7 December, 2015
Introduction
In a significant effort to ensure expeditious and effective disposal of high value commercial disputes in India and to bring about reform in the civil justice system, the President of India has promulgated the Commercial Courts, Commercial Division and Commercial Appellate Division of High Courts Ordinance, 2015 (‘Ordinance’) effective from October 23, 2015. The Ordinance is based on the 253rd (Two Hundred and Fifty Third) report of the Law Commission of India (‘Law Commission’). If successfully implemented, the introduction of Commercial Courts could revo- lutionise dispute resolution – the existing evidence of such success being other jurisdictions where commercial courts are preferred as a dispute resolution mechanism to arbitration, par- ticularly as costs associated with arbitration can be prohibitive.
The Ordinance was promulgated with the purpose of constituting commercial courts in order to establish a stable and efficient dispute resolution mechanism, to make India more fa- vorable and conducive for foreign investors and for establishing new practices and norms in commercial litigation by amending the Code of Civil Procedure, 1908. The Ordinance provides for the constitution of Commercial Courts, Commercial Divisions and Commercial Appellate Divisions in the High Courts for adjudication and speedy disposal of commercial disputes of a specified value of not less than ¤ 10 million (approximately US$ 153,0001) or such higher value, as may be notified by the Central Government.
Under Indian Law, an ordinance has the same force and effect as an act of the Parliament. The Ordinance will remain in force for a period of six weeks from the day the winter session of Parliament begins. If it is not approved by the Parliament, the Government may re-promulgate it until the Ordinance is approved by Parliament.
‘Commercial Disputes’
An inclusive definition of the term ‘commercial dispute’ has been provided under the Ordi- nance. This definition includes numerous commercial disputes arising out of transactions such as joint venture agreements, shareholders’ agreements, subscription and investment agree- ments pertaining to the services industry including outsourcing of services and financial ser- vices, partnership agreements, technology development agreements, franchising agreements, distribution and licensing agreements, management and consultancy agreements, agreements relating to immovable property used exclusively in trade or commerce, agreements for sale of goods or provision of services, construction and infrastructure contracts including tenders, carriage of goods, export or import of merchandise or services, ordinary transactions of mer- chants, bankers, financiers and traders such as those relating to mercantile documents, includ- ing enforcement and interpretation of such documents, to name a few.
Constitution of Commercial Courts, Commercial Divisions and Commercial Appellate Divisions
The Ordinance provides for constitution of Commercial Courts at district level by the State Government after consultation with the relevant High Court. There is a bar on the constitution of a Commercial Court in areas where the High Court exercises ordinary original civil juris- diction, such as the High Courts of Bombay, Calcutta, Delhi, Himachal Pradesh and Madras. The State Government has been entrusted with powers relating to alteration of the limits in jurisdiction and for appointment of one or more judges in Commercial Courts. The Ordinance further provides that judges in such Courts should be experienced in dealing with commercial disputes and must be chosen from the cadre of higher judicial service in the relevant State.
The State Government, in consultation with the High Court, is also empowered to provide training facilities for judges of Commercial Courts and also provide necessary infrastructure for the working of such Commercial Courts.
The Ordinance further provides for constitution of Commercial Divisions exclusively in High Courts that exercise ordinary original civil jurisdiction. The Chief Justices of all High Courts are empowered to constitute a Commercial Appellate Division comprising one or more benches consisting of judges of the High Court who are experienced in dealing with commer- cial disputes.
Jurisdiction of the Commercial Courts, Commercial Divisions and Commercial Appellate Divisions
Commercial Courts will have the jurisdiction to try all matters relating to any commercial dispute of a specified value arising within the limits of its territorial jurisdiction. In order to bring a matter within the jurisdiction of a Commercial Court, such commercial disputes must be instituted as per the provisions of the Code of Civil Procedure, 1908, with reference to the (i) place of institution of suits; (ii) place where the subject-matter of such suit is situated; (iii) place where the relevant immovable property is situated; (iv) quantum of compensation for wrongs to person or movables; or (iv) place where the defendants reside or cause of action arises.
The Commercial Division of a High Court will be empowered to dispose of all suits and applications relating to commercial disputes (including transferred matters under Designs Act, 2000 or Patents Act, 1970) above a specified value filed in any High Court having ordinary origi- nal civil jurisdiction.
Under the provisions specified in the Ordinance, the pecuniary jurisdiction of a High Court having original jurisdiction of ¤ 10 million or more has not been increased.
Bar on the Jurisdiction of the Commercial Courts, Commercial Divisions and Commercial Appellate Divisions
The Ordinance has placed a bar against any civil revision application or petition against any in- terlocutory order of a Commercial Court and any such challenge can be raised only in an appeal. The Ordinance also restricts the jurisdiction of a Commercial Court to entertain matters relating to commercial disputes, where the jurisdiction of the Civil Court to deal with such matters has been barred explicitly or impliedly by any law for the time being in force.
