Transition from Commercial Courts Ordinance to Commercial Courts Act: ambiguities and implications

Introduction

This update identifies and highlights a unique jurisdictional issue addressed by the Delhi High Court while adjudicating applications under the Arbitration and Conciliation Act 1996 in view of the applicability of an incorrect provision of the Commercial Courts, Commercial Division and Commercial Appellate Division of High Courts Ordinance 2015. This provision was retrospectively corrected from the date on which the Commercial Courts Ordinance came into force by the Commercial Courts, Commercial Division and Commercial Appellate Division of High Courts Act 2015.

This update also discusses the fate of applications filed under Section 9 of the Arbitration Act which were adjudicated by the commercial appellate division (ie, a division bench) of the high court under Section 10(2) of the Commercial Courts Ordinance instead of the commercial division (ie, a single bench) of the high court during the intervening period while the ordinance was still in force.

Interestingly, the explanation to the Commercial Courts Ordinance provides that a commercial appellate division must be set up in all high courts to hear appeals against orders made by the commercial courts and the commercial division of the high courts. However, in view of a mistake in Section 10(2) of the Commercial Courts Ordinance, there was a question over whether the right to appeal under Section 37 of the Arbitration Act – which is a substantive right for litigants to invoke against an order passed under Section 9 of the Arbitration Act – was effectively removed.

To add to this ambiguity, Section 23 of the Commercial Courts Act provides that notwithstanding it being repealed, any action taken under the Commercial Courts Ordinance must be deemed to have been taken under the Arbitration Act. In other words, orders passed by the commercial appellate division under Section 9 of the Arbitration Act during the intervening period must be deemed to have been passed by the commercial division. This interpretation leads to an objectively absurd outcome, as parties aggrieved by a commercial division order were prevented from appealing under Section 37 of the Arbitration Act through no fault of their own. Under this interpretation, the now moot question was whether the judiciary would go above and beyond in order to provide the litigant with substantial justice or leave the litigant to contest its jurisdictional issues in the courts.

Inconsistencies

In Ascot Estates Pvt Ltd v Bon Vivant Life Style Ltd(1) the Delhi High Court Commercial Appellate Division was faced with the issue of whether the right to appeal conferred by Section 37 of the Arbitration Act – which was specifically preserved by Section 13 of the Commercial Courts Ordinance – was effectively removed by Section 10 of the ordinance. By its order dated December 10 2015, the commercial appellate division:

• interpreted Sections 10(1) and 10(2) of the Commercial Courts Ordinance harmoniously with Section 13 of the ordinance, holding that the substantive right to appeal conferred by Section 37 of the Arbitration Act was preserved; and
• read down Section 10(2) of the Commercial Courts Ordinance, holding that all applications under the Arbitration Act relating to commercial disputes of a specified value must be adjudicated only by the commercial division.

Interestingly, on the same day, in Simplex Infrastructures Limited v Energo Engineering Projects Ltd(2) the Delhi High Court Commercial Appellate Division exercised its jurisdiction to hear an application under Section 9 of the Arbitration Act without analysing the impact this would have on the statutory right to appeal under Section 37 of the Arbitration Act. It is possible that the issue raised before the Delhi High Court in Ascot was not raised before the court inSimplex, which would explain the apparent inconsistency.

Retrospective application of Commercial Courts Act

The Commercial Courts Act was passed by Parliament on December 31 2015. Section 1(3) of the act gives it retrospective effect from October 23 2015 (ie, the date on which the Commercial Courts Ordinance came into force). As per Section 10(2) of the Commercial Courts Act, all domestic arbitration applications under the Arbitration Act must be heard and disposed of by the commercial division of the high court. Arguably, this would mean that either:

• all domestic arbitration applications made under the Arbitration Act that were heard and disposed of by the commercial appellate division between October 23 2015 and December 31 2015 were done so without appropriate jurisdiction, as the correct forum was the commercial division; or
• the Commercial Courts Act did not intended to upset disposed litigation between October 23 2015 and December 31 2015 and thus preserved the same by means of the saving clause set out in Section 23.

The retrospective application of the Commercial Courts Act has raised several concerns, and the interpretation of the act will impact the availability of the right to appeal (statutory or discretionary) and the litigation disposed of before December 31 2015 as follows:

• If the first interpretation is adopted, the right to appeal under Section 37 is preserved. If the second interpretation is adopted, parties still have a right to appeal by approaching the Supreme Court and asking it to exercise its discretion under Article 136 of the Constitution. Thus, both interpretations offer a means by which to challenge an order. The difference between the two interpretations is that the first allows litigants to appeal via a statutory right, while the second provides the right to appeal by way of the court's discretion.
• Section 23(2) of the Commercial Courts Act provides that "notwithstanding such repeal, anything done or any action taken under the said Ordinance, shall be deemed to have been done or taken under the corresponding provisions of this Act". This saving clause could be interpreted to mean that any decisions made between October 23 2015 and December 31 2015 should remain intact and cannot be invalidated. However, a harmonious interpretation of Section 23(2) and Section 1(2) of the Commercial Courts Act, which provides for the act's respective applicability from October 23 2015, may invalidate any actions taken between the intervening period. It is settled case law that the issue of lack of jurisdiction can be raised at any stage, as orders passed without jurisdiction will be found null and void.
• In view of the findings in Ascot and the conditions set out in the Commercial Courts Act, all parties that received an unfavourable order from the commercial appellate division between October 23 2015 and December 31 2015 may file a review application on the ground of a patent error, stating that the commercial appellate division acted without jurisdiction, as the correct forum was the commercial division. If the courts entertain such applications, this may lead to the unsettling of settled litigation. However, if the review applications are not entertained, injustice will ensue, since:
  • parties which received an unfavourable order between October 23 2015 and December 31 2015 will have lost their statutory right to appeal, being left only with the discretion of the court as exercised under Article 136 of the Constitution, which may lead to an overwhelming number of review applications; and
  • parties which suffered an unfavourable order after December 31 2015 will keep their statutory right to appeal as an available remedy.

These concerns create a compelling case which must be clarified by the Ministry of Law, Parliament and the courts, to ensure a smooth and clear transition from the Commercial Courts Ordinance to the Commercial Courts Act.

For further information on this topic please contact Vanita Bhargava, Jeevan Ballav Panda or Kudrat Dev at Khaitan & Co by telephone (+91 22 6636 5000) or email ([email protected], [email protected] or [email protected]). The Khaitan & Co website can be accessed at www.khaitanco.com.

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