240th Report on Costs in Civil Litigation - Law Commission of India

8.12 The amount that could be awarded to a party to the litigation under Section 35-A has no particular relation to the actual expenses incurred by that party. The expression“compensatory” is not, in fact, appropriate. These costs are related to the false andfrivolous nature of the plea raised in the proceeding by a party. In effect, it penalizes theconduct of the party who has set up a false or frivolous claim/plea and awards anadditional amount under the head of costs. Viewed from another angle, the amount soawarded partakes the character of non-pecuniary damages as it provides somerecompense for the time and energy spent and mental agony suffered by the party who isdragged to the Court unnecessarily. In that sense, it could be said that the costs arecompensatory. However, costs contemplated by Sec. 35-A are of greater amplitude. Itwould, therefore, be more appropriate to describe the costs under Section 35-A as‘exemplary costs’ – an expression used by Supreme Court in Sanjiv Jain’s case.Punitive costs is another expression that can be used in view of the amendments we aresuggesting. It may be stated that in the context of damages, the expressions “punitivedamages” and “exemplary damages” are used as synonymous terms. Punitive damagesare damages over and above such sums as will compensate a person for his actual loss.On the same analogy, punitive or exemplary costs are not to be correlated to theexpenses incurred by a party to litigation. In fact, costs are considered to be in thenature of incidental damages allowed to the successful party to indemnify him againstthe litigation expenses incurred. In that sense, it would be apposite to borrow thedescriptive terminology applied to damages.8.13 At this juncture, we may reiterate the pertinent observations of Supreme Court inSanjeev Kumar Jain’s case at para 15:“We may also note that the description of the costs awardableunder Section 35A ‘as compensatory costs’ gives an indicationthat it is restitutive rather than punitive. The costs awarded forfalse or vexatious claims should be punitive and not merelycompensatory. In fact, compensatory costs is something that iscontemplated in Section 35B and Section 35 itself. Therefore,43