Ayush Patria (Associate)

INTRODUCTION

ADR procedures are contained under Section 89 and Order X Rules 1A, 1B, and 1C of the Civil Procedure Code, 1908 which is a significant step forward in the formation and development of ADR proceedings in India. As business activity has expanded in recent years, the number of commercial confrontations has increased as well. Sale-purchase contracts, shareholder rights in joint ventures, international judgments and awards in India, and contract rescission or cancellation are all causing complications, and all or some of them are turning to arbitration to address their concerns. Alternative dispute resolution systems and arbitral tribunals such as the LCIA, SIAC, and ICC are becoming increasingly important to businesses.

Even industries as diverse as oil and gas, offshore services, telecommunications, and power have utilized ADR to settle business conflicts. Because the institutional nature of the parties affects the dispute at every stage of its life, from the creation of an injury or grievance to deciding whether to resolve it through litigation or arbitration, the majority of business organizations, whether partnership firms, proprietorships, one-person companies, joint-stock companies, and so on, have included an ADR clause in their contracts to resolve their disputes in recent years.

Organizations have grown more aware of the costs of arguing and the potential savings, which has resulted in a trend toward alternative dispute resolution strategies. The business sector’s influence on the alternatives movement has primarily been funneled through recently formed entities designed specifically for this purpose. There are ADR panels, such as the National Institute for Dispute Resolution (NIDR), which is supported by major corporate foundations.

These bar committees are advantageous since they are cost-effective and have generated their own publications to increase awareness and advocate the use of alternatives, such as Alternatives and Corporate Dispute Management. The following are some of the main reasons why businesses have been driven to use alternative dispute resolution methods:

• A desire to improve access to justice for persons who believe they have been shut out of the public dispute resolution system due to costs or formality,
• During the conflict settlement process, the goal is to promote community empowerment.

Corporate legal departments should make applying these or other principles to every dispute at every stage of its development, from the initial claim through trial and appeal, a routine part of their work. Furthermore, the corporate client must take intentional steps to educate outside lawyers about the company’s commitment to cost-effective conflict resolution, including the use of alternative dispute resolution. Chevron pays $25,000 for ADR-based mediation of a single dispute, $700,000 for mediation through outside counsel and $2.5 million for going to court over a three- to five-year period.

Toyota’s United States division developed a Reversal Arbitration Board to resolve disputes between the firm and its dealers over automobile allocation and sales credits, which has resulted in a continuous decline in the number of these cases, from 178 in 1985 to 3 in 1992.

The parties propose alternatives that are less time-consuming, tedious, confrontational, and more generative of goodwill and long-term relationships by allowing them to resolve their differences peacefully through arbitration.

DISPUTE RESOLUTION PROCESS AND TECHNIQUES

A variety of forums/ bodies for dispute resolution have been established under the Companies Act 1956 allowing business entities to resolve their problems and get a judicial settlement. Commercial Courts, the Insolvency and Bankruptcy Code 2016 (Bankruptcy Code), revisions to the Arbitration and Conciliation Act, the National Company Law Tribunal (NCLT), and the Companies Mediation and Conciliation Rules, 2016 all contributed to a redesign of the dispute resolution apparatus. The Indian government has made tremendous efforts in this regard to ensure the effective and timely resolution of corporate/ commercial litigation disputes in India. The Court will draught settlement terms and present them to the parties for consideration under Section 89 of the CPC if it believes there are elements of a solution that may be acceptable to them. After receiving the observation, the Court may reformulate the proposed settlement’s borders and submit it to arbitration, conciliation, or judicial settlement.

A variety of alternative conflict resolution tactics and strategies have proven effective in addressing institutional difficulties that were not foreseen or avoided, and may or may not have been properly managed.

MEDIATION AND CONCILIATION

The Code of Civil Procedure was amended to include mediation, and the Arbitration and Conciliation Act of 1996 introduced the Conciliation procedure.

Conciliation is an out-of-court procedure for resolving a dispute in a nice manner. Negotiation is used by the conciliator to bring the disputants to an agreement. In addition, the Conciliator is appointed only when a disagreement has occurred. The Conciliator’s decision is referred to as an “Award.”

When a third person intervenes between the two disagreeing parties to persuade them to overcome their problems, it is called mediation. Mediation is a sequential procedure. The Mediator assists the parties in reaching an amicable arrangement. The Process leads to a legally binding agreement that controls how the parties will interact in the future. A “Settlement” is the term used to describe the mediator’s conclusion.

Institutions are increasingly turning to mediation rather than litigation to settle organizational challenges. Ford Motor Company’s Customer Appeals Board is an example of a corporate mediation tool for consumer concerns. The third-party mediation programme, which goes back to 1977, allows Ford customers to have their service complaints handled by an independent authority instead of going to court, which is both costly and time-consuming.

Under this effort, any Ford owner with a service complaint who has a dealer in a participating state can have the matter evaluated by a five-member panel. In recent years, institutional mediation of environmental concerns has gotten a lot of attention. The 1982 mediated solution to the projected Storm King Mountain Consolidated Edison Pumped-Storage Plant is a notable example. There were twenty principles sessions and a number of technical talks throughout the fourteen-month Storm King mediation aimed at reconciling the scientists’ disputes. The issue was settled by Russell Train, a former administrator of the Environmental Protection Agency.

Section 442 of the Companies Act of 2013 deals with alternative dispute resolution methods such as mediation, conciliation, and conflict resolution, lowering the burden on quasi-judicial institutions.

