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Valuation of Suits under the Commercial Courts Act

Written by Manan Daga

Third Year, BA. LLB. West Bengal National University of Juridical Sciences, Kolkata (WBNUJS)


Source: NovoJuris



Disclaimer: Please note that the views expressed below represent the opinions of the article's author. The following does not necessarily represent the views of Law & Order


Introduction


The Commercial Courts Act, 2015 (hereinafter referred to as the Act) is a new law in its infant stage and has opened a few questions to debate.

The main objective of developing these commercial courts stems from the proposal of establishing these courts for fast relief, i.e. to act as fast-track courts.[1]

An act was first passed named as the Commercial Courts, Commercial Division and Commercial Appellate Division of High Courts Act in 2015. It was later amended in 2018 to be named as the Commercial Courts Act, 2015 because it introduced commercial courts at district level too.[2] In this Act, the valuation of suits has posed significant confusion.


Primarily, the valuation of suits can be said to have two purposes.[3] First, is to determine the pecuniary jurisdiction or competency of the court to hear it.[4] Second, is to determine the court fees that have to be fixed.[5] In this paper, the primary issue addressed is concerning forum shopping. Moreover, the valuation of suits has to be understood vis-à-vis state laws which are different for each state. However, in this article , the further analysis of the Act will be with the Suits Valuation Act, 1887 and the Court Fees Act, 1870 since its understanding with these two creates complications for the Act.Furthermore, the aim will be to lay down a brief timeline of events regarding the valuation of suits in the commercial courts.


Subsequently, the author will move onto the analysis of issues persisting to the said valuation and methods used by people to exploit these provisions, along with the amendment of 2018. Lastly, the author will conclude this article with few basic suggestions which can help with the issues discussed here.


Brief History on Valuation of Suits


The valuation of suits has emerged as a codified law from the nineteenth century. The Court Fees Act of 1870 and the Suits Valuation Act of 1887 were two early statutes governing the valuation of suits. The Court Fees Act, 1870 is needed to determine the court fees and Suits Valuation Act, 1887 is required to determine the pecuniary jurisdiction of the case. Many provisions in both these statutes have almost the same thresholds and requirements. Subsequently, the valuation of suits concerning commercial courts arose in the 188th Law Commission Report (2003). It suggested that a special commercial court must be established with a minimum pecuniary value of Rs.1 crore.[6] Moreover, the Commission held that Suits Valuation Act, 1887, along with the numerous state laws and amendments, depicted a complicated method of valuation.[7] Therefore, they wanted to simplify this valuation method.


After this report, the 253rd Law Commission Report[8] came out with the intent of explicitly addressing the issues of commercial courts. It addressed the concern that various high courts have different original pecuniary jurisdiction (then, only five high courts had original jurisdiction) ranging from Rs.10 lakhs to Rs.1 crore.[9] This created a discordant situation because the pecuniary value of commercial courts is Rs.1 crore too. So, in high courts, having less than Rs.1 crore as original pecuniary jurisdiction, some commercial cases would be heard by the civil bench of high courts and some by commercial courts.

However, in high courts with Rs. 1 crore as original pecuniary jurisdiction, all commercial cases would be heard by commercial courts and none by the civil bench of high courts since a special fast-track court would be preferred for faster adjudication.[10] This creates discrepancy and is with regard to the high court’s original jurisdiction only.

Therefore, to cure this, the Commission suggested to set up a common original pecuniary jurisdiction for these courts.[11] Thus, the effort was to improve the image and standard of Indian judiciary, into one that gives faster decisions.


This was followed by the introduction of The Commercial Courts, Commercial Division and Commercial Appellate Division of High Courts Act, 2015. The principal provisions in this Act regarding valuation are Sections 2(1)(i), 6, 12, and 21. The specified value required for the suit to fall under this Act was held to be Rs.1 crore.[12] The same is elaborated further in the subsequent part of this article. It was followed by an amendment of the Act in 2018. This reduced the specified value from Rs.1 crore to Rs.3 lakhs.[13]


Critical Analysis of Valuation of Suits under the Commercial Courts Act of 2015


Pre-Amendment


For a case to fall under this Act, two criteria have to be fulfilled, one is regarding the commercial nature of the suit and second is regarding the specified value.[14] In this Article, we will focus only on the second aspect, which is the specified value. It has a principal issue of forum shopping along with some supplementary issues. The crucial issue is that a suit which is not qualified to be heard before a commercial court uses a backdoor route to enter in. The Act uses the market value method to determine the specified value.[15] The market value of a property is calculated based on the demand and supply of that property which fluctuate daily. Hence, this method is not always accurate ,and the market value can be manipulated to bring the specified value within the pecuniary jurisdiction of commercial courts.


