When nothing is resolved in court

The Hindu Business Line, July 09, 2015

By Pradeep S Mehta

India’s dispute resolution mechanisms are in bad shape, leading to abysmal contract enforcement. This must change

Conflict management is a complex art. Researchers have spent a lifetime identifying approaches and skills necessary to manage conflict resolution. Situations get further complicated in commercial disputes where high financial stakes are involved.

To manage such situations, two draft legislations have recently been issued in public domain by the government. These are the Commercial Courts, Commercial Division and Commercial Appellate Division of High Courts Bill, 2015; and the Public Contracts (Resolution of Disputes) Bill, 2015.

The constitution of specialised bodies has been envisaged to adjudicate upon commercial disputes, and those arising from infrastructure contracts.

The objective is to facilitate enforcement of commercial and infrastructure contracts, thereby making India a predictable and less expensive place to do business. Of the 189 countries compared by the World Bank on ease of enforcing contracts, India ranks abysmally low at 186, just above Timor-Leste, Angola, and its neighbour, Bangladesh.

India’s performance has been steadily deteriorating and it ranks much behind its peers, specially, Russia, China and South Africa, which figure in the top 50.

The government’s move to set up specialised bodies is necessary and worth appreciating. It borrows from the practices of commercial courts across 15 countries (such as, the UK, US, Singapore and France) and includes progressive provisions such as periodic disclosure of pending and case disposal, requirement on States to ensure periodic training and education of judges. However, these do not seem adequate.

The experience with the constitution and operation of adjudicatory bodies shows that weaknesses creep in at three points: skills, resources and accountability.

For instance, in our recently concluded study on debt recovery tribunals, it was found that DRTs are currently underskilled, under-resourced and not held accountable for non-compliance with statutory provisions.

Though, such non-compliance emanated from the earlier two deficiencies. This story could repeat itself in the proposed legislations. Here’s why.

Lack of skills

The Commercial Courts Bill provides the following eligibility criteria for appointment as a judge of commercial court: a) a person qualified to be appointed as a district judge and has experience in dealing the matters relating to commercial disputes; or (b) has for at least seven years held a i) judicial office or ii) the office of a member of a tribunal or iii) any post under the Union or a State requiring special knowledge of law.

Such criterion is ambiguous. There is no clarity on what would qualify as ‘experience in dealing the matters relating to commercial disputes’ or ‘special knowledge of law.’

Similarly, one wonders why knowledge and skills in commercial matters is not required for judicial officers or tribunal members. The seven years of experience could be on absolutely unrelated matters and still a person would be qualified to become judge of a commercial court.

Similar is the case with Public Contracts Bill. Judges of Supreme Court, High Courts, or persons qualified to become judges of High Court are eligible to become member of Public Contracts Tribunal.

These conditions in no way ensure that persons will have necessary skills to understand, analyse and adjudicate upon disputes arising under public contracts.

Human resources shortage

The judicial system in India is already grappling with capacity constraints. Reports suggest that more than 4,000 judicial positions are vacant in the country, and high courts will soon be operating at half their strength. The impasse on the National Judicial Appointments Act has worsened the situation.

There is no certainty that positions created through these bills will be occupied any time soon. Consequently, adequate mechanisms to attract and retain talent from a larger pool of qualified and skilled individuals need to be put in place, for these judicial/quasi-judicial agencies to work.

More importantly, the judges will need to be trained on micro economics on a continuing basis to enable them to appreciate commercial disputes and resolve them effectively. Our judges are often too pompous to undertake training.

Accountability concerns

The Commercial Courts are expected to comply with provisions of the Civil Procedure Code, 1908, to ensure adjudication of disputes within requisite time frame.

Similarly, the Public Contract Tribunals are also expected to make a decision expeditiously. However, no accountability mechanisms are in place to ensure compliance with such provisions.

Huge backlogs of several years at our various courts and tribunals are a testimony to the fact that mere specifying time limits does not work, and novel provisions need to be introduced to ensure compliance.

The Commercial Courts Bill requires monthly disclosure of pending and disposal of cases. However, their efficiency can be improved by including provisions for refund of application fee in cases of delay, and judges rated by third parties on the basis of their performance. These are best practices in advanced jurisdictions and we have made similar suggestions in our study to improve performance of DRTs.

Possibility of duplication?

Setting up specialised tribunals and adjudicatory bodies have been the preferred mode of governments, present and past, to show their commitment to reforms.

However, limited attention to ensure quality has resulted in costs of setting up such bodies outweighing their benefits.

Multiple bodies also increase the possibility of forum shopping and jurisdictional conflicts. Consequently, the need of the hour is to clearly define and differentiate the scope of work of different adjudicatory authorities.

Comprehensive approach

Like most of well intentioned initiatives, commercial dispute resolution mechanisms, as proposed by the government, might fall short of achieving its objective, in its current form.

The government needs to come up with a proper strategy to devise adequate criteria to man such institutions, provide adequate incentives to attract and retain talent, and maintain transparency and highest standards while implementing this strategy.

It must also avoid duplication of tasks, and clearly define the domain of different adjudicatory bodies which have been constituted. Only when such long-term comprehensive approach is adopted, could systemic faults be addressed, and enforcement of contracts will improve.

The author is secretary general of CUTS International. Saket Sharma of CUTS Institute for Regulation & Competition contributed to the article

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