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Practice Explainer · 25 October 2026

The Costs Regime in Commercial Suits: How the Rewritten Section 35 CPC Changes Litigation Arithmetic

For commercial disputes, the Commercial Courts Act, 2015 replaced the token-costs culture of ordinary civil litigation with a regime of realistic costs that follow the event, adjusted for conduct, partial success and unreasonably refused settlement offers.

In ordinary civil litigation, costs have long been an afterthought — modest figures that compensate nobody and deter nothing. The Commercial Courts Act, 2015 deliberately broke from that culture for commercial disputes of a specified value: through its Schedule, it substituted a new Section 35 in the Code of Civil Procedure as it applies to commercial suits, importing the principle that costs follow the event, defining costs realistically to include legal fees, witness expenses and other litigation expenditure, and directing courts to weigh conduct, partial success and refused settlement offers. For businesses litigating in Delhi's commercial courts and on the original side of the High Court, the regime changes the arithmetic of every decision — to sue, to defend, to delay or to settle.

What changed, and why

The Commercial Courts Act was conceived as an ecosystem: specialised courts, compressed timelines, strict pleading and disclosure standards — and a costs regime with consequences. The Act's Schedule rewrote Section 35 CPC for commercial disputes on the model of the English rule, and the 2018 amendments added pre-institution mediation under Section 12A to push parties toward resolution before a plaint is ever filed. Costs are the enforcement mechanism of the whole design: timelines bite because wasting them is expensive; disclosure obligations bite because suppression invites adverse costs; frivolous claims and defences bite their makers.

The structure of the substituted Section 35

Discretion, defined

The court decides whether costs are payable, their amount, and when they are to be paid — with "costs" defined to cover witness expenses, legal fees and other litigation expenditure.

The general rule

Costs follow the event: the loser pays. A different order requires reasons recorded in writing.

The balancing factors

Conduct of the parties; success on part of the case even if not wholly successful; frivolous claims or counterclaims; and reasonable settlement offers unreasonably refused.

The menu of orders

Costs may be awarded as a proportion, a stated amount, from or until a specified date, or for particular steps in the proceedings — allowing surgical, stage-specific allocations.

Old world and new world

Ordinary civil suit

Costs in the court's discretion, in practice nominal; compensatory costs for false or vexatious claims capped at modest statutory figures; delay rarely priced.

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Commercial suit

Realistic costs follow the event; written reasons needed to depart; conduct, partial success and refused offers expressly weighed; costs can attach to specific stages and defaults.

Litigation habits the regime rewards

Maintain a contemporaneous costs record from day one — fee agreements, invoices, witness expenses — so the bill of costs is provable, not reconstructed.

Make settlement offers in writing, early, and keep them open for a defined period; an unreasonably refused offer is the cheapest insurance against a long trial.

Plead and disclose with discipline: struck-out pleas, false denials of documents and abandoned claims each carry a costs tail.

Price delay before seeking it: adjournments and failed interlocutory skirmishes in commercial courts increasingly arrive with costs attached.

The regime also reframes advice to clients at the filing stage. A commercial claim worth pursuing must be worth its defended cost — and a defence maintained only to buy time can now add the opponent's legal fees to the judgment debt. Conversely, a successful party who litigated economically and offered settlement sensibly can expect the costs order to reflect it. The honest answer to "what will this case cost" in a commercial court includes both sides' bills in the losing scenario, and that answer, delivered early, settles more disputes than any procedural reform.

This is a general explainer on the costs framework applicable to commercial disputes under the Commercial Courts Act, 2015. Costs orders remain discretionary and fact-sensitive, and practice varies between courts; nothing here is legal advice.

Frequently Asked Questions

What counts as "costs" in a commercial suit?

Under the substituted Section 35, costs mean reasonable costs relating to the fees and expenses of witnesses, legal fees and expenses, and any other expenses incurred in connection with the proceedings. The definition is designed to permit realistic, compensatory awards rather than the nominal figures of traditional practice — though reasonableness remains the control, and courts expect the claim to be proved, typically through fee invoices and a bill of costs.

What is the general rule, and when can a court depart from it?

The general rule is that the unsuccessful party pays the successful party's costs. The court may make a different order, but must record reasons in writing for doing so. The discretion is structured, not abolished: departure is the exception requiring explanation.

How do settlement offers affect costs?

The substituted provision directs the court to consider whether a party made a reasonable offer to settle and whether the other side unreasonably refused it. A litigant who spurns a sensible offer and then does no better at trial risks carrying costs for the period after the offer — which makes written, carefully framed settlement offers a genuine strategic tool in commercial litigation.

Does this regime apply to ordinary civil suits too?

No. The substituted Section 35 applies to commercial disputes governed by the Commercial Courts Act — in Delhi, suits of a specified value of Rs 3 lakh or more falling within the Act's definition of commercial disputes. Ordinary suits remain under the unamended costs provisions, where awards are typically modest.

Note: This article is general information about the law and is not legal advice. It does not create an advocate-client relationship. The position stated is as at 25 October 2026 and may have changed since. Readers should verify any provision or decision referred to against the official text and seek advice on their own circumstances.