[Yash Sharan and Suryansh Jaiswal are students at Hidayatullah National law University Raipur]
Introduction
In 2015, India recognised its dynamic commercial landscape and enacted the Commercial Courts Act, 2015 (“the earlier Act”), with an aim to fasten the resolution of commercial disputes. The earlier act encompasses a wide array of commercial matters, pre-institution mediation, strict timeline for case disposal etc. In light of the earlier Act, the introduction of pre-institution mediation holds a significant position aimed at promoting out-of-court settlement. In a move to bolster the earlier Act in order to meet the essentials of the current financial landscape, the government has proposed the Draft Commercial Courts (Amendment) Bill, 2024 (“the Bill”) with the objective to ameliorate the efficiency of its dispute resolution mechanisms. There has been a pressing need for this legislation, as was highlighted by the Supreme Court of India in Union of India v. Ambica Construction, wherein it stated that “speedy resolution of commercial disputes is not merely a matter of convenience but a necessity for the sustenance of trade and commerce.” This very principle forms the backbone of the new Bill.
This article delves into the intricacies of the recently proposed the Bill. Firstly, it studies the key changes it proposes and its impact on the Indian financial landscape. Secondly, the authors highlight the shortcomings in the Bill that continue to hinder the efficacy of commercial dispute resolution. Thirdly, it provides plausible solutions to these shortcomings with the aim to enhance its effectiveness. Lastly, the article closes with a conclusion, suggesting a way forward for moving upward and ahead.
Dedicated to Disputes: Analysing the Key Changes and their Implications
The Bill seeks to expedite proceedings in commercial courts, expand their jurisdiction, and revise the monetary threshold. This Bill marks a significant step toward addressing the substantial backlog of cases burdening the Indian judiciary. Thus, it is a pressing need to dissect the amendments and study its impacts on the Indian financial landscape.
Firstly, the government aims to insert a proviso to Section 12A of the earlier Act. This proviso would allow judicial discretion in mandating pre-institution mediation. This amendment is a vital step in resolving the
tenacious loophole whereby previously, the parties could bypass the compulsory pre-institution mediation by approaching the court directly to seek urgent interim relief. Further, the parties have the autonomy of proceeding with the suit without going through the pre-institution mediation. The proposed amendment seeks to ensure that if the parties move to the courts directly in matters involving urgent interim relief, the courts would revert them to pre-institution mediation after the adjudicating the said application. This has been done with the objective of preventing delays and inefficiencies, settling the disputes outside the courts, and encouraging amiable resolutions.
Pre-institution mediation is an essential requisite in commercial disputes, which are to be solved with “highest level of promptness”, except for when an urgent interim relief is claimed. This principle was laid down in the case of Patil Automation Private Limited & Ors. v. Rakheja Engineers Private Limited. The amendment sets time limits to build mediation into an active process rather than just a formal step. This approach transforms into a core step that helps trial courts settle cases faster which is in consonance with Section 14 of the Bill.
Secondly, the Bill inserts a proviso to Section 13, introducing a stricter limitation period for filing appeals. The previous limitation period lasted 60 days, which the Bill now extends to 90 days only if “sufficient cause” is shown. In addition, the government felt an urge to widen the jurisdiction of the commercial courts and divisions over international arbitration agreements, thus, Section 50 of the Arbitration and Conciliation Act, 1996, alongside Section 37 has been included in the first proviso to Section 13(1A). This is in consonance with the arbitration framework because arbitration disputes overlap with commercial litigation, thereby reinforcing the Bill’s overall goal of centralising arbitration appeals within the commercial courts is served.
Thirdly, the Bill proffers to establish dedicated commercial courts at both the district and high court levels, primarily to smoothly handle the commercial disputes. This has been proposed with the aim to reduce the burden of commercial issues on the general courts and offer a more pro-business environment. Moreover, this dedicated commercial courts at both these levels will draw domestic and international investments. A stable and efficient legal framework plays a key role in investment decisions; thus, such courts will spur more economic activities, employment opportunities and holistic development.
