Commercial Courts, what is the fuss all about?

 

[Author’s Note :: Complete credit for the answer to the above question and the first part thereof goes to the PRS Legislative Research, Ministry of Law and Justice for the article produced by them at the following link.  The rest of the portion is the result of the research work of the author.]

 

Enforcing commercial contracts requires the involvement of the judicial system.  However, it takes nearly four years (1,420 days) in India to resolve commercial disputes.  [See, “Ease of Doing Business”, 122^nd Report of the Department Related Standing Committee on Commerce, December 21, 2015, http://164.100.47.5/newcommittee/reports/EnglishCommittees/Committee%20on%20Commerce/122.pdf.]  This may be due to reasons such as, high existing pendency of cases, and complex litigation procedures.  In 2013, there were 32,656 civil cases pending in various high courts, of which 52% were commercial disputes.  [See, “Commercial Division and Commercial Appellate Division of High Courts and Commercial Courts Bill, 2015”, Law Commission,  Report No. 253, January 2015, http://lawcommissionofindia.nic.in/reports/Report_No.253_Commercial_Division_and_Commercial_Appellate_Division_of_High_Courts_and__Commercial_Courts_Bill._2015.pdf.]

Over the years, various expert bodies such as the Law Commission of India and the Standing Committee on Personnel, Public Grievances, Law and Justice have observed the need to fast track disposal of commercial disputes.  [See, “Proposals for Constitution of Hi-Tech Fast – Track Commercial Divisions In High Courts”, Law Commission, Report No. 188, December 2003, http://lawcommissionofindia.nic.in/reports/188th%20report.pdf.]  [See also, Report No.78, Standing Committee on Personnel, Public Grievances, Law and Justice: ‘The Commercial Courts, Commercial Division and Commercial Appellate Division of High Courts Bill, 2015, Rajya Sabha, December 2015,  http://www.prsindia.org/uploads/media/Commercial%20courts/SCR-%20Commercial%20Courts%20bill.pdf.]  They note that most commercial disputes, especially of high value have an impact on financial investments and larger economic activity in the country.  In its 253^rd Report, the Law Commission (2015) further noted that an independent mechanism for quick disposal of these commercial disputes is required with specialised expertise in dealing with commercial cases.

In this context, the Commercial Courts, Commercial Division and Commercial Appellate Division of High Courts Act, 2015 was enacted to fast track the disposal of high value commercial disputes (above rupees one crore), by establishing commercial courts at the district level, and commercial divisions and commercial appellate divisions in high courts.  [The Commercial Courts, Commercial Division and Commercial Appellate Division of High Courts Act, 2015, https://indiacode.nic.in/bitstream/123456789/2156/1/201604.pdf.]

As of December 2017, state governments had constituted a total of 247 commercial courts in various districts across the country.  [Rajya Sabha Starred Question No.14, Ministry of Law and Justice, December 15, 2017.]  To improve ease of doing business in India, the Commercial Courts, Commercial Division and Commercial Appellate Division of High Courts (Amendment) Ordinance, 2018 (Commercial Courts Ordinance, 2018) was promulgated in May 2018, to reduce the pecuniary jurisdiction of commercial courts and commercial divisions in high courts from one crore rupees to three lakh rupees.

 

Key Features

 

Table 1 compares provisions of the Commercial Courts (Amendment) Ordinance, 2018 with the Commercial Courts, Commercial Division and Commercial Appellate Division of High Courts Act, 2015 (2015 Act).

