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July 22, 2016

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Commercial Courts Ordinance: A Stepping Stone For Judicial Reform?


- Jyoti Singh, Partner [ Phoenix Legal ]
- Srisabarirajan, Principal Associate [ Phoenix Legal ]

jyoti-singh-srisabarirajan

While the Ordinance has brought in sufficient changes in law to ensure a speedy and effective dispute resolution mechanism for commercial disputes in India, much will depend on how it will be implemented by the courts. Despite few practical difficulties, if it is implemented in true spirit, the Ordinance may well be the steppingstone for upcoming judicial reforms in India

With a view to establish a more stable and efficient dispute resolution mechanism in India for commercial disputes, the President of India has recently on October 23, 2015, promulgated the Commercial Courts, Commercial Division and Commercial Appellate Division of High Courts Ordinance, 2015 ("Ordinance"). The Ordinance is viewed as a steppingstone for reforming the civil justice system in India.

Constitution of Commercial Courts, Commercial Divisions and Commercial Appellate Divisions

The Ordinance provides for constitution of (a) Commercial Courts, (b) Commercial Divisions and (c) Commercial Appellate Divisions. The Commercial Courts are to be constituted at the district level by the State Government after consultation with the concerned High Court. However, no Commercial Court shall be constituted for the territory over which the High Court has original civil jurisdiction. In all High Courts, having original civil jurisdiction, Commercial Division is to be constituted with one or more benches consisting of a single judge by order of the Chief Justice of the concerned High Court. After constitution of Commercial Courts or Commercial Division, as the case may be, Commercial Appellate Division having one or more division benches is to be constituted by order of the Chief Justice of the concerned High Court.

Commercial Dispute with a Specified Value

The Ordinance provides that Commercial Courts shall have the jurisdiction to try all suits and applications relating to 'Commercial Disputes' of 'Specified Value'. The definition of 'Commercial Disputes'under the Ordinance is very wide and covers disputes in relation to a wide variety of commercial transaction including general commercial contracts, joint venture agreements, shareholders agreements, subscription & investment agreements, partnership agreements, intellectual property rights, insurance & re-insurance and any other commercial disputes as may be notified by the Central Government.

'Special Value' as per the Ordinance is the value of the subject matter, in respect of a suit, being not less than one crore rupees or such higher value as may be notified by the Central Government.

Jurisdiction

Commercial Courts are to have jurisdiction over all suits and applications of Commercial Dispute of the Specified Value arising out of such territory of the state over which the State government has granted it jurisdiction. The jurisdiction of Commercial Divisions of High Courts will extend to all suits and applications relating to commercial disputes of Specified Value over which the High Court has ordinary original civil jurisdiction. Appeals from the decisions of the Commercial Court and Commercial Division must be brought before the Commercial Appellate Division of the concerned High Court within sixty days of the judgement/order.

The jurisdiction over Commercial Disputes arising out of the Arbitration and Conciliation Act, 1996 ("Arbitration Act"), shall lie with the Commercial Appellate Division if the arbitration is an international commercial arbitration. If it is not an international commercial dispute and the application under the Arbitration Act can be filed on the original side of the High Court, the Commercial Appellate Division will still have jurisdiction. However, if the application would ordinarily lie before a civil court of original jurisdiction other than the High Court, then the Commercial Court shall have the jurisdiction.

Transfer of Pending Suits

All suits and applications which are pending before the High Court and civil court which are commercial disputes of Specified Value shall be transferred to the Commercial court, Commercial Divisions of the High Court or the Commercial Appellate Division depending on the jurisdiction. However, the case being transferred must not be one where the final judgement has been reserved by the court prior to the constitution of these courts.

Procedures

The Ordinance provides for certain amendments to the Code of Civil Procedure, 1908 (CPC) with a view to expedite the trial in commercial disputes. The Ordinance explicitly states that in any instance of conflict, it is the provisions of the Ordinance which shall prevail over any other law. Otherwise, the provisions of the Ordinance shall supplement the other laws. Some of the key changes that have been brought about by the Ordinance in procedural aspects are stated below:

(a) Summary judgement

A new procedure of summary judgement has been introduced by the Ordinance, where the parties may seek judgement of the court summarily, without any requirement for oral evidence, at any point before the framing of issues in case the party feels that the plaintiff has no real prospect of succeeding or the defendant has no real prospect of successfully defending the suit. On filing of such application for summary judgement, the judge may give a judgement on the claim, dismiss the application, strike out pleadings, dismiss part of the claim and give a judgement on the rest or give a conditional order.

(b) Strict timelines
  • (i) Filing of written statement: In case the Written Statement is not filed within 30 days as prescribed under Order V and Order VIII of the CPC, it can be filed later for reasons recorded by the court in writing and on payment of costs. However, the same must be done within a period of 120 days from the date of summons or the defendant's right to file written statement will be forfeited.
  • Disclosure of documents: A list of all documents relied on by the party, and relating to any matter in question and which is in the power, possession or control of the party on the date of filing must be filed along with the plaint or written statement as the case may be. Leave of the court may be sought in case of urgent filing to rely on additional documents, but such additional documents must be filed within 30 days of filing of suit. The parties shall not be allowed to rely on documents other than those disclosed with the plaint, unless the court grants leave to do so.
  • Inspection of documents: Inspection of all disclosed documents must be finished by the parties within 30 days of filing of the written statement or counter-claim, whichever is later. The court may, on application, extend this time period, but not beyond further 30 days.
  • Admission/denial of documents: The admission or denial of all disclosed documents must be submitted within 15 days of the completion of inspection.
  • Production of documents: Any party or the court may seek production of any documents during the pendency of the suit, and the same must be produced within a period of 15 days from the issue of notice. In the event of failure to do so without sufficient cause, the court may order costs and draw an adverse inference against the defaulting party.
  • Case management hearing: The Ordinance empowers the court to conduct a case management hearing to ensure that the trial gets conducted within a specified period of time. The first case management hearing is to be held within 4 weeks of filing of the affidavit of admission and denial of documents by all parties. The courts must ensure that arguments are closed within 6 months from the date of the first management hearing. Recording of evidence should be endeavoured to be carried out on a day-to-day basis.
  • Pronouncement of Judgement: As per the Ordinance, the court must pronounce its judgement within 90 days of the conclusion of arguments.
(c) Limited appeal & no revision

