India improved its ranking in the World Bank’s Ease of Doing Business 2018 rankings by 30 points—from 130th rank in 2017, India jumped to 100th position out of 190 countries.
India improved its ranking in the World Bank’s Ease of Doing Business 2018 rankings by 30 points—from 130th rank in 2017, India jumped to 100th position out of 190 countries. There has been a significant euphoria in the context of recent revival of the growth sentiment in the last quarter, after absorbing the disruptive impact of demonetisation and the goods and services tax. Undoubtedly, the jump was a welcome development. Yet, at best, it remains a work-in-progress in the context of India’s rise to the fifth largest economy—with the country being one of the largest recipients of foreign direct investments over the past few years. There are evolving reforms like the Insolvency and Bankruptcy Code, which has for once brought ‘time value of money’ to the centre-stage of how authorities deal with bad debt. It is hoped that this would traverse across sectors. How effectively we implement such reforms shall go a long way. Hopefully, all these reforms will irreversibly change India’s poor standing in ease of enforcing contracts—a low 164 out of 190. India takes an average 1,445 days (nearly four years) to resolve disputes, compared to 164 days in Singapore and around 400 days in Hong Kong, Indonesia, Vietnam and Malaysia. In this backdrop, there are three noteworthy reforms that promise to impact the way we honour our ‘word’ by tweaking our dispute resolution mechanism with respect to commercial disputes, enforcement of contracts and arbitration.
On October 23, 2015, the Commercial Courts, Commercial Division and Commercial Appellate Division of the High Courts Act, 2015 (‘Commercial Courts Act’), was enacted to make litigation concerning commercial disputes (arising from investment agreements, supply contracts, distribution agreements, et al) less cumbersome, quick and more efficient. The machinery to decide commercial disputes, at the first instance, comprises commercial courts at the district level and a commercial division in high courts, with original civil jurisdiction to deal with commercial dispute of a specified value. The Commercial Appellate Division in high courts would hear appeals against decision of the commercial court and commercial division of a high court. The dispute resolution at commercial courts/commercial division stage and commercial appellate division stage is time-bound, bringing certainty to conclusion of disputes. Now, to further strengthen this framework, the Cabinet has proposed amendments to the Commercial Courts Act, including bringing down the threshold value of a commercial dispute from Rs 10 crore to Rs 3 lakh; introducing pre-institution mediation process in cases where urgent/interim relief is not contemplated; establishing commercial courts at district-judge level for the territories over which respective high courts have ordinary original civil jurisdiction (in Chennai, Delhi, Kolkata, Mumbai and Himachal Pradesh). Any institution is as effective and good as the people who staff it.
A significant issue that remains unaddressed is ensuring that this does not culminate in additional burden on the judiciary, without additional courts and judges being made available. Staffing of such courts with appropriate number of judges having requisite expertise in dealing with commercial matters would continue to be an important factor in determining success of this reform. Another shot in the arm in expedited and wholesome resolution of contractual disputes comes from the recently proposed amendments to the Specific Relief Act, 1963 (currently pending in the Parliament), introducing five changes, i.e., (1) instead of damages being the preferred remedy/rule to address breach of contract, now courts would direct for specific performance of the contract, with damages being a residuary relief available only if specific performance is not possible; (2) the courts will be required not to injunct implementation of public utility contracts and projects pending adjudication of disputes—except in extraordinary circumstances for reasons to be recorded in writing; (3) expert testimonies are specifically provided for to facilitate adjudication of complex technical—commercial disputes; (4) an affected party (i.e., a party whose contract has not been performed by the other party) may opt for performance of the contract by a third party or by his own agency (substituted performance) after giving a written notice of 30 days; and (5) certain civil courts are to be designated as special courts by the state government, in consultation with the chief justice of a high court to deal with cases related to infrastructure projects, and decide within 12 months. This will ensure that paying damages to breach commitments does not remain an easy resort for unethical and sharp business practice —restoring trust in the economic ecosystem. In 2015, the Arbitration and Conciliation Act, 1996, was amended to cut down the time for rendering awards to one year. Now, with a view to further improve the arbitration environment in India, a fresh amendment is proposed, among others, for the establishment of Arbitration Council of India, aimed at promoting institutional arbitration in India. The measures proposed are laudable. It is now up to the government and the judiciary to see how best can the measures be transformed into action to be successful.
Amit Kapur & Sidharrth Shankar
Kapur is a senior partner and Shankar is a partner, J Sagar Associates. Views are personal