Ease Of Doing Business: The New Commercial Courts Ordinance Is A Big Positive Step

Commercial courts armed with new provisions will fast-track dispute resolution processes and put an end to a large number of commercial cases languishing in courts for years. Read on to find out how.

Last month, President Pranab Mukherjee promulgated the Commercial Courts ordinance (the official name is slightly longer) bringing a much needed overhaul to the overburdened judicial system of the country.

The ordinance has the potential to be the stepping stone for reforming the civil judicial system in the country. Despite lack of coverage from the media, the ordinance can easily be termed as one of the biggest procedural reforms in the judicial system in recent years.

The promulgation is in line with the investment friendly pitch made by the government. The ordinance will see thousands of pending commercial disputes being placed before the commercial courts and divisions of the High Courts. It is expected that these dedicated courts will fast-track the resolution process and put an end to a large number of commercial cases languishing in courts for years. In all probability, the ordinance will be converted into an act through the parliament in the winter session along with the Arbitration and Conciliation (Amendment) Ordinance, 2015.

Why this ordinance?

The current dispute redressal mechanism in India has failed to provide efficient means of remedy to the litigants. In commercial transactions, it generally takes years to secure performance of a contract or receive damages for a breach, effectively rendering the remedy inadequate. The slow delivery of remedy by courts has  brought international embarrassment for India.  Commercial dispute awards by international tribunals have gone against the Indian government in the past. International tribunals have also highlighted India’s failure to provide effective means of remedy as there were inordinate delays in the adjudication of disputes.

Through this ordinance, the Government wishes to address three primary concerns.

Firstly, the ordinance will create a special and dedicated adjudication process and mechanism for commercial transactions.

Secondly, the ordinance will address the issue of misuse of the judicial process to deny or refuse the performance of commercial contracts by parties.

Finally, the government wishes to positively enhance India’s ratings in the Ease of Doing Business Index (by World Bank) through this ordinance.

What’s new in the ordinance? 

First, the ordinance defines what commercial disputes are. It is a broad definition essentially covering every type of commercial disputes including the ones arising out of intellectual property rights.

Second, it lays down the procedure for establishment of commercial divisions in High courts with original civil jurisdictions and commercial courts where the High Courts don’t have original civil jurisdiction. The High Courts will also have an appellate jurisdiction to hear the appeals arising out of the commercial courts and commercial divisions. The commercial courts will be established through the notification by state governments.

Third, the ordinance puts in place strict timelines. For instance, any appeal arising out of a commercial dispute shall be appealed within 60 days and the same shall be disposed by the appellate bench within 6 months. Also, the interlocutory or interim orders of the commercial courts will have to be appealed only along with the final decree.

Fourth, the ordinance brings path-breaking changes to the entire evidence-taking process in the hearing by amending the Code of Civil procedure (CPC). The new streamlined and structured process pertaining to discovery, inspection, admission and denial of documents will make the entire process efficient and easy.

Fifth, the ordinance allows the court to impose costs on parties in a more flexible manner in order to discourage frivolous applications, counterclaims and meritless appeals. For instance, the court may even order the successful party to pay costs to the unsuccessful party if the former tries to delay the proceedings by filing frivolous and vexatious claims during the hearing. Interestingly, it also allows the court to grant costs to the other party if one of the parties failed to accept a reasonable offer of settlement.

Finally, and most importantly, the concept of case management has been introduced. Case management is a widely accepted practice all over the world which allows the court and the parties to streamline the processes by deciding on the dates and a structured timeline. The ordinance also provides for the completion of the case trial within 6 months of the first case management hearing.

It is also important to note that the ordinance has brought arbitration proceedings within the jurisdiction of the commercial courts and divisions. This will make arbitration an even more attractive and business friendly process.

Just the beginning

The ordinance marks the beginning of structural reforms in the judiciary. While there is no doubt that the ordinance will initiate the process of the addressing the inefficiencies in the judiciary, it will be upon the state governments to bring out notifications quickly and sanction enough funds to make these courts function effectively.

It is also pertinent to mention that the Commercial Court ordinance was promulgated along with the Arbitration and Conciliation (Amendment) Ordinance, 2015 which amends the Arbitration and Conciliation Act, 1996. Together, the two ordinances mark a landmark shift in the way commercial disputes have been traditionally handled in the country. Not only will the ordinances improve India’s newly-found business friendly image they will also make India an arbitration friendly regime.

Now, it will be upon the NDA government to get both of these ordinances converted into acts through the parliament by roping in the Opposition. One can only hope that the ordinance will not meet the fate of the amendments to the Land Acquisition Act.