Case BriefsHigh Courts

Bombay High Court: S.J. Kathawalla, J. dealt with some ingenious arguments led by a battery of advocates representing both the sides, while sitting in a matter concerning the interpretation of Order 8 CPC (written statement, set off and counter-claim). 

It is pertinent to note at the very outset that the Proviso to Order 8 Rule 1 (written statement), as added by the Commercial Courts Act, 2015, bars the defendant in a commercial suit from filing the written statement (“WS”) beyond a period of 120 days from the date of service of summon. 

Several defendants in various commercial suits before the Commercial Division of the High Court failed to file their WS within the stipulated period of 120 days. Subsequently, these defendants took out various Notice(s) of Motion seeking condonation of delay in filing their respective WS. At the hearing of motions, the plaintiffs opposed taking on record any WS in view of the newly introduced Proviso to Order 8 Rule 1. 

Consequently, the Court published an open court notice framing a question of law in order to settle the controversy in all such matters: Whether in view of the amendment to CPC by Commercial Courts Act, 2015, the defendants can be allowed to file WS after 120 days from the date of service of the writ of summons in a commercial suit?

Extensive arguments were advanced by counsels appearing for both sides. After considering all the arguments; and referring to several decisions of the Supreme Court; and on a holistic reading of various provisions of CPC and the Commercial Courts Act, Justice Kathawalla reached the conclusion: “In Commercial Suits, a written statement by the defendant cannot be taken on record after the expiry of 120 days from the date of service of the writ of summons”. 

It is interesting to look at the manner in which the course of arguments on various points developed in the present matter. Equally important is to know how the Court dealt with the contentions raised by various counsels and the manner in which the question of law was decided along with the necessary clarifications. 

Commercial Courts Act, 2015

It is useful to note that the primary aim and object of the Commercial Courts Act was to provide speedy disposal of high-value commercial disputes in order to reduce the pendency of cases. The Act establishes Commercial Courts at the district level and Commercial Divisions in various High Courts (including those having ordinary original civil jurisdiction), to deal with commercial disputes of a “specified value“, as may be notified by the Central Government. 

Justice Kathawalla observed, “In so far as the Commercial Courts Act is concerned, there can be no manner of doubt that the paramount intent of the legislature was to reduce delay in commercial cases and improve our country’s image from the perspective of ease of doing business in India”.

SCG Contracts (India) (P) Ltd. v. K.S. Chamankar Infrastructure (P) Ltd.

During the intervening period that arguments concluded and the date of the order, the Supreme Court in SCG Contracts (India) (P) Ltd. v. K.S. Chamankar Infrastructure (P) Ltd., 2019 SCC OnLine SC 226 considered the subject provision of Order 8 Rule 1. 

Relying on SCG Contracts, Justice Kathawalla observed, The Apex Court’s pronouncement, in my opinion, concludes the interpretation of the newly introduced amendments to Order 5 Rule 1 and Order 8 Rules 1 and 10 in so far as they are applicable to commercial suits. The Apex Court, whilst reaffirming the view of the Delhi High Court has held that in commercial suits, a written statement cannot be taken on record after the expiry of 120 days from the date of service of the summons”. 

In addition to that, according to Justice Kathwalla, “even a literal reading of the amended provisions of Order 8 Rule 1 suggest that not only are penal consequences provided for upon the defendant failing to file its written statement; but the discretion of the Commercial Court/Commercial Division to take on record a written statement thereafter has also been taken away”. 

Application of the Mischief Rule

Nausher Kohli, Advocate for the plaintiff in one of the cases argued that for a true and correct interpretation of the Commercial Courts Act, the High Court ought to use the Mischief Rule of interpretation of a statute as laid down in the Heydon’s case (1584) 3 Co. Rep. 7a, p. 7b: 76 ER 637 decided in the year 1589, and thereby suppress the mischief of delay in filing of WS whilst advancing the remedy of expeditious disposal of commercial suits. Heydon’s case has acquired the status of a classic rule as recorded by the Supreme Court in Kanai Lal Sur v. Paramnidhi Sadhukhan, AIR 1957 SC 907. 

