India: Litigation

Commercial disputes in India are resolved either through litigation before the courts or tribunals or through alternative dispute resolution mechanisms, such as conciliation, mediation or arbitration.

The courts, in certain cases, also direct parties to explore the possibility of resolution of their disputes through conciliation or mediation, before proceeding with the hearing of the disputes.

The litigation procedure for commercial disputes is primarily governed by the Code of Civil Procedure, 1908 (Civil Code) and the Commercial Courts, Commercial Division and Commercial Appellate Division of High Courts Act, 2015 (Commercial Courts Act), while aspects such as limitation and evidence are governed by the relevant statues namely, the Limitation Act, 1963 (Limitation Act) and the Indian Evidence Act, 1872 (Evidence Act), respectively.

Arbitration proceedings are governed by the Arbitration and Conciliation Act, 1996 (Arbitration Act). In ad-hoc arbitration, the parties are free to agree on a specific set of rules of procedure or a forum through which the arbitration proceedings may be conducted. Certain institutional arbitration centres in India have their own set of rules for conducting arbitration proceedings.

The broad hierarchy of courts in India that are vested with jurisdiction to adjudicate commercial disputes under the Commercial Courts Act, are the district courts, High Courts (exercising appellate jurisdiction and in certain States, original jurisdiction) and the Supreme Court of India, which is the final court of appeal.

It is relevant to note that each State of India has a High Court, however, only 5 (five) High Courts exercise original jurisdiction in commercial matters in relation to disputes in their jurisdiction, subject to specified pecuniary thresholds. These are the High Courts of Delhi, Bombay, Calcutta, Madras and Himachal Pradesh. In the other States, the High Courts function as appellate courts for commercial matters.

Appeals from the decision of the commercial courts exercising original jurisdiction are heard by the appellate bench of the High Court of the relevant State. Appeals from the decision of the High Court of the State (in suitable cases, involving a substantial question of law) may finally be made before the Supreme Court of India, which is the final court of appeal.

In arbitration proceedings, depending upon whether the arbitration is a domestic proceeding or an international commercial arbitration (as defined under the Arbitration Act), the principal Civil Court in a district or the High Court of the Sate, exercising jurisdiction would have the authority to hear any appeals. In arbitration proceedings also, in suitable cases, involving a substantial question of law, a final appeal can be made before the Supreme Court of India.

While there have been various efforts to speed up the litigation process, through digitization of processes as well as stipulation of time limits for filing of pleadings before the courts and tribunals, the typical time period from commencement of proceedings to the trial can range from 4 (four) months to 2 (two) years, depending upon the number of parties, nature of the dispute, complexities and other factors that can contribute to delays.

In relation to arbitration proceedings, the Arbitration Act has been amended recently to provide for a time period of 6 (six) months for completion of pleadings in case of arbitration proceedings where the place of arbitration is in India. After the completion of pleadings, the arbitral tribunal is required to hear the parties and make an award within a period of 12 (twelve) months, which can be extended by a further period of 6 (six) months by mutual consent of the parties. However, the time period for adjudication post the completion of pleadings is applicable strictly in case of domestic proceedings, but in the case of international commercial arbitrations seated in India, such time periods are directory.

Hearings in commercial matters before the courts are held in an open court. Access to documents filed by the parties is usually restricted to the parties to the proceedings. However, in certain matters, a third party may apply to the courts for access to pleadings/documents filed in a proceeding to which it is not a party and upon showing sufficient cause, the court, may allow the inspection of the certified copies of such pleadings/documents.

Similarly, documents that are commercially sensitive and privileged can be kept confidential in a sealed cover with the court and access to such documents can be limited. For instance, the Delhi High Court (Original Side) Rules, 2018, which are applicable to commercial dispute proceedings provide for the constitution of a ‘confidentiality club’ and the procedure to be followed for dealing with confidential documents/ information.