Appeals
Section 13 of the Ordinance provides for the appellate jurisdiction of the Commercial Appellate Tribunal over the decisions of a Commercial Court or Commercial Division of High Court. A time limit of 60 days from the date of judgment or order for filing an appeal has been set. This provision is exclusive of any provisions of any other law in force and Letters Patent issued by a High Court. The Ordinance mandates that the Commercial Appellate Division should dispose of an appeal within a period of six months from the date of filing such appeal.
Jurisdiction in Arbitration matters
All applications and appeals in arbitration matters (both domestic and international commer- cial arbitrations) involving a commercial dispute above a specified value, which has been filed in a High Court, will be required to be dealt with by the Commercial Appellate Division of the High Court. This provision is in light of the amended definition of ‘Court’ as per the Arbitra- tion and Conciliation (Amendment) Ordinance, 2015 (‘Arbitration Ordinance’)2, which, in the context of all international commercial arbitrations will mean a High Court.
The Ordinance further states that domestic commercial arbitration matters, where ordi- narily the jurisdiction lies with the principal civil court of original jurisdiction in a district (not being a High Court), are to be heard and disposed of by the Commercial Court having the ter- ritorial jurisdiction over such matter.
Specified Value
The specified value has been defined by the Ordinance to include matters where the value of the subject matter is not less than ¤ 10 million, with the intent to restrict the jurisdiction of the Commercial Courts to matters of higher value and to expedite the process of disposal of com- mercial cases involving such high amounts.
Section 12 of the Ordinance provides for a procedure to determine the specified value of the subject matter of a commercial dispute in order to determine the jurisdiction of Commercial Courts. In suits relating to recovery of money, the specified value will be calculated on the mon- ey sought to be recovered in the suit, along with the interest computed up to the date of filing of the suit. In matters relating to movable properties, immovable properties and intangible rights, the market value of such respective property or rights on the date of filing the suit will be taken into consideration for computing the specified value. In commercial disputes where a counter claim has been filed, the value of the subject matter as on the date of filing the counter-claim will be taken into account for calculating the specified value. Further, in cases of commercial ar- bitration matters, the aggregate value specified in the statement of claim or counter-claim will be taken into consideration for determining the specified value.
Transfer of Suits
The Ordinance states that where a counter-claim relating to a commercial dispute of a specified value has been filed before a civil court, the suit should be transferred to a Commercial Court having territorial jurisdiction over such suit. The Ordinance restricts the transfer of any cases that are reserved for final judgment prior to the constitution of Commercial Courts.
Regarding arbitration, Section 15 of the Ordinance provides that all suits and applications relating to commercial arbitration matters (domestic as well as international arbitration) pend- ing in a High Court or a Civil Court in a District will be transferred to the relevant Commercial Division or the Commercial Court, as the case may be.
If there is a failure to transfer any matters in accordance with the prescribed procedure, the Commercial Appellate Division, on application of any of the parties may withdraw pending suits or applications from any Court and transfer it to a Commercial Court or Commercial Di- vision, for trial and disposal and the order of such transfer will be final and binding.
Procedure
The provisions of the Code of Civil Procedure, 1908, (‘Code’) have been significantly amended by the Ordinance. Such amendments are applicable to all suits before the Commercial Courts as well as transferred cases. Although the procedure specified in the Ordinance is supplementary to the Code and any High Court rules, in case of conflicts between any rule of jurisdiction of a High Court or any amendment to the Code by a State Government and the provisions of Code as amended by the Ordinance, the Ordinance will prevail.
Each relevant High Court has been empowered by the Ordinance to issue practice direc- tions to supplement the procedure specified in the Code relating to hearing of commercial dis- putes, in order to facilitate the smooth and efficient functioning of the Commercial Courts and Commercial Divisions.
Maintenance of data
The Ordinance contains provisions relating to the maintenance and updating of data regarding suits, applications, appeals or writ petitions by Commercial Courts, Commercial Divisions and Commercial Appellate Divisions every month and such data is required to be published on the website of the respective High Court. This provision aims to set up the systematic collection and publication of data, thereby improving the transparency in the functioning of these Courts and restoring the public’s faith in the judicial system.
Overriding effect
The Ordinance will have an overriding effect on any other law in force. It further provides that the Government of India by an order may, within a period of two years from the commence- ment of the Ordinance, remove any difficulties arising out of inconsistent provisions.
Amendment of the Code of Civil Procedure, 1908
The provisions of the Code in respect of commercial disputes of specified value stand amended, pursuant to the schedule appended to the Ordinance. The key amendments in the schedule are as follows:
- The ‘cost follows the event’ principle has been introduced by the Ordinance, where the losing party pays the successful party as a general rule, as a deterrent to frivolous and vexatious litigation. This provision has been introduced on the recommenda- tions of the Supreme Court of India (‘SC’) (as specified in a number of judgments3) and the Law Commission4. Sections 35 and 35 A of the Code, relating to costs, have been accordingly amended. The Ordinance provides that in commercial disputes, the Court will have the discretion to decide matters relating to costs, such as the quan- tum, who is liable to pay such costs and when they are to be paid.
