Madras High Court Imposes Exemplary Costs For Unwarranted Litigation

Madras High Court has imposed exemplary costs on a company for unwarranted litigation while simultaneously holding that the company was entitled to the counterclaim filed. The amount of counterclaim ordered in favour of the defendant company has been set off from the exorbitant costs imposed by the court on the company.Justice N. Anand Venkatesh also observed that the problematic attitude of the defendant is clear from the initiation of unnecessary winding up proceedings against the plaintiff company and the evasive answers given by the authorised signatory of the defendant company in the course of evidence.There is no dispute with regard to the fact that the plaintiff had received refundable deposit of a sum of Rs.2,00,000/- at the time of entering into the agreement dated 25.09.2010 and a sum of Rs.34,57,852/- on 12.11.2010. On termination of the agreement, this amount is liable to be refunded to the defendant. Admittedly, this amount has not been encashed by the defendant inspite of availability of the cheque issued by the plaintiff. Therefore, even though this court holds that the defendant is entitled for the counter claim, this court has taken note of the conduct of the defendant and held that this amount is going to be adjusted towards exorbitant cost that is going to be imposed on the defendant.The bench reached the above conclusion by referring to the ambit of Section 35 of the Commercial Courts Act, 2015. One of the circumstances in which the courts may impose costs is based on the conduct of the parties. The provision makes it clear that no litigant in the commercial division can ordinarily escape a litigation loss without an accompanying order of costs. The costs imposed can include compensatory costs and actual costs. Omission of (2) from Section 35 A from the Code of Civil Procedure Code would mean that compensatory costs can be imposed.Another concept under the Act would be 'partial success' wherein the party succeeds in some of the issues before the court and fails in other issues. Section 35(4) has also heads under which costs can be imposed for frivolous claims and vexatious proceedings.In the case at hand, the court observed that the defendant should have terminated the agreement with the plaintiff when it came to the knowledge of the former that the plaintiff company was no longer interested in proceeding further. More importantly, the defendant failed to encash the security deposit cheque that was returned and readily available even when they were aware of the intent of the plaintiff regarding the agreement.FactsThe plaintiff company, Ramaniyam Real Estates Private Ltd, was the owner of the property in dispute. There was an agreement between the plaintiff company and the defendant Specers Retail Private Limited in 2010. According to the agreement, the plaintiff was supposed to construct a commercial building and lease it out to Spencer's for running a hypermarket. The agreement further stipulated that the construction must be handed over to Spencer's by March 2011 and that the plaintiff will obtain the requisite permission for construction within two months from the date of signing the agreement. Pursuant to the agreement, out of the five instalments of refundable security deposit of Rs. 1,46,31,408/-, Rs 36, 57,852/- was paid by the defendant.Though CMDA granted the plaintiff permission for construction of an office building (commercial), the defendant company was not convinced that they could run a hypermarket unless there is permission for Departmental Store specifically from the competent authority. Therefore, the plaintiff was asked to get a revised approval from CMDMA under a new supplementary agreement with a time extension although the time stipulated in the original agreement for completion of the project elapsed.The other terms of the original agreement remained unaltered and the plaintiff company sold the property in question to third parties under clause 21 notwithstanding the rights of Spencer's to get possession of the property and the lease agreement executed in their favour. Meanwhile, the time limit prescribed under the supplementary agreement also expired but the parties went ahead with the project. Afterwards, there was a delay in getting the revised approval from CMDA and this aspect irked Spencer's Retails. However, the defendant company actively cooperated with the new purchasers and the lease agreement was about to be executed in favour of Spencer's. Meanwhile, the plaintiff company lost interest in the completion of the project due to the inordinate delay and communicated to the defendant that they were free to encash the cheque for the returned security deposit. The said communication also indicated that the plaintiff company now could deal with the property in any manner, though it mentioned that the defendant may be re-engaged again in the future. It was only after these communications that the plaintiff obtained the approval for Departmental Store...

Madras High Court Imposes Exemplary Costs For Unwarranted Litigation

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Madras High Court Imposes Exemplary Costs For Unwarranted Litigation

Sebin James

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