The orders passed by the courts and tribunals are usually uploaded on the websites of the courts and tribunals and are accessible by the public at large. There are also proposals to live stream the proceedings before the Supreme Court of India and the High Courts for the public. However, these are yet to be implemented.

In the case of arbitration proceedings, the Arbitration Act was amended in August 2019, to provide that the parties as well as the arbitral tribunal shall maintain confidentiality of all arbitral proceedings except the award or where such disclosure is necessary for the purpose of implementation and enforcement of the award. Therefore, while the arbitration proceedings themselves are confidential, the proceedings in relation to the challenge of an arbitral award are heard in open Court.

The Limitation Act, is the general law which provides for limitation periods for commencement of proceedings as well as for filing of appeals, which is applicable for all proceedings, unless a specific period of limitation is prescribed under the applicable statute, in which case the specific statute will override the limitation period prescribed under the Limitation Act. The limitation period for most proceedings in relation to contractual disputes is 3 (three) years from the date when cause of action arises. However, where a special statute provides for a different period of limitation such period prevails.

For filing appeals, period of limitation may range from 30 (thirty) days, such as in the case of appeals before the same court or 90 (ninety) days for appeal from a different court to a High Court.

In a recent decision of the Supreme Court of India in the matter of ‘Bank of Baroda v. Kotak Mahindra Bank Ltd.‘, dated March 17, 2020 in [Civil Appeal No. 2175 of 2020], the Supreme Court of India set out important principles regarding the limitation period for enforcement of foreign decrees and inter alia, clarified that if the decree holder first takes steps in-aid to execute the decree in the cause country, and the decree is not fully satisfied, it can then file a petition for execution in India within a period of 3 (three) years from the finalisation of the execution proceedings in the cause country.

Under Section 34 of the Arbitration Act, a time limit of 3 (three) months from the date of receipt of the award is prescribed for challenging an arbitral award before the court. This period of 3 (three) months can be extended by a period of 30 (thirty) days, if the court is satisfied that there was sufficient cause for the delay, but no further. The Supreme Court of India has held that the time limit prescribed under the Arbitration Act cannot be diluted or extended by relying upon the Limitation Act.

The Supreme Court of India, in a recent decision in the matter of Cairn India Ltd. & Ors. v. Government of India dated February 19, 2020 in [OMP (EFA) (COMM) 15/2016], inter alia, held that the limitation period for enforcement of a foreign arbitral award would be 12 (twelve) years (under Article 136 of Schedule I of the Limitation Act).

The typical pre-action conduct requires a prior notice to the other party, especially where the Government or any public body or officer (acting in official capacity) is a party. It is also relevant that the agreement out of which the dispute arises is sufficiently stamped with the requisite stamp duty. In arbitration proceedings, the date on which the notice referring a dispute to arbitration is received by the respondent is regarded as the date of commencement of the arbitration proceedings, unless some other procedure has been agreed between the parties.

Courts have held that if the agreement based on which the dispute is raised is not duly stamped, then such an agreement (including the arbitration clause contained therein) cannot be relied upon in view of the provisions of the stamp duty legislations. However, the deficiency of stamp duty, can, in most cases be cured by the presenting the document before the relevant authority and payment of penalty (which penalty may extend to 10 times of stamp duty).

In case of proceedings before the court, court fees is also payable at the time of filing of the proceedings.

In commercial disputes under the Commercial Courts Act, in matters where urgent interim relief is not pressed, pre-institution mediation has been made mandatory.

Commercial proceedings are commenced with the filing of a suit or application before the relevant court or tribunal, or in case of arbitration, by issuing a notice to the other party for referring the dispute to arbitration.

In certain matters, prior service on the other party is not mandatory. However, if there is a specific requirement under a statute or if such prior service is mandated by the rules of the relevant court or the tribunal, it must be carried out.

The process for service of summons is provided under the Civil Code. Service of summons is made by the court through registered post acknowledgment due or courier or through an authorized officer. A party may also seek permission of the court to serve the other party personally either by hand or registered post acknowledgment due or courier and then file a proof of such service with the court.

