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Commercial Dispute Resolution: Commercial Courts And ADR

The dispute resolution mechanisms in this country are lacking in many ways. They have become a great hindrance in fulfilling the demands of commerce, because of such flaws India is at the 63rd position in the Ease of Doing Business list by the world bank. It is known that the objective of commerce has changed overtime and any corporation or business would face loss due to the shortcomings of the current system. The number of human resources India should make India a destination for business but it appears not.

This can be attributed to the hindrance created by the Judicial System, the legislation to solve the same came up with two solutions. i. Commercial courts these are fast track courts, uniquely designed to dispose cases of commercial nature; ii. ADR these are options other than litigation that can be employed in dispute resolution, this is also facilitated by the Commercial Courts Act, 2015. Since it is clear that the current system is inadequate, a demand for a better-improved system is wanted; this article contains secondary as well as primary data critically examining the functioning of Commercial Courts and ADR mechanisms to resolve disputes of commercial nature.

The meaning or definition of Commercial law has not been determined by Indian Legislation. Yet, it is a growing field in modern times. The purpose of the law is to regulate human behaviour, in this context, it is understood that the purpose of commercial law is to regulate the free flow of commerce. So, it is agreeable that 'commercial law is a pragmatic and responsive subject which looks to facilitate the commercial practices of the business community.

As those practices change and develop. Often to accommodate new technology, the contents of commercial law may change and develop with them. A rigid definition of the scope of the subject would only inhibit this process.'[1] Commerce can widely be known as buying and selling. This event of buying and selling has three main elements i. Exchange of resources ii. Creating free flow iii. Earning of profit.[2] For the purpose of the paper, the focus will be on the third point which is earning of profit.

Around the 15th Century 'lex mercatoria' was incorporated into common law.[3] By the nineteenth century, the lex mercatoria had been fully incorporated into the common law and a significant body of commercial law had been established.[4]

Much like English law the Indian law also did not codify their commercial law and instead passed manifold legislations. Like - Income Tax Act, Companies Act, Foreign Trade (Development and Regulation) Act, 1992, Factories Act, 1948, Intellectual Property Rights, The Customs Act, 1962, Sales Tax and VAT rules Indian Contract Act,1872 the Competition Act, 2002, the Arbitration and Conciliation Act, Industries (Development and Regulation) Act, Foreign Exchange Management Act (FEMA) a brief overview of these acts will lead to the inevitable conclusion that they are concerned somewhere or the other with conferring some benefit, they either contain provisions for making profit or regulation thereof.

With the increase in disposable income, the commerce has increased which resulted in the need for better commercial law. This was also the time that the Indian parliament passed a plethora of commercial laws.[5]

In 1991 liberalized economic policy was announced[6], this resulted in an increase in globalized commercial ventures. The Indian economy proceeded into a new era, into the era of globalization and commercialization. This significantly impacted the then-existing commerce in India with corporate restructuring, development of intellectual property rights and a notable increase in cross-border mergers and acquisitions.

With these new elements added to the economy, the demand for the administration of legal services grew, predominantly a want for an efficacious system of dispute resolution that would readily dispense matters relating to the mentioned developments. Since a contract is a basis for any affair of transactional nature, the governance of contract and the law of contracts also gained material value.

Today we have a globalized economy and there is a free flow of commerce across the globe, which means that there is more at stake now than there ever was. In the course of business, it is but obvious that dispute arises, different people have different demands, this inevitably causes the dispute. In business and commerce, what is essential to understand is that in minimum resources maximum output has to be produced.

Commercial dispute can be defined as 'disputes arising out of transactions of trade or commerce and, in particular, disputes arising out of ordinary transactions of merchants, bankers and traders such as those relating to enforcement and interpretation of mercantile documents, export or import of merchandise, affreightment, carriage of goods, franchising, distribution and licensing agreements, mercantile agency and mercantile usage, partnership, technology development, maintenance and consultancy agreements, software, hardware, networks, internet, website and intellectual-property such as trademark, copyright, patent, design, domain names and brands, and such other commercial disputes which the High Court may notify.'[7]

Resolving commercial disputes can cost heftily to businesses, there is an imminent need to find a way which is cost and time effective, which not only resolves conflict but also complements commerce.

Traditional Methods Of Commercial Dispute Resolution
Disputes have existed since the beginning of mankind for every person is entitled to his or her own thoughts and opinions.

One of the oldest dispute resolution mechanisms that existed in India was the Panchayat System, this was quite effective as it involved an aspect of friendliness and amiability. Matters were resolved within the community.

