The Supreme Court recently in Alcon Electronics Pvt Ltd v. Celem S.A. Of Fos 34320 Roujan (2017) 2 SCC 253, was faced with a rather interesting question. The court was deciding the executability of an order delivered by a court in England, whereby the English court had ruled that it had jurisdiction to decide the matter and dismissed the objections filed by the opposite party with costs.

This order was sought to be executed in India by the person in whose favour the order was passed. Execution petition was filed in terms of S.44-A of the CPC.

Per contra, execution of the said order was sought to be resisted by the judgment debtor on the premise that the said decision was an ‘order’ and not a ‘decree’ within the meaning of S.44-A, therefore, the same could not be executed in terms of S.44-A of the CPC.

The Court elaborately discussed the definitions of ‘decree’, ‘order’ and ‘judgment’ in the CPC, as well as Explanation 2 to S.44-A which defines decree to include any decree or judgment. This led the court to refer to the definition of ‘judgment’. The definition of ‘judgment’ in CPC includes reasons given in support of an order (and not merely a decree). Drawing strength from this, the court concluded that ‘judgments’ are within the purview of S.44-A and when read together with S.2(9) of the CPC ‘judgment’ includes reasons given for an order, therefore, an english court’s order was also capable of execution u/s 44-A of the CPC. 

Another objection by the judgment debtor to the effect that the computation of costs by the English Court was contrary to the principles of cost laid down in the CPC was also repelled by the court by holding that once the cost was computed by the English Court the end result assumed the character of a money claim, and merely because the same principles for determination of cost are not adopted by the Indian Law, does not result in the English Court’s judgment losing its binding effect. The Court was heavily influenced by the principle of comity courts in arriving at this conclusion.

The last argument by the judgment debtor was that the English Court had gone on to award interest on costs, which is again contrary to the Indian Law and cannot be awarded in the Indian Scheme of things.

This was also repelled by the Supreme Court. The reasoning in a nutshell is that : It is to the reciprocal advantage of the courts of all nations to enforce foreign rights as far as practicable. To this end, broad recognition of substantive rights should not be defeated by some vague assumed limitations of the court. When substantive rights are so bound up in a foreign remedy, the refusal to adopt the remedy would substantially deprive parties of their rights. The necessity of maintaining the foreign rights outweighs the practical difficulties involved in applying the foreign remedy. In India, although the interest on costs are not available due to exclusion of Section 35(3), the same does not mean that Indian Courts are powerless to execute the decree for interest on costs. Indian Courts are very much entitled to address the issue for execution of the interest amount. The right to 8% interest as per the Judgments Act, 1838 of UK can be recognised and as well as implemented in India.”

All in all, a good decision for aspirants to read to refresh the concepts relating to recognition of foreign judgments in India, definitions of ‘decree’, ‘order’ and ‘judgment’ and the principles of costs and in particular interest on costs. (though the students may independently also examine this aspect keeping in mind the fact that S.35(3) of the CPC was omitted which reflected the legislative intent on not paying interests on costs, however, this again needs to balanced as a hyper technical evaluation of a foreign judgment may render almost all foreign judgments inexecutable) Students are encouraged to examine these aspects. 

“The relevant extracts are reproduced hereunder : 

“In re Issue No. 2 — The next ground put forth by the appellant is that the order being an interlocutory order does not have the shades of a ‘judgment’ to be executed before the Indian Court and hence the order not being a ‘decree’ is in executable. To appreciate this, it is appropriate to have a look at Section 44A of CPC 44A. Execution of decrees passed by Courts in reciprocating territory— Where a certified copy of decree of any of the superior Courts of any reciprocating territory has been filed in a District Court, the decree may be executed in India as if it had been passed by the District Court.

Together with the certified copy of the decree shall be filed a certificate from such superior Court stating the extent, if any, to which the decree has been satisfied or adjusted and such certificate shall, for the purposes of proceedings under this section, be conclusive proof of the extent of such satisfaction or adjustment.

