Introduction

A dispute is a disagreement or quarrel between individuals or groups. Commerce primarily refers to those activities that contribute in the trade process, whether directly or indirectly. A commercial dispute is a disagreement between two firms or between a business and its customers or clients over something such as contract infringement, failure to fulfill expected things as stated in contract clauses, product delivery of poor quality, invalid price, parties failing to file obligations in some way, and so on. “Commercial dispute” has been defined under Section 2(c) of the Commercial Courts Act, 2015 (hereafter referred to as the “Act”).  These are the suits arising out of ordinary transactions of merchants, bankers, and traders include, for example, those relating to the construction of mercantile documents, export or import of merchandise, affreightment, carriage of goods by land, sea, or air, etc.

Commercial Courts

The Act defines commercial courts under Section 2(b). Any court established by the State Government at the district level for the purpose of exercising the powers under the Act, may issue a notification after consulting with the applicable High Court. The State governments, with the consent of the Chief Justice of the High Court, appoint one or more persons with experience in commercial disputes to be judges of the Commercial Court under Section 3(3) of the Act.

Vide a notification dated 27th October, 2017, the Government of Haryana has been pleased to constitute Special Commercial Court at Gurugram having jurisdiction throughout the State of Haryana for the trial of cases specified under the Commercial Courts, Commercial Division and Commercial Appellate Division of High Courts Act, 2015 (4 of 2016).

Nature

The Act applies exclusively to commercial disputes, and includes disputes arising out of the ordinary transactions of merchants, bankers, financiers and traders, agreements for the sale of goods or provision of services, partnership and joint venture agreements, shareholders agreements, franchising and licensing agreements, construction and infrastructure contracts, commercial property agreements, insurance, subscription and investment agreements, intellectual property rights etc. This includes commercial disputes with the government and government agencies.

Object 

With India trying to become a model of strong regulatory framework for business and economic success and with significant increase in commercial activities, it is expected to see an increase in commercial disputes both at national and international levels. The goal of this Act is to speed up the resolution of commercial conflicts. At the district and high court levels, this Act establishes a separate commercial court which will aid in speeding up the resolution of commercial conflicts while also improving the judiciary’s reputation. Early resolution of commercial disputes will help India become more investment-friendly. This initiative will attract foreign investment as well as strengthen the country’s domestic business.

Jurisdiction

The aspect of jurisdiction in Commercial Courts is covered u/s 6. The requirements of Sections 16 to 20 of the Code of Civil Procedure 1908 apply to commercial disputes. A commercial court has jurisdiction over any suit or application involving a commercial dispute that occurs within its territorial jurisdiction and in which the value of the specified subject matter in the dispute (the “Specified Value”) exceeds INR 300,000. 

All suits and applications filed in the High Court with original civil jurisdiction to hear and resolve commercial disputes of particular values are heard and resolved by the High Court’s commercial division. All suits and applications relating to business disputes, specified by an act to lie in a court and pending on the original side of the High Court, are heard by the Commercial Division of the High Court. This has been dealt with u/s 7 of the Commercial Courts Act. 

Determining Specified Value

The method of determination of Specified Value is case-specific and related to the relief in question in a dispute.

• Money Recovery: The amount in dispute, plus interest, will be computed up to the date of filing the lawsuit.
• Movable Property: The market value of the property on the date of filing will be taken into account.
• Immovable Property: The property’s market value on the date of filing will be taken into account.
• Intangible right: The plaintiff’s estimated market value will be evaluated.
• Counterclaim: The claim’s market estimated worth on the date it was filed will be evaluated.

 

Pre-institution Mediation and Settlement

“Pre-institution Mediation and Settlement” is covered u/s 12A. Mediation is the process of resolving a dispute outside of the commercial court system with the assistance of specified authorities authorised by the Central Government under the Legal Services Authorities Act of 1987. As per the Act, pre-institution mediation and settlement are required before approaching the commercial court. 

Mediation is a systematic method in which parties to a dispute talk about their issues and try to work out a solution together. A mediator assists in this process. The mediator cannot make a choice for the disputing parties; the parties must determine whether or not to settle and the conditions of the settlement. The Companies Act of 2013 and the Micro Small and Medium Industries Act of 2006 both provide for the use of mediation to resolve commercial issues.

