Commercial laws in India provide a comprehensive legal framework that governs business and trade-related activities, including contracts, sales, partnerships, and other commercial transactions. These laws ensure that businesses operate within a structured legal environment that fosters fair practices, protects stakeholders, and promotes economic growth.
Key Legislations Governing Commercial Laws in India:
The following acts and regulations form the backbone of commercial laws in India:
* Companies Act, 2013
* Indian Contract Act, 1872
* Commercial Courts Act, 2015
* Indian Partnership Act, 1932
* Limited Liability Partnership Act, 2008
* Sale of Goods Act, 1930
* Factories Act, 1948
* Arbitration and Conciliation Act, 1996
* Negotiable Instruments Act, 1881
* Workmen’s Compensation Act, 1923
* SEBI (LODR) Regulations, 2015
Commercial Courts in India:
The Commercial Courts Act, 2015 was enacted to establish specialized courts dedicated to handling commercial disputes efficiently and expeditiously. These courts aim to provide a fast-track mechanism for resolving business conflicts, reducing the burden on traditional civil courts, and improving India’s business environment.
As of December 2017, a total of 247 Commercial Courts were established across India by the respective State Governments. The first Commercial Courts were set up in major cities like Delhi, Mumbai, Kolkata, and Bengaluru under this Act.
To qualify for litigation under Commercial Courts, the commercial suit must involve a minimum monetary value of Rs. 3 lakhs.
Origin and Recommendations for Commercial Courts:
The idea of setting up dedicated business courts in India was initially recommended in the 188th Law Commission Report (2003), led by Justice M. Jagannadha Rao. The report aimed at expediting the resolution of business disputes and suggested key reforms:
Principal Recommendations:
* Need for Commercial Courts:
Recognized the rising number of commercial disputes and the necessity of specialized courts to ensure speedy resolutions.
* Jurisdiction and Structure:
Proposed granting exclusive jurisdiction to Commercial Courts for high-value business disputes. It recommended setting up Commercial Courts at both district and high court levels.
* Fast-Track Procedures:
Advocated for streamlined court procedures to expedite case resolution. Emphasized the use of alternative dispute resolution (ADR) mechanisms such as arbitration and mediation.
* Specialization & Expert Judges:
Recommended appointing judges with expertise in commercial law and promoting continuous legal education for their specialization.
253rd Law Commission Report (2015):
The 253rd Law Commission Report (2015) further refined these recommendations and suggested the establishment of Commercial Divisions in High Courts and Commercial Courts in District Courts. Key highlights include:
* Commercial Divisions in High Courts that have original civil jurisdiction.
* Commercial Appellate Divisions within High Courts to hear appeals against orders passed by Commercial Divisions, Commercial Courts, and arbitration-related disputes.
Jurisdiction of Commercial Courts:
1. Territorial Jurisdiction:
As per Section 6 of the Commercial Courts Act, 2015, a commercial suit can be filed within the territorial limits of the state where the cause of action arises.
According to Section 3, State Governments, in consultation with the High Court, are responsible for establishing Commercial Courts at the district level. The Code of Civil Procedure (CPC) Sections 16-20 further determine territorial jurisdiction, considering:
* Defendant’s Place of Business or Residence: A suit can be filed where the defendant resides or carries on business.
* Location Where the Cause of Action Occurred: Jurisdiction applies where significant transactions took place, including contract execution and performance.
* Agreed Jurisdiction (Forum Selection Clause): Commercial agreements often specify jurisdictional preference, which courts generally uphold unless unfair.
2. Pecuniary Jurisdiction:
Under Section 2(1)(i), commercial disputes must meet a pecuniary threshold. Initially set at ₹1 crore, the Commercial Courts (Amendment) Act, 2018 lowered the limit to ₹3 lakh, ensuring better access for small businesses and startups. The State Government may further refine this threshold through notifications.
3. Subject-Matter Jurisdiction:
Commercial Courts handle disputes related to business relationships, including:
* Contractual Disputes (breach, enforcement, interpretation)
* Corporate & Partnership Disputes (joint ventures, shareholder conflicts)
* Banking & Financial Disputes (loans, securities, transactions)
* Intellectual Property, Shipping and Insurance.
Section 2 of the Commercial Courts Act defines a “commercial dispute” to include:
* Merchant and banking transactions
* Export/import disputes
* Admiralty and maritime law issues
* Aircraft and shipping transactions
* Construction and infrastructure contracts
* Franchising, licensing, and management agreements
* Joint ventures, shareholder, and partnership agreements
* Intellectual property rights (trademarks, patents, copyrights, domain names, etc.)
