Enforcement of contracts: Need to focus on ramping up court infrastructure

Sustainable improvement in the ranking for enforcement of contracts can happen if one addresses the wider failings in civil judicial system

India has improved its rank in enforcing contracts in the World Bank's ease of doing business report by 14 places over the last three editions. However, at 164th position in the latest edition, this parameter remains among the weakest links, followed only by dealing with construction permits (181st place). 

However, the country has to overcome institutional resistance and lack of political will for judicial reform for any substantial improvement in the enforcement of contracts, say experts.

Taking reforms to the next level 

The reforms that have worked for the country so far – such as the introduction of a national judicial data grid, setting up of commercial courts in Delhi and Mumbai and a time-bound arbitration process – need to be deepened and must percolate to the lower levels of the judiciary to retain their effectiveness.

“While these help in tackling some commercial disputes and in better management of cases, they are not enough to address the serious deficiencies of the Indian judiciary,” says Alok Prasanna Kumar, senior resident fellow, Vidhi Centre for Legal Policy. For instance, no state has made any effort to reform the judiciary, or the civil procedure laws, even though it is well within their competence to do so, he points out.

Experts say the commercial divisions set up in the Delhi and Mumbai high courts have been functioning effectively. “These have the potential for speeding up effective contractual dispute resolution significantly. However, ‘commercial courts’ at the district level across India are far from this reality and, consequently, commercial disputes take much longer to resolve in most Tier II and Tier III cities,” says Sudipta Bhattacharjee, partner, tax controversy management and contract documentation, Advaita Legal.

Most legal experts are in favour of increasing the number of commercial courts in districts. “One could explore the option of night courts for commercial disputes to optimise existing court infrastructure,” says Bhattacharjee.

Implementation of technology-intensive productivity improvements in courts, including those at the district level, is another key recommendation by experts. Raj Panchmatia, partner, Khaitan & Co, feels the greater use of technology at the district court level will help in increasing the overall efficiency of the justice delivery system.

Experts say alternative dispute resolution mechanisms such as mediation or arbitration are not necessarily the default option for commercial dispute resolution in most Tier II and Tier III cities. This needs to change. “When courts encourage mediation, it helps,” says Dheeraj Nair, partner, J Sagar Associates.

Another measure that could go a long way in improving the speed of judgment delivery, say experts, is greater reliance on written submissions than on oral arguments at the final hearing stage. “This will cut down prolonged, and often unnecessary, oral arguments,” says Bhattacharjee. Limiting the number of adjournments due to unforeseen and exceptional circumstances is something else most experts are in favour of.

Strengthening the judicial structure

Kumar is of the view that any sustainable improvement in the country’s ranking for enforcement of contracts can happen if one addresses the wider failings in the civil judicial system.

“One needs to extend the judge-centric model of the Commercial Courts Act to all courts handling civil disputes (with suitable changes). There is a need to appoint enough judges across the board to meet the sanctioned strength,” he says.

Panchmatia and Nair highlight the importance of attracting good lawyers to come forward and take up judgeship. For that to happen, there is a need to improve the remuneration structure of the judiciary to make the profession more attractive for young people, say experts.

“With a view to bringing down pendency, it may be worth considering appointing a number of ad hoc judges with fixed tenures, after which, they may go back to active practice. This could influence many young lawyers to consider taking up this assignment,” suggests Panchmatia.

What has worked for India

• Introduction of the National Judicial Data Grid
• Amendment to the Arbitration and Conciliation Act, 1996 for a time-bound arbitration process
• Introduction of the Commercial Courts, Commercial Division and Commercial Appellate Division of High Courts Act, 2015, for dealing with commercial disputes between parties

The road ahead

• Increase the number of commercial courts across the districts
• Cut down prolonged oral arguments to improve speed of judgment delivery
• Introduce financial incentives for parties in commercial cases to attempt mediation or conciliation
• Limit adjournments to unforeseen, exceptional circumstances only