India: Delhi High Court Reinstates Substantive Right To Appeal Post Transition From Commercial Courts Ordinance To Commercial Courts Act

On 14 July 2017, the Hon'ble Delhi High Court, in the matter Simplex Infrastructures Limited v. Energo Engineering Projects Limited & Anr, (Review Petition No. 81 of 2016 in OMP (I) (COMM.) No. 55 of 2015) recalled its order dated 10 December 2015 and restored the petition originally filed under Section 9 of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as "the 1996 Act") which was dismissed by a Commercial Appellate Division (Division Bench) during the transition from the Commercial Courts, Commercial Division and Commercial Appellate Division of High Courts Ordinance, 2015 (hereinafter referred to as "the 2015 Ordinance") to the Commercial Courts, Commercial Division and Commercial Appellate Division of High Courts Act, 2015 (hereinafter referred to as "the 2015 Act").

Background

The matter involved an interesting proposition of law in dealing with the fate of a petition filed under Section 9 of the 1996 Act which was adjudicated by the Commercial Appellate Division (i.e., a Division Bench) of the High Court under Section 10(2) of the 2015 Ordinance instead of the Commercial Division (i.e., a Single Bench) of the High Court during the intervening period while the 2015 Ordinance was still in force, i.e. between 21 October 2015 and 31 December 2015.

Interestingly, the explanation to the 2015 Ordinance provided that a Commercial Appellate Division must be set up in all High Courts to hear appeals against orders made by the Commercial Courts and the Commercial Division of the High Courts. However, in view of a mistake in Section 10(2) of the 2015 Ordinance, there was ambiguity on whether the right to appeal under Section 37 of the 1996 Act – which is a substantive right of litigants against an order passed under Section 9 of the 1996 Act – was effectively removed.

To add to this ambiguity, Section 23 of the 2015 Act provided that notwithstanding it being repealed, any action taken under the 2015 Ordinance must be deemed to have been taken under the 2015 Act. In other words, orders passed by the Commercial Appellate Division under Section 9 of the 1996 Act during the intervening period must be deemed to have been passed by the Commercial Division.

This interpretation lead to an objectively absurd outcome, as parties aggrieved by an order of the Commercial Division were automatically prevented from preferring an appeal under Section 37 of the 1996 Act.

In the above background, Simplex preferred a review petition against an adverse order dated 10 December 2015 passed by the Commercial Appellate Division upon hearing its petition under Section 9 of the 1996 Act since it was deprived of its substantive right to appeal under Section 37 of the 1996 Act.

Per Contra, interestingly on the very same date (i.e. 10 December 2015) another Commercial Appellate Division Bench of the Hon'ble Delhi High Court in Ascot Estates Pvt Ltd v Bon Vivant Life Style Ltd (OMP (COMM.) No. 16 of 2015) was faced with a similar issue of whether the right to appeal conferred by Section 37 of the 1996 Act – which was specifically preserved by Section 13 of the 2015 Ordinance – was effectively removed by Section 10 of the Ordinance.

In Ascot Estates, the Commercial Appellate Division:

  • interpreted Sections 10(1) and 10(2) of the 2015  Ordinance harmoniously with Section 13 of the 2015 Ordinance, holding that the substantive right to appeal conferred by Section 37 of the 1996 Act was preserved; and
  • read down Section 10(2) of the 2015 Ordinance, holding that all applications under the 1996 Act relating to commercial disputes of a specified value must be adjudicated only by the Commercial Division.

Judgment

The Hon'ble Delhi High Court allowed the review petition of Simplex, inter alia, holding that:

  • As noted by another Division Bench of the Court in Roger Shashoua v. Mukesh Sharma (OMP (COMM.) No. 16 of 2015) in an order dated 30 November 2015 there was inherent inconsistency in Section 10(2) of the 2015 Ordinance inasmuch as it took away the statutory right of filing an appeal under Section 37 of the 1996 Act.
  • Thereafter, on 10 December 2015, the Commercial Appellate Division of the Court in Ascot Estates Case held that all applications under the 1996 Act of a specified value have to be adjudicated by a learned Single, i.e. Commercial Division of this Court and not the Commercial Appellate Division, i.e., Division Bench of this Court.
  • On 31 December 2015, the 2015 Act was enacted replacing the 2015 Ordinance and the inherent inconsistency in Section 10(2) of the 2015 Ordinance was rectified.
  • Consequently, under Section 3(1) read with Section 10 (2) of the 2015 Act, all applications under Section 9 of the 1996 Act are to be heard by a learned Single Judge, i.e., the Commercial Division and not by the Division Bench i.e. the Commercial Appellate Division. Further, the 2015 Act was retrospectively in effect from 23 October 2015, i.e., the date on which the 2015 Ordinance was promulgated.
  • Under the repeal and savings clause contained in Section 23 (2) of the 2015 Act anything done or any action taken under the 2015 Ordinance shall be deemed to have been done or taken under the 2015 Act. However, a harmonious reading of the provision would entail that an order which was passed by a Court which inherently lacked jurisdiction would stand invalidated as null and void and would not be saved.
  • The effect of the 2015 Act read with Section 13 thereof is that from 23 October 2015 itself the Division Bench of this Court lacked the jurisdiction to directly entertain an application under Section 9 of the 1996 Act.
  • Therefore, as on 10 December 2015, the Commercial Appellate Division (Division Bench) of this Court lacked jurisdiction to pass the impugned order.
  • In view of the settled proposition of law that subsequent interpretation of law affecting the jurisdiction of this Court would constitute a valid ground for review and that issue of jurisdiction can be raised at any stage of the proceedings, the impugned order dated 10 December 2015 was recalled and reviewed and the petition under Section 9 of the 1996 Act was restored back to the file.

Comment

The judgment delivered by the Hon'ble Delhi High Court is the first judgment which reviews an order passed by the Commercial Appellate Division (Division Bench) in a petition under Section 9 of the 1996 Act instead of the Commercial Division (Single Bench) on the ground of inherent lack of jurisdiction of the Division Bench and thereby restored the substantive right to appeal available to an aggrieved party under Section 37 of the 1996 Act. This judgment may also give respite to other aggrieved parties who suffered adverse orders during the transition period between 23 October 2015 to 31 December 2015 and were unable to avail their substantive right to appeal. The judiciary took a proactive approach and provided the litigant with substantial justice instead of leaving the litigant to contest the jurisdictional issues.

Khaitan & Co represented Simplex Infrastructures Limited, as the review petitioner in the aforesaid matter whereas Energo Engineering Projects Limited was represented by Shardul Amarchand Mangaldas.

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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