Clash of the Courts — An analysis into the complications intertwined in the Commercial Courts Act, 2015 while dealing with Jurisdiction over Arbitration Disputes

Introduction

The Commercial Courts Act, 2015¹ is a comprehensive piece of legislation aiming to provide a specialised and speedy resolution of commercial disputes, as identified under the Act, and with the larger objective being to facilitate the ease of doing commercial activities and reducing the long-pending court proceedings in connection with commercial transactions in India.

The salient features of the Act include defining the various types of commercial disputes, and specifying the qualifying value of such disputes, constituting Commercial Courts and Commercial Appellate Court at various levels as also the Act provides for new concepts such as compulsory pre-institution mediation mechanism. Apart from the above, the Act also extensively lays down the procedure for conduct of commercial cases by the designated courts.

A bare reading into the provisions regarding constitution of courts under the scheme of the Act brings to light a certain difficulty in comprehending the multi-level system incorporated therein. This article aims to bring about a clarity on the said aspect especially in the scenario involving applications or appeals arising from the Arbitration and Conciliation Act, 1996² (Arbitration Act) and being of a commercial dispute, and is followed by an analysis of case laws, more so of a recent two-Judge Bench decision of the High Court of Kerala which, in the view of the author, has set the law straight as far the ambiguities, if any, in the provisions of law are concerned.

Relevant sections of the Commercial Courts Act, 2015 and key takeaways

A. Section 2(1)(a)³ “Commercial Appellate Courts” means the Commercial Appellate Courts designated under Section 3-A.

B. Section 2(1)(b) “Commercial Court” means the Commercial Court constituted under sub-section (1) of Section 3⁴.

C. Section 3. Constitution of Commercial Courts.—

(1) The State Government, may after consultation with the High Court concerned, by notification, constitute such number of Commercial Courts at the District level, as it may deem necessary for the purpose of exercising the jurisdiction and powers conferred on those courts under this Act:

Provided that with respect to the High Courts having ordinary original civil jurisdiction, the State Government may, after consultation with the High Court concerned, by notification, constitute Commercial Courts at the District Judge level:

Provided further that with respect to a territory over which the High Courts have ordinary original civil jurisdiction, the State Government may, by notification, specify such pecuniary value which shall not be less than three lakh rupees and not more than the pecuniary jurisdiction exercisable by the District Courts, as it may consider necessary.

D. Section 3-A⁵. Designation of Commercial Appellate Courts.—

Except the territories over which the High Courts have ordinary original civil jurisdiction, the State Government may, after consultation with the High Court concerned, by notification, designate such number of Commercial Appellate Courts at District Judge level, as it may deem necessary, for the purposes of exercising the jurisdiction and powers conferred on those courts under this Act.

E. Section 6⁶. Jurisdiction of Commercial Court.—

The Commercial Court shall have jurisdiction to try all suits and applications relating to a commercial dispute of a specified value arising out of the entire territory of the State over which it has been vested territorial jurisdiction.

F. Section 13⁷. Appeals from decrees of Commercial Courts and Commercial Divisions.—

(1) Any person aggrieved by the judgment or order of a Commercial Court below the level of a District Judge may appeal to the Commercial Appellate Court within a period of sixty days from the date of judgment or order:

Provided that an appeal shall lie from such orders passed by a Commercial Division or a Commercial Court that are specifically enumerated under Order 43⁸ of the Code of Civil Procedure, 1908 (5 of 1908) as amended by this Act and Section 37⁹ of the Arbitration and Conciliation Act, 1996 (26 of 1996).

G. Section 21¹⁰. Act to have overriding effect.—

Save as otherwise provided, the provisions of this Act shall have effect, notwithstanding anything inconsistent therewith contained in any other law for the time being in force or in any instrument having effect by virtue of any law for the time being in force other than this Act.

A plain reading of the above sections reveals the following:

1. Except for places where the High Court exercises original civil jurisdiction, there exists a Commercial Court (court of original jurisdiction for commercial disputes) competent to try cases with specified value at the district level. By virtue of Notification dated 24-2-2020¹¹ in the State of Kerala, all sub-courts have been designated as the Commercial Courts in accordance with Section 3.

