Business News

Contract enforcement: Key to Ease of Doing Business

The PM GatiShakti vision, as articulated in the Budget Speech 2022, lays down a clear path to realise the dream of a $5 trillion economy. The PM GatiShakti aims at Productivity Enhancement and Investment along with Ease of Doing Business 2.0 and Ease of Living.

However, it is equally true that for various reasons as were succinctly encapsulated in the World Bank Group’s “Ease of Doing Business” formulation (Ease of Doing Business 1.0 has been discontinued by the World Bank Group in September 2021), India has been lagging in the 10 indices mentioned therein.

“Enforcement of Contracts” has been one of the important indices of the Ease of Doing Business Index and it is common knowledge that there have been inordinate judicial delays in the resolution of commercial disputes between national and international parties, which has affected the confidence of the global investors’ community to invest in India.

For an overall perspective, it is pertinent to note that India ranks 163rd among the 190 countries in the Enforcement Contract indicator. The problems that plague contract enforcement can be correlated with the current state of the judiciary system.

Judicial delays
Firstly, court proceedings, trials, and enforcement move at an excruciatingly slow pace. 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.

Secondly, 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.

It would be wrong to suggest that steps are not being taken by the government to actively address the aforesaid issues. Commendable 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. The long-term solution however needs many more innovative but pragmatic interventions.

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.

While big businesses can certainly hire the best experts to represent them, the ones lagging behind are the small businesses, traders, start-ups, and individuals. Any such hindrance to the fulfilment of contracts threatens their existence by choking their cash flow and ultimately affecting the economy.

Needless to emphasise, improvement of dispute resolution and the introduction of a robust mechanism to enforce business contracts and leveraging technology will enhance the investor confidence and simultaneously promote the ease of doing business as well as reduce the cost of doing business.

The challenge of contract enforcement is a pressing one because it has huge economic repercussions and is essential for sustainable growth. It is critical to improve the time, cost, and quality of the judicial process for India to ascend the Ease of Doing Business Rankings and eventually attract greater investors. This will enable to have a fair share of global trade and provide the opportunity to shift the global supply chain from China to home turf.

Exit mobile version