|
April, 2003 |
| |
|
|||
|
||||
|
Legal
Side |
|
Making
the Law Work for Business by
Bharat Raj Upreti Fundamental
change in the perception of the state’s role in economic development
has been seen in Asian countries since the 1960s. However, such policy
shift became visible in Nepal only after 1990 as a result of replacement
of party-less system of government by the democratic form of government.
There has been policy shift in favor of the economic liberalization and
privatization of public enterprises, which has necessitated a shift in
the legislative policy. Though the shift in policy has been reflected in
some areas of law, the existing legal regime is awaiting great deal of
reform. In
the process of change in the legal system, two different dimensions of
legal system can be identified: allocative and procedural. The
allocative dimension determines whether the power to make decision over
the allocation of resources is vested with the state or is left to the
market. The procedural dimension deals with procedure of the resources
allocation which is primarily of two types: rule-based or discretionary.
Both of these two dimensions are interrelated. The liberalization of
market economy requires vesting of power to make decision about the
allocation of resources with the market. Similarly, the
administrative/bureaucratic decision-making should always be rule-based
and there should be virtually no room for discretion. This is possible
only through detailed rules/procedures/working manuals.
There
also are two other aspects to a law to make it business-friendly. The
first is the legal framework to create institutions for regulatory
oversight of the market to enforce contract and property rights and to
adjudicate business disputes expeditiously. The other is the legal
framework designed for enhancing predictability, transparency and
accountability of the state actions. Accountability of state action is
possible only where an effective mechanism for addressing grievances
against the action or inaction of the state agent is ensured under the
law in a transparent, economic and expeditious manner. The
regulatory role of the government is to ensure the market discipline and
fair play. The legal framework designed for ensuring predictability,
transparency and accountability of the state actions are both the
safeguards and incentives for venturing into business undertaking. The
subject matter of this paper is how to make the law work for business in
the context of Nepal. The word ‘law’ is taken here in a very broad
context so as to also include policy directives, operational directives,
work procedures/manuals, department orders, circulars etc. issued down
the line of administrative bureaucracy. Legal framework is one of the
fundamental aspects of liberalized market economy. If the bureaucracy is
not tuned to the liberalized economic policies and if there is the
absence of effective mechanism for addressing grievances against the
state agent, the legal framework in itself is meaningless. Effective and
expeditious mechanism for the settlement of business disputes is other
important precondition for making the law work for business. Thus the
issue of law as an instrument of economic development can be discussed
in four perspectives: (1) legislative, (ii) administrative/bureaucratic,
(iii) regulatory and (iv) remedial. Existing
Legal Framework Existing
legal framework of Nepal is not tuned to business requirement of the
day. Most of these laws are based on state approach in allocation of
resources. The procedural dimension of existing legal system is
discretionary. These are full of gaps, giving more and more
discretionary power to the government agencies. Lack of administrative
manuals and norms for such agencies are additional problems. Therefore,
the need of the day is a shift in the legislative policy of the
government from state allocation to market allocation and
from discretionary to the rule-based legal system. This requires
streamlining of the existing legislation to fit in this policy shift.
New laws are required for developing the legal framework at par with the
internally workable standard. Such development should be aimed at (i)
building confidence of the investors including foreign investors, (ii)
establishing institutions providing effective mechanism for regulatory
oversight of the market, and (iii) for providing effective and
expeditious mechanism for the settlement of business and commercial
disputes. The
agenda for reforming legal framework has been debated in several forums
organized by several professional organization at various times. Mostly,
two aspects of the legal reform package have been identified. The first
consists of the reform in the existing legislation. These are (1)
Companies Act, 2053, (2) Stock Exchange Act, 2040, (3) Commercial Bank
Act, 2031 and several other financial sector legislations such as
Finance Company Act 2042, (4) Foreign Investment & Technology
Transfer Act 2049; (5) Patent, Design and Trademark Act 2022. Some
preliminary work for reforming some of these Acts has already started.
The government is already preparing to introduce an umbrella legislation
for commercial banks and financial institution through an ordinance any
time now. However, a few laws really need a more urgent attention. A
reform in intellectual property legislation has been already overdue.
But somehow it has remained ignored by the government. Since Nepal has
already ratified Paris Convention for the Protection of Industrial
Property and has come into effect from 16 March, 2001, revamping of the
existing Patent, Design and Trademark Act 2022 should be given immediate
attention. Some
priority areas for new legislations were also identified in a recent
symposium jointly organized by Focal Point For Financial Sector Reforms
and Nepal Bar Association (see box). The
focus on each of these laws should be on strengthening the market
mechanism for allocation of resources and less or no discretionary power
to the state agents in terms of procedural matters. The reform package
should be inclusive of related rules, bylaws and manuals as the Act in
isolation does not serve any meaningful purpose. It is little relief to
note that the government is at least ready to introduce the laws dealing
with insolvency and secured transaction. There
are few examples, where important laws have been passed by the
government and no purpose has been served due to the failure of the
government to introduce required bylaws and procedural guidelines. The
Joint Housing Ownership Act 2054 became the law in 2054 B.S. (i.e. some
five years ago) but it has not yet come into effect because the
government has not framed the required rules and procedure. It is a pity
to note that millions of Rupees have been invested by private sectors in
the joint housing project relying on the Act of Parliament and that the
government on its part has ignored the commercial difficulty faced both
by the investors and consumers. Similarly, the rules under the Debt
Recovery Act 2058 and the Income Tax Act 2058 were introduced after a
considerable gap of time from their introduction. This did create lot of
confusion to all those concerned including tax lawyers. But it has
created a haven for tax evaders and the administrator.
