Supreme Court of India
SANJEEV KUMAR JAINversusRAGHUBIR SARAN CHARITABLE TRUST & ORS.
- Citation
- 2011 INSC 755
- Decided
- 12 October 2011
- Disposal
- Disposed off
- Bench
- R V RAVEENDRAN
Holding
The High Court cannot award costs exceeding the scale prescribed in the Rules; the award of actual costs is not permissible under Section 35, and the order is set aside.
Summary
The appellant Sanjeev Kumar Jain appealed against a Delhi High Court order that awarded the respondents Rs 45,28,000 as costs in an appeal concerning a vacated interim injunction. The Supreme Court examined whether the High Court could award such a sum, given the provisions of Section 35 of the Code of Civil Procedure and the Delhi High Court Rules. It held that the court’s discretion to award costs is subject to conditions and limitations prescribed by law, and the Rules prescribe a fixed schedule of fees that the High Court exceeded. Consequently, the award of "actual" costs was unlawful; costs must be realistic and within the prescribed scale. The Supreme Court set aside the High Court order, directing the appellant to pay costs as per the Rules plus Rs 3,000 as exemplary costs, and awarded no costs in the appeal itself.
Issues considered
- The legality and validity of the Delhi High Court's award of Rs 45,28,000 as costs in the appeal.
- Whether a court may award "actual" litigation expenses exceeding the schedule prescribed in the Delhi High Court Rules under Section 35 of the CPC.
- Whether the High Court complied with the requirement of stating reasons under Section 35(2) when deviating from the event‑following cost rule.
Legislation cited
- Arbitration and Conciliation Act, 1996s. 11, s. 31(8)
- Code of Civil Procedure, 1908s. 35, s. 358, s. 35A
Subjects
costsSection 35 CPCactual costsrealistic costsexemplary costsDelhi High Court Rulescivil litigationarbitration costscourt feeslitigation expenses
Judgment
[2011] 11 S.C.R. 744
A SANJEEV KUMAR JAIN
v.
RAGHUBIR SARAN CHARITABLE TRUST & ORS.
(Civil Appeal No. 8610 of 2011)
OCTOBER 12, 2011
B
[R.V. RAVEENDRAN AND A.K. PATNAIK, JJ.]
CODE OF CIVIL PROCEDURE, 1908:
c s. 35(1), CPC read with Chapters 11, 5 and 23 of Delhi
High Coult Rules - Costs - Appeal against vacating of an
interim order - Dismissed by High Coult with costs of Rs.
45, 28, 0001- - Appeal to Supreme Coult confined only to
legality and validity of order of High Court as regards costs -
0 The Court also referred to the larger question of costs in civil
litigation - The Law Commission of India also intervened -
Notices were also issued to High Coutts to ascerlain the
Rules and procedures in force in regard to costs - HELD:
High Court could not have awarded costs exceeding the scale
E that was prescribed in the Schedule to the Rules - Doing so
would be contrary to the Rules and, as such, also contrary to
s. 35, CPC which makes it subject to the conditions and
/imitations as may be prescribed and the provisions of law for
the time being in force - Therefore, merely by seeking a
consent of the patties to award litigation expenses as costs,
F the High Courj could not have adopted the procedure of
awarding what it assumed to be the 'actual costs' nor could it
proceed to award a sum of Rs.45,28,0001- as costs in an
appeal relating to an interim order in a civil suit - Awarding
of realistic costs should be in accordance with law - If the law
G does not permit award of actual costs, coutts cannot award
actual costs - The 'actual realistic cost' should have a
correlation to costs which are realistic and practical - It cannot
refer to fanciful and whimsical expenditure by patties engaging
high-charging lawyers, as is the case on hand - It is
~ 7AA
SANJEEV KUMAR JAIN v. RAGHUBIR SARAN 745
CHARITABLE TRUST & ORS.
suggested that the Rules be amended to provide for 'actual A
realistic costs' - The object is to streamline the award of costs
and simplify the process of assessment, while making the
cost 'actual and realistic' - Sa/em Advocates Bar Association
case. explained.
B
ss. 35(1) and (2) - Costs - Discretion of court - HELD:
The discretion of the court is subject to such conditions and
/imitations as may be prescribed and to the provisions of law
for the time being in force - Where the court does not direct
that costs shall follow the event, it shall state the reasons in
writing - The mandate of sub- s. (2) should be strictly followed. C
s.35-A - Exemplary costs in respect of false or vexatious
litigation - HELD: In order to discourage false and vexatious
claims, the compensatory costs has to be brought to a realistic
level- A small sum of Rs. 3, 0001- would not make much D
difference - The Court is of the view that the ceiling in regard
to compensatory costs should be at least Rs. 1,00,000- The
description of the costs awardable uls. 35 A "as compensatory
costs" gives an indication that is restitutive rather than punitive
- The costs awarded for false or vexatious claims should be E
punitive and not merely compensatory - In fact, compensatory
costs is something that is contemplated in s. 358 and s.35
itself - Therefore, the Legislature may consider award of
punitive costs' u/s. 35 A.
Arbitration and Conciliation Act, 1996:
F
s.31(8), Explanation, rlw s.11 - Costs - HELD: The
Explanation to sub-s. (8) of s. 31 makes it clear that 'costs'
means reasonable costs - What is awardable is not 'actual'
expenditure but 'reasonable' costs - Whenever the Chief G
Justice or his Designate appoints arbitrator/s, it will be open
to him to stipulate the fees payable to the arbitrator/s..
Court Fees:
Litigation - Court fees - HELO· Except in the case oUew H
746 SUPREME COURT ~EPORTS [2011] 12 S.C.R.
A categories of suits where courl fee is ad valorem, in majority
of the suits/petitions and appeals arising therefrom, the court
fee is a fixed nominal amount - The fixed fees that are
payable, prescribed decades ago, have not undergone a
change and in many cases, the fixed fee is not worth the cost
B of collection thereof - There is, therefore, a need for a
periodical revision of fixed courl fees that is payable in regard
to suits/petitions/appeals filed in courts/tribunals at different
levels.
Legislation:
c
Litigation - Costs and court fees - HELD: The Law
Commission of India, Parliament and the respective High
Coutts are suggested to make appropriate changes in the
provisions relating to costs.
D
Words and Phrases:
Expression, to 'appoint' an arbitrator - Connotation of
In an appeal arising out of an order vacating the
E interim injunction in a suit for permanent injunction, the
High Court of Delhi suggested to the parties that since
the dispute was purely a commercial one, the party
succeeding in the appeal should be entitled to the
litigation expenses from the other party, and asked the
F parties to give their respective statements of the total
litigation expenses incurred in the appeal only. The
appellant filed a memo stating that a sum of Rs. 25,50,000/
- was incurred as advocates' fe"es; whereas the
respondents filed an affidavit stating that an amount of
G Rs. 45,28,000/- was spent as advocates' fees in the
appeal. The High Court dismissed the appeal and
awarded to the respondents Rs. 45,28,000/- as costs in
respect of the appeal to be paid by the appellant.
In the instant appeal, the only issue for decision of
H
SANJEEV KUMAR JAIN v. RAGHUBIR SARAN 747
CHARITABLE TRUST & ORS.
the Court was the legality and validity of the order of the A
High Court directing the appellant to pay costs of Rs.
45,28,000/- to the respondents.
