The Commercial Division of High Courts Bill, 2009

Hi-tech, fast track courts for resolution of commercial disputes could soon be a reality in India. Government has introduced The Commercial Division of High Courts Bill, 2009 which is set to change the way commercial disputes of high pecuniary value are resolved in Indian Courts. The proposal finds basis in the 188th Report of Law Commission of India.

Current status of the Bill

On 18th December, 2009 when the Minister of Law & Justice, Mr. M. Veerappa Moily moved the motion for consideration and passing of the Commercial Division of High Courts Bill, 2009 in Lok Sabha, the House passed the Bill without any discussion. Rajya Sabha though referred the Bill to a Select Committee for review, which is expected to submit its Report soon.

Earlier, the proposal had found consensus at the Joint Conference of Chief Ministers of States and Chief Justices of High Courts. A need for speedy disposal of cases by using information and communication technologies was agreed to at the conference.

What was the Need for this Bill ?

Each legislation addresses a specific need. An understanding of same can be gained by reading its Statement of Objects and Reasons.

STATEMENT OF OBJECTS AND REASONS

Phenomenal changes have taken place in India in the last decade leading to enormous growth in our commercial and industrial sectors. The policies of the Government have changed radically from 1991, the year in which our economy was opened up to foreign investment in a big way. Privatization, liberalization and globalization have resulted in a big boost to our economy. At the same time, world has become very much competitive. With such rapid increase in our commerce and trade, commercial disputes involving high stakes are increasing. Unless, there is a new and effective mechanism for resolving them speedily and effectively, progress will be retarded. Against the aforementioned background, the Law Commission of India in its 188th Report on “Proposals for Constitution of Hi-Tech Fast Track Commercial Division in High Courts” has recommended the constitution of Commercial Division in each High Court. The Law Commission had examined the feasibility of ‘Commercial Division’ in the High Courts in India on the model of the Commercial Division in the High Courts of UK, USA and certain other countries. The Law Commission recommended the creation of ‘Commercial Division’ with High- Tech facilities in each High Court so that they may handle ‘commercial cases’ of high threshold value on fast track basis.

2. At the Joint Conference of Chief Ministers of the States and Chief Justices of the High Courts held on 16th August, 2009 in New Delhi, the 188th Report of the Law Commission of India on constitution of Commercial Division in High Courts was considered and a decision was taken in the said meeting to the effect that Commercial Division be constituted by the High Courts within itself as and when legislation in this regard is enacted by the Parliament.

3. Constitution of commercial division within a High Court will have many advantages. As of now, pecuniary jurisdiction of Civil Courts for trying civil disputes including commercial disputes differs from State to State. In some States, District Courts are having unlimited pecuniary jurisdiction and in some other States, original jurisdiction of higher pecuniary value is vested with the High Court. States where District Courts are having unlimited pecuniary jurisdiction, the orders, judgments or decrees passed by these District Courts are appealable before the High Court. However, upon setting up of Commercial Division in High Courts, all the commercial disputes of high threshold value (Rs.five crore or higher value as may be specified) will be filed in the High Court and would be dealt with by the Commercial Division. It would speed up the disposal of these cases as District Courts would have no jurisdiction in such cases. Commercial Division of High Court would be Court of original jurisdiction for such cases.

4. The specified value which is the minimum threshold limit can be enhanced by the Central Government in consultation with the concerned High Court and the State Government by notification and different values can be specified for different High Courts. The Commercial Division shall follow Fast Track procedure for the disposal of cases. The said procedure is prescribed in the Bill itself. Power of execution of decree and orders passed by the Commercial Division are also proposed to be vested in the Commercial Division. Fast Track procedure would definitely curtail the time taken in disposal of such cases.