This was time and cost-effective. The focus of the Panchayat was to settle matters between the members of its community and continue living peaceably. This is popularly known as mediation today. Mediation between the disputing parties was conducted by the head of the Panchayat known as the Sarpanch.

All of this was distorted when the British came to India, with them they brought the Anglo-Saxon methods of dispute resolution, which is popularly known as the common law system. This was done in order to facilitate their rule and assert their dominance over our land. All the laudable features of Panchayat System were alien to this new mechanism.

The adversarial system believed in the two disputing sides arguing the matter before the court of law, and whichever party has the better argument, and is able to convince the judge or jury that they have a better contention usually wins. The system that was established during colonialism is still active and dominant in India. The Indian Judicial System as it is today suffering from many flaws.

This took away, from India, it's a traditional peaceful and timely dispute resolution mechanism and left it with one where the parties are at daggers drawn. The bigger flaw in the system today is the amount of waiting period and the delay in disposing of cases which can directly be attributed to the population. As of February of 2019, there are 89,37,416 civil cases pending in the court.[8]

Table displaying the pendency of civil cases as of February 2019:[9]
Years Number Percentage
0 to 1 year 2835473 31.70 %
1 to 3 years 2731230 30.54 %
3 to 5 years 1429989 15.99 %
5 to 10 years 1325592 14.82 %
10 to 20 years 482326 5.39 %
20 to 30 years 105085 1.17 %
above 30 years 34019 0.38 %

This immense delay in disposal of cases is deleterious to business and commerce, so much so that it defeats the third element of commerce earning a profit (as above mentioned). With commerce growing exponentially, the system is becoming obsolete.

Critical Analysis Of Commercial Courts
There was an imminent need for a better system for disposal of commercial cases, as these cases going on for long was harmful to the economy. The solution that the law commission in its various reports recommended was the formation of Commercial Courts.[10]

The commercial court's Act was gained effect from 23rd October 2015.

Court congestion, legal costs and delays have been a pertinent cause of concern with the justice delivery systems in India. Reform efforts focussed on increasing judicial strength, changes in procedure and experiments in informal justice.[11]

The country profile for India in the World Bank's 2016 edition on 'Ease of Doing Business'[12] condensed that a total of 1,420 days was invested in their quest for a solution of a civil dispute, including commercial disputes, given that civil courts in India handled commercial disputes also.

Suo moto notice was taken by the seventeenth law commission regarding the enforcement of contracts in nature of business, after a sizeable analysis of various commercial courts over a wide jurisdiction across the globe,[13] the law commission in its report suggested for hi-tech fast track commercial courts as a division of the High courts.

The monetary valuation needed for a matter to be considered as a commercial dispute used to be 1 Crore or upwards, after the 2018 Amendment to the Act the current value needs to be a much lesser amount of 3 Lakhs.[14] This change in valuation has been a relief for many micro and small enterprises. For businesses with lesser valuation, this is a blessing as they don't have to spend all their already infinitesimal resources into litigation which goes on for years at a starch with no results.

The Act brought numerous changes to the Civil Procedure Code, 1908[15] - especially summary judgements and case managements for speedy disposal of cases. A singular unique feature of the Act is encompassed in Section 17 which creates provision for the collection and disclosure of data on the cases.

A review conducted by Vidhi Legal disclosed that Of the 24 High Courts, only 8 High Courts (at Bombay, Chhattisgarh, Delhi, Gauhati, Himachal Pradesh, Meghalaya, Orissa and Punjab & Haryana) partially made such disclosures in the format prescribed under the Act.[16] The review also found out that despite the reduction in the valuation via the 2018 amendment Act, there has not been an increase in the number of commercial cases filed.[17] The review is also effective in learning the rate of disposal of cases, the finding is one that shocks all, the rate is less than 10% for all the states.[18]

The very purpose for which the provision has been created has not been accomplished. The legislation though has identified the issue, came up with a solution to solve it, yet has failed in solving the issue.

Application Of ADR In Commercial Dispute Resolution
It is now clearly established that there is an imminent need for a better dispute resolution system in nature of commercial conflicts. The current system of dispute resolution is not a desirable one especially, as the system requires an enormous amount of time and money, this cuts down on the resource allocation of any business and for the conspicuous reason any dispute of commercial nature would rather not step into the current system, but for the lack of application of different mechanisms this happens and they businesses get sucked into the unending cycle.

