‘Urgent need for judicial reforms in the country’

According to The Central government should push judicial reforms – both in terms of capacity and quality – to ensure economic development, said. Sunil Kanoria, Vice-Chairman, Srei Infrastructure.

A majority of the economic reforms that have been undertaken by the Centre, such as GST and the Insolvency and Bankruptcy Code (IBC), finally end up in court.

This causes the entire economic activity to get clogged as the judiciary lacks the required capacity and quality.

“Judiciary has become a major bottleneck in the economic development of the country today. All the laws have come in a manner that it gets converged in courts — whether it is IBC, arbitration or GST disputes. All economic activity wait at the doorstep of judiciary and everything converges there and this creates a bottleneck,” Kanoria told BusinessLine .

Capacity building and quality of judiciary will help speed up cases pending resolution.

Judiciary & accountability

The judiciary has to understand the “economic importance of their judgment”. Holding the judiciary responsible for the delays in the process of resolution of cases under IBC, he said, currently the judicial system only looks at the document and sees what needs to be done from the legal angle without looking at things in a context.

Citing the example of Essar Steel, wherein the resolution process is yet to be complete due to pending litigation, he said, “Nearly ₹50,000 crore will come into the country and the banking system will get re-rated but it has been stuck and so has been many other cases……you need to have a judiciary that understands the economic importance of judgment.”

Judiciary needs to be made accountable.

The judiciary today only sees the law and not what impact it is likely to have on the economy, which they feel is the problem of the government.

“There needs to be responsibility and accountability for the judiciary too. They are key stakeholders in our economy. So, they need to understand the economic impact of their judgment,” he said.

Structural, financial reforms

According to Kanoria, the country’s financial sector is going through a major turmoil and there is an urgent need for a major structural reform that will allow strengthening of the sector.

The Centre had, in the last five years, brought about a number of policy changes — whether through bankruptcy law or by opening up of the banking system — thereby disrupting the entire environment.

“Those (reforms) have a long-term positive impact but in the short and medium term it disrupts and brings in lot more challenges and that is what we are going through and as a result of that the entire financial sector has been badly bruised. So, when that happens, you also need a major structural reform to allow the financial sector to strengthen and grow forward. I am not seeing that happening,” he pointed out.

The government should lay emphasis on enhancing capacity of the banking system instead of focusing on consolidation, which should be done in “good time”.

Strengthening banks

“At this juncture, consolidating banks is not the solution, the focus should be to strengthen banks. The banking system needs massive capitalisation and the banking system needs capacity building,” he said.

Conversion of NBFCs into banks would help address the issue of capacity building to a great extent.

Talking about the need for rationalisation of ownership pattern in the banking sector, he said, at a time when the country’s banks are in need of capital, the regulator should consider enhancing the individual shareholding limit to around 25 per cent from the current 5 per cent.

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