“I feel ashamed to call myself a lawyer,” a senior lawyer with over 30 years in practice wrote to me. Since he is not a person given tohistrionics, I sat up to read his mail. He was referring to the DoingBusiness 2011: Making a Difference for Entrepreneurs, a report jointly authored by the World Bank and the International Finance Corporation.
The cause of his self-deprecation: India is ranked 182 under the head “Enforcing Contracts”. The total number of countries studied: 183. The only country ranked worse: Timor. The Doing Business annual reports (www.doingbusiness.org) investigate how regulations enhance or constrain business activity in the jurisdictions surveyed.
“Doing Business presents quantitative indicators on business regulations and the protection of property rights that can be compared across 183 economies, from Afghanistan to Zimbabwe, over time,” the report states. Regulations affecting nine stages of a business’ life are measured: starting a business, dealing with construction permits, registering property, getting credit, protecting investors, paying taxes, trading across borders, enforcing contracts and closing a business.
Essentially, the verdict means India is attracting investments despite the legal regime rather than because of it. She has had a rather longhoneymoon, and if drastic intervention does not take place, the marriage between global investible capital and India as a jurisdiction for safe investing is directly heading for the rocks.
The Doing Business report notes that there are 46 procedures to be undertaken to enforce a contract in India, the time taken to enforce a contract is 1,420 days and the cost of enforcement of a contract is an exorbitant 39.6%.
Statistics can be debated, ridiculed and rubbished. Patriots who want to hear nothing negative about India will see red, perhaps even a conspiracy theory. However, in terms of direction and substance, the picture is inexorably bleak. Business disputes would also eventually have to be settled in variants of khap panchayats, where tribal honour and societal equity would drive dispute resolution, rather than the constitutional rule of law.
A proposal to create a “commercial division” in every high court to hear commercial disputes of above a certain monetary threshold has been doing the rounds for ages. As a matter of principle, a proposal to provide speedier justice for commercial disputes is only indicative of how we like to write one law per problem, rather than cure the core of the disease.
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The virus that is killing legal enforcement of contracts in India has spread with epidemic proportion. All sections of the legal community are responsible. India’s ranking can only be reflective of the lack of professionalism being widespread – junior and senior counsel, judges of various ranks, and even retired judges (alternate dispute resolution is on its way to becoming not much of an alternate) are all mute cogs in the wheel, enabling litigants to thrive at the tax-payer’s expense (running the legal enforcement system is essentially funded by the State).
Matters get worse when seen in the light of the increasing trend of Parliament delegating its legislative function, and the courts’ enforcement function, to regulators. Regulators, clueless about the rule of law, are arrogating to themselves powers that courts would be loathe to exercise. When the securities market regulator recently took upon itself the task of re-writing a private contract involving shareholding in a listed company (asking that put and call option clauses be deleted), it did not realize that even courts do not re-write contracts. If a contract between two private parties were to contain provisions that are alleged to be unenforceable, it is for a court of law to adjudicate on that issue. Courts would hear parties to the contract for their views in determining whether a contract has an invalid provision – not issue diktats of their own accord about the contract being invalid. Even courts do not re-write contracts, but our regulators believe they can.
Therefore, when the Doing Business 2011 survey finds India to be second from the bottom of the pile in the contract enforcement, the ranking is but reflective of such ground realities. For the record, the report acknowledges that it does not directly deal with other areas important to business such as an economy’s proximity to large markets (a plus for India), the quality of its infrastructure services (a minus), the security of property from theft and looting (perhaps why Afghanistan got ranked ahead), transparency of government procurement (lucky for India that this was left out), macroeconomic conditions (prime driver for India) or the underlying strength of institutions (lucky this was left out).
Indeed, a serious wake up call. If after thirty years of practice, a lawyer has to advice his client not to litigate but to settle – not because of the merits of his case, but because enforcement is so difficult, little wonder he feels the way he does.
(The author is a partner of JSA, Advocates & Solicitors. The views expressed herein are his own.)