Contract Enforcement in India - Ease Of Doing Business Ranking

What is the issue?

• India ranked 100 out of 190 countries in the World Bank's Ease of Doing Business report 2018.
• Despite this being an improvement of 30 places, the low performance on sub-index of ‘enforcing contracts’ needs attention.

How is contract enforcement in India?

• The WB's ease of doing business ranking is based on the average of 10 sub-indices, 'enforcing contracts' being one among them.

• India’s ranking in the ‘enforcement of contract’ component is 164 out of total 190 economies in the index.
• The reports' projections on improvement in India's ‘enforcing contracts’ score is also feeble, indicating the dismal performance.
• This ranking is directly dependent on a country’s ability to provide an effective dispute resolution system.
• The report says that it takes an average of nearly 4 years to enforce a contract in India.
• The all-told cost to a litigant to recover amounts legitimately due to him/her is 31% of the value of the claim.

What was the legislation in this regard?

• The Commercial Courts, Commercial Division and Commercial Appellate Division of High Courts Act was passed.
• This was primarily to address the dispute resolution concerns in India’s business environment.
• It provides a forum with upgraded infrastructure to resolve those classified based on a specific value as “commercial disputes”.
• The value specified ensures that the courts are not burdened with small claims.
• It paves way for setting up commercial courts at the district level.
• And also a commercial division in High Courts that have original jurisdiction.
• This will be along with a commercial appellate division in the High Courts to hear appeals arising under the Act.
• The Act requires the State governments to establish the required infrastructural facilities, in consultation with the HCs.
• They are also required to establish facilities for training of judges who may be appointed to these courts.
• It mandates the High Courts to show the levels of disposal of such claims on their website, thereby ensuring transparency.

What are the concerns?

• There is generally a gap in enforcement when the implementation is left to State governments.
• The Act contemplates the “appointment” of commercial court judges in districts.
• However, most State governments have merely vested the presiding district judge with powers to act as a commercial court.
• The principal district judges are already overburdened with workload.
• Given this, vesting them with the powers of commercial courts in districts defeats the very intent and purpose of the Act.
• The presiding judges' experience in dealing with commercial disputes is also doubtful.
• Also, the implementation of institutional and infrastructural mandates specified to the States is largely lacking.
• Addressing these shortfalls is essential to make the commercial courts truly business-like.
• As also to make meaningful the commercial disputes Act to improve India’s ranking in “enforcing contracts”.

Source: The Hindu