Constitution of Commercial Courts and Commercial Divisions (Sections 3–6)

The Commercial Courts Act, 2015 does not create a free-floating new species of tribunal; it grafts a specialised adjudicatory layer onto the existing civil court structure. Sections 3 to 6 are the load-bearing provisions of that exercise. They tell us who sets up these forums (the State Government or the Chief Justice), where they sit (the district or the High Court), who mans them (judges experienced in commercial disputes) and what they may hear (commercial disputes of a Specified Value). Get these four sections wrong and every downstream question of appeal, transfer and procedure collapses. This chapter dissects each provision, traces the watershed changes brought by the 2018 Amendment Act, and grounds the analysis in the leading judgments that have policed the jurisdictional boundary. For the statutory vocabulary that animates these sections, read it alongside the chapter on definitions of commercial dispute and Specified Value.

The Statutory Architecture: Two Tracks, One Object

The Act builds two parallel tracks. In States whose High Courts have no ordinary original civil jurisdiction, the State Government constitutes Commercial Courts at the district level under Section 3; appeals travel to the Commercial Appellate Division of the High Court (or, after 2018, to Commercial Appellate Courts at district-judge level for matters decided by courts below district-judge rank). In the four chartered High Courts that retain ordinary original civil jurisdiction (Bombay, Calcutta, Delhi and Madras, and the Himachal Pradesh High Court), Section 4 lets the Chief Justice carve out a Commercial Division within the High Court itself. Section 5 then mandates a Commercial Appellate Division in every High Court that has either constituted a Commercial Division or whose State has notified Commercial Courts. Section 6 is the engine that powers all of them: it vests the trial forum with jurisdiction over commercial disputes of a Specified Value.

The unifying purpose is speed. The Statement of Objects and Reasons, and the 253rd Report of the Law Commission that preceded the Act, frame commercial-court reform as a response to India's poor ranking on the World Bank's ease-of-doing-business index, where contract enforcement was a chronic weak spot. The Supreme Court captured this spirit in Kandla Export Corporation v. OCI Corporation, (2018) 14 SCC 715, describing the Act as a statute enacted to ensure the speedy resolution of high-value commercial disputes. Every interpretive move in Sections 3 to 6 therefore tilts towards channelling genuinely commercial, high-value litigation into a dedicated, fast-tracked stream while keeping ordinary civil disputes out of it. The hub chapter on the introduction to the Act develops this policy background; for the broader map of the subject see the Commercial Courts Act notes hub.

Section 3: Constitution of Commercial Courts at the District Level

Section 3(1) empowers the State Government, after consultation with the concerned High Court, to constitute by notification such number of Commercial Courts at the district level as it deems necessary. Two structural features deserve emphasis. First, the power is the State Government's, but it is a consultative power: the High Court must be consulted, reflecting the constitutional partnership over the subordinate judiciary. Second, the original text barred such courts in territories where the High Court had ordinary original civil jurisdiction; the 2018 Amendment changed this. The first proviso to Section 3(1) now permits the State Government, in respect of those very chartered territories, to constitute Commercial Courts at the District Judge level, and to specify a pecuniary value (not less than three lakh rupees and not more than the pecuniary jurisdiction of the District Court) for disputes to be tried there. This is what allowed Delhi, for instance, to push lower-value commercial suits down to the district courts rather than congest the High Court's original side.

Section 3(1A), also inserted in 2018, lets the State Government specify, for the whole or part of the State, such pecuniary value (not less than three lakh rupees, or a higher value) as it deems fit for disputes to go to the district Commercial Court. Section 3(2) requires the State Government, again after consultation with the High Court, to specify the local limits of each Commercial Court's territorial jurisdiction. Section 3(3) governs appointment: the State Government, with the concurrence of the Chief Justice of the High Court, appoints one or more persons having experience in commercial disputes to be Judge or Judges of a Commercial Court, either at the level of a District Judge or at a court below that level. The shift from mere consultation (for constitution) to concurrence (for appointment) is deliberate and examinable.

Consultation Versus Concurrence: A Distinction That Matters

Aspirants frequently blur the two thresholds in Section 3. The constitution of the court and the demarcation of its territorial limits under Sections 3(1) and 3(2) require only consultation with the High Court. The appointment of the presiding judge under Section 3(3) requires the concurrence of the Chief Justice. The drafting tracks the constitutional jurisprudence on judicial appointments and transfers, where the Supreme Court has long held that 'consultation' and 'concurrence' are words of different weight. By insisting on concurrence for the human element, the legislature protects judicial independence in the staffing of these specialised courts even while leaving the administrative decision to create them in the executive's hands. In practice this means a State cannot foist a presiding officer on a Commercial Court over the Chief Justice's objection, but it can decide how many courts to set up and where, subject to the High Court being heard.

