INTRODUCTION
The Indian Judicial System faced inordinate delays and there was a need for quick disposal of commercial disputes of high pecuniary value. The Law Commission examined the international practice of Commercial Courts and the fast track procedures therein and strongly recommended setting up Commercial Courts and Commercial Divisions in High Courts to deal with such disputes and ensure expeditious disposal of such cases.
Pursuant to the Commercial Courts, Commercial Division and Commercial Appellate Division of High Courts Act, 2015 (“the Act”) enacted on December 31, 2015 (but deemed to have come into effect from 23rd October, 2015), it is mandated to setup Commercial Courts in India and Commercial Divisions in the High Court for adjudication of commercial disputes of INR 1,00,00,000 (Indian Rupees One Crore) and above.
The Act inter alia contains provisions for (i) payment of costs in a suit, (ii) Summary Judgement and (iii) Case Management hearings, which are of utmost importance in commercial suits.
The provisions of Code of Civil Procedure, 1908 have been amended to incorporate and give legal recognition to the provisions of the Act. Commercial Divisions have already been set up in Bombay High Court and Delhi High Court and as per practice note no. 48, issued by the Prothonotary and Senior Master of the Original Side and the Registrar of the Appellate Side of the Bombay High Court, with effect from 1st June, 2016, all suits and applications relating to commercial disputes have to be filed with the Commercial Divisions of the said Court.
IMPORTANT PROVISIONS OF THE ACT AND ANALYSIS IN BRIEF
Constitution of Commercial Courts and Commercial Divisions of the High Court
The Act provides for constitution of Commercial Courts at district level by the State Government and Commercial Divisions in all High Courts having ordinary civil jurisdiction, i.e. Bombay (limited to the municipal limits of the city of Bombay), Delhi, Calcutta, Madras and Himachal Pradesh.
The Commercial Divisions and the Commercial Courts shall have the jurisdiction to try all suits and applications relating to a “commercial dispute” of INR 1 crore (i.e. 10 million) and above.
The term “commercial dispute” is defined under section 2 of the Act and includes disputes arising out of (i) construction and infrastructure contracts, including tenders, (ii) issues relating to admiralty and maritime law, (iii) agreements relating to immovable property used exclusively in trade or commerce, (iv) shareholders agreements, (v) joint venture agreements, (vi) franchising agreements, (vii) distribution and licensing agreements, (viii) management and consultancy agreements, (ix) intellectual property rights, (x) exploitation of oil and gas reserves or other natural resources and (xi) insurance and re-insurance. This Update provides a brief analysis of the important provisions of the said Act.
No appeal or civil revision application under section 115 of the Code of Civil Procedure, 1908 shall lie from an order of a Commercial Division or Commercial Court finding that it has jurisdiction to hear a commercial dispute under the Act.
Suits and applications relating to Commercial Disputes which are pending before the High Court having ordinary original civil jurisdiction shall be heard and disposed of by the Commercial Divisions of the High Court.
In case of a domestic arbitrations, all applications or appeals arising out of such arbitration under the provisions of the Arbitration and Conciliation Act, 1996 that have been filed on the original side of the High Court, shall be heard and disposed of by the Commercial Division where such Commercial Division has been constituted in such High Court.
If such arbitration is an international commercial arbitration, all applications or appeals arising out of such arbitration, shall be heard and disposed of by the Commercial Division where such Commercial Division has been constituted in such High Court.
Analysis & Comments
The coverage of “commercial disputes” is quite vast and takes in its ambit, various kinds of commercial disputes. While setting up of commercial courts and commercial divisions is indeed a very positive step, considering that commercial divisions will have to deal with a variety of complex commercial disputes, it will have to be seen whether these divisions will be in a position to dispose of these matters at a fast pace.
