Payment into Court and Security for Costs
Chapter Thirty-Eight
Syllabus topic 3.4, "Incidental proceeding, Payment into court, security costs and commissions (Orders XXIV, XXV and XXVI)"
Pages 220 to 225 of 365
In one line
Two short Orders, each protecting one side against the other's use of the litigation itself as a weapon: Order XXIV lets a defendant stop the interest clock by paying the money in, and Order XXV lets a defendant demand security from a plaintiff who may not be around to pay costs.
Order XXIV: payment into court
Why it exists
Suppose a defendant accepts he owes Rs. 1,00,000 and offers it, but the plaintiff insists on Rs. 5,00,000 and sues. The suit runs three years. If nothing could be done, the defendant would pay interest for three years on money he was willing to hand over on day one, and would pay the costs of a trial he never wanted.
Order XXIV lets him take that away. He deposits what he says is due, and from the moment the plaintiff has notice of the deposit, interest stops running on that sum. If the court later finds the deposit was enough, the plaintiff pays the costs of the litigation he insisted on.
The four rules
Rule 1: the defendant in any suit to recover a debt or damages may, at any stage of the suit, deposit in Court such sum of money as he considers a satisfaction in full of the claim.
Rule 2: notice of the deposit shall be given through the Court by the defendant to the plaintiff, and the amount shall, unless the Court otherwise directs, be paid to the plaintiff on his application.
Rule 3, and this is the operative sanction: no interest shall be allowed to the plaintiff on any sum deposited by the defendant from the date of the receipt of such notice, whether the sum deposited is in full of the claim or falls short of it.
Read Rule 3 carefully. The interest stops even if the deposit turns out to be too small. It stops on the sum deposited, from the date the plaintiff receives notice.
Rule 4(1), where the plaintiff accepts it as part satisfaction: he may prosecute his suit for the balance; and if the Court decides that the deposit was a full satisfaction of the claim, the plaintiff shall pay the costs of the suit incurred after the deposit, and also the costs incurred before it so far as they were caused by the excess in his claim.
That is the sting. A plaintiff who refuses a sufficient deposit and presses on pays for the rest of the case himself, and may pay for part of the earlier costs too, to the extent his own inflated claim caused them.
Rule 4(2), where he accepts it as full satisfaction: he shall present a statement to that effect, which is filed, and the Court shall pronounce judgment accordingly; and in directing by whom the costs of each party are to be paid, the Court shall consider which of the parties is most to blame for the litigation.
Payment into Court and Security for Costs
The words "most to blame for the litigation" are worth quoting. Costs here do not simply follow the event; the court asks whose conduct made the suit necessary.
The Code's own illustration
Rule 4 carries illustrations, and the first states the principle. A owes B Rs. 100. B sues A for the amount, having made no demand for payment and having no reason to believe that the delay caused any loss. The illustration then works through who should bear the costs of a suit the plaintiff need not have brought.
Order XXV: security for costs
Why it exists
A defendant who wins is entitled to his costs. That entitlement is worth nothing if the plaintiff is beyond reach when the bill arrives. A person with no property in India can sue at no real risk: if he wins he collects, and if he loses he simply goes home.
Order XXV closes that gap, and it does so without shutting anybody out of court: the plaintiff is not barred from suing, he is required to put up security first.
When security may be required: Rule 1
Rule 1(1): at any stage of a suit, the Court may, either of its own motion or on the application of any defendant, order the plaintiff, for reasons to be recorded, to give within the time fixed by it security for the payment of all costs incurred and likely to be incurred by any defendant.
The proviso makes it mandatory in one case: such an order shall be made in all cases in which it appears to the Court that a sole plaintiff is, or where there are more plaintiffs than one that all the plaintiffs are, residing out of India, and that the plaintiff does not possess, or no one of the plaintiffs possesses, any sufficient immovable property within India other than the property in suit.
So there are two levels. A general discretion in sub-rule (1), exercisable at any stage, on the court's own motion or on application, for reasons recorded. And a mandatory case in the proviso, where every plaintiff resides out of India and none has sufficient immovable property here apart from the property in suit.
Note the words "other than the property in suit". Property that is itself the subject of the litigation does not count as security, for the obvious reason that the plaintiff may lose it.
Payment into Court and Security for Costs
Rule 1(2) extends the proviso: whoever leaves India under such circumstances as to afford reasonable probability that he will not be forthcoming whenever he may be called upon to pay costs shall be DEEMED to be residing out of India within the meaning of the proviso.
That deeming provision catches the plaintiff who leaves after filing.
Failure to furnish it: Rule 2
Rule 2(1): in the event of the security not being furnished within the time fixed, the Court shall make an order dismissing the suit, unless the plaintiff or plaintiffs are permitted to withdraw from it.
Rule 2(2): where a suit is so dismissed, the plaintiff may apply to set the dismissal aside, and if it is proved to the Court's satisfaction that he was prevented by sufficient cause from furnishing the security within the time allowed, the Court shall set aside the dismissal upon such terms as to security, costs or otherwise as it thinks fit, and shall appoint a day for proceeding with the suit.
Rule 2(3): the dismissal shall not be set aside unless notice of the application has been served on the defendant.
The shape is by now familiar from Order IX and Order XXII: a default, a dismissal, and an application to set it aside on sufficient cause, with notice to the other side. See [Appearance and Consequences of Non-appearance].
A worked example
Aditya sues Bela for Rs. 6,00,000 as damages. Bela accepts she owes Rs. 2,00,000 and no more.
What can she do? Under Order XXIV Rule 1 she may, at any stage, deposit Rs. 2,00,000 in Court as what she considers satisfaction in full, and under Rule 2 notice is given to Aditya through the Court, and the money is paid out to him on his application unless the Court directs otherwise.