5. The Commercial Division shall, within thirty days of the conclusion of argument, pronounce judgment and copies thereof shall be issued to all the parties to the dispute through electronic mail or otherwise. A single judge sitting in the Commercial Division may hold one or more case management conferences; fix a time schedule for finalisation of issues, cross-examination of witnesses, filing of written submission and for oral submission; provide for record of evidence in cross-examination and re-examination; appoint commissioner for recording of cross-examination or re-examination provided any order for the purpose of fixing limits which may lead to the disposal of the matter for default or ex parte, shall be passed by a Bench of two Judges.

6. As of now, applications for setting aside of arbitration awards under section 34 and execution of arbitral award under section 36 of the Arbitration and Conciliation Act, 1996 have to be filed in the ‘Court’ as defined in clause (e) of sub-section (1) of the said Act. Such court is the Principal Civil Court of original jurisdiction in a District. District Court is normally a principle civil court of original jurisdiction. Similarly appeal under section 37 of the said Act against granting or refusing to grant any measure under section 9; and setting aside or refusing to set aside an arbitral award under section 34 of the said Act lie to the court authorised by law to hear appeals from original decrees of the Court passing the order. Further appeal against order of arbitral tribunal accepting the plea referred to in sub-section (2) or sub-section (3) of section 16; or granting or refusing to grant an interim measure under section 17 lie to a court as defined in clause (e) of sub-section (1) of section 2 of the said Act, i.e. District Court. As per this procedure, a party desirous of delaying an arbitration award has ample scope for adopting delaying tactics by challenging the award or other orders of the arbitral tribunal by starting the litigation right from the District Court level. This defeats the spirit of arbitration which is meant to be a speedy alternate mode of dispute resolution. To overcome this problem it is proposed that the Commercial Division will also entertain applications under sections 34 of the Arbitration and Conciliation Act, 1996 for setting aside of arbitral award, under section 36 of the said Act for execution of arbitral award and appeal under section 37 where the arbitration relates to or within the scope of the commercial disputes of the specified value. For this purpose, consequential amendments are also proposed in the Arbitration and Conciliation Act, 1996.

7. An appeal against the order and decree passed by the Commercial Division shall lie before the Supreme Court.

8. The decision to constitute Commercial Division is entirely within the discretion of the High Courts and the State Governments. According to the second proviso to subclause (3) of clause 1 of the Bill, the provisions of the proposed Act can be made applicable to a High Court only in consultation with the concerned Chief Justice and the concerned State Government or State Governments. Thus, sufficient time will be available to assess the likely impact on the workload on the High Courts before the constitution of the Commercial Division and enactment of the legislation will not immediately lead to an increase of workload upon the High Courts.

9. The Bill seeks to achieve the above objectives.

Commercial Dispute defined

Section 2(1) clearly defines what a Commercial Dispute is under the purview of proposed legislation.

2. (1) In this Act, unless the context otherwise requires, -

(a) “commercial dispute” means a dispute arising out of ordinary transactions of merchants, bankers and traders such as those relating to enforcement and interpretation of mercantile documents, export or import of merchandise, affreightment, carriage of goods, franchising, distribution and licensing agreements, maintenance and consultancy agreements, mercantile agency and mercantile usage, partnership, technology development in software, hardware, networks, internet, website and intellectual property such as trademark, copyright, patent, design, domain names and brands and such other commercial disputes which the Central Government may notify.

Explanation I.— A dispute, which is commercial, shall not cease to be a commercial dispute merely because it also involves action for recovery of immovable property or for realisation of monies out of immovable property given as security or for taking any other action against immovable property.

Explanation II.— A dispute which is not a commercial dispute shall be deemed to be a commercial dispute if the immovable property involved in the dispute is used in trade or put to commercial use.

Explanation III.— An application under section 34 or section 36 or an appeal under section 37 of the Arbitration and Conciliation Act, 1996 shall be deemed to be a commercial dispute if the amount in dispute or claim relates to a specified value.