This bifurcation also has a practical litigation consequence. Challenges to the existence of a Commercial Court are tested against whether the High Court was consulted; challenges to the competence of the judge are tested against whether the Chief Justice concurred and whether the appointee in fact has experience in commercial disputes. The 'experience in dealing with commercial disputes' qualifier is not decorative: it is the statutory guarantee that these are expert forums, and it recurs verbatim in Sections 4 and 5 for the High Court divisions.

Section 3A: Designation of Commercial Appellate Courts

Section 3A was inserted by the 2018 Amendment to solve a problem the original Act had created. Once Commercial Courts could sit at a level below the District Judge, there had to be an intermediate appellate forum short of the High Court. Section 3A empowers the State Government, after consultation with the concerned High Court, to designate by notification such number of Commercial Appellate Courts at the District Judge level as it deems necessary, for the purpose of exercising appellate jurisdiction over Commercial Courts below the District Judge level. The appeal under Section 13(1A) from such a court lies to the Commercial Appellate Court within sixty days.

The design therefore produces a graded ladder: a Commercial Court below District Judge level, then a Commercial Appellate Court at District Judge level, and finally the Commercial Appellate Division of the High Court for the higher rungs. The Supreme Court engaged with the consequences of this graded structure in Jaycee Housing Pvt. Ltd. v. Registrar (General), Orissa High Court (2022) where it held that a Commercial Court constituted at a level subordinate to the rank of Principal Civil Judge could still validly exercise the jurisdiction conferred under the Act, including over arbitration-related applications, because the Act expressly contemplates Commercial Courts below the District Judge level. The decision is a useful illustration of how Section 3 and Section 3A operate together rather than as silos. For the appellate side specifically, see the dedicated chapter on the Commercial Appellate Court and Commercial Appellate Division.

Section 4: Constitution of the Commercial Division of a High Court

Section 4 is the chartered-court counterpart to Section 3. In all High Courts having ordinary original civil jurisdiction, the Chief Justice may, by order, constitute a Commercial Division having one or more Benches, each consisting of a single judge, to exercise the jurisdiction and powers conferred under the Act. Note the contrast in machinery: Section 3 deploys a notification by the State Government; Section 4 deploys an order by the Chief Justice. The Commercial Division is not a separate court but a specialised wing of the High Court's existing original side, and it functions as a single-judge bench at first instance.

Section 4(2) requires the Chief Justice to nominate judges of the High Court 'who have experience in dealing with commercial disputes' to be judges of the Commercial Division, replicating the expertise requirement seen in Section 3. The 2018 Amendment refined the opening words of Section 4(1), substituting 'ordinary original civil jurisdiction' for the earlier formulation, to harmonise the language with the rest of the Act and to make clear that only the chartered High Courts (Bombay, Calcutta, Delhi, Madras, and the Himachal Pradesh High Court for the relevant period) are within its sweep. Where a High Court lacks ordinary original civil jurisdiction, there is no Commercial Division; commercial disputes are instead tried by the district-level Commercial Courts under Section 3. Understanding this either-or design is essential before tackling the Specified Value pecuniary threshold, which determines which track a given suit enters.

Section 5: Constitution of the Commercial Appellate Division

Section 5 ensures that every High Court touched by the Act has an appellate forum. Under Section 5(1), after a notification is issued under Section 3(1) (constituting district Commercial Courts) or an order is made under Section 4(1) (constituting a Commercial Division), the Chief Justice of the concerned High Court shall, by order, constitute a Commercial Appellate Division having one or more Division Benches to exercise the jurisdiction and powers conferred on it by the Act. The trigger is disjunctive: either route into the commercial-court regime activates the obligation to set up the appellate division.

Section 5(2) again carries the expertise mandate, requiring the Chief Justice to nominate judges experienced in commercial disputes to the Commercial Appellate Division. The critical structural point is that the Commercial Appellate Division sits in Division Benches (two or more judges), unlike the single-judge Commercial Division at first instance. Appeals under Section 13 from a Commercial Court or Commercial Division ordinarily lie to this Commercial Appellate Division. The Supreme Court in Kandla Export Corporation v. OCI Corporation, (2018) 14 SCC 715, held that the Commercial Appellate Division's appellate jurisdiction under Section 13 does not create a new right of appeal where the governing special statute (there, the Arbitration and Conciliation Act, 1996) bars one; the forum is the Commercial Appellate Division, but the maintainability of the appeal is still controlled by the source statute. This keeps Section 5 in its proper lane as a forum-allocating provision, not a right-creating one.

