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CODE OF CIVIL PROCEDURE, 1908: s. 35(1), CPC read with Chapters 11, 5 and 23 of Delhi High Court Rules – Costs – Appeal against vacating of an interim order – Dismissed by High Court with costs of Rs. 45,28,000/- – Appeal to Supreme Court confined only to legality and validity of order of High Court as regards costs – 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 Courts to ascertain the Rules and procedures in force in regard to costs – HELD: 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 Rules and, as such, also contrary to s.35, CPC 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, 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 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, courts 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 parties engaging high-charging lawyers, as is the case on hand – 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’ – Salem Advocates Bar Association case, explained. ss. 35(1) and (2) – Costs – Discretion of court – HELD: The discretion of the court is subject to such conditions and limitations 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. 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. 3,000/- 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 – The description of the costs awardable u/s. 35 A “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 something that is contemplated in s. 35B and s.35 itself – Therefore, the Legislature may consider award of punitive costs’ u/s. 35 A. Arbitration and Conciliation Act, 1996: s.31(8), Explanation, r/w 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 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 – HELD: 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 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 of collection thereof – There is, therefore, a need for a periodical revision of fixed court fees that is payable in regard to suits/petitions/appeals filed in courts/tribunals at different levels. Legislation: Litigation – Costs and court fees – HELD: The Law Commission of India, Parliament and the respective High Courts are suggested to make appropriate changes in the provisions relating to costs. Words and Phrases: Expression, to `appoint’ an arbitrator – Connotation of. In an appeal arising out of an order vacating the 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 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’ fees; whereas the respondents filed an affidavit stating that an amount of 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 the Court was the legality and validity of the order of the 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 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 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] 1.2. 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 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 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 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 misread the observations of this Court in Salem 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 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 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 observation in Salem Advocates Bar Association is a direction to amend the rules so as to provide for actual realistic costs and not to ignore the existing rules. The decision in Salem 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, 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 2005 (1) Suppl. SCR 929 = 2005 (6) SCC 344; Ashok Kumar Mittal Vs. Ram Kumar Gupta & Anr. 2009 (1) SCR125 = 2009 (2) SCC 656; and Vinod Seth Vs. Devender Bajaj & Anr. 2010 (7) SCR424 = 2010 (8) SCC 1; Manindra Chandra Nandi vs. Aswini Kumar Acharjya ILR (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 expenditure by parties who have the luxury of engaging a battery of high-charging lawyers, as is the case on 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 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 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-B-D] 1.5. The order dated 20.1.2010 of the High Court, to 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] 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 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) 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 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 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 date, the maximum 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 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] 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 something that is contemplated in s.35B and s.35 itself. Therefore, the Legislature may consider award of `punitive costs’ u/s. 35A. [para 15] [771-G] Award of Realistic Costs 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 so that a step forward is taken to provide to the litigating 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) 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 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 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 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] 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 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 22] [775-C-D] 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 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’ 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 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 down on the facts and circumstances of the case. Whenever the Chief Justice or his Designate appoints arbitrator/s, it will be open to him to 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. [para 25] [776-C-H] Union of India v. Singh Builders Syndicate 2009 (3) SCR563 = 2009 (4) SCC 523 – relied on Court fees 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 appeals therefrom), where court fee is ad valorem, in 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, 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] [772-A-D] 2.10. The Law Commission of India, Parliament and the respective High Courts are suggested to make appropriate changes in the provisions relating to costs. [para 30] [780-B] Case Law Reference: 2005 (1) Suppl. SCR929 referred to para 7 2009 (1) SCR125 referred to para 7 2010 (7) SCR424 referred to para 7 ILR (1921) 48 Ca. 427 referred to para 7 2009 (3) SCR563 relied on para 26 CIVIL APPELLATE JURISDICTION : Civil Appeal No. 8610 of 2011. 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, (A.C.), A. Mariarputham, Jawahar Lal Gupta, Arvind Bhatt, Megha Gaur, Yusuf Khan, P.N. Puri, Indra Sawhney, Simran Mehta, Sibo Sankar Mishra for the appering parties.

