunity is granted to the alleged erring official, cost should not be imposed. Whenever it is felt that cost is to be imposed, the reason for such a conclusion has to be recorded.16
The Arbitration Matters
Security for costs refers to a provisional measure that a party to an arbitral proceeding may seek from a Tribunal to order its counterparty to post security payment so as to secure that party's right to recover its costs (i.e., legal costs and expenses incurred during the arbitral proceeding) should such party ultimately prevail in the arbitral proceeding. In particular, security for costs provides protection to a party against the costs of arbitration in situation where its counterparty is running low on funds. For this reason, a request for order of security for costs is predominantly initiated by respondent-States to protect themselves against potentially unmeritorious or speculative claims brought by impecunious claimant-investors.17
1. Security for Costs – Overview, Lexis Nexis, https://www.lexisnexis.com/uk/lexispsl/personalinjury/document/393747/59PF-CV71-F18B-71CD-00000-00/Security_for_costs_overview (last visited May 03, 2023).
2. The Code of Civil Procedure, 1908, No. 05, Acts of Parliament, 1908 (India).
3. Premchand, re, ILR (1894) 21 Cal 832; Arumugam Chettiar v. K.R.S. Sevugan Chettiar, AIR 1950 Mad 779: (1950) 2 M LJ 159; Narasinga Shenoi v. Madhava Prabhu, AIR 1960 Ker 45.
4. Supra note 02 at Or. 25 R. 1.
5. Supra note 02 at Or. 41 R. 10.
6. Vinod Seth v. Devinder Bajaj, (2010) 8 SCC 1; Premchand, re, ILR (1894) 21 Cal 832 at p. 836.
7. Arumugam Chettiar v. KR.S. Sevugan Chettiar, AIR 1950 Mad 779: (1950) 2 M LJ 159.
8. Bai Porebai v. Devji Meghji, ILR (1898) 23 Bom 100; Mohd. Kasim v. Haji Rahiman.
9. Supra note 02 at Or. 25 R. 2(1).
10. Supra note 02 at Or. 25 R. 2(3).
11. The Code of Criminal Procedure, 1973, § 359.
12. State of U.P. v. Nitin Agnihotri, (2008) 8 SCC 31.
13. The Indian Penal Code, 1860, § 366.
14. Id. at ¶ 3.
15. Id. at ¶ 6.
16. Id. at ¶ 9.
17. Han Mino, Security for Costs, Jus Mundi (Mar. 10, 2023), https://jusmundi.com/en/document/publication/en-security-for-costs.
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.