Section 6: The Jurisdiction of a Commercial Court

Section 6 is the operative jurisdiction clause. It provides that a Commercial Court shall have jurisdiction to try all suits and applications relating to a commercial dispute of a Specified Value arising out of the entire territory of the State over which it has been vested territorial jurisdiction. Two cumulative gateways must be crossed before a Commercial Court (or Division) can entertain a matter: the dispute must answer the definition of a 'commercial dispute' in Section 2(1)(c), and it must meet or exceed the Specified Value fixed under Section 2(1)(i) read with the State notification (currently a floor of three lakh rupees). Fail either limb and the suit is not a commercial suit at all.

The Explanation to Section 6 anchors territorial competence to the Code of Civil Procedure: a commercial dispute is deemed to arise out of the entire territory of the State over which the Commercial Court has jurisdiction if the suit or application has been instituted in accordance with Sections 16 to 20 of the Code of Civil Procedure, 1908. In other words, Section 6 grafts the ordinary CPC rules of place of suing onto the commercial-court regime; it does not invent a new territorial test. This is why a Commercial Court cannot assume jurisdiction merely because a dispute is commercial and high-value if the cause of action or the defendant's residence falls outside the CPC's connecting factors. The mechanics of valuation that feed the Specified Value gateway are unpacked in the Specified Value chapter.

The Twin Test: Commercial Dispute Plus Specified Value

The cumulative requirement in Section 6 has been the most litigated aspect of the constitution provisions, because parties routinely try to dress up ordinary civil suits as commercial ones to access the faster forum, or conversely to escape it. The Supreme Court drew the line firmly in Ambalal Sarabhai Enterprises Ltd. v. K.S. Infraspace LLP, (2020) 15 SCC 585 (decided 4 October 2019). The dispute concerned immovable property, and the question was whether it fell within Section 2(1)(c)(vii), which covers 'agreements relating to immovable property used exclusively in trade or commerce'. The Court held that the word 'used' must mean actually used or being used, and cannot be stretched to mean 'ready to be used', 'likely to be used' or 'to be used'. Reading words into the statute that the legislature did not enact was impermissible.

The Court's reasoning rested squarely on the object of Section 6 and the Act as a whole. Because commercial courts are creatures of a special, fast-tracked regime that strips litigants of some ordinary procedural rights, their jurisdiction must be construed strictly and not expanded by liberal interpretation. A suit that does not genuinely answer the definition of a commercial dispute cannot be force-fitted into a Commercial Court simply because it crosses the monetary threshold. Ambalal Sarabhai is therefore the leading authority on the first limb of the Section 6 twin test, and it expressly approved the strict-construction approach the Gujarat High Court had taken in Vasu Healthcare Pvt. Ltd. v. Gujarat Akruti TCG Biotech Ltd.

Strict Construction: The Vasu Healthcare Principle

Vasu Healthcare Pvt. Ltd. v. Gujarat Akruti TCG Biotech Ltd., decided by the Gujarat High Court, is the foundational High Court authority that the Supreme Court later endorsed. The plaintiff had filed a Commercial Civil Suit at Vadodara seeking specific performance and damages over land allotted for a biotech park. The High Court held that on a plain reading the expression 'used exclusively in trade or commerce' demanded that the immovable property be actually used in trade or commerce at the relevant time; land merely allotted or intended for future commercial development did not qualify. The court reasoned that if the legislature had wished to widen the net it would have chosen words such as 'likely to be used' or 'to be used', and the absence of such words was deliberate.

The principle that emerges is one of strict, literal construction of the jurisdictional gateways in Sections 2 and 6. The rationale is sound: the Commercial Courts Act confers a privilege of speed but exacts a price in procedural rigour (case management hearings, costs consequences, curtailed adjournments). To extend that regime to disputes the legislature never intended would be to penalise litigants without warrant. Vasu Healthcare and Ambalal Sarabhai together establish that courts must resist the temptation to read the commercial-dispute categories expansively, and must scrutinise the pleadings to ensure the dispute is genuinely commercial before Section 6 jurisdiction attaches.

Constitution and the Transfer of Pending Suits

The act of constituting a Commercial Court under Section 3 or a Commercial Division under Section 4 has an immediate downstream effect under Section 15: all suits and applications relating to a commercial dispute of a Specified Value pending in any civil court or before the High Court must be transferred to the newly constituted Commercial Court or Commercial Division. Constitution and transfer are thus two sides of the same coin; the moment the forum exists, the qualifying pending litigation gravitates to it. This is why the constitution provisions cannot be studied in isolation from the valuation and definitional provisions, because the transfer obligation only bites on matters that satisfy the Section 6 twin test.

