Division Bench of Delhi High Court: IP Suits No Longer to Automatically Be Listed Before Commercial Courts

[This post is co-authored by with Swaraj Paul Barooah. The authors would like to thank Aditya Gupta for his input. Views remain those of the authors’ alone.]

Cover of a book by Andre Dixon and illustrations by Hollyn Overton, with the title-"If it Sounds Far-fetched, It Just Might Work!" written on a blue background.
Perhaps not in this case. Image from here

In a major development bound to impact IP litigation in Delhi, a Division Bench (DB) of the Delhi High Court in Pankaj Ravjibhai Patel v. SSS Pharmachem Pvt. Ltd overruled the Single Judge’s key directions in Vishal Pipes Ltd. v. Bhavya Pipe Industry. To quickly recap, the Vishal Pipes judgement directed that all IP suits filed at the District Court level be automatically listed before a District Judge (Commercial) regardless of their valuation. This finding was based on the presumption that IP suits ought to be valued more than the prescribed threshold of INR 3 lakhs and in case the suit value falls below this amount, the plaintiff is trying to escape the rigours of the Commercial Courts Act (CCA). (Mathews in this incisive post has discussed the Vishal Pipes judgement and I’d strongly suggest our readers read this post, along with the long trail of comments there for a better understanding of the issues). Disagreeing with this, the DB in Pankaj Ravjibhai Patel clarified that it would be incorrect to presume that IP suits have to be valued at 3 lakhs or more, and that the direction to list all IP matters before the commercial courts distorts the distribution of matters before the commercial and non-commercial courts. Thus, the DB suggested that the concerned court will be open to assessing the specified value if the valuation is pegged below INR 3 lakhs. And to shift the onus on the plaintiff in such suits, directed them to make an express declaration that they have not taken an inconsistent stand regarding the specified value in any present or past litigation. The court also directed to revert all the IP matters back to the competent court which would have been transferred to a commercial court consequent to the Vishal Pipes judgement (more on this below). 

Before we come to the DB judgement, let’s try to understand what the Vishal Pipes directions are about and why they were passed in the first place. 

Problems that Vishal Pipes Sought to Address 

The Vishal Pipes judgement is based on the apprehension that some parties are deliberately undervaluing their IP suits to get them listed before non-commercial courts. Though it acknowledged that the plaintiff, being the dominus litis (master of the suit), can choose the forum and the remedy, the court held that this flexibility cannot allow the plaintiff to deliberately undervalue the suit to escape the rigours of the CCA or indulge in forum shopping. 

So, what are these rigours of the CCA? The CCA prescribes mandatory pre-institution mediation, case management hearings, the requirement of plaint to be submitted along with different accompanying documents like the statement of truth, the requirement of filing detailed written arguments before the commencement of the oral hearings, imposes rigorous checks on filing additional documents and imposes rigorous checks on amending plaints are some of the rigours of the CCA (see para. 35(i) of the Vishal Pipes judgement). According to the court, by undervaluing their suit, the plaintiff can escape these checks and effectively place it before the non-commercial court instead which do not require such measures. Further, it is understood that the CCA was brought in place not only to adjudicate commercial disputes but also to expedite the resolution of these disputes. Furthermore, as discussed by Mathews in this (paywalled) paper here, if the provisions of CCA are implemented efficiently, then the trials can be completed within 6 months from the first date of the case management hearing, and thus may bring down the relevance of interim injunctions. As has been discussed earlier on the blog (see here, here and here) and opined by the Supreme Court (here and here), obtaining interim injunctions is often regarded as the be-all and end-all when instituting an IP suit, as the trial takes ages to conclude and thus, making it an interesting litigation strategy. 

Valuation of the Suits

This leads us to another question- how are matters listed before the commercial courts and what is so special about IP suits? Matters are listed before a commercial court on the basis of their subject matter and valuation. While an IP suit is a commercial dispute (as per S. 2(c)(xvii)) whether it can be listed before a commercial court or not depends on the specified value. Looking at S.2(1)(i) r/w S.12 of the CCA, the specified value is determined on the basis of the market value of the IP as estimated by the Plaintiff and for the dispute to be listed before the commercial court, it has to be more than INR 3 lakhs. 

