Of flawed considerations and failed legislations: Observations from the implementation of the Commercial Courts Act, 2015

Of flawed considerations and failed legislations: Observations from the implementation of the Commercial Courts Act, 2015


Faisal Sherwani

Shubham Saigal

The flaws in the commercial dispute resolution mechanism lie in the more overt issues that plague it i.e. ones that the average Indian lawyer is a bit more familiar with than the World Bank.

The impulsive and almost reflex grant of injunctive directions in the adversarial process, coupled with a stubborn disinclination to revisit protective orders till the stage of final adjudication, is a matter of substantive concern.

For disputes having a commercial flavour, the approach poses a huge disincentive to foreign investment and businesses, as delays in enforcement of commercial obligations signal irreparable losses in the form of lost time, money, energies and planning, but most of all, business opportunity.

Such issues have been left unaddressed in the Commercial Courts Act, 2015. Legislative history reveals that considerations which weighed with Parliament had more to do with attaining a higher ranking on the populist Ease of Doing Business Index, now referred to as the Doing Business Reports (the DBR) of the World Bank rather than addressing the more overt issues that plague the system of justice dispensation.

For those of us not particularly familiar with it – the DBR is an indicator which ranks 190 countries based on how ‘business friendly’ it perceives their regulations to be. The assessment is based on notional parameters such as ease of starting a business, getting construction permits, electricity, registering property, getting credit, enforcing contracts and resolving insolvency etc.

For our immediate interest, under the head of ‘enforcing contracts’, the Bank measures the time and cost expended in resolving a commercial dispute through a local court of first-instance.

And it was this last parameter that the Act seeks to address. The Statement of Objects and Reasons to the Commercial Courts Act, 2015 captures the hope that “early resolution of commercial disputes” would “create a positive image to the investor world about the independent and responsive Indian legal system.”

While this sentiment was indeed expressed by then Law Minister DV Sadananda Gowda while speaking of the purpose of the Bill before the Lok Sabha, the route he suggested to achieve this laudable goal was far more interesting. The Bill, he said, was “an attempt to take our country forward so that our ranking goes up in the Ease of Doing Business Index of the world.”

He also said that the “…Bill has been brought only with that aim in mind.” A similar enchantment with the DBR was reiterated while considering further amendments to the Act in 2018.

And if rankings make you ecstatic, take joy in knowing that the World Bank released the 17th and latest DBR for the year 2020, wherein India was ranked at the 63rd position out of 190 economies, a noteworthy rise from the 77th position in the earlier DBR published for the past year and a more significant jump from the 134th position back in 2014.

The Act, however, may be entitled to a more limited share of the glory – if at all. The trying “attempt” that the Act has been is apparent from the unchanged practical realities, so also, the irony that is the limited success qua the ‘purpose’ which was touted before the Lok Sabha. Following an initial rise from the 186th position in 2014, the DBR in 2020 ranked India at the 163rd position on the ‘enforcing contract parameter’. Exactly, where it stood in 2019 as well.

While many considerations weigh with legislators, achieving a healthier score on the DBR is a rather novel one. But not all that is novel is gold. What is plain is that the DBR parameters are mechanical, generalized and uniform for countries across the globe and make for a rather notional assessment of investor confidence. More strikingly, for arriving at these parameters, the World Bank merely collects data from the largest and second largest business cities in a country. In the Indian context, this means it samples data from the capital and Mumbai.

So, it is somewhat peculiar that a parliamentary legislation meant for the whole of the nation was to be designed – quite simply, to satisfy parameters on the DBR. All this, when the World Bank itself lacks the capability of sampling more than two of our major cities for its supposed exercise.

It is common knowledge that the DBR has been used by the World Bank to exercise influence over regulatory policies in jurisdictions and systems where it has no locus or specialized knowledge. But, the sharpest criticism of the DBR is that it is more concerned with the legal framework as it overtly appears and cares less about the actual implementation of laws. From a ratings perspective, this is not necessarily a bad thing, as it spells a scenario where you need only to be able to pass legislation, without having to ensure effective compliance.

