Economy

Judicial delays make a mockery of India’s ‘ease of business’ rank

Bloomberg Bloomberg | Updated on August 18, 2020

A recent apex court ruling, after a 38-year trial, shines light on an old weakness

Prime Minister Narendra Modi is eager to convince global companies and investors that India is a business-friendly alternative to China. A top court ruling this summer told another story, highlighting the infamous judicial delays that threaten to stymie businesses and scuttled deals.

The Supreme Court ended the 38-year saga of an alleged turmeric forger, who was arrested in 1982 and, eventually, sentenced to a month in jail and a ₹500 fine. After a decade, the top court reversed his conviction; the two lower courts took around 14 years each to render verdicts.

The lifespan of the turmeric case is extreme, but not unique among the nearly 40 million cases pending across the country’s three-tiered judicial system. Among cases in 25 State High Courts, roughly 173,000 have been pending for more than 20 years, and roughly half of those for more than 30, government data showed.

Poor at enforcing contracts

The World Bank ranks India in the top one-third of countries for overall ease-of-doing-business, but when it comes to enforcing contracts — a measure of legal efficiency — it lands in the bottom 15 per cent, worse than Pakistan, Syria and Senegal.

“It’s pretty incredible,” said Vishnu Varathan, head of economics and strategy at Mizuho Bank in Singapore. “The complexity, the unnecessary delays — it shows how India lags countries like China in their judicial system and just how much further they have to go.”

Legal and compliance expenses of companies listed in India increased to just over $3 billion in the fiscal year ending March 2018, up 57 per cent in five years, according to Mint newspaper.

Justice delayed

Judicial delays have also tied up some of the country’s biggest corporations and would-be massive deals: IHH Healthcare Bhd’s attempt to take over hospital chain Fortis Healthcare Ltd was scuttled by Daiichi Sankyo Co.’s four-year fight to enforce a $500 million arbitration agreement against Malvinder Singh and Shivinder Singh.

After 10 years, the Supreme Court directed the West Bengal government to return land leased to Tata Motors Ltd. back to local farmers.

A 20-year dispute ended with a $19-billion judgment against all the country’s telecom companies, including those that have shuttered since the case began.

“The long time to resolution creates a lot of uncertainty for foreign companies otherwise interested in doing business in India,” said Souvik Ganguly, Managing Partner at Mumbai-based Acuity Law. “Uncertainly makes investors nervous,” Ganguly said, adding that India is competing against Singapore, Thailand and other countries, which are much faster to resolve disputes.

Part of the backlog is a result of judicial vacancies. In 25 High Courts, which hear most of the commercial disputes, 37 per cent of judgeships were vacant as of August 1, according to government data. In the lower district courts, the most recent data identified a vacancy rate around 23 per cent.

The Union Law Ministry told Parliament in 2019 that it is coordinating with the judges of the Supreme Court and High Courts to fill up the vacancies, and last week a panel of Supreme Court judges recommended 11 new judges for appointments across three different High Courts.

E-mails and phone messages seeking comment from the Law Ministry remained unanswered.

Published on August 18, 2020

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