Ease of Doing Business: Need for changes in law

The last few years have seen several changes to existing laws and the introduction of new laws in the realm of business, trade and commerce. The primary motivation behind many of these amendments or new legislations has been to improve the previously abysmal standing that India had in the World Bank Ease of Doing Business Rankings. The Ease of Doing Business Rankings represent a culmination of studies taking into account various factors, ultimately resulting in ranking countries as destinations for business, in relation to other countries.

For far too long, India as an investment destination, has had to endure a poor perception abroad. Part of this is the baggage from the protectionist regime that India had prior to liberalisation. After the liberalisation of the economy that started in 1991, there was a gradual change in this perception. However, there was no universal index by which one could measure such perception or how it was changing. Once the Ease of Doing Business Rankings started in 2006, it became clear that on a certain set of parameters, there was a lot for India to do.

The present government seems to have prioritised the correction needed in the indices that matter. It has brought about a slew of reforms with a view to make the conduct of business in India easier. Arbitration was meant to be a mechanism that takes the pressure off the court system, while giving parties speedy resolution and choice of arbitrators. For a variety of reasons, the international perception was that Indian courts tend to interfere with the process of arbitration, which causes uncertainty and delay. The 2015 amendments to the Arbitration and Conciliation Act, including to make resolution of disputes through arbitration time-bound, and further restricting the scope of interference of Indian courts in arbitral awards, were introduced with a view to make a course correction.

As regards companies that were insolvent or had been ordered to be closed, there were myriad, often conflicting, laws, took a long time to reach a resolution. The introduction of the Insolvency and Bankruptcy Code was an attempt to consolidate 13 different laws and offering a way in which companies in turbulence could also be bailed out in a quick and transparent manner.

The Specific Relief Act was amended to make the relief of specific performance of a contract the norm, where it was discretionary previously. This means that more often than not, contracts would stand enforced, removing a significant degree of uncertainty that prevailed earlier even when one had a signed contract that was breached by the counter party.

Similarly, changes such as attempts to consolidate indirect taxes into the GST regime and numerous labour legislation into the Labour Code, are some of the other steps taken to make compliance with laws easier for corporates and small businesses alike. As with all change, while some of these were met with some resistance and scepticism, these steps have shown the world that India is willing to rationalise its laws.

Less good news

While there has been progress on the ease of doing business rankings, there is another set of rankings that brings considerably less good news. When it comes to enforcement of contracts, India’s position on the list was an embarrassment. The report indicates that while on an average it takes 165 days to enforce a commercial contract in Singapore, it takes something like four years in India. India ranks a lowly 165 in these rankings. While one might question various aspects of these rankings, including their methodology, there is no doubt that there is a need to introspect on what can be done to improve the situation.

One such step to improve enforcement is the establishment of commercial courts under the Commercial Courts Act. In addition to the establishment, there is also a focus on capacity building of these courts and training of judicial officers. These courts have been empowered with some techniques that are popular internationally such as case management hearing, summary judgement and stricter timelines.

Some common bottlenecks are the service of notice, lack of time management and efficient practices. While the Supreme Court and High Courts have been exemplary in their handling of the pandemic and to ensure continuance of hearings, some areas that need further reform include service of notice, cutting short the number of stages across different category of cases and boosting infrastructure. Two specific reforms that will cut down on pendency of litigation and disincentivise frivolous litigants is a more robust and thorough regime of costs and a stronger set of laws relating to perjury.

The desire to move higher in the rankings presents us with a unique opportunity to make significant changes to the legal system in general and not just to the resolution of commercial disputes. Also, the Covid-19 pandemic has resulted in the judiciary and the bar adopting to technological advancements and changes in the manner in which hearings take place. Online/video hearings, staggered hearing times and online filing are some of the positives that have emerged from the pandemic and have become widely accepted. It is up to us all to capitalise on these and built around their efficiencies.

Amendments to legislation and new legislation should be policy-driven, instead of piece meal. Recent reverses in the Vodafone and Cairn Energy bilateral investment treaty arbitrations of over $1 billion each have caused a huge setback to India’s image on the global stage. The perception that there is no guarantee of policy continuance is a major source of consternation to many investors.

If policies are drawn up for a longer period of time, it would help investors get a clearer sense of what to expect. Equally, the legislature can be guided by the principles set out in such policy, giving investors and the general public alike, greater confidence in the judicial system. Time has come for the Indian legal system to take its place in the sun. It is entirely up to all of us to translate that into reality.

(The writer is a Bengaluru-based advocate)