It’s going to take time to set up infrastructure for bankruptcy law: Shroffs

For meaningful use of the bankruptcy law, it has to happen at both the corporate level and individual level, say Shardul and Pallavi Shroff

Shardul Shroff, executive chairman of law firm Shardul Amarchand Mangaldas & Co., and Pallavi Shroff, his wife and Delhi managing partner.
Shardul Shroff, executive chairman of law firm Shardul Amarchand Mangaldas & Co., and Pallavi Shroff, his wife and Delhi managing partner.

The Indian legal sphere has seen a lot of churn over the last two years. With the government taking steps to make doing business in India easier, a lot of business-friendly laws have been passed. The Bankruptcy Code—introduced to ensure time-bound settlement of insolvency cases, enable faster turnaround of businesses and create a database of serial defaulters—is one such legislation.

Shardul Shroff, executive chairman of law firm Shardul Amarchand Mangaldas & Co., and Pallavi Shroff, his wife and Delhi managing partner, in an interview talk about the capacity-building required in the judiciary to handle these new insolvency cases and commercial cases across the judiciary.

Pallavi & Shardul Shroff, 60Pallavi Shroff holds the position of managing partner at law firm Shardul Amarchand Mangaldas & Co. She heads the dispute resolution, arbitration and competition practice at the firm. She has over 34 years of practice in the field and took over as managing partner after the split of Amarchand Mangaldas & Suresh A Shroff Co. last year. Shardul Shroff is the executive chairman of Shardul Amarchand Mangaldas. His area of expertise is corporate practice including general corporate, banking, finance, projects and project finance. He was earlier the managing partner of Amarchand Mangaldas, which split into two firms last year.

Edited excerpts from the interview:

On the implementation of the Bankruptcy Code given that the National Company Law Tribunal (NCLT) hasn’t been set up yet:

Shardul Shroff: It’s one year away to becoming a truly active institution. I don’t think the infrastructure that is needed for handling bankruptcy is going to be set up, like, tomorrow. It’s going to take its time because there is a whole process of appointing bankruptcy professionals, bankruptcy agencies, they have to qualify in terms of a test or an examination.

Here you’re in a totally new jurisdiction which was never before the tribunal. Bankruptcy-related transactions, winding up have been traditionally in the company courts. So the company court as an institution itself is going to go away, that’s a major change in terms of advocacy and the understanding of the judges. They must have an approach to bankruptcy. They must have an approach to rehabilitation. They should follow the same technique, say as they did in the CCI (Competition Commission of India) where they spent one year in advocacy and training programmes; they got experts to train.

If you’re really going to be making a meaningful use of the bankruptcy law, this has to happen at both the corporate level and individual level, because if the Debt Recovery Tribunals are going to deal with these issues, they also need a lot of training. There is a policy framework for corporate debt restructuring. How much of that can be used by the bankruptcy process (since they are part of Reserve Bank of India schemes). So, will all that get subsumed by NCLT, those are the issues where a policy framework is necessary.

Pallavi Shroff: They’ve appointed one member—Ina Malhotra. They need somebody walking them through the nuances of the law and how other laws are integrated. Capacity building is our biggest challenge. Why can’t we identify the people already, train them, groom them for the next six-eight months. Nothing is happening. People don’t think like that. You’re appointed. Tomorrow, you take over and start sitting in court and start delivering judgements. It doesn’t work.

On the judiciary being equipped to handle bulk of commercial cases:

PS: I think there are two aspects—one is the number of judges and filling up of the vacancies, but the quality is equally important. You’ve now started commercial courts in each of the courts, which I think is a very good idea because all commercial disputes have a different approach and a mindset when compared to a partition suit or a land dispute. Here you’re dealing with the international world, complex structures. You have to have younger judges to appreciate and understand that. That doesn’t come off the cuff. They have to be trained into it and have constant updation for them like this is what’s happening in the world.

So quite often, when I go to court and we have to present a complex derivative structure, sometimes a lower court judge will look blankly at you because he or she would have never understood what a derivative structure is. If you designate 10 judges for IPR and five-eight judges for arbitration, then you can have global seminars for them, closed-door seminars, workshops as to how these things are conducted globally, what is the global approach.

