Economic Survey 2018 - Vol. 1, Ch. 9: Ease of Doing Business’ Next Frontier: Timely Justice(Download PDF)

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Introduction - India jumped thirty places to break into the top 100 for the first time in the World Bank’s Ease of Doing Business Report (EODB), 2018. The rankings reflect the government’s reform measures on a wide range of indicators.

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Ease of Doing Business Index & India

Dr. Manishika Jain explains Ease of Doing Business & India’s position

  • India leaped 53 and 33 spots in the taxation and insolvency indices, respectively, on the back of administrative reforms in taxation and passage of the Insolvency and Bankruptcy Code (IBC).

  • India continues to lag on the indicator on enforcing contracts, marginally improving its position from 172 to 164 in the latest report, behind Pakistan, Congo and Sudan.

  • 📝 The government has taken a number of actions to expedite and improve the contract enforcement regime. Few of them are

  • The government: scrapped over 1000 redundant legislations;

  • rationalized tribunals;

  • amended The Arbitration and Conciliation Act, 2015;

  • passed The Commercial Courts, Commercial Division and Commercial Appellate Division of High Courts Act, 2015;

  • reduced intra-government litigation;

  • expanded the Lok Adalat Program to reduce the burden on the judiciary

The findings are

  1. Delays and pendency of economic cases are high and mounting in the Supreme Court, High Courts, Economic Tribunals, and Tax Department, which is taking a severe toll on the economy in terms of stalled projects, mounting legal costs, contested tax revenues, and reduced investment more broadly

  2. Delays and pendency stem from the increase in the overall workload of the judiciary, in turn due to expanding jurisdictions and the use of injunctions and stays; in the case of tax litigation, this stems from government persisting with litigation despite high rates of failure at every stage of the appellate process

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

Economic Tribunals

Analyses of six prominent appellate tribunals that deal exclusively with high stakes commercial matters reveal two patterns.

  • High level of pendency across the six tribunals, estimated at about 1.8 lakh cases

  • Pendency has risen sharply over time. Compared to 2012, there is now a 25 % increase in the size of unresolved cases. The average age of pending cases across these tribunals is 3.8 years.

High Courts

  • The creation of tribunals at different points in time did not alter pendency at the High Courts of the country nor their ability to deal with other economic cases. Three sets of economic cases pending at five High Courts were studied for the Economic Survey: company cases, arbitration cases and taxation cases. The overall pendency of the High Courts and the case-wise pendency of these economic cases at High Courts continue to increase. The total backlog in High Courts by the end of 2017 as per the National Judicial Data Grid was close to 3.5 million cases. The average pendency of tax cases is particularly acute at nearly 6 years per case.

  • Reductions in pendency, if any, were achieved either due to changes in the counting methodology of pending cases, or due to changes in pecuniary jurisdictions that led to a mass transfer of cases from the original side of the High Courts to District Courts. Intervening measures like the setting up of the National Judicial Data Grid and creation of tribunals have helped, but more is needed to improve the situation

  • Intervening measures like the setting up of the National Judicial Data Grid and creation of tribunals have helped, but more is needed to improve the situation.

  • The graphs given below show the number of cases pending in the courts.

Chart of Pending Economic Cases:Stock & Pending Economic Cases

Chart of Pending Economic Cases: Stock & Pending Economic Cases

Chart of Pending Economic Cases: Stock & Pending Economic Cases

Pendency and delay: possible reasons

High Courts: Burden from Expansion of Discretionary Jurisdictions

  • Generalized overload of cases. Further, economic and commercial cases are usually complex, require economic expertise in their handling and disposal, and hence, require more judicial time.

  • 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.

  • Data available for 2008 - 2013 for 5 High Courts captures the continued rise in the pendency of Writ Petitions even in recent years, which is crowding out judicial time for other cases

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.

  • These cases occupy a significant share of the Court’s docket. Delhi and Bombay High Courts have original jurisdictions that occupy nearly 10 - 15 % of their workload.

Supreme Court: Expansion of Special Leave Petition (SLP) Jurisdiction

  • Supreme Court, like the High Courts, has less capacity to deal with mounting economic cases because of rising overall pendency.

  • 📝 In the case of the SC, the burden derives in part from 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”, SLPs is now an overwhelming feature of practice at the Supreme Court.

  • This rising tendency to grant special leave has fundamentally altered the nature of the Court and created a high level of pendency, nearly 85 % of which are SLP cases.

Recourse to Injunctions and Stays

  • Rising pendency also results from the injunction of cases by Courts.

  • Lengthy interim orders, ex parte ad interim stays, increasing rate of pendency of cases at final arguments, and few final judgments in IPR cases are common traits of IPR practice across different High Courts.

  • Nearly 50 % of these cases are pending at the stage of pleadings, which is the stage at which parties are required to complete formal requirements before hearing.