 

	Existing 2015 Act	The Commercial Courts, Commercial Division and Commercial Appellate Division of High Courts (Amendment) Ordinance, 2018
Minimum value of commercial disputes	At least one crore rupees (amount to be notified by the central government).	At least three lakh rupees (amount to be notified by the central government).
Commercial division in high courts	Establishes commercial divisions in 5 high courts which have ordinary original civil  jurisdiction, i.e., the High Courts of Delhi, Bombay, Calcutta, Madras and Himachal Pradesh.	No change.
Commercial courts at district level	State governments may set up commercial courts at the district level, in areas where high courts do not have original jurisdiction.	Allows commercial courts at the district level to be set up, in areas where all 24 high courts have jurisdiction.   In areas where high courts have original jurisdiction, state governments may specify the pecuniary jurisdiction of commercial courts which is not lower than three lakh rupees and more than the pecuniary jurisdiction of district courts in those areas.   State governments may constitute commercial courts below the level of a district judge, in areas where high courts do not have original jurisdiction.
Commercial appellate division in all high courts	Establishes commercial appellate divisions in all 24 high courts to hear appeals against orders from: (i) commercial divisions of high courts, and (ii) commercial courts at the district level.	No change.
Commercial appellate courts at district level	No provision.	State governments may set up commercial appellate courts at the district level in areas where high courts do not have original jurisdiction. These courts will hear appeals against orders of commercial courts below the level of a district judge.
Appointment of judges of commercial courts	State governments, with the concurrence of the Chief Justice of the High Court will appoint judges of commercial courts from the higher judicial service of the state.	State governments may with the concurrence of the Chief Justice of the High Court, appoint judges of commercial courts either at the level of a district judge or below the level of a district judge.
Pre institution mediation	No provision.	Introduces mandatory mediation before the filing of a suit, in cases where no urgent relief is sought by the parties.   To be completed within three months (extendable by two months).
Counterclaims	If a counterclaim was filed in a commercial dispute of at least one crore rupees in a civil court, the civil court could transfer the suit to a commercial court or commercial division of high court.	Provision removed.

Table 1: Comparison of the 2015 Act with the Commercial Courts (Amendment) Ordinance, 2018

 

Note:  Original ordinary civil jurisdiction refers to when a court has the power to hear a fresh case.  In India, five High Courts (i.e., High Courts of Delhi, Bombay, Calcutta, Madras and Himachal Pradesh) have ordinary original civil jurisdiction.  The 19 remaining High Courts only have appellate jurisdiction, i.e., they can hear appeals from the others of subordinate courts.

Sources:  The Commercial Courts, Commercial Division and Commercial Appellate Division of High Courts Act, 2015, The Commercial Courts, Commercial Division and Commercial Appellate Division of High Courts (Amendment) Ordinance, 2018; PRS.

PART B: KEY ISSUES AND ANALYSIS

Reduction in the pecuniary jurisdiction of commercial courts

 

The 2015 Act establishes commercial courts at the district level and commercial divisions in high courts to adjudicate commercial disputes with a value of at least one crore rupees.  The Ordinance reduces this limit to three lakh rupees  This raises a question whether lowering the pecuniary jurisdiction of commercial courts is appropriate.  Over the years, the Law Commission and Parliamentary Standing Committees have observed that due to high pendency of cases the judicial system is unable to dispose of cases in a timely manner.  The Law Commission in 2003 and 2015 recommended that a law be enacted to establish commercial courts to resolve commercial disputes of high value.  They argued that adjudication of high value commercial disputes requires specialised expertise, and has a larger impact on foreign investments and economic growth of the country.  [See, “Arrears and Backlog: Creating Additional Judicial (wo)man power”, Law Commission of India, Report No. 245, July 7, 2014, http://lawcommissionofindia.nic.in/reports/Report245.pdf.]

As seen in Table 2 below, it has been recommended that the minimum value of cases being heard by commercial courts should be above rupees one crore.