Disposing of the appeal, the Court
HELD: 1.1. Though, s.35 of the Code of Civil 8
Procedure, 1908 does not impose a ceiling on the costs
that could be levied, and gives discretion to the court in
the matter, it should be noted that s.35 starts with the
words "subject to such conditions and limitations as
may be prescribed, and to the provisions of law for the C
time being in force". Therefore, if there are any conditions
or limitations prescribed in the Code or in any rules, the
court, obviously, cannot ignore them in awarding .costs~
[para 8] [765-G-H] .. 1:, " r
D
1.2. In the instant case, the High Court could not have
awarded costs exceeding the scale that was prescribed
in the Schedule to the Rules. Doing so would be contrary
to the Delhi Court Rules and, as such, also contrary to
s.35 of the Code which makes it subject to the conditions E
and limitations as may be prescribed and the provisions
of law for the time being in force. Therefore, merely by
seeking a consent of the parties to award litigation
expenses as costs, the High Court could not have
adopted the procedure of awarding what it assumed to
F
be the 'actual costs' nor could it proceed to award a sum
of Rs.45,28,000/- as costs in an appeal relating to an
interim order in a civil suit. Awarding of realistic costs
should be in accordance with law. If the law does not
permit award of actual costs, obviously courts cannot
award actual costs. As the law presently stands, there is G
no provision for award of 'actual costs' and the award of
costs will have to be within the limitation prescribed by
s.35. [para 9] [766-A-F]
1.3. The respondents and the High Court have H
748 SUPREME COURT REPORTS [2011] 12 S.C.R.
A misread the observations of this Court in Sa/em
Advocates Bar Association*. All that this Court stated was
that the actual reasonable cost has to be provided for in
the rules by appropriate amendment. In fact, the very next
sentence in para 37 of the decision of this Court is that
s the High Courts should examine these aspects and
wherever necessary, make requisite rules, regulations or
practice directions. What has been observed by this
Court about actual realistic costs is an observation
requiring the High Courts to amend their rules and
c regulations to provide for actual realistic costs, where
they are not so provided. Section 35 does not impose a
restriction on actual realistic costs. Such restriction is
generally imposed by the rules made by the High Courts.
The oLservation in Sa/em Advocates Bar Association is
a direction to amend the rules so as to provide for actual 1
0
reaiistic costs and not to ignore the existing rules. The
decision in Sa/em Advocates Bar Association is,
therefore, of no assistance to justify the award of such
costs. The Rules permit costs to be awarded only as per
the Schedule. Therefore, as the Rules presently stand,
E whatever may be the 'actual' expenditure incurred by a
party, what could be awarded as costs is what is
provided in the Rules. [para 10] [767-E-H; 768-A-B]
*Salem Advocates Bar Association v. Union of India
F 2005 (1) Suppl. SCR 929 = 2005 (6) sec 344; Ashok
Kumar Mittal Vs. Ram Kumar Gupta & Anr. 2009 (1)
SCR 125 = 2009 (2) SCC 656; and Vinod Seth Vs.
Devender Bajaj & Anr. 2010 (7) SCR 424 = 2010 (8) SCC
1; Manindra Chandra Nandi vs. Aswini Kumar Acharjya ILR
G (1921) 48 Ca. 427 -referred to.
1.4. The 'actual realistic cost' should have a
correlation to costs which are realistic and practical. It
cannot obviously refer to fanciful and whimsical
H expenditure by parties who have the luxury of engaging
SANJEEV KUMAR JAIN v. RAGHUBIR SARAN - 749
CHARITABLE
,, TRUST
, & ORS.
a battery of high-charging lawyers, as is the case on A
hand. In a matter relating to temporary injunction, merely
because the court adjourns the matter several times and
one side engages a counsel by paying exorbitant fees per
hearing, the other side cannot be made to bear such
costs; In the instant case, the costs memo filed by the B
respondents show that a sum of Rs. 45,28,000/- was paid
to four counsel. Even if actual costs have to be awarded,
it should be realistic which means what a "normal"
advocate in a "normal" case of such nature would
charge. Mechanically ordering the losing party to pay c
costs of Rs. 45,28,000/- in an appeal against grant of a
temporary injunction in a pending suit for permanent
injunction was unwarranted and contrary to law. It
cannot be sustained. [para 11] [768-C-H; 769-8-D]
1.5. The order dated 20.1.2010 of the High Court, to D
the extent it levies costs of Rs.45,28,000/- on the appellant
is set aside and in its place it is directed that the appellant
shall pay the costs of the appeal before the High Court
as per Rules plus Rs. 3000/- as exemplary costs to the
respondents. [para 29] [779-H; 780-A-B] E
Strict enforcement of Section 35(2) of the Code
2.1. The discretion vested in the courts in the matter
of award of costs, as is evident from s. 35 of the Code, is
subject to two conditions: (i)the discretion of the court F
is subject to such conditions and limitations as may be
prescribed and to the provisions of law for the time being
in force (sub-s.(1)]; and (ii) where the court does not
direct that costs shall follow the event, it shall state the
reasons in writing (sub-s. (2)]. The mandate of sub-s. (2) G
of s. 35 that "where the Court directs that any costs shall
not follow the event, the Court shall state its reasons in
writing" is seldom followed in practice by courts. Many
courts either direct the parties to bear their respective
costs or do not make any order as to costs without H
750 SUPREME COURT REPORTS [2011] 12 S.C.R
A assigning or recording the reasons for giving such
exemption from costs. Unless the courts develop the
practice of awarding costs in accordance with s.35 (that
is, costs following the event) and also give reasons where
costs are not awarded, the object of the provision for
s costs would be defeated. [para 13) [770-C-H]
Section 35A of the Code - Exemplary costs.
2.2. Section 35A refers to compensatory costs in
respect of false or vexatious claims or defenses. As on
C date, the maxir.num that can be awarded as
compensatory costs in regard to false and vexatious
claims is Rs. 3,000/-. In order to discourage false and
vexatious claims, the compensatory costs has to be
brought to a realistic level. At present courts have
D virtually given up awarding any compensatory costs, as
award of such a small sum of Rs. 3,000/- would not make
much difference. The Court is of the view that the ceiling
in regard to compensatory costs should be at least Rs.
1,00,000/-. [para 14) [771-C-F]
E
2.3. The description of the costs awardable u/s. 35A
"as compensatory costs" gives an indication that is
restitutive rather than punitive. The costs awarded for
false or vexatious claims should be punitive and not
merely compensatory. In fact, compensatory costs is
F something that is contemplated in s.358 and s.35 itself.
Therefore, the Legislature may consider award of
'punitive costs' u/s. 35A. [para 15) [771-G]
Award of Realistic Costs
G
2.4. In Salem Advocates Bar Association, this Court
suggested to the High Courts that they should examine
the Model Case Flow Management Rules and consider
making rules in terms of it, with or without modification
H
SANJEEV KUMAR JAIN v. RAGHUBIR SARAN 751
CHARITABLE TRUST & ORS.
so that a step forward is taken to provide to the litigating A
public a fair, speedy and inexpensive justice. [para 18]
[772-G]
2.5. The costs in regard to a litigation include (a) the
court fee and process fee; (b) the advocate's fee; (c) 8
expenses of witnesses; and (d) other expenses allowable
under the Rules. The need to revise and streamline the
court fee has already been emphasized. Equally urgent
is the need to revise the advocate's fee provided in the
Schedules to the Rules, most of which are outdated and
have no correlation with the prevailing rates of fees. In C
regard to money suits, specific performance suits and
other suits where ad valorem court fee is payable, the
Advocate's fee is also usually ad valorem. However,
majority of the litigation constitutes where fixed
Advocates' fees are prescribed. There is need to provide D
for awarding realistic advocates' fee by amending the
relevant rules periodically. This Court, of course, in
several cases has directed payment of realistic costs. But
this Court could do so, either because of the discretion
vested under the Supreme Court Rules, 1966 or having E
regard to Article 142 of the Constitution under which this
Court has the power to make such orders as are
necessary to do complete justice between the parties.
[para 19 and 20] [773-G-H; 774-A-B-E-F]
F
2.6. It is suggested that the. Rules be amended to
provide for 'actual realistic costs'. The object is to
streamline the award of costs and simplify the process
of assessment, while making the cost 'actual and
.realistic'. While ascertainment of actuals in necessary in G
regard to expenditure incurred (as for example travel
expenses of witnesses, cost of obtaining certified copies
etc.) in so far as advocates' fee is concerned, the
emphasis should be on 'realistic' rather than 'actual'. The
Advocate fee should be a realistic normal single fee. [para
H
22] [775-C-D]
752 SUPREME COURT REPORTS [2011] 12 S.C.R.
A Costs in Arbitration matters
2.7. In arbitration proceedings where usually huge
costs are awarded (with reference to actual unregulated
fees of Arbitrators and Advocates), awarding of actual but
8 unrealistic costs and delay in disposal is affecting the
credibility of an alternative dispute resolution process.