However, as seen in Vishal Pipes, sometimes parties may not state the specified value and simply value the suit by giving an estimate of the relief that they are seeking, as prescribed under the Court Fees Act and the Suit Valuation Act. (Here it is important to note that no factors are prescribed for such estimates and the discretion lies with the plaintiff to value it accordingly). This may result in a situation where despite having a high (but unstated) specified value, the suit is being valued at less than the INR 3 lakhs threshold, on the basis of the relief sought. The court in Vishal Pipes found this anomaly to be quixotic. This was because on one hand, the plaintiff had filed a trademark infringement suit for a brand enjoying high turnover, whereas, on the other hand, it had valued the suit at less than INR 3 lakhs. It asserted that IP suits are commercial disputes for whose adjudication CCA has prescribed the low threshold of 3 Lakhs to enable speedier adjudication and thus, despite this low threshold if the suits are being undervalued, the court inferred this as an attempt to escape the rigours of the CCA. The court gave a set of directions that were to affect IP litigation in Delhi:- 

  1. Usually all IP disputes ought to be valued at INR 3 lakhs (or more);
  2. In case the suit was valued below INR 3 lakhs, it should be placed before the commercial court, where it will undertake an evaluation of the “specified value” (under the CCA) and “suit valuation” (under the Court Fees Act and Suit Valuation Act) to ascertain that the suit has not been deliberately undervalued to escape the rigours of the CCA; 
  3. For the sake of consistency, every IP suit, even if valued below 3 lakhs, should be placed before the District Judge (Commercial). However, such a suit will not be governed by the CCA.

While the anomaly between high-valued brands valuing the suits low, based on relief is certainly a valid concern, the method of resolving it appears to have left some questions unanswered and this is what the DB focused on. 

The DB Judgement in Pankaj Ravjibhai Patel v. SSS Pharmachem Pvt. Ltd

Here, the appellant appealed against the vacating of an ex-parte interim injunction by the commercial court. The impugned order had asked the appellant to furnish additional documents in support of its specified value. It argued that the commercial court decided to assess the specified value and suit value on the basis of Vishal Pipes, ignoring that the suit was already valued at 10 lakhs, thus exceeding the 3 lakhs threshold. The DB set aside the impugned order stating that the mistake on the part of the appellant to submit particulars to justify the specified value was curable and did not merit vacation of the injunction. In doing so, the court expressed its reservation on some of the findings of the Vishal Pipes judgement and went on to assess the directions passed in it.

The court disagreed with Vishal Pipes on the latter’s statement that IP suits should ordinarily be valued at more than INR 3 lakhs, as well as that the undervaluation (if any) is done to escape the rigours of the CCA or to forum shop. The DB held that the court in Vishal Pipes proceeded on a presumption about a premise “which is wholly conjectural and it amounts to painting all actions, legitimate or otherwise, with a common brush.”.

Thus, setting aside the Single Judge’s directions in Vishal Pipes, the DB ruled that :- 

  1. It will be open for the competent (non-commercial) court to examine the declared specified value and value of the relief if it is pegged below the threshold of INR 3 lakhs.
  2. Obligation on the plaintiff (in matters where valuation is less than 3 lakhs) to make an express declaration that it has not taken an inconsistent position about its “specified value” in any other litigation pending or instituted in the past. 
  3. Directed to revert the matters that may have been transferred to commercial courts owing to the Vishal Pipes judgement, back to the competent courts.

Where Does This Bring Us? 

The Vishal Pipes judgement intended to bring CCA in full gear for all IP disputes. But in doing so it simply deferred to one aspect of the prescribed two i.e. it simply relied on IP suits being a “commercial dispute” but didn’t consider the valuation threshold and presumed that IP suits ought to be valued at more than 3 lakhs. Realistically, as pointed out by appointed amicus curiae Swathi Sukumar (and by Shobhit and Eashan in their comments to Mathews’ post), there can be instances where though the specified value of an IP will be more than 3 lakhs, the suit valuation based on the relief claimed could be less than that. In such a case, the Vishal Pipes rationale suspected foul play, and on this presumption directed all the IP matters to be listed before the commercial courts. However, in doing so, the Single Judge seems to have created a separate ‘category’ for IP disputes, without it being clear how this was permissible under the CCA.