The jurisdiction of the court or tribunal is based on the applicable legislation. The Civil Code provides for the procedure for determining the jurisdiction of the court, which is usually where the defendant resides or carries on its business as also where a cause of action or part of cause of action to sue arises. In case of disputes involving immoveable property, it is usually vested with the courts in whose jurisdiction the immovable property is situated. The jurisdiction of courts may also differ based on the amount involved in the claim as certain courts have jurisdiction based on prescribed monetary thresholds.

In the case of arbitration proceedings, the place (or seat) of arbitration designated by the parties determines which court has jurisdiction over matters.

The parties usually set out the applicable law in the agreement between the parties. In arbitration proceedings also, especially in the case of international commercial arbitrations which take place in India the choice of law is usually specified in the arbitration agreement.

In the absence of any specified law, the Indian law will be applied by the courts and the courts examine the claims based on the nature of the dispute, the location of the parties, the place of performance of the contract and the nature of the contract to determine the law.

Indian courts do not apply foreign law and any points on foreign laws must be pleaded as facts and established before the courts. Parties can bring experts to explain and elucidate their pleadings based on foreign laws.

Proceedings can be disposed of without a full trial where the respondent fails to appear despite service, in which case the courts or tribunals may proceed ex parte. Similarly, under the provisions of the Civil Code, if the parties enter into an amicable settlement or compromise, at any stage of the proceedings, the claims can be disposed of by the court recording the terms of such settlement or compromise.

There are also provisions for summary proceedings under the Civil Code in certain types of proceedings. Further, in certain cases, claims or parts of claims can also be decided based on clear admission/acknowledgment of such claims or part of claims, as the case may be, by the defendant.

Parties can seek interim reliefs before the courts under the Civil Code and the Specific Relief Act, 1963. In arbitration proceedings, parties can seek interim reliefs from an arbitral tribunal under Section 17 of the Arbitration Act or under Section 9 of the Arbitration Act from a court, prior to the constitution of the arbitral tribunal or in special circumstances. Interim reliefs in the form of temporary injunctions that can be sought include, the payment or deposit of an amount to secure the interest of the aggrieved party, directions to cease and desist, attachment of property, appointment of a receiver, etc.

Parties must file their pleadings setting out the facts of the dispute, commencing with a plaint/ petition or in case of an arbitration proceeding, a statement of claim. The respondent then files its reply to the plaint/ petition or the statement of defense. The respondent may, if it desires, also file its counterclaims, if any. Thereafter, with the leave of the court, the plaintiff/petitioner or the claimant may file a rejoinder to the reply filed by the respondent, and its reply to the counterclaim (if any). The respondent also may seek leave of the court to file a rejoinder in support of its counterclaims. In commercial claims, the defendant is required to submit its statement of defence within 30 (thirty) days of receipt of the plaint, which may, under certain circumstances, at the discretion of court, may be extended by the court to a maximum period of 120 (one hundred and twenty) days.

Applications for interim reliefs, directions or exemptions, as well as for assistance from the court can be moved by the parties during proceedings. The counterparty has a right to file its reply to such applications, if such applications are not rejected by the Court or the tribunal, at the outset.

After the abovementioned pleadings, parties file the evidence that they seek to rely upon by way of an affidavit, which is then followed by another affidavit from the opposite party, either admitting or denying the documents and evidence filed by the other party.

Finally, with the permission of the court or the arbitral tribunal, or if directed, parties may file written submissions.

The timelines for such filings are set out in the Civil Code and in the case of arbitration, the arbitral tribunal decides the timelines for such filings, which are required to be completed within 6 (six) months.

Generally, parties are bound to produce every document in their possession, which is material or relevant to the case, unless it is covered by privilege. In certain courts, such as the Delhi High Court, details such as the line of custody of the documents, copies, parties, etc., must be mentioned in the index of the volume of document. The documents relied upon as evidence are usually filed at the stage of evidence along with an affidavit.