Hence, it deceptively confers jurisdiction to commercial courts, and as a result, it leads to forum shopping since they get to choose between two forums. Eventually, a commercial case which did not have the specified value would have been craftily brought within the specified value. It also compromises on the objective of setting up these courts, as even those cases which originally did not fall under the jurisdiction of these courts have been brought under it through deceptive means for getting faster decisions. However, when the number of suits increases than the intended suits, then it will lead to more time in adjudication.

It will defeat the very purpose of these courts, which was to provide quicker adjudication. Hence, this is a hurdle for the main objective of the Act.

Additionally, another issue is claiming an exorbitant rate of interest in suits that increases specified value to the extent of meeting the criteria for commercial court’s jurisdiction. Here, commercial courts deceptively get jurisdiction, and it again results in forum shopping. It is possible because of the lack of rules and guidelines regarding the same in the Act. This reasoning is coupled with the dilemma of whether to invoke the Suits Valuation Act and the Court Fees Act for the same. The plaintiff can claim a high rate of interest and justify it with Section 21 of the Commercial Courts Act.[16] This provision is a non-obstante clause and the same can be exploited by the plaintiff to override Suits Valuation Act[17] and Court Fees Act[18] which will help him/her to bring the matter under commercial court. The Delhi High Court has discussed the problem with this section. It held that the Act is not intended to interfere with the Suits Valuation Act and Court Fees Act and the ‘extent’ of overriding effect given to this provision has to be interpreted accordingly.[19] They highlighted that the Act might not have intended to override every other Act and every other provision, and it must have had a limited extent regarding overriding.[20] The court also held that the Act is a general statute and the Suits Valuation Act and Court Fees Act are special statutes, so as a principle of law, the special statute must prevail over the general statute.[21]


This problem of forum shopping has emerged because of the ambiguity in the drafting of the provisions.

A standard method to bring a suit within the pecuniary jurisdiction has been through amending the plaint and pleadings. Sometimes, a plaintiff gets to know that he can use either of the two ways stated above to bring the suit within the pecuniary jurisdiction of the commercial court. So with the incentive of faster adjudication, the plaintiff amends the pleadings to bring it under commercial courts. Courts have not had a common stance on this. In one case, the court had allowed for amending of the plaint.[22] In another instance, the courts had identified this method negatively and attempted to curb such abuse of law. The Delhi High Court has held that when an amendment to plaint occurs for changing the valuation, then such amendment will be allowed if it is bona fide.[23] Even the principle of dominus litis (plaintiff is the master of suit) will not permit him to amend the plaint as per his/her own choice and convenience.[24]


Conflicting relationship between the Commercial Courts Act and the Suits Valuation Act, 1887 has been another major complication. It has been claimed that the Act uses the market value of the immovable property to determine the specified value[25] whereas, the Suits Valuation Act, 1887 and Court Fees Act, 1870 use the value of the claims to determine the value of the suit.[26] It leads to a discrepancy which strikes directly at the basis of the valuation of suits. One can arrive at different values using these two different methods, which leads to a dilemma on which method to adopt in a particular case because both approaches can lead to different pecuniary jurisdictions. Since a dilemma persists, it becomes even easier to take advantage of this issue and try to bring a suit under the commercial court by choosing the favourable method which satisfies the criteria of the Act on the specified value.

As stated earlier, the 188th Law Commission Report[27] states that there is a need to simplify the valuation with the Commercial Courts Act. So, the Act was a measure for simplifying the complicated provisions of the Suits Valuation Act and the Court Fees Act. However, the courts have held otherwise in the case of Mrs. Soni Dave v. M/s Trans Asian Industries Expositions Private Limited.[28] They held that the Act had not been intended to interfere with the Suits Valuation Act and the Court Fees Act.[29] They further held that the Act does not intend to introduce a new method of valuation for jurisdiction and court fees through Section 12 because it talks only about the specified value and not about anything else.[30] They believed that the Court Fees Act would be used to determine the value of the property and the Act will determine the specified value.[31] Therefore, they suggested a harmonious reading of Section 12 of the Act along with the Suits Valuation Act and Court Fees Act for the immovable property.[32]


