Security for Costs

Security for costs is a procedural safeguard under the Code of Civil Procedure, 1908 (CPC) by which a court may require a plaintiff to provide security for the costs that a defendant has already incurred or is likely to incur in defending the suit. The principal provision is Order XXV CPC.

1. Object of Security for Costs

The basic purpose is to protect a defendant from the situation where:

• the defendant successfully defends the suit and becomes entitled to costs;
• but the plaintiff has insufficient assets from which those costs can be recovered;
• particularly where the plaintiff is residing outside India and has no sufficient immovable property in India.

It is therefore a procedural protection concerning recovery of litigation costs, and not a determination of the merits of the plaintiff's claim.

2. Statutory Provision — Order XXV Rule 1 CPC

Order XXV Rule 1 provides that at any stage of a suit, the court may, either:

1. on its own motion; or
2. on an application by a defendant,

order the plaintiff to provide security for the payment of costs incurred or likely to be incurred by the defendant. The court must record reasons for such an order.

The proviso deals specifically with a plaintiff residing outside India who does not possess sufficient immovable property in India, other than the property involved in the suit.

A person who leaves India in circumstances creating a reasonable probability that they will not be available when required to pay costs can also be treated as residing outside India for this purpose.

3. Discretionary Nature

Ordinarily, the power under Order XXV Rule 1 is discretionary. The court must consider the facts and circumstances of the individual case and record reasons.

The mere fact that a defendant has applied for security does not automatically mean that security must be ordered.

In New Machine Co. Ltd. v. S.B. Air Controls Pvt. Ltd., the Delhi High Court explained that the court must consider whether there is a realistic difficulty in recovering costs from the plaintiff and exercise its discretion according to the circumstances of the case.

4. Foreign Plaintiff

A particularly important situation arises when:

• the plaintiff resides outside India; and
• the plaintiff does not have sufficient immovable property in India apart from the property in dispute.

The proviso to Order XXV Rule 1 specifically addresses this situation.

There has, however, been judicial discussion concerning whether the proviso operates automatically or whether some judicial discretion remains concerning the order and quantum of security. Recent Delhi High Court decisions have considered the competing authorities on this issue.

5. Amount of Security

Security is intended to cover costs incurred and likely to be incurred, not the amount of the substantive claim made by the defendant.

The amount therefore has to be connected with the potential costs of litigation.

The court also retains discretion regarding the appropriate form and quantum of security.

6. Failure to Furnish Security — Order XXV Rule 2

Order XXV Rule 2 provides an important consequence.

If the plaintiff does not furnish the security within the time fixed by the court, the court shall ordinarily dismiss the suit, unless the plaintiff or plaintiffs are permitted to withdraw from the suit.

However, the plaintiff can apply for restoration of the suit if they establish that sufficient cause prevented them from furnishing the security within the prescribed period.

Important Case Laws

1. Vinod Seth v. Devinder Bajaj & Anr. (2010) 8 SCC 1 — Supreme Court

The Supreme Court recognised the power of the court under Order XXV Rule 1 to require a plaintiff to provide security for costs incurred or likely to be incurred by the defendant.

The Court also noted that the power can be exercised suo motu, but reasons must be recorded. The case illustrates that security for costs can be used as a procedural safeguard against the consequences of prolonged litigation.

Principle: The court has power to require security for the defendant's potential costs, subject to the statutory requirements and recorded reasons.

2. New Machine Co. Ltd. v. S.B. Air Controls Pvt. Ltd. (2009) — Delhi High Court

The Delhi High Court held that Order XXV does not mean that security must automatically be ordered in every case involving a plaintiff who lacks Indian immovable property.

The court must examine whether there is a realistic difficulty in recovering costs and exercise discretion according to the facts of the particular case.

Principle: Security for costs is generally a matter of judicial discretion.

3. Communication Components Antenna Inc. v. Ace Technologies Corp. (2023) — Delhi High Court

The Delhi High Court considered the interpretation of the proviso to Order XXV Rule 1 in the context of a plaintiff residing outside India.

The judgment discussed the distinction between the general discretionary power under Rule 1 and the specific situation contemplated by the proviso concerning foreign-resident plaintiffs without sufficient immovable property in India.

Principle: The application of the proviso to foreign plaintiffs requires careful consideration of the statutory conditions and the existing judicial interpretation.

4. Zino Davidoff SA v. Ramsons Perfumes Pvt. Ltd. (2020) — Delhi High Court

The court examined Order XXV in a commercial dispute involving a foreign plaintiff.

It observed that the provision concerns security for costs and considered whether the absence of traditional immovable property in India should automatically result in security being ordered. The court also considered the modern commercial reality that businesses may have substantial operations and value without owning immovable property.

Principle: The court should consider the real circumstances and assets of the plaintiff rather than applying the provision mechanically.

5. Alpha Oil International v. M.T. Chem Lily (2014) — Bombay High Court

The Bombay High Court considered a case involving a foreign company that did not have immovable property or other assets in India.

The court held that the conditions of the proviso to Order XXV Rule 1 were satisfied and directed the foreign plaintiff to furnish security for costs. The judgment treated the proviso as mandatory where its specified conditions were fulfilled.

Principle: Where the statutory conditions concerning a foreign plaintiff and absence of sufficient Indian immovable property are satisfied, security may be required.

6. Intertoll ICS Cecons O&M Co. Pvt. Ltd. v. National Highways Authority of India (2013) — Delhi High Court

The Delhi High Court considered an attempt to rely on principles analogous to Order XXV in arbitration proceedings.

The court noted that Order XXV deals with security for costs in suits and does not provide for security in respect of counterclaims. It also relied upon the Supreme Court's explanation in Vinod Seth regarding the limited purpose of Order XXV.

Principle: Order XXV is concerned with security for the defendant's litigation costs and cannot simply be extended to secure counterclaims.

7. Bhairabendra Narain Deb v. Udai Narain Deb (1923) — Calcutta High Court

The court considered whether security for costs could be demanded through the inherent powers of the court when the case did not fall within Order XXV Rule 1.

It expressed the view that where the CPC specifically provides for security for costs, the court should ordinarily operate within the framework of that provision rather than invoking inherent jurisdiction to create an additional power.

Principle: Section 151 CPC should not ordinarily be used to bypass a specific statutory scheme governing security for costs.

8. Sri Mahadeb Jiew v. Dr. B.B. Sen (1951) — Calcutta High Court

The Calcutta High Court considered the operation of Order XXV Rule 1 in relation to a female plaintiff and emphasised that the relevant considerations under the provision concern the statutory circumstances, particularly property and residence, rather than the sex of the plaintiff.

Principle: The application of Order XXV is governed by its statutory conditions and not by discriminatory considerations based merely on sex.

Key Legal Principles

Conclusion

Security for costs under Order XXV CPC is a protective procedural mechanism designed primarily to ensure that a defendant is not left without an effective means of recovering litigation costs. The court may require security at any stage of the suit, ordinarily after considering the circumstances and recording reasons. The position becomes particularly important where a plaintiff resides outside India and lacks sufficient immovable property in India. Failure to furnish ordered security can result in dismissal of the suit under Order XXV Rule 2.