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Report No. 240

3.11 The learned Judges of the Supreme Court then proceeded to explain the concept of 'actual realistic cost' in the following words:

"The actual realistic costs should have a correlation to costs which are realistic and practical. It cannot obviously refer to fanciful and whimsical 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 us take the example of a suit for recovery of Rs.1 lakh. If a rich plaintiff wants to put forth his case more effectively, engages a counsel who charges Rs.1 lakh 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 show that Rs.45,28,000/-was paid to four counsels? If a rich litigant engages four counsels instead of one, should the defendant pay the fee of four counsels?

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 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. It cannot be sustained."

3.12 The Supreme Court then referred to the Model Case-flow Management Rules and the observation of the Court in Salem Advocate Bar Association that the High Courts should consider making Rules particularly in terms of the said Model Rules.

3.13 The Supreme Court commented that the general impression that the court-fee relating to litigation is high is not correct. It was pointed out that except in the case of few categories of suits where court fee is ad valorem, in majority of the Suits/Petitions and Appeals arising therefrom, the court fee is a fixed nominal fee and that fixed fee prescribed decades ago has not undergone change.

The Supreme Court pointed out the need for a periodical revision of fixed court fee and commented on the meager court fee payable in the matters before the Supreme Court. The Court observed that the costs should be commensurate with the time spent by the Courts atleast in commercial litigations. There is no reason why a nominal fixed fee should be collected in regard to the arbitration matters, company matters, tax matters, etc., which may involve huge amounts. Then it was observed:

"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."

3.14 The need to revise the advocate's fee provided in the Schedule to the Rules was stressed by the Supreme Court in the following words:

"Equally urgent is the need to revise the advocate's 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 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 the scale if that is payable to original suits." (sic)

3.15 The approach to be adopted in providing for actual, realistic cost was further clarified as follows:

"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 is 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 or the high rate of day fee paid to them. For the present, the advocate fee should be a realistic normal single fee."

3.16 The Supreme Court then made a significant observation that "the schemes/processes for assessment of costs in some of the western countries may not be appropriate with reference to Indian conditions". It was then observed thus:

"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 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 costs, it may even lead to an increased in the pendency of cases."

3.17 While stressing the need to provide for awarding realistic advocate's fee by amending the relevant Rules periodically, a serious fall-out of not levying actual, realistic cost has been expressed in the following terms:

"A litigant, who starts the litigation, after some time, 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 he will not get the actual costs. If this happens frequently, the citizens will lose confidence in the civil justice system."

3.18 The Supreme Court quite elaborately dealt with 'Costs in arbitration matters' at paragraphs 23 to 29 of the judgment. However, we are not delving into this aspect as it is more relevant to the proposed amendments to Arbitration and Conciliation Act, 1996 being considered by the Law Ministry.

3.19 Then, the views expressed by the Supreme Court on Section 35A ('compensatory costs') need to be taken note of. The relevant passage in the judgment Sanjeev Kumar Jain v. Raghubir Saran Charitable Trust is extracted hereunder:

"At present, the 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, 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/-."

3.20 It may be noted at this juncture that in the written submissions made by the Law Commission before the Court, the Commission suggested the enhancement of ceiling to Rs. 1 lakh and also suggested certain other supplemental directives that could be appropriately given while awarding costs under Section 35A. We shall advert to those details hereinafter.

3.21 The other important observations of the Supreme Court vis-à-vis Section 35A are at paragraph 15:

"15. We may also note that the description of the costs awardable under Section 35A "as compensatory costs" gives an indication that it 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 something that is contemplated in Section 35B and Section 35 itself. Therefore, the Legislature may consider award of 'punitive costs' under section 35A.

3.22 Another recent case in which certain principles relating to award of costs have been laid down by the Supreme Court is that of Ramrameshwari Devi v. Nirmala Devi, (2011) 8 SCC 249 . The relevant observations of the Supreme Court are given below:

52 C. Imposition of actual, realistic or proper costs and or ordering prosecution would go a long way in controlling the tendency of introducing false pleadings and forged and fabricated documents by the litigants. Imposition of heavy costs would also control unnecessary adjournments by the parties. In appropriate cases the courts may consider ordering prosecution otherwise it may not be possible to maintain purity and sanctity of judicial proceedings."

3.23 This is what the Supreme Court further said in Ramrameswari Devi's case:

54. While imposing costs we have to take into consideration pragmatic realities and be realistic what the defendants or the respondents had to actually incur in contesting the litigation before different courts. We have to also broadly take into consideration the prevalent fee structure of the lawyers and other miscellaneous expenses which have to be incurred towards drafting and filing of the counter affidavit, miscellaneous charges towards typing, photocopying, court fee etc.

55. The other factor which should not be forgotten while imposing costs is for how long the defendants or respondents were compelled to contest and defend the litigation in various courts. The appellants in the instant case have harassed the respondents to the hilt for four decades in a totally frivolous and dishonest litigation in various courts. The appellants have also wasted judicial time of the various courts for the last 40 years.

56. On consideration of totality of the facts and circumstances of this case, we do not find any infirmity in the well reasoned impugned order/judgment. These appeals are consequently dismissed with costs, which we quantify as Rs.2,00,000/-(Rupees Two Lakhs only). We are imposing the costs not out of anguish but by following the fundamental principle that wrongdoers should not get benefit out of frivolous litigation.

3.24 The solitary observation in the last sentence quoted above may not be construed as a carte blanche to the courts to award any amount of costs irrespective of Section 35-A of the CPC read with the High Court Rules in a case considered to be a frivolous litigation. The decision of the Supreme Court in Sanjeev Kumar Jain as well as Vinod Seth's case (supra) rules out the discretion of the civil courts to award costs even in a frivolous litigation without regard to the statutory provisions.

However, as far as the Supreme Court is concerned, the power to award appropriate costs, even much higher than what is contemplated by the provisions of CPC, can be traced to the plenary powers vested in the Supreme Court. That is how the award of heavy costs by the Supreme Court in civil matters has been justified in Sanjeev Kumar Jain's case. The court clarified:

"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 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".

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