India: The Commercial Courts Act: Is It The Solution For Delayed Justice

The Need for the Act

The Indian judicial system today is burdened with lakhs of pending cases, most of which are pending since long periods of time. This high amount of pendency is ascribable to cumbersome procedures, adjournments and attempts by parties to stall proceedings. There are thousands of instances where justice delayed has meant justice denied.

Given that many of the pending civil cases are of a commercial nature, the Indian legislature hopes to rectify the slow disposal of rates of 'commercial disputes' of a 'specified value' by enacting the Commercial Courts, Commercial Division and Commercial Appellate Division of High Courts Act, 2015 (Act). Additionally through the Act, which provides for speedy disposal of commercial disputes the Government of India hopes to create a positive image of the Indian judiciary in the minds of foreign investors and aims at increasing the ease of doing business in India.

Commercial Disputes and Specified Value

The Act governs the manner in which 'Commercial Disputes' of a 'Specified Value' are to be tried and disposed of. The term 'Commercial Disputes' has been defined under Section 2(c) of the Act by providing an exhaustive list of subjects which includes all disputes arising out of commercial transactions. It also includes disputes arising out of transactions of merchants, bankers, financiers, construction and infrastructure contracts, immovable property used in trade or commerce, joint venture agreements, shareholders' agreements, intellectual property rights, among others. 'Specified Value' as per Section 2 (i) read with Section 12 of the Act relates to the value of the subject matter of the commercial dispute which shall not be less than one crore rupees or such higher value as may be notified by the central government.

Structure of Courts

The Act, at its very essence, changes the structure of forums that will hear 'Commercial Disputes'. It provides for the establishment of Commercial Courts/ Commercial Division and Commercial Appellate Division.

Commercial Courts are to be established by the State Government at the district level where High Courts do not exercise an ordinary original civil jurisdiction.

Where there are High Courts that exercise an ordinary original civil jurisdiction, Commercial Divisions are to be established in the said High Courts by the Chief Justice of such High Courts.

The Chief Justices of High Courts are also required to constitute a Commercial Appellate division and appoint judges of the High Court to be judges of the Commercial Appellate Division.

Under Section 13 of the Act, all appeals from the Commercial Courts and Commercial Division will lie with the Commercial Appellate Division provided they are filed within a period of 60 days from the date of judgment or order. This is inconsistent with Article 116 of the Limitation Act, 1963, which provides a limitation period of 90 days to file a first appeal to a High Court from any decree or order. However, Section 21 of the Act provides that the provisions of this Act shall have effect notwithstanding anything inconsistent contained in any other law for the time being in force.

The Commercial Appellate Division is required to dispose of appeals filed before it within a period of 6 months from date of filing.

The Act also provides that all suits and applications relating to 'Commercial Disputes' which are of the 'Specified Value' and are pending in a High Court must be transferred to the Commercial Division of such a court and which are pending in any civil court in any district in which a commercial court has been set up should be transferred to such court unless the final judgment in such a matter has been reserved before the constitution of such Commercial Division or Commercial Court as the case may be. This may lead to practical and logistical difficulties initially as the Courts will have to deal with transferring 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 Courts' being above the 'Specified Value'.

Applicability of the Act to Arbitrations

The Act is also applicable to all applications and appeals under the Arbitration and Conciliation Act, 1996 (Arbitration Act) arising out of arbitrations where the subject matter of the arbitration is a 'Commercial Dispute' of a 'Specified Value'.

By virtue of an amendment to the Arbitration Act (effective from 23 October, 2015) all international commercial arbitrations can only be heard by High Courts. If these international commercial arbitrations fall within the definition of 'Commercial Disputes' and are of a 'Specified Value', then the same have to be heard by the Commercial Division of such High Courts. Further, all domestic commercial arbitrations, provided they are 'Commercial Disputes' of a 'Specified Value' which have been filed in the High Court shall be heard by the Commercial Division of such court, whereas all domestic commercial arbitrations which would ordinarily lie before a civil court shall be filed before a Commercial Court of the district, provided they are 'Commercial Disputes' of a 'Specified Value'.

Amendments to Civil Procedure Code, 1908

In order to change and improve upon the manner in which 'Commercial Disputes' of a 'Specified Value' are to be tried and decided, the Act provides for certain amendments to be made to applicable provisions of the Civil Procedure Code, 1908 (Code). Section 16 of the Act provides that the provisions of the Code shall in their application to any suit in respect of a 'Commercial Dispute' of a 'Specified Value', stand amended as specified in the Schedule to the Act.

However, the manner in which the Code has been amended may give the impression that Code stands amended even for suits that are not 'Commercial Disputes' of a 'Specified Value'. It would be ideal if the appropriate authorities clarify as to whether the Code stands amended with regards to suits that are not 'Commercial Disputes' of a 'Specified Value'.

Summary Judgments And Case Management Hearings

The Act by amending the Code critically for the first time introduces Summary Judgements (Order XIII-A) and Case Management Hearings (Order XV-A).

  1. A Summary Judgement is one which is pronounced by the Court without recording oral evidence. However it does not apply to disputes originally filed as summary suits, the Act and consequentially the amendments to the Code came into force. For the purposes of Order XV-A, the word claim includes a part of a claim or even a counter claim.
  2. An application for a Summary Judgement can be filed any time after summons has been served on the defendant but before the issues have been framed. A court can give a Summary Judgement against the plaintiff or defendant if it believes that plaintiff has no real prospect of succeeding on the claim or if the defendant has no real prospect of successfully defending the claim, or if there is no compelling reason why the claim should not be disposed of before recording oral evidence. Summary Judgement helps with the quick disposal of cases.
  3. The Court is required to hold the first Case Management Hearing not later than 4 weeks from the date of filing of affidavit of admission or denial of documents.
  4. The orders which are to be passed in such a hearing include framing of issues, listing witnesses to be examined by the parties, fixing the dates by which affidavit of evidence and written arguments are to be filed, fixing the date on which evidence of the witnesses should be recorded and oral arguments are to be heard and setting time limits for parties to address oral arguments.
  5. The courts must ensure that the arguments are closed not later than 6 months from the date of the first case management hearing. It must also ensure that the oral evidence is recorded on a day-to-day basis.

The amendments to the Code provide a planned approach to the litigation process making it quick and efficient. In fact it is theoretically possible to have a 'Commercial Dispute' heard and disposed of in the regular course within 1 year and 15 days from its institution, as more particularly explained by the following table:

Conclusion

While the Act and the amendments to the Code (as far as 'Commercial Disputes' of a 'Specified Value' are concerned) have been introduced with the right intent to reduce pendency and delays plaguing litigation in India, only time will tell how well the provisions of the Act will be enforced by the Courts. Implementation will be the real test of the Act's effectiveness. To ensure that the Act is a success, a lot will depend on the appointment of more judges, on earnest compliance of timelines and procedures by the advocates and parties, it is very clear that this Act is the need of the hour and can prove to be beneficial in the long run.

The Act sets out a strict timelines that need to be adhered to thereby making the litigation process quick and effective. All in all the Act promotes speedy disposal of commercial matters which in turn will increase foreign investments in India and will change the impression of the Indian judicial system for the better.

The content of this document do not necessarily reflect the views/position of Khaitan & Co but remain solely those of the author(s). For any further queries or follow up please contact Khaitan & Co at legalalerts@khaitanco.com

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