Open Access Research Article
EXPLORING THE LEGISLATIVE INTENT AND IMPLICATIONS OF REDUCING THE MINIMUM SUIT VALUE IN THE INDIAN COMMERCIAL COURTS
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Article Details
EXPLORING THE LEGISLATIVE INTENT AND
IMPLICATIONS OF REDUCING THE MINIMUM SUIT VALUE IN THE INDIAN COMMERCIAL COURTS[1]
AUTHORED BY
- ARK SHARMA
Abstract
The research paper examines the
evolution and implications of India’s Commercial Courts Act, 2015, and its
significant 2018 amendment. The Act, designed to expedite commercial dispute
resolution, underwent key changes, including a reduction in the specified value
of disputes and measures to enhance accessibility and efficiency. The paper
scrutinizes these changes, focusing on the decentralization of adjudication,
state governments’ role in specifying jurisdiction, and the introduction of
Pre-Institution Mediation (PIM). It delves into the legislative intent behind
these amendments, highlighting India’s proactive approach in attracting global
businesses. The paper also offers suggestions for improvement, addressing
concerns related to pecuniary jurisdiction, judicial appointments, PIM
implementation, infrastructure, and technology usage. It concludes by
emphasizing the need for ongoing refinement and effective implementation of the
Act to strengthen India’s position as a preferred destination for commercial
enterprises.
Keywords
1. Commercial
Courts
2. India
3. Pre-Institution
Mediation
4. The Act
5. The
Amendment
Introduction
to the commercial courts system
India’s economic growth has been
remarkable, especially since the implementation of the Liberalization,
Privatisation, and Globalization policy in 1991. This policy has attracted a
significant number of foreign businesses to India and has also led to the
establishment of numerous Indian businesses. One of the outcomes of this
economic growth was the long-debated establishment of dedicated commercial
courts in India. This idea was realized with the introduction of The Commercial
Courts Act of 2015, which came into effect on October 23, 2015. The primary aim
of this Act is to provide a specialized judicial mechanism for the swift and
efficient resolution of commercial disputes.
The Act establishes a system of
commercial courts within the existing civil court structure. These courts are
empowered with the necessary procedural authority to resolve high-value
business disputes swiftly and efficiently. The Act defines a “commercial
dispute” as any disagreement arising from regular business transactions between
traders, bankers, financiers, and merchants, including the import or export of
goods or services. This broad definition encompasses almost all potential
disputes that could arise from business transactions, including issues related
to insurance, intellectual property rights, product carriage, franchise
agreements, license agreements, joint venture agreements, shareholders’ agreements,
admiralty, and marine law, among others.
The Act also provides for the
establishment of a commercial division in the high court with ordinary original
jurisdiction to handle business disputes of a certain value. In cases where the
high court lacks ordinary jurisdiction, a commercial court at the district
level is established. Furthermore, the Act calls for the creation of a
Commercial Appellate Division to handle appeals. The Act sets a specific value
of Rs. 3,00,000 and a maximum value of Rs. 1,00,00,000 for cases and
applications related to a commercial dispute to be tried by the Commercial
Courts or the Commercial Divisions.
Section 12A of the Commercial Courts
Act of 2015 introduces the concept of Pre-Institution Mediation and Settlement.
This section mandates that all commercial disputes undergo a pre-institution
mediation process, unless there is an urgent interim requirement, such as in
cases of patent infringement. The purpose of this provision is to offer parties
an alternative dispute resolution mechanism through discussions and
negotiations, facilitated by a mediator. As per the Supreme Court of India’s
ruling, the plaintiff must initiate mediation before filing a lawsuit, making
the pre-litigation mediation provision under Section 12A of the 2015 Act
mandatory. Therefore, any business complaint filed in a commercial court under
the 2015 Act without first exhausting the remedy of pre-litigation mediation
will be dismissed under the 1908 Code of Civil Procedure.
The 2018
Amendment
The Commercial Courts, Commercial
Division and Commercial Appellate Division of High Courts (Amendment) Act,
2018, brought about significant changes to the original Act of 2015. The
amendments were notified on August 21, 2018, but were made effective retrospectively
from May 3, 2018.
