India: Analysis Of The Commercial Courts, Commercial Division And Commercial Appellate Division Of High Courts Act, 2015

The efficiency of the legal system and the pace at which disputes are resolved by courts are very important factors in deciding the growth of investment and the overall economic and social development of a country. The inefficiency of our justice delivery system is well known and well documented. The Commercial Courts, Commercial Division and Commercial Appellate Division of High Courts Act, 2015 ("Act") is an important step taken by the Government to expedite the justice delivery system at least as regards commercial disputes.

Brief overview of the Act

The Act provides for a separate set of Commercial Courts to be set up by State Governments at the District level to try suits and claims pertaining to commercial disputes of a value of at least Rs.1 crore and above. In states where the High Court exercises original civil jurisdiction, the High Courts are expected to set up Commercial Divisions to try such commercial disputes. The Act also requires the High Courts to set up Commercial Appellate Divisions within each High Court to hear appeals from the orders of Commercial Courts and Commercial Divisions ("Courts") and endeavor to dispose of them within 6 months of their filing date. The Act also amends the Code of Civil Procedure, 1908 ("CPC") as will be applicable to the Courts, which shall prevail over the existing High Courts Rules and other provisions of the CPC, so as to improve the efficiency and expeditious disposal of commercial cases.

Commercial Disputes

The Act attempts to cover a broad range of disputes within the scope of a 'commercial dispute'. The definition broadly covers commercial disputes arising from ordinary transactions of merchants, bankers, financiers and traders such as those relating to mercantile documents, export and import of merchandise or service, admiralty and maritime law, transactions relating to aircraft, etc., carriage of goods, construction and infrastructure contracts including tenders, agreements relating to immovable property used exclusively in trade and commerce, infringement of Intellectual Property Rights, exploitation of natural resources, insurance, etc. The definition also includes disputes arising out of agreements of franchising, distribution, licensing, management, consultancy, JV, partnership, shareholders, subscription, investment, etc.1 It also clarifies that a dispute shall not cease to be commercial dispute merely because it may involve action for recovery of immoveable property or for realization of monies out of immovable property given as security or one of the contracting parties is the State or a private body carrying out public functions.2 To curb litigations on the issue whether a particular dispute is a commercial dispute or not, not only at the Commercial Court level but also in appellate fora, the Act provides that if the Commercial Court were to hold in favor of its jurisdiction and treats a particular dispute as a commercial dispute, such a decision cannot be challenged in the Appellate fora on the basis that such a ruling would not actually cause any prejudice to the opposite party.

Steps towards expeditious disposal

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 Courts. It also acknowledges that piece meal 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. To curb frivolous claims or defenses being raised and to cut short litigation, provisions have been made for a party to apply for a summary judgment without trial, either for dismissal or decreeing of a suit or for acceptance or rejection of any particular claim or defense. Summary judgment can be granted if a party can show to the court that there is no real prospect of the other party succeeding in its claim or defense, as the case may be. Further, even if the Court were to find that there is a possibility of the claim or defense succeeding after trial, but it looks improbable, the Court is empowered to put the party whose case appears to be weak, to certain terms including for deposit of monies or to provide security for costs etc., before proceeding with the trial.

The other important step provided for by the Act is to mandate the Courts to have case management hearings once pleadings are completed, wherein the Courts would frame issues and set dates for trial, filing written arguments and addressing arguments. To do away with the earlier system where affidavits of witnesses were filed one after the other, it is now mandated that affidavits of all the witnesses be filed simultaneously. It empowers the Courts to even limit the time for oral arguments and provides for filing of written arguments before oral arguments are commenced. It also provides for the arguments to be concluded within 6 months from the first case management hearing. To curb judges from taking their own time in pronouncing judgments, it provides for a time limit of 90 days for pronouncement of judgment. Further, to curb the practice of every other interim order of the court being challenged in appellate fora, which tends to prolong the trial, all such challenges (excepting those orders for which appeals have been specifically provided for, such as orders for attachment, injunction and receiver and those passed under Section 37 of the Arbitration and Conciliation Act, 1996) are prohibited. Finally, detailed provisions have been made to encourage the Courts to impose realistic costs to discourage frivolity and protraction of trial.

