The High Court of Judicature at Madras has issued a significant ruling clarifying that litigants are ineligible for the return of court fees once a suit has moved beyond the preliminary stage into the commencement of trial and the recording of evidence. Justice P.B. Balaji, presiding over two civil revision petitions , held that the statutory benefit of fee refunds cannot be claimed by parties who reach out-of-court settlements only after substantial judicial resources have been expended during the evidentiary process .

The judgment settles a persistent point of ambiguity regarding the application of the Tamil Nadu Court Fees and Suits Valuation Act, 1955 . By refusing to follow the precedent in the M.C. Subramaniam case, which had been widely interpreted as allowing for full refunds regardless of the stage of the proceedings, the Court has effectively reinstated a more restrictive interpretation of the legislative intent behind fee recovery. The order specifically dismisses the claims for refund in two separate cases, noting that in both instances, the parties had already engaged in the formal process of leading evidence, marking a point of no return for fee eligibility.

Dissecting the Threshold of Evidence and State Costs

The core of the dispute centered on the interpretation of Section 69 and Section 69-A of the Court Fees Act . While the petitioners argued that private settlements should be incentivized through full refunds, the Court emphasized that the fees paid upon filing a plaint are not merely nominal but are intended to support the infrastructure, salaries, and administrative expenses of the state judiciary. Justice Balaji noted, “There is no doubt in my mind that a party is not entitled to any refund once evidence is recorded, if whatever little worth it may be.”

The legal reasoning relied heavily on the Supreme Court ’s 2010 ruling in Afcons Infrastructure Ltd. vs. Cherian Varkey Construction Private Ltd. , which the Court observed had been overlooked in subsequent judicial discussions. In Afcons , the Supreme Court had cautioned that alternative dispute resolution (ADR) mechanisms should ideally be explored before framing issues. Once trial commences, the process of referring a matter for settlement must be approached with caution to prevent it from becoming a tactical maneuver to delay or protract proceedings.

By applying the Afcons standard, the Madras High Court held that the legislative conditions embedded in Section 69—specifically the requirement that a settlement must occur “before any evidence has been recorded on the merits of the claim ”—remains a binding constraint. The Court noted that even though the 2017 amendment to the Act increased the refund capacity from 50 percent to 100 percent, the legislature deliberately retained this crucial evidentiary threshold. The failure to reconcile the broad reading of Section 69-A with the specific restrictions of Section 69 had created a scenario where private parties were seeking to exploit the statute despite having already consumed significant court time.

Addressing Regulatory Gaps and Future Reforms

In the course of the hearings, the Court invited the Advocate General, N. Vijay Narayan , and various legal experts to weigh in on the implications for the state exchequer. The analysis revealed that the current legal framework governing ADR referrals under Section 89 of the Code of Civil Procedure has created a “grey area.” Under the existing rules, if a dispute is referred to mediation, the parties become entitled to a refund immediately. However, if the mediation fails and the parties return to court for trial, there is no existing mechanism to claw back those funds or ensure they are repaid to the state.

The Court expressed concerns that the current system provides an unfair advantage to litigants, who may receive a refund of their entire court fee while the state is left to continue hosting the trial, should the settlement fail. In his observations, Justice Balaji suggested that the statute requires a thorough legislative review, specifically referencing the need to restore the mechanism as it existed prior to the 2017 amendments. He advocated for a system where courts issue a certificate of entitlement to a refund that only becomes encashable upon the final, successful conclusion of a settlement, rather than granting the refund at the point of referral.

“In such circumstances, in the event of the dispute not being settled post the reference under Section 89 CPC, the party would gain an undue advantage by already getting refund of the entire court fees,” the Court stated, highlighting the necessity for a more pragmatic legislative approach.

Consequently, the Court has directed that a copy of the order be marked to the Tamil Nadu State Law Commission for a detailed examination of whether the pre- 2017 provisions should be reinstated to better safeguard public funds. In the immediate cases before the Court, the petitions were dismissed. In one matter involving a suit for specific performance that was withdrawn following an out-of-court settlement, the Court chose not to interfere with a partial 50 percent refund only because the state had not formally challenged the trial court’s initial order. In the second matter, where a joint compromise memo had resulted in the dismissal of a suit that had seen witness examination on both sides, the request for a refund of over ₹2.54 lakh was rejected entirely, confirming that the litigation had progressed too far to warrant any state-funded reimbursement. The rulings serve as a definitive notice to litigants that the window for reclaiming court fees closes firmly as soon as the evidentiary phase of a trial begins.