Commercial courts: serving justice or ease of doing biz

A recent amendment to the Commercial Courts Act, 2015, reduced the pecuniary jurisdiction for commercial courts from Rs 1 crore to Rs 3 lakh. The amendment intends to make commercial courts more accessible to common people. In furtherance of the amendment, the Karnataka government designated three judges to handle all commercial cases that are above Rs 3 lakh. Will this be effective?

In its original form, the Commercial Courts Act, 2015, provided for commercial courts and commercial divisions of High Courts to adjudicate commercial disputes with a value of at least Rs 1 crore. The legislation was intended to improve the international image of the Indian justice delivery system and to improve the faith of investors in the legal culture of the nation. The Act is aligned with the recommendations of the 253rd Report of the Law Commission, which proposed an independent mechanism for speedy disposal of commercial disputes.

The definition of “commercial dispute” is very broad and includes all disputes arising out of transactions between merchants, bankers, financiers, traders, etc., management consultancy agreements, sale of goods, etc. The Act provided for all suits of value of Rs 1 crore or more that are pending in district courts and High Courts to be transferred to the commercial courts or commercial division of the High Courts, respectively. The recent amendment to the Act has reduced this threshold to Rs 3 lakh.

In Karnataka, there are three courts of district and sessions judges that have been designated as commercial courts. Two are in Bengaluru and one is in Ballari. While one court in Bengaluru has jurisdiction over commercial disputes from Bengaluru Urban, the other has jurisdiction over the southern districts of the state such as Bengaluru Rural, Chamrajanagar, Hassan, Mysuru, etc. The court in Ballari has jurisdiction over northern districts such as Bagalkot, Dharwad, Bidar etc.

One of the primary objectives for reducing the pecuniary jurisdiction of commercial courts from Rs 1 crore to Rs 3 lakh was to make the commercial courts more accessible to people. However, in practice, designating only three judges in the state may defeat this very objective. Now that all the commercial disputes in the state are handled only by three judges, the access to these courts becomes a challenge.

A litigant whose dispute has arisen in Bidar will have to travel for 8 to 10 hours to Ballari to file a commercial suit. This litigant would also have to search for and engage an advocate in an unfamiliar place. These litigants will not always be large corporations or people with economic means. With the pecuniary jurisdiction reduced to Rs 3 lakh, these litigants will include people of varying economic means.

Daksh’s 2016 survey revealed that litigants on average spend Rs 520 per day to attend the court and the total loss due to absence from work or business further comes up to Rs 873 per litigant. The cost would only be higher if the litigant has to travel all the way to another district to file a case. Such a step would run contrary to the very objective of the legislation.

As per the data provided by the National Judicial Data Grid (NJDG), as of April 25, 2019, there were 818 cases pending with the commercial court judge for Bengaluru Urban district, while there were only 71 cases pending with the commercial court judge for the southern districts. This indicates that old commercial cases from these districts have not yet been transferred to Bengaluru.

One of the commercial court judges in Bengaluru told the authors that cases are trickling in from the nearby districts. It is estimated that the process of issuing notices to the parties and apprising them of the transfer of their cases to Bengaluru will take a minimum of six months. These cases would thus take a while to get back on track and for regular hearings to commence. This is adding further to judicial delay.

Low threshold

The threshold of Rs 3 lakh is low and, as a result, a vast majority of commercial disputes will be heard by the commercial courts. The rationale behind reducing the limit was to make commercial courts more accessible to people as with a lower pecuniary jurisdiction, more people can approach the courts. Further, disputes of value equal to 200% of income per capita or $5,000 (which­ever is greater) are considered for the World Bank’s ease of doing business index, which in the Indian scenario is approximately Rs 3 lakh, thus bringing these cases within the parameters of the ranking.

However, commercial court judges are being chosen from the current pool of judges. Regular cases would be distributed amongst the remaining judges, thus increasing their overall workload. Further, going by the World Bank’s ease of doing business index, a commercial dispute takes close to five years (1,445 days) to get resolved.

Reducing the jurisdiction to Rs 3 lakh will result in massive litigation explosion as the number of cases being dealt with by the commercial courts will increase. Given the crippling shortage of judges all over India, it remains to be seen to what extent commercial disputes will be resolved expeditiously through these courts.

Given the size of Karnataka, it is important that more judges be appointed to deal with commercial disputes. Instead of litigants travelling to different parts of the state, a particular district judge can be designated to deal with commercial cases under the Act in each of the 30 districts in the state. This would ensure more equitable access to justice, while strengthening the ease of doing business.

(The writers are with DAKSH)