ARBITRATION AND COMMERCIAL COURTS: A JURISDICTIONAL CONFLICT

While the intent of the Commercial Courts Act, 2015, is noble, the lawmakers have inadvertently left behind jurisdictional inconsistencies in the Act, which leads to conflict with the provisions of the Arbitration and Conciliation Act, 1996

The Commercial Courts Act, 2015 ("the Act") has been enacted with the primary goal to expedite the resolution of commercial disputes in a time-bound manner and with minimal interference of the higher courts. The Act also grants jurisdiction to the Commercial Court over arbitration matters of a commercial nature. While its intent is noble, the lawmakers have inadvertently left behind jurisdictional inconsistencies in the Act, which leads to conflict with the provisions of the Arbitration and Conciliation Act, 1996.

1. Inconsistent Provisions:

1.1. The Provisions of the Commercial Courts Act, 2015

The Act provides for adjudication of commercial disputes of a "specified value". The term "specified value" has been defined under Section 2 (1) (i) of the Act and the specified value of the subject-matter in respect of a suit shall not be less than ₹3,00,000/- (Rupees Three Lakh Only).

Section 10 of the Act confers jurisdiction in Arbitration matters where the subject-matter of an arbitration is a commercial dispute of a "specified value".

In case arbitration is other than an international commercial arbitration, all applications or appeals arising out of such arbitration under the provisions of the Arbitration and Conciliation Act, 1996 (26 of 1996) that have been filed on the original side of the High Court, shall be heard and disposed of by the Commercial Division where such Commercial Division has been constituted in such High Court and those that would ordinarily lie before any principal civil court of original jurisdiction in a district (not being a High Court) shall be filed in, and heard and disposed of by the Commercial Court exercising territorial jurisdiction over such arbitration where such Commercial Court has been constituted.

1.2. The Provisions of the Arbitration and Conciliation Act, 1996 ("Arbitration Act")

Section 2 (1) (e) of the Arbitration Act defines "Court" as the principal Civil Court of original jurisdiction in a district, and includes the High Court in exercise of its ordinary original civil jurisdiction, having jurisdiction to decide the questions forming the subject-matter of the arbitration if the same had been the subject-matter of a suit, but does not include any Civil Court of a grade inferior to such principal Civil Court, or any Court of Small Causes. Therefore, prior to the enactment of the Act, disputes in relation to arbitration matters were under the jurisdiction of the Principal Civil Courts of a district.

1.3. The Conflict

The conflict of jurisdiction arises owing to the fact that the Commercial Courts set up under the Act, are at the level of Civil Judge Sr. Div. whereas, as per the Arbitration Act, only a Principal Civil Court of a district may exercise jurisdiction over disputes arising out of arbitration matters. This has led to uncertainty as to whether the newly established Commercial Courts can entertain applications under the Arbitration Act. Although there is no answer to resolve this conflict of jurisdiction under the legislation, by the Apex Court, the Madhya Pradesh High Court has recently provided a succinct reading and interpretation of the applicable law.

2. The MPHC Judgment in Yashwardhan Raghuwanshi vs. District & Sessions Judge

The Madhya Pradesh High Court in the case of Yashwardhan Raghuwanshi vs. District & Sessions Judge, decided on 26th February 2021 had dealt with the conflict between the provisions of the Commercial Courts Act, 2015 and the Arbitration and Conciliation Act, 1996. The writ petition was filed assailing the validity of the order of the District and Sessions Judge, Bhopal, by virtue of which the disputes/cases filed under the provisions of Sections 9, 14, 34, & 36 of the Arbitration Act were transferred to the Commercial Court of Civil Judge Class-I Bhopal.

The Madhya Pradesh High Court while looking into the scheme of the Act observed that the jurisdiction in respect of arbitration matter is provided in Section 10 of the Act and Section 15 thereof contemplates transfer of all suits and applications including the application under the Arbitration Act pending in Civil Courts in any district or pending in High Court where Commercial Division is constituted or area in respect of which the Commercial Courts have been constituted. On the other hand, the High Court further observed that as is evident from the language employed by the Legislature in the definition of "Court" in section 2 (1) (c) of the Arbitration Act, it was always intended to confer power in respect of the disputes involving arbitration on the highest judicial court of a district in order to curtail the supervisory role of the courts in the arbitral process and, therefore, the Legislature purposefully excluded the jurisdiction of civil courts inferior to the Principal Civil Court of a district. Therein, lies the conflict, since in most districts and in most states, the Commercial Courts are established at the level of Civil Judge Sr. Division.

The Madhya Pradesh High Court, while holding that irrespective of the value of the claim, arbitration matters are required to be adjudicated by the Principal Civil Court of a district, it was held that in respect of commercial disputes involving an arbitration dispute, only the Commercial Court of the status of District Judge or Additional District Judge would be the competent court to entertain the matters under Sections 9, 14, 34 & 36 of the Arbitration Act and such disputes cannot be entertained by any Court of Civil Judge Class-I or Senior Civil Judge, or any Court of Small Causes.

3. Conclusion

With the implementation of the Commercial Courts Act, there has emerged a conflict in the jurisdiction of courts, on account of the Arbitration and Conciliation Act. The Madhya Pradesh High Court in an attempt to provide an answer has delivered a simplistic yet rational judgment. There is no doubt to the fact that the provisions in both legislations are in conflict to the extent of jurisdiction of the courts where the Arbitration Act demands for Principal Civil Court of a jurisdiction, however, there being no parity in grade level of the judicial officers being appointed to the Commercial Courts, almost every state has appointed a Civil Judge of the Senior Division to the Commercial Courts. As such, the Madhya Pradesh High Court has in an attempt to harmonize both the statutes, interpreted the provisions to mean that irrespective of the value of the claim, arbitration matters are required to be adjudicated by the Principal Civil Court of a district and in respect of commercial disputes involving an arbitration dispute, only the Commercial Court of the status of District Judge or Additional District Judge would be the competent court to entertain the matters under Sections 9, 14, 34 & 36 of the Arbitration Act and such disputes cannot be entertained by any Court of Civil Judge Class-I or Senior Civil Judge, or any Court of Small Causes. Further, judicial precedence clearly states that a special statute shall override provisions of general statute.¹ Here, the Commercial Courts' Act is a general statute dealing with commercial disputes generally, whereas the Arbitration and Conciliation Act, is a special statute, dealing specifically with arbitration disputes and matters. Therefore, in order to provide further clarity to the applicable law, the approach adopted by the Madhya Pradesh High Court should be considered as a viable solution to the conflict existing currently.

Disclaimer – The views expressed in this article are the personal views of the author and are purely informative in nature.