  • The average age of cases waiting for final judgment is inordinately high at 7.9 years, showing that more attention needs to be given to cases pending at the stage of final disposal.

Pendency and delay: costs

Costs of delay

  • It is difficult to estimate the costs of pendency and delays. But some illustrative data are instructive in conveying a sense of potential magnitudes involved. The project costs (stocks) of stayed projects—at the time they were originally stayed—amounted close to 52, 000 crores.

  • The Ministries of Power, Roads and Railways have been the hardest hit. Since project costs were predominantly debt-financed, it is likely that project costs have increased by close to 60 % given the average duration of stay.

  • The overall impact of rising pendency at Appellate Tribunals, High Courts and the Supreme Court, coupled with the rising use of injunctions and other blunt instruments has ledto spiraling legal expenses of Corporate India.

Central government taxes

  • Pendency, arrears and delays are not just a feature of courts and tribunals, but also the Tax Departments and their multi-layered process.

  • As of March 2017, there were approximately 1, 37, 176 direct tax cases under consideration at the level of ITAT, High Courts and Supreme Court.

  • Just 0.2 % of these cases constituted nearly 56 % of the total demand value;

  • 66 % of pending cases, each less than Rs. 10 lakhs in claim amount, added up to a mere 1.8 % of the total locked-up value of pending cases.

  • The claims for indirect and direct tax stuck in litigation by the quarter ending March, 2017 amounted to nearly 7.58 lakh crores, over 4.7 % of GDP.

  • The success rate of the Department at all three levels of appeal- Appellate Tribunals, High Courts, and Supreme Court and for both direct and indirect tax litigation is under 30%.

  • Nonetheless, the Department is the largest litigant. The Department’s appeals constitute nearly 85 % of the total number of appeals filed in the case of direct taxes, though that number seems to have improved in the case of indirect taxes.

  • Since tax litigation constitutes a large share of the workload of High Courts and the Supreme Court, Courts and the Department may gain from a reduction in appeals pursued at higher levels of the judiciary. Less might be more.

Expenditure on administration of justice

  • Total spending on Administration of Justice by States and the Centre constitutes approximately 0.08 - 0.09 % of GDP, which is low when, compared to other countries, especially common-law countries.

  • Research shows that while general spending on the judiciary may not impact pendency, spending on modernization, computerization and technology leads to shorter average trial lengths.

  • The Government may consider including efforts and progress made in alleviating pendency in the lower judiciary as a performance-based incentive for States.

  • Expenditure may be prioritized for filing, service and other delivery related issues that tend to cause the maximum delays.

  • Data compiled for the Economic Survey reveals that nearly 30 % of a case’s life is taken up by formal proceedings like service of summons and notices issues that may be easily resolved through technological upgradation for filing and service mechanisms.

  • Building additional judicial capacity may not be effective unless existing capacity is fully utilized. The higher judiciary is currently operating at 63.6 % of existing capacity.

Policy implications

  • Pendency, delays and injunctions are overburdening courts and severely impacting the progress of cases, especially economic cases, through the different tiers of the appellate and judicial arenas.

  • Government and the Courts need to both work together for large scale reforms and incremental improvements to combat a problem that is exacting a large toll from the economy.

Some of the following steps may be considered:

  1. Expanding judicial capacity in the lower courts and reducing the existing burden on the High Courts and Supreme Court

    • For a smooth contract enforcement regime, it may be imperative to build capacity in the lower judiciary to particularly deal with economic and commercial cases, and allow the High Courts to focus on streamlining and clarifying questions of law.

    • These measures must be buttressed by efforts to train judges, particularly in commercial and economic cases by judicial academies.

    • 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.

  2. Substantially increasing state expenditure on the judiciary, particularly on their modernization. The Government may consider incentivizing expenditure on court modernization and digitization.

  3. Building on the success of the Supreme Court in disposing tax cases, creating more subject-matter and stage-specific benches that allow the Court to build internal specializations and efficiencies in combating pendency and delay.

  4. Reducing reliance on injunctions and stays. Courts may consider prioritizing stayed cases, and impose stricter timelines within which cases with temporary injunctions may be decided, especially when they involve government infrastructure projects.

  5. Improving the Courts Case Management and Court Automation Systems. To free up judicial time, initiatives like the Crown Court Management Services of the UK that are dedicated to the management and handling of administrative duties, may be considered.

  • According to public perception, there is some Law of Constant Overall Legitimacy and Effectiveness, with one side’s loss being the other’s gain.

  • The High Courts and Supreme Court, are still considered fair and final arbiters. The lament of increasing judicialization must contend with that perception.

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

  • There are, of course, clear lines of demarcation and separation of powers between the two to preserve independence and legitimacy. Even while respecting these lines, it should be possible and desirable for these branches to come together to ensure speedier justice to help overall economic activity.

- Published/Last Modified on: February 8, 2018

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