Costs — General, Compensatory, Costs for Adjournments (Sections 35, 35A, 35B)

The cost regime of the Code of Civil Procedure, 1908 rests on three sections and one Order. Section 35 supplies the general power: costs of and incidental to all suits are in the discretion of the court, which has full power to determine by whom, out of what property, and to what extent costs are to be paid. Section 35A supplies a narrower remedy of compensation against the party who advances a false or vexatious claim or defence. Section 35B, inserted in 1976, supplies a per-adjournment cost against the party who causes delay. Order XXA, also inserted in 1976, lists particular items in respect of which costs may be awarded — pre-suit notices, pleadings, inspection charges, witness expenses, copies of judgments and decrees. Together, these provisions are intended to indemnify the successful party for the expense of vindicating his rights and to deter abusive or dilatory litigation.

The Supreme Court has emphasised that the costs regime is structurally compensatory — not punitive. The object of awarding costs, as stated by the Calcutta High Court a century ago and approved many times since, is to indemnify the party who has succeeded against the expense of successfully vindicating his rights. The cost order is not a sentence on the loser; it is a means of restoring the winner. The exception — Section 35A — is the closest the Code comes to a quasi-punitive cost, but even there the language is “compensatory,” not penal, and the cap of three thousand rupees confirms that the Section 35A cost is meant to make the objector whole, not to punish the offender. Section 35B is similarly compensatory: it is meant to reimburse the other party for expenses incurred in attending court on the date wasted, not to fine the offender.

Statutory anchor and scheme

Section 35 is the general source of the cost power. Section 35A, the compensatory-cost remedy for false claims and defences. Section 35B, the per-adjournment delay cost. Order XXA Rule 1 lists items recoverable; Rule 2 directs that the award be made in accordance with rules made by the High Court. Order XX Rule 4 requires the decree to state the amount of costs and how the costs are to be paid; Order XXIII Rule 1(3) and (4) supply the costs framework on withdrawal of suits; Order XXIV Rule 4 deals with costs after payment into court; Order XXXIII Rules 10, 11 and 16 govern costs in indigent-persons proceedings; Order XXXV Rule 3, in interpleader suits; Order XXXIV, in mortgage suits.

Section 35 — the general power

Section 35(1) gives the court a discretion subject to such conditions and limitations as may be prescribed. The discretion is wide. The court has full power to determine by whom and out of what property costs are to be paid, and to what extent. It may apportion costs between parties, order one party to pay the costs of another in a fixed sum in lieu of taxed costs, disallow costs to a successful plaintiff who has been guilty of misconduct, or even direct a successful plaintiff to pay the whole costs of the other side where his conduct merits it. Section 35(2), inserted in 1976, requires the court to record reasons in writing where it directs that costs shall not follow the event.

The discretion, though wide, is judicial — to be exercised on fixed principles, according to the rules of reason and justice, not according to private opinion, benevolence or sympathy. The Supreme Court has repeatedly held that an appellate court will not interfere with an order on costs passed by a trial court unless it is perverse or contrary to law. The default rule is that costs follow the event: the unsuccessful party pays the costs of the successful party. The general rule may be displaced for reasons recorded — for example, where the successful party has won on a ground he did not plead, where his conduct has unnecessarily prolonged the litigation, or where the litigation has raised a genuine doubt of law on which the unsuccessful party was reasonably entitled to a judicial determination.

The expression “costs of and incidental to suits” is wide enough to cover not only the costs of the suit itself but the costs of applications in the suit. Where the court has no jurisdiction to try the suit, that is no bar to the exercise of the cost power — the closing words of Section 35(1) put this beyond doubt. The discretion to award costs is, however, limited by certain enactments — the Presidency Small Cause Courts Act, 1882, the Land Acquisition Act, 1894, and others — which contain their own cost provisions.

The Commercial Courts Act overhaul of Section 35

The Commercial Courts Act, 2015 substituted Section 35 in its application to commercial disputes of a Specified Value. The substituted provision is structurally different. The general rule that the unsuccessful party shall pay the costs of the successful party is preserved, but the court may deviate from it for reasons recorded. The expression “costs” is given a fuller content: it includes the fees and expenses of witnesses, legal fees and expenses, and any other expenses incurred in connection with the proceedings. The court is required to have regard to the conduct of the parties, partial success, frivolous counterclaims, reasonable offers to settle that have been unreasonably refused, and frivolous claims that have wasted court time. The court may make a range of orders — a proportion of the other party’s costs, a stated amount, costs from or until a particular date, costs incurred before proceedings, costs of particular steps, and interest on costs.

