Stronger Contract Law in Pipeline to Lift Ease of Doing Business Ranking

Stronger Contract Law in Pipeline to Lift Ease of Doing Business Ranking

Changes to widen ambit of enforceability beyond compensation; law min to move Cabinet note soon

India is proposing a radical change in the legal framework on contracts to make them enforceable, thus creating a more stable and predictable business environment and boosting investment, especially in the country's infrastructure sector.

A cabinet note will soon be moved by the ministry of law and justice to amend the Specific Relief Act toward this end. The move is expected to lift the country's rating in the World Bank's Doing Business index as it's a measure on which India does poorly, having been ranked at 164 out of 190 on this score.

Prime Minister Narendra Modi wants the country to break into the top 50, boosting India's attractiveness as an investment destination.“Details have been finalised. It will go to cabinet soon,“ a top government official told ET.The changes are aimed at widening the ambit of enforceability beyond just compensation. The law currently provides for damages as a general rule and awarding specific performance -forcing an entity to complete a task-as an exception.

The proposed amendment would make specific performance the rule and damages the exception. The government is also looking at removing the discretionary powers of the courts in granting relief related to specific performance.

A definition for `public works contract' could also be introduced with a provision for specific performance as a general rule with a deadline for the disposal of disputes.

The government is also looking at empowering courts to appoint experts to seek their opinion on individual and a limit of two years for the disposal of suits for the recovery of possession of immovable property .

“These changes are aimed at bringing the law in line with present-day business needs of speedy enforcement of contracts,“ said another government official with knowledge of the development.India's 164th position on enforcing contracts was better than 172 in the 2017 World Bank ranking.

Contract enforcement, particularly in the infrastructure sector, has been in focus as the country looks to improve its roads, ports, railways and airports. Breaches of contract have scared away domestic and foreign investors from the sector.

“This is an area in the works,“ said another official. The government hopes that these changes would not just help India climb the doing business ladder, but also improve the overall investment climate. Reviving investment is critical to boosting India's economic growth rate, generating jobs and lifting people out of poverty.

In Mumbai, it takes 1,445 days on average to resolve a dispute, accor ding to the World Bank's Doing Business report, against 578 days in high-income OECD countries and 164 in best-performing Singapore.A high 31% of the claim value goes in meeting costs in India against 9% for Singapore, it said.The proposed changes will help accelerate India's development, said Vishal Gandhi, founder of law firm Gandhi & Associates

Time to Set Up Commercial Courts

The move makes ample sense.We do need to proactively improve the enforcement of contracts. As per the latest World Bank's Doing Business global survey, India's rank for the parameter `enforcing contracts' is a lowly 164. But we also need to set commercial courts in Delhi and Mumbai, to begin with, to seedily resolve commercial disputes. For transparency and efficiency such courts need to have electronic case management systems.

The Economics Times, New Delhi, 09th November 2017