Increasing number of judges not enough to improve enforcement of contracts

In the Economic Survey, the government noted that despite several steps taken to “to expedite and improve the contract enforcement regime, economic activity is being affected by the long shadow of delays and pendency across the legal landscape”. The government’s worry is not unfounded. In the World Bank’s Ease of Doing Business Report for 2018 when it came to enforcement of contracts, India climbed just one spot from a lowly 164 of the 190 countries ranked.

To beat sluggishness in the judicial system, experts stressed the need for an attitudinal shift as far as enforcement of contracts is concerned. A culture of opportunistic parties intentionally breaching contracts aggravates the problem, noted Sudipta Bhattacharjee, partner at Advaita Legal.

Experts said contracts entered into in India are not given the due importance they deserve. The fine print is more often considered just another formality rather than a necessity, they said.

Over the last decade, the number of civil disputes filed in Indian courts has come down. “This is probably because people with disputes don't find it efficient to drag a matter through expensive court procedures for years without satisfactory resolution. This encourages a culture of opportunistic parties intentionally breaching contracts which dilutes the trustworthiness of the business ecosystem,” Bhattacharjee said.

The general rule (in case of contract breaches) was to award damages by the court, noted Vaibhav Kakkar, partner at L&L Partner law firm. “The exception was the court forcing the contract to be executed and honoured,” he said. However, the recent amendments in the Special Relief Act may gradually change this practice, said experts. 

The government on its part is well-aware of what it needs to do to stem the rot. Way back in 2014, the Law Commission, in its 245th report, Arrears and Backlog: Creating Additional Judicial (wo)manpower, had suggested that the first approach to solving the problem of pendency in the country was to adopt a practice assessment approach, which would involve studying the patterns of current filing, disposal, case-length and pendency.  The Commission noted: “A comparative analysis of these patterns inter se and between jurisdictions can help policymakers determine whether a particular court takes more or less time compared to either a system-wide average or the median case in the system… ”

This would allow for a relative assessment of which courts are taking longer than others and may require targeted intervention in terms of greater allocation of resources, the Commission stated.

The government repeated this stance in the Economic Survey for 2018-19 and suggested that by tackling pendency in lower and high courts, a lot of the problems related to enforcing of contracts could be solved. Experts, however, noted that just increasing the number of judges and court officials would not be enough to tackle the problem. That the government has to create the enabling infrastructure towards timely resolution of contractual disputes is given, they said.

“However, that has to be coupled with targeted government and private efforts to encourage a culture of complying with contracts, a culture of respect towards a signed document,” said Bhattacharjee.   

Further, an attitudinal shift needs to take place inside the judicial system where the judges are sensitised to the fine print of contracts and why they must be enforced, said Kakkar. The other change, the experts said, would require empowering the government officers who sign and execute contracts on behalf of the government.

“A large chunk of such disputes arise because the relevant government or public sector undertaking officers overseeing the execution of various contracts are not empowered enough to take decisions where even an iota of interpretation of contractual documents is involved,” said Bhattacharjee.

The way forward is creating a rule-based framework that allows such officers to take decisions on behalf of the government without having the fear of being exposed to an anti-corruption probe.

“Private contractors are often unofficially told that while their claim is quite valid, they would need to get an order from an arbitral tribunal or court since the relevant officer either doesn't have sufficient decision-making authority or is concerned about the anti-corruption investigation if a decision is taken in favour of the contractor. This aspect will need to be dealt with too,” Bhattacharjee added.