The judgment of the Bombay High Court, in Ganga Taro Vazirani vs. Deepak Raheja, passed on February 21, 2021, was concerned with a summary suit for the recovery of money lent by the plaintiff to the defendant. On an objection by the defendant that pre-institution mediation had not been attempted, the court held this was not mandatory under section 12A. The court concluded this requirement was procedural in nature, the substantial compliance of which was sufficient. This requirement could also be waived. The court pitted the recourse to mediation under section 12A as conflicting with the objective of this law of providing speedy resolution, and observed that to mechanically drive the plaintiff to go for mediation under section 12A before allowing him to institute the suit would run counter to the very objective of the law of providing speedy justice. It also observed that pre-institution mediation would be a futile exercise where the case of one party was robust.

The contexts for these observations were on the basis of the strength of the plaintiff’s case for recovery of the money lent, and the objection of non-compliance under section 12A being raised at the end of a series of procedures, when arguments were heard, and not at the very first instance when the defendant had filed its reply. Nevertheless, the observations undermine both the legislative policy and the process of mediation.

The period of mediation may be extended for a further period of two months with the consent of the parties. The period during which the parties remained occupied with the pre-institution mediation, such period shall not be computed for the purpose of limitation under the Limitation Act, 1963 (36 of 1963). If the parties to the commercial dispute arrive at a settlement, the same shall be reduced into writing and shall be signed by the parties to the dispute and the mediator. The settlement arrived at under this section shall have the same status and effect as if it is an arbitral award on agreed terms under sub-section (4) of section 30 of the Arbitration and Conciliation Act, 1996 (26 of 1996). The only exception is that pre-institution would not be required in circumstances involving urgent interim relief.

Procedure Adopted

A commercial dispute must be adjudicated by the commercial courts according to the method outlined in the Code of Civil Procedure, 1908 (“CPC”), as revised by the Schedule to the Act. As a result, a variety of procedural rules apply to commercial disputes, all of which are aimed at making the process as efficient and quick as possible.

Filing a commercial dispute

The Plaintiff must file a list of all documents and photocopies pertaining to the suit that are in its power, possession, control, or custody, specifying whether the documents are originals, office copies, or photocopies, and stating in brief the parties to each document, mode of execution, issuance or receipt, and line of custody of each document. Further, he has to submit a Statement of Truth stating that all aforesaid documents have been annexed, and that the plaintiff has no other documents in its possession.

In case of urgent filings, the plaintiff may request permission to rely on additional documentation, which must be filed within 30 days after the suit’s filing, along with an oath declaration. No plaintiff will be permitted to rely on documents that were not declared unless the plaintiff obtains leave from the Court, which will be granted only after the plaintiff establishes fair grounds for the non-disclosure.

The plaint must identify documents that the plaintiff believes are in the defendant’s authority, possession, control, or custody and that the plaintiff intends to rely on, as well as request leave to produce them. The obligation to disclose documents continues until the suit is settled.

Parties can deliver written interrogatories for the examination of opposing parties with the permission of the court. Before 30 days of filing a written statement, the parties must check all documents. The court has the authority to extend this deadline. A party might obtain directions at any time for the verification of papers by the other party, if the other party has denied inspection or the documents have still not been provided despite notification to do so. Within 30 days of filing, such an application must be resolved.

If the application is approved, examination and copies of the papers must be delivered within 5 days of the order being issued. Within 15 days following the ending of the inspection, each party must file a statement of admission and denial relative to the contents, existence, issuance/receipt, and possession of the document, as well as an affidavit in support thereof. A party must offer reasons for denying a document.

The submission of printouts shall be sufficient compliance in the case of disclosure and inspections of Electronic Records (as defined in the Information Technology Act, 2000). Electronic copies of electronic records may be provided in lieu of or in addition to printouts at the parties’ discretion.

Appeal against the commercial court’s order

The commercial appellate court at district level hears appeals from orders of commercial courts below the district level. Furthermore, an order from a district level commercial court or the commercial division of a High Court can also be transferred to the High Court’s commercial appellate division. The Act states that a ‘judgment’ of the Commercial Division of a High Court or Commercial Court may be appealed to the Commercial Appellate Division of that High Court within sixty days of the date of the ‘judgment’ or ‘order’, as the case could be.

