Considering Litigation in India | Part I – Beware of What You Wish For!
It is a common view among members of the business community that engaging in litigation is a time consuming and distracting exercise. It takes away precious resources from the business and management, which can instead be productively deployed in enhancing business value. But, sometimes litigation is inevitable. From an Indian context, in many cases, it is unavoidable. However, it should ideally only be a means to achieve a larger commercial objective. But, all foreign investors and businesses should bear in mind that the realities of enforcement in India are very different from a developed market. The Indian judicial system is agonizingly slow and eventually if one does obtain a final decision from the first level courts, they may still have to contest the verdict through multiple appellate levels. The World Bank’s 2019 report for “Doing Business” ranks India at 163 out of 190 countries for enforcement of contracts. On an average, it takes 1,445 days to enforce a contract in India! But, that is just an average. In reality, commercial disputes depending on their complexity can meander within the judicial system for much longer. In this backdrop, it is important for all parties to approach disputes in India from a resolution standpoint as opposed to a ‘winner takes all’ approach.
This write up is part of a series through which we will discuss the dispute scenario in India, examples of pain points within the system and some practical recommendations to navigate the system. This is of course for those people who are not accustomed to the realities and nuances of the judicial system in India. Usually, apart from large domestic corporations, most businesses in India or foreign businesses operating in India have seldom encountered a commercial litigation with the Indian judicial system.
Present Day Challenges
But, before we delve into navigating the challenges within the system, it may be useful for domestic and foreign business persons to firstly understand the present challenges.
Structure of litigation practices: Litigation practice in India is usually separated from the transactional or advisory side of legal practice. Hence, litigators normally have only a peripheral knowledge of the workings of a transaction and the processes involved in concluding it. For instance, when a dispute does arise from a concluded M&A deal, it is not just the final agreements that matter. But many a times the dispute could involve aspects from while the deal was being structured. The documents that were reviewed in the due diligence process could provide vital clues in an M&A litigation. A detailed understanding of the transactional side can offer invaluable insights in a litigation scenario; to ask the right questions and probably raise the relevant issues. But, litigation teams rarely combine the expertise of transaction teams who could provide such assistance during the planning stages of a litigation.
General approach to litigation: Most litigation practices across India handle commercial litigation under the general civil litigation area of practice. While many commercial disputes are contractual disputes on property or supply of goods or services, the nature of the commercial dispute is becoming more nuanced. Complex disputes around specialized sectors have been reaching the judicial system and the lack of sectoral specialization at a trial level is evident.
Counsels are not invested in the outcome: Another challenge is the current compensation structure for litigation. Unlike some developed markets where litigation financing and success-based fee structures are common, Indian litigators are paid for their appearances in court. They are rarely engaged while formulating a strategy when the dispute arises. More often than not, litigators are given a mandate by clients only once the matter is about to reach the judiciary. The litigation solicitors would mostly chalk out the litigation strategy and would have themselves been involved only when a court case becomes imminent. Commercial litigation in India, unlike other forms of litigation, should be approached from a standpoint of attempting to drive the best possible settlement for the litigating parties. Of course, each client may have a different objective which needs to be borne in mind. But, when the counsels handling the litigation are unaware of the commercial aspects and rationale, it becomes a challenge to provide a holistic view keeping the commercial objective in sight.
Clients need to be apprised on the merits of the dispute: Clients need to understand that no lawyer can guarantee the outcome of a case in court. But, a reasonably competent lawyer should be able to review the facts of the case and provide a fair assessment regarding the merits of a commercial dispute. This brings us back to the importance of chalking out a strategy for the litigation before jumping into it headlong. Clients must be sensitized on the costs involved and actual duration for any possible outcomes. This would allow clients to make an informed decision to pursue the best course of action. But, given the incentive structure for litigation, the task at hand can become counterproductive for litigation lawyers.
Absence of costs & Penalty regime: Another pressing problem within the judicial process and especially for commercial disputes is the lack of a proper costs and penalty regime. Although recent amendments in the procedures for commercial courts have introduced the ‘costs to follow the event’ principle, the large number of courts and tribunals that decide on commercial disputes are not bound by any rules regarding costs. The judges have discretion to award costs in favour of the prevailing litigants, but it is rarely done. The lack of any costs on the party that has lost the case has a serious impact across the litigation process. This allows a free hand to the parties in a litigation to raise any number of frivolous issues bereft of any merit. This is also used as a strategy to delay the case by draining the resources or frustrating the party seeking a relief. The more the number of issues raised, the longer the trial and proceedings continue, to decide upon each of the points of dispute.