* Oil, gas, and natural resource exploitation
* Insurance and re-insurance disputes
Ambalal Sarabhai Enterprises Ltd. v. KS Infraspace LLP (2020)
The Supreme Court ruled that simply using land for commercial purposes does not automatically make a dispute eligible for Commercial Courts unless it is inherently commercial in nature.
Commercial Courts in West Bengal:
Initially, West Bengal had two Commercial Courts in Alipore and Rajarhat. Subsequently, as per the Calcutta High Court’s notification on 20.03.2020, two additional Commercial Courts were established in Asansol and Siliguri, expanding access to specialized commercial adjudication.
Maintainability of Commercial Courts in India
The maintainability of cases in Commercial Courts depends on jurisdictional, procedural, and subject-matter considerations. The Commercial Courts Act, 2015 provides a framework for the adjudication of commercial disputes efficiently while ensuring alignment with India’s legal and business environment.
1. Jurisdictional Maintainability
For a dispute to be maintainable in a Commercial Court, it must satisfy jurisdictional requirements:
* Nature of Dispute: As per Section 2(1)(c) of the Commercial Courts Act, 2015, a commercial dispute includes contractual issues, banking disputes, intellectual property matters, and other business-related conflicts.
* Monetary Threshold: Post the 2018 amendment, disputes must have a specified value exceeding ₹3 lakh to be heard by Commercial Courts.
* Territorial Jurisdiction: Commercial Courts and High Court Commercial Divisions adjudicate disputes based on where the cause of action arises.
2. Procedural Maintainability
A dispute must adhere to the following procedural norms:
* Filing of pleadings and documentation in accordance with the Act.
* Mandatory Pre-Institution Mediation (except when urgent relief is sought), as per Section 12A of the Commercial Courts Act, 2015.
3. Alternative Dispute Resolution (ADR) and Commercial Courts
* Section 10 promotes ADR by allowing transfer of pending cases for arbitration or mediation.
* Section 11 bars civil courts from hearing commercial disputes that must be resolved via arbitration.
* Section 21(A) of the Arbitration and Conciliation Act (2018 Amendment) does not mandates mediation before arbitration.
4. Subject-Matter Maintainability
A case must arise from a commercial transaction to be heard in a Commercial Court. Courts have ruled that the nature of the dispute is determined by its underlying transaction, not merely by the parties involved.
Non-Maintainable Disputes in Commercial Courts:
* Criminal cases related to business fraud.
* Employment and labor disputes.
* Family disputes with business implications.
* Matters barred by other laws, as per Section 11 of the Act.
5. Court Fees and Formalities Maintainability
A case is maintainable only if:
* The required court fees are paid.
* The plaintiff has a valid legal ground.
* The case is not vague or speculative.
Amendments to CPC for Commercial Courts
To facilitate efficient resolution of commercial disputes, the Code of Civil Procedure (CPC), 1908, was amended under the Commercial Courts Act, 2015.
Order XVA of CPC (Applicable to Uttar Pradesh)
In commercial disputes, every pleading must be verified by an affidavit in the format prescribed in the Appendix to this Schedule, regardless of Rule 15. This affidavit must be signed by the party, one of the parties, or any other person who is familiar with the facts and duly authorized. If the pleading is amended, the changes must also be verified in the same manner unless the Court orders otherwise. A pleading that is not verified as required cannot be relied upon as evidence, and the Court may strike it out if it lacks the required Statement of Truth affidavit.
Order XIIIA of CPC – Summary Judgment Mechanism
Introduced under the Commercial Courts Act, 2015, Order 13A allows courts to grant summary judgments in clear-cut cases without requiring a full trial.
Rule 1 – Scope of Summary Judgment
a) This Order applies to commercial disputes of a specified value as defined under the Commercial Courts Act, 2015.
b) A court may give a summary judgment on a claim or part of a claim if it considers that:
c) The plaintiff or defendant has no real prospect of succeeding on the claim or defending it, and
d) There is no other compelling reason why the dispute should go to trial.
Rule 2 – Stage for Application of Summary Judgment
An application for summary judgment can be made at any time after summons has been served but before the framing of issues.
Rule 3 – Grounds for Summary Judgment
A party can seek summary judgment when:
* The claimant (plaintiff) has no real prospect of succeeding.
* The defendant has no real prospect of successfully defending.
* There is no compelling reason for a full trial.
Rule 4 – Procedure for Summary Judgment
The applicant (party requesting summary judgment) must file an application with supporting evidence, including affidavits, contracts, or any other relevant material.
The other party (respondent) must be given an opportunity to respond. The court may dismiss the application or pass appropriate orders, including granting the claim or dismissing the defense.
Rule 5 – Orders the Court May Pass
The court can:
* Grant summary judgment on the whole or part of the claim.
