India: Costs Regime In Civil Litigation In India - A Paper Tiger

"I have found in my experience that there is one panacea which heals every sore in litigation and that is costs." - Justice Bowen in Copper vs. Smith (1884).

Civil litigation in India is a long-drawn-out and arduous process. Of the several factors contributing to the age-defying process of civil litigation nationwide, vexatious and frivolous litigations, borne out of greed and dilatory tactics of seeking constant adjournments, are the leading drawbacks. To deter litigants from indulging in such improper conduct, a mechanism has been put in place under the Code of Civil Procedure, 1908 (the Code) for awarding costs. The provisions on costs under the Code aim at ensuring that realistic and reasonable costs are awarded to a successful party thereby curbing false and frivolous litigation, and discouraging unnecessary adjournments.¹ Despite express provisions under the Code, the levying of costs has been a rather underrated and overlooked aspect. The habitual overuse of phrases such as "no costs awarded" or "parties to bear their own costs" has undermined the purpose and objective of the imposition of costs in civil litigation.

Existing framework

The provisions for awarding costs in civil litigation in India are enshrined in the Code under Sections 35, 35A, and 35B, and Orders XX-A, and XXV. Sections 35, 35A, and 35B of the Code stipulate provisions relating to the award of "general costs", "compensatory costs" for false/vexatious claims, and "costs for delay", respectively. Order XX-A of the Code envisages costs in relation to certain specific expenditures, such as costs incurred for issuing notices, and the printing of pleadings. Discretion is conferred on the courts to award "security for costs" under Order XXV of the Code where a party instituting a suit must deposit security to ensure payment of expenses incurred by the other party in the suit.

Regulations differ for commercial matters under the Commercial Courts Act, 2015 (the Act): here, the courts have the discretion to determine, inter alia, (a) the quantum of such costs; and (b) when such costs are to be paid.² Moreover, the applicability of Section 35A(2) of the Code mandating courts to levy costs not exceeding INR 3000 has been omitted from the Act.

Unquestionably, the general rule in India's civil justice system is that costs must be awarded after the culmination of a litigation and a party in whose favour the decree is passed. The provisions for costs are in line with India's adversarial dispute resolution system, where the successful party must be compensated for expenses incurred during litigation. While courts are mandated to adhere to the Code when awarding costs, they have some discretion in this regard. However, such discretion is not absolute, but rather it is subject to certain limitations. For instance, Section 35A(2) of the Code restricts courts from awarding compensatory costs exceeding the meagre amount of INR 3000.

Practical Obstacles

While the elaborate framework under the Code appears to be ideal, it renders negligible help to courts for levying costs in practice: it provides a rule book on awarding costs in civil litigation, but the effective implementation of the stated rules is moot, and often restricted by the limitations set out in the Code. For instance, frivolous suits often go unpunished, despite the specific provision on compensatory costs for frivolous and vexatious litigation under the Code. Such provision mandating costs to be imposed for frivolous litigation has been rendered "infructuous"³, given the limitation that caps the total cost that may be levied by a court for frivolous suits at a paltry sum of INR 3000. On several occasions, courts have had no option but to reduce higher costs to INR 3000 to adhere to this upper limit prescribed under the Code.⁴

The objective of streamlining the civil litigation process by imposing costs that discourage speculative or frivolous litigation is further diluted when parties are almost routinely directed to bear their own costs. It is common practice for such directions to be passed without recording any specific reasons. In doing so, not only are the courts acting contrary to the mandatory provisions under the Code⁵ but, what is more, the aim and intention in incorporating such provisions is also undermined in the process.

Moreover, while the courts are typically reluctant to impose even nominal costs on parties in civil litigation in terms of the Code, exemplary costs are usually awarded to deter frivolous litigation in exercise of the courts' writ jurisdiction⁶ or plenary powers under Article 142 of the constitution.⁷

Supreme Court of India's observations

Given the limitations and inefficiency of the costs regime under the Code, the Supreme Court of India has often recommended that the provisions under the Code be revisited, and a more practical approach be adopted by the legislature. In its recommendation, the Supreme Court of India has, inter alia, proposed that (i) the upper limit under the Code be increased from the nominal amount of INR 3000 to at least INR 1 lakh, to effectively deter litigants from instituting false/vexatious suits;⁸ and (ii) instead of awarding nominal costs, actual realistic costs be imposed, i.e., costs that are practical and costs that a normal advocate in a normal case of a particular nature would charge.⁹

The Law Commission of India in their 240th Law Commission report has, inter alia, endorsed the recommendation of the Supreme Court of India by proposing that the ceiling of INR 3000, as imposed under section 35A(2) of the Code, be increased to INR 1 lakh, to ensure a better check against frivolous litigation.

Further, the Supreme Court of India has also suggested that a separate 'Code for Compulsory Costs' be adopted by the legislature to effectively discourage litigants from filing frivolous suits and deter them from adopting any delaying tactics in proceedings¹⁰. However, such suggestions by the apex court of India and the Law Commission of India are pending statutory recognition by the legislature.

In the absence of any robust, adequate, and effective legislative measure to remedy the inadequacies in the costs' framework under the Code, the Courts normally refrain from awarding even the nominal cost, and any costs in civil litigation are usually awarded only by courts in their writ or plenary jurisdiction.

Suggested improvements

The proposed legislative reforms to address the shortcomings in the costs' framework under the Code are long overdue and long-awaited. It would also be ideal for the costs' regime under the Code to be amended in sync with the analogous provisions in the Act which do not specify any restrictions on the amount of costs to be awarded. However, pending such reforms, the practice of routinely awarding costs, albeit nominal, by courts could be a step in the right direction to curb frivolous litigation and reduce the pendency of cases. Furthermore, as has been noted by the apex court,¹¹ courts could consider ordering prosecution to discourage baseless delays and vexatious litigation.

In awarding costs, due consideration needs to be paid to factors such as court fees, advocates fee, duration of the proceedings, and appropriate restitution for the successful litigant. It is time that the recommendations of the 240th Report of the Law Commission are implemented in letter and spirit to make the costs regime under the Code more robust. In keeping with the recommendations of the Supreme Court of India, the respective High Court rules also ought to be amended to ensure more realistic and reasonable costs. An effective costs regime should allow for case-specific considerations to effectively indemnify or compensate the successful litigant and deter litigants from instituting frivolous and vexatious suits.

In the absence of any fundamental legislative reforms, the courts are powerless to dissuade or deter frivolous litigation, and thereby ensure that genuine litigants receive timely decisions and recover their real expenses under the Code. Such reforms to the cost regime will go a long way in curbing frivolous litigation clogging the system and in ensuring that the cost regime under the Code is not just an illusory paper tiger.

Footnotes

1. Ministry of Law, The 240th Law Commission Report on 'Costs in Civil Litigation', May 2012.

2. Section 16, The Commercial Courts Act, 2015.

3. Sanjeev Kumar Jain v. Raghubir Saran Charitable Trust and Ors. (2012)1SCC 455.

4. Id.

5. Salem Advocate Bar Association T. N. Vs. Union of India (2005) 6 SCC 244.

6. Ashok Kumar Mittal v. Ram Kumar Gupta & Ors. (2009) 2 SCC 656.

7. Ministry of Law, The 240th Law Commission Report on 'Costs in Civil Litigation', May 2012.

8. Sanjeev Kumar Jain v. Raghubir Saran Charitable Trust and Ors. (2012)1 SCC 455.

9. Id.

10. Subrata Roy Sahara v. Union of India (2014) 8 SCC 470.

11. Rameshwari Devi v. Nirmala Devi (2011)8 SCC 249.

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