SYMBIOSIS

INTERNATIONAL UNIVERSITY

COMPARATIVE STUDY BETWEEN INTEREST AND COST

Submitted by

T.Pranav Sai 17010324066

Vaibhav Anand 17010324067
Vaishali.V 17010324068

Division C BBA LLB

SYMBIOSIS LAW SCHOOL, HYDERABAD

In
September, 2018

Under the guidance of

ASSIST.PROF.PANKAJ UMBARKAR

CERTIFICATE

The project entitled “COMPARATIVE STUDY BETWEEN INTEREST AND COST“

submitted to the Symbiosis Law School, Hyderabad for Civil Procedure Code I is based on my
original work carried out under the guidance of Mr.Pankaj umbarkar. The Research work has
not been submitted elsewhere for award of any degree. Comparative

The material borrowed from other sources and incorporated in the research Project/ paper has
been duly acknowledged.

I understand that I myself would be held responsible and accountable for plagiarism, if any,
detected later on.

Signature of the Candidate

T. Pranav Sai _____________

Vaibhav Anand _______________

Vaishali.V ______________
Date: 20th Sept. 2018

ACKNOWLEDGEMENT

I would like to express my sincere gratitude and indebtedness to Mr.Pankaj umbarkar for his
enlightening lectures of the civil procedure code. I would also like to express my sincere
gratitude to our teaching staff for guiding me the path towards gaining knowledge.
I would like to thank the Library Staff of Symbiosis Law School, Hyderabad as well for their
co-operation.

I would also like to thank my batch mates and seniors who inspired, helped and guided me in
making this project. I am grateful to some of my seniors/friends namely, none for their
incredible guidance and support.

Signature of the Candidate

T. Pranav Sai _____________

Vaibhav Anand _______________

Vaishali.V ______________

INDEX:

INTRODUCTION

LITERATURE REVIEW
RESEARCH OBJECTIVES

RESEARCH METHODOLOGY

RESEARCH QUESTIONS

CHAPTER 1 CIVIL PROCEDURE CODE

CHAPTER 2 INTEREST IN THE C.P.C

CHAPTER 3 COST IN THE CPC

CHAPTER 4 CONCLUSION

INTRODUCTION

The law relating to the procedure in suits and civil proceedings in India is contained in the
Code of Civil Procedure, 1908. The word civil is used to distinguish the same from military,
criminal, revenue etc. The word procedure is used to distinguish the same from substantive
law. Substantive law consists of rules relating to rights and obligations of the state and
individual’s while the law of procedure provides the manner in, which these rights and
obligations are enforced. Sometimes, however, one gets into the other's area. The Civil
Procedure Code in India embodies a mixture of strictness of procedure and of discretionary
powers vested in the courts. The aim is to do justice. The Code has been amended from time
to time by various acts of the Central and State legislatures. The Code is mainly divided into
two parts, namely sections and orders. While the main principles are contained in the sections,
the detailed procedure with regard to the matters dealt with by the sections are specified in the
orders.

CPC is an ocean of provisions directed towards governing the procedural aspects of a civil
court and consequently various concepts have been laid down by it. One of the very many vital
concepts laid down by the said act is covered under section 34 and 35 of the same. Section 34
deals with ‘interest’ whilst section 35 provides for ‘cost’.

The honourable High Court of Andhra Pradesh1 observed that Sir D.F. Mulla in his Civil
Procedure Code treats the subject of interest under the following heads,

“(1) interest accrued due prior to the institution of the suit on the principal sum adjudged.
(2) additional interest on the principal sum adjudged, from the date of the suit to the date of
decree; and
(3) further interest on the aggregate sum adjudged i.e., the principal sum plus interest, from the
date of the decree to the date of payment or such earlier date as the Court thinks fit at such rate
as the Court deems reasonable.” Interest therefore can be described as the sum of money liable
to be paid to the successful party at the discretion of the court.

The object of awarding costs is to indemnify a party against the expenses incurred in
successfully vindicating his rights. The section provides that the costs of suits and applications
are in the discretion of the court. That discretion is very wide, but it has to be exercised
judicially and on fixed principles. The general rule is that the successful party is entitled to
costs unless he is guilty of misconduct, negligence or omission or unless there is some other
good cause for not allowing costs. The same rule is expressed by the expression “Costs follow

1
Mahant Narayana Dossjee Varu vs The Board Of Trustees: AIR 1959 AP 64
the event”, i.e., costs follow the result of the suit. The following are the main rules with regard
to the provision of costs.

