Govt must lead by example and respect the contracts it enters into

By: |
Published: November 14, 2019 3:01:59 AM

In its quest to reach the top 25 in EoDB ranking, India may find it quicker to move ahead in other parameters, for contract enforcement, the challenges are deeply rooted.

Despite a significant rise in rank over the past six years in the Ease of Doing Business study (from 142 to 63), the category we still lag dreadfully behind is contract enforcement

A parking dispute on November 2, led to a faceoff between Delhi lawyers and the police. Work in District courts came to a standstill for more than a week. The standoff between two pillars of law and order on the streets of the capital without any speedy mediation or resolution explains why India is still a difficult place to do business. It is not surprising that despite a significant rise in rank over the past six years in the Ease of Doing Business study (from 142 to 63), the category we still lag dreadfully behind is contract enforcement—India ranks 163 out of 190 countries, up just 20 ranks from 186 in 2015.

Under this head, the time and cost to resolve a commercial dispute and the quality of judicial processes for men and women are measured. The number of days to resolve a commercial dispute in India stands at 1,445, and the quality of judicial process index is rated at a low 10.5 out of 18. China, on the other hand, ranks fifth, with a quality of judicial index score of 16.5 and resolution of a commercial dispute taking 496 days.

The government has tried to make some headway by setting up the NJDG, enacting the Commercial Courts Act etc. However, in a national MSME survey by PHDCC and DSE early this year, when asked whether the contracts entered into are easily enforceable now, just 21% felt there has been an improvement, 34% respondents remained neutral, and 44% of the respondents disagreed. While around 40% felt that the time and cost of enforcement in court has reduced significantly, the majority felt otherwise.

It is also telling that the government stands out by not abiding by its own contracts – more than 60% of the 2,861 applications pending on the MSME payments grievance portal against Central and State governments and departments have remained unaddressed for more than 90 days. The government also forms the biggest litigant block in the country. As the first step, the government has to lead by example, respect the contracts it enters into and refrain from clogging the courts and tribunals with infructuous petty cases and appeals.A massive overhaul of the judicial process is obviously needed but is unlikely, even in the medium term. Pendency is high—a third of the cases are pending more than three years, more than 6,000 vacancies in judiciary, sanctioned posts have to increase from the present 19 judges per million to 50 as per the Law Commission 1987. Yet, even in the short term, some improvements can be effected when seen through the Ease of Doing Business lens – processes can be rationalised, digitised and simplified to make it easier to file and quicker to resolve commercial cases.One long overdue measure is the digitisation of all courts to enable online filing of initial complaints and electronic payment of court fees.

Most countries have been working towards setting time standards for disposal of cases. China has regulated the maximum number of adjournments, to be overridden only in exceptional circumstances. While the Commercial Courts Act has set strict timelines for the decision after the hearing, an upper limit of a year or two must include execution of the decisions, appeals and final disposal of commercial disputes.

Some issues need deeper intervention. For instance, Alternative Dispute Resolution was introduced way back in 1999 with an amendment to the CPC under Section 89, that gave the judiciary powers to refer cases for out of court settlements. Though civil cases are almost always now pushed towards mediation, twenty years on, India still lacks strength in effective mediators, creating a backlog.

With an eye on improving the EoDB and making India a centre for international commercial arbitrations, the Arbitration and Conciliation (Amendment) Act, 2019 was passed in August. However, it has run into a muddle, with three petitions in the SC contending that Section 87 of the Act is in conflict with the Insolvency and Bankruptcy Code 2016. (FE, Nov 8).

The Economic Survey 2017-18 had pegged Timely Justice as the next frontier for EoDB, recommending coordinated action between the government and judiciary as the key policy solution. In its quest to reach the top 25 in the World Bank ranking, India may find it quicker to move ahead in other parameters. When it comes to contract enforcement, the challenges are deeply rooted.

(Avantis Regtech, a TeamLease company. Views are personal)

Get live Stock Prices from BSE and NSE and latest NAV, portfolio of Mutual Funds, calculate your tax by Income Tax Calculator, know market’s Top Gainers, Top Losers & Best Equity Funds. Like us on Facebook and follow us on Twitter.

Next Stories
1Vodafone pulling out will send out poor signal on India’s investor-friendliness
2Cancer treatment receives a India booster
3IIP shocker: No solution possible till credit flows restart