Commercial Courts, Another Attempt By The Government To Reduce Overbearing Litigation Numbers

Saumya Kakar & Sohini Mandal

6 Sep 2016 6:31 AM GMT

  • Commercial Courts, Another Attempt By The Government To Reduce Overbearing Litigation Numbers

    In order to take forward and accelerate the agenda of the “Ease of Doing Business” and “Make in India”, the Commercial Courts, Commercial Division and Commercial Appellate Division of the High Court’s Act, 2015 (the “Act”) has been promulgated, which provides for the constitution of Commercial Courts and the establishment of Commercial Divisions and Commercial Appellate...

    In order to take forward and accelerate the agenda of the “Ease of Doing Business” and “Make in India”, the Commercial Courts, Commercial Division and Commercial Appellate Division of the High Court’s Act, 2015 (the “Act”) has been promulgated, which provides for the constitution of Commercial Courts and the establishment of Commercial Divisions and Commercial Appellate Divisions in the High Courts to adjudicate Commercial Disputes for achieving the motive of swift and speedy enforcement of contracts, recovery of monetary claims and compensation for damages suffered to increase investment and economic activity in our country.

    The key features of the Act are as follows:

    1. Wide meaning of “Commercial Dispute”:The term “Commercial Dispute” has been very broadly defined in the Act to encompass almost every kind of transaction that gives rise to a commercial relationship. The subject matter of disputes is very wide including but not limited to issues relating to maritime law, construction and infrastructure contracts, ordinary commercial transactions, intellectual property rights disputes, disputes involving exploitation of natural resources, insurance and re-insurance disputes. Such Commercial Disputes shall now be adjudicated upon by these Commercial Courts/Divisions.

    2. Commercial Courts/Divisions at various levels:

    a) The Act provides for the constitution of “Commercial Courts” in every district in all states and union territories where the High Court of that state or union territory does not have/exercise ordinary original civil jurisdiction and “Commercial Divisions” within High Courts exercising ordinary original civil jurisdiction.

    b) Further, Commercial Appellate Divisions are being set up in every High Court to hear appeals against, (i) orders of Commercial Division of High Court, (ii) orders of Commercial Courts and (iii) appeals arising from domestic and international arbitration matters that are filed before the High Courts.

    3. “Specified Value” of Commercial Disputes:The Act provides for the adjudication of Commercial Disputes of more than INR 1,00,00,000 (defined as “Specified Value” in the Act), by the Commercial Courts/Divisions. Further, it also prescribes the manner in which the Specified Value of a Commercial Dispute is to be determined.

    4. Transfer of Commercial Disputes: All suits and/or applications relating to a Commercial Dispute of a Specified Value pending before any civil court are required to be transferred to constituted Commercial Courts/Divisions for fast and speedy disposal of cases.

    5. Jurisdiction over arbitrations: In line with the Arbitration and Conciliation (Amendment) Act, 2015, all matters pertaining to international commercial arbitrations have been brought within the purview of the High Court, whether or not such High Court exercises original jurisdiction, except matters relating to the appointment of arbitrators in international commercial arbitrations. Applications and appeals arising out of domestic arbitrations involving purely local Indian parties, which would ordinarily lie before any principal civil court of original jurisdiction (not being a High Court), will now lie before a Commercial Court (where constituted) exercising territorial jurisdiction over such arbitration.

    6. Amendments to the Civil Procedure Code, 1908 (“CPC”): The provisions of the CPC, to the extent of its application to any suit in respect of a Commercial Dispute have been amended by the Act to streamline the conduct of Commercial Disputes. Key amendments to the CPC are as follows:

    a) The Act has introduced a new provision in the CPC, which prescribes that a Commercial Court/Division shall hold a ‘case management hearing’ to frame issues and fix timelines to ensure that the case is concluded in an expeditious and efficient manner.

    b) The amended provisions of the CPC allow parties to apply for summary judgement where the court could arrive at a decision solely on the basis of written pleadings.

    c) The Act has also introduced comprehensive provisions in the CPC dealing with award of actual costs and interest. The amended provisions of the CPC also provide the issues that Commercial Courts/Divisions may consider while imposing costs on parties. The earlier provisions under the CPC dealing with costs and interest, provided for imposition of only nominal costs (which continue to apply to matters other than Commercial Disputes).

    7. Fixed Timelines: The Act has also introduced strict timelines to ensure prompt resolution of disputes including but not limited to all appeals to the Commercial Appellate Division must be filed within 60 days from the impugned judgement and the Commercial Appellate Division must endeavour to dispose of the case within a period of 6 months. But, there is nothing prescribed with regard to any penalty or punishment being imposed on the parties if they delay the disposal of the case.