This research paper discusses and analyses the concept of interest and cost under civil
procedure code. Further a juxtaposition of such understanding is channelled towards comparing
and drawing the differences between section 34 (interest) and section 35 (cost) of CPC.

RESEACH OBJECTIVES

 To understand the nature and objective of CPC

 To study the concept of interest and cost under CPC

 To draw differences between the interest (as under section 34 of CPC) and cost (as
under section 35 of CPC)

 To develop a comprehensive understanding of section 34 and 35 by studying case laws

RESEARCH QUESTIONS

 What is the scope of interest as provided for under section 34 of the Code of Civil
Procedure,1908?

 What is the scope of cost as provided for under section 35 of the Code of Civil
Procedure,1908?

 What is the interpretation of said sections by the courts?

  What are the differences and similarities between cost and interest under CPC

RESEARCH METHODOLOGY

The concepts of interest and cost are a vital part of the dynamic procedural practices laid down
by the civil procedure code in India. This paper has been developed by first studying the bare
act in order to establish a ground level understanding of the subject of the paper. Further books
and articles written by significant contributors to the field have been referred to, in order to fill
any voids in conceptual understanding. In addition to this important case laws that have shaped
the structure of section 34 and 35 have been studied in order to develop a comprehensive
understanding of the same.This article uses doctrinal research.

LITERATURE REVIEW

The Code of Civil Procedure by M.P.Jain; This book contains comments, exhaustive notes,
and significant case laws along with a comprehensive understanding of the concepts of the
code including central and state amendments. This book has proven useful to develop a
wholesome understanding of the subject matter of this project.

C.K. Takwani on Civil Procedure Code; this book is an authority on the subject of civil law in
India. It is well acclaimed as a compact book written in a lucid style. The commentary explains
theoretical as well as practical aspects of civil procedure. This book has therefore supported in
giving structure and accuracy to the findings of this research.

Code of Civil Procedure by Dr. B.S. Chauhan; This paper is written by a judge of the Supreme
Court explaining the understanding of the court with regards to the basic concepts that have
been established by the civil procedure code in India. This has not only helped establish a
concrete understanding of the subject in question but also has given an insight into the
reasoning of the court.

CHAPTER-I

THE CIVIL PROCEDURE CODE, 1908

As The law relating to the procedure in suits and civil proceedings in India is contained in the
Code of Civil Procedure, 1908. The word civil is used to distinguish the same from military,
criminal, revenue etc. The word procedure is used to distinguish the same from substantive
law. Substantive law consists of rules relating to rights and obligations of the state and
individuals; while the law of procedure provides the manner in, which these rights and
obligations are enforced. Sometimes, however, one gets into the other's area. The Civil
Procedure Code in India embodies a mixture of strictness of procedure and of discretionary
powers vested in the courts. The aim is to do justice. The Code has been amended from time
to time by various acts of the Central and State legislatures. The Code is mainly divided into
two parts, namely sections and orders. While the main principles are contained in the sections,
the detailed procedures with regard to the matters dealt with by the sections are specified in the
orders.

The procedural laws have to be invoked when substantive law is to be enforced. Prior to its enforcement,
the law may remain only a formulation of rules of conduct. Many a times, substantive rights have sprung
out of procedure. It was therefore; argued before the amendment of Art. 368 of the Constitution of India,
that as it provided for procedure of amendment, the power 4 of amendment could be inferred2. There is
a body of common law which has developed out of procedural laws as against substantive laws. Legal
thinking itself has been greatly though perhaps invisibly influenced by the procedure of the time being.

