Costs in civil proceedings are the expenses of litigation that the court orders one party to pay to another. The general rule is that costs follow the event: the losing party pays the costs of the winning party. Costs serve both a compensatory function (indemnifying the winning party for litigation expenses) and a deterrent function (discouraging frivolous or vexatious litigation).
Why: Without cost sanctions, litigants could pursue baseless claims or defences at no personal expense, shifting the burden of meritless litigation onto opposing parties and the court system.
Legal Framework
| Provision | Subject |
|---|---|
| S.35(1) | Costs follow the event; court discretion |
| S.35(2) | Where court does not award costs, reasons must be stated |
| S.35A | Compensatory costs for false or vexatious claims or defences |
| S.35B | Costs as condition for proceeding: costs for causing delay |
Section 35: Costs Follow the Event
S.35(1): Subject to other provisions of the Code, the costs of and incidental to all suits shall be in the discretion of the court, and the court shall have full power to determine by whom, out of what property, and to what extent such costs are to be paid.
S.35(2): Where the court directs that any costs shall not follow the event, the court shall state its reasons in writing.
Why (2002 amendment): The requirement to give reasons for departing from the costs-follow-event principle brings accountability and reduces the judicial tendency to make no costs orders without analysis.
Section 35A: Compensatory Costs
Where any claim or defence is false or vexatious to the knowledge of the party making it, the court may award costs by way of compensation to the other party, not exceeding Rs. 3,000. This is in addition to ordinary costs under S.35.
Conditions for S.35A:
-
(1) the party made a claim or defence
-
(2) it was false or vexatious
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(3) the party knew it was false or vexatious at the time.
Why: S.35A targets bad-faith litigation, not merely unsuccessful litigation. The compensatory element makes it more punitive than S.35.
Section 35B: Costs for Causing Delay
Where a party causes the proceedings to be delayed and is allowed to proceed despite the delay, the court may impose costs on that party as a condition of being allowed to proceed. If costs are not paid, the party is not permitted to take the step that required the payment.
Why: S.35B converts adjournment costs from a consequence into a precondition. A party who cannot pay delay costs cannot delay further, which aligns the incentive directly against delay.
Recall Check
- What is the default rule on costs under Section 35(1) CPC?
- Under S.35A, what must the court find before awarding compensatory costs?
- What is the consequence of non-payment of costs imposed under S.35B?
Key Cases
Vinod Seth v. Devinder Bajaj (2010) Vinod Seth v Devinder Bajaj 2010
Issue: Whether a court can direct a plaintiff to undertake to pay damages to the defendant if the suit fails.
Rule: No provision of the CPC or substantive law, and not S.151, permits such a direction; the remedies are costs (Ss.35, 35A, 35B) and a separate suit for damages.
Held: Direction to file a Rs 25 lakh undertaking set aside. The Court observed that costs should follow the event, non-levy of costs should be supported by reasons, and the Rs 3,000 ceiling under S.35A needs realistic revision.
Ashok Kumar Mittal v. Ram Kumar Gupta (2009) Ashok Kumar Mittal v Ram Kumar Gupta 2009
Issue: What is the source and limit of a civil court's power to award costs, and to whom should costs be paid?
Rule: Costs are governed by Ss.35 and 35A CPC; inherent power cannot be used to levy costs contrary to them. Heavy costs payable to Legal Services bodies or non-party charities should be avoided.
Held: The High Court's costs order, though "may not strictly be correct", was not interfered with under Art.136; the Court called the meagre-costs system unsatisfactory and referred it to the Law Commission.
Sanjeev Kumar Jain v. Raghubir Saran Charitable Trust (2011) Sanjeev Kumar Jain v Raghubir Saran Charitable Trust 2012
Issue: Whether a court can award "actual costs" (here Rs 45.28 lakh) beyond the scale in the rules.
Rule: Costs under S.35 are subject to the prescribed rules; "actual realistic costs" means what a normal advocate would charge, and must be provided by amending the rules. S.35(2) requires reasons where costs do not follow the event.
Held: The award of Rs 45.28 lakh was set aside; costs as per the Delhi High Court Rules plus Rs 3,000 exemplary costs.
Distinctions
| Aspect | S.35 | S.35A | S.35B |
|---|---|---|---|
| Trigger | Event (win/loss) | False or vexatious claim | Causing delay |
What is the general rule on costs under S.35 CPC?
Costs follow the event: the losing party pays the costs of the winning party. Court has discretion but must give reasons for departing from this rule (S.35(2)).
Under S.35A, what is the ceiling on compensatory costs?
Rs. 3,000.
What must be proved for S.35A compensatory costs?
That the claim or defence was false or vexatious AND the party knew it was false or vexatious at the time.
What is the effect of non-payment under S.35B?
The party is not permitted to take the step in respect of which costs were imposed as a condition.
After the 2002 amendment, is a no-costs order permissible without reasons?
No. S.35(2) requires the court to state reasons in writing if costs are not awarded following the event.
What did the Supreme Court say about costs in Vinod Seth?
Costs should follow the event and non-levy of costs should be supported by reasons; the Rs 3,000 ceiling on compensatory costs under S.35A has become ineffective and needs revision. Its actual holding was that a court cannot direct a plaintiff to undertake to pay damages if the suit fails.
Exam Scenario
A filed a suit for recovery of Rs. 10 lakhs alleging a loan. B defended denying the loan. The court found the loan proved and decreed the suit. However, the court made no order as to costs. A appeals on costs. Decide.
Under S.35(1) CPC, costs follow the event. A won the suit and is entitled to costs. Under S.35(2) as amended in 2002, if the court decides not to award costs to the winning party, it must record reasons in writing. The trial court awarded no costs without giving reasons. The S.35(2) mandate is express, and the Supreme Court has stressed that it is seldom followed and must be (Sanjeev Kumar Jain, 2011). Such an order is defective. The appeal should succeed. The appellate court should either award costs to A or remit the matter for the trial court to record reasons for the no-costs order.