Home » Between The Lines » Between The Lines | Supreme Court: Appeals and Applications under the Arbitration & Conciliation Act, 1996 relating to commercial dispute of specified value, other than the international commercial arbitration, shall lie before the Commercial Courts established under the Commercial Courts Act, 2015 even though they are subordinate to the rank of the Principal Civil Judge in the District.

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The Supreme Court (“SC”) in its judgment dated October 19, 2022, in the case of Jaycee Housing Private Limited And Others v. Registrar (General), Orissa High Court, Cuttack And Others [Civil Appeal No. 6876 of 2022], held that the Commercial Courts Act, 2015 (“CCA”) has an overriding effect and shall prevail over the Arbitration & Conciliation Act, 1996 (“Arbitration Act”). Hence, appeals and applications under the Arbitration Act pertaining to commercial dispute of a specified value, other than the international commercial arbitration (“ICA”) shall lie before the Commercial Courts established under the CCA, as Sections 3 and 10 of the CCA prevail over Section 2(1)(e) of the Arbitration Act.

Facts

By a notification dated November 11, 2020 (“Notification”), in exercise of powers conferred by Sections 3 (Number of Courts) and 9(1) (Power to fix local limits of jurisdiction of Courts) read with Section 10 (Place of sitting of Courts) of the Odisha Civil Courts Act, 1984 and the CCA, the State Government on the recommendation of and after consultation with the High Court of Orissa (“OHC”), established the Courts of Civil Judge (Senior Division) as Commercial Courts for the purposes of exercising jurisdiction and powers under the CCA.

Jaycee Housing Private Limited and a few other parties (“Appellants”) had filed proceedings under Section 34 of the Arbitration Act in the Court of Learned District Judge. However, on establishment of the Commercial Courts under the Notification, the proceedings were transferred to the designated Commercial Courts, that is, the Court of Civil Judge (Senior Division). Therefore, the Appellants challenged the Notification by way of writ petitions before the OHC. The Division Bench of OHC dismissed the respective writ petitions.

Feeling aggrieved with the common judgment and order dated April 12, 2022 (“Impugned Order”) passed by the OHC, the Appellants filed the present appeals before the SC.

Issue

Whether in exercise of powers under Section 3 (Constitution of Commercial Courts) of the CCA, the State Government can confer jurisdiction to hear applications under Sections 9 (Interim measures, etc. by Court), 14 (Failure or impossibility to act) and 34 (Application for setting aside arbitral awards) of the Arbitration Act, upon Commercial Courts which are subordinate to the rank of the principal Civil Judge in the District, contrary to the provisions of Section 2(1)(e) of the Arbitration Act.

Arguments

Contentions raised by the Appellants:

The Appellants contended that there is a conflict between Section 3 of CCA and Section 2(1)(e) of Arbitration Act. Section 2(1)(e) of Arbitration Act provides that the principal Civil Court of original jurisdiction in a district shall be the ‘court’ in the case of an arbitration other than ICA. It specifically provides that it does not include any Civil Court of a grade inferior to such principal Civil Court. Therefore, where an application has to lie to a ‘court’ under CCA, it must lie to the principal Civil Court and the jurisdiction of all inferior courts is excluded.

As per the Appellants, ‘court’ under Section 2(1)(e) of the Arbitration Act is the superior most court in the district and as such, legislature intended to minimize supervisory role of the courts in the arbitral process. Reliance was placed on the decisions of the SC in the cases of State of Maharashtra and Another v. Atlanta Limited [(2014) 11 SCC 619] and State of West Bengal and Others v. Associated Contractors [(2015) 1 SC 32].

The Appellants contended that the Arbitration Act being a special statute vis-à-vis the CCA, shall prevail over the CCA in case of any conflict, as held by the SC in Fuerst Day Lawson Limited v. Jindal Exports Limited [(2011) 8 SCC 333] (“Fuerst Day Case”) and Kandla Export Corporation and Another v. OCI Corporation and Another [(2018) 14 SCC 715] (“Kandla Export Case”). The Appellants relied on Fuerst Day Case to contend that the Arbitration Act is a self-contained code and exhaustive and therefore, the same should prevail over the CCA. With Kandla Export Case, it was argued that the said judgment has been upheld by a three-judge bench in the case of BGS SGS SOMA JV v. NHPC Limited [(2020) 4 SCC 234] (“BGS SOMA”). Thus, the Impugned Order was contrary to the aforesaid judgments of the SC.

Further, the Appellants contended that the objective of the Arbitration Act is to ensure speedy disposal of cases with minimal interference of courts. If the Civil Judge (Senior Division) is designated as Commercial Court, then the litigant would be provided another appeal to the High Court (“HC”) under Article 227 of the Constitution of India even after disposal of the appeal by the District Judge, defeating the objective of the Arbitration Act.

