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"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."

4.2 SECTION 35 ("COSTS")

(a) Costs under S.35 is aimed at reimbursement of reasonable litigation expenses to the successful party. The cost to be awarded under various heads should be realistic and a just equivalent of the expenditure supposed to have been incurred by a litigant.

(b) Section 35 lays down two principles (1) the costs of an incident to all suits shall be in the discretion of the court. The court shall have full power to determine by whom or out of property and to what extent such costs are to be paid. (2) where the court directs that the costs shall not follow the event, specific reasons must be recorded by the court.

(e) Costs are intended to reasonably compensate a party to the litigation for the expenses incurred by him. A party resorting to litigation to vindicate his rights or seeking redressal of the wrong done by the other side or a party dragged to court unnecessarily should be able to recoup at least reasonable expenses incurred by him when he succeeds in the case. It implies that the quantum of costs awardable should be realistic and reasonably sufficient to cover the cost of litigation.

8.11 In Sanjeev Kumar Jain's case also, the Supreme court noticed in para 8 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"

and then observed: "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."

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 and frivolous nature of the plea raised in the proceeding by a party. In effect, it penalizes the conduct of the party who has set up a false or frivolous claim/plea and awards an additional amount under the head of costs. Viewed from another angle, the amount so awarded partakes the character of non-pecuniary damages as it provides some recompense for the time and energy spent and mental agony suffered by the party who is dragged to the Court unnecessarily. In that sense, it could be said that the costs are compensatory. However, costs contemplated by Sec. 35-A are of greater amplitude. It would, 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 are suggesting. It may be stated that in the context of damages, the expressions "punitive damages" and "exemplary damages" are used as synonymous terms. Punitive damages are 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 the expenses incurred by a party to litigation. In fact, costs are considered to be in the nature of incidental damages allowed to the successful party to indemnify him against the litigation expenses incurred. In that sense, it would be apposite to borrow the descriptive terminology applied to damages.