--By Rudra Sharma
The Word ‘commercial’ is not easy to define and thereby making it further difficult to define what is commercial case and what a commercial bench is supposed to address. However, there were demands of a commercial court/bench for the last 20 years or so. People in seminars organized by Nepal Rastra Bank in association with the World Bank and International Monetary Fund identified the need of a commercial court/bench in Nepal for appropriate and speedy dispensation of justice in commercial case.
In 2063 BS, the Supreme Court has set up a task force on this regard. The task force reviewed several exercises together with some international practices for establishment of Commercial Bench. The Task Force studied the reports of Court Management Committee, 2055 Court Strengthening Committee, 2058 and the Five Year Strategic Planning of the Court (2061- 2066). The Ministry of Law and the Ministry of Industry had also carried out some consultation with the Supreme Court in the year 2059 for the establishment of Commercial Court.
A project carried out under the loan assistance of Asian Development Bank namely Improving Legal Enforcement Mechanism and Judicial Capacity had a component called Establishment of Commercial Bench under its package 2 activity. From Manshir 2059, this project carried out activities on establishment of Commercial Bench. This project had hired an expert Hon. C.
W. Pincus QC who submitted a report recommending a number of things on establishment of commercial bench. Nepal Judicial Academy (NJA) also worked very closely with this project on the Commercial Bench component. This project had also worked with private sectors like Federation of Nepalese Chambers and Commerce and Industry (FNCCI) and others in this course.
According the report of the Task Force, Commercial Cases Baseline Survey, 2003 carried out by Nepal Law campus presents 17 different kinds of cases as commercial cases tried and tested in several courts all over the country. The 17 different kinds of cases are - Company, Secured Transaction, Contract, Insolvency, Banking and Negotiable Instruments, Arbitration, Intellectual Property, Finance, Foreign Investment, Insurance, Security Transaction, Agency, Partnership, Construction, Leasing/Rent, Transportation and any others.
Analysing the evolution of concept of Commercial Bench and a comparative study on commercial dispute settlement of some other countries like United Kingdom, United States, India and China, the Task Force has finally put forth 26 suggestions.
Establishment of Commercial Bench
On 2065 Magh 1, the government of Nepal established a Commercial Bench in four Appellate Courts namely Biratnagar, Patan, Butwal and Nepalgunj and later added Hetauda Appellate Court also through a notification on 2067 Baisakh 1. These Commercial Benches are provided with jurisdiction to look after cases of Secured Transaction Act, 2063, Competition Promotion and Market Promotion Act, 2063, Company Act, 2063 and Insolvency Act, 2063.
Later, the government of Nepal, through a notification published on 2065 Shrwan 5, extended the jurisdiction of the Commercial Benches for the disputes under Banking Offence and Punishment Act, 2066. Most of the cases going to Commercial Bench were filed in the Commercial Bench of Patan Appellate Court. Some 99 commercial cases were filed in the Patan Appellate Court up to the fiscal year 2067, some 154 cases were filed in the fiscal year 2067/068, some 237 cases were filed in the fiscal year 2068/069 and some 263 cases were filed before the completion of the fiscal year 2069/070.
After the establishment of the Commercial Bench, a procedure for the same was supposed to be made. In fact, a procedure is also drafted. However, the procedure has not come into force. Company Act, 2063 and Competition & Market Promotion Act, 2063 have provided that lawsuits under these Acts should follow summary proceeding. The Insolvency Act provides for a procedure within itself and that procedure is being followed now generally.
No special procedure is prescribed for Secured Transaction Act and Banking Offence Act. These two Acts seem to follow general procedure. Despite the lack of a specific procedure for the Commercial Bench, Chief Judge of the Appellate Court where the Commercial Benches reside have provided for necessary procedural matters as and when required. For example, cases of Commercial Bench are heard by a division bench, other cases related to the case filed in the Commercial Bench are also heard in Commercial Bench, so on and so forth.
Commercial Bench & Expectations
The primary expectation with the Commercial Bench was that it would look after all the commercial cases gradually. It was a good beginning that the Commercial Bench was assigned to hear cases under three categories and later under five categories. However, it was very unfortunate that the jurisdiction of the commercial bench was not extended to other cases under other Acts.
