"I realise that some of my criticisms may be mistaken; but to refuse to criticize judgements for fear of being mistaken is to abandon criticism altogether... If any of my criticisms are found to be correct, the cause is served; and if any are found to be incorrect the very process of finding out my mistakes must lead to the discovery of the right reasons, or better reasons than I have been able to give, and the cause is served just as well." -Mr. HM Seervai, Preface to the 1st ed., Constitutional Law of India.

Saturday, March 13, 2010

The Commercial Division Bill and the 'Other'

On 16th December 2009, an eight page Bill titled ‘the Commercial Division of High Courts Bill, 2009” (“Bill” or “Commercial Division Bill”) was introduced in the Lok Sabha. The Long Title to the Bill seemed impeccant. It read:

A Bill to provide for the constitution of a Commercial Division in the High Courts for adjudicating commercial disputes and for matters connected therewith or incidental thereto.

The industry hailed it as a new dawn in the cumbrous, pricey, delusional dispute resolution scenario that commercial arbitration posed. The business media called it a giant stride (Business Standard, January 25, 2010. Members of the legal sodality heralded the Bill as a tread towards global standards (Dispute Resolution Hotline, Nishith Desai, January 4, 2010). A fortnight later, a stalwart of law, wrote a blistering critique in the Hindu, which made the government run to the critic and seek his opinion.

The author of the op-ed piece in the Hindu, Justice Krishna Iyer, wrote that the Bill sought to dichotomise justice by making an arbitrary, obnoxious, irrational, outrageous discrimination by giving a kingly treatment to the rich investor, making him fly through a two tier, efficient, modern judicial system, while lets the peasant, the widow, the persecuted trade union, the poor litigant rot through a multi-tiered judicial system, dying out even before the final verdict is delivered.

Shorn of the acerb lamentation, the leitmotif of the article seems to be that the government has not ensured such a system to the needy; instead it has pampered the rich with a fantabulous judicial system, thereby failing to fall within the good books of Article 14.

The Commercial Division Bill:
The Commercial Division Bill is a product of the Law Commission’s anguish at the timeserving paradoxical treatment meted out by the American and the English courts and the multinationals on the Indian legal system. This derogatory posture (inter alia, of non-neutral application of the forum non-conveniens doctrine) acted as a catalyst in making the Law Commission recognise that the Indian industry “must be given a clear assurance that commercial suits of high pecuniary value” shall be dealt within the first instance by a commercial division of the High Court which would ensure swift justice. The Commission felt that the swift resolution of commercial disputes by such a court would lead to an “overall benefit that may accrue by way of increased investment in India, both from domestic and foreign investors will be in hundreds of millions of dollars and the expense in constituting these fast-track, high tech courts will be small.”

Though not expressly articulated, the perceived reasons/ advantages of the Bill seemed to be as follows:

a) Mechanism for quick resolution of commercial disputes
b) Establishment of a separate class of judges well versed in commercial law
c) Consequent development of Indian commercial law.


For Justice Krishna Iyer, the Bill creates a “dichotomy” in that the “Commercial” class enjoys a privileged position vis-à-vis the “Non-commercial” class that is made to decay in the court system. This, according to the him, makes it violative of Article 14, which does not allow affording privileged position to a select few. He does not stop here. He goes further to say that the creation of the dichotomy would result in further decay of the Non-commercial class because judges and resources will be directed towards commercial class. He laments:

It is obvious that there is discrimination writ large here between two classes of litigants. This will also reduce the number of judges available to hear ordinary items of litigation, commercial, labour and land disputes that involve a jurisdictional value that is less than Rs. 5 crore. This will necessarily mean a longer time-span for the conduct of proceedings and final disposal by fewer judges who will be left to handle them.

I do not understand why this complaint is raised. The Bill leaves it to the High Courts to decide on the number of “Division Benches” could be constituted. Even if there is a reduction in the number of judges available for deciding on litigation concerning the non-commercial class, what forbids the government from appointing additional judges to compensate for such reduction? I do not see any wrong in appointment of additional judges.

The issue is projected in such a way that the passage of the Bill would lead to hegemony that would belittle even slavery. Per the op-ed, a class of people has been given a special treatment on the basis that they have more money than others. Presentment of the issue into dichotomous, mutually exclusive classes (as rich v. poor) which are binary opposites, one ruining another, is problematic.

Justice Krishna Iyer thereby states that the Bill is against the constitution and therefore implies that the same should not be passed as an Act. The argument is flawed for a few reasons elaborated below. Consider a simplistic example: a family consisting of four people- a married couple, their daughter and son. The parents give favourable treatment to the son and deny the daughter identical treatment and instead treat her badly. The girl complains to an independent adjudicator (a family elder or a court) against the discriminatory treatment. Would the adjudicator order the parents to ensure equal treatment or would the parents be ordered to treat both of them badly? The op-ed argues for the latter, which does not seem to be the right approach.