The Ordinance provides that appeals from the orders of the Commercial Court or Commercial Division of High Court will lie before the Commercial Appellate Division only in cases specifically mentioned under Order XLIII of the CPC and under Section 37 of the Arbitration Act. All appeals from the decisions of the Commercial Courts or Commercial Divisions must be brought before the Commercial Appellate Division within 60 days of the judgement/order.

Further, under the Ordinance, no civil revision application/ petition shall lie against any interlocutory order of a Commercial Court and any such grievance against the order may only be raised in appeal against final decree.

Analysis

(a) No appeal or revision against certain orders

As stated above, the Ordinance has limited the scope of appeal and also eliminated the scope of revision. While this will expedite the process, it may also create certain practical difficulties for some litigants. For instance, following orders cannot be challenged by way of an appeal or revision:

  1. Order dismissing application under Order 7 Rule 11 of CPC for rejection of plaint.
  2. Order granting or rejecting interlocutory reliefs under Order 39 Rule 1 of CPC.
  3. Condition order under Order XIII-A Rule 7 of CPC, which has been newly inserted through the Ordinance, including an order requiring parties to deposit a sum of money or to give security.
  4. Orders that may be passed under Order XV-A Rule 6 of CPC, which has been newly inserted through the Ordinance, including, (a) dismissal or judgement on a claim after a decision on a preliminary issue, and (b) rejection of any affidavit of evidence filed by the parties.

The restriction on appeal and revision in such cases may prove counter-productive when there is an apparent error or misapplication of law made by the courts.

(b) Differential treatment in arbitration matters

In domestic arbitration matters, the Ordinance calls for a differential treatment between arbitrations which fall within a High Court with original side jurisdiction and a High Court which does not have original jurisdiction. If the High Court has original jurisdiction, the Commercial Appellate Division will have jurisdiction. However, if an application would ordinarily lie before a civil court of original jurisdiction other than the High Court, then the Commercial Court shall have jurisdiction.

To put it in perspective, if an application under the Arbitration Act is to be made in Mumbai, the Commercial Appellate Division will have jurisdiction; but if the application is to be made in Pune, the Commercial Court in Pune will have jurisdiction to entertain the dispute. This provides an additional right to parties to appeal against the final order of the Commercial Court before the Commercial Appellate Division. This amounts to differential treatment to matters of similar nature made because they are in different territorial jurisdictions;and more so since there is no appeal prescribed against any order of the Commercial Appellate Division.

(c) Timelines - a bit too much for the courts?

Although it is indispensable that strict timelines are adhered by the courts, the timelines provided in the Ordinance might be bit unrealistic for various courts given the backlogs and the judicial vacancy. More particularly, in High Courts with original jurisdiction where the percentage of civil suits being commercial disputes is high, the six (6) month timeframe, from the date of case management hearing, for final disposal of the proceeding and recording of evidence on day-to-day basis might prove to be unrealistic.

As per the Law Commission Report (Report No.253, January 2015) as on December 31, 2013, 51.74% of the pending civil suits are commercial disputes. The percentage of pending civil suits that are commercial disputes in High Courts with original jurisdiction, as on December 31, 2013, is as follows:

Pendency of 'commercial disputes' in High Courts with original jurisdiction

High Court

Total Number of Civil Suits pending

Total Number of Commercial Disputes pending

% of Civil Suits that are Commercial Disputes

Bombay 6081 1997 32.83%
Calcutta 6932 5352 77.20%
Delhi 12963 3582 27.63%
Himachal Pradesh 354 88 24.8%
Madras 6326 5865 92.71%
Total 32656 16884 51.74%
(d) Applicability of timelines to transferred matters

The Ordinance remains silent on the applicability of amendments made thereunder to the CPC provisions with respect to various timelines to the matters which are being transferred from the civil courts to commercial courts under the Ordinance.

(e) Hearing of Writ Petitions concerning commercial disputes by Commercial Divisions

The Law Commission of India, in its Report No.253, had recommended that even commercial disputes which are appealed to the High Court from a tribunal, under a statute such as the Copyright Act, 1957 or the Trade Marks Act, 1999 be heard and disposed of by the Commercial Appellate Division. To prevent any ambiguity, the Law Commission of India had also recommended that names of such tribunals are specified in law. More so because, a public interest litigation may, on some occasions, refer to a commercial agreement, but the issues involved could be wider and may require different considerations.

However, the Ordinance did not consider this recommendation and remain silent on hearing of writ petitions concerning commercial disputes by Commercial Divisions of the High Courts.

Take Away

While the Ordinance has brought in sufficient changes in law to ensure a speedy and effective dispute resolution mechanism for commercial disputes in India, much will depend on how well it will be implemented by the courts. Despite few practical difficulties, if it is implemented in true spirit, the Ordinance may well be the stepping-stone for upcoming judicial reforms in India.

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

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