Interest and costs (sections 34, 35, 35A and 35B) - Civil Procedure Code and Limitation Act

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1. Interest: the three periods
2. Principal sum adjudged
3. Costs: section 35
4. Section 35A: compensatory costs for false or vexatious claims or defences
5. Section 35B: costs for causing delay
6. Problem
How this is examined

Cases checked to exist. Read the judgment before quoting a holding.

Every case cited here has been checked to exist — the citation resolves and names the right parties. The propositions attributed to each case have not been verified line by line against the judgment. Case names link through to the full judgment: read it before quoting a holding in an examination answer, and never carry a proposition from notes into court on trust.

The examinable core. Section 34 divides interest into three periods: before the suit, during the suit (pendente lite) and after the decree. The court’s power differs in each, so draw the answer on that time line. For costs, there are three kinds: general costs (section 35), compensatory costs (section 35A) and costs for delay (section 35B). Say what each is for, who may get it, and the ceiling if any.

1. Interest: the three periods

Section 34(1): where and in so far as a decree is for the payment of money, the court may, in the decree, order interest at such rate as it deems reasonable on the principal sum adjudged, from the date of the suit to the date of the decree, in addition to any interest adjudged on the principal sum for any period prior to the institution of the suit, with further interest at a rate not exceeding six per cent per annum, as the court deems reasonable, on the principal sum, from the date of the decree to the date of payment or such earlier date as the court thinks fit.

Pre-suit interest (up to the date of the suit). Section 34 does not create this. It depends on substantive law: the contract, a statute, mercantile usage, or the Interest Act, 1978. It is part of the claim and must be pleaded (in a commercial suit, with the particulars in Order VII rule 2A).
Interest pendente lite (from the date of the suit to the decree). Discretionary, at such rate as the court deems reasonable, on the principal sum adjudged.
Post-decree interest (from the decree to payment). Discretionary, and ordinarily capped at six per cent. By the proviso added in 1976, where the liability arose out of a commercial transaction, the rate may exceed six per cent but not the contractual rate, or, if there is none, the rate at which nationalised banks lend for commercial transactions. A transaction is commercial if it is connected with the industry, trade or business of the party incurring the liability (Explanation II).

Section 34(2). Where the decree is silent about further interest from the date of the decree, the court is deemed to have refused it, and a separate suit for it shall not lie. The remedy is an appeal or review, not a fresh suit. This is a specific instance of Explanation V to section 11.

2. “Principal sum adjudged”

In Central Bank of India v. Ravindra, 2001 INSC 520, (2002) 1 SCC 367, a Constitution Bench held that where interest has been capitalised in accordance with the contract or the established practice of banks (periodic rests), the capitalised amount becomes part of the principal, and the “principal sum adjudged” on which interest pendente lite and post-decree interest may be awarded may include it. The Court stressed that the power under section 34 is discretionary and that the court should not award interest at rates that are penal.

3. Costs: section 35

Section 35(1): subject to conditions and limitations prescribed and to any other law, the costs of and incident to all suits are in the discretion of the court, which has full power to decide by whom, out of what property and to what extent they are to be paid. That the court has no jurisdiction to try the suit is no bar to its awarding costs. Section 35(2): where the court directs that costs shall not follow the event, it must state its reasons in writing.

The general rule is that costs follow the event: the losing party pays the winner’s costs. The discretion must be exercised judicially, and a successful party may be denied costs for misconduct, for raising false pleas, or for causing the litigation.

Commercial disputes. For commercial disputes of a specified value, the Commercial Courts Act substitutes a new section 35. The court decides whether costs are payable, their quantum and when they are to be paid; “costs” means reasonable costs of witness fees, legal fees and other expenses. The general rule is that the unsuccessful party pays the successful party’s costs, and any deviation needs written reasons. In fixing costs the court considers the conduct of the parties, partial success, frivolous counter-claims, refusal of a reasonable offer to settle, and frivolous or vexatious claims. The illustration to the section shows a successful plaintiff ordered to pay costs for a frivolous claim to damages.

The Supreme Court has repeatedly said that costs in Indian courts are unrealistically low and encourage false litigation. In Salem Advocate Bar Association v. Union of India, 2005 INSC 324, (2005) 6 SCC 344, it said that costs should be actual reasonable costs, including the cost of the time spent by the successful party, and called on the High Courts to frame rules. In Vinod Seth v. Devinder Bajaj, 2010 INSC 347, (2010) 8 SCC 1, it repeated that realistic costs were needed to deter speculative suits, and urged the legislature to revise the limits in section 35A, while holding that a court cannot, without statutory authority, compel a plaintiff to give an undertaking to pay damages as a condition of continuing his suit.

4. Section 35A: compensatory costs for false or vexatious claims or defences

When. In any suit or proceeding, including execution but excluding an appeal or a revision, a party objects that the claim or defence of the other is false or vexatious to the knowledge of the party putting it forward, and it is thereafter disallowed, abandoned or withdrawn in whole or part.
What. The court may, after recording its reasons for holding the claim or defence false or vexatious, order the party to pay the objector costs by way of compensation.
Ceiling. Not exceeding three thousand rupees or the limits of the court’s pecuniary jurisdiction, whichever is less (section 35A(2)). The Commercial Courts Act omits sub-section (2) for commercial disputes, so the cap does not apply there.
An order does not exempt the party from criminal liability (sub-section (3)), and the amount is taken into account in a later suit for damages for the same claim or defence (sub-section (4)).

Three conditions are therefore needed: an objection by the other side, a finding that the claim or defence was false or vexatious to the knowledge of the party, and its disallowance, abandonment or withdrawal. Without the objection, section 35A cannot be used, though general costs under section 35 may still be enhanced.

5. Section 35B: costs for causing delay

Inserted in 1976. If, on a date fixed for hearing or for taking a step, a party fails to take the step required, or obtains an adjournment for taking it, for producing evidence or on any other ground, the court may, for reasons recorded, order him to pay the other party such costs as will reasonably reimburse the expenses of attending court on that date.

Payment on the next date is a condition precedent to further prosecution of the suit (if the plaintiff was ordered to pay) or of the defence (if the defendant was).
Costs paid are not included in the costs awarded in the decree; unpaid costs are drawn up as a separate executable order (sub-section (2)).
It works with Order XVII rule 1, which limits adjournments to three in the course of hearing and requires costs for each adjournment.

6. Problem

In a suit for recovery of a loan given for P’s business, the court decrees ₹10 lakh with interest at 12 per cent from the date of the suit to the date of the decree, and says nothing about interest after the decree. P later files a fresh suit for post-decree interest. Is it maintainable?

Issue. Whether a separate suit lies for post-decree interest where the decree is silent.

Law. Section 34(2): where the decree is silent with respect to further interest from the date of the decree, the court is deemed to have refused it, and a separate suit shall not lie. Explanation V to section 11 is to the same effect.

Application and conclusion. The decree is silent on interest after the decree, so it is deemed refused. The fresh suit is barred. P’s remedy was to appeal or seek review, pointing out that the loan arose from a commercial transaction, so that under the proviso to section 34(1) post-decree interest above six per cent (up to the contract rate) could have been granted.

How this is examined

This topic is in the syllabus but was not set in the January 2025, June 2025 or January 2026 papers, so expect it as a short note (“Interest under CPC”, “Costs” or “Compensatory costs”) or as the post-decree interest problem above. For six marks: the three periods of interest with the six per cent rule and the commercial proviso, section 34(2), and one paragraph each on sections 35, 35A and 35B with their ceilings and conditions.