Economic Survey Volume 1 Chapter 9 (Latest)

ECONOMIC SURVEY   

VOLUME I

CHAPTER – 9

EASE OF DOING BUSINESS’ NEXT FRONTIER: TIMELY JUSTICE

THEME

The chapter highlights the importance of effective, efficient and expeditious contract enforcement regime for economic growth and development. It also suggests certain measures through which both Government and the Courts can work together to boost economic activity.

 

INTRODUCTION

  • India’s performance in World Bank’s Ease of Doing Business Report (EODB), 2018 has improved over last few years jumping about 30 places ahead. However, among various individual indicators, India continues to lag on the indicator on enforcing contracts causing and further accentuating pendency, delays and backlogs in the appellate & judicial arenas.
  • A clear and certain legislative and executive regime backed by an efficient judiciary that fairly and punctually protects property rights, preserves sanctity of contracts, and enforces the rights and liabilities of parties is a prerequisite for business and commerce.

Actions taken by the government to expedite and improve the contract enforcement regime:

  • Scrapping of over 1000 redundant legislations
  • Rationalizing the Tribunals
  • Amending the Arbitration & Conciliation Act 2015
  • Passing the Commercial Courts, Commercial Division & Commercial Appellate Division of High Courts Act 2015
  • Expanding Lok Adalat programme
  • Reduced intra governmental litigation
  • Advancing prospective legislative regime for legal consistency
  • expanded the seminal National Judicial Data Grid (NJDG)
  • close to ensuring digitization of every High Court of the country

 

PENDENCY AND DELAY: FACTS

Delay and pendency take severe toll on the economy in terms of stalled projects, mounting legal costs, contested tax revenues, reduced investment.

Actions taken by the government and Courts acting together can considerably improve the situation.

 

Economic Tribunals:

  • There is high level of pendency across the Tribunals (estimated at about 8 lakh cases). The average age of pending cases is 3.8 years.
  • Pendency has risen sharply over time (Compared to 2012, there is now a 25% increase in the size of unresolved cases)

 

High Courts

  • Despite the creation of tribunals, the overall pendency of the High Courts and the case-wise pendency of economic cases continue to increase. Total backlog of close to 3.5 million cases by the end of 2017.
  • Though the volume of economic cases is smaller than other case categories, their average duration of pendency is arguably the worst of most cases (nearly 4.3 years)
  • Reductions in pendency, if any, were either due to changes in the counting methodology or due to changes in pecuniary jurisdictions.

 

PENDENCY AND DELAY: POSSIBLE REASONS

  1. High Courts: Burden from Expansion of Discretionary Jurisdictions
  • Apart from complex nature of economic cases, increased overload is due to the expansion of discretionary jurisdictions by Courts, without any countervailing measures that either balance the scope of other jurisdictions or improve overall administration and efficiency.
  • HCs have extensively interpreted the provisions of Art 226 & 227 of the constitution which has resulted in a substantial increase in cases.

 

  1. High Courts: Burden from Original Side Jurisdiction
  • Some High Courts retain a unique original jurisdiction, under which the High Court, and not the relevant lower court, transforms into the Court of first instance for some civil cases. Share of original side cases was as high as 30% for the Delhi HC in 2014.
  • Also, HCs take longer to clear civil suits as compared to the lower courts. The average pendency of civil suits at the Delhi HC is 5.84 years while at the lower courts of Delhi is 3.66 years.

 

  1. Supreme Court: Expansion of Special Leave Petition (SLP) Jurisdiction
  • Special Leave Petitions under Article 136 of the Constitution of India (which empowers any party to approach the Supreme Court directly from any court or tribunal) initially invoked only in “exceptional circumstances” are now an overwhelming feature of practice at the Supreme Court.
  • SLPs u/a 136 of the Constitution have increased from around 25% in 2008 to nearly 40% in 2016.

 

  1. Recourse to Injunctions and Stays
  • Due to injunction 60% of cases are being stayed, whose average pendency is 4.3 years.
  • About 50% of these cases are pending at the stage of pleadings and another 12% of these cases are pending for final disposal.
  • The average age of cases waiting for final judgment is inordinately high at 7.9 years.

 

PENDENCY AND DELAY: COSTS

  • Numerous projects stayed by the court injunction lead to high amount of losses (close to 52,000 crores in six infrastructure ministries)
  • Since the project costs were predominantly debt financed, the likely increase in the cost of project is estimated to be around 60% given the average duration of stay.
  • All this has led to a spiralling of legal expenses of corporate India.

 

 

 

EXPENDITURE ON ADMINISTRATION OF JUSTICE

 

  • Total spending on Administration of Justice by States and the Centre constitutes approximately 08- 0.09% of GDP which is low when compared to other countries.
  • Research shows spending on modernization, computerization and technology leads to shorter average trial lengths.
  • Expenditure may be prioritized for filing, service and other delivery related issues that tend to cause the maximum delays.
  • Need to utilize existing capacity ( the higher judiciary is currently operating at 63.6% of its existing capacity)

 

POLICY IMPLICATIONS

(a) Expanding judicial capacity in the lower courts and reducing the existing burden on the High Courts and Supreme Court:

  • Build capacity in the lower judiciary, allow the HCs to focus on streamlining and clarifying questions of law, training of judges in commercial and economic cases.
  • Downsizing or removing original and commercial jurisdiction of High Courts, and enabling the lower judiciary to deal with such cases.
  • Courts may revisit the size and scale of their discretionary jurisdictions and avoid resorting to them unless necessary.
  • Existing judicial capacity ought to be fully utilized.

 

(b) The tax department exercising greater self-restraint by limiting appeals, given its low success rate:

  • Ex ante rules limiting appeals,
  • Panel to decide on further appeals of tax verdicts against the Department.
  • Number of tiers of scrutiny may be limited to three forums for taxation cases.

 

(c) Substantially increasing state expenditure on the judiciary, particularly their modernization:

  • Incentivizing expenditure on court modernization and digitization.
  • Legislations should be accompanied by judicial capacity and public expenditure memorandums, to lay out necessary provisions required to address increasing judicial requirements and ensure their adequate funding.

Constituting exclusive subject matter benches

Constitution of tax bench in 2014 by SC:

  • Reversed the trend of burgeoning pendency of tax cases.
  • Large number of judgments (197 in 2015, nearly three times as many passed in the previous 3 years.

Benefits of subject- matter benches:

  • Ensures that SC speaks in one voice
  • There is continuity and consistency of legal jurisprudence
  • Create efficiencies through specialization

(d) Creating more subject-matter and stage-specific benches:

  • To allow the Court to build internal specializations and efficiencies in combating pendency and delay.

(e) Reducing reliance on injunctions and stays:

  • Courts may consider prioritizing stayed cases
  • Impose stricter timelines within which cases with temporary injunctions may be decided.

 

(f) Improving the Courts Case Management and Court Automation Systems:

  • Initiatives like the Crown Court Management Services of the UK that are dedicated to the management and handling of administrative duties, may be considered.

CONCLUSION

Pendency, delays and injunctions are overburdening courts and severely impacting the progress of cases, which requires the Government and the Courts to work together for large scale reforms and incremental improvements.

Recent experience with the GST has shown that vertical cooperation between the center and states–Cooperative Federalism–has brought transformational economic policy changes.

Perhaps there is a horizontal variant of that– one might call it the Cooperative Separation of Powers–that could be applied to the relationship between the judiciary on the one hand, and the executive/legislature on the other.

It is desirable for these branches to come together to ensure speedier justice to help overall economic activity.