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August 14, 2019

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Fast-Tracking Commercial Disputes: A Reality Or Distant Dream?


- Mehul Parti, Senior Associate [ Chandhiok & Mahajan, Advocates and Solicitors ]
- Ashwani Malhotra, Associate [ Chandhiok & Mahajan, Advocates and Solicitors ]

Vikram-Sobti-Mehul-Parti-&-Ashwani-Malhotra

Are present laws providing enough impetus to deal with the long-standing menace of pendency of cases

As on 03 June 2019, 2,24,62,143 cases are pending (for more than one year) in the district and taluka courts across India,1 i.e. 72% of all civil and criminal cases filed in courts are pending adjudication.2 On an average, a case takes 1445 days to be concluded (from its filing till enforcement).3 It takes 1095 days, on an average, for a trial to be concluded or a judgment to be delivered.4 And, the judgment takes an average of 305 days to be enforced.5

From a global perspective, India is ranked at 77 out of the 190 countries assessed by the World Bank in its Doing Business Report, 2019 (DBR, 2019). Conspicuously, the DBR, 2019 ranks India at 163 in enforcing contracts.6

These numbers speak louder than words to describe the current state of affairs clogging the Indian judicial system.

This article takes a three-pronged approach to access whether the present laws are providing enough impetus to deal with the long-standing menace of pendency of cases.

Discourage litigation by adopting mediation

As an alternate to the adversarial forms of dispute resolution, mediation is fast emerging as a popular medium to resolve disputes. The legislature had recognized the importance of mediation in 1999,7 when alternative dispute resolution (ADR) was included in the Code of Civil Procedure, 1908, granting inter alia, mediation, statutory recognition.

In recent times, the legislature has introduced mandatory pre-suit mediation before filing commercial suits, which do not contemplate an urgent relief.8 This welcome initiative towards pre-suit mediation is modeled on the lines of similar laws enacted in Italy, Turkey, Greece, Luxembourg, United Kingdom, Ireland, etc.

Italy, like India, faces a high rate of pendency of cases. However, in 2017 alone, almost 50% of the 2,00,000 cases referred for mediation resulted in parties settling their claims,9 providing much-needed support to courts. Similarly, Turkey too has recorded commendable success by settling approx. 67% of the 2,97,147 cases assigned to mediators.10 These numbers show mediation as an effective alternate mode to settle commercial disputes. This acts as a filter for the legal system to reduce the number of cases ending up in courts.

Mandating pre-suit mediation is a commendable step. The legislature has, in fact, elevated a settlement arrived through pre-suit mediation to have the same status and effect as an arbitral award on agreed terms.11 Yet, there is still much left to be achieved. One such missing link is the absence of a law dealing with mediation. The Supreme Court has also impressed upon the Government to consider the feasibility of such an enactment.12 Unlike other forms of ADR, mediation is not binding on the parties. Thus, a law on mediation would provide necessary clarity to parties in terms of cost involved, nature of such proceedings and enforcement of settlements arrived through mediation. The corporates can also take a lead in this field by incorporating mediation as a mandatory pre-condition in commercial contracts. This would help achieve resolution of disputes in a cost effective and timely manner.

Push towards arbitration

Arbitration offers another way of lessening the burden of the courts. Its binding nature allows the parties to take a conscious decision to have their disputes settled outside the courts. This saves time for the parties involved and calls for minimal intervention by the courts, thus reducing their workload. The legislature as well as the judiciary have time and again through various amendments and judgments respectively, shown their intent to promote arbitration as an effective tool towards dispute resolution.

Amongst such initiatives, the legislature is lauded for the amendments in the Arbitration and Conciliation Act, 1996, brought in 2015.13 The amendment addresses as well as clarifies significant aspects that were plaguing the said Act. Such changes include providing a definite timeframe for passing an award, rewarding speedy disposal of matters, and providing necessary clarification on minimal intervention of courts, be it at the stage of appointment of arbitrator(s) or challenging the award. Thus, the amendments have helped evolve arbitration as an expeditious, efficacious and cost-effective mode of settlement of commercial disputes.