The Civil Procedure Code in India embodies a mixture of strictness of procedure and of discretionary
powers vested in the courts. The aim is to do justice. It would be useful to keep in mind the guiding rule
of interpretation of the Code given by the Supreme Court of India in Sangram Singh v. Election
Tribunal. Bose J. said:

“Now a code of procedure' must be regarded as such. It is "procedure" something designated to facilitate
justice and further its ends, not a penal enactment for punishment and penalties, not a thing design to
trip people up. Too technical a construction of sections that leaves no room for reasonable elasticity of
interpretation should therefore be guarded against (provided always that justice is done to both the
sides) lest the very means designed for furtherance of justice be used to frustrate it”3

Therefore, drawing light from what has been established in the above, it can be deduced that the object
of the code is to consolidate and amend the laws relating to the procedure of Courts of Civil Judicature.
The Code has been amended from time to time by various acts of the Central and State legislatures. The
provisions of the code have evolved as a matter of long years of experience emanating out of the
common law of England.4

2
V.S. Deshpande "Civil Procedure",is The Indian Legal1 System, The Indian Law Institute publication, 1978
p.177
3
Sangram Singh V. Election Tribunal, AIR 1955 SC 425. at P.429.
4
Subrata Roy Sahara v. Union of India, (2014) 8 SCC 470
 CHAPTER-II

INTEREST UNDER CIVIL PROCEDURE CODE

Mahant Narayana Dossjee Varu vs The Board Of Trustees: AIR 1959 AP 64, the Hon’ble
Andhra High Court observed that Sir D.F. Mulla in his Civil Procedure Code treats the subject
of interest under the following heads, wherein It is explained by the author that interest under
the first head is a matter of substantive law, the section does not refer to the payment of interest
under the first ‘lead and it applies only to the second and third heads :

1) interest accrued due prior to the institution of the suit on the principal sum adjudged.
2) additional interest on the principal sum adjudged, from the date of the suit to the date
of the decree; and
3) further interest on the aggregate sum adjudged i.e., the principal sum plus interest, from
the date of the decree to the date of payment or such earlier date as the Court thinks fit
at such rate as the Court deems reasonable”.

Interests may be divided under the following heads

Pre-lite:-
(1) Pre-lite: interest accrued due prior to the institution of the suit on the principal sum (due)
adjudged. Interest for the period anterior to institution of suit is not a matter of Procedure
as it is referable to substantive law and can be sub-divided into two sub-heads;
(i) where there is a stipulation for the payment of interest at a fixed rate (contract
rate), and
(ii) where there is no such stipulation as per statutory provisions providing certain
rate of interest and in its absence as per the interest Act (from date of demand
(from date of service of demand notice) and at prevailing market rate and bank
lending rate as guidance).
Pendent-lite:-
In addition to pre-lite interest, it is the additional interest on the principal sum adjudged or
declared due from the date of the suit either at contract rate if reasonable or at such rate as the
Court deems reasonable in the discretion of the Court.

Post-lite:-
(3) Post-lite: In addition to pre-lite interest on principal sum and pendent-lite interest on the
principal sum adjudged or found due, it is the further interest on such principal sum (as per
Section 34 CPC or under Order 34 C.P.C. as not a substantive law, from the date of the
decree to the date of the payment and in mortgage decree from date of preliminary decree till
expiry of period of redemption and thereafter till realisation/payment as the case may be in
any decree for money held due with or without charge preliminary or final or partly final
decree) or to such earlier date as the Court thinks fit, in the discretion of the Court, at a rate
not exceeding 6 per cent per annum except where the transaction is a business or commercial
one to grant above 6 percent but does not exceed contract rate as also laid down by the larger
bench of the AP High court in the case of APSRTC Vs. Vijaya.

when the suit transaction is a commercial transaction within the meaning of the proviso and
Explanation II to Section 34(1) C.P.C. which mandates that the Court can grant interest more
than 6% though not exceeding contract rate of interest (to say 24% p.a. in the case on hand) as
granted by the trial Court from date of decree till realization; By reducing pendent lite to 12%
p.a. & post lite to 6% p.a. from date of decree till realization in the impugned first appeal decree
now sought for review is on its face contrary to the mandate of Section 34 C.P.C. mainly in
reducing to 6% p.a. post lite interest; leave about no reasons assigned to reduce to12% from
the contract rate of 24% p.a. from date of suit till date of decree on the principal sum adjudged
which is the suit claim and thus, the appellate court’s finding now impugned in the review
reading that, “24% p.a. interest granted from date of suit till date of realization by the trial
Court appears to be penal without giving any reasons and keeping in view the provisions under
Section 34 C.P.C., interest is granted at 12% p.a. from date of suit till date of decree and
thereafter, at 6% p.a. till date of realization” is nothing but mistaken or inadvertent and
definitely a misreading outcome of Section 34 C.P.C.

