One of the fundamental features of a good investment destination is the rule of law. The rule of law entails effective dispute resolution and well-functioning courts, where contracts written by parties can be enforced effectively and within a meaningful timeframe.
Sitting through some of the sessions of an excellent conference of the International Bar Association (IBA) last week in Mumbai on ‘India as an Emerging Economic Giant’, one could not ignore the startling contradictions in India that will keep the ‘emerging’ appellation well fastened to India for a long time to come.
Take the case of Tamil Nadu — a state with one of the best economic growth rates, and a bar that is known for being more genteel than many other states in India — indeed the Constituent Assembly that wrote India's Constitute had numerous lawyers from this state. During court proceedings, Chennai advocates hardly interrupt counterparty lawyers even when an incorrect statement is made. “We will deal with it during our turn,” is what most Chennai lawyers are wont to say in such situations. One can only imagine the plight of litigants in other places like Allahabad — 'The Other Side of Justice', a book by the controversial ex-Chief Justice of Allahabad High Court Justice S S Sodhi, makes for interesting reading.
However, the reality today is that courts in Tamil Nadu have not been functioning since February 19, 2009. The reason: Lawyers in Chennai, the state capital, who are sympathetic to Tamil terrorists in Sri Lanka went on a rampage and assaulted a Tamil politician who had been critical of a Sri Lankan Tamil terrorist organisation. Courts all over the state are not functioning since then. All proceedings remain suspended. In their protest against the handling of Sri Lankan citizens, Indian citizens who need justice from Indian courts have not had access to the justice system for nearly three weeks.
Three weeks do not seem to matter any more in most parts of India. Neighbouring Andhra Pradesh has added a new jargon to the lexicon — what former SEBI Chairman Damodaran terms “protective custody”. Friends of the state government can hide in prison from specialised regulators while friends of adversaries of the government are effectively being kept out of the country with vindictive charges trumped up against them.
Worse, in many parts of India, the legal system has effectively done away with hearings for granting custody to accused in a macabre manner.
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Earlier, accused held in prison, were transported to the city courts every time the police wanted custody for an additional period so that they could attend hearings. The hardship to the accused was sought to be alleviated by arranging a video conference facility so that magistrates could see the physical plight of the accused over video. Today, in reality, there is no hearing of applications filed by the police for custody, with magistrates merrily taking a look at the accused over video and granting further custody without conducting a hearing of lawyers for the police and the accused.
Justice Dr D V Chandrachud said at the IBA seminar that he had a few days ago acquitted an accused, who had already spent nine years in prison. He narrated instances of people having been held in custody pending investigations into alleged offences involving provisions that do not carry a sentence of imprisonment.
There was a time when some of the accused in the securities scam of 1991, when remanded to police custody, were rumoured to be secretly going home in the night for home-cooked dinner and a comfortable bed, with a safe return to police custody in the wee hours of the morning. India seems to have 'emerged' from that phase, thanks to real-time coverage by the electronic media but we have gone into another dark phase where we could put the Russian treatment of Yukos, and the American administration of the United States Patriot Act (the post-911 law that sharply eroded personal liberty) to shame.
What has all this got to do with business law? Business and commerce can thrive only when the legal system works. If justice delivery gets suspended for weeks without anyone being unduly worried - whether it is because of civil war in a neighbouring state, or because lawyers strike work to oppose legal reform - the environment for conducting business will get skewed.
Courts will become irrelevant — already, no high-end commercial contract is now written without arbitration provisions. Businessmen will not have the confidence in the law, to make investments securely, and worse, people taking the law in their own hands to enforce business terms will become the norm rather than an exception.
The economy may still grow — thanks to the Indian spirit and ingenuity — and therefore provide opportunities to make money. However, if left unchecked, the systemic breakdown in the legal framework will become a perpetual fetter in India's emergence as a vibrant economy.
(The author is a partner of JSA, Advocates & Solicitors. The views expressed here are his own.)