Table 2: Recommendations of expert bodies on minimum value of commercial dispute Year Expert Body Minimum value (in Rs) 2003 17th Law Commission One crore (or five crore) 2009 The Commercial High Courts Bill, 2009 Five crore 2010 Select Committee on the Commercial High Courts Bill, 2009 One crore 2015 20th Law Commission One crore 2015 The Commercial Courts, Commercial Division and Commercial Appellate Division of High Courts Bill, 2015  One crore 2015 Standing Committee on Personnel, Public Grievances, Law and Justice Two crore

 

Reducing the minimum value to above rupees three lakh will increase the number of cases admitted in commercial courts and therefore slow down the priority given to relatively higher value cases.  Note that while examining the 2015 Act, the Standing Committee on Law and Justice (2015) recommended increasing the minimum value of commercial disputes from one crore rupees to two crore rupees.  It argued that setting a lower value may lead to the transfer of large number of cases which may overburden the commercial courts.  Therefore, the purpose behind their establishment may be defeated.

Annexure

Figure 1: Hierarchy of commercial courts proposed by the Ordinance

 

What steps have been taken in West Bengal after the notification of Commercial Courts Act, 2015 & The Commercial Courts, Commercial Division and Commercial Appellate Division of High Courts Act, 2015?

OR

What is the Territorial Jurisdiction of the Commercial Courts at Siliguri, Asansol, Alipore and Rajarhat?

OR

Whether a commercial dispute of substantial amount in the district of  Darjeeling, Jalpaiguri, Alipurduar, Coochbehar, North Dinajpur, South Dinajpur and Maldah will fall within the Jurisdiction of the Commercial Courts at Siliguri?

On 28^th June 2016, the Judicial Department of the Govt. of West Bengal, by way of Notification No. 197-JL and in exercise of the power conferred by sub-section (2) of section 3 of the Commercial Courts, Commercial Division and Commercial Appellate Division of High Courts Act, 2015 (4 of 2016) the Governor, after consultation with the High Court, Calcutta, vide Memo No.2304-RG dated the 27th June, 2016, inaugurated Four commercial courts (at Siliguri, Asansol, Alipore and Rajarhat) with the following territorial jurisdiction -

(a) the local limits of the jurisdiction of the Commercial Court at Alipore, the areas included within the districts of South 24 Parganas, Purba Medinipore and Paschim Medinipore;

(b) the local limits of the jurisdiction of the Commercial Court at Rajarhat, the areas included within the districts of North 24 Parganas, Nadia, Hooghly and Howrah;

(c) the local limits of the jurisdiction of the Commercial Court at Asansol, the areas included within the districts of Murshidabad, Birbhum, Bankura, Burdwan and Purulia;

(d) the local limits of the jurisdiction of the Commercial Court at Siliguri, the areas included within the districts of Darjeeling, Jalpaiguri, Alipurduar, Coochbehar, North Dinajpur, South Dinajpur and Maldah.

Thus the Commercial Court at Siliguri includes the districts of Darjeeling, Jalpaiguri, Alipurduar, Coochbehar, North Dinajpur, South Dinajpur and Maldah.

I have a commercial dispute ABOVE 20 LAKH BUT BELOW 30 LAKH in the district of  Darjeeling, Jalpaiguri, Alipurduar, Coochbehar, North Dinajpur, South Dinajpur or Maldah will it fall within the Jurisdiction of the Commercial Courts at Siliguri?

The Judicial Department of the Govt. of West Bengal by way of Notification No. 158 JL dated 20^th March 2020 and in exercise of the power conferred by sub-section (IA) of section 3 of the Commercial Courts Act, 2015 (4 of 2016), and in supersession of the earlier notification No. 254- JL, dated the 151h November 2018, was pleased to specify, the Pecuniary Jurisdiction of the Commercial Courts with immediate effect, where the value of the commercial disputes, as mentioned below:-

(a) in case of Commercial Courts at Siliguri, Asansol, Alipore, and Rajarhat, of an amount not less than rupees thirty lakh;

(b) in case of Commercial Courts within the territorial jurisdiction of the City Civil Court at Calcutta, of an amount-(i) not less than rupees three lakh and not more than rupees ten lakh exclusively ; and (ii) exceeding rupees ten lakh but not exceeding rupees one crore, concurrently with the Commercial Division of the High Court, Calcutta;

(c) in case of the Commercial Division of the High Court, Calcutta, of an amount exceeding rupees ten lakh.