Considering the said argument, Justice Kathawalla was of the opinion, “Admittedly, the mischief prior to the Commercial Courts Act was belated filings of written statements on flimsy and frivolous grounds. It is for this reason that penal consequences have now been provided and the discretion of the court taken away”.

Amendments introduced in Order 8 Rule 1 are mandatory

Specifying the mandatory nature of the amendments, the Court after considering SCG Contracts and the Mischief Rule, stated, “the Proviso to Order 8 Rule 1 introduced by the Commercial Courts Act, is mandatory. In this respect, I am bound by the view of the Apex Court. I, therefore, reiterate that the amendments introduced by the Commercial Courts Act to Order 5 Rule 1 and Order 8 Rules 1 and 10 are mandatory in nature”.

Commercial Courts Act vis-a-vis Bombay High Court (Original Side) Rules

Senior Advocate J.P. Sen, Senior Advocate V. Anturkar and Zal Andhyarujina, Advocate representing different defendants argued that the High Court can still exercise its powers under the Bombay High Court (Original Side) Rules, 1980 notwithstanding the Commercial Courts Act, to condone the delay and take on record a WS in a commercial suit even after the expiry of 120 days. Per contra, Mr Kohli argued that this contention failed to stand scrutiny when read with the explicit provisions of the Commercial Court Act. Relying on Sections 16 and 21 of the Commercial Courts Act, he argued that the amendments brought forth by the Commercial Courts Act to CPC, ought to prevail over the Bombay High Court (Original Side) Rules in instances where the provisions of these Rules are in conflict with the provisions of CPC as amended by the Commercial Courts Act.

Holding that the provisions of the Commercial Courts Act have primacy over the Bombay High Court (Original Side) Rules, the Justice Kathawalla observed,  “I am concerned with a dispute between 2 special acts, viz. the Bombay High Court (Original Side) Rules and the Commercial Courts Act. … the Commercial Courts Act is a special act promulgated several decades after the Bombay High Court (Original Side) Rules and would trump the provisions of the former in the event of a conflict”. While concluding the discussion on this point, the Court held, “this Court cannot exercise its powers under the Bombay High Court (Original Side) Rules to condone the delay in filing of a written statement over and above the statutorily mandated period of 120 days”.

“Rule” versus “Rules”

Another argument of the defendants was that Section 16 of the Commercial Courts Act uses the phrase “Rule of the jurisdictional High Court”. According to them, the word Rule has not been defined under the Commercial Courts Act. In this situation, they relied on Section 2(2) of the Commercial Courts Act which provides that words used and not defined in the Commercial Courts Act but defined in CPC, shall have the same meaning as assigned to them in CPC. They then placed reliance on Section 2(18) CPC where rules has been defined. That section had been interpreted by the Supreme Court in Iridium (India) Telecom Ltd. v. Motorola Inc., (2005) 2 SCC 145 to exclude the rules of the High Court on its Original Side. They hence argued that the phrase “Rule of the jurisdictional High Court” in Section 16 of the Commercial Courts Act does not include the Bombay High Court (Original Side) Rules. 

In so far as this submission is concerned, the Court noted that Section 16(3) in fact uses the word Rule as opposed to rules in Section 2(18) CPC. In fact, the term rule finds reference under Section 3(51) of the General Clauses Act, 1897 which reads: 

 (51) “rule” shall mean a rule made in exercise of a power conferred by any enactment, and shall include a Regulation made as a rule under any enactment;

Hence, Justice Kathawalla did not agree with the defendants that the word Rule as used in Section 16(3) is the same as defined under Section 2(18) CPC and does not, therefore, include the High Court’s Original Side Rules. On the contrary, given the scheme of the Commercial Courts Act and especially Section 16, it would appear that Section 16(3) in fact covers the Bombay High Court (Original Side) Rules.

In summation, the Court held, “only those rules of the Bombay High Court (Original Side) Rules which are in conflict with the provisions introduced by the Commercial Courts Act, will stand superseded by the introduction of the Commercial Courts Act. All other rules (which are not in conflict with the provisions introduced by the Commercial Courts Act) will continue to apply to commercial as well as non-commercial suits”.