The provisions of section 47 shall as from the filing of the certified copy of the decree apply to the proceedings of a District Court executing a decree under this section, and the District Court shall refuse execution of any such decree, if it is shown to the satisfaction of the Court that the decree falls within any of the exceptions specified in clauses (a) to (f) of section 13.

Explanation 1— “Reciprocating territory” means any country or territory outside India which the Central Government may, by notification in the Official Gazette, declare to be a reciprocating territory for the purposes of this section; and “superior Courts”, with reference to any such territory, means such Courts as may be specified in the said notification.

Explanation 2.— “Decree” with reference to a superior Court means any decree or judgment of such Court under which a sum of money is payable, not being a sum payable in respect of taxes or other charges of a like nature or in respect to a fine or other penalty, but shall in no case include an arbitration award, even if such an award is enforceable as a decree or judgment.

As far as the explanation with regard to reciprocal territory is concerned, there is no dispute that England is a reciprocating territory for the purpose of above Section. Section 44A of CPC indicates an independent right conferred on a foreign decree holder for enforcement of a Decree/Order in India. Section 44A was inserted by Section 2 of the Civil Procedure Code (Amendment) Act, 1937 (Act No. 8 of 1937). This Section is meant to give effect to the policy contained in the Foreign Judgments (Reciprocal Enforcement) Act, 1933. It is a part of the arrangement under which on one part decrees of Indian Courts are made executable in United Kingdom and on the other part, decrees of Courts in the United Kingdom and other notified parts of Her Majesty’s dominions are made executable in India. It is to be seen that as United Kingdom is a reciprocating territory and the High Court of Justice, Chancery Division, England being a recognized superior Court in England. Therefore, the order passed by that Court is executable in India under Section 44A of the CPC. Now we come to the next limb of the argument put forth by the appellant that the order passed by the English Court does not amount to a decree and hence it is not executable. It is no doubt correct, Section 44A of CPC deals with “execution of decrees passed by Courts in reciprocating territory”. Before we further decide this issue it is appropriate to have a look at how decree, order and foreign judgment are defined under the CPC.

As per Section 2(2) of the CPC, “decree” means the formal expression of an adjudication which, so far as regards the Court expressing it, conclusively determines the rights of the parties with regard to all or any of the matters in controversy in the suit and may be either preliminary or final. It shall be deemed to include the rejection of a plaint and the determination of any question within Section 144 of CPC but shall not include (a) any adjudication from which an appeal lies as an appeal from an order, or (b) any order of dismissal for default.

Then a “foreign judgment” is defined under Section 2(6) as judgment of a foreign Court. “Judgment” as per Section 2(9) of C.P.C. means the statement given by the Judge on the grounds of a decree or order. Order is defined under Section 2(14) of CPC as a formal expression of any decision of the Civil Court which is not a ‘decree’. Then Explanation 2 to Section 44A (3) says “decree” with reference to a superior Court means any ‘decree’ or ‘judgment’. As per the plain reading of the definition ‘Judgment’ means the statement given by the Judge on the grounds of decree or order and order is a formal expression of a Court. Thus “decree” includes judgment and “judgment” includes “order”. On conjoint reading of ‘decree’, ‘judgment’ and ‘order’ from any angle, the order passed by the English Court falls within the definition of ‘Order’ and therefore, it is a judgment and thus becomes a “decree” as per Explanation to Section 44A(3) of CPC. In this case, the Court at England, after following the principles of natural justice, by recording reasons and very importantly basing on the application of the appellant itself, has conclusively decided the issue with regard to jurisdiction and passed the order coupled with costs. Hence in our considered opinion, the order passed by the Foreign Court is conclusive in that respect and on merits. Hence executable as a decree and accordingly the issue is answered.

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In re Issue Nos. 3 & 4 — The next contention advanced is that the decree for costs does not attract the Explanation II of Section 44A which concerns itself with taxation or other charges of like nature or in respect of fine or other penalty. We have to first see the nature of the costs imposed by the decree for interpreting the relevant explanation. Before referring to the principles/guidelines in the decisions cited, it would be apposite to advert to the concept of ‘costs’ and the general principles governing the award of costs. Law Commission in its 240th Report on “Costs on Civil Litigation” provides valuable resource on nature of costs in India as well as England.