The basic benchmark to evaluate the function of the Commercial Bench is its comparative worth and value, i.e. what and how it contributed compared to previous court system where there were not Commercial Benches. There are hardly any evidences that the Commercial Bench could prove its worth. This is because, we already have had a regular court system and the Commercial Bench was brought to existence for a better performance and better dispensation of justice with respect to commercial cases. But, unfortunately it did not happen.
The Task Force report mentions that the erstwhile judiciary of Nepal was looking after some ten kinds of commercial cases even if there were no such commercial benches. The cases were - dispute related to loan or credit, dispute about security or pledge, dispute related to buying and selling of property, dispute related to trademark, dispute related to commercial loan, dispute related to liquidation of company, dispute related to shareholders of company, Torts related trade and commerce and other economic cases.
According to primary expectations and the decade long preparations, the scope of the Commercial Court was supposed to be extended to other commercial cases too and subsequent legal reform as well as administrative reform were also supposed to be made in order to pave a way for the same.
It did not happen unfortunately, and this proved to be a major setback for creating condusive environment for invitation of foreign investment in Nepal and also for maintaining as well as retaining investment in Nepal. The exact expectation of about the Commercial Bench was to develop it as a real center for commercial dispute settlement.
The Task Force report states that the concept of commercial bench was evolved in an endeavour to create sufficient legal and judicial environment for business as well as economic activities. But we can hardly find evidences to understand how the commercial bench contributed to create such environment. However, it does not mean that the commercial bench did not do anything. But, it should be judged in comparison to the contribution of the regular court system before establishment of commercial bench. According to the Task Force report, the regular court system was looking after 10 different kinds of commercial cases. As the commercial benches took up only cases under five categories, it gave a kind of impression that commercial cases are related to those five cases only.
The major challenge of the Commercial Bench is the mindset of the judicial leadership. The judicial leadership probably thinks that the regular Appellate Courts would be less important if all commercial cases would go to the Commercial Bench. I wish to be wrong at this point. But, it would be very dangerous if the judicial leadership continues to be influenced by such thinking.
Another challenge is the lack of competent human resources required for the Commercial Bench. This challenge can be overcome with appropriate will power and leadership of the judicial administration. We cannot import or invent such competent human resources. However, there would be no additional cost for managing the resources already available in the market.
On the one hand, commercial cases are not coming to the Commercial Bench due to lack of proper legal arrangements on jurisdiction and on the other hand, there are competing and repeating jurisdictions for the dispensation justice through commercial cases. Several cases are put in arbitration process. Almost all of them are commercial cases. But, the appeal on arbitration settlement goes to the Appellate court but not to the Commercial Bench. The Debt Recovery Tribunal hears cases relating to debt recovery of the banking institutions. Revenue Tribunals look after cases related to taxes. Labour Court hears the cases related to labour issues.
The money laundering related cases are handled by the money laundering department. Corruption cases are handled by Commission for the Investigation on Abuse of Authority (CIAA). Criminal Investigation Bureau of Nepal police also carries out investigation in some commercial cases.
Thus, the commercial cases are scattered and thereby losing the scope of making the Commercial Bench a hub for settlement of commercial disputes.
The Commercial Bench has jurisdiction over the Banking Offense Statute, but it does not have jurisdiction over Banking and Financial Institutions Act (BAFIA). It has been ridiculous practically. Such examples are there in other sectors too.
Some of the practices of Appellate Court where the Commercial Bench resides have defeated the very purpose of the Commercial Bench. A case demanding for interim relief does not go to the Commercial Bench. Regular Bench hears it. Once a party receives interim order, it keeps on postponing the hearing date, pending the interim order. Sometimes, such cases are postponed for many times even from the weekly calendar putting a trouble to the opposite party to even to identify whether the hearing date was postponed or not.
Such practices are serious fraud on the administration of justice and responsible persons must be punished.