Important Judgments

In the case of Dr. Dilip Choudhury Vs. Pratishruti Projects Limited & Ors. It was held that because the claim was filed before the Act took effect, Section 15 of the Act, which governs “Transfer of Pending Cases” would apply in this case. The suit was never transferred to the Commercial Division under Section 15(1) of the Act, and none of the parties approached the Commercial Appellate Division of the High Court to have the case transferred from the ordinary Court to the Commercial Division for trial. As a result, the Court determined that the case should be referred to the Commercial Division for trial because it involves a commercial dispute. The transferee Court has the authority to impose a new deadline for filing a written statement in its discretion. 

The Bombay High Court, in a review petition against its own judgement in the case of Axis Bank Ltd. vs Mira Gehani held that:

“Amendments introduced to CPC by the Commercial Courts Act are only applicable to Commercial Disputes of a Specified Value and not Commercial Disputes not of a Specified Value such as the present suit.” “Amendment to CPC mandating that a Written Statement in a Commercial Suit has to be filed within 120 days, will not apply to Commercial Disputes of a Specified Value.”

In the case of Union of India vs. Varindera Constructions Ltd. Etc. , the tender of the respondent-Contractor being the lowest quotation was accepted by the appellant. When the work was finally completed within the stipulated extended time of completion, the respondent submitted the final bill along with some additional claims which was rejected by the appellant. The Court had opined that:

“Given the fact that an appellate proceeding is a continuation of the original proceeding, as has been held in Lachmeshwar Prasad Shukul and Ors vs. Keshwar Lal Chaudhuri and Ors, AIR 1941 Federal Court 5, and repeatedly followed by our judgments, we feel that any delay beyond 120 days in the filing of an appeal under Section 37 from an application being either dismissed or allowed under Section 34 of the Arbitration and Conciliation Act, 1996 should not be allowed as it will defeat the overall statutory purpose of arbitration proceedings being decided with utmost despatch.”

The Apex Court had dismissed the appeal with the above opinion without hearing the matter due to the delay caused. This opinion was reiterated in M/S N.V. International vs State of Assam & Ors., wherein the delay being beyond 120 days was therefore not liable to be condoned. The appeal was dismissed accordingly.

But, quite recently this decision has been overruled in the case of Government of Maharashtra (Water Resources Department) V. M/S Borse Brothers Engineers & Contractors Pvt. Ltd. (here after referred to as “Borse Brothers case”). 

The High Courts of Bombay and Delhi had denied condoning the delays in filing appeals under Section 37 of the Arbitration and Conciliation Act beyond 120 days in two appeals before the Supreme Court. Another appeal was filed against a decision of the High Court of Madhya Pradesh, which stated that a High Court might condone a delay in filing an appeal u/s 5 of the Limitation Act if the delay was justified. These judgements formed the subject of appeals, which were then consolidated and dismissed by the Apex Court in the Borse Brothers case. 

The Supreme Court based its reasoning on the fact that appeals are the continuance of the first initial case. As a result, the limitation time criteria that apply to Section 34 proceedings would also apply to an appeal under Section 37. The Supreme Court found that N.V. International case had failed to consider the legal provisions of the Commercial Court Act in deciding the time limit for filing an appeal under Section 37. Furthermore, the Commercial Court Act held that the hard stop provided in Section 34, as opposed to its absence in Section 13, did not allow for a ‘bodily lifting’ of the limitation period under Section 34 of the Arbitration and Conciliation Act into Section 37 of the Arbitration & Conciliation Act (hereafter referred to as A&C Act). As a result, the limitation period under Section 34 of the A&C Act could not be extended into the appeal provision under Section 37 of the Act.

The Supreme Court emphasized that any delay must be excused by the appellate court as an exception, not as a rule, and only under exceptional circumstances as stated below:

• There is delay beyond the statutory period, but a party has acted bona fide and not negligently.
• The opposition is not deprived of his legal rights because of the first party’s inactivity or negligence.

The Supreme Court further stated that just because adequate reason has been established in the facts of a case, the appellant has no right to have the delay condoned.

 

By Mehak Dhiman, Ayesha Adyasha