- ‘Costs’ have been defined to include all reasonable costs relating to fees and ex- penses of witnesses, legal fees or any other expenses in relation to the proceedings. The Ordinance specifies a number of grounds that the Court must take into consid- eration before making an order for payment of costs such as (i) conduct of the par- ties; (ii) whether a party has been successful in part of the case; (iii) frivolous counter claims made by a party, leading to delay of case; (iv) reasonable offer made by a party to settle the dispute, which has been unreasonably refused by the other party and (v)
- vexatious and frivolous proceedings. This provision has been incorporated in view of the amendments relating to the awarding of costs in the Arbitration Ordinance. How- ever, the Ordinance does not contain any provisions relating to compensatory costs in case of false or vexatious claims or defenses (as contained in the Code).
- Courts will now be required to hold a case management hearing to ensure that a trial is conducted efficiently and properly within a specified time limit. This provision has been incorporated on the recommendations of SC in the case of Rameshwari Devi v. Nirmala Devi5. The Ordinance states that Courts will ensure that all arguments in a case are closed within six weeks from the date of the first case management hear- ing for such matter. The Ordinance gives Courts the power to fix dates for hearing, setting of time limits and deciding the issues to be tried and witnesses to be sum- moned. In case of non-compliance with the order of the Court in a case management hearing, the Ordinance empowers the Court to (i) condone the non-compliance by payment of costs; (ii) foreclose the right of the non-compliant party to file affidavits, conduct cross examination, file written submissions etc. (iii) dismiss the plaint or al- low the suit where such non-compliance is willful, repeated and where the imposition of costs cannot be an effective and adequate remedy to ensure compliance.
- A separate procedure for obtaining ‘summary judgment’ has been provided, where the parties can apply for such judgment at any time after the summons of the suit have been served on the defendant, but before the issues are framed. The Ordinance sets out the particulars to be included in an application for a summary judgment and the reply to the application filed by the other party. The Ordinance also lists down the various orders that the Court can pass after trying a suit in this manner.
- For speedy and efficacious disposal of cases, the Ordinance has set a time limit of 90 days from the date of conclusion of arguments, for pronouncement of judgment by Commercial Courts, Commercial Divisions or Commercial Appellate Divisions. The Ordinance also provides that copies of the judgment will be issued to all parties through electronic mail or otherwise.
- The time period provided under the Code for the defendant to file a written state- ment has been amended under the Ordinance. The Ordinance provides that written statements that are not filed within 30 days of service of summons as prescribed un- der order V and VIII of the Code can be filed afterwards, subject to the Court’s dis- cretion and a written order. However, the time for such filing will not be extended beyond 120 days from the date of service of summons (which was 90 previously). The Ordinance provides that if a written statement is filed after the expiry of the said period, the defendant will be deemed to have forfeited the right to file the written statement.
- Provisions relating to norms for disclosure and inspection of documents in suits before the Commercial Division of a High Court or a Commercial Court have been amended by the Ordinance to increase transparency and efficiency in discovery of documents by parties. The Ordinance provides for a detailed procedure and a duty to disclose documents by plaintiffs and defendants. It states that documents that are not disclosed as per the prescribed procedure cannot be relied upon without leave of the Court.A time limit of 30 days has been provided from the date of filing of written statement (or written statement to the counter-claim, as applicable), for inspection of all documents by all the parties. The Ordinance also provides for the production of documents in electronic form.
- Pleadings in commercial disputes are required to be in the forms of pleading that have been prescribed under the relevant High Court’s rules or practice directions. Pleadings that are not in the prescribed form and manner cannot be relied upon as evidence and the Court can strike out such pleadings.
- The Ordinance lays down that all claims relating to interest must be set out in the pleadings.
- The defendant is required to set out clearly in such defendant’s written statement the specific denials, admissions and the allegations that the plaintiff is required to prove.
- The Ordinance sets a time limit of four weeks prior to the commencement of oral arguments, for filing of written arguments. The written arguments must clearly indi- cate the provisions of law and enclose copies of the judgments relied upon in support of arguments. A party is not permitted to introduce additional evidence by affidavit of any witness, unless there is sufficient cause for the same. It also provides the Court the power to control and regulate evidence and also exclude and reject evidence by recording reasons for the same.
1 US$ 1 = ¤ 64.95 (as on October 27, 2015, Reserve Bank of India, reference rate archive).
2 The Arbitration and Conciliation (Amendment) Ordinance, 2015 effective from October 23, 2015.
3 Subrata Roy Sahara v. Union of India, 2014 8 (SCC) 470 and Sanjeev Kumar Jain v. Raghubir Saran Charitable Trust (2012) 1 SCC 455
4 Law Commission of India, Costs in Civil Litigation, Report No. 240 (2012)
5 (2011) 8 SCC 249
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