India Business Law Journal – October 2007

Justice delayed

When it comes to economic growth and all the benefits that come with it, is India’s much-vaunted legal system more of a barrier than a facilitator?

A recent feature in the Financial Times carried the headline “How justice is delayed and denied in India.” But as our Cover Story this month illustrates (see Battle strategies), the crisis extends beyond justice and threatens the very functioning and purpose of the country’s legal system.

It is easy to crack jokes about cases filed in the 1950s still working their snail-like way through the judicial process, of defendants and plaintiffs who have long-since died, of unresolved disputes spanning several generations. Some of the stories are no doubt apocryphal – but usually believable nonetheless.

One often hears the alarmist cry of “30 million cases pending.” At least 25 million of these are in the lower courts, 3.7 million in the high courts and 43,580 before the Supreme Court (as of June this year – up from 9,806 in 1998).

Some of the most respected members of the nation’s judiciary – like Justices AK Mathur and Markandey Katju at the Supreme Court – are neither unaware of the problems, nor unconcerned about their implications. “People in India … are fast losing faith in the judiciary because of the inordinate delay in disposal of cases,” the bench said in recent comments on a 50-year-old land dispute before them.

In our Cover Story this month, one prominent lawyer likens the long-running saga of many Indian disputes to that portrayed so devastatingly in Charles Dickens’ Bleak House. Ironically, the Justices too cite Dickens and his fictional law firm Jarndyce and Jarndyce: “Innumerable children have been born into the cause; innumerable young people have married into it; innumerable old people have died out of it. Scores of persons have deliriously found themselves made parties [to it] without knowing how or why. It drags its dreary length before the court, perennially hopeless.”

This month’s case study (see Nerves of steel) offers a stark reminder that world-class business transactions flourish in legal environments that are nimble, mature and flexible. In a behind-the-scenes look at the legal complexities of Tata Steel’s acquisition of Corus, the pivotal role of the English legal system in bringing the deal to fruition becomes all too apparent.

So the Justices’ warnings warrant heeding.

Complacency and self-righteous proclamations about India’s democracy and rule of law abound, with China often the unmentioned target. As commendable as these attributes are, they must not be taken for granted. In its 2006 ranking of 175 countries, the World Bank placed India ahead of only Bangladesh and East Timor for the speed of contract enforcement. It takes about four years to enforce a contract in India; in China only 10 months.

At current speeds it would take about three and a half centuries to clear India’s backlog of court dockets, assuming no new cases are filed. It is hard to see how such a legal system can even begin to serve the needs of entrepreneurs and foreign and domestic investors in an economy targeting 9-10% growth per year. As this month’s Cover Story shows, the sector hardest hit is infrastructure – the roads, ports, power-generation and communications networks – without which China-like growth seems unimaginable.

The negative impact cannot be underestimated. In a survey conducted by India Business Law Journal (see Intelligence Report), corporate counsel were asked to list the most pressing legal challenges they face in India. The slow judicial system came close to the top, second only to the pace of regulatory change. Another closely related problem, the lack of enforceability of laws, came fifth.

For more evidence, look no further than this month’s Spotlight feature, The cost of fake books. Book piracy in India is an endemic problem that is estimated to cost the publishing industry more than US$620 million a year. Attempts to eliminate the practice have been buoyed by India’s well-developed copyright laws but all have stumbled when they have reached the final hurdle of enforcement. Of more than 100 cases pending before the courts – some dating back to 2000 – none has yet been resolved.

Such judicial paralysis renders litigation the strategy of last resort and puts the onus on the dealmakers’ shoulders to cover themselves with carefully structured dispute resolution clauses to stay out of the courts.

Overseas arbitration is usually the preferred route for foreign investors, but even when available, this alternative has its own severe limitations, not least problems with the enforceability.

India’s slow, overburdened judicial system is reducing the country’s appeal. Difficult though it may be to envisage in the current economic atmosphere, in the eyes of foreign – and even domestic – investors, it is not that big a step from avoiding India’s courtrooms to avoiding India altogether.

If change is not forthcoming, India’s legal profession – and its clients – will lose out. But the greatest casualty may well be the country’s rate of economic growth.