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Introduction:
The Commercial Courts Act was enacted in the year 2015 (“Act”) with the objective of achieving speedy adjudication of Commercial Disputes. Moreover, the Commercial Courts (Pre-Institution Mediation and Settlement) Rules, 2018 (“Rules”) were also framed in line with the aforesaid act for the purpose of resolving the matters relating to commercial disputes in an efficacious and expeditious manner. The Act calls for setting up of commercial courts at the district level and a different division in the High Court whose jurisdiction extends to all commercial matters of specified value (Rs. 3,00,000). The creation of commercial courts is done to streamline the dispute resolution process with inclusion of alternative dispute resolution means like arbitration and pre-institution mediation and settlement. The Act is intended to be developed in such a way that it can became a complete Act in itself i.e., overriding effect over other statutes so as to reduce the duration of the suit. Generally, if a civil suit is instituted it may go on for years and in some cases decades but the non-obstinate clause of this Act stops that from happening as it allows for very little in the way of appeals against the orders passed except as mentioned in the Act itself.
To further understand the nuances of the Act let us go through the sections to understand the intention of the statute. Before we begin there are a few terms from which one must be acquainted, for the applicability of the Act there must be an existence of a “Commercial Dispute” under Section 2(1)(c)[1] of the Act of a specified value, which are valued Rupees 3 Lakhs or more, shall not be instituted unless the plaintiff mandatorily exhausts the remedy of Pre-Institution Mediation, to be conducted by the Legal Services Institutions. Accordingly, the Legal Services Institutions are conducting Pre-Institution Mediation in respect of Commercial Disputes across the country. Another important topic to understand the Act is the concept of specified value mentioned under Section 12 of the Act which in essence decides the applicability of the statute as to initiate action under the Act one must prove that a commercial dispute of a specified value has taken place.
Specified Value:
Section 12 of the Act defines the specified value in different scenarios:
- In case of recovery of money, the amount to be recovered in the suit or application inclusive of interest, if any, up to the date of filing.
- In case of movable property, the market value of movable property on the date of filing of appeal or suit.
- In case of immovable property, the market value of the immovable property
- In case of intangible property or right, market value estimated of the said property or right by the plaintiff
- In case of arbitration, the aggregate value of claim and counter claim shall be considered for admissibility of the arbitration.
The aforementioned are some matters in which the given metrics are used to determine the specified value, it is a very integral part of the Act as the specified value determines the appropriate forum in which the matter is to be heard and if the matter is eligible to be considered under the Act at all and the applicability of section 12A of the Act related to pre-instituted mediation or settlement.
Constitution and jurisdiction of courts under the Act:
Chapter II of the Act deals with the constitution, jurisdiction and the powers conferred upon the commercial courts in matters relating to appeals and disputes involving arbitration clauses.
Constitution:
Sections 3 till 5 provide for provisions relating to constitution of commercial courts at the district judge level and at the high court level have original jurisdiction and an appellate court to hear appeals coming from the lower courts. The Act is very clear in stating that the state government with the guidance of the High Court may constitute as many commercial courts at the District judge level and even lower as it may deem fit and appoint an appropriate number of judges and staff for appropriate functioning of the said courts. The High court may also on the directions of the chief justice of the High Court create and appoint judges for commercial division of the High Court and its benches and a Commercial Appellate court for the purpose of hearing appeals against orders passed under this Act.
Jurisdiction:
Commercial Court: The jurisdiction of the commercial court extends to any commercial dispute of the specified value which occurs inside its territorial jurisdiction.
Commercial Division of High Court: The jurisdiction extends to all disputes of specified value having either pecuniary or territorial jurisdiction of a court not inferior to a High Court. If a matter has the pecuniary jurisdiction of filed in the High court in exercise of its ordinary civil jurisdiction is eligible to be heard by only the High Court.
Arbitration matters: This section comes into effect when the subject matter of arbitration is a commercial dispute having a specified value. The provisions of the Arbitration and Conciliation Act work in tandem with the Act and not against them, the section states that if any dispute related to arbitration is an international arbitration or it is not an international arbitration but, an appeal is filed in the High Court for the said matter the High Court’s commercial division will have the authority to proceed with such case. However, if the appeal is filed with any district court (not being a high court) in case of a local arbitration such appeal shall be heard by the commercial court having jurisdiction over such matter.
Bar to Jurisdiction: The jurisdiction of this Act shall not apply in cases in which any other statute bars civil action in the matter either expressly or impliedly.
Pre-Institution Mediation and Settlement:
A very important aspect of the Act is the said concept enshrined under Section 12 A which in short states that the parties to dispute must first go for mediation before filing an application if the specified value of the dispute is Rs. 3,00,000. This provision is a very important one as it shows the government’s as well as the judiciary’s commitment towards Alternate Dispute Resolution as a means for quick and efficient dispute resolution as always more preferable then going the adjudication route.