The Law Commission had made the following observations in the 188th Report:-
Quote
//“There is a wide variance in the pecuniary jurisdiction of the High Courts having original civil jurisdiction. Whereas the Delhi High Court has a pecuniary jurisdiction of Rupees 20 Lakhs or more, the pecuniary jurisdiction of the Madras High Court and the Himachal Pradesh High Court is above Rupees 25 Lakhs and Rupees 10 Lakhs, respectively. The Calcutta High Court’s pecuniary jurisdiction has been increased from Rupees 10 Lakhs to Rupees One Crore, but it is concurrent with the jurisdiction of the City Civil Court. The Bombay High Court’s pecuniary jurisdiction has also been enhanced from Rupees 50,000 to Rupees One Crore as a result of an amendment carried out in the year 2012. By specifying the value of Rupees One Crore or more for commercial disputes in a civil case, without recommending an increase in the pecuniary jurisdiction in the High Court, the Bill creates an incongruous situation.
Since there is no provision for transferring the lower value cases out of the High Court, it leaves us with a situation where the same High Court dealing with the same kind of cases, applies two different procedures depending on whether they are above the “specified value” or not. For instance, a commercial dispute pending in the Madras High Court with a specified value of say Rupees 99 Lakhs, will not be before the Commercial Division but a commercial dispute with identical facts and identical issues (and even possibly between same parties) having a value of Rupees One Crore, will automatically be placed before the Commercial Division.
To segregate the same kinds of cases within the High Court on the basis of their purported valuation alone is also unlikely to pass the test of non-discrimination under Article 14 of the Constitution, especially since one set of cases will follow a faster procedure than the others.
Furthermore, even if the Commercial Division takes up all commercial disputes, irrespective of their value, the system is unlikely to work due to the high pendency of cases. Vesting High Courts with the jurisdiction to hear all Commercial Disputes from across the State above Rupees One Crore, will add to their existing burden and only result in further delays in disposal of these cases by the High Courts”//
It was hence suggested by Law Commission that there should be a uniform pecuniary jurisdiction of the five High Courts having ordinary original civil jurisdiction.
Where two Courts have concurrent jurisdiction wherein the Parties have the liberty to chose any one of them under a contract, to the ouster (exclusion) of the other Courts, it may be important to consider the territory where there is a Commercial Court / Commercial Division established, for the reason that, a quick disposal of cases can be ensured in the said forums, unlike other civil courts. Additionally, the judges dealing with such matters in Commercial Courts, have a better experience, expertise and training in handling such commercial disputes.
Computation of the Specified Value of INR 1,00,00,000
Where the relief sought in a suit or application is for recovery of money, the money sought to be recovered in the suit or application inclusive of interest, if any, computed up to the date of filing of the suit or application, as the case may be, shall be taken into account for determining such Specified Value;
Where the plaintiff seeks interest, the plaint is required to state whether the plaintiff is seeking interest in relation to a commercial transaction within the meaning of section 34 of the Code of Civil Procedure, 1908. Pleadings are also required to state- (a) the rate at which interest is claimed; (b) the date from which it is claimed; (c) the date to which it is calculated; (d) the total amount of interest claimed to the date of calculation; and (e) the daily rate at which interest accrues after that date.
Where the relief sought in a suit, appeal or application relates to movable property or immovable property or any other intangible right, or to a right therein, the market value of such property / said rights, as on the date of filing of the suit, appeal or application, as the case may be, shall be taken into account for determining such Specified Value;
Analysis & Comments
For suits relating to recovery of money, the limitation period to sue is 3 years from the date of cause of action. In case of a debt attracting interest, a creditor, may, consider waiting till the principal amount along with interest exceeds a sum of INR 1,00,00,000, so as to enable the suit to fall under the jurisdiction of Commercial Courts / Commercial Divisions.
No appeal or civil revision application under section 115 of the Code of Civil Procedure, 1908 shall lie from an order of a Commercial Division or Commercial Court finding that it has jurisdiction to hear a commercial dispute under the Act. Therefore, where the contract does not specify any specific interest rate, or in case of suits relating to intellectual property rights, where the determination of market value of such rights is required, the mode of valuation plays an important role in situations where the value of the subject matter of suit is close to INR 1,00,00,000.
