The Delhi High Court has clarified that striking off a party's defence for non-payment of costs is not an automatic consequence where the default is curable and no irreparable prejudice is caused, restoring the defence subject to payment of further costs.
Background & Facts
The Dispute
The petitioner, Kabir Sardar, is the defendant in a commercial suit (CS(COMM) No. 814/2024) filed by the respondent, Madan Lal, on 27 July 2024 seeking recovery of Rs 14,33,873 plus interest.
Key Facts
- 27 July 2024: Suit instituted; summons issued to petitioner on the same day.
- 20 August 2024: Petitioner served with summons.
- 23 September 2024: Petitioner's counsel entered appearance and sought time to file written statement.
- 6 November 2024: Written statement filed, within the statutory outer limit of 120 days from service of summons.
- 8 November 2024: Trial Court noted procedural defects (missing signatures, defective statement of truth) and ordered petitioner to rectify, imposing costs of Rs 2,500 payable to respondent.
- 20 December 2024: Corrected written statement filed; respondent objected for lack of application seeking condonation of delay.
- 28 February 2025: Petitioner paid Rs 2,000 to counsel (Mr. Dubey) towards costs; Court allowed application under Order VII Rule 1 CPC and recorded payment of costs.
- 27 March 2025: Court, invoking Section 35A CPC, directed that defence could not proceed without payment of outstanding costs and imposed an additional cost of Rs 2,000 for an adjournment request.
- 5 May 2025: Petitioner’s counsel undertook to pay outstanding costs on the same day; payment remained unpaid.
- 30 May 2025: Trial Court, finding the explanation of a “server error” untenable, struck off petitioner’s defence and took the written statement off the record.
- 11 December 2025: Petitioner's application under Section 151 CPC seeking permission to deposit outstanding costs was dismissed; petitioner permitted to address arguments on merits at final argument stage.
- 6 April 2026: Review application under Order XLVII Rule 1 read with Section 151 CPC dismissed; Court observed lack of prayer clause, no apparent error, and labelled the application prima facie dilatory, imposing further costs of Rs 5,000.
- 22 April 2026: Petitioner directly transferred Rs 5,000 to respondent in compliance with the order dated 6 April 2026.
- 24 August 2026: High Court delivered the present judgment, setting aside the orders of 30 May 2025 and 6 April 2026.
Procedural History
- 27 July 2024: Suit filed (CS(COMM) No. 814/2024).
- 20 August 2024: Service of summons.
- 6 November 2024: Written statement filed.
- 8 November 2024: Court orders rectification of defects; costs of Rs 2,500 imposed.
- 20 December 2024: Corrected statement filed; objection raised.
- 28 February 2025: Payment of Rs 2,000 to counsel; application under Order VII Rule 1 allowed.
- 27 March 2025: Section 35A invoked; further costs of Rs 2,000 imposed.
- 30 May 2025: Defence struck off; written statement removed.
- 11 December 2025: Application under Section 151 CPC dismissed; permission to argue on merits granted.
- 6 April 2026: Review application dismissed; additional costs of Rs 5,000 imposed.
- 24 August 2026: High Court judgment delivered.
Relief Sought
The petitioner sought: (i) setting aside of the orders dated 30 May 2025 and 6 April 2026; (ii) restoration of the written statement/defence; (iii) adjustment of the Rs 5,000 paid directly to respondent against earlier costs; (iv) direction to pay further costs of Rs 10,000 within one week; (v) liberty to recall PW-1 for cross-examination; and (vi) expeditious disposal of the suit.
The Legal Issue
What is the appropriate consequence for a party who fails to pay court-imposed costs, and may a defence struck off on that ground be restored when the default is curable and no irreparable prejudice is caused?
Arguments Presented
For the Petitioner
- Asserted that payments of Rs 2,000, Rs 3,000 and Rs 2,500 were made to his former counsel on 28 Feb 2025, 10 Mar 2025 and 5 May 2025 respectively, demonstrating a bona-fide attempt to satisfy the costs.
- Contended that the subsequent direct payment of Rs 5,000 to the respondent on 22 Apr 2026 further cured the default.
- Relied on Rafiq v. Munshila and Dwarika Prasad (Deceased) through LRs v. Prithvi Raj Singh where the Supreme Court held that a party should not suffer for the negligence of counsel and that matters should be decided on merits rather than technicalities.