Interplay of Order 8 Rule 1 with Order 8 Rule 9 

In addition to the aforesaid arguments, Rashmin Khandekar, Firdosh Pooniwala and Rohan Kelkar, Advocates argued that it is only the right of the defendant to file a WS that is forfeited under Order 8 Rule 1, whereas Order 8 Rules 9 and 10 do not circumscribe the power of the Court to take on record a belated WS despite the amendments introduced by the Commercial Courts Act. Thus, the argument flowed that the Court can exercise its discretion under Rule 9 to take on record a belated WS.

Mr Kohli submitted that the arguments put forth by the defendants would result in absurdity or an anomalous situation. He argued that such interpretation ought to be rejected. He further argued that if Order 8 was given the same wide and unbridled interpretation as was sought to be canvassed by the defendants, the distinction if any between a commercial suit and non-commercial suit would only lie in their respective cause titles. Taking on record a WS under Rule 9 despite the expiry of the stipulated period of 120 days under Rule 1, would effectively negate the scheme, object, intent and purpose of the Commercial Courts Act. 

“A” versus “The”

Mr Kelkar submitted that there is a difference in the WS envisaged under the amended Rule 1 and that under Rules 9 and 10. As per him, a written statement as envisaged under Rule 9 refers to a WS separate from the written statement under Rules 1 and 10 and thus, the bar under Rule 1, if mandatory, applies only to the written statement and not a written statement under Rule 9 and hence, the discretion of the Court to allow for WS is kept alive even after the right of the defendant is closed under Rules 1 and 0.

Rejecting this argument, Justice Kathawalla observed, “While an ingenious argument has been canvassed, if I were to allow it, I would find that my decision would be directly in the teeth of the legislative mandate of the Commercial Courts Act, its provisions and legislative intent. … what has been prohibited from being done directly, cannot be allowed to be done indirectly. If this Court has been expressly divested of its powers to take on record ‘the’ written statement after the expiry of 120 days, allowing the same to be taken on record in another way, i.e. under the cover of it being ‘a’ written statement would be a travesty of procedure as well as a mockery of the legislative mandate. It would be ridiculous to imagine that, what the legislature prohibited in one rule, would be allowed to be circumvented via another rule in the same order of CPC”.

Non-commercial suits

The Court was of the opinion that since the amendment to CPC as applicable to commercial suits has been brought about by a special act, a general rule under Rule 9 would have to yield to it. However, it was clarified that Rules 9 and 10 would continue to be discretionary powers in non-commercial suits to condone the delay in filing of a belated WS as the provisions introduced by the Commercial Courts Act will not apply to non-commercial suits.

Court of Equity

In addition to the above, Mr Kelkar submitted that eventually, the Court is one of equity and that it cannot ignore emergent circumstances that a defendant may undergo due to which it would be unable to file its WS.

The Court noted that the Supreme Court in a catena of decisions has held that considerations of equity cannot be grounds/reasons/justifications to not follow the law as laid down by the legislature. It was of the opinion that no matter how harsh the result, if a statute stipulates that an act must be performed within a certain period of time and provides for no exceptions, then the Courts must not allow such an act to be performed after the expiry of the time mandated by the statute, directly or indirectly.

Plaintiff’s obligation

Considering another important aspect of the matter, the Court was of the view that the provisions of the Commercial Courts Act will be given full credence, only in the event strict timelines are imposed not only on defendants but also on plaintiffs invoking the Commercial Courts Act. It was observed, “If a defendant’s right to file its written statement stands forfeited after the expiry of 120 days, the plaintiff too ought to adhere to strict timelines. Hence, it is recommended that such provisions and rules are introduced so as to ensure that in a commercial suit filed before a Commercial Court/Commercial Division, the plaintiffs are directed to remove all office objections and have the commercial plaint numbered within the time limit so prescribed. … In the event the plaintiff and its advocates fail to adhere to these timelines, the commercial suits so filed and belatedly numbered/served ought to be dismissed without any further reference to the Commercial Court/Commercial Division”.

Parties’ consent cannot vest jurisdiction

Having answered the question of law as above, it was clarified that there may be instances wherein the plaintiff is ready and willing for a belated WS to be taken on record subject to payment of costs. However, it is important to note that parties cannot by consent, vest the court with discretion/jurisdiction/powers which it otherwise is barred from exercising under statute. Jurisdiction can be vested only by statute and not by consent and acquiescence. It is well settled that jurisdiction cannot be conferred on a court by consent, acquiescence or waiver where there is none, nor can it be ousted where there is.