 

Thus a commercial dispute EQUAL TO OR ABOVE 30 LAKH in the district of  Darjeeling, Jalpaiguri, Alipurduar, Coochbehar, North Dinajpur, South Dinajpur or Maldah will it fall within the Pecuniary Jurisdiction of the Commercial Courts at Siliguri.

 

What disputes are “Commercial Disputes” within the scope of the Commercial Courts Act, 2015 & The Commercial Courts, Commercial Division and Commercial Appellate Division of High Courts Act, 2015?

OR

Ajay Chakraborty, a resident of Jalpaiguri District falling in Siliguri, who was owning ½ share of land located in Fulbari under Rajganj Block of Jalpaiguri, entered into an Agreement to Sell for an earnest amount of 30 Lakh for his share to Babu Ghosh, of Jalpaiguri Sadar. The Earnest Amount was to be forfeited in case of non-payment of full consideration within stipulated time. Now, whether the forfeit of the Earnest Money is a “Commercial Dispute” and thus will be filed before the Siliguri Commercial Court?

OR

Whether an Agreement to Sell for an immovable property (of 30 Lakhs as Earnest Money) to be used in TRADE AND COMMERCE is a Commercial Act the violation whereof will be a “Commercial Dispute” from the perspective of the Commercial Courts Act, 2015 & The Commercial Courts, Commercial Division and Commercial Appellate Division of High Courts Act, 2015?

 

As per section 2(c) of The Commercial Courts Act, 2015, “commercial dispute” means a dispute arising out of––

(i) ordinary transactions of merchants, bankers, financiers and traders such as those relating to mercantile documents, including enforcement and interpretation of such documents;

(ii) export or import of merchandise or services;

(iii) issues relating to admiralty and maritime law;

(iv) transactions relating to aircraft, aircraft engines, aircraft equipment and helicopters, including sales, leasing and financing of the same;

(v) carriage of goods;

(vi) construction and infrastructure contracts, including tenders;

(vii) agreements relating to immovable property used exclusively in trade or commerce;

(viii) franchising agreements;

(ix) distribution and licensing agreements;

(x) management and consultancy agreements;

(xi) joint venture agreements;

(xii) shareholders agreements;

(xiii) subscription and investment agreements pertaining to the services industry including outsourcing services and financial services;

(xiv) mercantile agency and mercantile usage;

(xv) partnership agreements;

(xvi) technology development agreements;

(xvii) intellectual property rights relating to registered and unregistered trademarks, copyright, patent, design, domain names, geographical indications and semiconductor integrated circuits;

(xviii) agreements for sale of goods or provision of services;

(xix) exploitation of oil and gas reserves or other natural resources including electromagnetic spectrum;

(xx) insurance and re-insurance;

(xxi) contracts of agency relating to any of the above; and

(xxii) such other commercial disputes as may be notified by the Central Government.

Explanation.––A commercial dispute shall not cease to be a commercial dispute merely because—

(a) it also involves action for recovery of immovable property or for realisation of monies out of immovable property given as security or involves any other relief pertaining to immovable property;

(b) one of the contracting parties is the State or any of its agencies or instrumentalities, or a private body carrying out public functions;

 

From a bare perusal, of Section 2(c) above including the explanations thereto it is noticed that the disputes arising out of agreements relating to immovable property used exclusively in trade or commerce will qualify to be a commercial dispute to be tried by Commercial Courts.

Hence, in the absence of clear use of land in the Second Question above, it is unclear that the land will be used for “Trade and Commerce” and hence will not fall within the definition of “Commercial Dispute” and accordingly will be tried by ordinary courts and not the Commercial Court at Siliguri.

The Land in Question in the Third Question above is a “Commercial Dispute” within the meaning of The Commercial Courts Act, 2015 and will be filed before the Commercial Courts at Siliguri.