The Act as also its implementation has only complimented the superficial intent behind the legislation. It is not surprising that the sclerosis that has set in the mechanism for commercial dispute resolution has been left unaddressed. An improved ranking on the world stage could at best, be a happy but ancillary consequence – not the goal itself.

And legislation tailored to attain a higher ranking on a notional policy indicator is quite likely to fail us rather than not. There are a number of glaring gaps in the Act, which are difficult to miss.

Take for instance, Order XX Rule 1 of the Code of Civil Procedure, 1908 (CPC), which mandates pronouncement of judgments within a period of 90 days from conclusion of arguments; or Order XVA Rules 1 to 8 of CPC, which prescribe timelines for case management hearings in commercial disputes. Both, as amended by the Schedule to the Act, do not provide tangible recourse in the event of failure to comply with their respective mandates.

Similarly, the competent authorities have failed to religiously observe the mandate of Section 17 of the Act, which requires collection and disclosure of statistical data regarding the number of cases filed before the commercial courts at various divisions. One explanation for leaving these provisions in the form you find them is that they would have been perceived to be good enough to satisfy the criteria for the DBR, which is not directly concerned with implementation of existing laws.

And the insatiable urge to make hurried, superficial changes in order to perform better on the DBR has continued. On August 14, 2019 the Ministry of Commerce & Industry came up with the Proposed Reforms for DBR 2021. It stated that the reforms “must be implemented by 1st May, 2020.”

Part of these reforms was the establishment of new commercial courts in New Delhi and Mumbai. But increasing the number of commercial courts in the two cities that comprise the sample space for the DBR is clearly an attempt to satisfy its notional parameters – not our problems.

Assuming a more benign intent behind the proposal, the step is unlikely to prove truly beneficial unless those who interpret and apply the law are sensitized as to the considerations which must weigh while treating complex issues which arise out of commercial disputes. So also, the instances in which the judiciary may rightfully interfere in such commercial engagements may need to be revisited.

The executive has tried hard. Take for instance, infrastructural reforms in Delhi such as e-filing, e-summons, and electronic case management tools introduced between December 2017 to April 2018. All such steps, while laudable, may have little to do with the root cause of the problem, which is the approach of our courts while adjudicating a commercial dispute. The somewhat mechanical fashion in which the average Indian court grants interim orders and injunctive relief pending adjudication is an obvious vice.

The parameters considered while adjudicating applications for grant of injunctive orders are derived from the principles laid down under Order XXXIX Rules 1 & 2 of the CPC, which require that a party seeking such relief establish

[a] a prima facie case;

[b] irreparable harm or injury being caused if relief is denied, and;

[c] that the balance of convenience lies in its favour.

The subjective nature of the criteria makes application of these principles susceptible to varying interpretations and results. And seasoned lawyers agree that more often than not, it is possible to argue a case either way on such parameters.

Needless to mention, commercial contracts and arrangements today are fiercely negotiated, and a party may rightly feel entitled to bear witness to the sum of the arrangement being implemented in the form bargained. The common jurisprudential standpoint has been that injury and harm caused to an investor is compensable in monetary terms on final adjudication. Most businesses, would fiercely disagree. Fact is – monetary compensation often does not cover the opportunity costs; time and energy expended or even reputational damage.

Not for a moment do we suggest outright disinclination to interfere where necessary. But possibly, departing from the norm that is the ready interference with commercial transactions and commitments in the first instance, often ex parte and with little hope of such decisions being practically revisited till final adjudication.

Thus, the attempt to superficially improve India’s image at the international level may have resulted in a step motherly treatment to the real objective, i.e. early resolution and speedy disposal of commercial disputes. A complete reversal of dynamics, where the means have eclipsed the objective itself.

There is a lesson here – if we truly wish to make a difference, we must address issues we already know to be the source of the problem. After all, the real flaws in the dispute resolution mechanism lie in the more overt issues that plague it. These are the ones the average Indian lawyer is a bit more familiar with than the World Bank!

Faisal Sherwani is an Advocate-on-Record at the Supreme Court of India and is currently a Partner in the dispute resolution practice at L&L Partners, Law Offices.

Shubham Saigal is an advocate practicing in the High Court of Delhi and is currently an Associate in the dispute resolution practice at L&L Partners, Law Offices.

Views are strictly personal.

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