Bleak prospects

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India’s overburdened courts need many more judges

Estimates vary, but this well-known fact has long been used to explain the inefficiencies in the court system. In 1987, a report of the Law Commission pointed out that while India had 10.5 judges per million population, other more developed jurisdictions had four to 10 times that number. The report famously recommended a five-fold increase in the number of judges.

However, as the shortage of judges affects the lower reaches of the system much more than the upper end, can this explain the woes of corporate litigants who frequent the corridors of the country’s 21 high courts and apex court?

IBLJ 1211 LeaderAdd to this reports from observers that the number of cases filed per capita in India is much lower than in developed jurisdictions and it suggests that the challenges that litigants have learned to live with are the result of operational shortcomings.

As we describe in this issue’s Cover story (page 19), the delays, lack of predictability, and escalating cost of dispute resolution in India are leaving investors and companies with little hope of obtaining any real protection from the courts. “The biggest concern for foreign investors is the pervasive delay in the court system,” says Peter Goldsmith QC, a former attorney general of the UK, who is a partner at Debevoise & Plimpton in London.

Outmoded procedural laws provide ample room for delaying tactics. But problems such as conflicting judgments from different courts add to litigants’ low expectations of the courts. While problems in the court system have left many scrambling for real remedies, there is little evidence that alternatives such as arbitral tribunals provide an efficient solution.

One reason is that “people go into arbitration with a litigious mind” says Nakul Kumar, general counsel-India at Alcatel-Lucent. In addition, parties frequently choose to run domestic arbitrations without institutional support and with considerable intervention from the courts. Offshore arbitrations are a possibility for international investors, but here too problems persist. A recent Supreme Court ruling that resolved some of them has left parties with no possibility of seeking interim relief from Indian courts.

However, India’s lawyers have devised a myriad ways of overcoming these challenges. Sitesh Mukherjee at Trilegal finds that the system works if you can push hard enough. Others point to the importance of thinking outside the box, both within an adversarial context and otherwise.

According to Sriram Panchu, a senior advocate of Madras High Court, mediation, which he describes as an “idea whose time has come”, provides a real alternative for companies. Writing in this issue’s Vantage point, Panchu, who is a leading commercial mediator and who helped create India’s first court-annexed mediation centre at Madras High Court, says: “it is only a question of time before commercial disputants first sit across the table to talk with a medpiator’s help, and only if that fails enter the pugilistic arena of court litigation.”

Panchu points out that all high courts and the Supreme Court have mediation centres and that it is “now quite common for judges to encourage parties to go to mediation and for parties themselves to request such a referral”.

Does a desire to bypass India’s courts point to a growing realization that the court system – including the country’s judiciary and litigators – are unable to provide effective remedies? And with the availability of an effective dispute resolution process being key to the ease of doing business, how will the current problems affect India’s ability to attract investors?

For investors, the challenges of India often begin with devising an efficient structure for their investments. As we describe in Parental control, one of the most popular routes into India is through a wholly owned subsidiary. But the Companies Act, 1956, does not provide for single shareholder companies, so at least one share of every Indian subsidiary will need to be in the hands of a second shareholder. Our coverage provides pointers to overcoming various challenges that arise as a result of this requirement.

In A sleeping giant , we describe the challenges and opportunities of catering to the information technology needs of lawyers and law firms across India. As IT providers have found, while some in the legal community are reluctant to embrace cutting edge software because of the price, others cite potential security risks. As Patrick Hurley at Thomson Reuters Elite reports, “you really have to prove the return on investment” while selling to India’s legal community.

Questions about price and security are also routinely put to providers of legal process outsourcing (LPO) services by in-house legal departments and law firms across the world. The position of LPOs in the global marketplace is looking more secure as both the American Bar Association and the Solicitors Regulation Authority in England and Wales now have rules in place for lawyers who wish to outsource work.

It is in the context of this growing acceptance of LPO that India Business Law Journal announces the winners of its 2012 Legal Process Outsourcing Awards. Once again, Pangea3 wins the coveted LPO of the Year Award. Despite its continuing dominance of the industry, our research shows that a drive for excellence among its competitors is resulting in considerable jostling for position at the top. The exit of Pangea3’s founders may provide the space for change in the pecking order. Clearly these are exciting times for the LPO industry.