The provisions of s. 31 (8) of Arbitration and Conciliation
Act, 1996 which deal with costs, show that what is
awardable is not 'actual' expenditure, but 'reasonable'
C costs. [para 23) [775-E-F]
2.8. Section 11 speaks of Chief Justice or his
Designate 'appointing' an arbitrator. The word 'appoint'
means not only nominating or designating the person
who will act as an arbitrator, but is wide enough to
D include stipulating the terms on which he is appointed.
The word 'appoint' in section 11 of the Act, therefore,
refers not only to the actual designation or nomination
as an arbitrator, but includes specifying the terms and
conditions, which the Chief Justice or Designate may lay
E down on the facts and circumstances of the case.
Whenever the Chief Justice or his Designate appoints
arbitratorls, it will be open to him to stipulate the fees
payable to the arbitratorls, after hearing the parties and
if necessary after ascertaining the fee structure from the
F prospective Arbitratorls. [para 25) [776-C-H]
Union of India v. Singh Builders Syndicate 2009 (3)
=
SCR 563 2009 (4) SGC 523 - relied on
Court fees
G
2.9. Though there is a general impression that the
court fee regarding litigation is high, in fact, it is not so.
Except in the case of few categories of suits (that is
money suits, specific performance suits etc., and the
H
SANJEEV KUMAR JAIN v. RAGHUBIR SARAN 753
CHARITABLE TRUST & ORS.
appeals therefrom), where court fee is ad valorem, in A
majority of the suits/petitions and the appeals arising
therefrom, the court fee is a fixed nominal fee. The fixed
fees that are payable, prescribed decades ago, have not
undergone a change and in many cases the fixed fee is
not worth the cost of collection thereof. There is, B
therefore, a need for a periodical revision of fixed court
fees, that is payable in regard to suits/petitions/appeals
filed in civil courts·, High Courts, Tribunals and the
Supreme Court. [para 16) £7?2-A-D]
2.10. The Law Commission of India, Parliament and
c
the respective High Courts are suggested to make
appropriate changes in the provisions relating to costs.
[para 30] [780-8)
Case Law Reference: D
2005 (1) Suppl. SCR 929 referred to para 7
2009 (1) SCR 125 referred to para 7
2010 (7) SCR 424 referred to para 7
E
ILR (1921) 48 Ca. 427 referred to para 7
2009 (3) SCR 563 relied on para 26
CIVIL APPELLATE JURISDICTION : Civil Appeal No.
8610 of 2011. F
From the Judgment & Order dated 8610 of 2011 of the
High Court of Delhi at New Delhi in FAO (O.S.) No. 244 of
2004.
Dr. Arun Mohan, (AC.}, A. Mariarputham, Jawahar Lal G
Gupta, Arvind Bhatt, Megha Gaur, Yusuf Khan, P.N. Puri, Indra
Sawhney, Simran Mehta, Sibo Sankar Mishra for the appering
parties.
The Order of the Court was delivered by H
754 SUPREME COURT REPORTS [2011] 12 S.C.R.
A ORDER
R.V. RAVEENDRAN, J. 1. Notice had been issued limited
to the question whether a sum of Rs. 45,28,000/- could be
awarded as costs in an appeal against a vacating temporary
8 injunction in an injunction suit. Leave is granted in regard to that
aspect only.
2. The appellant is a tenant under the respondents in
regard to a first floor unit bearing No.E-67, Connaught Place,
New Delhi. He was also a tenant under the respondents in
C respect of a mezzanine floor unit bearing No.E-11 of the said
building situated below the first floor tenement. When he was
a tenant of both these portions, the respondents granted
permission on 4.7.1986 to the appellant to put up an internal
staircase connecting the mezzanine floor with the first floor. The
D respondents initiated proceedings for eviction of the appellant
in regard to mezzanine floor unit and obtained vacant
possession thereof. Even after vacating the mezzanine floor unit,
the appellant claimed a right to use the staircase which had
been constructed in the mezzanine floor unit to reach the first
E floor unit. In that behalf, he filed a suit for permanent injunction
to restrain the respondents from obstructing him from using the
said staircase to reach the first floor unit. Interim protection was
given in favour of appellant on 30.12.2003. The said interim
order was vacated on 8.11.2004. Feeling aggrieved, the
F appellant filed an appeal. The appeal was pending for nearly
six years. During the final hearing of the appeal, the Division
Bench appears to have suggested to the parties that as the
dispute was purely a commercial dispute, the party succeeding
in the appeal should be entitled to the litigation expenses from
G the party who did not succeed. Both counsel, agreed to the said
proposal in principle and the court made the following order on
21.12.2009:
"Arguments heard. Order reserved.
H
SANJEEV KUMAR JAIN v. RAGHUBIR SARAN 755
CHARITABLE TRUST & ORS. [R.V. RAVEENDRAN, J.)
· Learned counsel for the parties should give to the Court A
Master, statement of the total litigation expenses incurred
in this appeal only, within two dayS<."
In pursuance of it, the parties filed memos indicating the
respective expenses incurred in the appeal. The appellant filed B
a memo dated 22.12.2009 stating that Rs. 25,50,000/- was
incurred as advocates' fees in the appeal. The respondents
filed an affidavit dated 23.12.2009 stating that Rs. 45,28,000/
- was spent as advocates' fees in regard to the appeal. By the
impugned judgment dated 20.1.2010, the Division Bench of the C
High Court, dismissed the appeal by the appellant. Taking note
of the said memos regarding fees, the High Court awarded to
the respondents Rs. 45,28,000/- as costs in respect of the
appeal to be paid by the appellant within six months. The
appellant has challenged the said order both on merits and
costs. But leave is restricted only ·to the question of costs. D
3. The only question for consideration is the legality and
validity of the order of the High Court directing the appellant to
pay costs of '45,28,000/- to the respondents.·
E
4. The appellant contended that award of such costs by
the High Court was erroneous and contrary to law. The
respondents drew our attention to para 20 of the order. of the
High Court in which it has been observed that the learned
counsel for the parties had agreed for the suggestion of the F
Court for litigation costs being payable to the succeeding party
by the losing party. The respondents contended that the award
of actual costs incurred in the appeal was by consent of parties;
and the same being a consent order, there was no question of
the matter being challenged by the appellant.
G
5. On a careful consideration, we find that the impugned
order, including the portion regarding costs, was not a consent
order. During hearing on merits, the division bench indicated
that the losing party should pay the 'litigation expenses' relating
to the appeal. This is nothing but a reiteration of what is stated H
756 SUPREME COURT REPORTS [2011] 12 S.C.R.
A in law, namely section 35 of the Code of Civil Procedure. The
. counsel naturally agreed for the suggestion. But there was no
consent for Rs. 45,28,000/- being determined or being
awarded as costs. There was no assessment of the costs by
the Taxing Officer of the High Court. We may therefore examine
B whether the award of such costs is contrary to law.
Relevant provisions of the Code
6. Section 35 of the Code of Civil Procedure, 1908, (for
short 'the Code') relates to costs and is extracted below:
c
"35. Costs. (1) Subject to such conditions and limitations
as may be prescribed, and to the provisions of law for the
time being in force, the costs of and incident to all suits
shall be in the discretion of the Court, and the Court shall
D have full power to determine by whom or out of what
property and to what extent such costs are to be paid, and
to give all necessary directions for the purposes aforesaid.
The fact that the Court has no jurisdiction to try the suit shall
be no bar to the exercise of such powers.
E (2) Where the Court directs that any costs shall not follow
the event, the Court shall state its reasons in writing."
6.1) Section 35A relates to compensatory costs in respect
of false or vexatious claims and is extracted below:
F
"35A. Compensatory costs in respect of false or vexatious
claims or defenses (1) If any suit or other proceedings
including an execution proceedings but excluding an
appeal or a revision any party objects to the claim of
defence on the ground that the claim or defence or any part
G
of it is, as against the objector, false or vexatious to the
knowledge of the party by whom it has been put forward,
and if thereafter. as against the objector, such claim or
defence is disallowed, abandoned or withdrawn in whole
or in part, the Court if it so thinks fit, may, after recording
H
SANJEEV KUMAR JAIN v. RAGHUBIR SARAN · 757
CHARITABLE TRUST & ORS. [R.V. RAVEENDRAN, J.]
its reasons for holding such claim or defence to be false A
or vexatious, make an order for the payment to the object
or by the party by whom such claim or defence has been
put forward, of cost by way of compensation.