The statistics concerning the judicial system in India are overwhelming,[19] which calls for the want of an alternate system. Alternative Dispute Resolution (ADR) refers to a wide range of dispute-resolution mechanisms or techniques that share one an essential characteristic: they all differ from the resolution mechanism of litigation in a court.[20] The practical application of ADR has become prominent in many developed countries such as the USA,[21] Germany,[22] Australia,[23] UK, Canada, Switzerland, etc. In India, there are four prominent ADR techniques in application.

To examine in detail the commercial use of ADR techniques, let us pick each one and expound:
  1. Arbitration
    Arbitration is the first ADR a technique to be accepted internationally, The UNCITRAL Arbitration Rules were initially adopted in 1976 and have been used for the settlement of a broad range of disputes, including disputes between private commercial parties where no arbitral institution is involved, investor-State disputes, State-to-State disputes and commercial disputes administered by arbitral institutions.[24] The resolution made in the assembly carved the way for Arbitration as a mechanism for international commercial dispute resolution.
    The techniques are arranged in descending order of formality. Arbitration and Conciliation the most formal techniques have been given legal recognition via the Arbitration and Conciliation Act of 1996. Which was drafted pursuant to the UNCITRAL resolution of 1976.[25]

    Arbitration is much more effective than litigation, as it is a speedy process and consequently saves a massive amount of economic resources, which organizations can use to achieve their goals. The latest example for the application of Arbitration in commercial disputes is Mbl Infrastructures Ltd vs Ircon International Ltd on 19 December, 2016 here an arbitral award of Rs.61,01,904/- was ordered by the arbitrator.

  2. Conciliation
    One of the firsts statues in India that provides for conciliation is The Trade Dispute Act, 1929 which created provision for a Conciliation board, this act was superseded by the Industrial Disputes Act, 1947 section 5 of the Act creates for Conciliation board. In India, the application of conciliation is not as widespread as other ADR techniques.[26] Conciliation widely applied in Australia, where parties to a dispute are required to fill conciliation form. In conciliation an independent person who understands body corporate law (a conciliator employed by the Department of Justice and Attorney-General) helps you and the other parties try to resolve your dispute.[27] The Australian government mandates for parties involved in Conciliation to attend a session regarding the same.

  3. Negotiation
    There is a widespread application of ADR techniques in commerce, as wherever there is trade there is Negotiation. Negotiation is the simplest form of ADR, in this both the parties through the application of their attorneys or not, negotiate terms of any deal, contract, settlement or dispute to gain an advantage for their side. Negotiations are a prominent technique in the commercial area, as often deals or contracts between any two parties, involving a huge amount need to be negotiated. This is a must-have skill these days. Let us take an illustration to understand how this is an ADR technique A is a manufacturer, he has an agreement with B a chain store owner for delivery of 50 packs of pens every Tuesday; the market for pens faces a sudden demand, so B is in need for more pens before Tuesday, let us view what options B has:
    1. Order pens from somewhere else, but that would mean that delivery from A may not be required
    2. Cancel the agreement with A, that would ruin their long-time business relationship and A could sue B for the same,
    3. Negotiate with A for faster delivery of more pens,
      Of the three options, c. seems to be the most appropriate one. Negotiation is the most popular when it comes to trade, especially international trade.[28]
  4. Mediation
    Mediation is the upcoming and most promising ADR technique; India is a signatory of Singapore mediation convention[29] which pertains to international settlements arising from mediation.

    Nationally also lawgivers of India have understood the importance of Mediation in commercial disputes and consequently, chapter IIIA of Commercial Courts Act, 2015 wherein Section 12A[30] mandates the remedy of pre-institution mediation. Under the provision.

Of the three options, c. seems to be the most appropriate one. Negotiation is the most popular when it comes to trade, especially international trade.[28]
After examination of the Section it can be derived that[31]:
  1. The section is applied where urgent interim relief is not sought,
  2. The plaintiff has to apply for pre-institution mediation before instituting the suit in a court of law,
  3. Authorities under LSA, 1987 can take up pre-institution mediation,
  4. The authorities under LSA, 1987 shall complete pre-institution mediation within 3 months from the date of application made by the plaintiff,
    1. The period of completion of Mediation can be extended by 2 months with the consent of the parties,
    2. For the purpose of Limitation Act, the Mediation period that parties are involved in will not be computed;
  5. The settlement award shall have the same status as an arbitral award.[32]
  6. The award shall be reduced to writing and signed by the parties as well as the mediator.

