New law to speed up big biz deals

A separate law for faster enforcement of high-value business contracts is on the anvil. The aim is to boost the business and investment climate in India, a country that many perceive is bedevilled by difficulties in doing business.

A panel headed by Law Secretary TK Viswanathan is currently examining problems pertaining to enforcing contracts and will recommend corrective measures aimed at speeding up the legal process in resolving commercial disputes.

Based on the recommendations of the panel, which includes representatives from the ministries of finance, commerce and industry, and corporate affairs, a draft of the proposed law will be prepared in three months.

The panel was set up after the Committee of Secretaries, headed by Cabinet Secretary KM Chandrasekhar, went into the entire gamut of issues for improving the business climate in the country.

The Centre had taken notice of the World Bank’s Doing Business Report 2007, which said that it takes as many as 1,420 days in India to implement a financial contract. The report had given India an overall ranking of 177 in the report, a rank that remained unchanged in 2008.

Three indicators — the number of procedures, time taken to settle commercial disputes and the cost of litigation — determine how efficient a country’s commercial contract enforcement is. On all three counts, India scored poorly when compared with China and even Pakistan.
 

CONTRACT ENFORCEMENT: INDIA VERSUS OTHER COUNTRIES
Countries	Number of   Procedures	Duration   (in days)	Cost  (%)
Russia	37	281	13.4
China	35	406	8.8
Brazil	45	616	16.5
Pakistan	47	880	23.8
India	46	1,420	39.6
Source: World Bank,  Doing Business Report, 2007

The cost of settling a financial dispute between buyers and sellers in a commercial transaction is nearly 40 per cent of the disputed claim, with a large portion of this amount going into paying legal fees.

Globally, wherever contract enforcement is efficient, businesses are more likely to engage with new borrowers or customers.