On 23 October 2015, the President of India promulgated the Commercial Courts, Commercial Division and Commercial Appellate Division of High Courts Ordinance, 2015. The Ordinance provides for the constitution of Commercial Courts, and the establishment of Commercial Divisions and Commercial Appellate Divisions within High Courts to adjudicate 'Commercial Disputes'. The Ordinance amends certain provisions of the Civil Procedure Code, 1908, to the extent applicable to 'Commercial Disputes' and also prescribes timelines to streamline the conduct of such 'Commercial Disputes'.
To provide fresh impetus to ease of doing business in India and to facilitate smooth and prompt resolution of commercial disputes, the President of India promulgated the Commercial Courts, Commercial Division and Commercial Appellate Division of High Courts Ordinance, 2015 (Ordinance) on 23 October 2015. The Ordinance brings into force the Commercial Courts, Commercial Division and Commercial Appellate Division of High Courts Bill, 2015, which was pending before Parliament but could not be cleared as Parliament was not in session.
The Ordinance, 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 (together Specialized Commercial Courts), has come into effect at once.
THE KEY FEATURES OF THE ORDINANCE ARE AS FOLLOWS.
1. Wide meaning of 'Commercial Dispute': The term 'Commercial Dispute' has been very broadly defined in the Ordinance, to encompass almost every kind of transaction that gives rise to a commercial relationship. The subject matter of such disputes could be as wide ranging as commercial contracts relating to exploitation of natural resources, intellectual property rights, insurance, construction and infrastructure contracts, government contracts, immovable property, etc. Such commercial disputes will now be adjudicated by Specialized Commercial Courts which will comprise of judges specially trained to deal with Commercial Disputes.
2. Specialized Commercial Courts at various levels: These will be categorised as follows:
(a) Commercial Courts will be constituted 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. At present, only five High Courts exercise ordinary original civil jurisdiction – the High Courts of Delhi, Bombay, Madras, Calcutta and Himachal Pradesh. Therefore, in all other states and union territories, Commercial Courts will now adjudicate upon Commercial Disputes.
(b) Commercial Divisions will be set up within High Courts which do exercise ordinary original civil jurisdiction. A Commercial Division in such states and union territories will exercise jurisdiction over all cases and applications relating to Commercial Disputes.
(c) Commercial Appellate Divisions will be set up in every High Court to hear appeals against (i) orders of Commercial Division of High Court; and (ii) orders of Commercial Courts. Interestingly, the Ordinance does not provide for a statutory right to appeal to the Supreme Court from an order of the Commercial Appellate Division. Accordingly, the Ordinance limits the number of appeals allowed in Commercial Disputes to only one.
At present, although there are no specialized designated commercial courts which hear Commercial Disputes, certain judges at the district court level predominantly hear Commercial Disputes. Similarly, in the five High Courts which exercise ordinary original civil jurisdiction in India, there are designated judges who hear Commercial Disputes. Such designated judges at the district court level and the High Court level, however, do not hear commercial matters exclusively. The Ordinance proposes to constitute and establish Specialized Commercial Courts to hear only Commercial Disputes.
3. Commercial Dispute value threshold: Under the Ordinance, only those Commercial Disputes where the value of the subject matter in respect of the said Commercial Dispute is more than Rs 1,00,00,000 (defined as Specified Value in the Ordinance), will be adjudicated by the Specialized Commercial Courts. Further, the Ordinance has also prescribed the manner in which the Specified Value of a commercial dispute is to be determined.
Given that the objective of the Ordinance is to fast track the resolution of Commercial Disputes, the threshold of Rs. 1,00,00,000 can be considered to be low. As a result, larger Commercial Disputes may not receive the focus that may have been intended through the Ordinance.
4. Existing Commercial Disputes to be transferred: Under the Ordinance, all suits and/or applications relating to a Commercial Dispute of a Specified Value pending before any civil court where a Commercial Court has been constituted will be transferred to such Commercial Court. Similarly, where a Commercial Division has been constituted (in the five High Courts exercising ordinary original civil jurisdiction), such pending suits and applications will be transferred to the new Commercial Divisions of such High Courts.
5. Jurisdiction over arbitrations: In line with the terms of the arbitration ordinance, 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 1xcept matters relating to the appointment of arbitrators in international commercial arbitrations 2.