A party can apply to the court to compel the production of a document in the custody of the other party if such document is relevant to the subject matter of the proceedings. The grant of such direction is entirely at the discretion of the court and subject to the court bring satisfied of necessity of such document.

Certain documents are protected on grounds of privilege, such as communication between a party and its advocate (as defined under the Advocates Act, 1961) and are not required to be disclosed unless permitted by the client. Section 126 to Section 129 of the Evidence Act explain whether privilege applies to a document. However, where such person appears as a witness, he may be compelled to disclose such information.

There are processes for securing documents on grounds of privilege, confidentiality, security, commercial sensitivity or public interest. The party seeking such privilege or confidentiality must put forth its submissions and explain the sensitivity to the court, following which the court may direct the procedure to be followed to maintain confidentiality/ secrecy of such documents. For instance, the Delhi High Court (Original Side) Rules, 2018, which are applicable to commercial dispute proceedings provide for the constitution of a ‘confidentiality club’ and the procedure to be followed for dealing with confidential documents/ information.

Evidence in proceedings before the courts and tribunals is dealt with in accordance with the provisions of the Evidence Act. Witnesses file their evidence by way of an affidavit. Witnesses can be examined on oath by the court or tribunal, the opposite party as well as the party that presents such witness. The manner and procedure for examination of witnesses and depositions is dealt with under Chapter X of the Evidence Act.

Oral depositions during examination-in-chief, cross-examination or re-examination may also be permitted in court proceedings as well as in arbitration proceedings, unless the parties opt for a document only proceedings such as under Section 29B of the Arbitration Act.

Under the provisions of the Evidence Act, the Civil Code as well as under the Arbitration Act, the court or the tribunal may appoint an expert to examine evidence placed before the court or in arbitration proceedings, including forensic matters, complex matters involving finance, actuarial evaluations, scientific and mechanical processes, etc to advise and, or to explain the intricacies of the subject matter to the court or the arbitral tribunal.

Either party in a proceeding may also present an expert as a witness to elucidate its pleadings or to provide an opinion a subject matter. The Delhi High Court (Original Side) Rules, 2018, also provide for a procedure for ‘hot-tubbing’ in which expert witnesses appointed by parties give evidence simultaneously in each other’s presence and in front of the Judge, who puts the same question to each expert witness.

However, an expert’s opinion, irrespective of whether such expert is appointed by a party or by the court or tribunal itself, is not binding on the court or tribunal, and it may or may not follow advice or opinion of such expert. It has been held by the Supreme Court of India that in the event of conflict between the testimony of eye witnesses and the opinion given by an expert, so long as the evidence given by the witness is trustworthy, credible and consistent with the other facts and evidence, the court will be well within its jurisdiction to discard the expert’s opinion, Dayal Singh & Ors. v. State of Uttaranchal [(2012) 8 SCC 263].

Experts have a duty to be impartial and unbiased and to provide a finding based on the specific subject matter, without being influenced by the pleadings of either party. Where an expert is presented as a witness on behalf of a party before the court or in an arbitration proceeding, the other party can cross-examine the expert witness and can raise questions to ascertain the knowledge, credibility, bias, as well as the basis of the opinion or findings provided by such expert.

Final decisions and interim decisions of a court or a tribunal, such as those granting an interim injunction or an interim award made by an arbitral tribunal can be appealed before the relevant court having jurisdiction and in certain cases, the High Court. The time limit for filing such appeal is prescribed under the Limitation Act and in the case of arbitration proceedings, in the Arbitration Act (if not provided, then period under the Limitation Act is applied). This usually ranges from a period of 30 (thirty) days to 90 (ninety) days, from the date of receipt of a certified copy of the order or judgment and depending upon the court before which the appeal is sought to be filed.

However, not all interim decisions of a court or an arbitral tribunal can be challenged and only those decisions which are conclusive or determinative in relation to an issue may be challenged and decisions which are mostly procedural may not be appealable. In each case, the interim decision sought to be challenged will have to be examined.