2. Section 3-A provides for constitution of Commercial Appellate Court at district level in such territories as abovementioned. This would be the courts of Principal Civil District Judge.

3. As far as territories where the High Court exercises original civil jurisdiction is concerned, a Commercial Court is constituted at the District Judge level. This situation does not arise in Kerala.

4. The provisions of the Commercial Courts Act shall have an overriding effect over inconsistencies with any other law for time being in force.

Issue at hand

So far, the law remains unambiguous. A peculiar situation that may arise is if what is raised as a commercial dispute is also the subject-matter arising from proceedings under the Arbitration Act. The relevant provisions of the Act of 1996 are produced as below:

A. Section 2¹². (e) “Court” means—

(i) in the case of an arbitration other than international commercial arbitration, the Principal Civil Court of Original Jurisdiction in a district, and includes the High Court in exercise of its ordinary original civil jurisdiction, having jurisdiction to decide the questions forming the subject-matter of the arbitration if the same had been the subject-matter of a suit, but does not include any civil court of a grade inferior to such Principal Civil Court, or any Court of Small Causes;

(ii) in the case of international commercial arbitration, the High Court in exercise of its ordinary original civil jurisdiction, having jurisdiction to decide the questions forming the subject-matter of the arbitration if the same had been the subject-matter of a suit, and in other cases, a High Court having jurisdiction to hear appeals from decrees of courts subordinate to that High Court.

B. Section 37. Appealable orders.—

(1) Notwithstanding anything contained in any other law for the time being in force, an appeal shall lie from the following orders (and from no others) to the Court authorised by law to hear appeals from original decrees of the Court passing the order, namely:

(a) refusing to refer the parties to arbitration under Section 8¹³;

(b) granting or refusing to grant any measure under Section 9¹⁴; and

(c) setting aside or refusing to set aside an arbitral award under Section 34¹⁵.

A combined reading of the above two sections indicates that as per the scheme of the Arbitration Act the original court of competent jurisdiction would be the District Court, and the appellate court would be the High Court. The question then would be whether would such a cause that has arisen as per the Arbitration and Conciliation Act, 1996 debar the applicability of Commercial Courts Act, 2015 even if the dispute is one that fits within the definition of commercial dispute as per Section 3 of the Act of 2015?

The lawmakers have indeed taken this aspect into consideration and the answer to the question can be arrived at by taking a look at Section 10¹⁶ of the Commercial Courts Act:

10. Jurisdiction in respect of arbitration matters.— Where the subject-matter of an arbitration is a commercial dispute of a specified value and—

(1) If such arbitration is an international commercial arbitration, all applications or appeals arising out of such arbitration under the provisions of the Arbitration and Conciliation Act, 1996 (26 of 1996) that have been filed in a High Court, shall be heard and disposed of by the Commercial Division where such Commercial Division has been constituted in such High Court.

(2) If such arbitration is other than an international commercial arbitration, all applications or appeals arising out of such arbitration under the provisions of the Arbitration and Conciliation Act, 1996 (26 of 1996) that have been filed on the original side of the High Court, shall be heard and disposed of by the Commercial Division where such Commercial Division has been constituted in such High Court.

(3) If such arbitration is other than an international commercial arbitration, all applications or appeals arising out of such arbitration under the provisions of the Arbitration and Conciliation Act, 1996 (26 of 1996) that would ordinarily lie before any Principal Civil Court of Original Jurisdiction in a district (not being a High Court) shall be filed in, and heard and disposed of by the Commercial Court exercising territorial jurisdiction over such arbitration where such Commercial Court has been constituted.

Howsoever, litigants across the country have resorted to pose the issue as to which would be the competent court as well as the appellate court to entertain such a dispute; the ones constituted under the Commercial Courts Act, 2015 or should the cause be adjudicated by a competent court as defined under the Arbitration Act, or in other words, which of the statutes would have an overriding effect on the other.

Relevant case laws and analysis

The conundrum pertaining to complexity revolving around the multi-level court system under the Commercial Courts Act even so more particularly when the dispute arises from arbitral proceedings has been the point of discussion in a number of cases right from the onset of Commercial Courts Act.