- Emphasised that striking off the defence would deprive him of the opportunity to contest a claim of approximately Rs 14 lakhs.
For the Respondent
- Argued that the petitioner’s review application admitted that the costs were remitted to his erstwhile counsel and never reached the respondent, indicating a deliberate dilatory tactic.
- Maintained that allowing restoration of the defence at the final-argument stage would disturb a trial that had otherwise attained finality.
- Highlighted the repeated failure to comply with cost orders despite clear directions.
The Court's Analysis
The Court began by noting the well-settled principle that non-payment of court-imposed costs may, in ordinary circumstances, lead to the closure of a party’s right to prosecute or defend the proceedings. > "It is trite law, that ordinarily, failure to comply with an order directing payment of costs may entail closure of the right of the defaulting party to prosecute or defend the proceedings." However, the Court emphasized that this principle is not mechanical. It examined the nature of the default - a failure to pay costs - and observed that the default was curable and did not arise from any failure to file the written statement within the statutory period. The written statement had been filed within the outer limit of 120 days, and the only defect lay in the non-payment of costs. The Court then evaluated the payments made by the petitioner. Although the amounts were initially transferred to his former counsel, the petitioner later paid Rs 5,000 directly to the respondent, evidencing a genuine intention to satisfy the cost liability. Citing Rafiq and Dwarika Prasad, the Court held that a litigant should not be penalised for the negligence of counsel when the litigant has taken reasonable steps to comply with the court’s orders. Regarding Section 35A CPC, the Court clarified that it contemplates compensatory costs where a claim or defence is false or vexatious - a situation not present here. The costs imposed were in the nature of Section 35B CPC, which permits withholding further proceedings until costs are paid, but does not mandate an irreversible forfeiture of the defence where the default can be cured without causing irreparable prejudice. Balancing the interests of both parties, the Court concluded that striking off the defence would cause disproportionate prejudice to the petitioner, especially given the substantial sum at stake and the absence of any vexatious conduct. Nonetheless, the petitioner could not be allowed an unconditional benefit from repeated defaults. Accordingly, the Court ordered that the defence be restored subject to the petitioner paying further costs of Rs 10,000 within one week, and that the earlier Rs 5,000 paid directly to the respondent be adjusted against the costs imposed on 28 Feb 2025 and 27 Mar 2025. The Court also permitted the petitioner to recall PW-1 for cross-examination and directed the trial court to dispose of the matter within six months.
The Verdict
The Delhi High Court set aside the orders dated 30 May 2025 and 6 April 2026. The Rs 5,000 paid by the petitioner directly to the respondent was adjusted against the earlier cost orders. The petitioner was directed to pay further costs of Rs 10,000 to the respondent within one week, after which his written statement/defence was restored. He was also allowed to recall PW-1 for cross-examination, and the trial court was instructed to dispose of the suit within six months.
What This Means For Similar Cases
Curable Defaults Do Not Mandate Permanent Forfeiture
- Courts will assess whether a cost default is curable before imposing the extreme sanction of striking off a defence.
- Payment to counsel, followed by direct payment to the opposite party, can demonstrate bona-fide compliance.
Section 35A CPC Is Not a Blanket Bar to Defence Restoration
- The provision deals with compensatory costs for false or vexatious claims; it does not automatically preclude restoration of a defence where the default relates solely to cost payment.
- Section 35B CPC allows withholding of proceedings but does not compel irreversible forfeiture when the default is remedied.
Proportionality Governs Disciplinary Measures
- The Court will balance the prejudice to the defaulting party against the inconvenience to the opposite party.
- Imposition of additional costs (e.g., Rs 10,000) can serve as a proportional remedy while preserving the litigant’s right to be heard on merits.
Practical Takeaways for Practitioners
- Advise clients to make prompt payments of court-imposed costs and obtain receipts; if payments are made to counsel, ensure clear documentation.
- In review or appeal applications, explicitly cite the curable nature of the default and the absence of prejudice.
- Be prepared to argue that striking off a defence would be disproportionate, especially where the substantive claim involves a substantial monetary stake.
- Consider seeking restoration of the defence subject to a fresh cost order rather than an outright reversal of the trial court’s decision.