The Government has also played its part by constituting a High-Level Committee, under the Chairmanship of Justice B.N. Srikrishna, to review the institutionalization of the arbitration mechanism in India.14 One of the recommendations in the Report submitted by the said High-Level Committee, has already been implemented by the Government, through the New Delhi International Arbitration Centre Ordinance, 2019.15 The ordinance seeks to establish an autonomous and independent institution, i.e., the New Delhi International Arbitration Centre (NDIAC) for better management of arbitration in India. It also declares NDIAC as an institute of “national importance”.

The tendency of Indian courts to frequently interfere in arbitral proceedings has contributed to India’s reputation as an “arbitration-unfriendly” jurisdiction. The interventionist attitude of the courts while regulating arbitration proceedings, whether at an initial stage of the arbitral proceedings (such as the appointment of arbitrators, referral of disputes to arbitration or grant of interim relief) or at the enforcement stage is a well-known fact. However, recent times have seen courts passing orders which give primacy to party autonomy, and thus adopting a hands-off approach.16

The initiatives by the legislature to bring the law of arbitration up to speed with international standards coupled with the restrained approach adopted by the courts is the much-needed impetus required to push arbitrations in India. Not only does this set arbitration on a path to be a more viable form of resolving disputes, as originally envisaged, but also encourage the stakeholders to reaffirm their faith and trust on the same.

Fast-track courts to expedite disposal of commercial disputes

The need to establish fast-track commercial courts was recognized by the Law Commission of India way back in 2003, when it suo moto prepared its 188th report.17 Acting on the same, the Lok Sabha passed the Commercial Division of High Courts Bill, 2009. However, facing opposition in the Rajya Sabha, the bill lapsed. Nonetheless, the Law Commission proposals bore fruit in 2015. On the basis of its 253rd report,18 the Commercial Courts, Commercial Division and Commercial Appellate Division of High Courts Act, 2015 (Commercial Courts Act) was enacted to improve efficiency and reduce delay in disposal of commercial cases.19

The Act brought a structural change in courts by establishing commercial courts/commercial division and commercial appellate division. Such commercial courts have been established at the district level, where High Courts do not exercise original civil jurisdiction, and commercial divisions have been established in High Courts exercising the same. These commercial courts/divisions were tasked with adjudicating upon commercial disputes which has been given an expansive definition under the Act.20 Further, the commercial appellate division has jurisdiction over all challenges to arbitral awards.21 The Commercial Courts Act places stringent timelines to achieve early disposal of commercial disputes, through summary judgments, case management hearings and day-to-day recording of evidence etc.

Regardless of the many salient features of the Commercial Courts Act, the law has received much criticism. Some have viewed the Commercial Courts Act as nothing more than a change of nomenclature. Rather than appointing new judges who are trained to handle complex commercial disputes in a timely manner, existing judges are assigned to deal with commercial disputes, that too on a rotational basis. In essence, existing judges are burdened with the task of deciding such commercial disputes. The indispensable objective of timely disposal of commercial disputes can only be achieved by appointing more judges to hear such cases, thereby reducing the cases assigned per judge in the country.

Far from appointing more judges, the Legislature reduced the pecuniary jurisdiction of the commercial courts from INR 1,00,00,000/- to INR 3,00,000/- in 2018.22 Further, in the states where the High Court exercises original jurisdiction, district courts have been designated as commercial courts.23 Lowering the pecuniary jurisdiction will, however, only inundate the already overburdened district courts with large influx of cases. This in turn will only add to woes of the litigants, as the object of achieving speedy justice in courts will remain a distant dream.

Although a lot is being done by different agencies of the state to tackle the peril of pendency of judicial disputes in Indian courts, such actions amount to momentary victories, and leave scope for continuous efforts by all three branches. Enacting laws to promote alternative modes of dispute resolution, filling vacancies at both, the lower as well as higher judiciary, avoiding excessive intervention of courts in arbitral proceedings and setting up specialized courts to hear trivial cases like traffic offenses are a few examples of such measures, addressed by way of this article. This is necessary to improve India’s ranking in enforcing commercial contracts and consequently, breaking into the top 25 nations in the ease of doing business.

