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Opinion | Contracts enforcement: India’s key to perform well in Ease of Doing Business Index

As we look at shifting supply chains from China, it is important that we focus on some of the issues that have prevented us from improving our contract enforcements. Photo: MintPremium
As we look at shifting supply chains from China, it is important that we focus on some of the issues that have prevented us from improving our contract enforcements. Photo: Mint

  • India is not considered as a preferable seat of arbitration as there have been incongruous and flawed interpretations by the judiciary when compared to the foreign jurisdictions
  • There is unwarranted delay in completion of proceedings, leading to backlogs and delays of resolution of claims and cases

Ease of Doing Business is World Bank’s index of ranking various countries according to prevailing business regulations on the basis of 10 indicators. Of these pointers, ‘contract enforcement’ is one. India fared extremely well in 2019 and even jumped 14 places and was ranked 63 in the list. It did not do well in the contract enforcement indicator. India continues to struggle with this and was ranked 163rd under this head.

As we look at shifting supply chains from China, it is important that we focus on some of the issues that have prevented us from improving our contract enforcements. This is important to instil investor confidence as it signals predictability and commercial viability of the transactions.

India is known for backlogs in its judicial system which has been a major drawback for the country from becoming a commercially preferable jurisdiction for enforcement of contracts and administration of justice. Tribunals were formed for tackling this problem but with the ever-increasing number of cases, they have not significantly helped in reducing the burden of the courts. There have been discussions on increasing the number of benches in various courts and tribunals. No concrete step has so far been taken in this regard. Vacancies at almost all levels of judiciary continue to be a hindrance in combating the backlog.

India has tried to incorporate Alternative Dispute Resolution (ADR) mechanisms by way of statutes viz. the Arbitration and Conciliation Act, 1996 with the latest amendments, compulsory pre-institution mediation under the Commercial Courts Act, Supreme Court’s manual on Mediation and Negotiation has been acknowledged as a ADR mechanism by various judicial pronouncements.

However, these mechanisms are not effective as yet. The reasons for this are manifold. In other jurisdictions, there is maximum deference and minimised interference by judiciary in the awards passed by the arbitral tribunals. Indian judiciary, for a significant time, has interfered in the awards, claiming the infamous public policy exceptions and questioning the very vires of the award, when it should have made the recognition and enforcement of such awards efficient and easy. India is also not considered as a preferable seat of arbitration as there have been incongruous and flawed interpretations by the judiciary when compared to the foreign jurisdictions.

It is typical of commercial agreements to contain an arbitration clause and since Indian jurisprudence is not favourable in this regard, there is uncertainty and this drives the businesses away from preferring India as the seat of arbitration or venue for any commercial transaction.

These acute shortages on the part of judiciary will prove to be more fatal in times of covid-19. This is because under most of the contracts, the force majeure exceptions, re-negotiations and frustration of contract are being claimed increasingly to avoid the performance of the contract due to several lockdowns and restrictions and thus are becoming open to interpretation. It is highly unlikely for the judiciary to deliver a speedy justice or the ADR methods to be effective because of reasons stated above.

Apart from ADR methods, three other areas for quality of the judicial proceedings are taken into consideration viz. court automation, case management and court structure and proceedings. The court structure and proceedings are fairly complex in India which is one of the main reasons why it is not treated as a commercially developed jurisdiction. While on the court automation and case management front, the judiciary has tried to adapt to the electronic modes and digitisation of the system, litigants struggle to adapt to the same. On the other hand, the timelines under the Civil Procedure Code and the Acts governing commercial transaction are not made mandatory in most instances. Therefore, there is unwarranted delay in completion of proceedings. This leads to further backlogs and delays of resolution of claims and cases.

Thus, despite having Acts in substance, there is a lot to be done on the enforcement of commercial agreements for India to do well in this indicator, especially in the cross-border transactions. For making India an investor friendly jurisdiction and make it self-reliant, it is extremely important to fare well in this index, more so when there is a need for an economic boost.

(The author is a Delhi-based scholar in legal studies. The views expressed are the author's own)

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