Commencement of 120 days period

The Court thought it necessary to clarify when the aforesaid period of 120 days commences? 

It was stated, “the period of 120 days will commence from the date of service of the writ of summons and not the date a defendant first enters appearance. However, in order to ensure expeditious disposal of commercial suits and in order to save time of this Court as also the office of Prothonotary & Senior Master of this Court, in the event a defendant/its advocate enters appearance and by consent, agrees to waive service, the period of 120 days will commence from the date of such waiver”.

After having an in-depth discussion, the Court delivered the 158-pages long judgment covering the very many aspects on the subject. The matter was disposed of after deciding the question of law in the manner above. [Axis Bank Ltd. v. Mira Gehani, 2019 SCC OnLine Bom 358, dated 27-2-2019]  

Case BriefsHigh Courts

Delhi High Court: A Single Judge Bench comprising of Manmohan, J. allowed a suit for permanent injunction, restraining the use of plaintiff’s registered trademark SanDisk.

The plaintiff is one of the largest dedicated provider of flash memory storage solutions under the house mark SanDisk. It is a Fortune 500 and S&P 500 company which designs, develops and manufactures data storage solutions in a range of form factors using the flash memory, controller and firmware technologies. It possesses trademark registration for SanDisk in more than 150 countries. It is also a registered proprietor of variety of word marks and device marks in India. The defendant, on the other hand, was an authorized third party, selling counterfeit microSDHC cards bearing the mark SanDisk in locally-printed packaging. The present suit was filed for permanently restraining the defendant from selling the said product and thereby infringing plaintiff’s trademark.

The High Court noted that Order XIII-A of the Commercial Courts, Commercial Division and Commercial Appellate Division of High Courts Act, 2015 empowers the Court to pass a summary judgment, without recording evidence, if it appears that the defendant has no real prospect of defending the claim and there is no other compelling reason why the claim shouldn’t be disposed of. In the Court’s opinion, the defendant had no real prospects of defending the suit as the defendant did not file its written statement despite entering appearance nor denied the documents of the plaintiff. Moreover, the instant was a clear case of infringement of plaintiff’s registered trademark. The Court was of the view that the defendant was using plaintiff’s trademark to trade upon and benefit from the immense reputation and goodwill of the plaintiff’ mark and pass on the products as those of the plaintiff. In view of the aforesaid, the Court allowed the suit with actual costs. [Sandisk LLC v. Memory World,2018 SCC OnLine Del 11243, dated 12-09-2018]

Amendments to existing lawsLegislation Updates

The Commercial Courts, Commercial Division and Commercial Appellate Division of High Courts (Amendment) Act, 2018 has been notified on 20-08-2018, w.e.f. 03-05-2018, and received the President’s assent on 20-08-2018. It amends the Commercial Courts, Commercial Division and Commercial Appellate Division of High Courts Act, 2015, (principal act) which after the amendment to it’s short title shall be called as Commercial Courts Act, 2015.

 

Salient features of the amendment Act are

  • It aims to lessen the specified value of a commercial dispute to 3 lakhs from the present value of 1 crore. Therefore, commercial disputes of a reasonable value can be decided by commercial courts, which would lead to coming down of the time taken in resolution of commercial disputes of lesser value.
  • The amendment provides for establishment of Commercial Courts at district Judge level for the territories over which respective High Courts have ordinary original civil jurisdiction i.e in the cities of Chennai, Delhi, Kolkata, Mumbai and State of Himachal Pradesh. The State Governments, in such territories may by notification specify such pecuniary value of commercial disputes to be adjudicated at the district level, which shall not be less than Rs. 3 lakhs and not more than the pecuniary jurisdiction of the district court. In the jurisdiction of High Courts other than those exercising ordinary original jurisdiction a forum of Appeal in commercial dispute decided by commercial courts below the level of District judge is being provided, in the form of Commercial Appellate Courts to be at district judge level.
  • The provision of introduction of the pre-institution mediation process in cases where no urgent, interim relief is contemplated will provide an opportunity to the parties to resolve the commercial disputes outside the ambit of the courts through the authorities constituted under the Legal Services Authorities Act, 1987.and will  thus ultimately  help in reinforcing investor’s confidence in the resolution of commercial disputes.
  • S. 17 of the bill aims at amending S. 21 of the principal act so as to add a provision which enables the Central Government to make rules and procedures for pre-institution mediation.
  • Also a provision has been added to give prospective effect to the amendment so as not to disturb the authority of the judicial forum presently adjudicating the commercial disputes as per the extant provisions of the Act.
Legislation UpdatesRules & Regulations

