Supreme Court on Imposition of Costs in Civil and Commercial Litigations

 

INTRODUCTION

 

Today, I will discuss the case of Uflex Ltd. v. Govt. of Tamil Nadu & Others, 2021 SCC OnLine SC 738, wherein the Hon’ble Supreme Court discussed the concept of awarding costs in civil and commercial litigations.

 

BACKGROUND

 

The facts of the case are not relevant for the purposes of this show and hence, the same are not being discussed here. In the present case, the Court directed the Respondents to pay costs around Rs. 23 Lakhs to the Appellant and around Rs. 7.5 Lakhs to the Government of Tamil Nadu by observing that the instant litigation was in reality a battle between multiple commercial entities and “they must, thus, face the consequences and costs of success or failure in the present proceedings.”

 

IMPORTANT LEGAL PROVISIONS

 

But before adverting further, let us understand the basic provisions relating to costs in the Code of Civil Procedure, 1908 (in short, “CPC”). Sections 35, 35A and 35B of CPC provide for costs.

 

Section 35 provides power and discretion to the Court to determine the quantum and the nature of costs that could be imposed on the parties by way of a reasoned Order. Even if a Court has no jurisdiction to try a suit, then also it has the power to impose costs if it so deems fit.

 

Next, Section 35A deals with the concept of compensatory costs and provides power to the Court to direct for payment of costs to the other party as compensation in cases where the claim or defence put forth by a party is false or vexatious.

 

In the same manner, Section 35B of CPC provides power to the Court to impose costs by way of a reasoned order where a party fails to comply with the order of the court thereby wasting judicial time or obtains an adjournment to comply with such order. Such cost should be reasonably sufficient to reimburse the other party in respect of the expenses incurred by him in representing himself before the court. Thus, all these provisions provide for imposition of costs on account of causing delay, presenting false or vexatious claims etc. Now, let us understand the pertinent observations by the Court.

 

OBSERVATIONS BY THE COURT

 

Firstly, the Court noted that “the costs following cause is a principle which is followed in most countries. There seems to be often a hesitancy in our judicial system to impose costs, presuming as if it is a reflection on the counsel. This is not the correct approach. In a tussle for enforcement of rights against a State different principle apply but in commercial matters costs must follow the cause.”

 

Secondly, the Court explained the basic principles to be followed while imposing costs: -

 

a. Costs should ordinarily follow the event.

b. Realistic costs ought to be awarded keeping in view the ever-increasing litigation expenses.

c. The cost should serve the purpose of curbing frivolous and vexatious litigation.

 

Thirdly, the Court stated that levying meagre costs in civil matters may not act as a deterrent to vexatious or luxury litigation borne out of ego or greed or resorted to as a ‘buying time’ tactic.

 

Fourthly, the Court observed that “in carrying on commercial litigation, parties must weigh the commercial interests, which would include the consequences of the matter not receiving favourable consideration by the courts. Mindless appeals should not be the rule.”

 

Fifthly, the Court pointed out that “the best reflection of what costs have been incurred is what the parties have paid towards the counsel fee and out of pocket expenses.”

 

And lastly, the Court also discussed the Halsbury’s Laws of England wherein it has been stated that the conduct of the parties must be taken into account while awarding costs. Conduct of the parties includes conduct before and during the proceedings, reasonableness of the parties to contest a particular issue, manner in which the parties pursue a particular allegation or an issue and exaggeration of claims.

 

CONCLUDING REMARKS

 

Thus, I hope that the nature and the scope of imposition of costs in civil and commercial litigation is clear by now. In conclusion, it could be said imposing costs is a valuable tool in the hands of the court curb frivolity in judicial proceedings. Usually, the Courts do not resort to imposition of costs but these days, the tendency to litigate for the sake of litigating seems to be on a rise. Hence, I hope that the courts all over India will follow the lead taken by the Supreme Court and start imposing costs on the parties for causing delay or misusing judicial proceedings.