India’s weakest link in the chain of ease of doing business viz., enforcement of contracts, needs to be addressed. Around ₹50,000 crore is locked up in the form of installed projects and investments with disputes waiting to be resolved.
The Commercial Courts Act, 2015, establishes commercial courts. Most studies show that commercial courts are yet to deliver on expectations. India has a rich tradition of establishing ‘special courts’ and ‘tribunals’ to deal with the ever-rising issue of docketing. Commercial courts are new additions to the category of special courts. There are multiple suggestions to improve the working of commercial courts, and the most routine one is to build the capacity of the judges in commercial law.
Commercial law rests on three pillars viz., certainty, predictability and autonomy. The certainty principle mandates the adjudicator to adhere to a certain defined path rather than change the application of the law or its principles either for interpretation or creativity. The principle of certainty shall be applied not only to the substantial principles of law but also to the duration of the litigation. Lord Mansfield (in Alderson v Temple, 96 ER 384) captures the essence of this principle by stating that “commercial transactions should be determined on solid principles, not upon nice subtleties of law”.
As for predictability, the thumb rule would be whether a reasonable man of the mercantile community can predict the outcome of the dispute with certainty. It’s not just law but an overall mix of justice, equity and good conscience that dictate the outcomes of a case. However, it is ideal if the judge and lawyers attempt not to impose a heavy dose of equity while dealing with commercial cases.
Equity and justice
If the commercial transaction is between an end-user (consumer) and a commercial entity the judges tend to introduce principles of equity and justice. This has been witnessed since time immemorial. The best example in this regard is the case of Donoghue v Stevenson, which paved the way for product liability as an obligation of the manufacturer. However, consumerism has influenced pure commercial transactions as well (contracts between commercial entities). This has diminished the predictability quotient of the outcomes, making it extremely difficult for enterprises to both structure their contracts as well as litigate upon them.
On autonomy, the contract law heralds ‘freedom of contract’ through its principles, and recognises party autonomy as the key while commercial contracts are interpreted by adjudicators. Unless the objectives or the consideration of the contract conflict with public policy the court will go by what parties have agreed to while establishing the contractual relationship between themselves. This should apply to pure commercial terms, like tenure of supply or payment, determination of price between the parties, charging of interest which might be slightly higher than the normal bank rate, and so on.
Per the last World Bank’s Doing of Business Report, 2020, Indian courts took an average of 1,445 days to resolve a commercial dispute, which turns out to be around four years.
Among the tribunals, the consumer commissions (popularly referred to as consumer courts) have inculcated such a culture of working towards consumer welfare and have garnered the confidence of consumers by simply treating the consumer as a ‘favoured litigant’.
With a monetary threshold of ₹3 lakh (₹1 crore earlier), the volume and scope of commercial cases will increase. IP litigations will also go before them. Therefore, it is imperative to build the capacity of judicial officers. This is a more practical approach in the immediate term than increasing the number of judges, among other options, which cannot happen overnight.
The writer is Professor of Law, National Law School of India University, Bengaluru