* Allow the case to proceed to trial if it finds the claim needs further evidence.
* Strike out or dismiss defenses that have no real prospect of success.
* Direct parties to settle issues through alternative dispute resolution (ADR).
Section 12A of the Commercial Courts Act, 2015 – Mandatory Pre-Institution Mediation
Introduced in 2018, Section 12A mandates pre-institution mediation before filing a commercial suit, unless urgent relief is sought.
Key Features:
* Mediation Process: Conducted by Legal Services Authorities (LSA) under the Legal Services Authorities Act, 1987.
* Time Limit: Mediation must be completed within three months, extendable by two months with consent.
* Outcome: If successful, the settlement agreement is legally binding. If unsuccessful, litigation proceeds.
* Exclusion from Limitation Period: The mediation period is not counted for the purpose of the Limitation Act, 1963.
Key Case Laws on Section 12A:
* Patil Automation Pvt. Ltd. v. Rakheja Engineers Pvt. Ltd. (2022 SC): Pre-institution mediation is mandatory, and suits filed without it (except urgent relief cases) are not maintainable.
* Laxmi Polyfab Pvt. Ltd. v. Eden Realty Ventures Pvt. Ltd. (2023 Calcutta HC): Reaffirmed mediation’s necessity before filing a commercial suit.
* Dhanbad Fuels Ltd. v. Union of India (2021 Jharkhand HC): Plaintiff must attempt mediation before proceeding with litigation.
Challenges and Criticisms of Section 12A
* Lack of awareness about mandatory mediation.
* Limited mediation infrastructure in some states.
* Potential mediation delays despite its intention to expedite dispute resolution.
* Ambiguity on “Urgent Interim Relief”, leading to inconsistent judicial interpretations.
Importance of Section 12A
* Reduces case backlog in commercial courts.
* Encourages mediation as a cost-effective resolution method.
* Enhances ease of doing business in India.
* Helps speed up dispute resolution and legal enforcement.
Procedure for Filing a Dispute in Commercial Courts
1. Issuance of Legal Notice
The first step in initiating a legal process is issuing a legal notice to the opposing party. A 15-day period is provided for the recipient to respond before further legal action is taken.
2. Mandatory Pre-Institution Mediation
Under Section 12A of the Commercial Courts Act, 2015, it is mandatory to opt for pre-institution mediation before filing a commercial suit, unless urgent relief is sought. If mediation is unsuccessful, the dispute proceeds to the Commercial Courts. This step aims to reduce the burden on courts and provide a speedy resolution.
3. Drafting the Plaint
Before filing a suit, the plaintiff must gather all relevant evidence and documents, including contracts, invoices, receipts, and communications such as emails and letters. Consulting a commercial law expert is advisable for drafting a well-structured plaint. The plaint must include:
* Details of the parties involved
* Nature of the dispute and claims
* Supporting evidence and documentation
* Relief or compensation sought
* All necessary annexures
4. Payment of Court Fees
Determination of the court fee payment in Commercial Courts is guided by section 7 & 8 of the Court-Fees Act and section 35 of the Commercial Courts Act.
Section 7: Computation of Fees in Certain Suits
This section defines how court fees are calculated for various types of cases:
* Monetary claims (damages, compensation, arrears) – Fee based on the amount claimed.
* Maintenance and annuities – Fee based on ten times the one-year claim amount.
* Movable property – Fee based on market value.
* Declaratory decrees with consequential relief – Fee based on the relief’s stated value.
* Possession of land, houses, and gardens – Fee based on land value or revenue paid.
* Pre-emption suits – Fee based on the disputed property’s value.
* Landlord-tenant disputes – Fee based on the yearly rent amount.
Section 8: Fee on Appeal in Compensation Cases
Court fee for an appeal against a compensation order is based on the difference between the awarded and claimed amount.
This ensures fees are proportional to the subject matter of the suit or appeal.
Section 35 of the Commercial Courts Act, 2015:
It empowers courts to decide the allocation of legal costs in commercial disputes. It allows the court to determine who bears the costs, the amount payable, and the timing of payment. These costs may include legal fees, witness expenses, and other case-related charges. The court considers factors such as party conduct, success in claims, and any unnecessary delays before awarding costs. This provision ensures fairness in commercial litigation by discouraging frivolous claims and unnecessary legal expenses.
5. Filing the Case in the Commercial Court
Once the plaint is finalized, it must be filed with the appropriate Commercial Court based on territorial jurisdiction. Depending on court infrastructure, filing can be done physically or electronically.
6. Issuance of Summons
Once the case is registered, the court issues a summons to the defendant, who must respond within 30 days. The defendant may file a written statement, either accepting, denying, or countering the claims with defenses or counterclaims.