Section 12A of the aforesaid Act states as follows:
12A. Pre-Institution Mediation and Settlement—
(1) A suit, which does not contemplate any urgent interim relief under this Act, shall not be instituted unless the plaintiff exhausts the remedy of pre-institution mediation in accordance with such manner and procedure as may be prescribed by rules made by the Central Government.
(2) The Central Government may, by notification, authorise the Authorities constituted under the Legal Services Authorities Act, 1987 (39 of 1987), for the purposes of pre-institution mediation.
(3) Notwithstanding anything contained in the Legal Services Authorities Act, 1987 (39 of 1987), the Authority authorised by the Central Government under sub-section (2) shall complete the process of mediation within a period of three months from the date of application made by the plaintiff under sub-section (1):
Provided that the period of mediation may be extended for a further period of two months with the consent of the parties:
Provided further that, 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).
(4) 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.
(5) 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).
Sub-section (1) of Section 12A, the mandatory reference to mediation can be bypassed if, along with the plaint, an application for ‘urgent interim relief’ is preferred, in which eventuality, the reference to mediation can be given a go-by and the suit may be directly instituted. Therefore, only when the interim relief sought for, has an urgency fastened to it, can the obligatory reference to mediation be dodged. And therefore, this urgency for interim relief must be pleaded, exhibited, and justified to the court in the first instance when the plaint is taken up.[2]
Apart from this the Central Government on 03-07-2018 has, in exercise of the powers conferred the Commercial Courts Act, 2015, notified the Commercial Courts (Pre-Institution Mediation and Settlement) Rules, 2018.
Key Highlights of the Rules are as follows: —
Also read: FREEDOM OF EXPRESSION DURING COVID -19.
A. Initiation of mediation process — Rule 3
(1) A party to a commercial dispute needs to make an application to the Authority as per Form-1 in Schedule-I, either online/by post/by hand, for initiating mediation process along with Rs 1000 as fees payable to the Authority by demand draft/ online;
(2) The Authority shall, having regard to territorial and pecuniary jurisdiction and nature of commercial dispute, issue notice, as per Form-2 in Schedule-I through registered/speed post and electronic means, i.e., e-mail and like to the opposite party for appearing and giving consent to participate in mediation process on a date not beyond ten days from issue of notice.
(3) If no response is received from opposite party either by post/e-mail, the Authority shall issue final notice as specified above.
(4) Where notice under sub-rule (3) is unacknowledged or opposite party refuses to participate in mediation process, the Authority shall treat the process to be a non-starter and make report as per Form 3 in Schedule-I and endorse it to both the parties.
(5) Where opposite party, after receiving the notice seeks further time for appearance, the Authority may, fix an alternate date not later than 10 days from date of receipt of such request.
(6) Where opposite party fails to appear on fixed date fixed, the Authority shall treat the mediation process to be a non-starter and make report as per Form 3 in Schedule-I and endorse the same to both the parties.
(7) Where both parties appear and give consent to participate in the mediation process, the Authority shall assign the commercial dispute to a Mediator and fix a date for appearance before the said Mediator.
(8) The Authority shall ensure that the mediation process is completed within 3 months from receipt of application for pre-institution mediation unless the period is extended for 2 months with consent of both the parties.
B. Venue for conducting mediation — Rule 4
The venue for conducting of the mediation shall be premises of the Authority.
C. Role of Mediator — Rule 5
The Mediator shall, on receipt of assignment, under sub-rule (7) of rule 3 facilitate the voluntary resolution of commercial dispute and assist the parties in reaching a settlement.
D. Representation of parties — Rule 6
A party to a commercial dispute must appear before the Authority/Mediator, either personally or through duly authorised representative/Counsel.
E. Procedure of mediation — Rule 7
(1) The mediation shall be conducted as per the following procedure-
(i) At the commencement of mediation, the Mediator shall explain the mediation process to the parties.
(ii) The date and time of each mediation sitting should be fixed by Mediator in consultation with the parties.
(iii) The Mediator, during course of mediation, may hold meetings with parties jointly/separately.
(iv) The applicant/opposite party may share settlement proposals with the Mediator in separate sittings with specific instruction as to what part can be shared with the other party.
(v) Parties to the mediation can exchange settlement proposals with each other during mediation sitting either orally/in writing.
(vi) During the mediation process, Mediator must maintain confidentiality of discussions made in separate sittings with each party and only the facts which a party permits can be shared with other party.
(vii) Once both parties reach to a mutually agreed settlement, same shall be reduced in writing by Mediator and signed by the parties and Mediator as per Form-4 in Schedule-I.
(viii) Mediator shall provide the settlement agreement, in original, to all the parties and forward a signed copy to the Authority; and
(ix) Where no settlement is arrived between the parties within time specified in sub-section (3) of Section 12A of the Act or where Mediator is of the opinion that the settlement is not possible, the Mediator needs to submit a report to the Authority, with recorded reasons in writing, as per Form-5 in Schedule-I.
