Caught up in courts

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Commercial courts and mandatory mediation are welcome steps, but it will take a lot more to unclog the legal system, writes K Satish Kumar of Ramco Systems

Doing business in India is a catch 22 situation. On the one hand, there is an enormous business opportunity presented by a young, emerging middle-class population, which is attractive to businesses worldwide.

On the other hand, there is an overburdened legal system that is infamous for indefinite delays, which has made it difficult for foreign and domestic investors to protect their investments in India. Most businesses shudder at the thought of being caught up in a legal dispute in Indian courts.

K Satish Kumar
Global head of legal and chief data protection officer
Ramco System

As was seen in the White Industries Australia Ltd v Union of India case, inordinate delays in the legal process were viewed as a breach of investment treaty obligation by India. The International Chamber of Commerce Arbitral Tribunal upheld White Industries’ claim and said that the government of India had breached its obligation to provide “effective means of asserting claims and enforcing rights”, and awarded a sum of A$4,085,180 (US$2.9 million) together with interest at the rate of 8% per annum from 24 March 1998 until the date of payment. This was a huge blow to the legal system in India.

Disputes in India can also be resolved through litigation, arbitration or mediation. Litigation, through courts and tribunals including the Supreme Court, high courts and subordinate courts, is extremely time-consuming, considering the load of pending cases in these courts. While there are several tribunals such as administrative tribunals, a railway claims tribunal, industrial tribunal, debt recovery tribunal, and real estate tribunal, which were all set up to expedite proceedings in specific litigation areas, the process remains slow.

As of 31 March 2018, there were 33 million cases pending in Indian courts. Out of these about 28.4 million cases are pending in subordinate courts, about 430,000 in high courts and 58,000 in the Supreme Court.

These mind-boggling numbers need to be reduced drastically. There has been a longstanding demand for a stable and efficient dispute resolution system ensuring quick enforcement of contracts, easy recovery of monetary claims, and the award of just compensation for damages suffered, all of which are critical in encouraging investment and economic activity.

The government has taken various steps in this direction, such as the introduction of commercial courts, dedicated solely to hearing commercial cases, in the Commercial Courts, Commercial Division and Commercial Appellate Division of High Courts Act, 2015.

In other efforts to make dispute resolution faster and reduce the burden on the courts, the government, through an amendment to the act in 2018, made mediation compulsory. It has also lowered the threshold for cases to be taken up by commercial courts to ₹300,000 (US$4272), from ₹10 million earlier. These amendments are in line with international trends in the US, UK, Singapore and France, and are a welcome step in reducing the delay in cases.

The amendment ordinance provides that commercial courts shall have the jurisdiction to try all suits and applications relating to commercial disputes of a specified value. The state governments may, after consultation with the relevant high court, and by notification, constitute commercial courts at district levels as they may deem necessary for the purpose of exercising the jurisdiction and powers conferred on those courts.

Except the territories over which high courts have ordinary original civil jurisdiction, state governments may, after consultation with the high courts, and by notification, designate Commercial Appellate Courts at the district judge level for the purposes of exercising the jurisdiction and powers conferred on those courts under the act.

The mandatory mediation clause is a welcome step towards speeding up the commercial dispute resolution process in the country without burdening the courts.

Mediation is adopted for compromise, and more than 70% of mediated disputes are resolved by the parties. Mediation is also highly dependent on the skills of the mediator, and competent mediators usually have good dispute resolution experience and also possess technical and commercial expertise to engage the parties and resolve the disputes easily.

The reduction in the threshold value for cases to be considered by the commercial courts opens the courts up to smaller disputes that would have otherwise been stuck in other courts. There are many more steps expected to be taken by the government to bring in a revolution in the dispute resolution scenario of the country, which is sorely needed.

K SATISH KUMAR is the global head of legal and chief data protection officer at Ramco Systems. He is actively involved in many pro bono activities alongside Chennai lawyers. The author can be reached at getksk@gmail.com.