The Central Government on 03-07-2018 has, in exercise of the powers conferred by sub-section (2) of Section 21A read with sub-section (1) of Section 12A of the Commercial Courts Act, 2015 (4 of 2016), notified the  Commercial Courts (Pre-Institution Mediation and Settlement) Rules, 2018.

 

Key Highlights of the Rules are as follows :—

Initiation of mediation process —

(1) A party to a commercial dispute needs to make an application to the Authority as per Form-1 in Schedule-I, either online/by post/by hand, for initiating mediation process along with Rs 1000 as fees payable to the Authority by demand draft/ online;

(2) The Authority shall, having regard to territorial and pecuniary jurisdiction and nature of commercial dispute, issue notice, as per Form-2 in Schedule-I through registered/speed post and electronic means, i.e., e-mail and like to the opposite party for appearing and giving consent to participate in mediation process on a date not beyond ten days from issue of notice.

(3) If no response is received from opposite party either by post/e-mail, the Authority shall issue final notice as specified above.

(4) Where notice under sub-rule (3) is unacknowledged or opposite party refuses to participate in mediation process, the Authority shall treat the process to be a non-starter and make report as per Form 3 in Schedule-I and endorse it to both the parties.

(5) Where opposite party, after receiving the notice seeks further time for appearance, the Authority may, fix an alternate date not later than 10 days from date of receipt of such request.

(6) Where opposite party fails to appear on fixed date fixed, the Authority shall treat the mediation process to be a non-starter and make report as per Form 3 in Schedule-I and endorse the same to both the parties.

(7) Where both parties appear and give consent to participate in the mediation process, the Authority shall assign the commercial dispute to a Mediator and fix a date for appearance before the said Mediator.

(8) The Authority shall ensure that the mediation process is completed within 3 months from receipt of application for pre-institution mediation unless the period is extended for 2 months with consent of both the parties.

 

Venue for conducting mediation — The venue for conducting of the mediation shall be premises of the Authority.

 

Role of Mediator — The Mediator shall, on receipt of assignment, facilitate the voluntary resolution of commercial dispute and assist the parties in reaching a settlement.

 

Representation of parties — A party to a commercial dispute has to appear before the Authority/Mediator, either personally or through duly authorised representative/Counsel.

 

Procedure of mediation —

(1) The mediation shall be conducted as per the following procedure-

(i) At the commencement of mediation, the Mediator shall explain the mediation process to the parties;

(ii) The date and time of each mediation sitting should be fixed by Mediator in consultation with the parties.

(iii) The Mediator, during course of mediation, may hold meetings with parties jointly/separately;

(iv) The applicant/opposite party may share settlement proposals with the Mediator in separate sittings with specific instruction as to what part can be shared with the other party;

(v) Parties to the mediation can exchange settlement proposals with each other during mediation sitting either orally/in writing;

(vi) During the mediation process, Mediator has to maintain confidentiality of discussions made in separate sittings with each party and only the facts which a party permits can be shared with other party;

(vii) Once both parties reach to a mutually agreed settlement, same shall be reduced in writing by Mediator and signed by the parties and Mediator as per Form-4 in Schedule-I;

(viii) Mediator shall provide the settlement agreement, in original, to all the parties and also forward a signed copy to the Authority; and

(ix) Where no settlement is arrived between the parties within time specified in sub-section (3) of Section 12A of the Act or where Mediator is of the opinion that the settlement is not possible, the Mediator needs to submit a report to the Authority, with recorded reasons in writing, as per Form-5 in Schedule-I.

