Ease of Doing Biz: Ordinance on commercial courts may not improve ranking

The government on May 3 promulgated an ordinance amending the law related to commercial courts in a bid to improve India’s rankings in the World Bank’s Doing Business Report. The ordinance brings two major changes to the existing law — The Commercial Courts, Commercial Division And Commercial Appellate Division Of High Courts Act, 2015 — one, reducing the monetary threshold of registering commercial disputes to Rs 300,000, and two, pre-litigation mediation.

The Cabinet cleared the amendment in March this year. The government press release dated March 7 for the Cabinet decision said "commercial disputes of reasonable value" can be decided by commercial courts, which would "bring down the time taken in resolution of commercial disputes of lesser value and thus further approve India’s ranking in Ease of Doing Business". However, experts read the ordinance as an optics game to improve the rankings rather than sound legal reform. 

Creating capacity for commercial courts

The original Act was passed on December 31, 2015, making the law about two-and-a-half years old. The courts and commercial divisions set up under the same, consequently, do not have more than two years of experience. 

“Has the legislature and the judiciary tried to see how commercial courts are working? There is no data in the public domain on this. Are cases concluding on time, do these courts have sufficient resources? There is no clarity on the legislative mandate,” said Sumathi Chandrasekaran, who works with the judicial reform vertical at Vidhi Centre for Legal Policy. The move, Chandrasekaran added, seems a knee-jerk, quick fix reaction to getting the ranking (for the World Bank Doing Business report) up.

On March 14, 2018, in response to a question in the Lok Sabha on the number of pending commercial cases, the law ministry said the requisite data were being collected. No further detail was provided. 

A primary concern with the amendment is the dilution of the original intent of the Act. The reasons for introducing the law in April 2015 clarify the need for a mechanism to ensure "speedy disposal of high-value commercial disputes". 

It was one of the objectives given even in the 253rd Law Commission Report which recommended the Commercial Courts legislation.

“The Rs 10 million threshold was to ensure that there would be parties and lawyers capable of meeting the high standards of requirements of complex commercial cases and that judges had sufficient expertise and backing to ensure these cases moved quickly,” said Alok Prasanna Kumar, who worked on the Law Commission Report. He also heads the Bengaluru office of Vidhi Centre for Legal Policy.

In fact, according to practitioners, a lot of judges at high courts were already handling commercial cases. After the law, the process just became more formalised, said Sitesh Mukherjee, national head of the disputes practice group at Trilegal, a law firm.

The amendment allows state governments, after consulting respective high courts, to set up commercial courts at the district judge level to hear commercial matters.

“I am not sure that they (the government) have thought this through. With smaller cases and newer courts, how will you ensure the same expertise, knowledge of procedure exists? It seems like an optics issue with the World Bank Doing Business report methodology in mind,” Kumar added. 

Pre-litigation mediation

The introduction of pre-litigation mediation (PLM) is a significant change in the existing law. The ordinance requires parties to mandatorily go for PLM before approaching a commercial court, except for "urgent interim relief".

“The idea of making parties approach mediation is good but the provision is badly drafted. We do not have facilities or the infrastructure to incorporate this. You have to set up institutions, train mediators before you can start something like this for commercial cases,” Kumar said, adding, “the requirement of ‘urgent interim relief’ is questionable as it is not defined what this phrase will mean". 

Right now, there are mediation facilities for family court cases, not for commercial ones. 

The effectiveness of this provision is also to be considered. Mediation, as it is not binding on parties, could lead to delaying tactics. “Mediation will really become effective if courts impose costs on careless or frivolous litigation. It is a welcome process but it will not yield any result unless the losing party is visited with actual costs of the litigation – like advocate fees, law firm fees,” Mukherjee added.