Arbitration and Conciliation Act, 1996 amended

1. Section 2(1)(e) in the Arbitration and Conciliation Act, 1996 has been amended to modify the definition of court, so as to provide for the High Courts in exercise of original jurisdiction wherever the specified value criteria is met.
2. Applications under Section 34, 36 and 37 where the specified value criteria is met are also to be treated as commercial disputes, and therefore to be taken up by Commercial Division of respective High Court.

Criticism on Constitutional Validity

The Bill has received adverse comments, both from experts as well as those who perceive being discriminated against.  

1. It is alleged that the Bill would create a greater divide between the rich and the poor. Justice would be as good as denied to those where the value of commercial dispute is less than 5 Crore.

2. Justice V. R. Krishna Iyer says : 

Equality is a fundamental right under Article 14. Social justice really means that justice, justices and justicing have an equal obligation to render early justice. To divide social justice into two categories, the rich being given special facilities for early justice and the not-so-rich being forced to wait, is violative of Article 14. It also constitutes breach of social and economic clauses.

Justice-delivery should involve an integrated system; it cannot be dichotomised. A division that is based largely on the monetary dimension of litigation is obnoxious, all the more so because this is a socialist-democratic Republic. To provide special facilities for the rich and to pejoratively assign the weaker sections in another category constitutes an irrational differentiation. Democracy is fundamentally equality of the judicial process. To make the monetary value of a commercial dispute the basis of classification is undemocratic.

The richer the litigant, the earlier the law secures justice. All the rest, namely the weak, the downtrodden and the penurious, should undergo considerable delay in getting ultimate justice from the courts.

Such a distinction will be arbitrary and bad in law. The Bill is vitiated by this pro-plutocratic clause. The dichotomy is irrational and invalid. The only justification given is that the richer investor must be given fairer treatment. Will the rest have to be content, then, with protracted adjudication?

All the reasons given for the creation of such a special facility apply with equal force to other types of litigation. Why should only big commercial firms or corporations enjoy the luxury of early disposal? This discrimination argues its own unconstitutionality.

Justice Iyer further says :

Of course, equality under Article 14 is not totally allergic to classification of cases, provided there is a clear differentiation between the classes and provided such differentiation has a rational relation to the object of the legislation which sanctions a classification.

What is the object of the legislation here? Early disposal, swift dispatch and quick disposal at less cost of litigation in cases that involve a value of Rs.5 crore and above. The objectives do not make any differentiation except that the rich man must have his cases decided with early finality while the poorer man may have his cases pending till he perishes. This differentiation is irrational and outrageous in a socialist-democratic state. This is a classic instance of irrational egalite under Article 14.

The legislation classifies litigation into two categories. The poor litigant will wait for the somnolescent process and leisurely pronouncement and the wealthy litigant will have his case speedily terminated. If this be the differentiation, it is horrendous and outrageous in a socialist democracy.

With a question on its constitutional validity, the Bill is likely to face turbulence in future.

Need to find a solution

Amongst various factors, system for resolving commercial disputes is a major consideration when people or nations partner with each other in business.

Despite all criticism on the validity of this Bill, there is no denying the fact that an urgent, compelling situation exists which demands a mechanism for expeditous resolution of commercial disputes in India. Though a Sovereign Socialist Democratic country, we cannot afford to lose in world rankings when it comes to Investor confidence. World Bank Doing Business Report 2010 has ranked India 133 compared to 132 in year 2009. The report ranks countries based on their ease of doing business and also tracks regulatory reforms in them for conducting business.

This Bill, though a well-intended initiative of Indian Government, needs to be strengthened further by doing away with all traces of discrimination that violate the Fundamental Right to Equality under Indian Constitution. As Justice Krishna Iyer says that it is the way classification is done and differentiation created which would determine the constitutional validity of this Bill.

Related Reading:
›  The Code of Criminal Procedure Amendment Bill, 2010
›  Act becomes Law when notified in Gazette of India
›  Code of Criminal Procedure (Amendment) Act, 2008 enforced
›  The Maintenance and Welfare of Parents and Senior Citizens Act, 2007