(2) The Authority/Mediator, shall not retain the hard/soft copies of documents exchanged between parties or submitted to Mediator or any notes prepared by the Mediator beyond 6 months other than application for mediation, notice issued, settlement agreement and failure report.

 

Parties to act in good faith — All the parties to a commercial dispute should participate in the mediation process in good faith with intention to settle the dispute.

 

Confidentiality of mediation — The Mediator, parties or their authorized representatives/Counsel shall maintain confidentiality about the mediation and, the Mediator shall not allow stenographic/audio/video recording of the mediation sittings.

 

Maintenance and publication of mediation data —

(1) The District Legal Services Authority (DLSA) shall forward the detailed data of the mediation dealt by it under the Act to the State Legal Services Authority (SLSA).

(2) The SLSA shall, maintain data of all mediations carried out by it/under its jurisdiction and publish the same, on quarterly basis, on its website as per Form-6 in Schedule-I.

 

Mediation Fee — Before commencement of the mediation, the parties to commercial dispute shall pay to the Authority a one-time mediation fee, to be shared equally, as per the quantum of claim as specified in Schedule-II.

 

Ethics to be followed by Mediator —

The Mediator shall-

(i) uphold the integrity and fairness of the mediation process;

(ii) ensure that parties in the mediation are fairly informed and have adequate understanding of procedural aspects of the mediation process;

(iii) disclose any financial interest/other interest in subject-matter of the commercial dispute;

(iv) avoid any impropriety, while communicating with the parties;

(v) be faithful to the relationship of trust and confidentiality reposed in him;

(vi) conduct mediation related to resolution of a commercial dispute, in accordance with applicable laws for time being in force;

(vii) recognise that mediation is based on principles of self-determination by parties and that the mediation process relies upon ability of parties to reach a voluntary agreement;

(viii) refrain from promises/guarantees of results;

(ix) not meet the parties, their representatives/counsels or communicate with them, privately except during mediation sittings in premises of the Authority;

(x) not interact with media or make public the details of the commercial dispute case, being mediated by him or any other allied activity carried out by him as a Mediator, which may prejudice interests of parties to the commercial dispute.

[No.A-60011(06)/20/2016-Admin-III(LA) — G.S.R. 606(E)]

Ministry of Law and Justice

Legislation UpdatesStatutes/Bills/Ordinances

The Government on May 3 published an Ordinance in the Gazette of India which made major changes to the Commercial Court structure in India. These courts were set up below the District Judge level, keeping in mind the increasing number of commercial disputes with a growing economy, and to bring about a speedy resolution of conflict, to showcase India as a lucrative destination for foreign investment. This ordinance sought to amend the Commercial Courts, Commercial Division and the Commercial Appellate Division in High Courts Act of 2015 (the Act).

The amendment made the following important changes to the Act:

1. Addition of the phrase “Commercial Appellate Courts” to the long title of the Act, and prescribing “Commercial Courts Act, 2015” as the short title.

2. In S. 2(i) of the Act, ‘specified value’ was lowered from amounts exceeding One crore rupees to amounts exceeding Three lakh rupees, substantially increasing the ambit of the courts’ jurisdiction.

3. In the High Courts of Bombay, Delhi, Calcutta, Madras and Himachal Pradesh, which exercise ordinary original civil jurisdiction in respect of territories of the cities of Mumbai, Delhi, Kolkata, Chennai and the State of Himachal Pradesh, the State government, in consultation with the respective High Court, shall constitute Commercial Courts at District Judge Level, and also specify the pecuniary value for these courts, which shall be greater than 3 lakhs but less than the pecuniary value of the jurisdiction of the District Court.

4. Where the High Courts do not exercise ordinary original civil jurisdiction, the State government may, in consultation with the respective High Court, establish Commercial Appellate Courts at the District Judge level, to hear appeals against judgments passed by the Commercial Courts below the District Judge level.

5. Insertion of Chapter IIIA to the Act which mandates, in suits not contemplating any urgent interim relief, pre-institution mediation, the manner and procedure of which is to be prescribed by the Central Government. Such a suit shall not be instituted till the remedy of mediation has been exhausted.

Ministry of Law and Justice