Analysis and Comments

The Act is a laudable piece of legislation and a step in the right direction. The spirit behind the amendments to the CPC is also appreciable. However, there is justified skepticism as to whether the Act and the amendments to the CPC will really work on ground in the way it is envisaged. The definition of commercial dispute, though covers various categories of disputes, to curb litigation on the question as to whether a particular dispute is a commercial dispute at all, it would perhaps have been appropriate to define commercial disputes in the negative, by listing those which would not be commercial in nature such as matrimonial disputes, succession disputes, etc. The definition of commercial dispute as it stands gives potential for debates and issues to arise as to whether a dispute is a commercial dispute at all. In some ways, the definition also does not display any rationale. For example, Section 2(1)(c)(xiii) refers to disputes arising out of subscription and investment agreements pertaining to the services industry only. However, such disputes may very well arise in the manufacturing industry and an express mention of only the services sector may create confusion regarding the Court's jurisdiction over a dispute arising out of such an agreement pertaining to the manufacturing or trading sector and one cannot make out any rationale as to why only disputes arising out of subscription and investment agreements pertaining to the services industry are mentioned as falling within the commercial dispute. Further, 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 exploiting immovable property for the first time for commercial purposes. The entry dealing with disputes pertaining to intellectual property rights does not seem to cover or include disputes pertaining to breach of confidentiality.

Therefore, one can envisage lawyers for the defense exploiting vagueness in these definitions to question the jurisdiction of the Courts over a particular dispute and this may prolong trial. Since commercial disputes only of the value of Rs.1 crore and above can be raised in the Courts, there could similarly be jurisdictional issues raised on the basis of valuation. While the State Court fee legislations may not necessarily provide for valuation to be on ad-valorem basis based on market value, the Act provides for a separate method of valuation for deciding as to whether a dispute would be of value of Rs.1 crore and for suits relating to movable or immovable property, irrespective of the nature of relief sought, the valuation is dependent upon the market value of these properties. This issue itself could become the subject of debate and may require separate evidence on valuation. For example, in a shareholders' dispute relating to shares, even though the court fee legislation of a State may not provide for an ad-valorem court fee, the valuation of shares can become a contentious issue in such suits involving evidence as to share valuation for deciding whether it would come within the pecuniary jurisdiction of a Commercial Court.

A distinct drawback of the present legislation is the adoption of the US principles pertaining to discovery of documents. The process of discovery proves to be painful and costly, which is one of the reasons why parties in the western common law countries move away from courts and adopt arbitration, is well known. The procedures as available in the CPC were sufficient to allow discovery and production of documents in all just cases and where found necessary. However, 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. Further, 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.

Even though the provision for summary judgment is laudable, in practice there could be serious debate as to under what circumstances could it be considered that a party has no real prospect of succeeding in its claim or defense. Even in cases attracting summary procedure, courts in India have been liberal in granting leave to defend and that too without putting conditions and if the same approach is continued, the object of having such procedure for summary judgement may not be achieved. There is therefore a real apprehension that this provision could again be misused to further prolong trials.

The amendment of provisions dealing with costs still leave discretion with the judges and one cannot expect a dramatic change in the extent of cost that would be imposed by the Courts. The setting out of detailed provisions for the manner in which affidavits are to be filed, the contents of affidavit, provision for striking of portions of the affidavit, etc. are likely to lead to more applications by either parties seeking the Courts to exercise its powers purportedly for ensuring compliance with these detailed procedures, but obviously with a view to further prolong trial. While the provisions for case management hearings and for closing trials within 6 months are noble in thought, there are apprehensions that these would meet the same fate of several other legislations which have tried to fix specific timelines for conduct and disposal of judicial and quasi-judicial proceedings.

Finally, unless Commercial Courts are set up in all the districts by all States within a short span of time, sufficient number of judges are appointed to the Courts, appropriate infrastructure is provided, salary of judges are dramatically increased to attract better talented, trained and competent persons who are selected, based on merit, to head these courts, and there is a change in the very mindset and attitude of both the judges and the lawyers functioning in the Courts, it may turn out that the object of the Act may not be achieved at all.


1. S. 2(1)(c)

2. See Exp. to S. 2(1)(c)

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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