1 https://njdg.ecourts.gov.in/njdgnew/?p=main/index.

2 https://njdg.ecourts.gov.in/njdgnew/?p=main/index.

3 http://www.doingbusiness.org/en/data/ exploreeconomies/india#DB_ec.

4 Id.

5 Id.

6 http://pib.nic.in/newsite/PrintRelease.aspx?relid=184513.

7 Sec. 89 of Code of Civil Procedure, 1908, inserted by Code of Civil Procedure (amendment) Act, 1999, embodies the legislative mandate to the courts to refer disputes to arbitration, mediation, conciliation or judicial settlement where it appears to the court that there exist elements of settlement which may be acceptable to the parties.

8 Sec. 12A of Commercial Courts, Commercial Division and Commercial Appellate Division of High Courts (Amendment) Act, 2018 (Commercial Courts Amendment Act, 2018) provides for pre-institution mediation and settlement.

9 Chitra Narayan, Settling disputes out of court, The Hindu dated 01 June 2018, available at. https://www.thehindu.com/opinion/op-ed/settling-disputes-out-of-court/article24049676.ece.

10 Tube Bilecik, Turkish Mandatory Mediation Expands into Commercial Disputes available at http:// mediationblog.kluwerarbitration.com/2019/01/30/turkish-mandatory-mediation-expands-into-commercial-disputes/.

11 Sec. 12A(5) of the Commercial Courts Amendment Act, 2018 provides that the settlement arrived through mediation shall have same status and effect as an arbitral award on agreed terms.

12 M.R. Krishna Murthi v. The New India Assurance Co. Ltd. & Others, 2019 SCC OnLine SC 315.

13 Arbitration and Conciliation (Amendment) Act, 2015 enforced with effect from 23 October 2015.

14 Report of the High Level Committee to Review the Institutionalisation of Arbitration Mechanism in India, available at http://legalaffairs. gov.in/sites/default/files/Report-HLC.pdf.

15 Promulgated on 02 March 2019.

16 Centrotrade Minerals & Metals inc. v. Hindustan Copper Ltd., (2017) 2 SCC 228 at p. 38; Rajasthan Small Industries Corporation Limited v. M/s Ganesh Containers Movers Syndicate., (2019) 3 SCC 282 at p. 31.

17 Law Commission of India, 188th Report, December 2003 titled as “Proposals for constitution of Hi-tech Fast-Track Commercial Divisions in High Courts” http://lawcommissionofindia.nic.in/reports/188th%20report.pdf.

18 Law Commission of India, 253rd Report, January 2015 http://lawcommissionofindia.nic.in/reports/Report_No.253_Commercial_Division_and_Commercial_Appellate_Division_of_High_Courts_and__Commercial_Courts_Bill._2015.pdf.

19 Statement of Objects and Reasons, Commercial Courts Act.

20 The term “commercial dispute” has been given wide definition under Sec. 2(1)(c) of the Commercial Courts Act which includes within its ambit, disputes arising out of the transactions between merchants, bankers, traders, financers etc. and also disputes relating to franchising agreements, licensing agreements, shareholders agreement etc.

21 Sec. 10 of the Commercial Courts Act provides that if the subject matter of arbitration is a commercial dispute of a specified value then all petition, appeals or application arising out of such arbitration under the provisions of Arbitration and Conciliation Act, 1996 shall be heard by the Commercial Appellate Division constituted in the High Court.

22 Inserted as Sec. 2(1)(i) by the Commercial Courts, Commercial Division and Commercial Appellate Division Of High Courts (Amendment) Act, 2018.

23 http://delhihighcourt.nic.in/writereaddata/Upload/PublicNotices/PublicNotice_LJVVPTRJ1R7.PDF

Disclaimer – The views expressed in this article are the personal views of the authors and are purely informative in nature.

 

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