Furthermore, the courts have separately held that Section 6[33] of the Act holds specified value as jurisdiction, and Section 12[34] defines the same.[35] However, it does not deal with a valuation from the perspective of pecuniary jurisdiction and court fees.[36] It was first decided here that for determining court fees and pecuniary jurisdiction, the Court Fees Act and Suits Valuation Act will be used, and not the Act.[37] Thereafter, it was held that the Act would govern only those commercial cases where the property’s value conforms with the specified value.[38] Here, the court is again drifting from the objective of the 188th Law Commission. Moreover, it is trying to limit the intention of the Act, which was for fast-tracking the proceedings. It prohibits the genuine and eligible parties under the Act from benefitting just because of poor drafting of the Act. Therefore, this Act highlights the lack of precision.


Post-Amendment


The amendment of 2018 primarily extended the commercial courts to district level too, which was earlier limited only to the high courts. Further, it reduced the specified value from one crore rupees to three lakh rupees. Furthermore, it incorporated a new chapter for pre-institution mediation and settlement. It also gave the central government power to make rules for provisions of this Act. Some other amendments were also made, but these were essentially the crux of it. The amendment has a potential of implications which might be visible in due course.


With the inclusion of district level and reduction of the specified value, the time taken for final adjudication might increase since the number of cases will increase. It will go against the objective of setting up the commercial court system, which facilitates faster settlement of cases. Moreover, by reducing the specified value to three lakhs, the courts have made it even simpler for plaintiffs to bring their cases within the pecuniary jurisdiction of these courts. Forum shopping will become even more comfortable and more prominent with such a small specified value because the market value of a property can easily be claimed to be above three lakh rupees. Also, with such a low threshold, it will be even easier to justify the valuation of the property at three lakh rupees.


A proper case (after 2018) regarding the valuation has not occurred yet due to the recent implementation of the amendment. Therefore, the possible challenges and their solutions or the court’s approach towards them is still unknown. A few cases have come up which give passing reference to valuation like Chennai Ananda Bhavan case[39] , but they did not address the ambit of valuation of suits and Section 12 of the Act. It is estimated that sooner or later, commercial courts will turn into a regular civil court unless some positive intervention is done. Along with the shortcomings of the original Act, the amendment has further widened its possibility of being exploited.

This amendment seems to be benefitting the commercial entities more than aiming at a better adjudication.

It is possibly enacted to ease out hardships for the commercial sector rather than achieving the purposes of this Act.


Suggestions and Conclusion


The Commercial Courts Act has come as a response to a rising number of commercial cases. It has tried to ease out the burden on civil courts, and also tried to ameliorate Indian judiciary’s image of delaying the cases. This highlights that the fast-track nature of commercial courts is an essential feature and cannot be disregarded. In this light, the primary aim should be to avoid all steps which will delay the process of adjudication. Along with this, the complications around specified value are persisting from the birth of this Act.


The aim should be to keep the specified value at higher levels, as suggested in the Law Commission Reports. It will help in maintaining the pace in adjudication and upholding the objectives of a commercial court. It will also help in preventing forum shopping because the plaintiff will have to prove that the amendment to plaint was bona fide, which conferred jurisdiction to commercial courts. Moreover, better framing of these provisions will help us gain some clarity over its relation with Suits Valuation Act and Court Fees Act, or even a decision from the Supreme Court on these fundamental issues will suffice. Lastly, the valuation of suits has been a subjective issue varying from state to state.


So, in some states, this leads to very less difference between the specified value of these courts and pecuniary jurisdiction. This makes some state’s commercial courts seem more lucrative than others. It may lead to forum shopping. Hence, to stop this, common law or some common guidelines or rules need to be framed.

The commercial courts have a special significance to it, and this factor distinguishes it from the civil courts. The 2018 amendment has further reduced this distinguishability which then makes us question the need to have such a court which is gradually moving towards a regular civil court mechanism. These courts started with a good position as explained in the Law Commission Reports. Then after the Act in 2015, they were in a decent place. However, after the 2018 amendment, the courts have gone downhill, vis-à-vis their significance. Therefore, the target in the coming years should be to at least move back to the 2015 position regarding the specified value and such courts’ reach and number.