On September 9, 2016, the Central Government announced the Companies (Mediation and Conciliation) Rules, 2016 to encourage the use of voluntary dispute settlement techniques. At any stage of an action, the M&C Rules provide a framework for parties to use alternative dispute resolution (ADR) procedures to address matters before the Central Government, “Tribunal,” or “Appellate Tribunal.” The National Company Law Tribunal is a “Tribunal” created under Section 408 of the Companies Act, while the National Company Law Appellate Tribunal is an “Appellate Tribunal” established under Section 410 of the Companies Act.

Unscrupulous litigants have often used the Companies Act’s ad hoc use of alternative dispute resolution (ADR) processes to cause delays. As a result, putting M&C Rules in place is a step in the right way. The Companies (Mediation and Conciliation) Rules, 2016 establish a framework for employing alternative dispute resolution (ADR) to resolve disputes arising under the Companies Act.

MED-ARB

Mediation followed by an arbitration procedure led by the mediator is a variation on mediation that is occasionally used in inter-corporate issues. This method is used to settle any issues that the parties were unable to resolve through conversation. The separation of an architectural firm into two separate businesses is a successful application of this method. The two new groups agreed to employ a mediator to assist them in resolving their financial and occupancy difficulties to the best of their ability, and then to make a final decision on whatever they couldn’t address. The “med-arb” approach has two major advantages.

To begin, it aims to resolve as many issues as possible by volunteer efforts. This, like other nonbinding procedures, allows for a broader range of dispute resolution options, resulting in higher party satisfaction with the results and, as a consequence, a higher likelihood that the choice will be accepted and implemented without the need for extra costly debates.

INTEGRATING ALTERNATIVES INTO THE CORPORATE LEGAL CULTURE

Corporations and other institutions are especially well positioned to benefit from alternative dispute resolution approaches by incorporating them into their regular business and legal processes. This can be accomplished in a variety of ways – prospectively, via contract dispute resolution clauses; contemporaneously, via systematic procedures to assess each case’s ADR potential; retrospectively, but with an eye to the future, via systematized conflict management systems that track the origins, costs, and outcomes of both open and closed cases. When it comes to resolving disagreements between parties in organizations, there have been several advancements in the subject of arbitration.

FEW MAJOR CHANGES

• In Mandatory Shareholder Arbitration

The Companies Act of 2013 introduced class action suits to reduce the cost and efficiency of litigation in matters involving shareholders and Indian investors, but it is not serving their interests, and since arbitration has become more popular in India in recent years, Indian investors have found mandatory shareholder arbitration to be a good alternative. As a result of several large-scale events, domestic securities laws have become more stringent. The legitimacy of mandatory arbitration clauses in shareholder agreements is called into doubt by these disparate results.

The Companies Act of 2013 and the Securities and Exchange Board of India Act of 1992 have an impact on whether mandatory shareholder arbitration is possible in India. The Companies Act of 2013 established a parallel network of tribunals to resolve corporate law matters in India in the case of Richa Kar vs. Actoserba Active Wholesale Pvt. Ltd. (2019 SCC Online NCLAT 2). These National Company Law Tribunals, despite their quasi-judicial position, have the authority to send parties to arbitration.

SEBI’s bye-laws, as well as the bye-laws of the National Stock Exchange, now incorporate processes and regulations for arbitration to settle investor grievances or disputes arising out of trading among members. Conflicts would be addressed by arbitration, according to the securities regulations.

• Third party joinder in Arbitration Proceedings

The most significant basic of company law is the principle of corporate personality, which states that it has a separate legal identity from its investors. If the parties have a disagreement, it is now resolved through arbitration. The arbitration agreement has been enlarged to include non-signatory parties since many corporate organisations contain third parties that have a distinct legal standing but are part of a single economic unit. To improve the efficiency of an arbitration agreement and to make the resolving process easier, the Supreme Court in Chloro Controls India Private Limited vs. Severn Trent Water Purifications Inc. and Others (Chloro Controls) [(2013) 1 SCC 641]. held that in extreme situations and when it would be in the best interests of justice, non-signatories might be brought to arbitration without their consent. This landmark ruling has proven to be a significant stride forward in alternative dispute resolution methods, with many corporations now choosing arbitration over going to court.

CONCLUSION

The evolution of ADR mechanisms in India, as exemplified by Section 89 and Order X Rules 1A, 1B, and 1C of the Civil Procedure Code, 1908, marks a pivotal advancement in addressing the burgeoning commercial conflicts arising in tandem with the expanding business landscape. The multifaceted nature of contemporary business activities, encompassing sectors such as oil and gas, telecommunications, power, and beyond, has accentuated the need for efficient and cost-effective dispute resolution mechanisms.

The adoption of ADR clauses in contracts by diverse business entities, from partnership firms to joint-stock companies, underscores a growing awareness of the potential savings and benefits of ADR. Institutional bodies such as the LCIA, SIAC, and ICC, along with national entities like the National Institute for Dispute Resolution (NIDR), have played a crucial role in promoting ADR and influencing corporate strategies towards more amicable dispute resolutions.

The implementation of mediation, conciliation, and med-arb procedures, as facilitated by amendments to the Code of Civil Procedure and the introduction of the Companies (Mediation and Conciliation) Rules, 2016, has provided a structured framework for resolving disputes. This shift towards ADR methods has proven particularly effective in streamlining conflict resolution processes and mitigating delays associated with traditional litigation.

As businesses continue to navigate complex legal landscapes, the embrace of ADR methods not only aligns with the pursuit of justice but also fosters community empowerment and enduring business relationships. The evolving dynamics of ADR in India underscore its indispensability in the contemporary corporate milieu, providing a roadmap for businesses to navigate disputes with prudence and efficiency.

References

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