The ‘costs’ signifies the sum of money which the Court orders one party to pay to another party in respect of the expenses of litigation incurred. Except where specifically provided by the statute or by rules of the Court, the costs of proceedings are in the Court’s discretion.

In Johnstone v. The Law Society of Prince Edward Island [2], the Canadian Court of Appeal speaking through McQuaid, J described costs in the following words :

“… the sum of money which the court orders one party to pay another party in an action as compensation for the expense of litigation incurred. The definition continues to the effect that costs are awarded as compensation (i.e. reimbursement); there is, unlike damages, no restitution in integrum, that is to say, no concept in costs, as there exists in damages, that the injured person should be placed, in so far as money can do so, in the same position as he occupied before the injury was suffered”.

Under the Federal Rules of Civil Proceeding (USA), “costs shall be allowed as of course to the prevailing party unless the court otherwise directs.” In most of the States in US, the attorney’s fee is not allowed as litigation cost. Costs can even be on interim Application. A bill of costs is a certified, itemized statement of the amount of the expenses incurred in bringing or defending a law suit/proceeding. The charges/expenses claimed are taxed by the Court or its officer according to the procedural rules and set of norms.

The basis of assessment of costs in UK has been explained thus in Halsbury’s Laws of England:

“Where the court is to assess the amount of costs (whether by summary or detailed assessment) it will assess those costs on the standard basis or on the indemnity basis, but the court will not in either case allow costs which have been unreasonably incurred or are unreasonable in amount. Where the amount of costs is to be assessed on the standard basis, the court will only allow costs which are proportionate to the matters in issue and will resolve any doubt which it may have as to whether costs were reasonably incurred or reasonable and proportionate in amount in favour of the paying party. Where the amount of costs is to be assessed on the indemnity basis, the court will resolve any doubt which it may have as to whether costs were reasonably incurred or were reasonable in amount in favour of the receiving party. Where the court makes an order about costs without indicating the basis on which the costs are to be assessed, or makes an order for costs to be assessed on a basis other than the standard basis or the indemnity basis, the costs will be assessed on the standard basis.” The Part 44 of the Civil Procedure Rules (CPR) in the USA contains general rules about costs and entitlement to costs. The rules are supplemented by practice direction. However, part 44 does not apply to the assessment of costs to the extent different provisions exist, for eg, Access to Justice Act, 1999 and the Legal Aid Act, 1988. Further, the general rule that the unsuccessful party will be ordered to pay the costs of the successful party unless the court makes a different order does not apply to family proceedings.

It is important to note that a penalty in this sense normally means a sum payable to the State, not to a private claimant, so the costs imposed on the basis of the indemnity is not a penalty or tax. Therefore, the Explanation II to Section 44A does not refer to the costs as contemplated under Section 35 of the CPC. The costs having been quantified have assumed the character of a money decree for costs and cannot be equated, either with a fine or penalty which is imposed on a party by the Court or taxes claimed and are taxes payable to a local authority, Government, or other charges of a like nature.

The appellant has advanced an argument that as per Section 35A of the CPC, no Court should pass any order for the payment of compensatory costs exceeding Rs.3,000/- or exceeding the limits of its pecuniary jurisdiction of the said Court whichever amount is less. It is thus argued by the appellant that in the present case, since the costs imposed exceed the bar imposed by Section 35A, therefore, the order of the English Court is not executable in the present case.

