The Doing Business 2013 report published by the World Bank and the International Finance Corporation is out. India now ranks a lowly 132nd out of 185 jurisdictions all over the world in the ease of doing business. The good news is that India ranks 27th out of 50 countries that marked an improvement since 2005. The horrible news is that India continues to have a pathetic record in the area of ease of enforcement of contracts – a shameful 184th out of 185 nations.
The report, now a keenly-awaited annual feature, studies how easy it is to start and run a business. This column will mainly focus on the chapter on enforcement of contracts across jurisdictions. “A judicial system that provides effective commercial dispute resolution is crucial to a healthy economy. Without one, firms risk finding themselves operating in an environment where compliance with contractual obligations is not the norm. While using alternative dispute resolution systems may have benefits, Doing Business focuses on how public institutions function in the case of a commercial dispute,” says the report. The study seeks to measure the time, cost and procedural complexity of resolving a commercial dispute between two domestic businesses. The study takes up a notional dispute – and interestingly, a small dispute between two domestic businesses.
“The dispute involves the breach of a sales contract worth twice the income per capita of the economy,” says the report. Twice the per capita income means a really small dispute – nowhere near the Vodafone type litigation, where parties have the luxury of engaging expensive senior counsel, whose skills and standing can attract greater attention of the courts. The study assumes that the court hears arguments on merits and that an expert provides an opinion on the quality of the goods in dispute. “The time, cost and procedures are measured from the perspective of an entrepreneur (the plaintiff) pursuing the standardized case through local courts.”
India ranks better than only Timor-Leste, an infant republic. For measuring India as the last but one rank in the world in enforcement of contracts, the performance of the Bombay High Court has been taken as the basis. Here is the report card: It takes 1,420 days to get a contractual dispute of this nature enforced in Bombay High Court – twenty days just to get filings and service completed, 1,095 days for trial and judgement and 305 days for enforcement. This is just a tad higher than the longest time taken by any nation – Suriname, with 1,715 days – and India ranks sixth from the bottom.
Taking close to four years to settle a dispute over a claim of a fraction of a lakh of rupees is a pathetic record, which is why most sensible lawyers are unable to advise clients to litigate unless the stakes are exponentially higher. Besides, the study does not take into account appeals. Appeals from a decision of a single judge to a division bench, and then to the Supreme Court, can take lives of their own.
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There is worse to follow: The costs of such a dispute works out to 39.6 per cent of the claim – another pointer to litigation for enforcing a contract being meaningless unless the stakes are high. India ranks 40th from the bottom. Fertile ground for private commercial versions of khap panchayats to flourish. Little wonder why Indian movies and television serials depict the local police station or the local underworld (not necessarily always in competition) as the forums that are approached for effective justice. It takes an average of 46 procedures for a dispute enforcement process in India – 25th from the bottom, and only a wee bit higher than the 55 procedures applicable in Syria (which ranks the worst in the number of procedures).
Patriots may quarrel the choice of an over-burdened court, but such opposition would be misplaced.
The Bombay High Court is a good choice, considering that Mumbai is considered to the commercial capital of India. Besides, there is little point in assuming the forum to be an ideally-burdened court like Sikkim High Court, where the intensity and scale of economic activity of the territory it presides over is just not fully reflective of India’s economic standing and scale of growth.
The report also has a sub-national analysis. Pertinently, Mumbai comes out the worst and the next worst is another hub of commercial activity – Ahmedabad.Here, the time taken is 1,295 days, the procedures are 46 in number and the cost of enforcement is 30.9 per cent of the claim. Mumbai and Ahmedabad represent an enormous chunk of the tax-paying base of the nation. Without more focused and urgent attention to judicial reform, our courts will remain a mere forum for commentary on high national policy, forgetting its prime reason for existence – enforcing the rule of law among a nation’s subjects.
(The author is a partner of JSA, Advocates & Solicitors. The views expressed herein are his own.) Email: somasekhar@jsalaw.com