The Delhi High Court's decision in Soni Dave v. Trans Asian Industries Expositions Pvt. Ltd. illustrates the converse situation. There the Division Bench, applying the constitution and valuation scheme, held that suits which did not qualify as commercial disputes of the requisite value could not be retained on the commercial side and were liable to be transferred to the ordinary District Judge. The case shows that the constitution provisions discipline jurisdiction in both directions: qualifying suits flow into the Commercial Court, but non-qualifying suits filed there must flow out. The interplay between constitution, transfer and the pre-suit gateway is developed further in the chapter on pre-institution mediation.

Interplay With the Arbitration Act and Other Special Statutes

A recurring examination theme is how the forums constituted under Sections 3 to 5 interact with the Arbitration and Conciliation Act, 1996. The Commercial Courts Act does not displace the special appeal regime of the Arbitration Act. In Kandla Export Corporation v. OCI Corporation, (2018) 14 SCC 715, the Supreme Court held that where Section 50 of the Arbitration Act bars an appeal against an order enforcing a foreign award, Section 13(1) of the Commercial Courts Act cannot resurrect that appeal merely because the matter was heard by a Commercial Division. The Commercial Courts Act, being the general statute, must yield to the Arbitration Act, the special statute, on the question of the right of appeal. The Commercial Appellate Division is the forum, but the source statute governs the right.

The complementary point came in Jaycee Housing Pvt. Ltd. v. Registrar (General), Orissa High Court (2022), where the Supreme Court confirmed that arbitration-related applications and appeals must be routed through the Commercial Courts and Commercial Appellate Courts constituted under the Act, even where those courts are at or below the level of the Principal Civil Judge, rather than directly to the High Court. Together the two decisions map the boundary precisely: the Commercial Courts Act controls the forum for arbitration-related commercial matters, while the Arbitration Act controls the maintainability and scope of any appeal. This is a frequent point of confusion that the constitution provisions, read with Section 13, resolve.

The 2018 Amendment: Lowering the Gate

The Commercial Courts, Commercial Division and Commercial Appellate Division of High Courts (Amendment) Act, 2018 (which followed an Ordinance promulgated in May 2018) reshaped the constitution provisions in three decisive ways. First, it slashed the Specified Value threshold from one crore rupees to three lakh rupees, dramatically widening the universe of disputes that the courts constituted under Sections 3 and 4 could hear. Second, it permitted Commercial Courts at the District Judge level even in territories where the High Court exercises ordinary original civil jurisdiction (via the proviso to Section 3(1)), enabling lower-value commercial suits to be decentralised to the districts in cities like Delhi and Mumbai. Third, it introduced Section 3A's Commercial Appellate Courts and Section 13(1A)'s appeal route to service the new tier of courts below District Judge level.

The combined effect was to transform the Act from a high-value, metro-centric experiment into a broad-based commercial-litigation regime reaching far down the judicial hierarchy. The lowered threshold, however, sharpened the very interpretive tension that Ambalal Sarabhai and Vasu Healthcare addressed: with more disputes now crossing the monetary floor, the gatekeeping work of the 'commercial dispute' definition under the first limb of Section 6 became even more important. A dispute scraping past three lakhs still has to be genuinely commercial. The amendment thus magnified, rather than diluted, the need for strict construction of the jurisdictional categories.

Common Exam Pitfalls and Drafting Nuances

Several distinctions trip up candidates. First, do not confuse the actors: Section 3 (district Commercial Courts) and Section 3A (Commercial Appellate Courts) are the State Government's domain by notification, whereas Section 4 (Commercial Division) and Section 5 (Commercial Appellate Division) are the Chief Justice's domain by order. Second, remember the consultation/concurrence split within Section 3: consultation with the High Court to constitute, concurrence of the Chief Justice to appoint. Third, the Commercial Division and Commercial Court sit at first instance as a single judge (or single-judge bench), but the Commercial Appellate Division sits in Division Benches; the Commercial Appellate Court under Section 3A is at District Judge level.

Fourth, the trigger in Section 5(1) is disjunctive: either a Section 3 notification or a Section 4 order suffices to oblige the Chief Justice to constitute the Commercial Appellate Division. Fifth, Section 6's Explanation imports CPC Sections 16 to 20 for territorial jurisdiction; territorial competence is not at large. Finally, keep the twin test of Section 6 sharply in mind: 'commercial dispute' and 'Specified Value' are cumulative, and per Ambalal Sarabhai the commercial-dispute limb is construed strictly. A clean way to revise is to pair each constitution section with its actor, its instrument and its forum level, and then layer the jurisdiction test of Section 6 on top. For consolidation, revisit the definitions chapter and the subject hub.