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Poor Performance Of The Commercial Courts Act, 2015 Finds Empirical Study

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In 2015, the Commercial
Courts Act, 2015
was introduced to
expedite the disposal of high-value commercial disputes. As originally enacted,
the legislation required that, commercial cases above Rs. 1 crore were required
to be heard by designated courts at the District Courts or High Courts (only if
the High Court had ordinary original civil jurisdiction). In 2018, to widen the
scope of the Act, the pecuniary threshold was reduced from Rs. 1 crore to Rs. 3
lakhs. The procedural reforms introduced under the Act included amendments to
the Code of Civil Procedure, 1908 (applicable only to commercial cases under
the Act). These included conducting mandatory case management hearings, providing
parties the option to apply for summary judgments, prescribing procedures for
the discovery of documents and imposing timelines for filing written statements.

Given that 4 years have passed since the introduction
of this law, we at the Vidhi Centre for Legal Policy undertook an empirical
impact evaluation study to evaluate the impact of the law on commercial
litigation. You can access the report with our findings here. We studied all the
order sheets for 450 cases across three fora – The Commercial Divisions at the Delhi and Bombay High Court and the
Commercial Court at the Vadodara District Court. We
selected the first 150 commercial cases instituted before each of these courts.
Since the date of notification of all the three courts were not the same, the
cases in Delhi were mostly instituted between December 2015 and January 2016
while most cases in Bombay and Vadodara were instituted between June and July
2016. While some of these cases were those filed in 2015, others were filed in
previous years but were transferred to the Commercial Courts after the
enactment of the Commercial Courts Act. We selected this set of cases because
by December 2018 (which was the cutoff date for our analysis) approximately three
years would have passed since these cases were in the system, giving us an
adequate opportunity to measure the impact of this new law.

Percentage
of cases disposed and method of disposal

Within the timeframe that we analysed, the
courts at Bombay, Delhi and Vadodara disposed 35%, 69% and 79% of cases
respectively. There are a few causes to the variance in these numbers. First,
these numbers suggest that there could be some practices at the Bombay High
Court which were slowing down the disposal of cases when compared to Delhi and
Vadodara. Second, what seemed as promising rates of disposal at Vadodara,
unfortunately, can also be attributable to a significant portion (53% of
disposed cases) being disposed as uncontested, on account of non-prosecution or
transferred to a different court on account of them not being commercial in
nature. Third, the disposal rate in Delhi can be attributable to a majority
(59% of the total cases) being IPR related, which have a higher than average
likelihood of being settled or withdrawn. In fact, on doing an analysis on the
method of disposal, of all the cases studied, we found that a majority (62%) of
disposed cases, both at Delhi and Bombay were either settled or withdrawn by
either party. The large number of settled and withdrawn cases seems to suggest
that a significant portion of the cases would have arrived at the same
conclusion, even if the Act had not been introduced. Additionally, analysis of
the method of case disposal also showed us that only about 34-38% of the disposed
cases, across the three courts, were adjudicated by the courts. This small
number suggests that the Act, which was introduced to expedite the process of
adjudication by the court, would impact only a very small section of the cases
being instituted under it.

Time
taken for the disposal of cases

The Department of Justice notes that the average time
taken for disposal of cases before the introduction of the Act was around 4
years. While the Act per se has not
prescribed an outer limit to the total time taken for the disposal of a
commercial case, the Law Commission of India in its 253rd report, commented on how
similar commercial fora in other jurisdictions like Singapore and the US,
typically disposed commercial cases in under a year, and in extraordinary
circumstances under two years. A different, independent, PIB release marks three years as a
desired timeline for the disposal of cases. Our study concluded that a portion
of the total number of cases across all the three courts, went beyond the
envisaged timeline of two years. In fact, the Bombay High Court had almost 66%
of all 150 cases reviewed, pending for more than two years! Interestingly, the
oldest pending case before the courts at Bombay, Vadodara and Delhi were from
2005, 1972 and 2009. This suggests that the Act has indeed not been able to
significantly alter the time taken for the disposal of commercial cases.

Causes
of delay – delay on account of completion of summons goes unaddressed

We found that a key contributor for delaying
the disposal of cases is the time taken for completing the summons process. On
average, at the Delhi High Court, cases took 73 days for the process of summons
to be completed. Anecdotally, three cases at the Delhi High Court took over a
year in completing the summons process while at Vadodara there were 12 such
cases. A report by Daksh on pendency and
judicial backlog, has also unequivocally listed delay in summons as a key
reason for the overall delay in the adjudication of a case. This being the
case, it is problematic that delayed summons has not been addressed at all, by
the lawmakers, under the current Act.

A
small percentage of cases indeed go to trial

As we mentioned above, a very small percentage
of the disposed cases were actually adjudicated by the court. The number of
cases that went to trial (understood to be cases where issues have been framed)
was even lower since many cases were being disposed by courts without
conducting trials. Only 5%, 21% and 26% of total number of cases studied went
to trial at the courts in Bombay, Vadodara and Delhi respectively. These
numbers drive home the point that a procedural amendment, such as the Commercial
Courts Act, which is intended to expedite trial, might, in fact, be moot since
most cases do not even reach that stage. Additionally, of the cases that did go
to trial, 50% or more cases across these courts, are still pending. This
demonstrates that even the few cases which could have been impacted by the Act
remain largely uninfluenced.

Unique
provisions go unutilised

A key procedural reform espoused by the
advocates of the Act was the mandatory requirement to conduct case management
hearings. These hearings essentially require the judges and parties to
establish a mutually agreeable schedule for a smoother, more organized, and
time-bound trial process. However, in the 450 cases that we studied, case
management hearings were not conducted in even a single case at the Bombay and
Delhi High Courts. In Vadodara, the number was slightly higher at 18%. Another
unique provision introduced under the Act was an option for summary judgment.
The provision permits parties to apply for summary disposal of the suit without
actually going through the elaborate trial process which includes the process
of recording oral evidence. An application under this provision can be made
only after summons has been served and before issues have been framed. A court
may deliver a summary judgment if it believes that there is no real prospect of
either party succeeding or defending the claim. However, in none of the 450
cases studied, was a summary judgment delivered. We are cognizant that beyond
the time period studied, there have been cases where both these provisions have
been utilised, however, even these instances constitute a very small proportion
of the cases under the Act. Thus, clearly, there is a failure on part of both
the bench and the bar to enforce and utilise the provisions under the Act.

Multiple
causes lead to poor performance

There are four main conclusions from our study
of this legislation’s implementation. First, though the Act might have been
well-intentioned, it impacts only a very small percentage of cases filed
because most of the amendments are directed at cases that go to trial and very
few commercial cases actually go to trial in India. Second, it is possible that
the cases that have been disposed under the Act would otherwise have also seen
the same conclusions, as is the case with IPR cases being settled. Therefore,
the Act does not seem to have altered disposal rates. Third, both the bar and
the bench seem to be indifferent to the procedural innovation under the Act, such
as with case management hearings and summary judgments. Fourth, this study also
showcases the limitations of procedural reform such as the Act and highlights
the need to tackle systemic issues, such as the poor litigation culture in our
courts.

Vaidehi
Misra is a Research Fellow and Ameen Jauhar is a Senior Resident Fellow at the
Vidhi Centre for Legal Policy, New Delhi.

Read the Report Here




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