The substituted Section 35 is the closest the Indian costs regime has come to the English common-law model of full indemnity costs. Outside commercial disputes, however, the original Section 35 continues to apply, and the historic Indian practice of awarding nominal or token costs unconnected with actual expense persists in the trial courts. The Supreme Court in Salem Advocate Bar Association v. Union of India (2005) 6 SCC 344 has urged the High Courts to revise their cost rules so that costs awarded reflect actual expenditure; the response of the High Courts has been uneven.

Section 35A — compensatory costs for false or vexatious claims

Section 35A introduces a sharper remedy. Where, in any suit or proceeding (including an execution proceeding but excluding an appeal or revision), any party objects that a claim or defence — or any part of it — is, as against the objector, false or vexatious to the knowledge of the party advancing it, and where the claim or defence is subsequently disallowed, abandoned or withdrawn in whole or in part, the court may, after recording reasons, order the party to pay compensatory costs to the objector. The cap is three thousand rupees, or the pecuniary limit of the court’s jurisdiction, whichever is less.

Four conditions must be satisfied. First, the claim or defence — or the part objected to — must be false or vexatious. A claim that is merely untenable but not false is outside the section; a claim involving complicated questions calling for elaborate consideration cannot be said to be frivolous. Second, the party advancing the claim must have known it to be false or vexatious. Third, an objection must have been raised by the objector at the earliest opportunity — the section does not operate sua sponte. Fourth, the claim or defence must subsequently have been disallowed, abandoned or withdrawn. Reasons must be recorded; the court has no power to award compensatory costs without giving reasons.

The section introduces the word “party,” which does not appear in Section 35. Compensatory costs may therefore be awarded only against a party — not against witnesses, not against legal practitioners. The order does not exempt the party from any criminal liability he may have incurred in respect of the claim or defence; and any compensation awarded is to be taken into account in any subsequent suit for damages or compensation in respect of the same claim or defence. An order awarding compensatory costs is appealable under Section 104(ff). An order refusing to award such costs is not appealable, but may be revisable.

The Supreme Court in T. Arivandam v. T.S. Satyapal (1977) 4 SCC 467 directed trial courts to keep Section 35A in mind and to take deterrent action where litigation is inspired by vexatious motives and is altogether groundless. The Court has, however, also cautioned that the power to levy exemplary costs is to be exercised sparingly to advance justice — it should not be used as a threatening or oppressive tool, and is appropriate only where the claim is shown to be false or the party is guilty of fraud, misrepresentation or similar conduct. The Commercial Courts Act, 2015 has, in its application to commercial disputes of Specified Value, omitted sub-section (2) of Section 35A — that is, the three-thousand-rupee cap — restoring full discretion in commercial cases.

Section 35B — costs for causing delay

Section 35B was inserted by the 1976 amendment to discourage parties from causing undue or unnecessary delay in the prosecution of a suit at any of its stages. Where, on a date fixed for hearing or for taking any step, a party fails to take the step required by or under the Code on that date, or obtains an adjournment under Order XVII for taking such step or for producing evidence or on any other ground, the court may, for reasons recorded, order that party to pay to the other party such costs as would, in the opinion of the court, be reasonably sufficient to reimburse the other party for the expenses incurred in attending court on that date.

The mechanism is what gives Section 35B its bite. The payment of costs ordered under sub-section (1), on the date next following the date of the order, is a condition precedent to the further prosecution of the suit by the plaintiff (where the plaintiff was ordered to pay) or to the further prosecution of the defence by the defendant (where the defendant was ordered to pay). The Explanation makes clear that, where defendants have raised separate defences, the cost-and-condition operates only on the group ordered to pay; the others may proceed.

Sub-section (2) supplies the structural distinction between Section 35B and the costs reckoned in the decretal costs under Section 35. Costs ordered under Section 35B, if paid, are not included in the costs awarded by the decree. The Section 35B order is a stand-alone reimbursement to the party inconvenienced on the day; it does not duplicate the eventual costs award. If the costs are not paid, however, a separate order is drawn up indicating the amount, the names of the persons liable, and that order is executable against them — like any other money decree. Section 35B operates pendente lite, irrespective of the eventual outcome of the suit.

Order XXA — particular items recoverable

Order XXA, also inserted in 1976, is meant to remove judicial doubt about the items that may legitimately be reckoned as costs. Without prejudice to the generality of Section 35, the court may award costs in respect of: expenditure for any pre-suit notice required by law; expenditure for any pre-suit notice given by a party though not required by law; expenditure for typing, writing or printing pleadings; charges paid for inspection of court records for the purposes of the suit; expenditure for producing witnesses, even where they have not been summoned through the court; and, in appeals, charges incurred for obtaining copies of judgments and decrees required to be filed with the memorandum of appeal. Rule 2 directs that the award of costs be in accordance with rules made by the High Court — and the rules of the various High Courts continue to govern the schedule of fees in practice.