In most of the times, dispute on contract cases that happen to be commercial cases do not go to Commercial Bench. The prevailing contract law has provided interim relief in the form of appropriate order. In such situation, the existence of Commercial Bench happens to be a great irony.
Great difficulty is experienced in Nepal for administration of contract, especially international contract. The courts generally provide stay order depriving the aggrieved party from carrying out the necessary activities according to the contract. Such a situation causes great mockery of the existence of the Commercial Bench.
Due to the above reasons, the expectation that Commercial Bench would establish a minimum predictable legal environment on doing business in Nepal remains a distant dream. This has put a great threat for the invitation of foreign investment in Nepal. The Commercial Bench should overcome all these challenges in the time to come.
Experiences of India on Commercial Bench
In the year 2009, the Lok Shaba of India passed the Commercial Division of High Court Bill, 2009. But, the Bill is yet to be passed by the Rajya Saba.
The Bill envisages separate divisions in each high courts to handle commercial disputes above certain value along with a procedure for the same. In the same year 2009, the Delhi high court established arbitration center and gave a message that the Indian judiciary was not anti-arbitration. In the same year 2009, London Court of International Arbitration set up a center in India. These two institutions paved way for institutional arbitration in India as an effective tool for settlement of commercial disputes.
The Indian courts have made controversial interpretations of the Indian Arbitration & Conciliation Act, 1996. In the case of SBP & Co versus Patel engineering the Indian Supreme Court upheld the role of courts in appointment of arbitrator if one of the parties fails to nominate an arbitrator. This decision has been criticized as it put a great hurdle to separate arbitration from court. But in the year 2012 September, the Indian Supreme Court in the case of Bharat Aluminum Company Ltd. ( BALCO) versus Kaiser Aluminum Technical Service ruled that the Indian Arbitration Act will not apply if the arbitration proceeding are held outside India. This ruling of the Indian Supreme Court has been praised from many quarters as it has helped to separate domestic and international arbitration as well as separating arbitration from the courts.
It seems that the establishment of arbitration center at the Delhi high court demonstrates the willingness of Indian judiciary to make the high court as hub of settling commercial dispute and the Supreme Court ruling of
2012 in the case of BALCO shows the willingness of Indian judiciary to separate arbitration from judiciary. It seems that these all issues will be categorically addressed by the pending Bill called the Commercial Division of High Court Bill, 2009. The underlined aim of all these schemes would be making India a preferred investment destination as the courts will provide a minimum predictability on legal environment.
Nepal became member of World Trade Organization (WTO) nine years ago making several commitments for harmonization as well as standardization of administration of trade law in accordance with the provisions of the United Nations Commission on International Trade Law (UNCITRAL). Section 34 of the Arbitration Act, 2055 provides for enforcement of foreign arbitral awards.
But, there are some cases where the Appellate Court has refused for enforcement of some foreign arbitral awards and the appeal on such decisions of the Appellate court are pending at the Supreme Court. Our legal ecosystem should be clear at this point and the commercial bench should take lead on this.
How Commercial Bench should be
Therefore, the commercial bench in future should be able to be a hub and ultimate resort for the settlement of disputes related to commercial laws.
Further, it should be established as a center of trust among the investors as well as among the public that the commercial bench ensures settlement of commercial disputes in tune of time. It will not be necessary that the commercial bench itself hears all disputes. But it should be the ultimate resort for settlement of such disputes. For this purpose, we need to make legal as well as administrative mechanisms that all commercial law related cases can ultimately reach to the commercial bench.
We can continue separate arrangements of hearing commercial law related cases at the court of first instances like Labour Court, Revenue Court or Tribunal, Debut Recovery Tribunal. Besides, we also need to encourage to settle commercial law related cases through the means of alternative dispute settlement like arbitration, mediation, conciliation etc. However, commercial law disputes settled in all these court of first instances and cases settled through alternative dispute settlement mechanism should ultimately find their way to the commercial bench. Such arrangements should be all over the country not only in Kathmandu. We can make an arrangement that disputes involving certain amount or above should go directly to the commercial bench instead of the court of first instances.
