Commercial Courts Law: The New Year gift that went unnoticed

The new law, which awaits a presidential nod, could accelerate contract enforcement and dispute resolution

One of the most frustrating aspects of doing business in India is its hugely time consuming contract enforcement /dispute resolution mechanisms. Anything that reached the doors of the courtroom was often considered lost as it could take years, even decades, for the overworked justice system to arrive at a decision, because these cases had to be juggled with general law and criminal cases, even before they were taken up for hearing.

This inefficiency was often capitalized on by unscrupulous elements, who wanted to slip out of their obligations. Confronted with these realities, several foreign investors started inserting clauses for arbitration and dispute resolution in foreign jurisdictions such as Singapore.
 
No wonder then the World Bank’s Ease of Doing Business rankings put India at a lowly 178 out of 189 countries in Enforcement of Contracts.

For the quality of judicial processes index under these rankings, India scored just 7.5 points on a scale of 18. It took 1420 days, or nearly four years, in Mumbai to enforce contracts through courts. Even our South Asian neighbours did better with the average being at 1076 days. While the OECD high income group averaged just 538 days.

Last week, despite all the hungama and disruptions, the Rajya Sabha passed THE COMMERCIAL COURTS, COMMERCIAL DIVISION, COMMERCIAL APPELLATE DIVISION IN HIGH COURTS BILL, 2015. The law would take effect once the president gives his nod, likely in the New Year.

In a special note on the law, Cyril Amarchand Mangaldas, the Mumbai based law firm, said, “By allowing for faster and more dispute resolution in commercial cases, the government hopes to accelerate economic growth, improve the international image of India’s justice delivery system and the faith of foreign investors in India’s legal system.”

Commercial disputes usually involve a complex set of facts and questions of law. The thrust of the Commercial Courts Bill is to ensure speedier resolution of commercial cases by creating a specialized set of courts to adjudicate such disputes and by rationalizing some of the procedures applicable to such disputes.

Here are some key extracts from the Amarchand note on how the new law will transform the judicial system :
 
What the law will do?

It creates commercial courts at the district level to deal with commercial disputes. These courts would be equivalent to the district courts and will serve as the courts of original jurisdiction for all commercial disputes. Previously such cases at the district level were usually heard by a court subordinate to the District Judge level. Hence, commercial disputes will now be heard by a more experienced judge and the decision can be challenged only before the High Court. This has the effect of streamlining the dispute resolution process as well as cutting down the time for which a dispute may be pending in the system.
 
How will it impact high courts?

For the High Courts of Bombay, Delhi, Calcutta and Madras, which are vested with original jurisdiction for commercial disputes over a certain value, the Commercial Courts Bill contemplates the setting up of a special commercial division to exercise such jurisdiction.
 
What kind of disputes will qualify as ‘commercial disputes’?

A wide range of disputes has been categorized as “commercial disputes” . These include disputes arising out of:

• Ordinary transactions of merchants, bankers, financiers and traders;
• Export or import of merchandise and services;
• Issues under admiralty or maritime law;
• Transactions relating to aircrafts, aircraft equipment, aircraft engines and helicopters;
• Carriage of goods;
• Construction and infrastructure contracts;
• Agreements relating to immovable property used exclusively for trade and commerce;
• Franchising agreements;
• Distribution and licensing agreements;
• Management and consultancy agreements;
• Joint venture agreements;
• Shareholder agreements;
• Subscription and investment agreements pertaining to the service industry including outsourcing and financial services;
• Mercantile agency and mercantile usage;
• Partnership agreements;
• Intellectual property rights;
• Agreements for sale of goods and provision of services;
• Exploitation of oil and gas reserves and other natural resources;
• Insurance and re-insurance;
• Contracts of agency relating to any of the aforesaid; and
• Any other disputes so notified by the Central Government

Is there any value prescribed for disputes referred to commercial courts?
The commercial courts and commercial divisions have jurisdiction over commercial disputes having a value of at least Rs. 1 crore. The valuation of the dispute is to be reckoned on the basis of:

• Amount of money sought to be recovered (inclusive of  interest) in a matter involving the recovery of money;
• If the matter relates to immovable, movable or intangible property, then the market value of such property determines the value of the case; and
• Value of the counter-claim in case a counter-claim is also  raised in the case.

 
What happens to the suits that are pending?

All pending suits (except those in which final judgment has already been reserved) of a value of Rs. 1 crore or more that are pending in district courts and high courts are to be transferred to the commercial courts or the commercial division after these are constituted.

Further, if a counter-claim valued at Rs. 1 crore or more is filed in a matter before a district court, the matter is to be transferred to a commercial court or to the commercial division.

What happens to arbitration matters?

• For international commercial arbitrations, all applications and appeals are to be heard by the commercial division irrespective of whether these are filed on the original side or the appellate side of the high court.
• For arbitrations that do not qualify as international commercial arbitrations, all applications and appeals that have been filed on the original side of the high court are to be heard and disposed off by the commercial division.
• For arbitrations that do not qualify as international commercial arbitrations, all applications and appeals which would otherwise lie before the principal civil court of original jurisdiction in a district and where such principal civil court is not a high court, such applications and appeals are to be filed in and heard by the relevant commercial court.
•  

While that sounds like a lot, the new law answers just one of 20-odd questions that go into the calculation of  the Quality of Judicial process Index i.e “Is there a court or division of a court dedicated solely to hearing commercial cases?” Thus, the government has managed to get one additional point in the index. But, it could score more.

Let us hope that while constituting this commercial courts system, the government also keeps in mind other parameters such as court automation and electronic case management tools, which would cut down court time for businesses.  

As we all know, in the world of commerce, time really is money.