Vinod Seth vs Devinder Bajaj & Anr

Leave granted. Heard. The validity of a novel and innovative direction by the High Court, purportedly issued to discourage frivolous and speculative litigation is under challenge in this appeal. To understand the issue, it is necessary to set out the facts and also extract relevant portions of the plaint and the impugned orders of the High Court.

The appellant further alleged that in pursuance of the above, he paid a sum of Rs.51,000/- to first respondent in the presence of second respondent and two witnesses (Sanjay Kumar Puri and M.R.Arora) and that the first respondent executed the following receipt acknowledging the payment:

3. The appellant alleged that the respondents failed to comply with the agreement and lingered over the matter on one pretext or the other; that the appellant came to know subsequently that the property stood in the name of the second respondent and not the first respondent; and that the appellant therefore issued a notice dated 9.3.2007 calling upon the respondents to comply with the legal formalities to facilitate the collaboration agreement. Alleging that respondents failed to comply, the appellant filed a suit on 30.6.2007 for specific performance. We extract below the relevant portion of the prayer:

4. The respondents contested the said suit and filed a written statement denying the claim in toto. When the case came up for framing issues, a learned Single Judge of the High Court on perusal of the pleadings passed an interim order dated 2.12.2008, relevant portion of which is extracted below :

8.3 The property stands in the name of second respondent (Defendant No.2), but she did not sign the receipt. There is nothing to show that the second respondent participated in the alleged negotiations or authorized her husband-the first respondent to enter into any collaboration agreement in respect of the suit property. The receipt is not signed by the first respondent as Attorney Holder or as the authorized representative of the owner of the property. From the plaint averments it is evident that appellant did not even know who the owner was, at the time of the alleged negotiations and erroneously assumed that first respondent was the owner. The execution of a receipt for Rs.51,000/- by the first respondent even if proved, may at best make out a tentative token payment pending negotiations and finalization of the terms of an agreement for development of the property. 1 8.4) The agreement is alleged to have been entered on 10.6.2004. But the plaintiff issued the first notice calling upon defendants to perform, only on 9.3.2007 and filed the suit on 30.6.2007. There was no correspondence or demand for performance, in writing, prior to 9.3.2007, even though the alleged agreement was a commercial transaction.

13.4) A suit or proceeding initiated in accordance with law, cannot be considered as an abuse of the process of court, only on the ground that such suit or proceeding is likely to cause hardship or is likely to be rejected ultimately. As there are specific provisions in the Code, relating to costs, security for costs and damages, the court cannot invoke Section 151 on the ground that the same is necessary for ends of justice. Therefore, we are of the view that a court trying a civil suit, cannot, in exercise of inherent power under section 151 of the Code, make an interim order directing the plaintiff to file an undertaking that he will pay a sum directed by the court to the defendant as damages in case he fails in the suit.

18. The attempt of the Division Bench to support the order of the learned Single Judge with reference to Order XXV Rule 1 of the Code is clearly erroneous. The said provision, as noticed above, only enables the court to require the plaintiff to furnish security for payment of costs incurred or likely to be incurred by the defendant.

The need for reform :

23. The provision for costs is intended to achieve the following goals :

24. 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. 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, 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. 3

26. 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.

27. 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 3 relating to costs and compensatory costs contained in Section 35 and 35A of the Code.

Conclusion

26. In the result, we allow this appeal in part, set aside the order of the Division Bench and Learned Single Judge directing the plaintiff-appellant to file an affidavit undertaking to pay Rs. 25 lakhs to defendants-respondents in the event of failure in the suit. Instead, we permit the defendants-respondents under section 52 of TP Act, to deal with or dispose of the suit property in the manner they deem fit, in spite of the pendency of the suit by the plaintiff, subject to their furnishing security to an extent of Rs. Three lakhs to the satisfaction of the learned Single Judge.