One among the first many such instances is that of the Supreme Court judgment in Kandla Export Corpn. v. OCI Corpn.¹⁷, whereby the question for consideration was whether an appeal, not provided for under Section 50¹⁸ of the Arbitration Act (which deals with appealable order) would nonetheless be maintainable under Section 13 of the Commercial Courts Act. The Supreme Court was of the considered view that Arbitration Act is a Code in itself and hence competency of courts as specified therein would prevail, thereby holding that appeals in respect of orders arising from the Arbitration Act will lie only to the extent provided under Section 37. It was also upheld that the Arbitration and Conciliation Act, 1996 being a special statute overrides the Commercial Courts Act, 2015, which is a general legislation. However, this point of view was made in light of the specific case pertaining to applicability of Section 13 of the Commercial Courts Act particularly on appeals in respect of Section 50 of the Arbitration Act (dealing with appealable orders) and therefore, subsequent case laws have shown deviance from following the ratio of Kandla Exports.

However, one of the instances where the dictum in Kandla Exports case¹⁹ was followed once again by the Supreme Court was in BGS SGS Soma JV v. NHPC.²⁰, which held to the extent that there is no independent right of appeal under Section 13(1) of the Commercial Courts Act, and that the same merely provides the forum of filing appeals. Hence, Section 37 of the Arbitration Act was held to be the determinant parameter to decide upon the maintainability of such appeals. Similarly, in State of W.B. v. Associated Contractors²¹ the Supreme Court held that Section 2(1)(e) contains an exhaustive definition marking out only the Principal Civil Court of Original Jurisdiction in a district or a High Court having original civil jurisdiction in the State, and no other court as “court” for the purpose of Part I of the Arbitration Act, 1996²².

Considering the fact that the ratio in Kandla Exports case²³ was laid down in the light of the special facts and circumstances therein, various High Courts have taken the liberty to deviate from the same and taken a divergent view. For instance, in M.G. Mohanty v. State of Odisha²⁴ wherein the moot question was specifically regarding the validity of notification issued by the State of Orissa conferring jurisdiction on the Court of the Civil Judge (Senior Division) designated as Commercial Court, to decide applications or appeals arising out of arbitration under the provisions of the Arbitration and Conciliation Act, 1996, the High Court of Orissa upheld the validity of the said notification on the premise that the Commercial Courts Act being a subsequent legislation, legislative consciousness regarding the Arbitration Act is implied and more so when there is a specific reference to the A&C Act in Sections 10²⁵ and 15²⁶ of the Commercial Courts Act, 2015. Therefore, it was conclusively held that whenever the subject-matter of an arbitration is a “commercial dispute of a specified value” and it fulfils the conditions which specified in Section 10(3), the matter shall be heard and disposed of by the Commercial Court exercising territorial jurisdiction over such arbitration where such Commercial Courts have been constituted. This view was also affirmed by the Supreme Court in Jaycee Housing (P) Ltd. v. High Court of Orissa²⁷, wherein it was also opined that the objects and reasons of enactment of the 2015 Act and establishment of Commercial Courts as well as the purposes of Sections 3, 10 and 15 shall become otiose and nugatory, if all applications/appeals arising out of arbitration under the provisions of the 1996 Act, other than the international commercial arbitration, and that of a commercial nature is to lie before the Principal Civil Court of a district.

The High of Kerala had the opportunity to deliberate on the subject question in Shwas Homes (P) Ltd. v. Union of India²⁸, wherein the petitioners had sought to challenge the validity of Sections 2(1)(i), 3, 6²⁹, 7³⁰, 10, 11³¹, 12³², 12-A³³, 15, 19³⁴ and 21³⁵ of the Commercial Courts Act as the same are arbitrary, discriminatory and ultra vires the Constitution of India as also prayed to quash the Notification dated 24-2-2020 issued by the Government of Kerala, designating subordinate courts as commercial courts. Even though the learned Single Judge had addressed the anomalous situation created with the advent of Commercial Courts, whereby a commercial dispute which arises from an award or proceeding under the Arbitration Act which is below the specified value, that is pecuniary value of Rupee three lakhs will be considered by the District Court with an appeal lying to the High Court while an identical dispute of the specified value will have to be decided by the Commercial Court with an appeal to the District Court, after a considered view of the dictums laid down in M.G. Mohanty case³⁶ and Jaycee Housing case³⁷, the Court upheld the provisions of the Commercial Courts Act as such a merely distinction is not sufficient to bring out arbitrariness nor the same can be rendered to be ultra vires the Constitution.