7. Preliminary Hearing
An initial hearing is scheduled where the judge may attempt mediation or settlement. If unresolved, further hearings are scheduled for trial proceedings.
8. Trial Proceedings
If mediation or settlement is unsuccessful, the case proceeds to trial. Both parties present their arguments, evidence, and witnesses. Lawyers conduct cross-examinations, and the court assesses the merit of the claims before delivering a decision.
9. Judgment and Order by the Court
After considering the arguments and evidence, the judge delivers a verdict. In some cases, the court may issue interim orders or partial relief.
10. Right to Appeal
If dissatisfied with the judgment, either party can appeal to the High Court within 60 days. The appellate process depends on jurisdiction and the nature of the case.
Limitations of Commercial Courts
1. Time-limitation of Appeal
Section 13 of the Commercial Courts Act, deals with the limited time frame of addressing an appeal which is, within a period or duration of 60 days from the date of the produced order or judgment.
Section 5 of the Limitation Act, allows delay only for exceptional or compelling circumstances.
2. Jurisdictional Limitations
Section 6 of the Commercial Courts Acts, deals with the Jurisdiction of Commercial Court, which shall have jurisdiction to address all matters related to commercial disputes of a particular value.
3. Accessibility Constraints
Commercial Courts are mostly located in urban centers, making them less accessible for businesses in remote areas.
4. Procedural Rigidities
Unlike Alternative Dispute Resolution (ADR), Commercial Courts follow strict legal procedures, making them less suitable for amicable business resolutions.
5. Lack of Specialization in Emerging Fields
With rapidly evolving industries, specialized judicial expertise may be lacking in specific domains such as blockchain, fintech, and artificial intelligence.
6. Enforcement Challenges
Enforcing judgments across multiple jurisdictions can be complex and time-consuming, especially in cross-border disputes.
7. Delay in Complex Cases
Despite being designed for speedy resolution, procedural backlogs and appeals can still cause delays in complex commercial cases.
Key Provisions on Limitation in Commercial Courts
1. Section 12A of the Commercial Courts Act, 2015 & Limitation
* Section 12A(3) of the Commercial Courts Act, excludes the mediation period from the Limitation Act, 1963.
* If mediation is mandatory before filing a suit, the limitation clock pauses during the mediation process.
2. Application of Limitation Act to Commercial Suits
* Section 16 of the Commercial Courts Act makes the Limitation Act, 1963 applicable to commercial disputes.
* Limitation periods for filing cases:
– Contractual disputes: 3 years
– Arbitration disputes: 90 days to challenge an arbitral award
3. Landmark Case Laws on Limitation & Commercial Courts
(i) Patil Automation Pvt. Ltd. v. Rakheja Engineers Pvt. Ltd. (2022 SC)
* The Supreme Court ruled that pre-institution mediation is mandatory, and cases filed without it are not maintainable unless urgent relief is sought.
(ii) SS Group Pvt. Ltd. v. Aaditiya J. Garg (2022 SC)
* Reiterated the importance of strict adherence to limitation periods in commercial disputes.
(iii) BGS SGS Soma JV v. NHPC Ltd. (2020 SC)
* Held that arbitration-related commercial disputes must be filed within 90 days, failing which they will be dismissed.
4. Importance of Limitation in Commercial Courts
* Ensures timely resolution of disputes.
* Encourages businesses to act promptly in legal matters.
* Prevents unnecessary delays in commercial litigation.
Impact of Commercial Courts on Indian Business
1. Faster Legal Resolution
Commercial Courts follow strict timelines, reducing prolonged legal battles and providing businesses with swift dispute resolution.
2. Enhanced Foreign Investment
A faster legal system has boosted investor confidence, making India more attractive for foreign investments.
3. Cost Reduction for Businesses
Streamlined legal procedures and mandatory mediation reduce litigation costs for businesses.
4. Emphasis on Mediation for Speedy Solutions
Mandatory mediation ensures businesses explore amicable resolutions before engaging in litigation, saving time and resources.
Conclusion
The establishment of Commercial Courts has been a transformative step in India’s legal landscape, ensuring speedy and efficient resolution of business disputes. By implementing strict timelines and mandatory pre-institution mediation, these courts have significantly reduced litigation delays, leading to cost-effective dispute resolution for businesses. Moreover, the enhanced enforcement of contracts has boosted investor confidence, attracting greater foreign investment into the country. While challenges such as accessibility, procedural rigidity, and enforcement issues persist, the overall impact of Commercial Courts has been positive, reinforcing India’s commitment to efficient contract enforcement and economic growth. As the system continues to evolve, further refinements in judicial infrastructure and specialized expertise will strengthen its effectiveness in fostering a pro-business legal environment.