(2) No Court shall make any such order for the payment
8
of an amount exceeding three thousand rupees or
exceeding the limits of it pecuniary jurisdiction, whichever
amount is less:
Provided that where the pecuniar1 limits of the jurisdiction
of any Court exercising the jurisdiction of a Court of Small C
Causes under the Provincial Small Cause Courts Act,
1887 (9 of 1887) or under a corresponding law in force in
any part of India to which the said Act does not extend and
not being a Court constituted under such Act or law, are
less than two hundred and fifty rupees, the High Court may D
empower such Court to award as costs under this section
any amount not exceeding two hundred and fifty rupees and
not exceeding those limits by more than one hundred
rupees :
E
Provided, further, that the High Court may limit the amount
or class of Courts is empowered to award as costs under
this Section.
(3) No person against whom an order has been made
under this section shall, by reason thereof, be exempted F
from any criminal liability in respect of any claim or defence
made by him.
(4) The amount of any compensation awarded under this
section in respect of a false or vexatious claim or defence G
shall be taken into account in any subsequent suit for
damages or compensation in respect of such claim or
defence."
6.2) Section 358 relates to costs for causing delay and is
·extracted below : H
758 SUPREME COURT REPORTS [2011] 12 S.C.R.
A "358. Costs for causing delay. - (1) If, on any date fixed
for the hearing of a suit or for taking any step therein, a
party to the suit-
(a) fails to take the step which he was required by or under
this Code to take on that date, or
B
(b) obtains an adjournment for taking such step or for
producing evidence or on any other ground, the Court may,
for reasons to be recorded, make an order requiring such
party to pay to the other party such costs as would, in the
c opinion of the Court, be reasonably sufficient to reimburse
the other party in respect of the expenses incurred by him
in attending the Court on that date, and payment of such
costs, on the date next following the date of such order,
shall be a condition precedent to the further prosecution
D of-
(a) the suit by the plaintiff, where the plaintiff was
ordered to pay such costs,
(b) the defence by the defendant, where the
E defendant was ordered to pay such costs.
Explanation.-Where separate defences have been raised
by the defendants or groups of defendants, payment of
such costs shall be a condition precedent to the further
F prosecution of the defence by such defendants or groups
of defendants as have been ordered by the Court to pay
such costs.
(2) The costs, ordered to be paid under sub-section (1 ),
shall not, if paid, be included in the costs awarded in the
G decree passed in the suit; but, if such costs are not paid,
a separate order shall be drawn up indicating the amount
of such costs and the names and addresses of the
persons by whom such costs are payable and the order
so drawn up shall be executable against such persons."
SANJEEV KUMAR JAIN v. RAGHUBIR SARAN 759
;
CHARITABLE TRUST & ORS ..[R.V. .RAVEENDRAN, J.]
6.3) Order XXA of the Code provides for costs being A
awarded in regard to the following six items enumerated in Rule
1:
"1. Provisions relating to certain items.- Without prejudice
to the generality of the provisions of this Code relating to
B
cots, the Court may award costs in respect of, -
(a) expenditure incurred for the giving of any notice
required to be given by law before the institution of
the suit;
c
(b) expenditure incurred on any notice which, though
not required to be given by law, has been given by
any party to the suit to any other party before the ,.
institution of the suit;
D
(c) expenditure incurred on the typing, writing or printing
·of pleadings filed by any party;
(d) charges paid by a party for inspection of the
records of the court for the purposes of the suit;
E
(e) expenditure incurred by a party for producing
witnesses, even though not summoned through
courts; and
(f) in the case of appeals, charges incurred by a party
for obtaining any copies of judgments and decrees F
which are required to be filed along with the
memorandum of appeal."
Rule 2 of Order XXA provides that award of costs under
this Rule shall be in accordance with such rules as the High G
Court may make in this behalf.
Decisions dealing with costs
7. Sections 35 and 35A have been considered recently by ·
this Court in Salem Advocates Bar Association v. Union of · H
760 SUPREME COURT REPORTS [2011] 12 S.C.R.
A India [2005 (6) SCC 344], Ashok Kumar Mittal Vs. Ram
Kumar Gupta & Anr. [2009 (2) SCC 656] and Vinod Seth Vs.
Devender Bajaj & Anr. [2010 (8) SCC 1]. Before referring to
them, we may refer to the principle underlying award of costs
stated in Manindra Chandra Nandi vs. Aswini Kumar Acharjya
B [ILR (1921) 48 Ca. 427]:
".... We must remember that whatever the origin of costs
might have been, they are now awarded, not as a
punishment of the defeated party but as a recompense to
the successful party for the expenses to which he had been
c subjected, or, as Lord Coke puts it, for whatever appears
to the Court to be the legal expenses incurred by the party
in prosecuting his suit or his defence. * * * The theory on
which costs are now awarded to a plaintiff is that default
of the defendant made it necessary to sue him, and to a
D defendant is that the plaintiff sued him without cause; 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. These
E principles apply, not merely in the award of costs, but also
in the award of extra allowance or special costs. Courts
are authorized to allow such special allowances, not to
inflict a penalty on the un-successful party, but to indemnify
.the successful litigant for actual expenses necessarily or
F reasonably incurred in what are designated as important
cases or difficult and extraordinary cases."
7.1) In Salem Advocates Bar Association, this Court held:
"Judicial notice can be taken of the fact that many
G unscrupulous parties take advantage of the fact that either
the costs are not awarded or nominal costs are awarded
on the unsuccessful party. Unfortunately, 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
H 35(2) of the Code. Such a practice also encourages filing
· SANJEEV KUMAR JAIN v. RAGHUBIR SARAN 761
CHARITABLE TRUST & ORS. [R.V. RAVEENDRAN, J.]
of frivolous suits. It also leads to taking up of frivolous A
defences. Further wherever costs are awarded, ordinarily
the same are not realistic and are nominal. When Section
35(2) provides for cost to follow the event, it is implicit that
the costs have to be those which are reasonably incurred
by a successful party except in those cases where the ·s
Court in its discretion may direct otherwise by recording
reasons thereof. The costs have to be actual reasonable
costs including the cost of the time spent by the successful
party, the transportation and lodging, if any, or any other
incidental cost besides the payment of the court fee, c
lawyer's fee, typing and other cost in relation to the
litigation. It is for the High Courts to examine these aspects
and wherever necessary make requisite rules, regulations
or practice direction so as to provide appropriate
guidelines for the subordinate courts to follow."
D
7.2) In Ashok Kumar Mittal, this Court pointed out that
present system of levying meagre costs in civil matters (or no
costs in some matters), is wholly unsatisfactory and does not
act as a deterrent to vexatious or luxury litigation borne out of
ego or greed, or resorted to as a 'buying-time' tactic and that E
a more realistic approach relating to costs may be the need of
the hour. This Court had also observed that the question whether
we should adopt suitably, the western models of awarding
actual and more realistic costs is a matter that requires to be
debated and that should engage the attention of Law F
Commission of India. This Court also observed:
"One view has been that the provisions of
Sections 35 and 35A CPC do not in any way affect the
wide discretion vested in by High Court in exercise of its G
inherent power to award costs in the interests of justice in
appropriate civil cases. The more sound view however is
that though award of costs is within the discretion of the
court, it is subject to such conditions and limitations as may
be prescribed and subject to the provisions of any law for
H
762 SUPREME COURT REPORTS [2011] 12 S.C.R.
A the time being in force; and where the issue is governed
and regulated by Sections 35 and 35A of the Code, there
is no question of exercising inherent power contrary to the
specific provisions of the Code. Further, the provisions of
Section 35A seems to suggest that even where a suit or
B litigation is vexatious, the outer limit of exemplary costs that
can be awarded in addition to regular costs, shall not
exceed Rs. 3000/-. It is also to be noted that huge costs
of the order of Rs. Fifty thousand or Rs. One lakh, are
normally awarded only in writ proceedings and public
c interest litigations, and not in civil litigation to which
Sections 35 and 35A are applicable. The principles and
practices relating to levy of costs in administrative law
matters cannot be imported mechanically in relation to civil
litigation governed by the Code."
