Report No. 240
8. Section 35-A
8.1 Section 35-A of the Code which was introduced in the year 1922, bears the heading "Compensatory costs in respect of false or vexatious claims or defence". It provides that if any party objects to any claim or a defence, on the ground that it is false or vexatious, to the knowledge of the party by whom it has been put forward, and if such claim is disallowed or abandoned or withdrawn, the Court may impose costs by way of compensation after recording reasons for its conclusion.
Clause (2) of the said Section places a limitation to the effect that compensatory costs so imposed shall not exceed Rs. 3,000/-. The earlier limit of Rs.1000/- was enhanced to Rs.3000/- by an amendment made in the year 1976 w.e.f. 01.02.1977. The second limitation placed is that the quantum of costs awarded under the Section shall not exceed the limits of pecuniary jurisdiction of the Court concerned.
The first proviso to sub-section (2) places further restriction on the amount that could be awarded by way of compensatory costs by a Court of Small Causes etc. The second proviso further empowers the High Court to limit the amount which any Court or class of Courts is empowered to award as compensatory costs under this Section.
8.2 As observed by Delhi High Court in National Textile Corporation v. Kunj Behri Lal (AIR 2010, Del. 199), frivolous litigation clogs the wheels of justice making it difficult for the courts to provide speedy justice to the genuine litigants.
8.3 Section 35-A can be invoked in any suit or proceeding (including execution proceeding). However, by an exclusionary clause, it is made inapplicable to an appeal or revision.
8.4 In the case of Shiv Kumar Sharma v. Santosh Kumari 2007 (8) SCC 600 involving disputes relating to an agreement to sell, the Supreme Court invoked Section 35-A and directed payment of Rs. 50,000/-by way of cost. The Court declare.-In exercise of our discretionary jurisdiction under Article 142 of the Constitution of India and having regard to the conduct of the defendant, we direct that the cost shall be payable by the appellant in favour of the respondent in terms of Section 35-A of the Code, besides the costs already directed to be paid by the learned trial Judge as also by the High Court. We direct the appellant to pay a sum of Rs. 50,000/-by way of cost to the respondent."
8.5 The reference to Section 35A is not clear as Section 35-A does not, going by its plain language, empower the Court to award more than Rs.3,000/-. There are some instances in which the High Courts directed 'exemplary costs' of more than the ceiling set out in Section 35 A even in civil proceedings.
8.6 In the case of T. Arivanandam v. T. V. Sathyapal 1977 (4) SCC 467 relating to eviction proceedings, the Supreme Court adverted to Section 35-A and observed as under "The trial court in this case will remind itself of Section 35-A CPC and take deterrent action if it is satisfied that the litigation was inspired by vexatious motives and altogether groundless" (Para 6).
In this case there were a number of proceedings at the instance of the tenant in an effort to remain in possession of the tenanted shop, even though there was an earlier order of the Court directing his eviction. Whatever may be position in 1977, at the present juncture, Section 35-A with its ceiling limit of three thousand rupees can no longer be considered a deterrent against frivolous litigation.
8.7 The Hon'ble Supreme Court in Ashok Kumar Mittal v. Ram Kumar Gupta 2009 (2) SCC 656 dealing with a case where the High Court imposed an exemplary cost of Rs. 1 lakh on the petitioner and Rs. 1 lakh on the respondent, on a finding by the High Court that both the sides were guilty of having lied on oath, observed that the limit prescribed under Section 35-A should be kept in view by the Courts.
In the said case, the Supreme Court also adversely commented upon the practice of directing costs to be paid to Legal Services Committee etc. or to some non party Charitable Organisation. The Court also made an observation that the principles and practices relating to levy of cost in administrative law matters cannot be imported mechanically into civil litigations governed by the Code of Civil Procedure.
8.8 Inspite of the above, in Direct Tax Practioner Association v. R.K. Jain 2010 (8) SCC 281, the Court taking a view that the petition before it was frivolous in nature imposed a cost of Rs. 2 lakhs and while directing that out of the same, Rs. 1 lakh shall be paid to the respondent, and Rs. 1 lakh shall be deposited with the Supreme Court Legal Services Committee.
8.9 Earlier also in Mahendra Babu Rao Mahadik & Ors. v. Subash Krishna Kanitkar & Ors. 2005 (4) SCC 99 the Supreme Court dismissed the appeal quantifying the costs at Rs. 50,000/-and directed that the same shall be deposited with the National Legal Services Authority. There are other such similar instances.
The above two cases, however, arise out of Writ Petition(s).
8.10 In the matter of costs, the Courts dealing with civil suits, are bound by the provisions of the Code of Civil Procedure and may not have any discretion to award costs other than in terms of the provisions of the Code. Whether a High Court in exercise of its inherent powers could impose costs outside the provisions of the Code of Civil Procedure, even in matters arising out of civil suits, is not completely free from doubt.
However, the Supreme Court in Ashok Kumar Mittal s. Ram Kumar Gupta & Anr. 2009 (2) SCC 656 observed that even though one view is that provisions of Section 35 and 35-A of the Code would not affect the wide discretion vested in the High Court in exercise of its inherent power to award costs in the interests of justice in appropriate cases, the more sound view, however, is that the discretion of the Court to award costs is subject to such conditions or limitations as may be prescribed and subject to the provisions of any law for the time being in force and, therefore, where the principles relating to cost are governed and regulated by Section 35 and 35-A of the Code, there is no question of exercising inherent powers contrary to the specific provisions of the Code.