The Calcutta High Court, by amendment, has made the discretion under Order XXA wider still: it directs the court to take into consideration the actual reasonable amount spent by the successful party in obtaining a just relief or opposing a frivolous claim, including the value of the time spent because of unjust opposition, court fee, lawyer’s fees, transportation and lodging of the party and his witnesses. The Calcutta amendment is, in substance, an attempt to import the recommendations of Salem Advocate Bar Association into the local cost regime.

Costs in execution, appeal and connected proceedings

The Section 35 power extends to costs in execution; an order in execution awarding costs against a recalcitrant judgment-debtor stands on the same footing as an order on costs in the suit. Section 35A, by its own terms, applies to execution proceedings but not to appeals or revisions; the Uttar Pradesh amendment of 1976 has, however, extended Section 35A to appeals where the appellate court confirms the trial court’s decision and the trial court has not awarded, or has awarded insufficient, compensatory costs. In a first appeal under Section 96, the appellate court has its own power to award costs of the appeal, governed by Section 35 read with Order XLI Rule 35.

The interaction with the law of indigent-persons is important. Order XXXIII Rule 10 provides that where a plaintiff who has been permitted to sue as an indigent person succeeds, the costs payable by the unsuccessful defendant include the court fee that the plaintiff would have paid had he not been an indigent person. Where such a plaintiff fails, the court fee is recoverable from him under Rule 11 — and may be recoverable from the property of any person to whom he assigned the suit. The cost regime in indigent-persons proceedings thus performs a fiscal function as well as a compensatory one.

Misuse, exemplary costs and the public-interest petition

The Supreme Court and the High Courts have, over time, used Section 35 read with the inherent powers under Section 151 to impose exemplary costs in cases of egregious misuse of the process of the court. The High Courts have imposed exemplary costs of substantial amounts on parties for filing frivolous public-interest litigation that does not raise any genuine public-interest question; for filing false or misleading affidavits; and for prolonged abuse of the process of execution. The Supreme Court has approved costs of ten lakh rupees in Sciemed Overseas Inc. v. BOC India Ltd. AIR 2016 SC 345 for filing a false affidavit, and has emphasised that such filings must be strongly discouraged.

The constraints on exemplary costs are, however, real. The Supreme Court has held in Satyapal Singh v. Govt of NCT of Delhi AIR 2010 SC 1138 that the power to levy exemplary costs is to be exercised sparingly to advance justice; it cannot be used as a threatening tool. Exemplary costs are appropriate only where the claim is found to be false or the party is guilty of fraud, misrepresentation or contumacious conduct. Where the party has acted on the basis of an interim order of a higher court, even prolonged retention of premises is not by itself ground for exemplary costs. The discretion is judicial, not punitive.

MCQ angle and exam pointers

Five distinctions recur in objective papers and ought to be locked in.

1. Section 35 — costs follow the event. The general rule, displaceable for reasons recorded under Section 35(2). Discretion is judicial, not arbitrary; appellate courts will not interfere unless the order is perverse or contrary to law.
2. Section 35A — compensatory costs. Cap of three thousand rupees or the court’s pecuniary limit, whichever is less. Excludes appeals and revisions. Available only against a party. Reasons must be recorded.
3. Section 35B — costs for delay. Per-adjournment cost; payment is a condition precedent to further prosecution of the suit or defence by the offending party. Costs paid under Section 35B are not included in the eventual decretal costs.
4. Order XXA — items recoverable. Pre-suit notices (required and not required), typing of pleadings, inspection charges, witness expenses, copies of judgments and decrees in appeal. Subject to High Court rules under Rule 2.
5. Commercial Courts Act overhaul. For commercial disputes of Specified Value, Section 35 is substituted to allow full indemnity costs; Section 35A’s sub-section (2) cap is omitted.

The discretion-not-arbitrariness principle of Section 35, the four conditions for Section 35A, the condition-precedent mechanism of Section 35B, the Commercial Courts Act overhaul, and Salem Advocate Bar Association v. Union of India (2005) 6 SCC 344 on actual costs are the authorities most likely to surface in mains-style questions on the costs regime of the Code.