Constitution of the Commercial Appellate Division of the High Court
Appeals from the decisions (including arbitration cases) of the Commercial Court / Commercial Division of a High Court lies with the Commercial Appellate Division of the High Court (Division Bench) within 60 days from the date of judgment / order.
The Commercial Appellate Division are required to endeavour to dispose of the appeal within 6 (six) months from the date of filing such appeal.
An appeal shall would lie against only certain identified orders of the Commercial Court/Division and that no other appeal under any law including the Letters Patent1 (explained under footnote) of a High Court could be preferred against the orders of Commercial Court/Division.
No civil revision application or petition shall be entertained against any interlocutory order of a Commercial Court, including an order on the issue of jurisdiction, and any such challenge, shall be raised only in an appeal against the decree of the Commercial Court.
Analysis & Comments
Unlike in regular civil suits, where a party can file an appeal with the Honorable Supreme Court of India from the decree of the Honorable High Court (if it grants its certificate to appeal), in so far as commercial disputes are concerned, the appeal would lie with the Commercial Appellate Division. The same is expected to reduce the burden of the Supreme Court to a substantial extent.
Earlier, there used to be a delay in disposal of case due to frequent filing of civil revision application2 (explained under footnote) and petition against interlocutory orders; but as per the Act, in so far as commercial disputes are concerned, no civil revision application or petition shall be entertained against an interlocutory order of the Commercial Court, including an order on a jurisdictional challenge. As mentioned by the Law Commission, the purpose here is to prevent the time frames stipulated for case management hearing from becoming redundant by the frequent filing of civil revision applications and petitions against every interlocutory order.
The Law Commission had also recommended that even commercial disputes which are appealed to the High Court from a tribunal, under a statute such as the Copyright Act, 1957 or the Trade Marks Act, 1999 be heard and disposed of by the Commercial Appellate Division. It was however clarified by the Law Commission that, not all writ petitions under Article 226 and/or 227 which relate in some manner to a commercial dispute should automatically be referred to the Commercial Appellate Division. The Law Commission mentioned that (Quote) “It was possible that a public interest litigation may, on some occasions, refer to a commercial agreement, but such a dispute should not automatically be placed before the Commercial Appellate Division since the issues involved are likely to be wider and may require different considerations. Nevertheless, we leave it open to the Chief Justice of the concerned High Court to place such public interest litigation and other writ petitions, which may involve commercial disputes to an extent to be heard and decided by the Commercial Appellate Division.”
The Act seems to be silent on the powers of the Commercial Courts, Commercial Divisions and Commercial Appellate Divisions to review its decree / orders under section 114 of the Code of Civil Procedure, 1908.
Costs of the suit follow the event
As per the Act, in relation to a commercial dispute, the Court shall have the discretion to determine the liability to pay costs, the amount and also when such costs are to be paid.
The “costs” mean reasonable costs relating to: i. The fees and expenses of the witnesses incurred; ii. Legal fees and expenses; and iii. Any other expenses incurred in connection with the arbitral or Court proceedings and the arbitral award.
As a general rule, the unsuccessful party will be ordered to pay costs to the successful party. The Court may however make a different order, after recording the reasons in writing.
In determining the costs, the Court shall have regard to all the circumstances, including: i. The conduct of all the parties; ii. Whether a party has partly succeeded in the case; iii. Whether the party has made a frivolous counter claim leading to delay in disposal of the case; iv. Whether any reasonable offer to settle the dispute has been made by a party and refused by the other.
Analysis & Comments
Based on the several land mark rulings of the Honorable Supreme Court of India on the subject of costs, the Law Commission had suggested incorporation of provisions relating to costs. The aforesaid provisions are almost identical to the provisions of section 31-A of the Arbitration and Conciliation Act, 1996, which was introduced by the Arbitration and Conciliation (Amendment) Ordinance, 2015.