Under Section 34 CPC, so far as pendent-lite and post-lite interest concerned is no doubt at the
discretion of the Court so to fix, however to exercise judiciously to fix is having regard to the
principle of restitution and even the Appellate court can reduce rate of interest, subject to
reasons.’5
‘Under Section 34 CPC, so far as pendent-lite and post-lite interest concerned is no doubt at
the judicial discretion of the Court and granted at 12% p.a. for the amount due by the
partnership firm.’ – Mahesh Chandra Bansal Vs Krishna Swaroop Singh. Supreme Court of
India.
Section 34 of Civil Procedure Code, 1908 confers a discretion on the Court to award interest
at such rate as the Court deems reasonable from the date of the suit to the date of the decree
with further reasonable interest on the aggregate sum till date of payment .

CHAPTER-III

COST UNDER CIVIL PROCEDURE CODE

The primal motive behind the concept of cost in a civil proceeding is to indemnify a party
against the expenses incurred in successfully establishing his rights, the section also mentions
that the cost of suits and applications are at the discretion of court. In generality, the innocent
party is entitled to costs unless a there’s a good cause for otherwise. Costs shouldn’t be punitive
in nature and rather should be reasonable to the guilty party. And if the plaintiff’s pecuniary
condition is not well then the party’s will have to bear their own costs. Thus neither does it
enable the successful party to earn profits nor does it punish the opposite party. The principles
with respect to costs have been provided under Ss. 35, 35-A, 35-B and Order XX-A of the
code. The code provides for the following type of costs:
(i) General costs: Section 35

5
D.D.A v. Joginder S. Monga, AIR 2004 SC 3291
 (ii) Specific Costs: Section 35 A

(iii) Costs for delay: Section 35 B

Costs under S.35 are paid for general expenses incurred by the litigants and depend upon the
discretion of the court. They must generally follow an event and thus it is essentially the loser
who pays. However, the court may also direct that costs shall not be paid following an event
and must state reasons for the same in writing. For example if the plaintiff has instituted the
suit for vexatious purposes, the court shall deny payment of costs to him even if he wins the
case.

35-A further provides for compensatory costs in cases where the claims of the other party are
false or vexatious. The following conditions must be satisfied under this section, namely-

(i) The claim or defence must have been false or vexatious.

(ii) Objections must be made by the other party that the party making the claim or
defence had knowledge of the fact that such claim or defence was false or vexatious.

(iii) Such claim or defence must have been disallowed or abandoned or withdrawn in
whole or in part.

No court shall order payment of costs exceeding Rs.3000 or exceeding its pecuniary
jurisdiction. Further, this section also provides that where costs are to be awarded by Small
Causes Court or any court whose jurisdiction doesn’t exceed Rs.250, the High Court may
empower such court to award such costs as do not exceed Rs.250 under this provision or not
exceeding such limits by Rs.100. The High Court also has the power to limit the power of
courts to award costs under this provision. Further, award of such costs under this provision
shall not exempt any person from criminal liability. Also, the amount of compensation awarded
in such cases must be taken into consideration in a subsequent suit for damages or
compensation in respect of such claim or defence.

By the Civil Procedure Code (Amendment) Act of 1976, Section 35-B was introduced which
is substantially the same as suggested by the Law Commission in its 54th Report (1973). S.35-
B deals with costs for delay. It states that where a party did not take a step which it should have
under the code or obtained an adjournment as regards the same, he will have to pay such costs
to the other party so as to reimburse him for attending court on the designated date. Unless
such costs are paid, the plaintiff shall not allowed to proceed with his suit, if he should have
paid the costs and the defendant shall not be allowed to proceed with the defence if he was
liable to pay such costs. If however, a party is unable to pay costs due to circumstances beyond
his control, the court may extend such time. S. 35-B(2) provides that where costs are not paid,
a separate order shall be drawn up indicating the names and addresses of persons to whom
costs have to be paid and the amount to be paid.

