India Business Law Journal – July/August 2011

Questioning the status quo

India must find a way to restore confidence in its governance

As the dust settles on a display of people power led by anti-corruption activist Anna Hazare, the question to be asked is: will the elected representatives of the people have the courage to usher in change that alters the status quo?

The recent rejection by the union cabinet of a Sports Bill does not inspire confidence. The bill aimed to clean up the management of sport, which, as India Business Law Journal reported in September 2010, is dominated by politicians who double as sports administrators. However, reports that the sports minster is stepping up his efforts to bring transparency and accountability to sports bodies indicates that some politicians have read the writing on the wall.

Similar signs of encouragement are evident at the Ministry of Corporate Affairs. In an exclusive interview with India Business Law Journal, M Veerappa Moily, the country’s new corporate affairs minister, says his “ministry will be just like a mother to the corporate world – impartial, objective and caring” (Reflecting on a mutiny). Add to this Moily’s determination to introduce a new Companies Act, which he says is his “first priority”, and there may be grounds for optimism.

If the new law is passed, it will be a considerable coup for the minister. There have been several attempts – dating back to 1993 – to revamp the antiquated companies law, but every bill that has been put forward has either lapsed or been withdrawn in the face of stiff opposition.

Steering a bill past multiple conflicting interests and ensuring it enters the statute books depends to a large extent on how well it has been drafted. Yet, as we reveal in this issue’s Cover story (Who’s who?), many observers are heavily critical of the integrity of the drafting process. Our coverage focuses on the blurred lines between the country’s lawmakers and its commercial legal advisers, and asks whether it is desirable for laws to be drafted by the very people who advise paying clients on their implications?

Opinions on the matter vary widely. Predictably, the lawyers involved see little scope for conflicts of interest and are keen to emphasize the value they add to the drafting process. Other observers are concerned. Ajit Prakash Shah, a former chief justice of Delhi and Madras high courts, for example, is worried that lawyers who represent commercial clients may insert subtle provisions in laws that play to corporate interests.

There are also calls for the government to be more transparent in the process of selecting commercial lawyers to assist with the drafting of laws. Vivek Kathpalia, a partner at Nishith Desai Associates, suggests the government should select lawyers for the job through competitive tendering. In addition, he warns that “the contract for drafting legislation should clearly direct participants to maintain confidentiality”.

Another problem cited by some observers is that, once drafted, new laws often don’t receive adequate scrutiny by the ministries responsible or even by elected members of parliament. “There is no demand from our MPs for a deeper consultative pre-legislative process in which draft bills are circulated for wider public comments,” says CV Madhukar, a director at PRS Legislative Research in New Delhi. “Nobody is nit-picking or raising doubts,” adds Vipul Mudgal at the Centre for the Study of Developing Societies.

Controversies over India’s governance extend far beyond the government itself. Indeed, in a recent judgment in the case of Nandini Sundar v State of Chhattisgarh, the country’s Supreme Court appears to have weighed in on the debate over the egality of India’s economic growth. Commenting on the implications of the ruling, Krishnava Dutt, the managing partner of Argus Partners, says the Supreme Court has walked a fine line between judicial activism and judicial encroachment (Vantage point). This, however, makes the judgment “neither anti-development nor anti-growth”, but “merely emphasizes the need for a more inclusive growth strategy”.

If new strategies are called for, nowhere is their implementation more pressing than in the country’s beleaguered telecommunications sector. In this month’s What’s the deal?, we examine the policy manipulations and backroom deals that preceded the scandals associated with the allocation of 2G spectrum. Our coverage goes behind to scenes of the debacle to provide rare insights into what went wrong and why. It also outlines the details of a plan by the country’s telecom minister, Kapil Sibal, to introduce a new telecommunications policy.

While further acts in the 2G telecom saga are being played out in the courts, the parties to many other disputes are turning to alternative forums in an effort to bypass India’s overcrowded courtrooms (Bypassing the courts). For many, the alternative of choice is arbitration. Yet, there is growing disquiet about the efficacy of the arbitration process. The delays inherent in ad hoc arbitrations and the problems encountered while enforcing awards – especially foreign ones – can make arbitration a troubling alternative to litigation. Clearly there is much to be said for planning ahead for the resolution of disputes, making it all the more vital to have a good legal adviser by your side.

It is a fitting time, therefore, for India Business Law Journal to present its fourth annual Directory of Indian Law Firms. As in previous years, the directory is accompanied by incisive editorial analysis of the state-of-play in India’s legal market (page 35). Our coverage paints a mixed picture of opportunity, regulatory flux, policy paralysis and fears over the impact of corruption. “Corruption is leading to a high level of conservatism in the market,” warns Hemant Sahai, the managing partner of HSA Advocates in Delhi.

The case for changing India’s status quo may be stronger than ever.