More so recently, in Alexander Luke v. Aditya Birla Money Ltd.³⁸ the Division Bench of the High Court of Kerala had the opportunity to analyse the question as to whether an appeal from an order passed by the Commercial Court/Additional Subordinate Judges Court in a matter which arises under the Arbitration and Conciliation Act, 1996 would be appealable before the High Court as an arbitration appeal. The issue arose as a preliminary objection as to maintainability of the arbitration appeal and the grounds raised by the counsel for the respondent was that Section 10(3) of the Commercial Courts Act would have an overriding effect over the provisions of the Arbitration Act and thus, the appropriate forum to raise an appeal against the order passed by the Commercial Court would be the District Court, as per Section 3-A of the Act, 2015.

The above stand was however contested by the learned counsel for the appellant on the ground that the dispute is squarely covered by the provisions of the Arbitration and Conciliation Act and is not a commercial dispute at all and hence an appeal as under Section 37 of the Arbitration Act would only lie to the High Court. It was also contended that the entire scheme of the Arbitration Act would be undermined by the designation of Commercial Courts at the sub-court level for consideration of disputes arising in arbitration as well and subjecting such disputes also to the multi-level appellate jurisdiction without reference to the scheme and intention of the Arbitration Act.

After much deliberations and consideration of the case laws prevailing on the subject-matter, the Court was of the opinion that the Commercial Courts Act, 2015 being a subsequent Central enactment, the legislative intent can only be presumed to have taken into consideration the prevailing provisions of the Arbitration Act. The Court further opined that a bare reading of the provisions of the Commercial Courts Act bring out the plain intent of the enactment and such intent is to be given effect to by the courts while interpreting the statute, without recourse to departure from the plain language of the statute. Such departure, if any, the Court opined that, would amount to transgression upon the legislative powers and policy-making which are not within the realm of the interpretative process which is expected of courts of law. Hence, the Court was of the satisfied view that even if the subject-matter of the commercial dispute arises from arbitration, the provisions of the Commercial Courts Act, 2015 prevails over the Arbitration and Conciliation Act, 1996, more so particularly then Section 10(3) of the Act specifically governs appeals and applications under the Arbitration and Conciliation Act, 1996.

Even so, the Court has also rightly raised an impending concern that the avowed objects of alternate dispute resolution under the provisions of the Arbitration and Conciliation Act would tend to suffer a setback if multi-level appeals are provided in commercial disputes arising under the Arbitration and Conciliation Act as well.

Conclusion

An analysis of the above case laws, for one, point out that the courts have regarded the provisions of Commercial Courts Act to have supremacy for it being a subsequent legislation as also specifically dealing with appeals and applications under the Arbitration Act, thereby rendering the provisions to be free of any ambiguities and such conclusion has been arrived at by resorting to plain interpretation of the statute in line with the objectives it seeks to achieve.

However, the concerns as raised by the learned Single Judge in Shwas Homes case³⁹ and well as the learned Division Bench in Alexander Luke case⁴⁰ remain left open requiring a constructive intervention by the lawmakers. Vesting of such anomalous pecuniary jurisdiction on sub-courts, and thereby causing a differential treatment as far as proceedings under Arbitration Act are concerned, has overring effects and goes fundamentally against the basic jurisprudence which governs competency of courts in India as also on which the district judicial system in India relies on. This anomaly cannot be merely regarded as a consequential mishap which was not thought through by the policy-makers. Alas! until a rectification to this extent is brought in by the legislatures, the courts would only abide by the statutory supremacy. Since both the enactments have a profound impact in the commercial world, a proper and anomaly free litigation process is expected of or else in the long run, it would be too late to correct the adverse effects arising from misplaced jurisdictional competency.