In New India, Contracts Must Be Sacrosanct

by Sathyajith M S - Dec 5, 2019 12:43 PM +05:30 IST
In New India, Contracts Must Be SacrosanctEnforcing contracts should be a priority.
  • India ranks 163 among 190 countries in enforcing contracts. It is time we improve on this.

Experts may talk about fiscal and monetary measures to attract foreign direct investment (FDI) inflows and increase investment rates for sustained economic growth. But, we should not neglect the role of the judiciary in an economy’s functioning.

With a judiciary burdened with more than 3 crore cases, coupled with the long delays, it is high time we solved this menace at the earliest.

To quote one instance from the Ramayana, Rama had given a pledge to Sugriva to get his kingdom back at any cost, for which the condition was that Sugriva would do everything possible to help Rama get Sita back.

While some may argue that it was unfair for Rama to kill Vali in the manner he did, one cannot deny that he ended up honouring the contract. Even in the Manu Smriti, we see that ‘breach of contracts’ comes first in the priority list of civil cases that the king has to look into.

India’s ranking in the Ease of Doing Business has jumped to 63 from 77 in the previous year. However, when it comes to India’s performance in ‘enforcement of contracts’, it has been dismal.

India ranks 163 among 190 countries in enforcing contracts. Out of the 10 indicators used by the World Bank to calculate the Ease of Doing Business score, India scores the lowest in ‘enforcement of contracts’ category, and more importantly, the score has not improved from the previous year. Within the enforcing contracts score, India scored zero when it comes to time taken for resolving disputes. [Check ‘Figure – Enforcing Contracts in India – Scores (0-100)’]

Specialised commercial courts were established to resolve commercial disputes speedily. The Parliament enacted the Commercial Courts Act, 2015 to ensure speedy resolution of commercial disputes in the country. The World Bank, in its report, has taken note of this measure.

It becomes imperative for us to see whether the enactment of the Commercial Courts Act, 2015, is serving its purpose. This author believes that the constitution of commercial courts under the act has not been backed by political will. While states like Maharashtra and Tamil Nadu have 33 and 32 district-level commercial courts constituted respectively, other large states like Karnataka and Odisha have three each.

Section 3 of the act provides the state government with the power to constitute district-level commercial courts in consultation with the high court concerned. That is the main reason a state like Tripura, with five judicial districts, has eight commercial courts, while Karnataka, with 30 districts, has only three. The haphazard implementation of the act has made its purpose largely ineffective.

As it can be seen in the table below, there is an anomaly between Karnataka and Maharashtra. This increases the judicial backlog in commercial courts, which defeats the purpose of enacting the legislation.

In New India, Contracts Must Be Sacrosanct

Additionally, it also places a heavy burden of time and money on the litigants, who reside in districts which do not have commercial courts as they have to travel to the district which has one (refer the chart below).

In New India, Contracts Must Be Sacrosanct

While it takes 164 days to resolve disputes in Singapore, it takes over four years on an average to resolve commercial disputes in Bengaluru. The time has come for the state government to wake up and address the issue.

The Union government can do the following to improve the current situation:

First, bring an amendment to the Commercial Courts Act, 2015, and make it mandatory for constituting commercial courts for either a radius of some distance (as it has been done for schools in Right To Education Act, 2009) or on the basis of population. This would increase the accessibility to courts and reduce the burden of cost and time. Additionally, this would also reduce the pendency of cases in other commercial courts.

Second, fill up the vacancies in the district and subordinate courts which would go a long distance in mitigating the problem. The Economic Survey of 2018-19 also states that all the pending cases can be cleared at the lower courts and the high courts only by filling up the vacancies, even without any productivity gains. This means that if the judiciary functions at its sanctioned strength, the problem of judicial logjam can be mitigated.

Third, increase the retirement ages for the judges of the high court and the apex court. Considering the life expectancy of Indians has increased considerably, it would be prudent for the government to increase the retirement age. This would also help the government fill the vacancies in courts.

Therefore, it becomes necessary for the Republic of India to recognise the importance of enforcement of contracts. While a Ram temple will surely be built in Ayodhya, it is time for us to materialise the idea of Ram Rajya starting with respect for the rule of law, which would then lead to economic prosperity.

Sathyajith’s areas of interest are politics, economics, and history.

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