Important provisions relating to Written Statement
Time limit – If the defendant fails to file his written statement within a maximum of 120 days from the date of service of summons, he shall forfeit the right to file the written statement and the Court shall not allow the written statement to be taken on record.
Denials by defendant – The defendant in his written statement is required to state which of the allegations in the particulars of plaint he denies, which allegations he is unable to admit or deny, but which he requires the plaintiff to prove, and which allegations he admits. Where the defendant denies an allegation of fact in a plaint, he must state his reasons for doing so and if he intends to put forward a different version of events from that given by the plaintiff, he must state his own version.
Challenging the jurisdiction – If the defendant disputes the jurisdiction of the Court he must state the reasons for doing so, and if he is able, give his own statement as to which Court ought to have jurisdiction. If the defendant disputes the plaintiff’s valuation of the suit, he must state his reasons for doing so, and if he is able, give his own statement of the value of the suit.
Analysis & Comments
Strict provisions of the Act with respect to written statement deters the defendants from making evasive denials and enables faster settlement of issues.
Important provisions relating to disclosure of documents
The Plaintiff / Defendant are required to file a list of all documents and photocopies of all documents, in their power, possession, control or custody, pertaining to the suit, along with the plaint, irrespective of whether the same is in support of or adverse to the plaintiff’s / defendant’s case. The list is also required to briefly set out the details of parties to each document, mode of execution, issuance or receipt and line of custody of each document.
The Plaintiff / Defendant shall also not be allowed to rely on documents, which were in their power, possession, control or custody and not disclosed along with plaint / written statement / counter claim or within the extended period, save and except by leave of Court which can be granted only upon the plaintiff / defendant establishing reasonable cause for non-disclosure along with the plaint / written statement / counter claim.
Provisions relating to summary judgement
Briefly about summary judgment generally
A summary judgment is basically a judgment given by a court for one party and against another party summarily, i.e., without a full trial.
Unlike a summary suit, a regular lawsuit will ordinarily proceed to trial, which is an opportunity for litigants to present evidence. The necessary steps before a case can get to trial include discovery, inspection and production of documents, showing the other side the evidence and this process is lengthy, and can be difficult and costly.
A party who moves (applies) for a summary judgment attempts to avoid the time and expense of a trial when, in the moving party’s view, the outcome is obvious and that no reasonable factfinder could disagree with the moving party. A party may also move for summary judgment in order to eliminate the risk of losing at trial, and possibly avoid having to go through discovery (i.e., by moving at the outset of discovery), by demonstrating to the judge, via sworn statements and documentary evidence, that there are no material factual issues remaining to be tried thereby attempting to persuade the court that the undisputed material facts require judgment to be entered in its favor.
Provisions relating to Summary Judgment under the Act
The new procedure for such summary judgement has been introduced wherein the Courts are permitted to decided claim pertaining to any commercial dispute without recording oral evidence, as long as application for summary judgement has been filed before the framing of issues.
Upon an application made by the applicant at any time after summons has been served on the defendant, the Court may give a summary judgment against a plaintiff or defendant on a claim if it considers that: a) the plaintiff has no real prospect of succeeding on the claim or the defendant has no real prospect of successfully defending the claim, as the case may be; and b) there is no other compelling reason why the claim should not be disposed of before recording of oral evidence.
Analysis & Comments
The provisions relating to summary judgement under the Act and are similar to the provisions relating to summary suit under order 37 of the Code of Civil Procedure; but under the Act, a summary judgement may be requested for any kind or for commercial dispute unlike summary suits under the Code of Civil Procedure under which a summary relief can be sought only for the specified nature of money suits.
The Act ensures that the principles of natural justice are followed under which both plaintiff and the defendant is given an equal opportunity to provide the explanations, along with documentary evidence before passing summary judgement.