Low Threshold for Admission: Flowing from the above, is another troubling aspect that one encounters. There is a seemingly low threshold in most courts to admit a claim and initiate civil proceedings. While the law prescribes certain safeguards that a judge should adhere to before admitting a claim and commencing proceedings, judges rarely delve into great detail during the preliminary stages. They merely go by the arguments advanced by the appearing counsels and the semblance of a legitimate issue would admit the claim for proceedings at the first level courts. Further, the presence of a senior counsel arguing the merits of a case would enhance the chances of the matter being admitted for trial irrespective of the quality of evidence supporting the claims. This also creates a perverse incentive for litigants to make all sorts of unsubstantiated claims in proceedings just to get the matter admitted. To compound matters further, the offence of perjury (false statements before court) is not treated with the seriousness that it demands.
Perjury is not sufficiently penalised: Perjury is rarely penalised in Indian courts. The judge deciding upon an issue will rarely penalise a party who is found to have made incorrect or untrue statements in their affidavit submitted during the proceedings. The lack of a deterrent for such an offence means that litigating parties rarely worry about including conjectures and wild unsubstantiated claims in their court documents. Many a times, certain inaccurate statements are deliberately included to build a compelling case for admission and to commence trial. During or upon conclusion of the trial, the judge merely denies claims based on inaccurate statements but rarely ever penalises the concerned party.
Training at Trial Courts: Many of the judges and adjudicating officers appointed in the various trial courts and tribunals are not specialists in the field of subject they decide cases on. They usually tend to learn on the job. Unfortunately, as they gain experience over the years, they may end up being transferred to an entirely new area of judicial practice. This creates challenges within the system for continuity and lack of sectoral expertise to encounter the range of specialised issues brought up to them.
Tribunalisation of Justice: Another factor that warrants attention is the rampant tribunalisation of many areas of judicial discipline. While originally tribunals were set up to expedite the service of justice, the results of the tribunals have not matched the expectations. The tribunals are not necessarily bound by the conventional rules of procedure that govern Indian courts, but they are manned by the same cadre of judges trained within the conventional procedural system. Hence, they tend to continue to follow the rules of procedure practiced in general courts, albeit with certain relaxations. The other pressing concern with respect to the tribunals are the lack of sufficient infrastructure. The tribunals have poor infrastructure and severe shortage of manpower. They suffer from the usual infirmities that plague the general judicial system and have hence, just created an added layer of judicial process.
Procedural Challenges: The procedural rules followed in India were originally incorporated more than a 100 years ago and continue to be the bedrock on which justice is administered in the 21st century. This is an obvious concern and does not warrant further elaboration. One can only imagine the challenges faced by applying rules prescribed in 1900’s to the commercial realities of the 21st century.
Interim relief practice: Given the systemic deficiencies in achieving finality before Indian courts, litigation in India has developed a lucrative area of practice in the nature of interim reliefs. Interim reliefs are essentially special discretionary powers that a court has for awarding certain reliefs by way of orders pending final decision on the claim. Under Indian conditions, the utility of the interim relief is that it can determine the dispute midway, since the interim relief could be either temporary or permanent. Once a party has secured an interim relief that goes in its favour it can compel the other party for a settlement. This works as a strategy since finality of the dispute may take years in an Indian court.
The above issues are not an exhaustive list of the challenges that affect the Indian judicial system, but are meant to offer an insight into the various bottlenecks that one should be mindful of when pursuing litigation in India. Also, these are not issues that the Indian government is unaware of. Multiple law commission reports have been generated by various committees highlighting many of the above detailed pitfalls with recommendations for reform. The entire judicial system and the litigation set up in India requires radical overhaul and sustained efforts to transform itself into a modern, efficient judicial system that can deliver on the ideals of justice for all. Successive governments have taken steps to try and improve the system; but like with all things in India, they are too few and too slow. Therefore, for people and businesses looking to avail of Indian courts to secure reliefs, they must learn to navigate the existing system and opt for the best course to achieve desired objectives.
In the next part of this series, we will offer certain practical solutions to try and work within the system and achieve the desired objective. As mentioned at the outset of this article, one should not seek to litigate a commercial claim in India with an aim to achieve a final outcome. It would at best end up becoming a self-defeating victory or at worst, years of time and precious resources spent with no tangible outcome. Litigation in India as on date can at best be used as one of the means to achieve a commercial objective and should not be considered the sole means to address commercial grievances. Parties to commercial disputes in India must always seek to achieve the most plausible form of settlement possible, rather than squander each other’s resources and time within Indian courts.
Ajay Joseph | Partner, Veyrah Law; Anshu Bhanot | Of Counsel, Veyrah Law
Views expressed above are for information purposes only and should not be considered as a formal legal opinion or advice on any subject matter therein.