The Civil Code provides for ‘reciprocating territories’, under Section 44 A of the Civil Code, which are countries that are notified by the Government of India and the decision of the ‘Superior Courts’ of such countries (as specified in the relevant notification) can be executed in India as if it had been passed by a District Court in India.

If the foreign judgment is from a court which is not in a reciprocating country, it will not be enforceable as a decree and the party seeking enforcement will have to first file a suit against the other party and the foreign judgment can only be relied upon as evidence against the defending party.

A foreign judgment must also clear the tests set out under Section 13 of the Civil Code and the foreign judgment can be challenged thereunder, inter alia, on various grounds prescribed thereunder, such as, the judgment was obtained by fraud, or that the judgment is contrary to the fundamental laws and public policy of India, or there was a failure to apply the principles of natural justice, etc.

Another important aspect for enforcement of foreign judgments is the period of limitation within which such judgments can be enforced. The recent decision of the Supreme Court of India in the matter of Bank of Baroda v. Kotak Mahindra Bank Ltd., dated March 17, 2020 in [Civil Appeal No. 2175 of 2020] sets out important principles regarding the manner of degerming the limitation period for enforcement of foreign decrees.

In the case of foreign arbitral awards, under the provisions of Chapter II of the Arbitration Act, an award made in a convention country, i.e., the New York Convention or the Geneva Convention can be enforced in India, as a decree of an Indian Court. However, a foreign arbitral award from a country which is not a signatory to the said conventions, cannot be executed as a decree and can only be relied upon as evidence. Therefore, an arbitral award from a non-convention country cannot be enforced as a decree of a court.

Yes, costs can be claimed by the parties in proceedings before the courts and tribunals as well as in arbitration proceedings, under Section 35 of the Civil Code (as amended by the Commercial Courts Act) or under Section 31 A of the Arbitration Act. The said provisions also set out various factors to be considered to determine the regime for costs and to award costs in relation to the proceedings.

While the courts tend to be somewhat cautious in awarding costs, in arbitration proceedings, the arbitral tribunals are far more proactive in awarding costs (at actuals, duly supported by documents/ invoices) to the successful party.

The Companies Act, 2013 provides for class action disputes in India by a group of members or depositors of a Company, subject to certain thresholds, for actions against mismanagement, suppression, fraudulent conduct, etc.

Class actions proceedings can also be initiated under the provisions of the Consumer Protection Act, 1986, the Competition Act, 2002 and the Industrial Disputes Act, 1947 (for labour disputes). Public interest litigations can also be initiated before the courts by a group or a class of persons.

The Civil Code provides for a joinder of necessary and proper parties to a suit or a proceeding. Similarly, matters, involving a common question of law or arising out of the same contract or between the same parties are often heard together. As explained above, in a dispute involving a claim and a counterclaim, the matter is clubbed as a single proceeding. Furthermore, challenges against an arbitral award filed separately by the parties are at times, often listed together as they pertain to the same arbitral award.

In arbitration proceedings, in certain cases, a third party, which is not a party to the arbitration proceedings, may be permitted to join the proceedings, however, this is typically limited to situations where such third party is a parent or a holding company of the party to the dispute and, or has a significant connection with the dispute. The Supreme Court of India in the matter of ‘Ameet Lalchand Shah and Others v. Rishabh Enterprises’ reported as [2018 (15) SCC 678], following an earlier judgment of the Supreme Court of India in the matter of ‘Chloro Controls (I) P. Ltd. vs. Severn Trent Water Purification Inc. and Ors.‘ reported as [(2013) 1 SCC 641], inter alia, held that in cases where the agreements are inter-connected and several parties are involved in a single commercial project executed through several agreements, all the parties can be made amenable to arbitration. The applicability of the principle laid down by the Supreme Court of India, must, however, be examined carefully on a case to case basis.