[1] Law Commission of India, Proposals for Constitution of Hi-Tech Fast-Track Commercial Divisions in High Court, Report No. 188 (Dec. 2003). [2] Mehal Jain , Ordinance To Widen Pecuniary Jurisdiction Of ‘Commercial Courts’ Notified, LIVE LAW (May 6, 2018, 7:04 PM), https://www.livelaw.in/ordinance-to-widen-pecuniary-jurisdiction-of-commercial-courts-notified-read-the-notification/. [3] Ambika Pant, Suit Evaluation for the Purpose of Court Fees in a Suit for Possession of Land: A Research Paper, UJALA: Judicial and Legal Review Volume 1 Issue 1, 68, 86 (2013). [4] Id. [5] Id. [6] Supra 1. [7] Id. [8]https://www.prsindia.org/uploads/media/Commercial%20courts/Report_No.253_Commercial_Division_and_Commercial_Appellate_Division_of_High_Courts_and__Commercial_Courts_Bill._2015.pdf [9] Law Commission of India, Commercial Division and Commercial Appellate Division of High Courts and Commercial Courts Bill, 2015, Report No. 253 (Jan. 2015). [10] Id. [11] Id. [12] The Commercial Courts Act, 2015, §2(1)(i) (India). [13] The Commercial Courts, Commercial Division and Commercial Appellate Division of High Courts (Amendment) Act, 2018, §4 (India). [14] The Commercial Courts Act, 2015, §6-7 (India). [15] The Commercial Courts Act, 2015, §12 (India). [16] The Commercial Courts Act, 2015, §21 (India). [17] The Suits Valuation Act, 1887 (India). [18] The Court Fees Act, 1870 (India). [19] Mrs. Soni Dave v. M/s Trans Asian Industries Expositions Private Limited, AIR 2016 Del 186 (India). [20] Id. [21] Id. [22] Sanofi Aventis v. Intas Pharmaceuticals Limited and Another, 2016 SCC OnLine Del 44 (India). [23] Subhashini Malik v. S.K. Gandhi and Others, 2016 SCC OnLine Del 5058 (India). [24] Id. [25] Supra 15. [26] The Court Fees Act, 1870, §7 (India). [27] http://lawcommissionofindia.nic.in/reports/188th%20report.pdf. [28] Mrs. Soni Dave v. M/s Trans Asian Industries Expositions Private Limited, AIR 2016 Del 186 (India). [29] Id.. [30] Id. [31] Id. [32] Id. [33] Supra 14. [34] Supra 15. [35] Mukesh Kumar Gupta v. Rajneesh Gupta and Others, 2016 SCC OnLine Del 3148 (India). [36] Id. [37] Id. [38] Id. [39] Chennai Ananda Bhavan v. Adyar Ananda Bhavan Sweets & Snacks, 2019 SCC OnLine Mad 6576 (India). BIBLIOGRAPHY

Case-laws:

  1. Chennai Ananda Bhavan v. Adyar Ananda Bhavan Sweets & Snacks, 2019 SCC OnLine Mad 6576

  2. Mrs. Soni Dave v. M/s Trans Asian Industries Expositions Private Limited, AIR 2016 Del 186

  3. Mukesh Kumar Gupta v. Rajneesh Gupta and Others, 2016 SCC OnLine Del 3148

  4. Sanofi Aventis v. Intas Pharmaceuticals Limited and Another, 2016 SCC OnLine Del 44

  5. Subhashini Malik v. S.K. Gandhi and Others, 2016 SCC OnLine Del 5058

Statutes:

  1. Commercial Courts, Commercial Division and Commercial Appellate Division of High Courts (Amendment) Act, 2018

  2. Commercial Courts Act, 2015

  3. Court Fees Act, 1870

  4. Suits Valuation Act, 1887

Journal Article:

  1. Ambika Pant, Suit Evaluation for the Purpose of Court Fees in a Suit for Possession of Land: A Research Paper, UJALA: Judicial and Legal Review Volume 1 Issue 1, 68, 86 (2013)

Law Commission Reports:

  1. Law Commission of India, Commercial Division and Commercial Appellate Division of High Courts and Commercial Courts Bill, 2015, Report No. 253 (Jan. 2015)

  2. Law Commission of India, Proposals for Constitution of Hi-Tech Fast-Track Commercial Divisions in High Court, Report No. 188 (Dec. 2003)

Online Sources:

  1. Mehal Jain , Ordinance To Widen Pecuniary Jurisdiction Of ‘Commercial Courts’ Notified, LIVE LAW (May 6, 2018, 7:04 PM), https://www.livelaw.in/ordinance-to-widen-pecuniary-jurisdiction-of-commercial-courts-notified-read-the-notification/

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