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), shall now lie before a Commercial Court (where constituted) exercising territorial jurisdiction over such arbitration.
6. Consequent amendments to CPC: The provisions of the Code of Civil Procedure, 1908 (CPC), to the extent of its application to any suit in respect of a Commercial Dispute of a specified value, has been amended by the Ordinance to streamline the conduct of Commercial Disputes. Key amendments to the CPC are as follows:
(a) The Ordinance has introduced a new provision in the CPC, which prescribes that a Commercial Court or a Commercial Division will hold a 'case management hearing' to frame issues and fix timelines, as noted below, 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 ordinance 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 Specialized Commercial Courts 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 3 (which continue to apply to matters other than Commercial Disputes).
7. Fixed Timelines: The Ordinance, while amending the provisions of the CPC, has also introduced strict timelines to ensure prompt resolution of disputes, in the following manner:
(a) The maximum period for filing a written statement has been set at 120 days upon the expiry of which the defendant's right to file a written statement shall stand forfeited.
(b) All appeals to the Commercial Appellate Division must be made within a period of 60 days from the date of the impugned judgement and the appellate division must endeavour to dispose of the same within 6 months from when it is filed.
(c) A plaintiff seeking to adduce additional documents must make an application for the same within 30 days of filing the suit.
(d) All applications seeking leave to deliver interrogatories must be decided within 7 days from the date on which they are filed.
(e) Interrogatories shall be answered by affidavit to be filed within 10 days, however such period is extendable by the court.
(f) All parties must complete inspection of all documents disclosed within 30 days of the filing of the written statement.
(g) Any directions sought by parties for inspection of documents must be disposed of within 30 days of filing an application for such directions.
(h) Inspection of documents must be completed within 5 days of the passing of an order allowing inspection.
(i) Parties must submit their statements of admission/denial of all disclosed documents within 15 days of completion of the inspection. The court however has the discretion to fix any other such time as it deems fit for submission of these statements.
(j) Any party served with a notice to produce documents may be given up to 15 days to submit the relevant documents.
(k) The first case management hearing is to be held within four weeks from the submission of admission/denial of documents by all parties to the suit.
(l) Arguments must be concluded within 6 months from the date of the first case management hearing
(m) Written arguments under distinct heads are to be submitted by the parties within 4 weeks of the commencement of oral arguments. Thereafter, the court may allow revised written arguments to be filed within one week after conclusion of oral arguments.
(n) The court must pronounce judgement within 90 days of conclusion of arguments.
The direction of the Ordinance and some of the provisions it contains could go a long way towards achieving early resolution of Commercial Disputes, and instill a sense of confidence in the business and investor community. However, as the threshold of the pecuniary jurisdiction of the Specialized Commercial Courts as prescribed in the Ordinance is low, this may put a strain on such courts, such that adherence to certain timelines might become a practical challenge. Further, there appear to be problems in the Ordinance in respect of the potentially 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 arbitration matters 4.
The Ordinance will continue to be in effect until the Parliament formally legislates the Ordinance into a statute.
1. On 23 October 2015, the President of India also promulgated an ordinance to amend the Arbitration and Conciliation Act, 1996. Under this Ordinance, the 'Court' competent to entertain any proceedings in connection with an international commercial arbitration, will be the High Court of the relevant State with territorial jurisdiction.
2. The arbitration ordinance provides that applications for the appointment of arbitrators in international commercial arbitrations lie before the Supreme Court.
3. The CPC underwent amendment in 1976 whereby section 35A (dealing with compensatory costs in respect of vexatious claims/defences) was amended. The amended provision, which dates as far back as 1976, provided for a nominal upper limit of Rs. 3,000 exceeding which, courts could not order compensatory costs.
4. On the one hand, section 10 of the Ordinance provides that all applications and appeals arising out of arbitrations under the Arbitration and Conciliation Act, 1996 that are pending before the High Court, shall be transferred to the Commercial Appellate Division of such High Court. On the other hand, under section 15 of the Ordinance, all applications under the Arbitration and Conciliation Act, 1996 that are pending in the High Court, are to be transferred to the Commercial Division of such High Court, if constituted. There is therefore, an overlap between the jurisdiction of the Commercial Appellate Division and the Commercial Division to be constituted in the High Courts exercising original civil jurisdiction in relation to applications arising out of arbitrations under the Arbitration and Conciliation Act, 1996.
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