In certain cases, third party funding has been permitted, especially when the third party is under a financial incapacity. The States of Maharashtra, Gujarat, Madhya Pradesh and Uttar Pradesh have amended the provisions of the Civil Code, which, inter alia, recognize the funding of such litigation by a no-party and contain provisions for enabling such third party interested in or funding the litigation, to be joined as a party to the proceedings. The Supreme Court of India in the matter of ‘Bar Council of India v. A.K. Balaji‘ reported as [(2018) 5 SCC 379] has, inter alia, held that while there is a bar on counsels funding litigation by their clients, there is no specific restriction on a third party funding a proceeding and getting repaid after the outcome of the litigation, so long as the contract does not involve an unconscionable bargain.

Cost of litigation or arbitration proceedings in India may be lower than several other jurisdictions especially the developed countries. Since India is a common law country, there is an understanding of principles of common law. There is also a big push for expediting the litigation process as well as arbitration proceedings.

In arbitration proceedings, there is a strong push towards limiting interference in arbitral awards unless there is a material error or patent illegality such as failure to consider material evidence, etc.

A disadvantage of litigation before the courts in India is that there can be unprecedented delays, especially in court proceedings due to the large number of matters that are pending before the courts.

Commercial disputes arising out of breach of contract, especially in the real estate sector and in relation to infrastructure projects are likely to increase, before the courts as well as in arbitration proceedings.

Insolvency and recovery proceedings are also likely to increase significantly, despite the moratoriums and relaxations granted by the banks and financial institutions pursuant to the directions issued by the Reserve Bank of India.

Labour disputes are also likely to increase significantly due to large scale layoffs that are likely to take place due to the economic crisis.

While there was a strong push for e-filing before the court to reduce the dependency on physical files and bulky paper filings, due to the COVID 19 pandemic, the courts have been compelled to conduct hearings through video conferencing. These measures have led to faster adoption of technology based on necessity though large number of lawyers, judicial officers and arbitrators are not well versed with technology. However, there is a possibility that e-filing will be made mandatory for all types of matters including arbitration proceedings. Processes such as notarization, payment of court fees and filings may be made completely electronic to improve the process.

Arbitration is an area where the technology can be adopted faster especially if the arbitral tribunal and the counsels for the parties are well versed with technology.

Most courts have suspended functioning due to the COVID 19 pandemic and the lockdowns directed by the Government of India. The Supreme Court of India and certain High Courts have been hearing urgent and important matters through video conferencing. Lately, matters which are ripe for hearing are also being taken up by court with consent of the parties. Certain tribunals have also adopted video conferencing to resume proceedings for urgent matters. Recently, the Supreme Court has permitted physical hearing of matters if all parties to the proceedings make a request in this regard to the court.

During the initial phase of lockdown, several matters pertaining to the invocation of bank guarantees and for interim measures, restraining such invocation were filed before various courts. Generally, the courts were directing parties to maintain status quo during the initial COVID 19 lockdown period, without getting into merits of the matter. Disputes pertaining to and arising out of invocation of force-majeure clauses, particularly, in the relation to lease/license agreements and service agreement have also seen a spurt. The courts have been taking strict and narrow interpretation of the force-majeure clauses and also taking the view that if the non-performance/ delay occurred prior to the declaration of the COVID19 pandemic and subsequent lockdown in March 2020 in India, the non-performance could not be excused by invoking force majeure on account of COVID19.

There have also been several petitions challenging the directions issued by the Government of India, inter alia, directing all employers, irrespective of the nature of their business, size of business or their financial conditions, to pay full wages to employees and contractual workers, on time, without any delay or deferral. This has led to a situation where many employers fear insolvency since there is no source of income and no relief has been announced by the Government of India to support employers. These matters are currently pending adjudication before the Supreme Court of India.

There is a gradual push to increase the number of hearings conducted though video conferencing, however, this is largely subject to the convenience of the parties and the ability of the parties to participate through video conferencing.