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AWARDING OF COSTS: PRINCIPLES AND PRACTICE

INTRODUCTION

According to the Halsbury’s Laws of England, cost is defined as “the sum of money which
the court orders one party to pay another party in an action as compensation for the expense
of litigation incurred.” It is also included that it works as compensation does; however, it
must be noted the costs do not follow the concept of Restitutio ad integrum which is a
principle for compensation. That is, costs are not awarded to return the injured person to the
state he was in, before the injury.1 It is supposed act as a deterrent so that the time of the court
will not be wasted with vexatious, frivolous or malicious cases. The object of awarding cost
is to indemnify a party against the expense of successfully indicating his rights in court. This
was held in the case Mahindra v. Aswini.2

In the Civil Procedure Code, Sections 35, 35A and 35B cover the concept of costs. According
to Section 35, the awarding of costs shall be to the discretion of the Court and that the Court
“shall have full power to determine by whom or out of what property and to what extent such
costs are to be paid.”3 The different kinds of costs are

1. General costs under Section 35

The Court will not be barred from this power even if the court does not have the jurisdiction
to try that particular suit. Generally, the unsuccessful party is ordered to pay the costs of the
successful party.5 The provisions also include the circumstances in which this provisions can
be invoked and include an inexhuastive list of orders the court can make under tis provision.
Section 35A talks about costs in case of false or vexatious cases or defences and this amount
must be less than three thousand rupees or according to the pecuniary jurisdiction of the
court. This cost does not exempt a person from criminal charges for the false claims he/she

1
Halsbury, H. S. G., & Mackay, . C. J. P. H. (2008). Halsbury's laws of England. (Halsbury's Laws of England.)
London: LexisNexis.
2
Mahindra v. Aswini, (1920) ILR 48 Cal 427.
3
The Code of Civil Procedure, 1908, §35(1).
4
Mulla, Dinshah Fardunji, et al. Mulla, the Code of Civil Procedure. LexisNexis, 2015.
5
The Code of Civil Procedure, 1908, §35(2).
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had made. According to Section 35B, the Court is empowered to order for costs if a party
causes delay of proceedings. This is separate from the costs that may be awarded for the suit
itself. The reason behind the present “loser pays”-rule is the principle that civil litigation
protects rights. If the costs were not allocated according to how the court finally determined
the rights and duties in the case, this principle would not be completely enforced. An
additional reason for the rule is that it should prevent non-meritorious cases.6

In this paper, the researcher will look into the principles and the practice of awarding costs
with special reference to the 2017 Law Commission Report.

PRINCIPLES OF COST

According to the 240th Law Commission Report, the some basic principles for awarding costs
are:

i) The first principle is that costs should be paid by the unsuccessful party for the
successful party. This is called “costs should follow the event.”
ii) since litigation costs have been increasing exponentially, it is important to impose
realistic costs
iii) The numerous vexatious, false, frivolous cases must ne discouraged by the
imposition of costs

The normal rule is that costs must follow the event. If not, the reasons must be recorded in
writing. This means that the party who succeeds gets the general costs of the action but if the
actions are separate, then the event will be read distributively and the person who wins that
specific action will get the cost. This was held by the House of Lords and reiterated in the
Indian case of Mahindra Singh and ors. vs. Chander Singh.7

Another principle of awarding costs was held in the case Gajendra Shah v. Ram Charan. The
court held that “"The principle which the Court awarding the costs should always bear in
mind is that it should order the payment of a sum commensurate with the costs, which in the
opinion of the Court the party ready to proceed will have to incur owing to the adjournment.
The amount to be awarded should not be one of the nature of penalty or of punishment."
Hence, there is a principle of reasonableness. The idea is to indemnify the party and is not a
benefit to the successful party or a punishment to the unsuccessful party. It must be kept in
6
Sunnqvist M. (2012) Loser Pays – But Only a Reasonable Amount. In: Reimann M. (eds) Cost and Fee
Allocation in Civil Procedure. Ius Gentium: Comparative Perspectives on Law and Justice, vol 11. Springer,
Dordrecht.
7
Mahindra Singh And Ors. vs Chander Singh, AIR 1957 Pat 79.
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mind that “costs are thus in the nature of incidental damages allowed to indemnify a party
against the expense of successfully vindicating his rights in court and consequently the party
to blame pays costs to the party without fault.”8 That is to say, costs can be recovered by the
payee proportionately and reasonably and if the other party has done anything unreasonable
or abused the process, the party may be indemnified. It is two instances of awarding cost and
the method of assessing such cost must be different. Hence in the second case, it is more
penal in nature as there is wrong done and the other party must be indemnified for being put
through such wrong.

