India’s dysfunctional court system with 40 million pending cases threatens CECA deals

Bloomberg published a news article on Tuesday, highlighting how difficult doing business in India can become especially with their infamous judicial delays that threaten to hinder businesses and scuttled deals (‘What a 38-Year-Old Turmeric Scandal Says About Business in India‘, 18 Aug).

A recent top court ruling in India revealed how inefficient the Indian court system can be. The Supreme Court recently ended a 38-year saga of an alleged turmeric forger, who was arrested in 1982 and, eventually, sentenced to a month in jail and a 500 rupee (US$6.70) fine. After a decade, the top court reversed his conviction; the two lower courts took around 14 years each to render verdicts.

The lifespan of the turmeric case is extreme but not alone. There are currently almost 40 million cases pending across India’s three-tiered judicial system. Among the 25 state high courts in India, there are now roughly 173,000 pending cases for more than 20 years. This works out to nearly an average of 7,000 long-pending cases of more than 20 years in each state high court. And about half are more than 30 years pending. Those cases less than 20 years old are not even included.

The World Bank ranks India in the bottom 15%, worse than Pakistan, Syria and Senegal, when it comes to contract enforcement by the courts. Without a good and efficient legal system to enforce contracts by the judicial system, a signed contract is as good as an unsigned one with no repercussion when a contract is infringed.

India’s long judicial delays hurting deals

The long judicial delays have tied up some of India’s biggest corporations and would-be massive deals. For example, IHH Healthcare’s attempt to take over Indian hospital chain Fortis Healthcare Ltd was scuttled by Daiichi Sankyo’s fight to enforce a US$500 million arbitration agreement against the founders of Fortis who are the original owners of the company.

Tan See Leng is the former CEO of IHH, which operates the highly profitable Parkway Pantai. Under Tan, IHH made multiple acquisitions including India’s Fortis. By Nov 2018, IHH succeeded in acquiring the 31.17% stake with board control in Fortis, thereby triggering a mandatory takeover offer the company. The mandatory takeover offer was put on hold in Dec 2018, when India’s Supreme Court ordered a halt to the acquisition following a petition by Daiichi.

Daiichi sought a stay on the Fortis sale as the former Fortis owners had not fulfilled their commitment to pay the Daiichi as per previous Delhi High Court order. The former owners were said to have created encumbrances on their shares even after the court order. They themselves are also under investigation by the Indian authorities for fraud. As a result of Fortis’ trouble in India, it also affects IHH. IHH’s auditor, KPMG, had issued a “Qualified Opinion” of IHH’s financial statement for FY2019 (‘PAP candidate Tan See Leng leaves IHH at a time when KPMG issues “qualified opinion” on its financial statement‘).

Tan then left IHH by the end of last year. He later joined PAP and participated in last month’s GE under Marine Parade GRC. He and his team won with 57.7 percent, and he was appointed a full minister by PM Lee. He is now a Minister in the Prime Minister’s Office as well as Second Minister for Manpower and Trade and Industry. PM Lee said that Tan’s business experience would add a private sector perspective to Singapore’s economic policy making.

In any case, long judicial delays would invariably create a lot of uncertainty for foreign companies otherwise interested in doing business in India, as uncertainty makes investors nervous. But not for Singapore government and its GLCs.

After signing CECA with India in 2005, Singapore started pouring billions investing into businesses in India. However, if Singapore GLCs ever get into a court fight over any business deals in India and it takes another 38 years to settle, by then even Singapore 4G leaders would already be gone from this world.