What does the deposit achieve immediately? Rule 3: no interest runs in Aditya's favour on that sum from the date he receives the notice, and that is so even if the deposit later proves insufficient.
Aditya takes the money and continues for the balance. Rule 4(1) permits it. But if the Court eventually decides that Rs. 2,00,000 was full satisfaction, Aditya must pay the costs of the suit incurred after the deposit, and the earlier costs too so far as they were caused by the excess in his claim.
Aditya accepts it as full satisfaction instead. Rule 4(2): he files a statement, the Court pronounces judgment accordingly, and in deciding costs asks which party is most to blame for the litigation.
Now change the parties. Suppose Aditya lives in Canada and owns nothing in India except the very property in dispute. Bela applies under Order XXV Rule 1. This is not a matter of discretion: the proviso makes the order mandatory, because the sole plaintiff resides out of India and has no sufficient immovable property here other than the property in suit.
Payment into Court and Security for Costs
Aditya was living in Mumbai when he filed, and moved abroad afterwards. Rule 1(2): if he left India in circumstances affording a reasonable probability that he will not be forthcoming when called on to pay costs, he is deemed to be residing out of India, and the proviso applies.
He does not furnish the security in time. Rule 2(1): the Court shall dismiss the suit, unless he is permitted to withdraw.
He then applies to have that dismissal set aside. Rule 2(2): the Court shall set it aside if he proves he was prevented by sufficient cause, on such terms as to security and costs as it thinks fit; and by Rule 2(3) not without notice to Bela.
What it does not mean
A deposit under Order XXIV is not an admission of the whole claim. It is what the defendant considers satisfaction in full, and the plaintiff may take it and sue for the balance.
Interest does not continue merely because the deposit was too small. Rule 3 stops interest on the sum deposited from the date of notice, whether or not it covers the claim.
Security for costs is not a bar to suing. The plaintiff is required to secure the defendant's costs, not prevented from bringing the suit.
Property in suit does not count as security. The proviso to Rule 1 excludes it expressly.
A dismissal for want of security is not final. Rule 2(2) allows it to be set aside on sufficient cause, with notice to the defendant.
Enforcing the surety's liability: section 145
Section 145: where a person has furnished security or given a guarantee for the performance of a decree or any part of it, for the restitution of property taken in execution, or for the payment of money or the fulfilment of a condition imposed under an order of the Court, the decree or order may be executed against him in the manner provided for the execution of decrees:
(i) where he has rendered himself personally liable, against him to that extent (ii) where he has furnished property as security, by sale of that property to the extent of the security (iii) where the case falls under both, to the extent specified in both
And the sting in the tail: such a person shall be deemed to be a party within the meaning of section 47. So his objections are decided by the executing court and not by a separate suit. See [Questions to be Determined by the Executing Court].
Payment into Court and Security for Costs
Quick revision## Quick revision
Order XXIV: the defendant in a suit to recover a debt or damages may at any stage deposit what he considers satisfaction in full, Rule 1; notice through the Court, and payment out to the plaintiff on application, Rule 2; no interest to the plaintiff on the sum deposited from the date he receives notice, whether or not the deposit is enough, Rule 3; if he takes it as part satisfaction he may sue for the balance, but if the Court finds it was full satisfaction he pays the costs after the deposit and the earlier costs caused by the excess in his claim, Rule 4(1); if he takes it as full satisfaction, judgment follows and costs are decided by asking who is most to blame for the litigation, Rule 4(2).
Order XXV: security for costs may be ordered at any stage, on the Court's own motion or on a defendant's application, for reasons recorded, Rule 1(1); and shall be ordered where every plaintiff resides out of India and none has sufficient immovable property in India other than the property in suit; a person who leaves India so as to make it reasonably probable he will not be forthcoming to pay costs is deemed to reside out of India, Rule 1(2). Failure to furnish it means dismissal, unless withdrawal is permitted, Rule 2(1); which may be set aside on sufficient cause, on terms, Rule 2(2), and only after notice to the defendant, Rule 2(3).
Test yourself
1. What may a defendant do under Order XXIV, and when? In any suit to recover a debt or damages he may, at any stage of the suit, deposit in Court such sum of money as he considers a satisfaction in full of the claim, notice of the deposit being given to the plaintiff through the Court.
2. What is the effect of such a deposit on interest? Under Order XXIV Rule 3 no interest is allowed to the plaintiff on any sum deposited from the date of receipt of the notice, whether the sum deposited is in full of the claim or falls short of it.
3. The plaintiff takes the deposit as part satisfaction and loses on the balance. Who pays the costs? Under Rule 4(1), where the Court decides that the deposit was a full satisfaction of the claim, the plaintiff pays the costs of the suit incurred after the deposit, and also the costs incurred before it so far as they were caused by the excess in his claim.
Payment into Court and Security for Costs
4. When must the Court order security for costs? Under the proviso to Order XXV Rule 1(1), in all cases where it appears that a sole plaintiff is, or where there are several that all of them are, residing out of India, and that no such plaintiff possesses any sufficient immovable property within India other than the property in suit.
5. Does the property in dispute count as security? No. The proviso excludes the property in suit, so a plaintiff whose only Indian property is the subject matter of the litigation is treated as having none for this purpose.
6. What happens if security is not furnished? Under Order XXV Rule 2(1) the Court shall make an order dismissing the suit, unless the plaintiff is permitted to withdraw from it. Under Rule 2(2) the plaintiff may apply to set the dismissal aside, and the Court shall do so if satisfied he was prevented by sufficient cause from furnishing the security in time, on such terms as to security or costs as it thinks fit, and by Rule 2(3) only after notice to the defendant.
The rest of this subject
These notes are cut from the University's printed syllabus. Open the syllabus itself, or the past papers, for the same subject.