AMENDMENTS TO THE COMMERCIAL COURTS, COMMERCIAL DIVISION AND COMMERCIAL APPELLATE DIVISION OF HIGH COURTS ACT, 2015 AND THE RAMIFICATIONS THEREOF.

By

Aashish Chopra, Advocate, Punjab and Haryana High Court

 

“I don’t go to court when a buyer refuses to pay me—even though I know that justice should be on my side. It’s time consuming and costly to get my money back. That’s why I only sell equipment to old clients or people I know,” sighs Dipak, an electric appliance supplier in India. Where contract enforcement is efficient, businesses are more likely to engage new customers. Where contract enforcement through the court system is more onerous, businesses prefer to get involved with only a small group of clients who know each other from previous dealings—limiting opportunities for businesses to grow and prosper. These words find mention in ‘Doing Business in India 2009’ Report, which was prepared by the World Bank Group with the support of the Department of Industrial Policy and Promotion of the Indian Ministry of Commerce and Industry. It takes only a cursory glance at the aforementioned words to infer that the state of affairs in our tremendous country, India, especially when it comes to contract enforcement, aren’t evocative of a feeling of pride. The pernicious delays that plague the Indian Judicial System are well-known, and have stopped shocking the average citizen, who has accepted it, although reluctantly, as a mere way of life.

 

However, over time, owing to sheer human brilliance and innovation, fundamental improvements have been effected. For instance, in the last 20 years, the proportion of the world population living in extreme poverty has almost halved.[1] Similarly, the mechanism to enforce contracts in India, too, has had its share of improvements. For instance, the abovementioned ‘Doing Business in India 2009’ Report suggested setting up Specialized Courts or Commercial Divisions in existing Courts – “Setting up separate commercial courts or establishing specialized commercial chambers in existing courts can reduce the time and cost of commercial contract enforcement. Indian courts could benefit from the proposed establishment of commercial divisions within the High Courts. In 7 African countries that introduced commercial courts or sections in the past 5 years … the average time to resolve a commercial dispute dropped by about 19%.”

 

Now, a quick reference, and leap may be made to “Doing Business 2019” Report, which notes that “this year’s 10 top improvers include a range of economies—large and small; rich and poor—from five regions. The diversity shows that, regardless of background, any economy can improve business regulation when the will of policy makers is strong. With 13 reforms between them, China and India—two of the world’s largest economies—are among the 10 top improvers.” Evidently, much credit must be given to The Commercial Courts Act, 2015 (as it is now referred to, post 2018 Amendments, and hereinafter referred to as “2015 Act”), which constitutes Commercial Courts, Commercial Divisions and Commercial Appellate Courts to provide for speedy adjudication of commercial suits. Thus, it cannot be brushed aside that India, the tremendously formative South Asian country, has also effected its share of policy decisions, staring from the liberalization of 1991, that have ultimately made its economy the world’s seventh largest.

 

The Commercial Courts, Commercial Division and Commercial Appellate Division of High Courts Act, 2015 (as The Commercial Courts Act, 2015, prior to 2018 Amendment was known) was promulgated keeping in view the recommendations made, in 2003, by the 17th Law Commission in its 188th Report titled “Proposals For Constitution Of Hi-Tech Fast-Track Commercial Divisions In High Courts” which noted, inter alia, “It appears to the Commission that investors in India, both domestic and foreign, must be given a clear assurance that commercial disputes of high pecuniary value, shall go directly before the Commercial Division of the High Court…” Accordingly, suits valued at Rs. 1 Crore and above lay before the Commercial Courts, an amount which now stands reduced to Rs. 3 Lakhs, in view of the amendment made to Section 2(1)(i) of 2015 Act, which reads as follows:

 

In Section 2 of the principal Act, in sub-section (1), in clause (i), for the words “which shall not be less than one crore rupees”, the words “which shall not be less than three lakh rupees” shall be substituted.

