Judgment of Non-Commercial Bench in Commercial Dispute is a Nullity for Lack of Jurisdiction

In brief

The question

1. Whether a judgment delivered by a judge not designated under Section 4(2) of the Commercial Courts Act, 2015, regarding a commercial dispute, is legally valid or a nullity.

The court held

The High Court held that the impugned judgment and order dated May 23, 2022, is a nullity as it was passed by a Court without requisite jurisdiction.

It also directed

The Court set aside the order and remanded the matters for fresh adjudication.

The Court directed the Department to transmit the records of AP/175/2020 and EC/156/2020 to the Commercial Division.

The appellant was granted 7 days to renew the lapsed bank guarantee; failure to do so would result in the dismissal of the challenge petition.

The appeals were disposed of with no findings on the merits of the case.

01Facts

An award was passed on September 24, 2019, in favor of the respondent.

¶ 12

The appellant challenged this award under Section 34 of the Arbitration and Conciliation Act, 1996.

¶ 12

Although the dispute was "commercial" and the value exceeded the specified threshold (over Rs. 2 Crores), the challenge was incorrectly filed in the Non-commercial Division of the High Court.

¶ 14

On February 7, 2022, the Chief Justice assigned the matter to a Single Judge who was not yet designated as a Commercial Division judge under Section 4(2) of the Commercial Courts Act, 2015.

¶ 7, 18

That Judge delivered the impugned judgment on May 23, 2022.

¶ 2

02Issues

i.1. Whether a judgment delivered by a judge not designated under Section 4(2) of the Commercial Courts Act, 2015, regarding a commercial dispute, is legally valid or a nullity.

¶ 4, 19

ii.2. Whether subsequent notifications or administrative assignments can retrospectively validate an order passed by a court lacking the requisite determination/jurisdiction.

¶ 10, 22

iii.3. Whether the failure to maintain a bank guarantee under Section 19 of the MSMED Act renders the Section 34 challenge invalid.

¶ 32, 34

03Law Applied

Section 4(2) of the Commercial Courts Act, 2015, which mandates that only a "Commercial Division" has the jurisdiction to hear commercial disputes of a specified value.

¶ 3, 21

Principle of "Specified Value" under Section 2(1)(i) and the transfer provisions under Section 15 of the Commercial Courts Act, 2015.

¶ 13, 25

The Supreme Court ruling in Shri Balaji Industrial Engineering Ltd. vs. Steel Authority of India Ltd., which establishes that a judgment passed without proper determination or by a non-designated judge is a nullity.

¶ 19, 21

Section 19 of the MSMED Act, 2006, regarding the mandatory deposit of 75% for challenging an award.

¶ 32, 35

Provisions in the judgment · 6 · Linked ones open on LawLens

Arbitration and Conciliation Act, 1996 Section 34 Section 37

Commercial Courts Act, 2015 Section 2 Section 4 Section 15

Micro, Small and Medium Enterprises Development Act, 2006 Section 19

04Reasoning

The Court observed that for a Commercial Division to validly exercise jurisdiction, two conditions must coexist: the dispute must be "commercial" and must meet the "Specified Value".

¶ 25

In this case, the claim exceeded Rs. 2 Crores, meeting the threshold.

¶ 14, 26

At the time of assignment and on the date the judgment was delivered, the learned Judge was not designated under Section 4(2) of the 2015 Act.

¶ 18, 20

The Court reasoned that administrative assignment by the Chief Justice does not override the statutory requirement of a judge being specifically designated as a Commercial Division judge.

¶ 21

Relying on Pam Development Pvt. Ltd. and Shri Balaji, the Court concluded that because the Judge lacked the requisite "determination," the resulting order was a nullity.

¶ 19, 27

Regarding the MSMED Act, the Court noted that while 50% was deposited in cash and the rest in bank guarantee, the lapse of the bank guarantee was a rectifiable oversight rather than a ground for immediate dismissal.

¶ 34-35