🙏Commercial judgments, and the ability to pay up – The Hindu BusinessLine

Clipped from: https://www.thehindubusinessline.com/opinion/commercial-judgments-and-the-ability-to-pay-up/article66685028.ece

Courts must be mindful of the financial implications of their judgments on the parties involved

On March 30, two independent orders/judgments were delivered, one by NCLT and the other by Madras High court, with financial implications of ₹1,337 crore and ₹12,381 crore respectively.

The remit of this piece is not to analyse in depth the merits of the respective orders nor comment in any manner on their correctness. The scope is restricted to whether judgments should be mindful of the commercial feasibility of implementing the orders before they are pronounced.

Speaking to a cross section of lawyers brought out divergent views on the subject, so a discussion on it seems relevant.

In the case of Google it is learnt that the matter will be taken up before the next levels. Nearer home the judgment delivered in the context of Madras Race Club needs closer scrutiny more so from the perspective of possibility or impossibility of its implementation.

To cut a long story short, this case has a long and chequered history from 1945, and on the basis of this order Madras Race Club will have to mop up ₹730.86 crore within one month to pay the Tamil Nadu government. Once the government raises a fresh demand within one month of ₹12,381 crore it has to pay it up within two months from that date. By any account these are mind boggling amounts of money that even the largest of corporates would find challenging to raise in the stipulated time frame.

The moot question is should a court look at the commercial feasibility of the judgment before passing orders? The strict legal view is that in contractual disputes the judgment should restrict its scope to just interpret the clauses in the contract and pass orders. Nothing more and nothing less.

But there have been cases where courts have gone beyond this and looked at equity and commercial expediency in passing orders. How do we strike the right balance?

Justice vs Judgment

There is enough commentary on the difference between justice and judgment. In matters of commercial transactions a purely legal view of contracts masks the commercial niceties, which in today’s context are so important.

The fact is that the party in question has to plead for staggered payments and/or seek remedies from the higher courts. But sheer impossibility of performance i.e. payment of this staggering amount in such a short time raises the question as to whether the judgment should have considered this aspect also to ensure “equity” and “justice” in the limited context of “Ability to pay” within the time frame.

Maybe an alternative could have been to refer the parties concerned to mediation where they could have arrived at an acceptable sum of money keeping in mind the paying entity’s ability to pay.

In the final analysis as India marches towards becoming a $5-trillion economy we need a closer look at how equity, commercial expediency and judicial orders are interwoven in matters relating to contractual commercial disputes.

A committee should be set up to look at this aspect closely and come up with some long lasting and workable recommendations.

The writer is a chartered accountant

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