D 7.3) In Vinod Seth, this Court observed as under:
"48. The provision for costs is intended to achieve the
following goals:
(a) It should act as a deterrent to vexatious, frivolous and
E
speculative litigations or defences. The spectre of being
made liable to pay actual costs should be such, as to make
every litigant think twice before putting forth a vexatious,
frivolous or speculative claim or defence.
F (b) Costs should ensure that the provisions of the Code,
Evidence Act and other laws governing procedure are
scrupulously and strictly complied with and that parties do
not adopt delaying tactics or mislead the court.
G (c) Costs should provide adequate indemnity to the
successful litigant for the expenditure incurred by him for
the litigation. This necessitates the award of actual costs
of litigation as contrasted from nominal or fixed or
unrealistic costs.
H
SANJEEV KUMAR JAIN v. RAGHUBIR SARAN
I
763
CHARITABLE TRUST & ORS. [R.Vr. RA~EENDRAN, J.]
(d) The provision for costs should be an incentive for each A
. litigant to adopt alternativ·e dispute resolution (ADR)
processes and arrive at a settlement before the trial
commences in most of the cases. In many other
jurisdictions, in view of the existence of appropriate and
adequate provisions for costs, the litigants are persuaded B
to settle nearly 90% of the civil suits before they come up
to trial.
(e) The provisions relating to costs should not however
obstruct access to courts and justice. Under no
circumstances the costs should be a deterrent, to a citizen C
with a genuine or bonafide claim, or to any person
belonging to the weaker sections whose rights have been
affected, from approaching the courts.
At present these goals are sought to be achieved mainly D
by sections 35,35A and 358 read with the relevant civil
rules of practice relating to taxing of costs.
49. Section 35 of the Code vests the discretion to award
costs in the courts. It provides that normally the costs E
should follow the event and court shall have full power to
determine by whom or out of what property, and to what
extent such costs are to be paid. Most of the costs taxing
rules, including the rules in force in Delhi provide each
party should file a bill of cost immediately after the
F
judgment is delivered setting out: (a) the court fee paid;
(b) process fee spent; (c) expenses of witnesses; (d)
advocate's fee; and (e) such other amount as may be
allowable under the rules or as may be directed by the
court as costs. We are informed that in Delhi, the
advocate's fee in regard to suits the value of which G
exceeds Rs.5 lakhs is: Rs.14,500/- plus 1% of the amount
in excess of Rs.5 lakhs subject t() a ceiling of Rs.50,000/
-. The prevalent view among litigants and members of the
bar is that the costs provided for in the Code and awarded
by courts neither compensate nor indemnify the litigant fully H
764 SUPREME COURT REPORTS [2011] 12 S.C.R.
A in regard to the expenses incurred by him.
50. The English Civil Procedure Rules provide that a court
in deciding what order, if any, to make in exercising its
discr.etion about costs should have regard to the following
circumstances:
B
(a) the conduct of all the parties;
(b) whether a party has succeeded on part of his case, even
if he has not been wholly successful; and
c (c) any payment made into court or admissible offer to
settle made by a party which is drawn to the courts
attention.
'Conduct of the parties' that should be taken note by the
D 'court includes:
(a) conduct before, as well as during, the proceedings and
in particular the extent to which the parties followed the
relevant pre-action protocol,
E (b) whether it was reasonable for a party to raise, pursue
or contest a particular allegation or issue;
(c) the manner in which a party has pursued or defended
his case or a particular allegation or issue; and
F
(d) whether a claimant who has succeeded in his claim,
in whole or in part, exaggerated his claim. ·
Similar provisions, with appropriate modifications may
enable proper and more realistic costs being awarded.
G
51. As Section 35 of the Code does not impose any ceiling
the desired object can be achieved by the following:
(i) courts levying costs, following the result, in all
H
SANJEEV KUMAR JAIN v. RAGHUBIR SARAN 765
CHARITABLE TRUST & ORS. [R.V. RAVEENDRAN, J.]
cases (non-levy of costs should be supported by A
reasons); and
(ii) appropriate amendment to Civil Rules of
Practice relating to taxation of costs, to make it
more realistic in commercial litigation.
8
52. The provision relating to compensatory costs (Section
35A of the Code) in respect of false or vexatious claims
or defences has become virtually infructuous and
ineffective, on account of inflation. Under the said section,
award of compensatory costs in false and vexatious C
litigation, is subject to a ceiling of Rs.3,000/-. This requires
a realistic revision keeping in view, the observations in
Salem Advocates Bar Association (supra). Section 358
providing for costs for causing delay is seldom invoked. It
should be regularly employed, to reduce delay. D
53. The lack of appropriate provisions relating to costs has
resulted in a steady increase in malicious, vexatious, false,
frivolous and speculative suits, apart from 'rendering
Section 89 of the Code ineffective. Any attempt to reduce
E
the pendency or encourage alternative dispute resolution
processes or to streamline the civil justice system will fail
in the absence of appropriate provisions relating to costs.
There is therefore an urgent need for the legislature and
the Law Commission of India to re-visit the provisions
F
relating to costs and compensatory costs contained in
Section 35 and 35A of the Code."
8. Though, Section 35 does not impose a ceiling on the
costs that could be levied and gives discretion to the Court in
the matter, it should be noted that Section 35 starts with the G
words "subject to such conditions and limitations as may be
prescribed, and to the provisions of law for the time being in
force". Therefore, if there are any conditions or limitations
prescribed in the Code or in any rules, the Court, obviously,
cannot ignore them in awarding costs. H
766 SUPREME COURT REPORTS [2011] 12 S.C.R.
A 9. Chapter 11 Part C of the Delhi High Court Rules ('Rules'
for short) deals with award of costs in civil suits. Chapter XXlll
of the said Rules deals with taxation of costs. Rule 1 relates to
appointment of Taxing Officer. Rule 6 provides that advocate's
fee should be taxed on the basis of a certificate filed under Rule
B 2 Chapter 5 but not exceeding the scale prescribed in the
schedule to Chapter XXlll. Therefore, the Court could not have
awarded costs exceeding the scale that was prescribed in the
schedule to the Rules. Doing so would be contrary to the Rules.
If it was contrary to the Rules, it was also contrary to Section
c 35 also which makes it subject to the conditions and limitations
as may be prescribed and the provisions of law for the time .
being in force. Therefore, we are of the view that merely by
seeking a consent of the parties to award litigation expenses
as costs, the High Court could not have adopted the procedure
of awarding what it assumed to be the 'actual costs' nor could
0
it proceed to award a sum of Rs.45;28,000/- as costs in an
appeal relating to an interim order in a civil suit. While we would
like to encourage award of realistic costs, that should be in
accordance with law. If the law does not permit award of actual
costs, obviously courts cannot award actual costs. When this
E Court observed that it is in favour of award of actual realistic
costs, it means that the relevant Rules should be amended to
provide for actual realistic costs. As the law presently stands,
there is no provision for award of 'actual costs' and the award
of costs will have to be within the limitation prescribed by
F section 35.
