Winning Perception Battle In Enforcing Contracts Can't Hide Rot
Published: Sep 18, 2017
Modi Government is desperate to see India pole-vaults in the ease of doing business (EoDB) sweepstakes. Take the case of 'enforcing contracts'. It is one of the 11 indicators on the basis which the World Bank assesses190 countries for EoDB rankings in its annual Doing Business (DB) Report.
On the 'enforcement contracts(ECs)' parameter, the Government is eying 50-points jump in the forthcoming DB2018 report from 172 nd in DB2017 report. A Task Force chaired by Secretary (Justice) has prepared slew of reforms that appear to fit well into DB methodology.
The problem here is that EC evaluation methodology is very narrow in scope and is standardized for all countries. This approach thus does not reflect the ground reality on EoDB that varies from one nation to another.
It has thus left out a lot of major irritants in ECs in India as we find a bit later.
Under ECs, DB report measures the time and cost for resolving a commercial dispute through the first-tier court. It also assesses good practices adopted by each country to promote quality and efficiency in the commercial court system.
This quality of judicial processes index reckons good practices across four areas or components. These are:1) court structure and proceedings, 2) case management, 3) court automation and 4) alternative dispute resolution.
TF's recommendations thus aim at improving compliance with ECs measurement norms. TF has mooted amendments to Commercial Courts Commercial Courts , Commercial Division & Commercial Appellate Division of High Courts Act 2015 (Commercial Courts Act) that was notified on 31st December 2015.
TF has suggested deletion of Section 3 of the Act that stipulates no commercial court shall be established at the District level in case of High Courts having original jurisdiction.
Another proposal calls for deletion of 'specified value' in the Act to ensure that the commercial cases between Rs 3 lakhs and Rs 1 crore fall within the domain of the Act. Yet another recommendation envisages narrowing the ambit of definition of commercial dispute to reduce the work load on the courts.
According to the minutes of Task Force, "The RG (Registrar General) High Court of Bombay also highlighted the practical difficulties faced due to the wide ambit of definition of commercial dispute in the Commercial Court Act. It was agreed that the High Courts may inform the Department of Justice of the difficulties being faced and suggested amendments so that the same may be conveyed to the Department of legal affairs ".
TF also decided that the norm of three adjournments in a case as mandated by Code of Civil Procedure (CPC) should be strictly adhered to in commercial disputes heard in the commercial courts in Delhi District Court and Mumbai City Civil Courts.
As put by TF minutes, "the rule on adjournments is not followed in more than 50% of cases ".The Minister of Law and Justice has written a letter to the Chief Justice of India on this issue.
TF has mooted changes in the Commercial Court Act to allow potential litigants to settle dispute under Alternate Dispute Resolution (ADR) before they decide to file the case. It has also deliberated on the need for enacting a new law on mediation and conciliation as that would give statutory backing to voluntary mediation initiated by parties.
These and other ideas in works are as good as far as they go. They, however, do not cover the entire domain of ECs. TC has not recommended that no post of judge should ever be left vacant. It has not recommended timeline for verdicts on commercial litigation.
Another glaring case of oversight is ECs extension, enforcing foreign judgments in India. Foreign investors/companies obviously file case in foreign courts to get verdict on breach of contracts. These include joint venture agreements, production sharing contracts in hydrocarbons domain in which the Government is party, etc.
TC has not touched this issue, which has figured prominently in prospectus/offering circular (OCs) issued by Indian enterprises for raising finance in overseas capital markets over many years. The herculean task of enforcing foreign judgments in India is listed as a risk factor and separately under a section captioned 'Enforceability of Civil Liabilities' in OCs.
A typical disclosure on this count goes as: "India is not a party to any international treaty in relation to the recognition or enforcement of foreign judgments. We understand that the statutory basis for recognition and enforcement of foreign judgments is provided for under section 13 and section 44A of the Indian Code of Civil Procedure, 1908 (the Civil Code). Section 44A of the Civil Code provides that where a foreign judgment has been rendered by a superior court in any country or territory outside India which the Government has by notification declared to be a reciprocating territory, it may be enforced in India by proceedings in execution as if the judgment had been rendered by the relevant court in India. However, section 44A of the Civil Code is applicable only to monetary decrees not being in the nature of any amounts payable in respect of taxes or other charges of a like nature or in respect of a fine or other penalty and is not applicable to arbitration awards, even if such awards are enforceable as a decree or judgment ".
India has notified the United States as a reciprocating territory for the purposes of section 44A of the Civil Code. The United Kingdom, on the other hand, is identified as a reciprocating territory and the High Courts in England as the relevant superior courts.
Accordingly, a judgment of American court may be enforced only by a fresh suit upon the judgment and not by proceedings in execution, whereas a judgment of a superior court in the United Kingdom may be enforceable by proceedings in execution, and a judgment not of a superior court, by a fresh suit resulting in a judgment or order.
A judgment of a court in a jurisdiction which is not a reciprocating territory may be enforced only by a new suit upon the judgment and not by proceedings in execution.
The standard risk factor also points out that "it is unlikely that an Indian court would enforce a foreign judgment if it viewed the amount of damages awarded as excessive or inconsistent with Indian practice. A party seeking to enforce a foreign judgment in India is required to obtain approval from the RBI under the Foreign Exchange Management Act, 1999 to repatriate outside India any amount recovered pursuant to execution ."
Why have successive Indian Governments ignored this legitimate concern? Is it because such issues are not reckoned in the straightjacket methodology of EoDB ranking in DB report?
If Modi Government is indeed interested in winning trust of Indian and foreign investors, then it should think beyond winning perception battle. It should scan the entire EC domain to spot glitches and barriers.
And the easiest way to start in this direction would be to identify all international agreements relating to businesses that India has not signed. Signing and ratification of such pacts would prod India to align its policies, laws and procedures with best global practices.
The Government should thus consider signing International Convention on the Settlement of Investment Disputes (ICSID). This pact provides for resolution of disputes between governments and entities of other countries. ICSID is operated by an international centre under the auspices of the World Bank Group.
International Energy Charter is yet another vital treaty under which commercial disputes including the ones between companies and the governments are resolved.
India has avoided signing IEC, thereby constraining foreign investments in the energy sector.
Two other EC-related international treaties to which India is not a party are: 1) World Trade Organization's (WTO's) The Agreement on Government Procurement (GPA) 1994, which was revised in 2005. 2)Organization for Economic Cooperation and Development (OECD's) Convention on Combating Bribery of Foreign Public Officials in International Business Transactions.
Signing and implementing all global agreements can pave the way for dramatic improvement in not only ECs but in also improving the entire EoDB ecosystem.
Apart from aligning Indian system with global treaties, the Government must revive lapsed bills that help India leapfrog in EoDB rankings.
The lapsed bills include: Prevention of Bribery of Foreign Public Officials and Officials of Public International Organizations Bill, 2011,Right of Citizens for Time Bound Delivery of Goods and Services and Redressal of their Grievances Bill, 2011, the Electronic Delivery of Services Bill, 2011, The Public Procurement Bill, 2012 and The Direct Taxes Code, 2010.