The commercial bench should also take over the newly emerging commercial cases. Cases related to banking institutions are prominent example, such as cases related to bounced, dishonoured of cheques, debt recovery and banking offence. There is a need of legal as well as administrative provisions on asset management. Lack of this has hampered expected functioning of banking system.
The commercial bench in future should look after comparatively complex cases on banking law. There is a room to argue that the Banking Offenses Act seems to be draconian, providing scope for being misused. This Act is disproportionate since this gives higher hand to the regulating body Nepal Rastra Bank to take such action that may kill the institution instead of correcting it and functioning it again after action from Nepal Rastra Bank.
Nepal Rastra Bank may feel the need of such law since the court system is not effective as mentioned above. However, a draconian law would not be an answer for non-effective court system. So, we need to improve the court system rather than practicing draconian laws. We need such legal system where the central bank can take action against the banking institutions for corrective measures, put them in the legal process and the banking institutions again functions after the central bank takes action. Taking action by central bank against banking institution should be a regular process rather than a fateful disaster.
Other newly emerging cases on commercial law are related to money laundering, insolvency and trans-border commercial cases. Money laundering is a part of criminal law. But since it is a matter of financial crime but still it can be seen within the parameter of commercial law. International commitments as well as domestic needs have compelled to make the legal as well as administrative regimes on money laundering more stringent. It is said that this regime in the offing will compel to change over 40 prevailing laws on administration of criminal justice. The future commercial bench should be a center for hope and trust for the settlement of cases related to these all emerging commercial laws.
The commercial bench should have a proper reporting system. The cases settled by commercial bench should be discussed publicly in the Bars and among the academics.
Conclusion and Recommendations
Though Commercial bench could not prove its expected significance as we need to appreciate the initiations made and need to continue efforts to update and standardise it in accordance with need of the day.
1. We need to seriously review the efforts made till date for establishment of Commercial Bench together with mapping the expectations made during such endeavours.
2. We need to extend the scope as well as jurisdiction of the commercial bench ensuring that all commercial cases either directly go to the commercial bench or go to other courts or tribunals that are supervised by the commercial bench.
3. There should be commercial benches covering all jurisdictions of Nepal.
4. Some cases having commercial issues may not go to commercial bench if such cases have monetary value in the disputes less than prescribed. Principally, it should be determined that commercial bench is to serve the purpose of establishing a preferred destination for investment, and therefore, it serves the creating conducive atmosphere for investment rather than establishing judicial principles. Prolonged judicial process and lengthy interpretations of statues can be done in regular courts not by commercial benches.
5. Among the commercial bench all over the country, there should be one commercial bench at the center Kathmandu with fast tract procedure. Commercial cases with certain threshold of investment and some other special circumstances should only go to this Fast Track Commercial Bench. Such arrangement would boost up confidence of investors.
6. There should be proper reporting system of the cases decided by the commercial benches so that the legal community as well as business community can provide feedback on the decisions by carrying out discussion on them.
7. There should be special efforts for legal reforms in order to accomplish the task of transforming the present commercial bench so that it can carry out all above mentioned matters.
8. Administration of commercial cases and legal reform should be carried out considering the international commitments of Nepal under WTO, UNCITRAL and other similar mechanisms.
9. Success stories of some countries like Singapore should be considered and we need to make analysis why Singapore scores over India on settlement of corporate conflict.
(Based on a paper prepared under an assignment of Commercial Law Committee of Supreme Court Bar Association. The writer is associated with Transactional Law House, an international law firm based in Kathmandu. He can be reached at [email protected]. Cell- 9851057087.)
“Lacunae in the legal system need to be minimised to attract foreign investors”
Shreekant Poudel, the spokesperson of the Supreme Court, in an interview with Britant Khanal of New Business Age he shed light on the introduction of commercial bench and its need. Exceprts:
Could you highlight the reason behind establishing the commercial bench?
The first and foremost reason behind the establishment of this bench is the need for speedy justice, easy access and quick legal remedies for the commercial sector. Even more important is the demand made by the law in many acts after the Second Jana Andolan. It is clearly mentioned that such and such cases will be dealt by the commercial bench like for instance in Section Z8 of the Company Act. After 2006, the World Bank had also suggested the requirement of such a bench. The Company Act, the Secured Transaction Act and other acts related to safe competition have mentioned the requirement of this bench. Was this issue initiated by ADB? I don’t think so but the ADB had some general interest and it had recommended on bringing such a bench too.