The reform agenda — Salem Advocate Bar Association and after

The Indian costs regime has, for most of its life, suffered from a structural mismatch between the statutory framework and the practice of trial courts. The framework — Section 35 with its wide discretion, Section 35A and Section 35B with their compensatory devices, Order XXA with its express list of recoverable items — assumes that costs follow the event and reflect the actual expense of vindicating the right. Trial-court practice, however, has historically treated costs as a token: a few hundred rupees, unconnected with the lawyer’s fee, the witness’s expenses, or the time lost. The Supreme Court in Salem Advocate Bar Association v. Union of India (2005) 6 SCC 344, while upholding the constitutional validity of the 1999 and 2002 amendments to the Code, urged the High Courts to revise their cost rules so that costs awarded reflect actual expenditure. The Court observed that nominal costs encourage litigants to file frivolous suits and to drag out genuine ones, and that the practice of awarding costs unconnected with reality is itself a contributor to docket congestion.

The response of the High Courts has been uneven. The Calcutta High Court has, by amendment to Order XXA Rule 2, expressly directed courts to take into account the actual reasonable amount spent by the successful party, including court fee, lawyer’s fees, and the value of time spent because of unjust opposition. Other High Courts have made smaller adjustments. The Commercial Courts Act, 2015 supplied the most ambitious overhaul to date, but its application is confined to commercial disputes of Specified Value. For the bulk of civil litigation, Section 35 in its original form, and the trial-court practice of token costs, continue to apply.

Frequently asked questions

What is the difference between Section 35 and Section 35A?

Section 35 is the general source of the cost power: costs of and incidental to all suits are in the discretion of the court, ordinarily following the event. Section 35A is a narrower remedy of compensation against a party who has put forward a claim or defence — or part of it — that is false or vexatious to his knowledge, and which is subsequently disallowed, abandoned or withdrawn. Section 35 has no upper limit; Section 35A is capped at three thousand rupees or the pecuniary limit of the court, whichever is less. Section 35 applies to all suits and appeals; Section 35A applies to suits and execution proceedings but expressly excludes appeals and revisions. Section 35 may run in favour of any party in whose favour the decree is passed; Section 35A operates only on the application of an objector who has objected at the earliest opportunity.

What happens if a party fails to pay costs ordered under Section 35B?

The structural force of Section 35B is in its condition-precedent mechanism. Where the court orders a party to pay costs under sub-section (1), payment of those costs on the date next following the order is a condition precedent to further prosecution of the suit by the plaintiff (where the plaintiff was ordered to pay) or to further prosecution of the defence by the defendant. Failure to pay therefore stops the offending party from advancing the suit or defence. Sub-section (2) makes a separate provision for non-payment in cases where the order has not yet stopped the proceedings: a separate order is drawn up indicating the amount, the names and addresses of the persons liable, and that order is executable against them as a money decree. Costs paid under Section 35B are not included in the decretal costs at the end of the suit.

Can a witness or a legal practitioner be ordered to pay compensatory costs under Section 35A?

No. Section 35A speaks of costs being awarded against the “party” who put forward the claim or defence. The word “party” does not appear in Section 35; its introduction in Section 35A was deliberate. The Andhra Pradesh High Court has held that the section does not apply to witnesses. As to legal practitioners, the Allahabad High Court has held that Section 35 does not confer disciplinary jurisdiction on the court, and a legal practitioner cannot be ordered personally to pay the costs of an application — that would be an abuse of the process of the court. The exception is the solicitor or pleader who purports to act for a non-existent party: he is personally liable to costs, on the principle that he has misled the court.

Is an order on costs under Section 35 appealable?

Section 104(2) bars an appeal from any order from which an appeal does not lie. The general practice is that an appellate court will not interfere with an order on costs passed by the trial court unless the order is perverse or contrary to law. An order awarding compensatory costs under Section 35A is, however, expressly appealable under Section 104(ff). An order refusing to award compensatory costs is not appealable but may be revisable. An order on Section 35B costs is procedural in nature and does not attract a separate appeal — it operates by the condition-precedent mechanism. The Supreme Court has repeatedly emphasised that costs are at the discretion of the court, and that imposition of costs is not ordinarily an issue on which the appellate court will substitute its own view.

How has the Commercial Courts Act, 2015 changed the costs regime?

Substantially, in its application to commercial disputes of a Specified Value. The Act substitutes Section 35 with a longer provision that gives the court full discretion to determine whether costs are payable, the quantum, and when they are to be paid. The expression "costs" is given a fuller content — fees and expenses of witnesses, legal fees and expenses, and any other expenses incurred in connection with the proceedings. The default rule remains that the unsuccessful party pays the successful party, but the court must have regard to the conduct of the parties, partial success, frivolous counterclaims, reasonable offers to settle that have been unreasonably refused, and frivolous claims wasting court time. In Section 35A, sub-section (2) — the three-thousand-rupee cap — is omitted in commercial cases. The substituted Section 35 is the closest the Indian costs regime has come to the English full-indemnity model.