(2) The Authority/Mediator, shall not retain the hard/soft copies of documents exchanged between parties or submitted to Mediator or any notes prepared by the Mediator beyond 6 months other than application for mediation, notice issued, settlement agreement and failure report.
F. Mediation Fee — Rule 11
Before commencement of the mediation, the parties to commercial dispute shall pay to the Authority a one-time mediation fee, to be shared equally, as per the quantum of claim as specified in Schedule-II.
Schedule-II
Mediation Fee
[Rule 11]
| S. No | Quantum of Claim | Mediation Fee Payable to Authority (in Indian rupees). |
| 1. | From Rs. 3,00,000 to Rs.10,00,000. | Rs. 15,000/- |
| 2. | From Rs. 10,00,000. to Rs. 50,00,000. | Rs. 30,000/- |
| 3. | From Rs. 50,00,000. to Rs. 1,00,00,000. | Rs. 40,000/- |
| 4. | From Rs.1,00,00,000. to Rs.3,00,00,000. | Rs. 50,000/- |
| 5. | Above Rs. 3,00,00,000. | Rs. 75000/- |
Appeals against orders:
Any party aggrieved with the orders of the commercial court or the commercial division of the High Court may file an appeal against such an order within 60 days of the order or judgment with the commercial Appellate Division of the High Court.
Furthering, the point of speedy trials is section 14 of the Act which states that the commercial appellate court and the commercial court division of the High Court shall be disposed off within a period of six months from filing an appeal.
Other important sections:
Section 17: Collection and disclosure of data by Commercial Courts, Commercial Appellate Courts, Commercial Divisions and Commercial Appellate Divisions:
The section makes it mandatory to disclose the information regarding the quantum of cases either disposed or ongoing with appropriate statistics to be displayed on the website of the respective High Courts to track in real time the effectiveness of the Act in adjudication of commercial disputes.
Section 21: The Act to have an overriding effect:
This section is in a sense the most important one of the Act as it is a non-obstinate clause which overrides any other provisions of laws which might be in direct conflict with the provisions of this Act otherwise the purpose of the statute can be easily undermined by dragging in other statutes and codes to elongate the adjudicatory process and delaying the justice deserved by the aggrieved party.
Conclusion:
In conclusion, the Act brings about a positive change in the field of commercial dispute resolution by adding another special court to the line up of already existing judicial structure and brings about an efficient change in adjudication of commercial disputes by amalgamating ADR techniques like Arbitration and mediation in the mix, which was proven post the introduction of the Act as India’s ease of doing business rating jumped several spots after the introduction of the said Act the act can be tangibly be seen to make an impact of the already existing process by exponentially increasing the disposal of cases and reducing the time taken in the adjudication process and providing a simpler and more clear pathway to dispute resolution. However, the main test of the Act is in the post pandemic business era as the commercial disputes may rise as most of the businesses are still struggling to survive, it is yet to be seen how effectively this Act can be utilised to improve such a situation with such a high case load almost flooding the system.
[1] (c) “commercial dispute” means a dispute arising out of–– (i) ordinary transactions of merchants, bankers, financiers and traders such as those relating to mercantile documents, including enforcement and interpretation of such documents; (ii) export or import of merchandise or services; (iii) issues relating to admiralty and maritime law; (iv) transactions relating to aircraft, aircraft engines, aircraft equipment and helicopters, including sales, leasing and financing of the same; (v) carriage of goods; (vi) construction and infrastructure contracts, including tenders; (vii) agreements relating to immovable property used exclusively in trade or commerce; (viii) franchising agreements; (ix) distribution and licensing agreements; (x) management and consultancy agreements; (xi) joint venture agreements; (xii) shareholders agreements; (xiii) subscription and investment agreements pertaining to the services industry including outsourcing services and financial services; (xiv) mercantile agency and mercantile usage; (xv) partnership agreements; (xvi) technology development agreements; (xvii) intellectual property rights relating to registered and unregistered trademarks, copyright, patent, design, domain names, geographical indications and semiconductor integrated circuits; (xviii) agreements for sale of goods or provision of services; (xix) exploitation of oil and gas reserves or other natural resources including electromagnetic spectrum; (xx) insurance and re-insurance; (xxi) contracts of agency relating to any of the above; and (xxii) such other commercial disputes as may be notified by the Central Government. Explanation.––A commercial dispute shall not cease to be a commercial dispute merely because— (a) it also involves action for recovery of immovable property or for realisation of monies out of immovable property given as security or involves any other relief pertaining to immovable property; (b) one of the contracting parties is the State or any of its agencies or instrumentalities, or a private body carrying out public functions;
[2] https://www.barandbench.com/news/mediation-section-12a-commercial-courts-act as last visited on 14th March 2021
Author: ANANT SHARMA
Editor: Kanishka Vaish, Senior Editor, LexLife India.
Lexlife India 