Contentions raised by the Amicus Curiae:

The Amicus Curiae highlighted the object and purpose of enactment of the CCA, which is, establishment of Commercial Courts to facilitate speedy disposal of high value disputes/commercial disputes. A Commercial Court and a Commercial Appellate Court can be set up under Sections 3 and 3A of the CCA, respectively. As per Section 10(3) of the CCA, for arbitration other than an ICA, all applications under the provisions of the Arbitration Act that would ordinarily lie before any principal Civil Court of original jurisdiction in a district, shall be filed in, heard and disposed of by the Commercial Court exercising territorial jurisdiction over such arbitration where such Commercial Court has been constituted.

CCA being subsequent and enacted for a specific purpose of speedy disposal of the commercial disputes, the same shall prevail. When legislature in its wisdom in a later enactment has specifically provided that all applications/appeals arising out of the Arbitration Act other than the ICA would be heard and disposed of by the Commercial Court, the same shall prevail.

It was submitted that the Kandla Export Case does not imply that all the provisions of the Arbitration Act would prevail over the CCA in case of any conflict and inconsistency. Further, it was submitted that the BGS SOMA judgment is not applicable to the facts of the present case.

Observations of the Supreme Court

SC highlighted the object and purpose of establishment of the Commercial Courts and the enactment of the CCA by referring to the 253rd Report of the Law Commission (“Report”) submitted in January, 2015 where a suggestion for expeditious disposal of the commercial disputes was proposed. Suggestions in Paragraph 3.24.4 of the Report were cited by the learned Judges:

  • In case of domestic arbitrations concerning a commercial dispute of more than INR 1 Crore, applications or appeals may lie either to the HC or a Civil Court (not being a HC) depending upon the pecuniary jurisdiction;
  • All applications or appeals arising out of such arbitrations under the Arbitration Act that have been filed on the original side of the HC shall be heard by the Commercial Division of the HC where such Commercial Division is constituted in the HC;
  • In the absence of a Commercial Division being constituted, the regular Bench of the HC will hear such applications or appeals arising out of domestic arbitration;
  • If the application or appeal in such domestic arbitration is not within the jurisdiction of the HC and would ordinarily lie before a Civil Court (not being a HC) and there is a Commercial Court exercising territorial jurisdiction in respect of such arbitration, then such application or appeal shall be filed in and heard by such Commercial Court.

The SC noted that it was on the basis of the Report, that the Commercial Courts, Commercial Division and Commercial Appellate Division of High Courts Bill, 2015 was introduced in Rajya Sabha which was subsequently promulgated and renamed as CCA. The object and purpose of the CCA was to provide for speedy disposal of high value commercial disputes involving complex facts and question of law by way of an independent mechanism projecting a positive image to global investors about the independent and responsive Indian legal system.

Thereafter, CCA was amended with effect from May 3, 2018, to insert Sections 3(1A) & 3A for enabling the State Governments to designate commercial Appellate Courts at District level to exercise appellate jurisdiction over the commercial courts below the District Judge level. Therefore, the SC held that the legislature in its wisdom specifically conferred this jurisdiction under Section 10 of the CCA in respect of arbitrations.

Thereafter, the SC noted that the CCA was a later Act and when it was enacted, Section 2(1)(e) of the Arbitration Act was already in existence. Therefore, it has to be presumed that while enacting the subsequent law, the legislature was conscious of the provisions of the prior law. Hence, the CCA shall prevail.

Further, as per Section 15 (Transfer of pending cases) of the CCA, all suits and applications including applications under the Arbitration Act relating to commercial dispute of specified value shall have to be transferred to the Commercial Court and as per Section 21 (Act to have overriding effect) of the CCA, the provisions of CCA are to have an overriding effect, notwithstanding anything inconsistent therewith contained in any other law for the time being in force.

Decision of the Supreme Court

Thus, SC concluded that Sections 3 and 10 of the CCA would prevail and all applications or appeals arising out of arbitration under the Arbitration Act, other than ICA, shall be filed in, heard and disposed of by the Commercial Courts, exercising the territorial jurisdiction over such arbitration. If the arguments of the Appellants were to be accepted, the same would render the purpose of enactment of CCA, ineffective.

Further, if the principal Court of a district was to continue exercising jurisdiction over commercial disputes as provided under Section 2(1)(e) of the Arbitration Act, the same would mean two fora adjudicating commercial disputes, which cannot be permissible.

In light of the above, the Notification was held to be legally valid and in consonance with Sections 3 and 10 of the CCA and the Appeals were dismissed.

VA View:

The present judgment echoes the settled position of law that in case of two special laws, the one enacted subsequently and containing a non-obstante clause shall prevail over the prior enactment. Therefore, the SC has put to rest any ambiguity that may have been created in respect of forum for proceedings emanating from commercial disputes of specified value under the Arbitration Act and CCA by voicing the objective of the enactment of CCA.

This is in line with the intention of the legislators to give impetus to the arbitration regime and for ensuring speedy disposal of the arbitration proceedings by creating a special forum, thus, boosting the confidence of the investors across the globe in the Indian judiciary.

For any query, please write to Mr. Bomi Daruwala at [email protected]

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