While I applaud and admire the sensitivity of Justice Krishna Iyer in pointing out that the Government has excluded Non-Commercial classes from legal reforms, I do not understand why he seeks to argue for killing the Bill. Ideally one would have expected suggestions from him to ensure a pain-free dispute resolution process for Non-commercial class.

The ‘Rich’, the ‘Others’ and the ‘Other’

Justice Krishna Iyer’s categorisation that the ‘rich’ benefit by the Bill is defective for a few reasons. It is a massive simplification of intricate state of affairs that the Bill seeks to touch, intended or otherwise. That is where the critique is problematic. While attempting to defend the cause of few ‘others’, the he altogether ignores another ‘other’, a class which is the target of the Bill- commercial entities (Firms). The op-ed casts a stigma on commercial entities by calling them ‘rich’. However, Justice Krishna Iyer fails to point out the fact that Firms consist of ordinary people- people who work day and night, people who, often at the cost of their health and personal life, engage in a productive activity. Classifying them as ‘rich’ seeks to belittle their efforts. Make no mistake, I am not advocating leniency towards perpetrators of Bhopal or Enron here. My point is that branding of Firms as simply ‘rich’ entirely ignores their other dimensions.

Further, the way the legal system treats Firms is a shocking instance of repression and inefficiency. Millions of hard earned Rupees has been unnecessarily and undeservingly sucked up by the law industry, amply helped by judges and legislators who have given the Indian industry a commercial law system that is a pretense of the rich English commercial law. I work in the legal department of a Firm. In a case, we had to file a caveat before the Supreme Court. We drafted the caveat and sent it to our lawyers (a popular bunch of lawyers) in Delhi to file it before the Supreme Court. Can you imagine how much the fee was? Rs 12,000! Drafting the one page, two lined caveat? Go figure!

This is just a small example. I had already mentioned about costs that a company has to pay for arbitrating disputes in a previous post. To put the matter in context, I repeat relevant portions of the said post:

"In a typical ad hoc arbitration involving retired supreme court/ high court judges, the costs involved per day or a part thereof are as below:

1) a per sitting fee (one sitting is roughly equivalent to three hours) ranges between Rs. one lakh to two lakhs per arbitrator (that makes it 3-6 lakhs for three), plus
2) a one time reading fee of one to three lakhs, plus
3) fee paid to the senior advocate (which ranges anywhere between one lakh to four lakhs per appearance/ hearing/ hour- this might be a conservative estimate in arbitrations involving very large claims) plus
4) fee ranging between ten thousand to fifty thousand for the junior counsel (per hour) plus,
5) six-twelve thousand (again, per hour) if you are hiring a law firm to conduct all the drafting and briefing work, plus
6) a few thousands for the representative of the party litigating plus
7) the stay in a five star hotel for the three arbitrators (if the arbitrator is not from the city where arbitration takes place plus
8) 10,000-50,000 per day for the venue of arbitration
9) 1,000-2,000 for the typist/ administrative costs

The above is just a conservative estimate of costs that a company might incur in a day or a part of a day."

(Also see here where it is reported that some lawyers charge between Rs. 3- 5 lakhs for a five minute appearance in admission matters before the Supreme Court)

Exorbitant fees and below-par service is what the most lawyers in India have to offer to the industry under the pretense of legal services. I have heard several lawyers remark that the quality of service offered by most Indian law firms is nothing as compared to many foreign law firms. Indian law firms have successfully warded off foreign law firms for the time being.

We hardly find quality judges conversant with commercial law. The decisions of N. Radhakrishnan v. Maestro Engineers or DDA v. RS Sharma are recent examples that reflect the quality (or the absence of it) in dealing with commercial law aspects. A perusal of the judgments (even in the High Courts and the Supreme Courts) concerning commercial law would show a great deal of arm-chair, impromptu reasoning. For that matter, even retired judges of Supreme Court, when they act as arbitrators, fail to do their homework in familiarizing themselves with technical aspects/ commercial aspects of businesses. In an arbitration which I came across, three retired Supreme Court judges were arbitrators in relation to a contract. At the fag end of the arbitration (seven years after the filing of notice of claims) the arbitrators asked the parties the meaning of a term in the said contract which was previously explained to the tribunal several times by counsels from both sides. It took more than three years, after the completion of all hearings, for the arbitrators to give the award! But this is not to belittle the fact that many judges have tried to do justice to commercial law issues.

The state of the commercial dispute resolution system of arbitration in India is in shambles and ironically, Firms have, for several years, sought alternatives to this species of ADR. The rant of ONGC’s counsel about arbitration in Dolphin is a typical example of the Hobson’s choice that the Firms have. If they approach courts to resolve disputes, the courts would take years and the quality of judgement would be such that parties would have to go tier-after-tier till the apex court. Instead of courts, if Firms approach arbitrators, the story is worse. Therefore, Justice Saab, it is not only the poor litigant or the widow or the trade union but also the Firm who is the ‘crushed’.