INDIA Law and Practice Contributed by: Aditya Jalan, Urvashi Misra, Bhagya K. Yadav and Sushrut Garg, AZB & Partners
5. Costs, Fees and Funding 5.1 Legal Fees
Under Section 35 of the CPC, courts decide cost allo- cation and must give reasons for any deviation from the general rule. In arbitration, Section 31A of the Arbitration Act expressly empowers arbitral tribunals to determine whether costs are payable, the party liable to pay them, and the amount, directing the unsuccessful party to pay. Section 35 of the Commercial Courts Act, 2015, empowers courts with discretion to impose reason- able costs on parties based on conduct. Notably, the High Court of Delhi has made significant changes in its Original Side Rules, 2018 to empower itself to pass appropriate orders imposing costs that will have a ‘deterrence effect’ on the litigant. Similar practices ought to be brought by other High Courts to promote efficient and effective administration of justice, and to discourage parties from engaging in frivolous or vexatious litigations. 5.6 Assessment of Costs Under Section 35 (3) CPC, courts consider factors like parties’ conduct, degree of success, and any frivo- lous claims or defences when awarding costs. The provision further mandates consideration of whether a reasonable offer to settle the dispute was made and unreasonably refused. A comparable framework applies in arbitration under Section 31A(3) of the Arbi- tration Act. In practice, Indian courts have increasingly empha- sised that costs should be “realistic” ( Ramrameshwari Devi v Nirmala Devi , (2011) 8 SCC 249). While cost awards are discretionary, these factors aim to com- pensate the successful party and deter improper or inefficient litigation conduct ( Ramrameshwari Devi v Nirmala Devi , (2011) 8 SCC 249). Section 35 of the Commercial Courts Act, 2015, empowers courts with discretion to impose reason- able costs on parties based on conduct. As detailed above, certain High Courts in their respective rules also deal with imposition of costs.
Legal fees are primarily a matter of private contract between the advocate and the client. Under the Bar Council of India Rules, advocates are obligated to levy fees that are consistent with those collected by fel- low advocates of similar standing and the nature of the case. Upon the termination of an engagement or withdrawal from a brief, an advocate is required to refund any portion of the fee that has not been earned. These rules strictly prohibit advocates from adjusting professional fees against any personal liability owed to the client that did not arise from their employment or charging any contingency fees. 5.2 Third-Party Funding There is no uniform statutory recognition of third-party funding in India. Statutory recognition of third-party funding can be found in specific state-level amend- ments to Order XXV of CPC, including those in Maha- rashtra and Madhya Pradesh. The Supreme Court in Bar Council of India v A . K . Balaji (AIR 2018 SC 1382) also acknowledged that there is no legal bar prevent- ing non-lawyer third parties from funding litigation. Recent jurisprudence from the Delhi High Court in Tomorrow Sales Agency v. SBS Holdings (FAO(OS) (COMM) No 59 of 2023) has clarified that third-party funders cannot be held liable for adverse cost awards unless they were formally joined as a party to the pro- ceedings. 5.3 Contingency Fee Arrangement Contingency fee arrangements, where an advocate’s remuneration is dependent on the successful out- come of a case, are strictly prohibited in the Indian jurisdiction in terms of Rule 20 of the Bar Council of India Rules. 5.4 Insurance Insurance coverage for legal expenses related to litigation, arbitration, and ADR is available in India, although the market is still in its nascent stages. There is no express statutory recognition for the same. 5.5 Costs Dispute resolution costs in India are generally recover- able but remain subject to court or tribunal discretion.
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