What is Cost?

Aryan Grover

In every legal action, there is one party that emerges successful, and one that is declared guilty. The only commonality between the two is the expenses that both incur in fighting their case in court. However, it seems unfair that the party who is declared having no fault in the matter should be made to pay for all the expenses incurred in asserting their rights in court when the legal action was necessitated only because of a breach of legal duty on the other party’s part.

Costs are a statutory allowance that are paid by the guilty party to the successful party to compensate it for the expenditure that it has incurred in either prosecuting or defending a suit. Costs are awarded entirely at the discretion of the court, and such discretion must be exercised judiciously and in accordance with the appropriate legal principles.

The successful party is generally entitled to costs as a norm (expressed by the rule, “Costs follow the event”) unless it has been found guilty of misconduct, negligence, omission, or any other such reason which takes away such entitlement.

COSTS UNDER THE CODE OF CIVIL PROCEDURE, 1908

The Code of Civil Procedure (CPC), lays down provisions with regard to costs in Section 35, which have been explained as under:

Section 35

1. This section provides for costs and confers the discretion of awarding these costs with the Court. The Courts have full power to determine who pays the costs, to what extent the costs are paid, as well as the property out of which these are to be paid. It also issues the necessary directions to achieve these purposes.
2. When the court comes to a conclusion that no costs are to be awarded, or that “no costs follow the event”, it must explicitly explain its reasons for doing so in writing.

False and vexatious claims, as well as frivolous litigations are an increasing menace in the Indian judiciary. Based on absurd legal theories and utter disregard for the merit of one’s own arguments, these have no serious purpose or value, and are often made with mala fide intentions of stalling or deceiving the court. The Code gives power to the Courts to penalise for such claims or defences and award exemplary costs to deter parties from making them. This power is laid down in Section 35A of the Code of Civil Procedure Code.

Section 35A

1. This section deals with compensatory costs, to be paid in respect of claims or defences that are false or vexatious. In any suit or proceeding, except in appeals or revisions, if any party objects to a claim or defence put forward by the other party, on grounds of it being false or vexatious despite the knowledge of the party who has made the claim, the Court may order for payment to the objecting party by the other party if such claim or defence is later disallowed, abandoned or withdrawn. It must be noted that the authority of awarding such compensatory costs lies exclusively with the trial courts.
2. Courts shall not be permitted to make an order for payment that exceeds three thousand rupees or exceeding the limits of its pecuniary jurisdiction, whichever is less.
3. The person made subject to these costs under this section is not exempted from criminal liability in respect of the claim or defence made by them for the reason that they have paid such costs.
4. The amount of compensation awarded under this section for a false or vexatious claim or defence shall be taken into account in any subsequent suit for damages and compensation in respect of such claim or defence.

Civil suits are infamous for taking years and years to come to a conclusion, to the point where one actually begins to wonder whether a litigation is even worth it. A number of times, these delays are caused not due to the pendency of courts, but because of the parties failing to exercise diligence in performing what’s required of them. For such scenarios too, the Code provides power to the Courts under Section 35B to impose costs to penalise parties for delaying the proceedings.

Section 35B

1. Costs for causing delay can be imposed by the court, requiring a party to pay the other party in a suit if a party to the suit: –
2. Fails to take the step which it was required to under the Code on that date, or;
3. Obtains an adjournment for taking such step or for producing evidence or on any other ground

Reimbursement can be made to compensate the other party in respect of the expenses incurred by it in attending the Court on that date.

If paid, the costs awarded in sub-section (1) will not be included in the costs awarded in the decree that is passed in the suit. However, if such costs are not paid, a separate order shall be drawn up with details of the persons by whom such costs are payable, and this order so drawn shall be executable against these persons.

CASE LAWS

Ashok Kumar Mittal vs. Ram Kumar Gupta & Anr. (2009); Here, it was pointed out that the system that is in place which levies minimal or no costs in civil matters is unsatisfactory and insufficient in acting as a deterrent to luxury litigation that is vexatious or born out of ego or greed, and is often used as a time-buying tactic by the parties. A more realistic approach in regard to costs is what is required and that the western models of awarding actual and more realistic costs should be considered for adoption by the Law Commission of India.

Salem Advocates Bar Association v. Union of India, The court held that many unscrupulous parties take advantage of the fact that the costs recovered from the unsuccessful party are either nominal, or no costs are recovered at all. As a result, a number of parties now bear their own costs, despite the provisions of Section 35(2) of the Code of Civil Procedure. This encourages the filing frivolous suits and countering with frivolous defences.

Thus, the costs need to be actually reasonable and cover the time spent by the successful party, its transportation and lodging, and any other incidental costs that might arise besides the court fee, lawyer’s fee, typing, etc. that anyways has to be paid in the matter.

Vinod Seth Vs. Devender Bajaj & Anr. (2010); It was held in this case that the provision for costs is provided to achieve the following goals:

1. They act as a deterrent to vexatious, frivolous and speculative legislations or defences. The dread of being made liable to pay costs should make every party rethink their decision before putting forward a claim or defence that is vexatious, frivolous or based on speculations.
2. Costs should ensure that provisions of the Code, the Evidence Act and other laws which govern procedure are strictly complied with and that the parties don’t adopt deceiving tactics which are intended to mislead the court.
3. They should ensure adequate indemnity to the party which is successful by way of compensating it for the expenses incurred in litigation.
4. The provision for costs should incentivise Alternate Dispute resolution or ADR processes for litigants to arrive at a settlement before the trial commences.
5. Despite all its benefits, costs should not act as a deterrent to citizens who want to approach the courts with a genuine or bona fide claim, having had their rights affected.

Manindra Chandra Nandi vs. Aswini Kumar Acharjya (1921), in this case, Lord Coke’s judgement was recalled and it was said that costs are awarded not as a punishment to the defeated party, but as a recompense to the successful party to indemnify it for the expenses that it has been subjected to.

The theory behind this is that the default on part of the other party made the legal action necessary, so it must be awarded costs in the nature of incidental damages. These were the observations made when S. 35(A) of the CPC was not there on the statute book.

It is important to note that all the above cases became an important part of the landmark judgement passed in Sanjeev Kumar Jain vs Raghubir Saran Charitable Trust & Others, which dealt with the relevant provisions under the Code of Civil Procedure, dealing with the award of compensatory and punitive costs in favour of the party that is successful. It also referred to the principles which underlie the award of costs.

CONCLUSION

Although legal costs are an important part of every litigation, assisting in the upkeep and running of courts as well as the maintenance of lawyers, recent times have seen the burgeoning of these costs, to the extent that many people have started to wonder if proceeding with litigation is even worth the benefits that flow out of it.

Here, the provision as to costs acts should an effective measure for compensating the party that has been aggrieved for no fault of theirs and also as an effective deterrent to any party which seeks to litigate with a mala fide intention and wants to deceive the court.

However, as pointed out in various judgements, the award as to costs is often seen as insufficient and unsatisfactory, and serious consideration must be given to make them more reasonable to account for the various expenses that a party incurs in fighting a suit, only then will they serve their actual purpose.