Firstly, the Act was renamed from the
“Commercial Courts, Commercial Divisions, and Commercial Appellate Division of
the High Court Act” to the “Commercial Courts Act, 2015”. This change in
nomenclature signified a shift in focus towards the establishment and
functioning of Commercial Courts as distinct entities, rather than merely
divisions within the High Court.
One of the most substantial
modifications introduced by the amendment was the reduction of the specified
value of a commercial dispute from Rs. One crore to Rs. three lakhs. This
revision significantly broadened the Act’s scope, enabling a wider range of
disputes to be classified as commercial disputes. This change was aimed at
making the commercial courts more accessible to small and medium enterprises
and individuals involved in lower-value disputes, thereby promoting a more
inclusive and equitable system of commercial dispute resolution.
The amendment also provided for the
establishment of Commercial Appellate Courts. Any individual aggrieved by a
judgment or order of a Commercial Court below the level of a District Judge may
appeal to the Commercial Appellate Court within 60 days of the date of such
judgment or order. Similarly, any person aggrieved by a judgment or order of a
Commercial Court at the District Judge level exercising original civil
jurisdiction, or the Commercial Division of a High Court, may appeal to the
Commercial Appellate Division of that High Court within 60 days of the date of
the judgment or order. This provision ensured that parties have an avenue for
challenging the decisions of the Commercial Courts, thereby promoting fairness
and accountability in the process.
Following the passage's amendments,
significant restructuring occurred within the commercial courts system. Prior
to the alterations, the state government had the ability to collaborate with
the relevant high courts to set up commercial courts at the district judge
level for areas under the high courts' ordinary original civil jurisdiction.
Additionally, the state government gained the power to determine a minimum
amount of INR 3 lakhs or a greater sum for the entire or partial state
regarding the establishment of these courts. These modifications aimed to
distribute the resolution of business conflicts more efficiently and adaptively
to regional requirements by delegating the decision-making process to lower
levels.
Moreover, the state government
received authorization to designate individuals experienced in handling
commercial cases as judges of a Business Court, either at the district judge
level or a tribunal below that position. This clause acknowledged the
requirement for particular information and competence when settling
sophisticated legal and factual concerns frequently present in commercial
disputes.
Lastly, the amendment introduced a
Pre-Institution Mediation (PIM) process in cases where no urgent, interim
relief is contemplated[2].
This was done to provide parties with an opportunity to resolve their disputes
amicably outside the court system, through mediation conducted by authorities
constituted under the Legal Services Authorities Act, 1987. This development
underscored the growing recognition of alternative dispute resolution
mechanisms as effective tools for resolving commercial disputes.
The Intent
The enactment of the Commercial
Courts Act, 2015, was a strategic move by the Indian legislature to bolster
India’s appeal as a favourable business hub for international enterprises. The
cornerstone of this legislation was the provision of an expedited mechanism for
the resolution of commercial disputes, thereby fostering a conducive business
environment. The 2018 amendment to the Act further fortified this intent. The
primary objective behind these modifications was to enhance India’s standing on
the global stage, particularly in terms of the ‘Ease of Doing Business’ index.
By streamlining the dispute resolution process and reducing the threshold for
commercial disputes, the amendment aimed to project India as a more
business-friendly jurisdiction. This legislative manoeuvre was not merely about
improving a ranking; it was a calculated attempt to attract more businesses and
foreign corporations to India. By demonstrating a commitment to efficient and
effective dispute resolution, the Indian legal system sought to assure
potential investors of its readiness to handle the complexities of modern
commercial transactions. Thus, the Commercial Courts Act, 2015, and its
subsequent amendment in 2018, serve as testament to India’s proactive approach
towards creating a robust and responsive legal framework for commercial dispute
resolution.
The 2018 amendment to the slashing of
specified value of the commercial court was to adhere to several measuring
parameters used internationally, particularly those outlined in the World
Bank’s Ease of Doing Business Report. The Ease of Doing Business Report by the
World Bank serves as a comparative assessment of economies worldwide, ranking
them based on the conduciveness of their regulatory environments for business
operations. A crucial metric used in this report to evaluate an economy’s
efficiency is the enforceability of contracts. The disputes considered for this
metric are those with a claim value equivalent to 200% of income per capita or
$5,000, whichever is higher. Before the 2018 amendment, the data from the city
civil court was used to assess the efficiency of contract enforcement in India.