Reportable   IN THE SUPREME COURT OF INDIA     CIVIL APPELLATE

Street scene, Connaught Place, Delhi India

Street scene, Connaught Place, Delhi India (Photo credit: Wikipedia)

JURISDICTION     CIVIL APPEAL NO.8610 OF 2011   [Arising out of SLP(C) No.6285 of 2010]           Sanjeev Kumar Jain                                                         …….Appellant       Versus       Raghubir Saran Charitable Trust & Ors.                                    …..Respondents           O R D E R           R.V.  Raveendran, J.         Notice had been issued limited to the question whether a sum of         `      45,28,000/-   could   be   awarded   as   costs   in   an   appeal   against   a   vacating      temporary 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  respect   of  a  mezzanine  floor   unit  bearing     No.E-11 of the said building situated below the first floor tenement. When     2         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 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 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  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      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.     Learned counsel for the parties should give to the Court 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     3         expenses   incurred   in   the   appeal.   The   appellant   filed   a   memo   dated      22.12.2009 stating that  `25,50,000/- was incurred as advocates’ fees in the      appeal.   The   respondents   filed   an   affidavit   dated   23.12.2009   stating   that      `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 High Court,     dismissed   the   appeal   by   the   appellant.   Taking   note   of   the   said   memos     regarding fees, the High Court awarded to the respondents  `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.           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.           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 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     4         was no question of the matter being challenged by the appellant.     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 in law, namely section 35 of the Code of Civil     Procedure. The counsel  naturally agreed for the suggestion.  But there was     no   consent   for  `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   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:             “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   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.           (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:                                                         5               “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 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   its   reasons   for          holding such claim or defence to be false 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   of   an   amount           exceeding   three   thousand   rupees   or   exceeding   the   limits   of   it   pecuniary          jurisdiction, whichever amount is less:           Provided that where the pecuniary limits  of the jurisdiction of any Court          exercising the jurisdiction of a Court of Small 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  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 :         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 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 shall be taken into account in any          subsequent suit for damages or compensation in respect of such claim or          defence.”           6.2) Section 35B relates to costs for causing delay and is extracted below :           “35B. 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) 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 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                                                          6                  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 of–                              (a) the suit by the plaintiff, where the plaintiff was ordered to pay                         such costs,                          (b) the defence by the defendant, where the 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   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 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.”                 6.3)     Order XXA of the Code provides for costs being 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 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;                  (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;                  (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)       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 which are required to be                             filed along with the memorandum of appeal.”                                                         7         Rule 2 of Order XXA provides that award of costs under this Rule shall be       in accordance with such rules as the High 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   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  [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            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            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 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            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 unscrupulous  parties            take advantage of the fact that either the costs are not awarded or nominal                                                         8                 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 35(2) of the Code. Such a            practice also encourages filing of frivolous suits. It also leads to taking up            of frivolous  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   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,            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.”           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 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 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 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 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 litigation is vexatious, the outer limit  of exemplary                                                         9               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   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.”           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   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.           (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.           (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.           (d) The provision for costs should be an incentive for each litigant to adopt          alternative 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 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 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   by   sections           35,35A and 35B 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   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,     10         including the rules in force in Delhi provide each party should file a bill of   cost immediately after the 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 exceeds Rs.5 lakhs is :   Rs.14,500/-   plus  1%  of  the   amount   in  excess  of  Rs.5  lakhs  subject  to   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   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 discretion about costs should    have regard to the following circumstances:       (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) 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 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;      (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      (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.      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 cases (non-levy of   costs should be supported by reasons); and     (ii)   appropriate   amendment   to   Civil   Rules   of   Practice   relating   to   taxation of costs, to make it more realistic in commercial litigation.     11         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 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   35B   providing   for   costs   for   causing   delay   is   seldom   invoked. It should be regularly employed, to reduce delay.     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   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  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   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.           9.       Chapter 11 Part C of the Delhi High Court Rules (`Rules’ for short)     deals   with   award   of   costs   in   civil   suits.   Chapter   XXIII   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   2   Chapter   5   but  not   exceeding   the   scale     12         prescribed in the schedule to Chapter XXIII.  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 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   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 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     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  Salem   Advocates   Bar   Association.   He   drew   our     13         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 any other incidental costs       besides the payment of the court fee, lawyer’s fee, typing and other costs in       relation to the litigation.” The High Court has also assumed that the above     observations of this Court in Salem Advocates Bar Association enabled it to     award   “actual”   costs.   The   High   Court   has   opened   its   order   with   the     following words:     “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 opinion, the only way in   which a successful litigant can be compensated financially is 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 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   expenses   incurred   by  them,   which   is   a   staggering Rs.45,00,000/.”           