It is also established that costs are in the discretion of the Court. This discretion must be a
judicial discretion to be exercised on legal principles, not be “chance, medley, nor by caprice
nor in temper.”9 The Court may order the costs to be paid to the parties in definite
proportions or it may order one party to pay to the other, a fixed sum, in lieu of taxed costs.
The court may also disallow costs of a party on the ground that neither of them had come
with clean hands as was held in the case of Gulabchand v. Manikchand.10 Another general
rule is that up to the passing of a preliminary decree in a partition suit, each party will bear
his own costs, unless there are exceptional circumstances.

Under Section 35A, costs are awarded where a claim is false or vexatious. Before awarding
such claims, the court should satisly itself that such claims are false or vexatious and that
“the interests of justice require the awards of such costs and that further, a claim therefore
had been made by the party at the earliest opportunity. However, this does not include cases
which have complicated questions, it generally deals with cases where parties do not come to
court with clean hands ie, they may have no grounds for the claim, or may have submitted
false documents etc. Similarly, under S.35B, the court can award cost only if it is satisified
that the party is causing undue or unnecessary delay in the proceedings. The cost imposed is
separate from the decree passed on the subject matter. There is also the option of
condonation by the court but this is in the discretion of the court. Parties should not be
punished unnecessarily and this should not be

PRACTICE OF AWARDING COST

8
Manindra Chandra Nandi vs. Aswini Kumar Acharjya, ILR(1921) 48 Cal 427.
9
Maharajadhiraj Sir Kameshwar Singh v. Nabilal Mistri, 1959 AIR 1303.
10
Gulabchand Sarawgi v. Manikchand Sarawgi, AIR 1960 MP 263.
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From the above, the legislative intent of the awarding of costs is clear. It suggests that the
costs must be shifted to the ‘loser’ because the successful party has done no wrong and
should not be asked to pay for a case they were justified about. It also acts as a deterrent to
any delay in cases or bringing of any false or vexatious claims to the table. In practice,
though, courts rarely so shift costs completely, indicating a significant disconnect between
what the statute intended and what is actually practiced by courts.

This was discussed in the Law Commission Report by citing the case of Salem Advocate Bar
Association T. N. Vs. Union of India. In that case, it was held that “it has become a practice
to direct parties to bear their own costs. In large number of cases, such an order is passed
despite Section 35(2) of the Code. Such a practice also encourages filing of frivolous suits. It
also leads to the taking up of frivolous defences.11” This is an example of how the discretion
given to the court by Section 35, 35A and 35B is not used responsibly. That is, the discretion
must be used to fulfil the legislative intent of the sections. In another Supreme Court case, it
was pointed out that the “present system of levying meagre costs in civil matters (or no costs)
in some matters, no doubt is wholly unsatisfactory and does not act as a deterrent to vexatious
or luxury litigation or 'buying-time tactic'.” Therefore, firstly there must be some guidelines
laid down to govern the awarding of costs and such award must be realistic. The Apex Court
must include all the principles of awarding of costs that have been laid down by the provision
and other judicial decisions. There must be a guiding principle that all High Court must be
expected to follow while awarding costs. It is, of course, necessary to impose costs as the past
few years have seen a hike in the number of frivolous, vexatious, false cases that have wasted
the time of the Courts. This not only wastes the time of the court but also obstructs the path of
justice for other litigants with bonafide cases whose cases will not be heard or will be
awarded delayed justice because of the malafide and frivolous cases. There must be strict
punishment for a case that the court believes does not have any serious purpose or value.
This problem is also visible in case of Public Interest Litigations, when the public interest
litigations are frivolous and filed with mala fide intentions. In the past year, there have been
PIL’s with the aim to remove all Indian Muslims to Pakistan; an interest against the basic
structure of the Constitutions. This particular litigant was, inexplicably, not imposed with a
cost. However, the Supreme Court has been handing out heavy cost for not only wasting the
precious time of the judiciary but also for tainting the sanctity of public interest litigations.