The DB judgement has now tried to remove this suspicion, restoring the status quo ante the Vishal Pipes judgement. However, in doing so all the matters which were earlier removed from non-commercial courts to the commercial courts, will be reverted back. This not only discounts the judicial time that has been invested by the commercial courts on such matters but will further result in inconvenience to the parties to get their matters reverted back to the non-commercial courts and will also drastically change the pace at which the matters will be processed hereon. 

Looking back at how this started, the Single Judge court did raise important concerns about forum shopping and deliberate undervaluation to escape the rigours of the CCA. So the question that pops up now is- how far do the DB’s directions go to address these situations? The court has adopted a flexible approach towards it and has held that the competent courts “will be open” to examine the declared specified value and value of relief claimed if pegged below INR 3 lakhs. However, as evident from the phrase “will be open”, this safeguard seems more like a guideline than a direction and would leave it upon the discretion of the concerned court to look into the matter. Thus, this directive can be fruitful in cases where a court actively investigates this issue, otherwise, the issue of deliberate undervaluation can easily escape under the radar. 

The DB’s instructions of a mandatory declaration (see point 2 above), pragmatically may not be of much use. There are different methods of valuing IP (depending on income, cost, market, etc), so there is already a lot of leeway present. Further, the direction does not state clearly the particulars of what needs to be declared here. Therefore, this safeguard could be easily circumvented by clever drafting, by only limiting the valuation for the purpose of the present suit and simultaneously making a vague declaration that the same is not inconsistent with the position taken by the plaintiff with regard to its specified value, in other litigations. In sum, while the DB may have been right about the removal of automatic suspicion, its alternative is probably insufficient for addressing the problem that started this train. Perhaps, this should be for the rules / law to address, rather than the judiciary? Meanwhile, something that the judiciary can perhaps focus on addressing is why the non/commercial courts are allowing easy injunctions (if that is the harm that is being sought to be addressed), or why there is not more strict scrutiny of loose claims. And regarding timelines, while strict timelines for commercial courts is fine, shouldn’t there be a focus on more efficient timelines for all courts, which, other than being a desirable end in and of itself, would also remove incentive for parties to be choosing forums based on where they can sit on injunctions for long periods of time? 

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3 thoughts on “Division Bench of Delhi High Court: IP Suits No Longer to Automatically Be Listed Before Commercial Courts”

  1. The Commercial Courts Act 2015 prescribes two specific requirements, which if met, confer jurisdiction over such a suit to be tried under the provisions of Act.
    The two requirements are:
    (i) Subject matter falling under Section 2 (c), and
    (ii) Specified Value of the subject matter under Section 12 read with Section 6 or 7, as the case maybe.
    For a suit to be tried by a Commercial Court, or Commercial Division of a High Court, as applicable, only these requirements are to be met. The jurisdiction under the Commercial Courts Act is completely independent of the value or nature of the relief sought. This aligns with the intention of the CCA to provide for protection of the property of a commercial nature (subject matter and value) and not the value of relief. Thus, a more rigorous regime which ensures quicker adjudication is not arbitrary as Corporates are better equipped, financially and intellectually, to adhere to the rigors of the CCA, than an ordinary individual litigant.

    As far as Delhi is concerned, pecuniary jurisdiction of courts for ordinary injunction+damages suits (under which IP suits fall) is tied to value of the reliefs and on which court fees is payable. The same practice, for no clear reason has continued for commercial suits filed under the CCA. The CCA, however, carves out a clear departure for pecuniary jurisdiction of courts which is now tied with ‘specified value’ independent of the value of reliefs. Therefore, it is the SV which is determinative of the court’s jurisdiction and not the value of relief.

    The judgment clarifies this position to a large extent, although just one step short of fully clarifying it so far as HC is concerned, but there cannot be any other conclusion in my view.

    What will be important to see is the court’s approach to giving effect to this fundamental provision of the CCA, and its acceptance after roughtly 8 years since its enactment. While I fear it is likely to be perceived as ‘unusual’ initially by the courts since court fees is not payable on the SV but on the value of relief, we usually have faith in our courts to uphold the law.

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