What new prospects will the bench bring? Will it have the same old practices disguised as new?
In the process of establishing this bench we had to train judges, judicial staffs and even lawyers. The training lasts from one to one-and-a-half months as it required. The judges who attend the training are only sent to the bench for hearing commercial cases. The new commercial bench will therefore slowly shed some old ways.
There seems to be a paradox in the bench being established for the benefit of the commercial sector while the jurisdiction seems a bit scattered, vague and ambiguous. Could you talk a little about this?
We are still in the initial phase of establishing the bench. As I know, the initial requirement was to set up a separate commercial court, which came down to establishing a commercial bench in appellate courts. This was required because cases related to the commercial sector are heard in a scattered manner. For example, cases of contract are first heard by the district court, patents are heard by the department of industry, and many other cases are addressed by the Nepal Rastriya Bank (NRB) too. Therefore, a common institution to streamline all commercial cases and bring them under one umbrella seemed to be necessary.
Home work is yet to be completed. It was rightly questioned whether or not offences in banking will be dealt by the commercial bench. The issue is still subject to research and analysis. There are other issues including intellectual property and cases of revenue tribunal. We are striving to bring all of these cases under the commercial bench.
Has the bench been established in all appellate courts in the country?
No, we have not established commercial benches in all appellate courts as they are established in a need-based manner. The previous chief justice had recommended the bench to be established in six places including Pokhara but later it was only established in four places. We therefore have established this bench in five places including one in Hetauda which was established in 2011 and rest four at Biratnagar, Butwal, Nepalgunj and Patan.
Because this is a new and western practice, will we require a foreign consultation for the bench?
For now our resources have being doing a very good job but like you suggested, if there is a situation that demands foreign consultation, we can higher or send our resources for foreign education and exchange programmes but again, that will require the demand of the context.
“Judges need training”
A well known advocate Gandhi Pandit, in an interview with Britant Khanal of New Business Age highlighted a pragmatic approach to commercial bench. Exceprts:
What is your opinion on the newly established commercial benches?
The judges must be competent to deal with all kinds of cases, but honestly, that is not possible all the time because of growing trade issues in the domestic and global markets. Some of the cases are so sophisticated that they require experts, which is not available in the country. Smooth functioning of the economy will require a better legal system, which will support rapid growth and development. Therefore, current situation demands a specialised commercial bench.
Where can we trace the footprints of this system?
This system can be traced to the continental legal system, commonly understood as the French and German legal system. In these systems, we can see the trends of a commercial tribunal, a labour tribunal, an industrial tribunal, among others. In these kinds of tribunals, the specialised skills of various sectors are brought together for the better understanding of the case. And this system was later followed by Britain and the US. This pragmatic approach has led to speedy justice and quick legal remedies in these nations. But in our context, we are still lagging behind. Our judges are still traditional and are only specialised in traditional issues such as cases of land dispute, writ petition, etc. We don’t have expertise on cases like letter of credit, IT law, intellectual property law, cases of trademark and so on. Even if they want to learn it, they have not been able to acquire such knowledge due to lack of infrastructure.
What could be the possible solution to such lacunae?
Only establishing the bench will not do the justice. Establishing the bench is one thing and effectiveness is another. The benefit expected has not yet been reaped due to inexperienced people in the field and it is not unwillingness on their part - they don’t have that access to knowledge. As judges are frequently transferred to places without access to such knowledge, they will require a proper training, and attending the training only once will not make an impact as there has to be periodic training which we are lacking. The national judicial academy has been training judges but in the same traditional cases only. Not enough training has been provided in the field of modern commercial issues. Another major problem is procedural delay. Our legal system has a very lengthy procedure before the cases reach the final hearing. These kinds of hurdles will further delay justice and so they will have to be reduced to a minimum. Such deficiencies in the system will give a very wrong message to foreign investors.