    8. Appointment of judges: The Act recognizes that competent judges having experience in dealing with Commercial Disputes are important for expeditious disposal and therefore, requires appointment of persons having such experience to be judges of the Commercial Courts/Divisions.

    9. Measures to curb procedural delays:The Act acknowledges that piece by piece production of documents by parties at different stages tends to delay proceedings and therefore, requires filing of all documents relevant to the dispute at the time of filing of the suit itself or at the time of filing of the defense, as the case may be. Detailed procedures for discovery and inspection of documents of the opposite party and admission and denial of documents have been provided to shorten the scope of trial. The Act sets an outer limit of 120 days for filing defense beyond which the right to file the defense is forfeited and the Court would be bound to not take such a delayed submission on record.

    In light of the key features stated above it is evident that the Act is a laudable piece of legislation and a step in the right direction but there are issues unaddressed/unclear in it, which are highlighted below:

    1. The definition of “Commercial Disputes” is very vague and wide. The list is not exhaustive and hence it can give rise to a number of litigations to just determine whether a dispute is a “Commercial Dispute” or not..

    2. It is extremely difficult to ascertain the value of an intellectual property right and this can give rise to a number of litigations. Also, breach of confidentiality disputes have not been included in the definition of “Commercial Disputes” which are really common in this era of competition. However, it may be difficult to determine the Specified Value of such disputes.

    3. As regards disputes arising out of agreements relating to immovable property, the qualification that the property must be used exclusively in trade or commerce could raise debates as to whether the property must have been in use for trade or commerce before an agreement is entered into or whether it would also cover agreements entered into for the purpose of using immovable property for the first time for commercial purposes.

    4. The present amendment to the CPC casts an onus on the parties by providing that all the documents in their power possession, control or custody relating to any matter in question in the proceedings, whether it is in support of or adverse to their claim, should be filed along with their pleadings, and further require the parties to make a declaration on oath at the time of filing of their pleadings that they do not have any other document with them pertaining to the facts and circumstances of the proceedings. No express exception has been made for such production either on the grounds of privilege or confidentiality etc. Just as has been the case in the US, it is likely that such broad requirement of discovery would become a tool for harassment by parties here and would become a factor in deciding whether to settle matters or face the pain of discovery.

    5. Having the same pecuniary value limit for all High Courts does not take into account the variable factor in such dispute cases. It is only reasonable to believe that the Himachal Pradesh High Court will have fewer commercial dispute cases than the Bombay High Court, and also of lesser commercial value. If the pecuniary value of these cases for every High Court or even the district court were to be decided based on the relevant data of the entire state, pendency would have been addressed more effectively.

    6. Keeping in mind the Act’s objective to reduce pendency, one must recognize the need for appointment of more judges. These Commercial Courts/Divisions are being assigned to the existing batch of judges, hence they will be hearing these cases apart from the matters that are already assigned to them. This may prove to be counter-productive.

    7. There is overlapping jurisdiction of the Commercial Divisions proposed for in the five High Courts exercising original jurisdiction and the Commercial Appellate Divisions within those High Courts in relation to the arbitration matters which can create issues.

    8. The transfer of pending cases in civil courts to these Commercial Court/Divisions may lead to practical and logistical difficulties initially as the Courts will have to deal with transferring of a substantial number of cases, which in turn may lead to cases being delayed until the correct courts receive the proceedings in suits that now would fall within the definitions of “Commercial Disputes’ being above the “Specified Value”. This may lead to a chaotic situation as was seen with the passing of a similar dicta for Section 138 Negotiable Instrument Act, 1881 cases in Dashrath Roopsingh Rathod v. State of Maharashtra & Anr.

    9. The Act also does not provide for a statutory right to appeal to the Supreme Court from an order of the Commercial Appellate Division. Accordingly, the Act limits the number of appeals allowed in Commercial Disputes to only one except in certain cases.

    10. The Act does not provide for any new or technologically advanced method of conducting the court procedures. The suggestions of e-filing, video conferencing of witness, and use of latest technology will go a long way in making these courts at par with the systems being followed in some countries.

    “Justice delayed is justice denied”- The Act is inarguably a big step to curb this inefficiency of Indian judicial system. The Delhi High Court was the first off the blocks designating four of its benches as Commercial Divisions. It added two more benches to the Division followed by the High Court of Bombay designating judges for the Commercial Divisions. Despite the drawbacks, setting up of Commercial Courts/Divisions will accelerate economic growth, improve the image of the Indian justice system and enhance investors’ confidence in the country’s dispute resolution culture.

    Saumya Kakar, is an Associate and Sohini Mandal is a Junior Partner at NovoJuris Legal.

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