 

[Emphasis Supplied]

 

The 2018 Amendment, which inter alia, has reduced the minimum dispute value to Rs. 3 Lakhs, would bring a large number of disputes within the ambit of the Commercial Courts, which were previously outside their scope. Also, the figure of Rs. 3 Lakhs doesn’t quite well fit within the parameter of a dispute of high pecuniary value and thus, would only end up flooding the gates of Commercial Courts, and in turn defeat the initial purpose of the Legislation. It cannot be forgotten that faulty implementation, and inefficient design render the most ambitious of policies ineffectual.

 

Be that as it may, one wonders as to what could possibly be the rationale behind adopting the figure of Rs. 3 Lakhs as the minimum dispute value. A plausible explanation might lie in the methodology adopted by the World Bank, whilst preparing “Doing Business” Reports. It may be noted that the rankings are based on scores for three indicators –

 

i.             Days to resolve a commercial dispute through the courts;

ii.           Attorney, court and enforcement costs, as % of claim value; and

iii.         Use of good practices promoting quality and efficiency.

 

As far as cost is concerned, it is calculated “as a percentage of the claim value, assumed to be 200% of income per capita or $5,000, whichever is greater”. Earlier, since the minimum dispute value stood at Rs. 1 Crore, the data regarding ‘Civil Courts’ was taken into consideration for preparing the aforementioned “Doing Business” Reports, as opposed to the data of ‘Commercial Courts’ constituted under 2015 Act. The present minimum dispute value has been reduced to Rs. 3 Lakhs, which amounts to $4,286 approximately, the same now makes the data of ‘Commercial Courts’ relevant for the purpose of preparing “Doing Business” Reports.

 

The question, which must pertinently arise, is whether the methodology of preparing a Report, albeit acclaimed and popular, must be the criterion for deciding the minimum dispute value under a Legislation that may have far reaching ramifications? In other words, is a higher ranking as compared to other countries so important that the very object and intent of an Act is rendered nugatory, or at best, diluted. It may explicitly be stated that the recent amendment made to the minimum dispute value cannot be endorsed, reason being that since India is a unique country requiring innovative solutions to its complex problems, the methodology, ranking and criteria of international institutions do more harm than good, if readily adopted, without tuning them as per the requirements of the ground realities. For instance, it is for this precise reason that the increasing scope of International Law has prompted most states to accept a position where though the rules of International Law are seen as part of a distinct system, they are capable of being applied internally depending on circumstances. Therefore, it is the unique circumstances prevailing in India that must determine policy considerations, such as the need for a Commercial Court to handle commercial disputes of high pecuniary value. And the said high pecuniary value must again be determined as per the problems that currently prevail, and the solutions sought for them, and not be determined as per the methodology of “Doing Business” Reports.

 

One other aspect of 2015 Act may be delved into, and that is the training that may be required to be imparted to Hon’ble Judges, lawyers and other such officials who take part in the judicial process that leads to adjudication upon commercial disputes. Reference may be made to Section 20 of 2015 Act, which notes as follows:

 

          20. The State Government may, in consultation with the High Court, establish necessary facilities providing for training of Judges who may be appointed to the Commercial Court, Commercial Division or the Commercial Appellate Division in a High Court.

[Emphasis Supplied]

 

Needless to say that the training would not only contribute to better judicial adjudication and decisions, but also strengthen India’s position as an up and coming Arbitration destination, one that shall be marked with competence and efficiency.

 

To conclude, it may be worthy to mention that the circumstances that led to the promulgation of a Legislation must not be entirely ignored, for they give vital clues about the problem that the concerned Legislation set out to resolve. Thus, it would be fair to suggest that the Amendments of 2018 though may have certain benefits, are flawed on certain counts, which must be corrected in the interest of larger justice, and in order to achieve the objects of 2015 Act, as it was incorporated.

1.      Hans Rosling, Factfulness: Ten Reasons We’re Wrong About The World – And Why Things Are Better Than You Think, Flatiron Books, April 2018.