Succeeding party must get costs in commercial matters, in order to avoid mindless appeals

In Uflex Ltd v. Government Of Tamil Nadu & Ors, while stating that mindless appeals should not be the rule, the Supreme Court has held that costs must follow the cause in commercial matters.

A Division Bench of Justice Sanjay Kishan Kaul and Justice Hrishikesh Roy observed that tender jurisdiction was created for scrutiny of commercial matters and, thus, where continuously parties seek to challenge award of tenders, the succeeding party must get costs and the party which loses must pay costs.

The costs following cause is a principle which is followed in most countries. There seems to be often a hesitancy in our judicial system to impose costs, presuming as if it is a reflection on the counsel. This is not the correct approach. In a tussle for enforcement of rights against a State different principle apply but in commercial matters costs must follow the cause.

There is appreciation of the principles that in carrying on commercial litigation, parties must weigh the commercial interests, which would include the consequences of the matter not receiving favourable consideration by the Courts, added the Bench.

The background of the case was that the Tami Nadu Government decided to have holographic stickers on liquor bottles in an attempt to curb the sale of spurious liquor. Accordingly, tenders were invited and many companies submitted their bid.

However, two companies Alpha and Kumbhat challenged the process of bidding without participating in the process contending that the tender was designed in such a way that only few companies could apply.

The Madras High Court then directed the Tamil Nadu government to float a fresh tender within four months while permitting the existing successful tenderers to continue to provide the supplies under the existing terms and conditions.

This came to be challenged by the petitioner UFLEX Ltd before the Apex Court, being the successful bidder. 

Noting that the grievance was about “patented technology”, the Top Court said that at the stage when the concerned committees were still looking to the objections/suggestions of the parties, Kumbhat and Alpha rushed to the Court, even when the State Government did provide relief by issuing a corrigendum to address the issue relating to hidden text being visible only through Polaroid, as colour change background viewable with film as an identifier did not attract the rigour of this stated patented technology.

The best reflection of what costs have been incurred is what the parties have paid towards the counsel fee and out of pocket expenses. The present proceedings do arise from a writ proceeding under Article 226 of the Constitution but it is really a commercial dispute. Thus, the failing party cannot hide behind the veneer of the present dispute being in the nature of a writ proceeding. The tender jurisdiction was created for scrutiny of commercial matters and, thus, where continuously parties seek to challenge award of tenders, we are of the view that the succeeding party must get costs and the party which loses must pay costs. This was really a battle between two commercial entities on one side seeking to get set aside an award of a tender to two other entities.