Companies with business interests in India need to analyse and evaluate their approach to dealing with mercantile disputes in the wake of amendments by way of an ordinance dated 3 May in the Commercial Courts, Commercial Division and Commercial Appellate Division of High Courts Act, 2015, now to be known as the Commercial Courts Act, 2015. The ordinance continues the government’s efforts to adopt swift and efficient means of resolution for trade disputes in view of the increase in foreign investment and the consequent rise in commercial disputes, by establishing commercial courts below the level of district judge in all jurisdictions, except where the high courts have ordinary original civil jurisdiction, i.e. in the cities of Chennai, Delhi, Kolkata, Mumbai and the state of Himachal Pradesh.
Highlights of the ordinance are:
New name: The new name removed confusion about the courts and clarified that there are separate courts with different procedures established solely for commercial disputes.
Specified value: The “specified value” of commercial disputes to be adjudicated under the act, as defined in section 2(1)(i), was reduced from ₹10 million (US$147,000) and above to ₹300,000 and above. This is expected to reduce the time taken to resolve such disputes (now 1,445 days) and improve India’s ranking in the World Bank’s ease of doing business index.
Commercial courts hierarchy and appeal mechanism: The ordinance (i) amends section 3 of the act and introduces commercial courts at the district judge level where the high court has ordinary original civil jurisdiction; (ii) inserts section 3A, introducing commercial appellate courts; (iii) splits commercial courts where the high court does not have ordinary original civil jurisdiction into (a) courts at the level of a district judge and (b) commercial courts below the level of a district judge.
Appointment of judges: Earlier, the state government could appoint commercial court judges only with the concurrence of chief justice of the high court while it now has now the power to appoint such judges without concurrence of the chief justice.
Pre-institution mediation: The ordinance inserts section 12A in the act, which provides that where a suit does not contemplate urgent interim relief, the plaintiff has to attempt to reach a settlement through mediation prior to instituting a suit.
A government-authorized authority must complete the process of mediation within three months from the date of application by the plaintiff. The pre-institution mediate period will not be computed for the purpose of limitation under Limitation Act, 1963.
If a settlement is reached, it must be put into writing and signed by the parties to the dispute and the mediator. The settlement will have same status as an arbitral award under section 30(4) of the Arbitration and Conciliation Act, 1996.
Insertion of section 21A and omission of sections 9 and 12(1)(e): Section 21A enables the government to make rules and notifications regarding the procedure under section 12A(1). The ordinance omits sections 9 and 12(1)(e), on the transfer of a suit if a commercial dispute is of the specified value.
Section 13 amendment: The term “commercial division of a high court” has been replaced. Section 13 now states that any person aggrieved by the judgment of a commercial court below the level of a district judge may appeal to the commercial appellate court within 60 days.
Now that the ordinance is in force, some key factors must be considered: (1) the burden on the high courts will increase significantly as the reduction in specified value will have the unintended effect of leading to low-value claims being brought before high courts; (2) the separation of jurisdiction has been blurred as the reduction of specified value has led to overlapping of jurisdiction of commercial divisions and courts; (3) the procedure for appointing judges is a challenge to the independence of the judiciary, making this part of the ordinance particularly open to being challenged; and (4) pre-institution mediation will be effective only if efficient mediators devise a strategy to use the mechanism to its best advantage and its intention is met.
In order to save interest and litigation costs, companies will have to evolve a mature legal strategy of making and accepting reasonable claims at the pre-institution mediation stage. Courts may eventually saddle the losing party with heavy costs stating that despite the opportunity it failed to settle the case and prolonged it. The ordinance brings in changes to improve the commercial disputes resolution process and whether it serves this purpose will be seen over a period of time and will depend on how various stakeholders implement it.
Deepak Sabharwal is the managing partner of Deepak Sabharwal & Associates.
Deepak Sabharwal & Associates
A-19, 1st Floor, Kailash Colony
New Delhi – 110 048, India
Mumbai | Kolkata | Chennai |
Hyderabad | Bengaluru
Tel: +91 11 2923 0232 / +91 11 2924 0232