This was due to the pecuniary jurisdiction of the commercial courts and
divisions, established under the Act, which started from INR 1 Crore
(approximately USD 150,000). This amount was significantly higher than the
claim value considered by the World Bank. The 2018 amendment brought a
substantial change by reducing the specified value of a commercial dispute from
INR 1 Crore to INR 3 Lakhs (approximately USD 4,500). This adjustment was in
sync with the claim value considered by the World Bank and allowed a broader
range of disputes to fall within the purview of commercial courts. This change
anticipated that the data from the Commercial Courts, constituted under the
Act, would now be used for the World Bank’s report, as the pecuniary
jurisdiction of these courts now begins from INR 300,000. This strategic move
was aimed at enhancing India’s position on the ‘ease of doing business index.’
Another salient feature of this
amendment was the provision for the constitution of Commercial Courts at the
District Judge level. Prior to this amendment, commercial courts were
established at the level of High Courts[3]. However,
the amendment facilitated the decentralization of the adjudication process for
commercial disputes, thereby establishing commercial courts at the district
level. This decentralization aimed to make the dispute resolution process more
accessible to the parties involved by bringing it closer to their local
jurisdictions. Furthermore, it allowed for the optimal utilization of existing
infrastructural and human resources at the district level, thereby alleviating
the burden on High Courts.
Another significant change introduced
by the amendment was the empowerment of the State Government to specify the
pecuniary jurisdiction of these courts. The amendment stipulated that the
specified value for the jurisdiction of these courts could not be less than 3 lakh
rupees or such higher value as determined by the State Government for the whole
or part of the State. This provision essentially provided the State Government
with the discretion to determine the monetary threshold for disputes that could
be adjudicated by the commercial courts within its territory. This change was
instrumental in ensuring that commercial courts were equipped to handle a broad
spectrum of disputes, ranging from relatively small claims to high-value
disputes. By setting a lower limit for the pecuniary jurisdiction, the
amendment ensured that even small and medium enterprises had access to the
commercial courts for the resolution of their disputes.
The 2018 amendment to the Commercial
Courts Act, 2015, in India ushered in a significant shift in the appointment
process of judges to these Commercial courts. Previously, the concurrence of
the Chief Justice of the High Courts was required for such appointments.
However, the amendment empowered the State Government to appoint individuals
with experience in handling commercial disputes as judges of a Commercial
Court, either at the level of District Judge or below. This modification had
two primary implications. First, it facilitated the appointment of judges
possessing specialized expertise in commercial disputes. Given the complex and
technical nature of commercial disputes, which necessitate a profound
understanding of commercial laws and practices, this change aimed to ensure
that these disputes are adjudicated by individuals proficient in commercial
law, thereby enabling more informed and effective judgments. Second, this
change sought to expedite the appointment process of judges to the Commercial
Courts. By vesting the appointment power with the State Government, the
amendment aimed to circumvent the often-protracted process of securing the
concurrence of the Chief Justice of the High Courts. This was anticipated to
result in a swifter appointment of judges, thereby contributing to the
expeditious resolution of commercial disputes.
Introduction of the Pre-Institution
Mediation (PIM) process, marked a paradigm shift in India’s approach to
commercial dispute resolution. The introduction of PIM was driven by the intent
to facilitate early, amicable resolution of disputes, thereby alleviating the burden
on courts and conserving valuable resources. Mediation, being a flexible and
collaborative approach, enables parties to work together towards a mutually
acceptable resolution. The PIM process is time-bound, to be completed within
three months from the date of application by the plaintiff, extendable by two
months with mutual consent. This ensures that mediation does not cause undue
delay in dispute resolution. If a settlement is reached during PIM, it is
documented and signed by the parties and the mediator. The settlement then
holds the same status and effect as an arbitral award on agreed terms under the
Arbitration and Conciliation Act, 1996. However, if a settlement is not reached
through PIM, parties retain the right to institute a suit in the commercial
court. Thus, PIM provides an additional avenue for dispute resolution before
resorting to litigation.