SS: I think the instance of the Chief Justice making an emotional plea is really justified because the nation is so large and now expanding so substantially in the commercial world, we need far more number of judges, at least 40,000 judges is what we expect. What’s going to happen is these judges (in the commercial courts) are going to deal with disputes above Rs.5 crore. So these are high-level disputes. These are valuable rights being discussed. The complexities in terms of trade, in issues of letters of credit or a derivative suit, a bank recovery matter, aspects of appeals, those are cases a commercial division of the court will see, which are bound to come once India is opening out to the global economy.

They (businesses) will all watch the court that whether they’re delivering to global standards. Therefore, Pallavi rightly says there’s a need to familiarize these judges with what’s the global scenario in these kind of complex transactions.

Regarding a report which says adjournments are responsible for judicial delays:

PS: Absolutely, everywhere in the judicial system and we as lawyers are to blame for it. I agree 70% (of delays) is because of us lawyers. But there’s a 30%, which is a huge part, which is that the board of the judge is so heavy. In the Delhi high court, you’ll see 60, 70, 80 matters daily. How does that judge do even 50 miscellaneous matters.

SS: What we need to do is cost-based adjournments. You want an adjournment, first will cost you Rs.500, second Rs.1,000…

PS: Or actual costs of the hearing. I can tell the number of times we’ve faced this.

Just because senior counsel didn’t come up, you don’t ask for an adjournment, you start arguing. Often we find that we are ready to argue, but the other guy comes and takes an adjournment because his senior counsel is on his legs or her legs somewhere else. Now that is a waste of a hearing, because the next hearing will be four months later.

On trends seen in government policies, if there is ease of doing business and whether the outlook has been pro-business:

PS: Outlook is pro-business. You go to the bureaucracy and see a big change in the bureaucracy. Where people never met you, didn’t respond to you, now they respond to you. I’ve seen a mindset change, which is the first step. The government needed a lot of structural changes which they have started taking. Has it had the impact that it should’ve had? Probably not. The on-the-ground sentiment for doing investment or ease, people are still crumbling. Two big issues, GST (goods and services tax) nobody knows and people want it but they don’t know what is happening. Two, there is still that overhang of the Cairn Energy show cause which has come after Mr. (Arun) Jaitley made that statement.

SS: Your export markets having dried up, the incentive to invest abroad is effectively much lower. The issue is of “where is the demand” and if the demand is not there, then why would the people invest? They’re not even fulfilling existing capacities. So that cycle has to be broken. Maybe a good monsoon might break it.

On laws surrounding innovation and the Monsanto case:

PS: On the whole if you want to encourage innovation, you want to encourage technology and its deployment, I don’t think, on a policy level or a conceptual level, the government can interfere into how much are you using it or exploiting it. You feel that the prices are too much, then there are other ways of dealing with it, but not by coming by way of a notification, like the way they did. Second, in certain situations, there is a compulsory licensing. So take that, go by the way of compulsory licensing if you feel such a compulsive need. If you start imposing restrictions that you cannot recover the value of your invention, who will want to bring their technology to India?

On the entry of foreign law firms:

SS: I don’t see any movement on the ground, frankly, because in order to do that, you have to have a whole regulatory discussion. The Bar Council (of India) has to come out with a paper, that has to be debated. There is so much global regulation of foreign firms in every jurisdiction. So do we bring in those kind of regulations, what form of entry will it be, will it be a direct entry, will it be a joint venture formulation, will it be graduated, can they be merely allowed to practice foreign law in India? So, there are a whole host of issues because all these are the kind of regimes foreign law firms have faced (in other countries).

There will be a phased assimilation of foreign law firms in India. You have to give the space because there are so many restrictions on Indian firms still. For example, the Limited Liability Partnership (LLP) Act does not apply to law firms here. Most foreign firms are either LLCs (limited liability companies) or LLPs. Here in India we have not been allowed that. So you’re faced with an unlimited liability organization and you have to fight with people who are goliaths in that sense. Those kinds of principles of what will be allowed and level-playing field, that discussion has to happen. Who is doing it?

On whether there is a greater push from the domestic law firms to be visible in the market:

SS: Of course it is so because everybody wants to be seen in the market and show their expertise because you can’t be stagnant, so there is a need to grow. And that need to grow requires your ability to handle, with expertise, major matters, to differentiate yourself from others.

PS: Also I think a constant communication is the mantra today, for everybody. Whichever area, whichever field you are from. So, it means internal communication and external communication, both, with clients and general outreach. For us there is no marketing except your talent, your ability.

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