In light of the Section 12A of the Act, Ravi Shankar Prasad Minister of Law and Justice of India, states:
this (pre institution mediation) is the most important commercial law initiative perhaps in the entire world where the pre-mediation initiative has been given a very important focus.[33]

The 47th Chief Justice of India, Justice Bobde is also actively seeking to expand the use of pre-litigation mediation, especially in the commercial area. In this opinion, the application of ADR in commercial dispute would greatly increase the ease of commercial activities in India nationally as well as internationally.[34]

One of the issues that arise after an examination of the provision is effectiveness. To gain an insight on the same, I went to the Lok Adalat of Pune, courtroom No. 17 which derived its authority from Section 12A. The panel consisted of three respected panellists. Mr D.A Ad Hoc District Judge, Adv. M.S and Adv. A.T. The panellists informed me that majority of the matters before they were in the nature of recovery, settlement and bank dispute.

All the parties carried with them a compromise memo in pending cases, which makes it clear that the parties to the suit are interested in resolving the disputes. Each matter before the panel was heard and discussed promptly, the proceedings were informal as compared to that of a court. In the span of 1.5 hrs the panel had heard more than 5 cases. After a conversation with the panel, I learnt that most of the cases are resolved in the span of 1 month to 10 years, though the upper limit for disposal of cases is not a joyful number it is still better than that of litigation.

The objective is to advance business and trading and diminish the dependence on the already burden judiciary.

Conclusion And Recommendations
The objectives of commerce today are different from when the Legal and Justice system came into the picture. The flaws in the Indian Judicial System call for a better system, a quicker, more transparent system. As these flaws hinder the objective to be achieved by the performance of commerce. As I have stated earlier profit is becoming the primary motive which derives commerce when we look at commercial dispute and the mechanisms at a place for the same, it becomes difficult practically as the ordinary and usual course of conflict resolution doesn't help promote or ease commerce.

The legislative had also identified the issues around the Judicial System and through legislation, the efforts of the legislation of making litigation faster and quicker are also failing, as we have seen above. The only solution they are also left with is promoting the application of ADR in dispute resolution.

It is also necessary to understand that the lengthy process of litigation does not benefit anyone. Ultimately it is a burden on every party involved in the process. ADR mechanisms are much easier to approach and understand, especially for the parties in dispute, their participation in court proceedings in through their lawyer and the complex court mechanism makes it difficult to reach prompt solutions, whereas in ADR where the parties are involved in resolving the disputes, prompt solutions are more warranted.

The issue we face with ADR is that the legislation for it is minimal there is code governing arbitration and conciliation but for mediation which is the new emerging trend, which most businesses seek to add in writing is absent. Another major issue regarding ADR is that in the Bachelor course of Law ADR is not a subject, some institutes like Symbiosis Law School, mandate this course, but as a 1 credit course, in Masters this course is available. But if ADR is to be the future of dispute resolution it needs to be inculcated and taught as a subject in Law Schools across India.

It is also recommended that a mandatory clause of ADR be added in commercial contracts as the parties to a dispute will be aware of the concept and mechanisms of ADR which will, in turn, resolve the dispute quickly. It is time for the legislature to draft laws on other aspects of ADR and rigorously implement them as it will not only lessen the burden on the courts but familiarize the parties with dispute resolution which will speed up the process. This will solve two main flaws of the current judicial system.

