The justice delivery system of our country can be excruciatingly slow. In commercial disputes, time is of the essence and delays can derail the entire remedy and relief and undermines business confidence in Indians as well as those interested in investing in India. In the case of White Industries Australia Ltd. v. Union of India [see end note 1], inordinate delays in the legal process was viewed as a breach of investment treaty obligation by India.
In order to strengthen the investor beliefs and the ease of doing business in India [see end note 2], the Government proposed changes to the existing Arbitration laws and the Court systems through an Ordinance in October, 2015. The ordinance relating to the establishment of Commercial Courts, Commercial Division and Commercial Appellate Division has subsequently been enacted as Act, 2015 [see end note 3].
The article summarizes the background, need for such legislation, its salient features, and the positive impact in creating a more effective redressal system.
The need for such a model of courts was addressed way back in the 188th Law Commission Report published in 2003. The report stressed on the need for having technologically equipped fast track commercial divisions in High Courts, to address the rise in high value litigation as an off-spring of liberalisation and privatisation [see end note 4]. It also looked into the feasibility of systems such as e-courts, e-filing, video conferencing in the Commercial Divisions emulating the models abroad. The Cabinet in the year 2009 introduced the Commercial Division of High Courts Bill, 2009 which was examined in detail by the Select Committee of the Rajya Sabha and subsequently by the 253rd Law Commission Report [see end note 5].
The 253rd Law Commission Report, which focuses on the 2015 legislation draws its ground from the shortcomings of the 2009 Bill. The difficulties of lack of original jurisdiction in all High Courts, differences in pecuniary limits within the same Court, heavy backlog of cases and transfer of cases have been discussed in the light of the 2015 legislation in the Report [see end note 6].
Both the law commission reports refer to the existing and successful models in countries like UK, USA, Singapore and eleven others. The purpose of the Commercial courts in the UK was to provide a simplified procedure for the mercantile community with briefer procedures and experienced judges [see end note 7].Similar objectives could be traced to the establishment of first set of Commercial Courts in New York in USA [see end note 8]. Within a short period (of five years, (1993-1998), the New York Courts reported a 36% reduction in the average time to dispose cases and reduction in the number of days taken to settle a case from 648 to 412 days [see end note 9]. Other countries such as Scotland, Manila and Singapore have achieved expected results by adopting Commercial Courts Divisions in their respective Judicial Systems.
Salient Features of 2015 Act:
The Act brings into effect three types of Courts for adjudicating commercial disputes, two at the Original Jurisdiction Stage and one at the Appellate Jurisdiction stage.
In the High Courts of Original Jurisdiction, a commercial division shall be carved out to deal with the commercial disputes. In all other cases, a Commercial Court shall be established at the district level to deal with such disputes. The appeals from such adjudications shall be to the Commercial Appellate Division in all High Courts.
A commercial dispute is defined to include any dispute related to transactions between merchants, bankers, financiers, traders, etc. The transactions could be of the nature of dealing in mercantile documents, partnership agreements, intellectual property rights, insurance, management and consultancy services, joint ventures, shareholders agreements or exploitation of natural resources [see end note 10]. The Explanation makes it clear that even governmental contracts fall within the ambit of this definition [see end note 11].
The ‘Specified Value’ of a commercial dispute has been marked at 1 crore rupees and above and Section 12 provides for the procedure for determination of the Specified Value in various cases. Thus, the pecuniary jurisdiction of the Commercial Courts is pegged at Rupees 1 crore and above.
Appointment of Judges:
The provision for appointment of more judges with special expertise in handling commercial disputes has been made in the Act. Furthermore, Section 20 puts the onus on the State Governments to ensure adequate and continuous training facilities for the judges in the Commercial Courts, Divisions and Appellate Divisions.
Amendments to the Code of Civil Procedure:
Requisite amendments to the Code of Civil Procedure, 1908 have been made through this Act [see end note 12]. Section 9 of the Act allows for the transfer of a suit to the commercial division if the counterclaim value of the suit is of a Specified Value.
Time bound evaluation of Appeals:
Appeals are to be disposed within a period of six months from the institution of the appeal [see end note 13].
Transfer of Pending Suits:
The Act provides for the transfer of pending suits to these Commercial Divisions from the date of the establishment of these courts. However, the suits pending only the final order shall not be transferred [see end note 14].
All is not green yet:
Time Bound evaluation of disputes:
The Act gives a time frame only for the disposal of the appeals and not for the adjudication of the original dispute. A time bound remedy is essential even in the initial stage to make the system work effectively and achieve the true objective behind setting up of these Courts. Further, the model as proposed in the 246th Law Commission Report on Arbitration and Conciliation can be adopted. A new provision may be inserted making it mandatory for the disposal of a case in 12 months, which in certain exceptional cases could be extended to 18 months [see end note 15]. Even though a radical approach, any delay beyond 18 months, may result in some form of disincentive for the judge if the same has been delayed without adequate cause.
The Broad Definition of the Commercial Disputes harnesses a huge potential for a plethora of litigation to come. Other such exclusions need to be prevented and an all industry consensus to this definition is one step to be taken at the earliest.
Qualification of Judges:
The procedure for appointment is very vague. The procedure for nomination of judges to the High Court Divisions should be transparent and objective with a stated criteria for eligibility. Perhaps a separate examination for selection and appropriate remuneration will ensure that the best talent is recruited to these specialized courts. Training and development facilities must also be taken up meticulously and regularly to ensure that the quality of judicial pronouncements are of the highest standard.
The present Act does not provide for any new or technologically advanced method of conducting the court procedures. The suggestions of e-filing, video conferencing of witness, and use of the latest technology will go a long way in making these courts at par with the systems being followed in some countries. It is relevant to note that change is already underway but the rate of adoption and adaptation to change and technology is too slow in a fast changing world.
The move towards establishment of the Commercial Courts and Commercial Divisions in India is an idea whose time has already arrived some time ago. The seamless functioning of these courts and an effective justice delivery system will make the effort and initiative system must be ensured by holistically including all stake holders and devising pragmatic solutions to the problems. The advancements in technology have to be used to our advantage to be able to perceive results akin to other countries.
[The author is a Principal Associate, Corporate Practice, Lakshmikumaran & Sridharan, Hyderabad]
- UNCITRAL Arbitration Tribunal in Singapore, Final Award dated 30th November, 2011- While dealing with the question as to whether Republic of India had failed to provide effective means for asserting claims and enforcing rights – the Tribunal held, in para 11.4 (including the sub-paras) of the award, that India breached the BIT because of the delay caused by the Indian court in deciding the jurisdiction.
- http://www.thestatesman.com/news/law/will-commercial-courts-speed-up-justice/122734.html, last accessed, 22nd Feb, 2016 at 1:30 pm.
- Act IV of 2016
- Report 188, Law Commission of India, 2003
- Report 253, Law Commission of India, 2015, p. 8
- Ibid, p. 11-28
- Supra Note 4, p. 28
- Ibid, p.29
- Ibid, p. 33
- Supra Note 3, Section 2(1)(c)
- Ibid, Explanation to Section 2(1)(C)
- Ibid, Section 16 r/w Schedule 1,
- Ibid, Section 14
- Ibid, Section 15
- Srivastava, Dastur, India Puts its Best Foot Forward- Union Cabinet paves the way for amendments to the Arbitration & Conciliation Act, 1996, Lex Witness, Volume 7 Issue 4, November 2015,p. 40