10. Learned counsel for the respondents submitted that in
awarding actual costs, the High Court was merely following the
decision of a three-Judge Bench of this court in Sa/em
G Advocates Bar Association. He drew our attention to para 37
of the said decision (which is extracted in the judgment of the
High Court), in particular, the observation that "costs have to
be actual reasonable costs including the cost of time spent by
the successful party, the transportation and lodging, if any, and
H any other incidental costs besides the payment of the court fee,
SANJEEV KUMAR JAIN v. RAGHUBIR SARAN 767
CHARITABLE TRUST & ORS.[R.V. RAVEENDRAN, J.]
lawyer's fee, typing and other costs in relation to the litigation." A
The High Court has also assumed that the above observations
of this Court in Sa/em Advocates Bar Association enabled it
to award "actual" costs. The High Court has 'opened its order
with the following words:
B
"The importance of this decision lies not in any substantial
question of law having been decided - indeed, no
question of law was urged before us, only issues touching
upon facts. The importance lies in the nature of the dispute
between the parties, which is a purely commercial dispute
in which litigation expenses have touched the sky. In our C
opinion, the only way in which a successful litigant can be
compensated financially i~ by awarding actual costs
incurred by him in the litigation. The Supreme Court has
recommended this course of action and we think the time
has come to give more than serious weight and respect D
to the views of the Supreme Court. We have endeavoured
to do just that in this appeal by awarding to the respondents
the actual litigation exp.enses incurred by them, which is a
staggering Rs.45,00,000/."
E
We are afraid that the respondents and the High Court
have misread the observations of this Court in Sa/em
Advocates Bar Association. All that this Court stated was that
the actual reasonable cost has to be provided for in the rules
by appropriate amendment. In fact, the very next sentence in F
para 37 of the decision of this Court is that the High Courts
should examine these aspects and wherever necessary, make
requisite rules, regulations or practice directions. What has
been observed by this court about actual realistic costs is an
observation requiring the High Courts to amend their rules and G
regulations to provide for actual realistic costs, where they are
not so provided. We have noticed that section 35 does not
impose a restriction on actual realistic costs. Such restriction
is generally imposed by the rules made by the High Court. The
observation in Sa/em Advocates Bar Association is a direction H
768 SUPREME COURT REPORTS [2011] 12 S.C.R.
A to amend the rules so as to provide for actual realistic costs
and not to ignore the existing rules. The decision in Sa/em
Advocates Bar Association is therefore of no assistance to
justify the award of such costs. The Rules permit costs to the
awarded only as per the schedule. Therefore, as the Rules
B presently stand. Whatever may be the 'actual' expenditure
incurred by a party, what could be awarded as costs is what is
provided in the Rules.
11. There is one more aspect which requires serious
consideration. What is the meaning of the words 'actual
C realistic costs' assuming that costs could be awarded on such
basis? Whether it can be said that Rs. 45,28,000/- said to have
been incurred (made up of Rs. 29,73,000/- paid to Mr. S, Senior
Advocate, Rs. 14,41,000/- paid to Mr. G, Senior Advocate, Rs.
85,500/- paid to Mr. M, Advocate, Rs. 16,750/- paid to Mr. V,
D Advocate and Rs. 11, 750/- incurred as miscellaneous
expenses) was the 'actual realistic cost' of an appeal against
an interim order in a suit for injunction? The actual realistic cost
should have a correlation to costs which are realistic and
practical. It cannot obviously refer to fanciful and whimsical
E expenditure by parties who have the luxury of engaging a
battery of high-charging lawyers. If the logic adopted by the High
Court is to be accepted, then the losing party should pay the
costs, not with reference to the subject matter of the suit, but
with reference to the fee paying capacity of the other side. Let
F us take the example of a suit for recovery of · One lakh. If a
rich plaintiff wants to put forth his case most effectively,
engages a counsel who charges · One lakh per hearing and
the matter involves 30 hearings, should the defendant be made
to pay costs of Rs. 30 lakhs, in a suit for recovery of· One lakh
G merely because it is a commercial dispute? In a matter relating
to temporary injunction, merely because the court adjourns the
matter several times and one side engages a counsel by paying
more than a lakh per hearing, should the other side be made
to bear such costs? The costs memo filed by the respondents
H show that Rs. 45,28,000/- was paid to four counsel? If a rich
SANJEEV KUMAR JAIN v. RAGHUBIR SARAN 769
CHARITABLE TRUST & ORS. [R.V. RAVEENDRAN, J.]
litigant engages four counsel instead of one, should the A
defendant pay the fee of four counsel? If a party engages five
senior Advocates and five ordinary counsel because he is
capable, should the losing party pay the fees of all these
counsel? The appeal came up on several occasions, but the
final hearing of the appeal was only on a few days and other B
days were mere appearances. Should the losing party pay for
such appearances? If respondents had engaged two senior
counsel who charged Rs. Two lakhs per appearance, should
'the other side be made liable to pay Rs. 1.5 crore as costs?
Even if actual costs have to be awarded, it should be realistic c
which means what a "normal" advocate in a "normal" case of
such nature would charge normally in such a case. Mechanically
ordering the losing party to pay costs of Rs. 45,28,000/- in an
appeal against grant of a temporary injunction in a pending suit
for permanent injunction was unwarranted and contrary to law.
0
It cannot be sustained.
12. Thougll-this takes care of the actual dispute between
the parties, it is also necessary to refer to the larger question
of costs in civil suits. For this purpose, during the hearing, this
Court requested Dr. Arun Mohan, learned senior counsel to E
assist as an Amicus Curiae in the matter. In pursuance of it,
Dr. Arun Mohan collected and made available considerable
material with reference to practices relating to levy of costs in
several other jurisdictions. We find that the schemes/processes
for assessment of costs in some of the western countries may F
not be appropriate with reference to Indian conditions. The
process of taxation of costs has developed into a detailed and
complex procedure in developed countries and instances are
not wanting where the costs awarded has been more than the
amount involved in the litigation itself. Having regard to Indian G
conditions, it is not possible or practical to spend the amount
of time that is required for determination of 'actual costs' as
done in those countries, when we do not have time even to
dispose of cases on merits. If the Courts have to set apart the
time required for the elaborate procedure of assessment of H
770 SUPREME COURT REPORTS [2011] 12 S.C.R.
A costs, it may even lead to an increase in the pendency of cases.
Therefore, we requested Dr. Arun Mohan to suggest ways and
means of simplifying costs procedures to suit Indian conditions
so that appropriate suggestions could be made to the
Government. He has put forth several suggestions. Law
B Commission of India has also intervened and made several
valuable suggestions. Notices were issued to the High Courts
to ascertain the Rules and procedures in force in regard to
costs. For convenience, we will refer to Delhi High Court Rules
as the present matter arises from Delhi.
C Strict enforcement of Section 35(2) of the Code
13. The discretion vested in the courts in the matter of
award of costs is subject to two conditions, as is evident from
section 35 of the Code:
D
(i) The discretion of the court is subject to such
conditions and limitations as may be prescribed
and. to the provisions of law for he time being in
force (vide sub-section (1 )]
E (ii) Where the court does not direct that costs shall
follow the event, it shall state the reasons in writing
[vide sub-section (2)].
The mandate of sub-section (2) of Section 35 of the Code
F that "where the Court directs that any costs shall not follow the
event, the Court shall state its reasons in writing" is seldom
followed in practice by courts. Many courts either do not make
any order as to costs or direct the parties to bear their
respective costs without assigning or recording the reasons for
G giving such exemption from costs. Unless the Courts develop
the practice of awarding costs in accordance with Section 35
(that is, costs following the event) and also give reasons where
costs are not awarded, the object of the provision for costs
would be defeated. Prosecution and defence of cases is a time
H consuming and costly process. A plaintiff/petition/ appellant who
SANJEEV KUMAR JAIN v. RAGHUBIR SARAN 771
CHARITABLE TRUST & ORS. [R.V. RAVEENDRAN, J.]
is driven to the court, by the illegal acts of the defendant/ A
respondent, or denial of a right to which he is entitled, if he
succeeds, to be reimbursed of his expenses in accordance
with law. Similarly a .defendant/respondent who is dragged to
court unnecessarily or vexatiously, if he succeeds, should be
reimbursed of his expenses in accordance with law. Further, it B
is also well recognised that levy of costs and compensatory
costs is one of the effective ways of curbing false or vexatious
litigations.