Suggestions
The Commercial Courts Act, 2015, and
its subsequent amendment in 2018, represent significant strides in the
evolution of India’s legal framework for commercial dispute resolution.
However, as with any legislative instrument, there is always scope for
refinement and enhancement. Here are some suggestions for potential
improvements:
·
Pecuniary Jurisdiction: The 2018 amendment notably reduced the specified value of a
commercial dispute from INR 1 Crore to INR 3 Lakhs. While this broadened the
ambit of commercial courts, it also escalated their caseload, potentially
decelerating the resolution of relatively higher-value cases. It is crucial to
strike a balance between enhancing the accessibility of the courts and ensuring
their operational efficiency.
·
Appointment of Judges: The amendment conferred upon the State Government the
authority to appoint judges to the Commercial Courts. While this expedited the
appointment process, it also sparked concerns about the potential compromise of
judicial independence. Instituting a more transparent and impartial appointment
process could help assuage these concerns.
·
Pre-Institution Mediation (PIM): The introduction of PIM was a commendable step, but there is
a need for greater clarity on its implementation. For instance, the Act could
provide more comprehensive guidance on the qualifications and training of
mediators, the conduct of the mediation process, and the enforcement of
settlement agreements.
·
Infrastructure and Resources: The establishment of commercial courts at the district level
necessitates adequate infrastructure and resources. The Act could incorporate
more specific provisions regarding the infrastructure requirements of these
courts to ensure their effective functioning.
·
Training of Judges: Commercial disputes often entail complex and technical issues that
require a nuanced understanding of commercial laws and practices. The Act could
provide for more comprehensive training programs for judges to equip them with
the necessary expertise to adjudicate such disputes.
·
Use of Technology: The Act could advocate for the greater use of technology in the conduct
of proceedings, such as e-filing, video conferencing, and online dispute
resolution. This could enhance the efficiency of the process and make it more
accessible to a wider range of litigants.
Conclusion
In conclusion, the legislative intent
behind the reduction of the minimum suit value in Indian Commercial Courts was
multifaceted. It aimed to enhance accessibility, improve efficiency, and align
with international standards. This reduction expanded the scope of commercial
courts, enabling a larger number of disputes to be classified as commercial.
However, it also raised concerns about potential manipulation and forum
shopping. Measures have been implemented to prevent such misuse, ensuring fair
and efficient dispute resolution. The effectiveness of these changes is a
testament to India’s proactive approach towards creating a robust and
responsive legal framework for commercial dispute resolution. Proper
implementation of the act is crucial for maintaining an equal workload for the
courts and ensuring speedy trials. Like any legislation, there is always room
for further refinement and enhancement. Future amendments and reforms should
continue to focus on improving the ease of doing business in India, thereby
bolstering India’s standing as a favourable destination for commercial
enterprises.
[1] Authored by Ark
Sharma, 1182200110- Ft.Y BBA.LLB MIT WPU SOL
[2] Quintype-Migrator,
‘Amendments to the Commercial Courts Act’ (Bar and Bench - Indian Legal news)
<https://www.barandbench.com/columns/amendments-commercial-courts-act>
accessed 23 November 2023
[3] ‘The Commercial
Courts, Commercial Division and Commercial Appellate ...’ (PRS)
<https://prsindia.org/files/bills_acts/bills_parliament/2018/The%20Commercial%20Courts,%20Commercial%20Division%20and%20Commercial%20Appellate%20Division%20of%20High%20Courts%20(Amendment)%20Bill,%202018%20Bill%20Text.pdf>
accessed 25 November 2023
Article Information
EXPLORING THE LEGISLATIVE INTENT AND IMPLICATIONS OF REDUCING THE MINIMUM SUIT VALUE IN THE INDIAN COMMERCIAL COURTS
Authors: ARK SHARMA
- Journal IJLRA
- ISSN 2582-6433
- Published 2024/01/04
- Issue 7
About Journal
International Journal for Legal Research and Analysis
- Abbreviation IJLRA
- ISSN 2582-6433
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