Imposition Of Costs Not A Reflection On Counsel; Costs Must Follow Cause In Commercial Matters Including Writ Petitions : Supreme Court

The Supreme Court observed that costs must follow the cause in commercial matters including writ petitions.

The court added that it is not a correct approach to presume that imposition of costs is a reflection on the counsel.

The bench of Justices Sanjay Kishan Kaul and Hrishikesh Roy observed that tender jurisdiction was created for scrutiny of commercial matters and, thus, where continuously parties seek to challenge award of tenders, we are of the view that the succeeding party must get costs and the party which loses must pay costs.

In this case, the Government of Tamil Nadu had invited a tender in the matter of production and supply of polyester based hologram excise labels on turnkey basis. The stickers were to be pasted across the caps of bottles of liquor sold by the State Government through one of its instrumentalities, the Tamil Nadu State Marketing Corporation. Two of the prospective tendering parties, viz., M/s. Kumbhat Holographics and M/s. Alpha Lasertek India LLP (for short 'Alpha') filed writ petitions in this matter. Though the single bench dismissed the writ petition, the Division bench allowed it. The Division bench found that that tender conditions were tailor-made in favour of some companies.

Allowing the appeal, the Supreme Court observed that the Division Bench has fallen into an error in almost sitting as an appellate authority on technology and commercial expediency which is not the role which a Court ought to play. 

Hesitancy in our judicial system to impose costs, presuming as if it is a reflection on the counsel

"The costs following cause is a principle which is followed in most countries. There seems to be often a hesitancy in our judicial system to impose costs, presuming as if it is a reflection on the counsel. This is not the correct approach. In a tussle for enforcement of rights against a State different principle apply but in commercial matters costs must follow the cause.", the bench observed.

Referring to some earlier judgments and the Law Commission report, the court noted that:

(i) costs should ordinarily follow the event;

(ii) realistic costs ought to be awarded keeping in view the ever increasing litigation expenses; and

(iii) the cost should serve the purpose of curbing frivolous and vexatious litigation

The Court also observed that there has to be a proportionality to the costs and if they are unreasonable, the doubt would be resolved in favour of the paying party. In this regard, the bench referred to Halsbury's Laws of England: 

In deciding what order (if any) to make about costs, the court must have regard to all the circumstances, including:

(i) The conduct of all the parties;

(ii) Whether a party has succeeded on part of his case, even if he has not been wholly successful; and

(iii) Any payment into court or admissible offer to settle made by a party which is drawn to the court's attention.

The conduct of the parties includes:

a. Conduct before, as well as during, the proceedings and in particular the extent to which the parties followed any 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.

The failing party cannot hide behind the veneer of the present dispute being in the nature of a writ proceeding

The court said that the best reflection of what costs have been incurred is what the parties have paid towards the counsel fee and out of pocket expenses.

"The present proceedings do arise from a writ proceeding under Article 226 of the Constitution but it is really a commercial dispute. Thus, the failing  party cannot hide behind the veneer of the present dispute being in the nature of a writ proceeding. The tender jurisdiction was created for scrutiny of commercial matters and, thus, where continuously parties seek to challenge award of tenders, we are of the view that the succeeding party must get costs and the party which loses must pay costs. This was really a battle between two commercial entities on one side seeking to get set aside an award of a tender to two other entities. What else would be commercial interest!", the court observed.

Taking note of the bills submitted by the parties, the court found that the total costs payable to the appellant and state would be Rs.23,25,750/- and Rs.7,58,000/- respectively.

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