Case Management Hearing Briefly about Case Management generally
Case Management refers to the setting up of schedule (by the court hearing the matter) of proceedings involved in a suit. After the plaint and written statements is filed by the plaintiff and the defendant respectively, there are various stages involved in litigation, such as examination of documents, admission and denials, framing issues, listing witnesses, recording evidence, filing written arguments and hearing of oral arguments before a trial is held or a decision is rendered. Each stage of the process has a scheduled timeframe in which it must be filed with the court or completed. A case management conference happens after a plaintiff begins a law suit, but before the trial.
Provisions relating to Case Management Hearing under the Act
Under the Act, the court is required to hold the first case management using not later than 4 weeks from the date of filing of affidavit of admission or denial of documents by all parties to the suit.
Under the case management hearing, the court may pass an order fixing the date on which the evidence of the parties and their witnesses will be recorded, fixing the date by which written arguments are to be filed and oral arguments are to be heard and setting the time limits thereof.
The Court shall, as far as possible, ensure that the recording of evidence shall be carried on a day to day basis untill the cross-examination of all the witnesses as complete. The Court also has the right to hold case management hearings any time during the trial, so as to ensure adherence by the parties to the dates fixed and facilitate speedy disposal of the suit.
The Court shall not adjourn the case management hearing for the sole reason that the advocate appearing on behalf of a party is not present. The Court may grant an adjournment, upon payment of such costs as it deems fit.
Where any party fails to comply with the order of the Court in a case management hearing, the Court inter alia has the power to foreclose the non-compliance party’s right to file affidavits, written submissions, address oral arguments and dismiss the plaint.
Submission of written arguments
The act requires a party to submit written arguments within 4 weeks prior to commencing the oral arguments.
The written arguments is required to indicate the provisions of the law being cited in support, citations of judgements relied upon and copies of such judgements. No adjournment shall be granted for the propose of filing the written arguments, unless the Court considers it necessary to grant such adjournment.
Submission of affidavit of evidence of witnesses
The affidavit of evidence is required to be filed simultaneously by the party in the first case management hearing. The parties cannot lead additional evidence by the affidavit of any witness under sufficient cause is made out.
Analysis & Comments
The Honourable Supreme Court of India in the judgement given in the case of Rameshwari Devi v Nirmala Devi, had held as under: “At the time of filing of the plaint, the trial Court should prepare complete schedule and fix dates for all the stages of the suit, right from filing of the written statement till pronouncement of judgment and the Courts should strictly adhere to the said dates and the said time table as far as possible. If any interlocutory application is filed then the same [can] be disposed of in between the said dates of hearings fixed in the said suit itself so that the date fixed for the main suit may not be disturbed.”
Closing Comments
Pursuant to the changes brought to the Arbitration and Conciliation Act, 1996 by the Arbitration and Conciliation Ordinance, 2015, the arbitrators have to give their awards within a maximum period of 12 months. However, the costs which are incurred in an arbitration process, particularly the fees of the arbitrators remain a major concern for the litigating parties.
Whereas, in case of Commercial Court litigation, a judgment will be pronounced within a period of approximately 15 months from the date of filing of suit; as compared to arbitration, the costs involved are far less. In background of the provisions of the Act, the litigating parties may consider opting for Commercial Court litigation instead of arbitration.
About Bulwark Solicitors
Bulwark Solicitors is a law firm pioneered by Solicitor Chirag Sancheti and Advocate Deep Shridharani. The firm has expertise in the areas of both Litigation and non-Litigation. Under the non-litigation Law practice, the firm practices in the areas of Corporate Law, Intellectual Property Law, Bankruptcy & Insolvency Law, Competition Law, Real Estate and Conveyancing and DTAA Advisory. Further, under Corporate Law area, we practice Company Law, Securities Law, Mergers and Amalgamations, Private Equity and Venture Capital Investment Transactions, Legal Due Diligence and Foreign Exchange Management Law.