We   are   afraid   that   the   respondents   and   the   High   Court   have   misread   the     observations of this Court in Salem 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 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     14         realistic  costs  is  an  observation  requiring  the   High   Courts  to  amend  their     rules and 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  Salem   Advocates   Bar       Association  is   a   direction   to   amend   the   rules   so   as   to   provide   for   actual       realistic  costs   and  not  to  ignore   the   existing  rules.   The decision  in   Salem     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   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   realistic   costs’  assuming   that   costs     could be awarded on such basis? Whether it can be said that  `  45,28,000/-      said to have been incurred (made up of  `  29,73,000/- paid to Mr. S, Senior      Advocate,  `  14,41,000/- paid to Mr. G, Senior Advocate,  ` 85,500/- paid to      Mr.   M,   Advocate,  `  16,750/-   paid   to   Mr.   V,   Advocate   and  `  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                                                  15         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 ` 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 ` 30 lakhs, in a suit for recovery of ` One 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  `  45,28,000/-     was   paid   to   four   counsel?   If   a   rich      litigant  engages four counsel  instead  of one, should  the 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   days   were   mere      appearances.   Should   the   losing   party   pay   for   such   appearances?   If      respondents had engaged two senior counsel who charged  `  Two lakhs per      appearance, should the other side be made liable to pay ` 1.5 crore as costs?     16         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  `  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.           12.     Though 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 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   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 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     17         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     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   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.         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:         (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)]     (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 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     18         respective costs without assigning or recording the reasons for 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     consuming and costly process. A plaintiff/petition/ appellant who is driven     to the court, by the illegal acts of the defendant/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 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.         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  `  1,000/-.   In      the year 1977, this was amended and increased to ` 3,000/-.  At present, the      maximum that can be awarded as compensatory costs in regard to false and       vexatious claims is ` 3,000/-. Unless the compensatory costs is brought to a      realistic  level,  the  present  provision  authorizing  levy of an  absurdly small                                                 19         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       `  3,000/-   would   not   make   much   difference.   We   are   of   the   view   that   the       ceiling in regard to compensatory costs should be at least `1,00,000/-.           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     something   that   is   contemplated   in   Section   35B   and   Section   35   itself.     Therefore,   the   Legislature   may   consider   award   of   ‘punitive   costs’   under     section 35A.         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   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.     20         There is 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 Court,     Tribunals   and   Supreme   Court.   For   example,   in   Supreme   Court,   the     maximum court  fee  payable  is only  `  250/-, whether  it is a suit  or special     leave petition or appeal.           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 the  courts.  Arbitration  matters,  company matters, tax  matters, for     example,   may   involve   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 may.         Award of Realistic Costs         18.   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   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:     21            “Re: Trial Courts              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            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 num-           ber of other issues or points which were unnecessarily raised, 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 tak-           ing into account the expense incurred for the purpose of attendance on the            adjourned dates.             Re: Appellate Courts             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. If any of the parties            have   unreasonably  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.”         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   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                                                   22         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 ` 2000 and      for appeals of the scale if that is payable to original suits.            20.     The   Supreme   Court   Rules   (Second   Schedule)   prescribes   a   fee   of      `2400/- for leading counsel and `1200/- for Associate Advocate in regard to      defended appeals and suits or writ petitions. For special leave petitions, it is      `800/- for leading counsel and `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 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 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 should be noted.     A litigant, who starts the litigation, after sometime, being unable to bear the     23         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. 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   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,   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 or the high rate of day fee     paid to them. For the present, the Advocate fee should be a realistic normal     single fee.               24         Costs in Arbitration matters           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   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 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   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 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’     25         expenditure but `reasonable’ costs.           25.     Arbitrators   can   be   appointed   by   the   parties   directly   without   the     intervention   of   the   court,   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 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 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 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 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     26         payable to them, after their appointment.           26.      This Court in  Union of India v. Singh Builders 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 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   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 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   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, 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   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 of the other   party who readily agreed to pay the high fee.     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 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 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.     27         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   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.”     (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 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   arbitral   tribunal   with   three   arbitrators   and   if   the     arbitrators are from different cities and the arbitrations are to be held and the     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 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           28.     Though what is stated above about arbitrations in India, 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 arbitration survives     in  India   as   an   effective   alternative   forum  for   disputes  resolution   in   India.     Examples   are   not   wanting   where   arbitrations   are   being   shifted   to     neighbouring   Singapore,   Kuala   Lumpur   etc.,   on   the   ground   that   more     professionalized   or   institutionalized   arbitrations,   which   get   concluded     expeditiously  at   a  lesser   cost,  are   available   there.   The  remedy  for   healthy     development  of arbitration  in  India  is to  disclose  the  fees  structure  before     the  appointment  of  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 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 about total costs are the key to     the development of arbitration. Be that as it may.         Conclusion     29         29.     In view of the above, the order dated 20.1.2010 of the 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.            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.           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   rendered   by     Dr. Arun Mohan, Amicus Curiae and Mr. A. Mariarputham, learned senior     counsel appearing for Law Commission of India.           ____________________J.   ( R.V. Raveendran)           ____________________J.   (A. K. Patnaik)   New Delhi;     30         October 12, 2011.

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