This argument lacks merit and deserves to be rejected. A bare perusal of Section 35A shows that bar operates on the Indian Courts with regard to imposition of costs in respect of false or vexatious claims or defences. The bar is not attracted in the present case as the Court that has ordered the costs is the High Court of Justice in England which is not governed by the provisions of the CPC and that the respondent merely approached the Indian Courts for the satisfaction of a foreign decree. Moreover, the nature of compensatory costs prescribed in Section 35A of the CPC are different from ‘costs’ dealt with in Section 35 of the CPC as the former are limited to the claims of defences of a party which are frivolous or vexatious. It is settled that before awarding costs under Section 35A of the CPC, the Court should satisfy itself that the claim was false or vexatious to the knowledge of the party who put it forward and that the interests of justice require the award of such compensatory costs. In the present case, no claim has been advanced by the appellant that the claim filed by the respondents is false or vexatious, therefore, the bar in Section 35A is not applicable. Accordingly the issue is answered. In re Issue No. 5 — It is the case of the appellant that the claim for interest on costs is not recognized in the Indian law. It is to be noted that matters of procedure are to be governed by the lex fori, whereas the matters of the substance are governed by lex causae. In this case, the question whether the interest on sum of decree of costs to be executed in India is a matter of substance as the interest on decree is a substantive right of the decree holder and does not concern itself with the procedural law of the forum.

The appellant relied upon Section 35 of the CPC which enables Courts in India to impose litigation costs at the discretion of the Court. However, there is no provision under the CPC or the Interest Act, 1978 which permits imposition of interest on litigation costs. Further tried to impress upon that the amended Section 35(3) of the CPC permitted a Civil Court to grant interest on costs. The unamended Section 35(3) stated as follows: The Court may give interest on costs at any rate not exceeding six per cent per annum, and such interest shall be added to the costs and shall be recoverable as such.

This Provision was consciously omitted in 1956 (pursuant to Act 66 of 1956). In view of the deletion of Section 35(3) of the CPC, it is argued that grant of interest on costs is no longer recognized under India law. In this context, it is educative to read the following comments made in the Debate on the Bill against the deletion of Section 35 (3), by Hon’ble Member of Lok Sabha Shri Tek Chand;

“..In this connection, a reference has been made to  section 35, sub- section (3), which according to clause 3 of the Bill, is to be omitted. Not that I have usurious propensities, but I do not like this provision. It is true that there should not be any profiteering by the people; I concede that, but there are instances when the costs amount to five figures or more, and there is no reason why, when an unsuccessful party is subjecting the successful party not only to a long dilatory and unending dispute, but also to frivolous and vexatious litigation whereby he is out of pocket to the tune of several thousands, the law or the legislature should be so solicitous that such person should not pay interest, if he does not propose to pay or if he intends to delay the payment of the costs. One unfortunate and unhappy feature of administration of civil law in our land, is apart from delays and objections of frivolous and vexatious nature, justice is made available, if at all, at a very high and exorbitant price”.

The Hon’ble Member of Lok Sabha thus articulated that omitting sub-section (3) would encourage delay in realization of decree costs. A reference to the Report of Law Commission and the views expressed in Debate on the Bill, as extracted in the Law Commission Report (supra), would indicate that the consequences of deletion of sub-section (3) of Section 35 were very much considered by the Parliament. When the idea of deletion is not to encourage interest on costs as a source of income to the litigants, the Parliament did not choose positively to prohibit interest on costs by inserting suitable clause in Section 35.

It is to the reciprocal advantage of the Courts of all nations to enforce foreign rights as far as practicable. To this end, broad recognition of substantive rights should not be defeated by some vague assumed limitations of the Court. When substantive rights are so bound up in a foreign remedy, the refusal to adopt the remedy would substantially deprive parties of their rights. The necessity of maintaining the foreign rights outweighs the practical difficulties involved in applying the foreign remedy. In India, although the interest on costs are not available due to exclusion of Section 35(3), the same does not mean that Indian Courts are powerless to execute the decree for interest on costs. Indian Courts are very much entitled to address the issue for execution of the interest amount. The right to 8% interest as per the Judgments Act, 1838 of UK can be recognized and as well as implemented in India.

Therefore, we are of the considered opinion that the Execution Petition filed by the Respondents for execution of the order dated 19th October, 2006 passed by the English Court is maintainable under the relevant provisions. Therefore, we do not find any reason to interfere with the impugned order. Resultantly, the appeal is dismissed with costs.”