When a recession strikes often litigation booms! It is not uncommon for parties to be in breach of contractual terms during times of an economic slowdown. Deals struck in a strong and vibrant market may suddenly become onerous and difficult to honor, resulting in the loss of goods, services or payments agreed upon between the parties. A common place breach is often the failure to supply agreed goods/services or failure to pay for the goods/services received. An understanding of the legal nuances of litigating in India are important in order to make an informed decision on how to handle this unfortunate situation. This article briefly sets out the judicial process involved in pursuing a debt in India.
The Indian judicial system, which is predominantly modeled on the British system of justice, is comprehensive enough to address every conceivable type of dispute. A dispute arising out of a breach of contract or non-performance of terms of contract is considered a 'civil dispute' and can be redressed before a Civil Court, which is subordinate to the High Court, and is a court of first instance. In the cities of Mumbai, Kolkatta and Chennai, the High Courts have original jurisdiction to receive and adjudicate on civil suits, depending upon the relief sought in the suit. Thanks to a few timely amendments that plugged longstanding loopholes which were the root cause of undue delay in adjudication, the average time for the disposal of a civil suit has been drastically reduced now.
In the event of a dispute, it is advisable to get timely advice. Often litigants leave matters to the bitter end which often convolutes an otherwise straightforward claim. Being diligent and acting in time is critical as the law of limitation prevents a claimant from seeking redress after a period of 3 years from the date of cause of action. As a first step it is recommended that a Notice be issued to the debtor stating the facts and making clear the claimants demands. The purpose of such a Notice is to caution the recipient that the claimant is in possession of strong evidence to support the claim and that in the event of non-compliance of the demands made in the Notice, redress would be sought from a court of law. Often a legal Notice provokes an otherwise silent debtor to react. Inter party correspondence is often ignored whilst a dispute is ongoing - many foreign claimants complain that debtors do not respond or react to any demands or requests from the claimant.
Fear of local litigation on their home turf can thus prompt a debtor to react and be the first step towards resolution in case an out of court settlement can be negotiated. If the recipient fails to comply with the demands made in the Notice or completely ignores the legal notice, a law suit needs to be filed.
It is advisable that such a Notice and all further correspondence be conducted in hard copy format, rather than electronic mails, with the evidence of serving the Notice/communication on the addressee in the form of an acknowledgment of receipt. Service of the Notice and subsequent proceedings must take place according to the code of civil procedure laid down under Indian law.
Often faulty service can lead to delays and strategically create difficulties for claimants. Thus advice should be taken at the outset on the correct form of service to ensure compliance and validity under Indian law. A law suit is instituted by presentation of a plaint, stating all the relevant facts and the relief that is sought. Upon receipt of the plaint the Court issues summons to the defendant, who is required to file a reply in the form of a written statement within 30 days from the date of receipt of summons. With the filing of the written statement by the defendant the pleadings are complete and then the Court frames the issues that are relevant for the adjudication of the suit. Once the issues are framed the Court proceeds for the trial with the recording of evidence of the witnesses of the plaintiff and the defendant. During the course of the recording of evidence important original documents that are produced by the witnesses and relied upon by the parties are 'marked' and retained by the Court. Upon conclusion of the recording of evidence the Court posts the case for 'arguments' of the counsel for both sides and then proceeds to deliver the judgment.
Based on the verdict of the Court, the registry of the Court draws the decree. A decree is enforceable against the judgment-debtor by attachment and sale of movables and properties belonging to the judgment-debtor. A variety of interim measures for protection can be taken during the pendency of the suit, including temporary injunctions restraining the defendant from alienating any property and attaching the properties of the defendant before the judgment if such properties are likely to be taken out of the court's jurisdiction or encumbered.
The plaintiff is required to pay the court fees in advance at the time of institution of the suit. The court fees have to be paid on the value of the relief sought. The fee payable varies from State to State. The court, in its discretion, usually awards costs in favour of the succeeding plaintiff, including the court fees. The courts also have the power to award interest on the decreed amount until full payment.
Indian law recognizes a special procedure for trial of certain suits such as suits upon bills of exchange and promissory notes and those in which the plaintiff seeks to recover only a debt or liquidated demand in money payable by the defendant, with or without interest. Summary suits can only be adjudicated by high courts, city civil courts and courts of small causes. The essence of the summary suit is that the defendant does not, as in an ordinary suit, have the right to defend the suit. He must apply for leave to defend within 10 days from the date of service of the writ of summons upon him. Such leave is only granted if the affidavit filed by the defendant discloses facts that indicate that the defendant has a substantial defence or that the defence is not frivolous or vexatious. If no leave to defend is granted, the plaintiff is entitled to a decree.
The key to success in any dispute resolution is d o c u m e n t a r y evidence. Therefore one should ensure that all the relevant business documents like purchase orders, invoices, documents evidencing proof of having delivered the goods or provided the services and all business correspondences are available in original.
In respect of new deals one should ensure that any contract or business understanding is reflected in writing and signed and accepted by the parties. It is important to ensure that each contracting party is represented by a competent and authorized representative. If the business or transactions involves supply of goods or providing services it would be advisable to have in place business documents like purchase orders, invoices, documents evidencing proof of having delivered the goods or provided the services and all business correspondence.
It is also advisable not to pay the entire consideration in advance but to pay the same upon receipt of the goods or services. Alternatively the payment can be commensurate with the quantity of goods or extent of services received.
Disputes in respect of contracts/agreements that contain an arbitration clause must essentially be referred to arbitration and the jurisdiction of the Civil/High Courts would be barred. Where the arbitrator has not been named or the parties are unable to agree upon an arbitrator, the Chief Justice of the High Court concerned would appoint one on being petitioned by any of the parties. A person of any nationality can be the arbitrator. The decision of the arbitrator is not only binding on the parties but also enforceable as though the same was a decree of a court of law.
In respect of disputes that have arisen in UK and a suit being instituted in a UK Court, a judgment passed by a UK Court can be enforced in India provided that (i) the Court was of competent jurisdiction, (ii) the judgment was given on the merits of the case, (iii) the judgment is not founded on an incorrect view of international law or on a refusal to recognize Indian law, where applicable, (iv) the proceedings were not opposed to natural justice, (v) the judgment is not obtained by fraud and (vi) the judgments sustains a claim founded on a breach of any law in force in India.
Few need a reminder of how long winded litigating in India can be. With the best will in the world, a water tight case, brilliant counsel and all possible supporting evidence, it is still advisable to steer clear of the court process and settle out of court. Strategic advice upfront on how best to handle a potential claim can pay rich dividends, literally!!
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.