Transparency
and predictability are the two basic things expected from a legal system
in a democratic set up. How can we think of transparency and
predictability when we put an Act into effect without making the
required rules, procedure/ directives which are integral parts of a
particular Act? The
other aspect to be addressed while making new laws is the mechanism for
quick redress of the grievances against the state agents for their
alleged irregular acts/inactions. The other equally important aspect of
legislative process is how to make the process participatory. How
to Make the Bureaucrats Work for Business? The
other important issue in the present context of Nepal is how to make the
state agents and bureaucrats accountable for their acts and inactions.
The letters of law do not speak themselves. They are given life by the
users and administrators. We may make very progressive and good law but
if the administrators are not tuned to it or are not committed to its
enforcement, these laws are useless. Therefore, any initiative to make
the law workable for business would be futile in the absence of the
appropriate strategy to tune up and clean the bureaucracy. This is not
possible without the political commitment. This requires a political
leadership which is clean as well as committed to set up a system of
governance confining itself within the system. In the absence of such
commitment and committed leadership, only the legal reform will not be
able to produce desired result. The
other problem of the bureaucracy is the lack of interdepartmental
co-ordination and co-operation. The bureaucrats in every department are
slow to respond to the communication from other departments and prefer
to work in isolation. This attitude has been more visible during the
decade long practice of the democratic government. Though, the democracy
itself is not to be blamed for this. There
is an urgent need for bringing the attitudinal changes in the
bureaucrats and other civil servants. There are allegations that most of
them still regard themselves as absolute rulers and are apathetic to the
genuine causes of ordinary citizen. With a few exceptions, most of the
bureaucrats, behave not as public servants but as masters of the public.
There may be two possible reasons for this. First is the lack of
effective mechanism to make government employee accountable for their
inactions. The second may be the politicization of government employees.
Most of them are loyal to their political masters but not to the
taxpayers or the government.
Everybody
is aware of these realities and problems. There are numerous examples to
prove this, and some recent examples are worth citing. The first example
relates to the issuing of residential visa to the representative of a
foreign company which invested in a large-scale industry at Hetauda
after obtaining required approval from the Department of Industry.
According to Section 6 (2) of the Foreign Investment and Technology
Transfer Act 1992, a foreign investor investing more than one hundred
thousand US Dollars is entitled to residential visa. Representative of
the said foreign company which had already invested more than 3 million
US Dollar in Nepal had applied for the residential visa. The Department
of Industries had recommended for the issue of visa. But the Department
of Immigration was of the view that the benefit was only available to
the investor (i.e. company in the present case) and not to investor’s
representative. Legal opinion from the Ministry of Home Affairs
supported the view taken by the Immigration Department. The matter was
taken up again to the Department of Industries which ultimately helped
to issue visa to the investor’s representative. We
all are aware of the recent problem faced by the importer of electric
motor vehicle in which the custom office did not treat battery operated
vehicles as electric motor vehicles and refused to grant concessions on
the customs duty provided by the Act. There is enormous delay in
administrative decision making. As a result, the importer is incurring a
loss by paying huge amount of demurrage to the government due to delay
in clearing the matter by the government agent. This is a clear example
of lack of co-ordination among government employees and their
indifference to the concern of the general public. In
an interview, past president of FNCCI Pradeep Shrestha (Dristi Weekly 18
June) has explained the difficulty faced by business in dealing with the
government agencies. Shrestha confessed having bribed the bureaucrats
and politicians several times. Such a confession by someone who has been
the leader of FNCCI, the apex organization of the business sector, can
not be taken lightly. A talk about making the law work for business
becomes insignificant when the primary concern is the fact that bribing
the government employees and the politicians is necessary to make the
government machinery work for the business. Examples
cited above raise serious issues of transparency of state action, lack
of predictability of the government decision, lack of co-ordination
among the government officials, weakness and mismanagement of the
government’s legal services, lack of accountability of the government
official and the lack of effective mechanism for redressing the
grievances against the state agents for their acts and inactions.
Problem
of Dispute Settlement Mechanism Effective
and expeditious system of dispute resolution is a must to make the law
work for business. Existing law provides for two forums for the
settlement of business disputes. The formal (court system, both the
regular courts and tribunals) and the private mechanism (the arbitration
tribunals set up pursuant to the agreements made between the parties).
None of these are performing well. Formal
courts are not free from the allegation of corruption and mismanagement.
The judiciary also faces the problem of trained manpower able to
understand the technicality and urgency of expeditious settlement of
business disputes put before them. The
Revenue Tribunal formed by the government for expeditious settlement of
revenue disputes lags far behind the regular courts in the matter of
disposal of cases. It is sitting on a huge stockpile of old cases, some
of which are pending for four and more years. The Supreme Court is also
not free from the allegation that it favors the government in most of
the revenue cases. This again is not merely a legal issue, but an issue
of change in overall working style, commitment and attitude. The
private mechanism of dispute settlement is also not performing well. The
process of arbitration has been time consuming and expensive.
Arbitrators work part time or during their free time and they take more
time than a regular court. There are many reasons. One such reason is
the frequent interference of the court and its attitude to frustrate the
award than to support it. In fact the government has completely
neglected institutionalization of arbitration as private forum of
dispute settlement. Nepal
Council of Arbitration, registered as voluntary organization by some
lawyers and engineers, is providing institutional support to arbitration
in a very modest form. Institutionalization of the process of dispute
settlement through arbitration could save time and money ensuring fairer
justice to the business community. (Upreti is a renowned Advocate specialized in corporate law.) |
|
Cover Story | Editorial | Business News | Sectoral | Politics | Economy & Policy | No Laughing Matters Personality | Management | Legal Side | Corporate Focus | Interview | Stock Taking | Biztoon | Main | Past |
|
Send your feedback to the editor: bizline@mos.com.np |
