Relevance: GS-2: Structure, organization and functioning of the Judiciary; Indian Economy and issues relating to planning, mobilization of resources, growth, development and employment; Effects of liberalization on the economy.

Key Phrases: Ease of Doing Business, Enforcement of contracts, Backlogs in judicial system, Alternative Dispute Resolution, cross-border transactions

Why in News?

• India is known for backlogs in its judicial system which has been a major drawback for the country from becoming a commercially preferable jurisdiction for enforcement of contracts and administration of justice.

Context:

• Ease of Doing Business is World Bank’s Index of ranking various countries according to prevailing business regulations on the basis of 10 indicators.
  • India fared extremely well in 2019 and even jumped 14 places and was ranked 63 in the list.
• Of these pointers, ‘Contract enforcement’ is one.
  • India continues to struggle with this and was ranked 163rd among the 190 countries in the Enforcement Contract indicator.

Reasons:

• The court proceedings, trials, and enforcement move at an excruciatingly slow pace in India.
  • On average, it takes 744 days to resolve a commercial dispute in Delhi as against 164 days in Singapore, the top-ranked nation, in terms of dispute resolution.
  • The situation of courts in Mumbai is also similar with an average of 626 days being taken for disposal of cases from the time of initiation.
• The timelines under the Civil Procedure Code and the Acts governing commercial transaction are not made mandatory in most instances.
  • Therefore, there is unwarranted delay in completion of proceedings. This leads to further backlogs and delays of resolution of claims and cases.
• There is a dire need to increase judicial strength in the commercial courts.
  • While the US has about 100 judges per million citizens, India has the shocking figure of 21 judges per million as of 2021.
  • Thus, the need to fill large-scale vacancies in all levels of judiciary, increasing sanctioned strength and giving greater focus to continuous training initiatives are critical factors that will provide the necessary environment for speedy disposal.
• In other jurisdictions, there is maximum deference and minimised interference by judiciary in the awards passed by the arbitral tribunals.
  • Indian judiciary, for a significant time, has interfered in the awards, claiming the infamous public policy exceptions and questioning the very vires of the award, when it should have made the recognition and enforcement of such awards efficient and easy.
  • India is also not considered as a preferable seat of arbitration as there have been incongruous and flawed interpretations by the judiciary when compared to the foreign jurisdictions.
• It is typical of commercial agreements to contain an arbitration clause and since Indian jurisprudence is not favourable in this regard, there is uncertainty and this drives the businesses away from preferring India as the seat of arbitration or venue for any commercial transaction.
• These shortages in judiciary will prove to be more fatal in times of covid-19.
  • This is because under most of the contracts, the force majeure exceptions, re-negotiations and frustration of contract are being claimed increasingly to avoid the performance of the contract due to several lockdowns and restrictions and thus are becoming open to interpretation.
  • Force majeure refers to unforeseeable circumstances that prevent someone from fulfilling a contract.

Steps Taken:

• Tribunals were formed for tackling the problem of backlogs but with the ever-increasing number of cases, they have not significantly helped in reducing the burden of the courts.
  • There have been discussions on increasing the number of benches in various courts and tribunals.
• India has tried to incorporate Alternative Dispute Resolution (ADR) mechanisms by way of statutes viz. the Arbitration and Conciliation Act, 1996 with the latest amendments, compulsory pre-institution mediation under the Commercial Courts Act, Supreme Court’s manual on Mediation and Negotiation has been acknowledged as a ADR mechanism by various judicial pronouncements.
• Efforts have been made by the government to revise pecuniary fees, establish more commercial courts, introduction of electronic case management tools, and the recent creation of the special division by Delhi High Court to handle intellectual property disputes.

Way Forward:

• Apart from ADR methods, three other areas for quality of the judicial proceedings are taken into consideration viz. court automation, case management and court structure and proceedings.
  • The court structure and proceedings are fairly complex in India which is one of the main reasons why it is not treated as a commercially developed jurisdiction.
  • While on the court automation and case management front, the judiciary has tried to adapt to the electronic modes and digitisation of the system, litigants struggle to adapt to the same.
• Technology needs to be leveraged to transform the process of contract enforcement by courts.
  • The new portal for enforcement of contracts by the Ministry of Justice is a welcome step.
  • The process of digitalisation of commercial courts needs to be accelerated.
• Courts that have attained the highest order of digitalisation like the Delhi High Court could be set as a benchmark for others.
• Simultaneously, a road map ought to be developed to augment capacity building and raise awareness among businesses as well as judicial officers and enforcement agencies.
• Further, the divide among private players in relation to access to such courts needs to be bridged.

Thus, despite having Acts in substance, there is a lot to be done on the enforcement of commercial agreements for India to do well in this indicator, especially in the cross-border transactions.

Conclusion:

• As we look at shifting supply chains from China, it is important that we focus on some of the issues that have prevented us from improving our contract enforcements. This is important to instil investor confidence as it signals predictability and commercial viability of the transactions.

The challenge of contract enforcement is a pressing one not only because it has huge economic repercussions but is also essential for sustainable growth.

Source: Live Mint  The Hindu BL

Mains Question:

Q. For making India an investor friendly jurisdiction and make it self-reliant, it is extremely important to fare well on enforcing contract. Analyse Critically (250 Words).