In the backdrop of the “Make in India” campaign and the aggressive pitch by India to investors across the globe, one amongst the several legislative changes brought by the government was the promulgation of the Commercial Courts, Commercial Division and Commercial Appellate Division of High Courts Ordinance, 2015 (“Ordinance”). The said Ordinance came into force on 23 October 2015 and grabbed the immediate attention of lawyers, jurists and investors worldwide.

The Ordinance, amongst other aspects, aimed at classifying certain disputes of a value of INR 1 crore or more1 (“Specified Value Disputes”), under a special category and provide specialised courts all over the country to hear such disputes. A matter of key concern and debate for the Judiciary was the practical implementation of Section 10 of the Ordinance, which in summary implied the following:

  1. all applications or appeal relating to Specified Value Disputes under the Arbitration and Conciliation Act, 1996 (“Arbitration Act”) concerning International Commercial Arbitrations (“ICAs”), and
  2. all applications or appeals relating to Specified Value Disputes under the Arbitration Act, other than ICAs, filed before High Courts having Original Jurisdictions

were to be heard by the Commercial Appellate Division2 at the first instance.

Therefore though not expressly but incidentally, the Ordinance curtailed the right of a party to appeal under Section 37 of the Arbitration and Conciliation Act, 1996 (“Arbitration Act”), in so much as it provided that the aforesaid applications shall be filed directly before the Division Bench of a High Court i.e., the Commercial Appellate Division, thereby removing a level of appeal. The relevant extract of Section 10 as was provided in the Ordinance, is reproduced herein below:

“10.     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 that have      been filed in a High Court, shall be heard and disposed of by the Commercial Appellate Division          where such Commercial Appellate 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            that have been filed on the original side of the High Court, shall be heard and disposed of by the            Commercial Appellate Division where such Commercial Appellate 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            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.”

Resultantly, by making the Commercial Appellate Division the court of first instance, there was no “Court authorised by law”, in terms of section 37 of the Arbitration Act, to hear an appeal against such a decision.

While the Ordinance was still at an inchoate stage, it suffered an early setback from the judiciary, which found practical difficulties in the implementation of Section 10, as it then existed under the Ordinance. In this regard, a Division Bench of the Delhi High Court in its judgment3 read down the phrase ‘commercial appellate division” to mean “commercial division” in Section 10 (1) and (2) of the Ordinance, to preserve the right of appeal (to be heard by a Division Bench) in terms of Section 37 of the Arbitration Act thereby setting the clock back to the pre Ordinance stage.

In its Judgement, the Delhi High Court, while observing the interplay of Section 10 of the Ordinance and Section 37 of the Arbitration Act to be a “legal conundrum” between a general law and a special law, preferred to uphold the special law i.e., the Arbitration Act. While applying the principle of ‘generalia specialibus non derogant’ (a general provision does not derogate a special one), the Delhi High Court observed that the Ordinance failed to disclose an intention to “immutably foreclose” the remedy of appeal under Section 37 of the Arbitration Act. Accordingly, the Delhi High Court directed that the words “Commercial Appellate Division”, mentioned in Section 10 (1) and (2), be read as “Commercial Division”. This implied that all the above applications ought to be heard by a Single Judge.

It is to be noted that the reasons behind the Judgment are driven purely by interpretation and the same, can be argued to not be in complete sync with legal principles which have sought to been interpreted. In any event, one of the most crucial aspects which conspicuously remained untouched was the scope and application of the non-obstante clause in Section 21 of the Ordinance. The Judgment itself, therefore was arguably open to challenge on account of it being per in curium for not considering the expressed mandate of Section 21 of the Ordinance, reproduced below:      

“21.         Save as otherwise provided, the provisions of this Ordinance 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 Ordinance.” (Emphasis supplied)

As is evident, the Ordinance clearly marked out a distinction in relation to ICAs while providing that the court of first instance in relation thereto, shall be the Commercial Appellate Division of the High Court, irrespective of whether the said High Court had an original jurisdiction or not. In relation to applications relating to domestic arbitrations not subject to the original jurisdiction of High Courts, the right to appeal was maintained in the same form as it existed prior to the Ordinance. Further, the non-obstante clause coupled with the intention of the Ordinance to expedite disposal or matters relating to arbitration, had the effect of overriding any other law, including the Arbitration Act, as far as it was inconsistent with the Ordinance.

In the aftermath of the Judgment and before it could be revisited by a superior court of law, the Commercial Courts, Commercial Division, Commercial Appellate Division of High Courts Act, 2015 (“Commercial Courts Act”) came into force on 31 December, 2015 and was published in the Gazette of India on 1st January 2016 but was deemed to be effective from 23rd October 2015. Interestingly, in what may seem to be a direct impact of the above Judgment, the Commercial Courts Act has now substituted the words “Commercial Appellate Division” in Section 10 (1) and (2) to read as “Commercial Division”, thereby, once again, subjecting ICAs to undergo multiple level of proceedings before Indian courts. There appears to be no lucid justification in making this amendment in the Commercial Court Act and in the absence of the same, it can ostensibly be argued that the above Judgment may have had an impact. If so, whether such an impact has a strong legal basis, is a question worth pondering.

The legal regime under the Commercial Courts Act now requires the applications in relation to ICAs and even domestic arbitrations with Specified Value Disputes (which are subject to the High Courts exercising original jurisdiction), to be heard by the Commercial Division (Single Judge). This restores the right of appeal under section 37 of the Arbitration Act before the Commercial Appellate Division in relation to such applications. To recapitulate, the scenario under the Ordinance was different, i.e., such applications would have directly been heard by a Division Bench, thereby, removing a layer of challenge under Section 37 of the Arbitration Act and ensuring a speedier disposal to such applications with a degree of finality by making the Commercial Appellate Division, the court of first instance.

By means of the Commercial Courts Act, the comfort of expeditious finality extended to ICAs under the Ordinance has therefore been taken away. Though the Ordinance was definitely perceived as a leap forward in inspiring some degree of confidence of foreign investors in relation to judicial interplay of ICA’s, however, whether or not the Commercial Courts Act has been able to achieve the same, is a question which is subject to the test of time and judicial interpretation in the years to come.