Section 35A of the Code - Exemplary costs.
c
14. Section 35A refers to compensatory costs in respect
of false or vexatious claims or defenses. The maximum amount
that could be levied as compensatory costs for false and
vexatious claims used to be Rs. 1,000/-. In the year 1977, this
was amended and increased to Rs. 3,000/-. At present, the D
maximum that can be awarded as compensatory costs in
regard to false and vexatious claims is Rs. 3,000/-. Unless the
compensatory costs is brought to a realistic level, the present
provision authorizing levy of an absurdly small sum by present
day standards may, instead of discouraging such litigation, E
encourage false and vexatious claims. At present Courts have
virtually given up awarding any compensatory costs as award
of such a small sum of Rs. 3,000/- would not make much
difference. We are of the view that the ceiling in regard to
compensatory costs should be at least Rs. 1,00,000/-. F
15. We may also note that the description of the costs
awardable under Section 35A "as compensatory costs" gives
an indication that is restitutive rather than punitive. The costs
awarded for false or vexatious claims should be punitive and
not merely compensatory. In fact, compensatory costs is G
something that is contemplated in Section 358 and Section 35
itself. Therefore, the Legislature may consider award of 'punitive
costs' under section 35A.
H
772 SUPREME COURT REPORTS [2011] 12 S.C.R.
A Court fees
16. Though there is a general impression that the court fee
regarding litigation is high, in fact, it is not so. Except in the case
of few categories of suits (that is money suits, specific
B performance suits etc., and appeals therefrom), where court fee
is ad volerem, in majority of the suits/petitions and appeals
arising therefrom, the court fee is a fixed nominal fee. The fixed
fees that are payable, prescribed decades ago have not
undergone a change and in many cases, the fixed fee is not
worth the cost of collection thereof. There is therefore a need
C for a periodical revision of fixed court fees, that is payable in
regard to suits/petitions/appeals filed in civil courts, High Court,
Tribunals and Supreme Court. For example, in Supreme Court,
the maximum court fee payable is only Rs. 250/-, whether it is
a suit or special leave petition or appeal.
D
17. A time has come when at least in certain type of
litigations, like commercial litigations, the costs should be
commensurate with the time spent by t~e courts. Arbitration
matters, company matters, tax matters, for example, may involve
E huge amounts. There is no reason why a nominal fixed fee
should be collected in regard to such cases. While we are not
advocating an ad valorem fee with reference to value in such
matters, at least the fixed fee should be sufficiently high to have
some kind of quid-pro-quo to the cost involved. Be that as it
F may.
Award of Realistic Costs
18. In Sa/em Advocates Bar Association, this Court
suggested to the High Courts that they should examine the
G Model Case Flow Management Rules and consider making
rules in terms of it, with or without modification so that a step
forward is taken to provide to the litigating public a fair, speedy
and inexpensive justice. The relevant rules therein relating to
costs are extracted below:
H
. SANJEEV KUMAR JAIN v. RAGHUBIR SARAN 773
CHARITABLE TRUST & ORS. [R.V. RAVEENDRAN, J.]
"Re: Trial Courts A
So far as awarding of costs at the time of judgment is
concerned, awarding of costs must be treated generally
as mandatory in as much as the liberal attitude of the
Courts in directing the parties to bear their own costs had
8
led parties to file a number of frivolous cases in the Courts
or to raise frivolous and unnecessary issues. Costs should
invariably follow the event. Where a party succeeds
ultimately on one issue or point but loses on number of
other issues or points which were unnecessarily raised, C
costs must be appropriately apportioned. Special reasons
must be assigned if costs are not being awarded. Costs
should be assessed according to rules in force. If any of
the parties has unreasonably protracted the proceedings,
the Judge should consider exercising discretion to impose
exemplary costs after taking into account the expense D
incurred for the purpose of attendance on the adjourned
dates.
Re: Appellate Courts
E
Awarding of costs must be treated generally as mandatory
in as much as it is the liberal attitude if the Courts in not
awarding costs that has led to frivolous points being raised
in appeals or frivolous appeals being filed in the courts.
Costs should invariably follow the event and reasons must
be assigned by the appellate Court for not awarding costs. F
If any of the parties have unreasona!>ly protracted the
proceedings, the Judge shall have the discretion to impose
exemplary costs after taking into account the costs that may
have been imposed at the time of adjournments."
G
19. The costs in regard to a litigation include (a) the court
fee and process fee; (b) the advocate's fee; (c) expenses of
witnesses; and (d) other expenses allowable under the Rules.
We have already referred to the need to revise and streamline
the court fee. Equally urgent is the need to revise the advocate's H
774 SUPREME COURT REPORTS (2011] 12 S.C.R.
A fee provided in the Schedule to the Rules, most of which are
outdated and have no correlation with the prevailing rates of .
fees. In regard to money suits, specific performance suits and
other suits where ad valorem court fee is payable, the
Advocate's fee is also usually ad valorem. We are more
B concerned with the other matters, which constitute the majority
of the litigation, where fixed Advocates' fees are prescribed.
In Delhi in regard to any proceedings (other than suits where
the ad valorem court fee is payable), the maximum fee that
could be awarded is stated to be Rs. 2000 and for appeals of
c the scale if that is payable to original suits.
20. The Supreme Court Rules (Second Schedule)
prescribes a fee of Rs. 2400/- for· leading counsel and Rs.
1200/- for Associate Advocate in regard to defended appeals
and suits or writ petitions. For special leave petitions, it is Rs.
D 800/- for leading counsel and Rs. 400/- for Advocate-on-
Record. It is of some interest to note that the fee paid to amicus
curiae in criminal appeals in Supreme Court and to the Legal
Aid counsel appointed by Supreme Court Legal Services
Committee is much higher than the above scale of fees. There
E is need to provide for awarding realistic advocates' fee by
amending the relevant rules periodically. This Court, of course,
in several cases has directed payment of realistic costs. But
this Court could do so, either because of the discretion vested
under the Supreme Court Rules, 1966 or having regard to
F Article 142 of the Constitution under which this Court has the
power to make such orders as are necessary to do complete
justice between the parties.
21. A serious fallout of not levying actual realistic costs
G should be noted. A litigant, who starts the litigation, after
sometime, being unable to bear the delay and mounting costs,
gives up and surrenders to the other side or agrees to
settlement which is something akin to creditor who is not able
to recover the debt, writing off the debt. This happens when the
costs keep mounting and he realizes that even if he succeeds
H
SANJEEV KUMAR JAIN v. RAGHUBIR SARAN 775
CHARITABLE TRUST & ORS. [R.V. RAVEENDRAN, J.]
he will not get the actual costs. If this happens frequently, the A
citizens will lose confidence in the civil justice system. When a
civil litigant is denied effective relief in Courts, he tries to take
his grievances to 'extra judicial' enforcers (that is goons,
musclemen, underworld) for enforcing his claims/right thereby
criminalising the civil society. This has serious repercussions B
on the institution of democracy.
22. We therefore, suggest that the Rules be amended to
provide for 'actual realistic costs'. The object is to streamline
the award of costs and simplify the process of assessment, C
while making the cost 'actual and realistic'. While ascertainment
of actuals in necessary in regard to expenditure incurred (as
for example travel expenses of witnesses, cost of obtaining
certified copies etc.) in so far as advocates' fee is concerned,
the emphasis should be on 'realistic' rather than 'actual'. The
courts are not concerned with the number of lawyers engaged D
or the high rate of day fee paid to them. For the present, the
Advocate fee should be a realistic normal single fee.
Costs in Arbitration matters
E
23. We have referred to the effect of absence of provisions
for award of actual costs, on civil litigation. At the other end of
the spectrum is an area where award of actual but unrealistic
costs and delay in disposal is affecting the credibility of an
alternative dispute resolution process. We are referring to
F
arbitration proceedings where usually huge costs are awarded
(with reference to actual unregulated fees of Arbitrators and
Advocates). ·
24. Clause (a) of section 31 (8) of Arbitration and
Conciliation At, 1996 ('Act' for short) deals with costs. It G
provides that unless otherwise agreed by the parties, the costs
of an arbitration shall be fixed by the arbitral tribunal. The
explanation to sub-section (8) of section 31 makes it clear that
'costs' means reasonable costs relating to (i) the fees and
expenses of the arbitrators and witnesses, (ii) legal fees and H
776 SUPREME COURT REPORTS [2011] 12 S.C.R.
A expenses, (iii) any administration fees of the institution
supervising the arbitration, and (iv) any other expenses incurred
in connection with the arbitral proceedings and the arbitral
award. Clause (b) of section 31(8) of the Act provides that
unless otherwise agreed by parties, the arbitral tribunal shall
B specify (i) the party entitled to costs, (ii) the party who shall pay
the costs, (iii) the amount of costs or method of determining
the amount, and (iv) the manner in which the costs shall be paid.
