Photo: ANI
Photo: ANI

Opinion | A consensus on judicial reform would serve the economy well

India must sort out the judiciary’s lack of urgency in resolving matters of commercial significance

An unreformed judiciary should now rank as the top threat to economic revival in India. One can navigate global uncertainties, initiate reforms in factor markets, cut taxes and inject money into the system to reverse the slowdown, but all of it will fall flat if the judiciary won’t play ball.

We don’t need to go too far to emphasize this. Senior counsel Harish Salve said a couple of months ago that the Supreme Court was a big contributor to the slowdown. He was talking in the context of the court’s 2G and coal block allocation verdicts, which resulted in scores of licences being cancelled and major commercial decisions getting reversed years after they were taken, causing losses all around.

However, court-induced delays and economic damage go well beyond extreme actions involving specific scams. Two recent court decisions—on the calculation of telecom companies’ adjusted gross revenues (AGR), which form the basis for working out revenues due to the government, and the Essar Steel case—underline the point. In the AGR case, a legal dispute that began in 2003 with an appeal to the Telecom Disputes Settlement and Appellate Tribunal (TDSAT) achieved finality only in 2019. During this time, the original dues have bloated more than four-fold due to penalties and the interest payable on the unpaid sums. In the Essar Steel bankruptcy verdict, the court decided that the 330-day statutory time limit hard-coded into the law can be exceeded in exceptional cases. This limit gave a generous 60 days more to resolve cases in which there were legal challenges, thus raising the initial 270-day limit specified in the original Insolvency and Bankruptcy Code (IBC).

Thanks to judicial delays, business failures now end up looking worse than they are because defaults snowball into larger and larger sums with every passing year. Kingfisher went belly-up in 2011 and had 6,000-and-odd crore in debts on its books around then. By 2015, this had gone up to over 9,000 crore.

The problem begins with the lower courts, appellate tribunals, and high courts. While big-ticket cases tend to get expedited sometimes, thanks to high public interest, the real damage is done in lower courts, where ordinary commercial cases go. According to a study published in the Economic Survey 2018-19, “Delays in contract enforcement and disposal resolution are arguably now the single biggest hurdle to the ease of doing business in India and higher GDP growth…. Around 87.5% of pending cases are in the district and subordinate courts. Therefore, this segment must be the focus of reform."

However, this cannot be done if various Supreme Court judgements allow laxity in enforcing time limits. During the Atal Bihari Vajpayee administration, amendments were introduced to the Code of Civil Procedure in 1999 and 2002 in order to speed up court cases. Before one 1999 amendment, courts could adjourn proceedings any number of times. The amendment limited adjournments of hearings to three. But in a 2005 case, the top court ruled that the amendment limit did not mean a court could not grant more adjournments based on the specific circumstances of each case. This became a free-for-all, and the effort to speed up cases went down the tubes. Similarly, other Code amendments to ensure that summons were served and written statements filed within specified time limits got diluted. Laxity in enforcing time frames in court cases directly flows from verdicts of the top court, clearly.

The Supreme Court’s decision to allow breaches of the 330-day limit for bankruptcy resolutions is risky, for it gives bankruptcy courts the discretion to extend resolution periods.

Worse, thanks to powers under Article 142, the judiciary also occasionally wades into executive and legislative domains, as happened when it ordered a tax on commercial vehicles entering Delhi some years ago in order to reduce pollution. On another occasion, it ordered a ban on vending liquor on the highways, not only causing needless confusion, but directly getting into legislative domain. In the Board of Control for Cricket in India (BCCI) case, the Supreme Court ordered changes in its constitution without directing the Tamil Nadu government to amend the law under which BCCI was governed. This is law-making, not just interpretation of the law.

It is not the judiciary’s fault alone; there is clear political failure in engaging the judiciary in a constructive dialogue on acceptable judicial reforms. Reforms legislated by Parliament alone can thus slowly be undermined by a judiciary that’s not on the same page and tends to wade into law-making every now and then. None of this can be undone without the judiciary and politicians, both in government and Opposition, having a quiet discussion on how to reform the judiciary without threatening its independence.

The Narendra Modi government began with a bang in 2014 by legislating the National Judicial Appointments Commission, which had multi-party support, but the judiciary just junked it.

The moral of that story is this: it is not enough if there is a political consensus. There has to be a judicial-cum-political consensus to move forward on judicial reforms.

R. Jagannathan is editorial director, ‘Swarajya’ magazine

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