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November 23, 2018

Exemplary costs can be imposed in spite of compromise in suit not providing for it

In Civil Suit No. 1063/2018, Glenmark Pharmaceuticals Ltd. v. Curetech Skintech and Galpha Laboratories Ltd., alongwith Notice of Motion (L) No. 1890/2018 therein jointly by the parties for a consent decree of compromise, Ld. Single Judge (Kathawalla, J.) of the Bombay High Court has, vide judgment dated 2018.8.28 decreeing the suit under consent, also imposed exemplary costs of Rs.1,50,00,000 (Rupees One Crore Fifty Lakhs) on the second Defendant to be paid towards the Kerala Chief Minister Distress Relief Fund. No ordinary costs of suit appear to have been awarded towards legal expenses or lost sales.

The suit alleged infringement and passing-off of trademark CANDID-B in respect of pharmaceutical goods, drugs in class 5, by the impugned trademark CLODID-B seeking injunction, damages and costs. Defendant No.1 submitted through Counsel that it is a mere contract manufacturer for and on behalf of the other Defendant and offered to submit to a consent decree of permanent injunction. Defendant No. 2 submitted before the Court that CLODID-B was adopted by it by mistake, furnished information that it had sold goods under the impugned mark worth Rs. 2.92 Crores in the last 10 years, and also offered to submit to a similar consent decree. The Plaintiff, however, during the hearing before the Court, sought exemplary costs on Defendant No. 2 beyond the scope of the compromise between all the parties jointly placed on record with a joint application for a consent decree in terms thereof.

The scope for penal or otherwise exemplary costs as over and above or within the costs ‘of’ and costs ‘incident to’ a suit, calls into question whether or not the Court has such power under Section 35 of the Code of Civil Procedure, 1908: “Subject to such conditions and limitations as may be prescribed, and to the provisions of any law for the time being in force, the costs of and incident to all suits shall be in the discretion of the Court, and the Court shall have full power to determine by whom or out of what property and to what extent such costs are to be paid, and to give all necessary directions for the purposes aforesaid.” Section 151 is a relevant supplementing provision: “Nothing in this Code shall be deemed to limit or otherwise affect the inherent power of the court to make such orders as may be necessary for the ends of justice or to prevent abuse of the process of the court.”

Analysing whether or not exemplary costs were warranted, the Court concluded: “It is clear that the Defendant No.2 is not only indulging in infringing activities by repeatedly copying brands of other companies but also appears to be in complete violation of the FDA regulations. The conduct of the Defendant No.2 shows that this Defendant has no regard or respect to the rule of law. The consumers and general public are being repeatedly cheated by the Defendant No.2. I am of the opinion that had this Defendant been imposed with exemplary costs at the very beginning of their infringing activities, this Defendant would not have been audacious in repeating its infringing activities.”

The Court did not examine the ambit of Section 35 read with Section 151 of the CPC. The Court also did not specifically elucidate the existence or lack of statutory basis of costs for actions qua non-Plaintiff third parties or for actions reportedly in violation of regulations of a foreign government agency. The Court did not specifically point out that it was only the audacious infringement of this suit that was exclusively the occasion and basis for the exemplary costs and that its remarks about previous actions outside the scope of the suit were merely non-motivating observations. The Court also did not specifically comment on the source of its power to award exemplary costs even when the relief of ordinary costs itself as one of the prayers in the plaint had already been compromised in the negative and the Court was already seized with a joint application under Order XXIII Rule 3 of the CPC by all parties who, having placed the compromise on record, were seeking a consent decree in terms thereof.

It was the public health aspect of public interest that was commented upon as relevant motivation: “Drugs are not sweets. Pharmaceutical companies which provide medicines for health of the consumers have a special duty of care towards them. These companies, in fact, have a greater responsibility towards the general public. However, nowadays, the corporate and financial goals of such companies cloud the decision of its executives whose decisions are incentivized by profits, more often than not, at the cost of public health. This case is a perfect example of just that.”


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