This shows that what is awardable is not 'actual' expenditure
but 'reasonable' costs.
c 25. Arbitrators can be appointed by the parties directly
without the intervention of the c6urt, or by an Institution specified
in the arbitration agreement. Where there is no consensus in
regard to appointment of arbitrator/s, or if the specified
institution fails to perform its functions, the party who seeks
D arbitration can file an application under section 11 of the Act
for appointment of arbitrators. Section 11 speaks of Chief
Justice or his Designate 'appointing' an arbitrator. The word
'appoint' means not only nominating or designating the person
who will act as an arbitrator, but is wide enough to include the
E stipulating the terms on which he is appointed. For example
when we refer to an employer issuing a letter of appointment,
it not only refers to the actual act of appointment, but includes
the stipulation of the terms subject to which such appointment
is made. The word 'appoint' in section 11 of the Act, therefore
F refers not only to the actual designation or nomination as an
arbitrator, but includes specifying the terms and conditions,
which the Chief Justice or Designate may lay down on the facts
and circumstances of the case. Whenever the Chief Justice or
his Designate appoint arbitrator/s, it will be open to him to
G stipulate the fees payable to the arbitrator/s, after hearing the
parties and if necessary after ascertaining the fee structure from
the prospective Arbitrator/s. This will avoid the embarrassment
of parties having to negotiate with the Arbitrators, the fee
payable to them, after their appointment.
H
SANJEEV KUMAR JAIN v. RAGHUBIR SARAN 777 ·
CHARITABLE TRUST & ORS. [R.V. RAVEENDRAN, J.]
26. This Court in Union of India v. Singh Builders A
Syndicate - 2009 (4) SCC 523, dealt with the complaints
about the arbitration cost in India:
"20. Another aspect referred to by the appellant, however
requires serious consideration. When the arbitration is by
8
a Tribunal consisting of serving officers, the cost of
arbitration is very low. On the other hand, the cost of
arbitration can be high if the Arbitral Tribunal consists of
retired Judge/s.
21. When a retired Judge is appointed as Arbitrator in C
place of serving officers, the government is forced to bear
the high cost of Arbitration by way of private arbitrator's
fee even though it had not consented for the appointment"
of such non-technical non-serving persons as Arbitrator/s.
There is ·no doubt a prevalent opinion that the cost of D
arbitration becomes very high in many cases where retired
Judge/s are Arbitrators. The large number of sittings and
charging of very high fees per sitting, with several add-ons,
without any ceiling, have many a time resulted in the cost
of arbitration approaching or even exceeding the amount E
involved in the dispute or the amount of the award.
22. When an arbitrator is appointed by a court without
indicating fees, either both parties or at least one party is
at a disadvantage. Firstly, the parties feel constrained to
agree to whatever fees is suggested by the Arbitrator,
F
even if it is high or beyond their capacity. Secondly, if a
high fee .is claimed by the Arbitrator and one party agrees
to pay such fee, the other party, who is unable to afford
such fee or reluctant to pay such high fee, is put to an
embarrassing position. He will not be in a position to G
express his reservation or objection to the high fee, owing
to an apprehension that refusal by him to agree for the fee
suggested by the arbitrator, may prejudice his case or
create a bias in favour bf the other party who readily agreed
to pay the high fee. H~
778 SUPREME COURT REPORTS [2011] 12 S.C.R.
A 23. It is necessary to find an urgent solution for this
problem to save arbitration from the arbitration cost.
Institutional arbitration has provided a solution as the
Arbitrators' fees is not fixed by the Arbitrators themselves
on case to case basis, but is governed by a uniform rate
B prescribed by the institution under whose aegis the
Arbitration is held. Another solution is for the court to fix
the fees at the time of appointing the arbitrator, with the
consent of parties, if necessary in consultation with the
arbitrator concerned. Third is for the retired Judges
c offering to serve as Arbitrators, to indicate their fee
structure to the Registry of the respective High Court so
that the parties will have the choice of selecting an
Arbitrator whose fees are in their 'range' having regard to
the stakes involved.
D 24. What is found to be objectionable is parties being
forced to go to an arbitrator appointed by the court and
then being forced to agree for a fee fixed by such
Arbitrator. It is unfortunate that delays, high cost, frequent
and sometimes unwarranted judicial interruptions at
E different stages are seriously hampering the growth of
arbitration as an effective dispute resolution process.
Delay and high cost are two areas where the Arbitrators
by self regulation can bring about marked improvement."
F (emphasis supplied)
27. There is a general feeling among consumers of
arbitration (parties settling disputes by arbitration) that ad-hoc
arbitrations in India - either international or domestic, are time
consuming and disproportionately expensive. Frequent
G complaints are made about two sessions in a day being treated
as two hearings for purpose of charging fee; or about a
sessions for two hours being treated as full sessions for
purposes of fee; or about non-productive sittings being treated
as fully chargeable hearings. It is pointed out that if there is an
H arbitral tribunal with three arbitrators and if the arbitrators are
SANJEEV KUMAR JAIN v. RAGHUBIR SARAN 779
CHARITABLE TRUST & ORS. [R.V. RAVEENDRAN, J.]
from different cities and the arbitrations are to be held and the A
Arbitrators are accommodated in five star hotels, the cost per
hearing, (Arbitrator's fee, lawyer's fee, cost of travel, cost of
accommodation etc.) may easily run into Rupees One Million
to One and half Million per sitting. Where the stakes are very
high, that kind of expenditure is not commented upon. But if the B
number of hearings become too many, the cost factor and
efficiency/effectiveness factor is commented. That is why this
Court in Singh Builders Syndicate observed that the arbitration
will have to be saved from the arbitration cost.
28. Though what is stated above about arbitrations in India, C
may appear rather harsh, or as· an universalisation of stray
aberrations, we have ventured to refer to these aspects in the
interest of ensuring that arbi!ration survives in India as an
effective alternative forum for disputes resolution in India.
Examples are not wanting where arbitrations are being shifted D
to neighbouring Singapore, Kuala Lumpur etc., on the ground
that more professionalized or institutionalized arbitrations,
which get_concluded expeditiously at a lesser cost, ar:e available
there. The remedy for healthy development of arbitration in India
is to disclose the fees structure before the appointment of E
Arbitrators so that any party who is unwilling to bear such
expenses can express his unwillingness. Another remedy is
Institutional Arbitration where the Arbitrator's fee is pre-fixed.
The third is for each High Court to have a scale of Arbitrator's
fee suitably calibrated with reference to the amount involved in F
the dispute. This will also avoid different designates prescribing
different fee structures. By these methods, there may be a
reasonable check on the fees and the cost of arbitration,
thereby making arbitration, both national and international,
attractive to the litigant public. Reasonableness and certainty G
about total costs are the key to the development of arbitration.
Be that as it may.
Conclusion
29. In view of the above, the order dated 20.1.2010 of the H
780 SUPREME COURT REPORTS [2011] 12 S.C.R.
A High Court, to the extent it levies costs of ' 45,28,000/- on the
appellant is set aside and in its place it is directed that the
appellant shall pay the costs of the appeal before the High Court
as per Rules plus ' 3000/- as exemplary costs to the
respondents.
B
30. We suggest appropriate changes in the provisions
relating to costs contained as per paras 14 to 29 above to the
Law Commission of India, the Parliament and the respective
High Courts for making appropriate changes.
c 31. As the respondents have succeeded before the High
Court and award of such costs was not at the instance of the
respondents, we do not award any costs in this appeal.
32. We place on record our appreciation for the assistance
0 rendered by Dr. Arun Mohan, Amicus Curiae and Mr. A.
Mariarputham, learned senior counsel appearing for Law
Commission of India.
R.P. Appeal disposed of.
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