[1] Len Sealy and Richard JA Hooley, Commercial law: Text, cases and Material (4th Edn. OUP 2009)
[2] Although in the beginning the first two elements were predominant with the development of economics the third element is on the rise, commerce nowadays can be associated with business; business is buying and selling of goods and service for consideration, primarily monetary consideration and the main motivation for a business is profit.
[3] Sir Edward Coke stated in 1628 that 'the lex mercatoria is part of the law of the realm' : Sir Edward Coke, The first part of the Institutes of the Laws of England (1628)
[4] Erci Baskinf, Greg Osbrone and Lee Roach, Commercial Law, (2nd Edn. OXFORD 2015)
[5] Since the definition of commercial law isn't accurately mentioned anywhere in any Indian law, Finance Act, 1972, Banking Companies (Acquisition And Transfer Of Undertakings) Act, 1980, Company Secretaries Act 1980, Consumer Protection Act, 1986, Merchant Shipping (Amendment) Act, 1986 can be considered under the aegis of Commercial law.
[6] The then Prime Minister P.V Narsimha Rao launched a new model with reduction in import duties, devalued the Rupee to facilitate export etc, this model is also called the LPG Model.
[7] See, Law Commission of India, 188th Report On Proposals For Constitution Of Hi-Tech Fast Track Commercial Divisions In High Courts, December, 2003 pg. 167 (visited 20 Feb 202-) Section 2 (1) (c) of Commercial Courts, Act 2015
[8] Extract from National Judicial Data Grid (visited on 19th Febraury)
[9] Ibid.
[10] Law Commission Report No. 78, 188 and 253 (visited on 19th March 2020) (visited on 19th March 2020) (visited on 19th March 2020)
[11] A. Naik, 'Justice without Delay: Recommendations for Legal and Institutional Reforms in Indian Courts'O.P. Jindal University, No 04 Research Paper (2011), available at: visited 22 February 2020).
[12] World Bank's Report on 'Ease of Doing Business'(2016), available at: (last visited 5 March 2020).
[13] Law Commission of India, Proposals for Constitution of Hi-tech Fast-Track Commercial Divisions in High Courts, Report No. 188 (2003), at 20-59. The following jurisdictions were analysed by the law commission New York, Delaware, Philadelphia, Maryland, Ireland, Singapore, Scotland, Philippines, Pakistan, UAE, Poland, Russia, Romania, Ukraine and Ghana.
[14] Section 6 The Commercial Courts, Commercial Division And Commercial Appellate Division Of High Courts (Amendment) Act, 2018- Amendment of section 3 of Commercial Courts Act, 2018
[15] See, Commercial Courts Act 2015 Order XVA: Case Management Hearing - (7): Adjournment of Case Management Hearing, Order XVA: Case Management Hearing., s 14: Expeditious disposal of Appeals, Schedule 4: Amendment of First Schedule - (A), Schedule 8: Amendment of Order XVIII: (3A), (3B), (3C), (3D), (3E
[16] Commercial Courts Act, 2015: An Empirical Impact Evaluation, Vidhi Centre for Legal Policy, 2019, pg 18 (visited Feb 20 2020)
[17] Ibid. Pg. 23
[18] A few of the rates are - the Bombay Commercial Division has a disposal rate of 4 %, the Delhi Commercial Division 9 %, Calcutta Commercial Division 6%, Madras Commercial Division 2%, Himachal Pradesh Commercial Division 1%.
[19] Ibid and Supra note 11
[20] Stanley N. Katz, The Oxford International Encyclopaedia of Legal History, pg. 128 Vol 1
[21] Alternative Dispute Resolution Act of 1998; The U.S. Uniform Mediation Act
[22] The German Mediation Act, 2012
[23] Civil Dispute Resolution Act 2011
[24] United Nations Commission On International Trade Law (UNCITRAL) UNCITRAL Arbitration Rules General Assembly Resolution 31/98, (visited Feb 24 2020) (visited Feb 29 2020)
[25] General Assembly resolution 31/98 (1976) (visited Feb 24 2020)
[26] Also see, Difference Between Arbitration and Conciliation | Explained, (visited Feb 29 2020)
[27] (visited Feb 29 2020)
[28] US-UK trade negotiations, US-China Trade negotiations, EU Trade negotiations.
[29] United Nations Convention on International Settlement Agreements Resulting from Mediation (New York, 2018) (the "Singapore Convention on Mediation") (visited Feb 24 2020)
[30] Inserted by The Commercial Courts, Commercial Division and Commercial Appellate Division of High Courts (Amendment) Ordinance, 2018
[31] 12A. Pre-Institution Mediation and Settlement. (1) A suit, which does not contemplate any urgent interim relief under this Act, shall not be instituted unless the plaintiff exhausts the remedy of pre-institution mediation in accordance with such manner and procedure as may be prescribed by rules made by the Central Government.
(2) The Central Government may, by notification, authorise the Authorities constituted under the Legal Services Authorities Act, 1987, for the purposes of pre-institution mediation.
(3) Notwithstanding anything contained in the Legal Services Authorities Act, 1987, the Authority authorised by the Central Government under sub-section (2) shall complete the process of mediation within a period of three months from the date of application made by the plaintiff under sub-section (1):
Provided that the period of mediation may be extended for a further period of two months with the consent of the parties:
Provided further that, the period during which the parties remained occupied with the pre-institution mediation, such period shall not be computed for the purpose of limitation under the Limitation Act, 1963.
(4) If the parties to the commercial dispute arrive at a settlement, the same shall be reduced into writing and shall be signed by the parties to the dispute and the mediator.
(5) The settlement arrived at under this section shall have the same status and effect as if it is an arbitral award on agreed terms under sub-section (4) of section 30 of the Arbitration and Conciliation Act, 1996..
[32] S. 30 of the Arbitration and Conciliation Act, 1996.
[33] (visited March 20 2020)
[34] Statements given by CJI Bobde in Speaking at the international conference on 'Arbitration in the Era of Globalisation', Derived after reading - - authored by PTI (visited March 4 2020) (visited March 4 2020) - authored by PTI (visited March 4 2020)

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