Behind the Amendment Bill: Risks, Reforms and Legal Safeguards
The Government has called for insights into the Bill. While the Bill has been largely applauded, concerns persist over its implementation, mandatory nature, and delayed justice. Moreover, there are other concerns over the Bill which are further discussed.
Firstly, the use of the word “shall” in the proviso in Section 12A of the Bill makes pre-institution mediation mandatory for the parties before they could approach the court. This presents significant shortcomings in dispute resolution process as parties may display aggression and a sense of hostility towards each other. In these instances, pre-institution mediation, being a congenial process of dispute resolution, is not possible. However, the parties would still have to go for it, since it is a mandatory process, and they would not be satisfied and would later approach the courts. This, in turn, will lead to unnecessary delays and redundant procedures, rendering the process futile. Further, it is observed that a high number of pre-institution mediations fail to proceed because one or both parties do not want to participate. For instance, in two Mumbai commercial courts, 97% to 99% of PIMS cases, ended as non-starters because the parties did not participate in the process.
To resolve this quandary, it is suggested that the use of the word “shall” must be omitted to highlight the voluntariness of the parties to opt mediation before the litigation. The parties should be allowed to go for pre-institution mediation if both parties consensually decide the same. Contrarily, they should ultimately proceed with litigation to shorten the timeline to resolve disputes and in an effective manner.
Secondly, the additional 30 days for filing appeals in Section 13 of the Bill seems to hold a lot of potential as the parties can arrange necessary documents and evidences without any rush. However, this amendment is not without concerns; two minor shortcomings appear prima facie. First, these 30 days could potentially be misused by the parties to hide their culpabilities in time sensitive commercial disputes. Second, and more important, the term “sufficient cause” in the said section of the Bill is not objectively defined anywhere. This would lead to subjective interpretations of the term by the courts and parties, creating a conundrum and perpetuating discrepancies.
In N. Balakrishnan v. M. Krishnamurthy, the Supreme Court firmly stated that delay caused by genuine reasons should not hinder access to justice. In light of the judgment, it is suggested that the legislature should effectively lay down a concrete definition of the term “sufficient cause”, so as to put an end to subjective interpretations.
Thirdly, the establishment of dedicated commercial courts at both the district and high court levels seems to be a tough job as there is a lack of proper infrastructure and sufficient funding from the government. Additionally, there lies an implementation hurdle of ensuring compliance with timelines and mediation procedures. For instance, the Lok Adalats, established at the grassroot level, suffer from lack of funds and basic infrastructure, thereby delaying justice. Since the previously instituted bodies are suffering from these problems, it is highly probable that these newer courts might also suffer from the same.
It is suggested that to resolve these problems, there needs to be the maintenance of the existing courtrooms with equipped technologies and databases. Alongside, the government must work on inclusion of additional courtrooms and suitable infrastructure and apportion some funds for the same. Moreover, the government should establish an authority to keep a check on the institutions, thereby ensuring compliance with mandated timelines and mediation procedures.
Concluding Remarks
The Draft Commercial Courts (Amendment) Bill, 2024 is aimed at enhancing India’s framework for commercial disputes by major improvements. The stated goal of the Bill is to make the judicial processes more efficient through decreasing of monetary thresholds, encouraging pre-institution mediation, and using technologies. Specialized commercial courts means that the cases are heard by judges with adequate knowledge, which enhances the quality of the decisions made. These reforms are meant to speed up the disposal of cases, making them easier and quicker for businesses. By working on the aforementioned suggestions, the amendments establish a long-term perspective and positive legal environment, which, in turn, generate interest in foreign investments, strengthen India’s position as an internationally competitive business destination, and ensure steady development of the country’s economy and businesses’ sustainably enhanced ease of doing business.
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