11
Salem Advocate Bar Association T. N. Vs. Union of India, 2005 (6) SCC 344 5.
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As far from the object of costs as it may be, another point that is overlooked by most is that
costs prove to be a deterrent to modest people who want to approach the court. If the idea of
cost is to have the unsuccessful party indemnify the costs of the successful one, many
people, especially people who do not have access to good legal aid and who are from poor
backgrounds, may second guess their fight for justice merely because they may not be able
to handle the financial burden, if they lose. There is no celling to the amount of cost in some
cases. This adversely affects a normal Indian litigant who is attempting to access the civil
justice system. This litigant, who truly believes he has a case to present, which he believes he
could potentially win, does not know how well the other side prepared or how the judges are
going to decide the case. There is no way he can know if he will win or lose. Not every
litigant who loses a case have approached the court with the intention to waste the court’s
time. With the amount of costs within the discretion of the court, it is completely
understandable that this aspect of civil litigation may discourage a litigant from bringing his
case forward. This obstructs his access to justice and creates a system where the rich or
insured may freely approach the court while people with economic difficulties are forced to
not. In Vinod Seth vs Devinder Bajaj, the apex court had observed: “Under no circumstances,
costs should be a deterrent to a citizen with a genuine or bona fide claim, or to any person
belonging to the weaker sections whose rights have been affected, from approaching the
courts.” However, this has only stayed a part of obiter as the amount of costs has been
increasing with each year.

POINTS OF REFORM

In order to tackle the issue of frivolous cases and inaccessibility to justice for some citizens,
the legislation must strike a balance wherein there should be realistic costs which are
proportionate for the unsuccessful litigant. The aim must not be to completely indemnify the
successful party but to indemnify them with a proportional percentage of the income of the
litigant. The doors to justice must be open so that no litigant is discouraged from approaching
the judiciary to fight for their rights. The reimbursement should not be too high or out of
reach for any of the parties. The Rules of the High Courts and Supreme Court must set a
standard dorm of calculating the costs in cases so that the amount of costs will not completely
be the discretion of the court. There must be provisions which allow a needy litigant to obtain
insurance for this.
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The concept of protective costs order must be explored to ascertain whether it can be brought
to India. It essentially measn that the Court will give an Order in the beginning of the
proceedings capping the liability of the litigants to be imposed the cost if they turn out to be
the unsuccessful party. Such an order would allow the Court to come to a decision on the
amount of cost that should be imposed in that particular case and will also allow the litigant
to withdraw from the case if they are not capable of paying the cost in case they are
unsuccessful. In cases of public interest litigations, this order would be extremely helpful in
the cases in India as the litigant who does not have personal stake will not have to lose
substantial amounts of money for bringing in the PIL. This is not a matter of right but a
discretionary power of the court. It can be provided at any stage during the proceedings so the
court can ascertain that the case is meritorious before giving this right to the litigants. The
applicant of PCO will also have a cap on the amount they will receive if they end up being
the successful party as otherwise it would not be just or fair for the other party. It is suggested
that protective cost orders must be introduced in India as it will significantly reduce the risk
of an adverse costs order dissuading a claimant (even one with a meritorious case) from
bringing legal proceedings.12

CONCLUSION

In this paper, the concept of ‘costs’ was looked into. The position of costs in the Code of
Civil procedure has been studied and the different cases which defined costs and the guiding
principles of costs has been studied extensively. It was found that the practise of costs is
vastly different from the principles and that it is causing many problems such as not fulfilling
the purpose of costs. However, as noble as the purpose is, it was also found that the
exuberant costs may act as a deterrent for middle class litigants who may not afford to even
try to participate in the justice system. It is supposed to push the litigants to try alternative
dispute resolution mechanisms before approaching the court, but with the limited knowledge
and awareness about ADR there currently exists in India, it is pushing people to not defend
their legal rights. A provision to curb vexatious cases and give access to justice to all is
recommended. Unnecessary adjournments should be avoided and Courts must use discretion
wisely.

12
Ruddock, Kirsty. "Protective costs orders and access to justice: the Coxs River case." National Environmental
Law Review 2-3 (2010): 47.
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