Ease of doing biz: Enforcing contracts, IBC cases remain hurdles for India

Experts say recent amendments to the Specific Relief Act will help improve enforcement of contracts and reduce litigation

India improved its ranking on the World Bank's Ease of Doing Business index for the second straight year, jumping 23 places to the 77th spot, but the country continues to perform poorly when it comes to parameters like enforcing of contracts (Rank 163) and resolving insolvency (Rank 108). Reforms in the judicial administration system to improve its efficiency are key to fixing the laggards in India’s ease of doing business environment, say experts.
 

Makarand Lele, president, Institute of Company Secretaries of India, says court reforms to reduce the delay in dealing with cases in the form of simplified procedures for small claims, automation of courts through computerisation and providing alternative means of dispute resolution are some of the measures that the government needs to work upon to further scale up its ranking on the index.

“We have laws in place. However, we do not have enough trained and qualified judges to administer these laws,” says Sitesh Mukherjee, partner and head of dispute resolution, Trilegal. Experts point out that there are around 20 judges for every million people in India (which is based on the 2011 Census) as against around 50 judges per million people in the United Kingdom.  

“It takes around four years to enforce a contract in India as opposed to around six months in Singapore,” says Suharsh Sinha, partner, AZB & Partners. The backlog of cases, say experts, is one of the key reasons for the high pendency rate in Indian courts.

Mukherjee feels that commercial dispute resolution should move away from being a social good and be administered on a commercial basis. “This will help attract talent but at a price,” he adds.

Surya Prakash BS, programme director, Daksh, is of the view that the overall approach should be to empower judiciary to proactively manage case lifecycle and not leave it to lawyers or litigants to drive the system based on their convenience. “Ensure judges/court staff has the right technology tools to monitor lifecycle of cases and help in better calendar management by judges,” he says.

Most experts are in favour of appointing full-time judges in commercial courts. “Arbitration and mediation have to be given more teeth insofar as enforceability is concerned,” says Atul Pandey, partner, Khaitan & Co.

Experts say that recent amendments to the Specific Relief Act will help improve enforcement of contracts and reduce litigation. “Earlier, enforcement of contracts was more of an exception than a rule,” says Vyapak Desai, partner, Nishith Desai Associates. The introduction of the concepts of substituted performance and the imposition of time limits for disposal of cases will ensure the performance of contractual work in a timely manner, he adds.

The government can play a key role in dealing with the backlog of cases, especially those that involve its departments and ministries, says Rajiv Luthra, founder-managing partner, L&L Partners Law Offices. “The government should use its discretion while escalating any matter to the higher courts,” he adds.

When it comes to improving India’s score on resolving insolvency, most feel this is one front where India is better placed, with the full impact of the Insolvency and Bankruptcy Code likely to deliver better results going forward.

“The material difference in ranking will come from the recovery that the IBC is able to effect. Fifty per cent scoring in the ease of doing business ranking is based on the effectiveness of insolvency law in recovery for the stakeholders,” points out insolvency expert Sumant Batra.

The insolvency and bankruptcy law have been in place since December 2016, but there are teething operational issues around its execution, says Desai. Most experts feel a series of measures such as the introduction of provisions relating to cross-border insolvency, provisions for empowering committee of creditors, creating a marketing platform for stressed assets, and easier access to interim finance for companies undergoing resolution process will further improve the efficiency of the Code in delivering results for the stakeholders.

Any specialised training to judges/judicial officers is likely to result in effective implementation of the Code and, thereby, greater recovery with speed, adds Batra.