Section 35-B which is narrower that Section 35-A covers two situations: one is where the party
to the suit fails to take the step which was required to be taken under the Code on the date fixed,
for e.g. not filing an application for bringing LRs on record, not filing written statement, not
doing the needful to cause the service of summons or notice etc., not filing the documents
ordered to be filed, not answering the interrogatories and so on. Seeking an adjournment for
taking such steps is a part of the first contingency. The second one is obtaining an adjournment
for producing evidence or “on any other ground”. In either event, costs can be ordered by the
Court. Section 35-B requires reasons to be recorded for making such an order and further the
cost should be such as would cover the expenses incurred for attending the Court. Sub-section
(1) of Section 35-B also contains an important provision which says that the payment of such
cost on the date next following the date of such order shall be a “condition precedent” to the
further prosecution of the suit or the defence as the case may be. This provision laying down
an embargo on the further prosecution of the suit etc. has been construed by the Supreme Court
in Manohar Singh Vs. B.S. Sharma6 (2010 1 SCC 53). In that case, the Supreme Court was
dealing with an order in a suit dismissing the suit for failure to pay the cost of Rs.5000/- by
invoking Section 35-B of the Code. The High Court had taken the view that the provisions of
Section 35-B were mandatory and if the costs levied were not paid “the only course open to
the Court is to disallow the prosecution of the suit”7, However, the Supreme Court interpreted
the words “further prosecution of the suit” and “further prosecution of the defence”8 to only
mean that if the cost levied was not paid, such defaulting party is prohibited from any further
participation in the suit and it cannot be construed as one requiring dismissal of the suit as an
automatic consequence of non-payment of cost by the plaintiff. Taking the said view, the Court
restored the suit and directed however that the plaintiff’s right to cross examine the defence
witness concerned shall stand forfeited. The Court, at the same time, added a rider that “if the
appellant-plaintiff tenders the costs with an appropriate application under Section 148 CPC,
the trial court may consider his request in accordance with law. Even if the Court extends the

6
2010 1 SCC 53
7
Ibid
8
Ibid
time for deposit, permits the plaintiff to pay the costs and prosecute the suit further, that will
not entitle the plaintiff to cross examine DW-2” (vide para 13 (iii). This judgment clarifies that
the embargo laid down in Section 35-B is not absolute and it is subject to Section 148 which
provides for enlargement of time up to 30 days in total. The rigour of embargo laid down in
Section 35-B has thus been softened.

CHAPTER IV

CONCLUSION: COMPARITIVE STUDY OF COST AND INTEREST

Interest and costs can be described as additional amount liable to be paid by the party against

whom the decree has been passed as a result of various factors affecting the plaintiff. The basic

principle behind awarding cost or interest to the aggrieved party is to compensate for the loss

caused to him in the form of time and money; whether real or apparent. In both cases the court’s

discretion applies in order to determine if the sum may be awarded to the plaintiff.

In case of costs, the loss that has been suffered by the plaintiff is real; in the sense that the cost

incurred by him in the due course of instituting the suit is being compensated for by the

plaintiff. On the other hand in case of Interest the loss that is suffered by the plaintiff is in the

form of inconvenience and loss of time in the due course of the proceedings of the suit. Another

inference that may be consequently drawn from the aforementioned is that the concept of

interest is broader than the concept of awarding cost. Cost on one hand is definite and

determined in the course of the suit proceedings. On the other hand the interest payable in

addition to any interest accrued on the principal amount is not definite, but it is determined

based on the section 34 of the Code of Civil Procedure, 1908.

Interest deals with cases where the decree is for the payment of money. On the other hand,

award of cost to the plaintiff does not depend on the nature of the plaint filed as long as it is

subject to the provisions of the Code of Civil Procedure, 1908.

Both costs and interests have exceptional provisions for the purpose of suits that are

commercial in nature. It must be pointed out that in case of interest the transaction, being the

main subject of the suit must be commercial in nature. However, for the purpose of awarding

cost, suit in its entirety must be commercial in nature. In case of awarding cost in a suit in

respect of commercial dispute the court may make an order deviating from the general rule”.

However, the reasons substantiating the same have to be recorded in writing. On the other hand,

in the case of interest being awarded for a suit relating to commercial transaction.