The main purpose of this brief article is for the Start-ups/MSME/Business Entities to understand the legal remedy available for commercial disputes and how to use alternative dispute resolution (ADR)  for the growth of Business. I have touched only the relevant aspects on ADR and if you intend to know in detail, let me know via email. I hope this will help you in a very small manner.  

In this article, I have covered the following, in brief:

a) How ADR method helps Business Entities save money?

b) What is ADR?

c) Types of ADR

d) Brief notes on Types of ADR:

i) Arbitration;

  • Meaning of Contractual Arbitration
  • Type of Contractual Arbitration (Ad-Hoc Arbitration Vs Institutional Arbitration)

ii) Conciliation;

iii) Mediation;

iv) Negotiation

v) Judicial Settlement

vi) Lok Adalat

How ADR method helps Business Entities save money?

The world business market is changing very fast due to technological advancement. Actually this is good for the Development of business and humanity too and this gives rise to the importance of IPR, intellectual property rights such as Trademark, Patent, Copyright, Trade-Secret, and other forms of intellectual property rights. “Saving” and “costs cutting” has been in Indian culture since long and is now being practiced all over World and this does apply to Litigation expense or Legal expense too.

The significant increase in the role of international trade in the economic development of nations has been accompanied by a considerable increase in the number of commercial disputes as well. In India too, the rapid globalization of the economy and the resulting increase in competition has led to an increase in commercial disputes. Increase in Commercial Disputes means an increase in many cases thereby overburdening the Courts which are already overburdened and timely results are just a matter of reading and debate and delay in resolving the commercial dispute only results in the economy blockade as well as a money drain. As a result, Alternative Dispute Resolution Mechanisms have become more crucial for businesses operating in India as well as those doing businesses with Indian firms. Any method of resolving disputes without Litigation. Litigation refers to the process of resolving disputes through the public court system.

Most of the MSME business organization don’t have the budget for Legal or Litigation expenses and actually is not a good practice. The best way is to start with a small budget for the reasons that “Law in itself is a progressive step towards the success of your Business” and it means a lot in reality. For Business entities in today’s market, the biggest question comes is about paying Court Fee and Legal Advisor fee for the money which is though being claimed but not sure about the period will take for the result and whether it will come or not. Basically it almost risking another few monies for claiming that amount which is due (already debted) and this stops the Business Entities in taking the legal route for claiming the money or probably not going to the best-experienced person in the field of recovery through Legal route which mostly ends in losing the case which is actually most of the times is a good case from a legal point of view.

To save the Business Entities from Court Fees and to know the time frame of the result, to safeguard expenses spent on recovery money, Arbitration is the best choice. The reason “Arbitration” is the best choice as all the ingredients which is absent in Court matters is present such as no Court Fees, time-frame of closing of the matters, a refund of expenses who wins the matter, no strict procedure being followed, time importance and other features as well. It is pertinent to note that the expenses which are made on Arbitrator (being paid as professional fees), venues, stenographer, Legal Advisor, traveling, can be claimed and most of the time it is passed and this adds to the boost of Business Entities in going for Arbitration.

Further, the matters before the Court are time-consuming as one is not sure if Opposite Party (Accused/Defendant) comes on time or delays for reasons which are not being known to the other party (Complainant/Plaintiff). In fact, as per the latest amendment in C.P.C, taking adjournment comes for costs but most of the time in District Courts and Lower Courts, adjournments are taken and this delays the matter for no valid reasons. However, in Arbitration, what saves money is time too. On the first date of Arbitration itself, the dates are decided and are minuted so that the documentary work is done and then the matters are either kept for Cross-Examination, if required or Argument’s and also the time allotted is for sure for the arbitration and hence time is used meaningful and this actually saves money and in fact, this reduces lots of costs and this acts as a tool in any business success as the results are time-bound being the arbitration proceedings time-bound. As per the latest changes in the Arbitration and Conciliation Act, Arbitration Proceedings has to be completed in 12 months and extension is not possible without the mutual consent of Parties to the Arbitration and that too not more than 6 months.

The most relevant aspect in Arbitration is of not mandatory filing of Original Papers in Evidence which is not the case in Court matters and this actually means a lot to Business Owners/ Business Entities.

The other relevant part of the Arbitration proceedings is that it is a private matter and hence all minutes of proceedings and orders and all discussions are confidential to parties unlike in Courts where it is open for the public to know of the same

Another aspect of Arbitration proceedings is that once the Award is passed and though the Opposite Party files an appeal, the Award can be executed till the Stay order is passed or any other order and also in the event if the winning party wants to claim the Award, the Winning Party has to give Bank Guarantee in case the Opposite Party wins the appeal. This is major breakthrough for the reasons that the Opposite Party will think before appealing and remember that filing an appeal by the Opposite Party or Losing Party will have to pay a deposit in the Court.

What is ADR? 

Alternative Dispute Resolution (“ADR”) refers to any means of settling disputes outside of the courtroom and in a time-bound manner and the process is quite simplified and better than the Court’s way of working. It is relevant to note that the courts are getting burdened each and every day and there is no answer as of now of being coming down and with this the rising costs of litigation, time delays are certain factors which have given rise to the fact of ADR being in use quite a lot in commercial disputes matter. Using ADR procedures the parties can avoid the acrimony that often accompanies extended trials and it thus allows the Parties to understand each other’s position and craft their own solutions.

To ensure proper implementation of the ADR mechanism, organizations like the Indian Council of Arbitration (ICA) and the International Centre for Alternate Dispute Resolution (ICADR) were established. The Arbitration and Conciliation Act, 1996 is based on the United Nations Commission on International Trade Law (UNCITRAL) model of the International Commercial Arbitration Council. It is relevant to note that Malimath Committee recommended that there should be an obligation of the Court to refer the pending dispute after framing of issues for settlement to arbitration, mediation, judicial settlement or Lok Adalat and in the event, there is no settlement of the dispute through any one of the ADR mechanisms then the court continues the case (Justice P. V. Reddi, ‘Amendment Of Section 89 Of The Code Of Civil Procedure, 1908 And Allied Provisions’ (Government of India, Law Commission of India 2011) accessed 23 August 2019).

Certain Important Provisions related to ADR:

  • Section 89 of the Civil Procedure Code, 1908 provides that opportunity to the people, if it appears to court there exist elements of settlement outside the court then court formulate the terms of the possible settlement and refer the same for Arbitration, Conciliation, Mediation or Lok Adalat.
  • The Acts which deals with Alternative Dispute Resolution are Arbitration and Conciliation Act (as amended) and,
  • The Legal Services Authority Act, 1987

Advantages of Alternative Dispute Resolution:

  • No Time-consuming process as compared to Courts
  • Cost-effective method as against compared with Litigation via Courts.
  • Informal ways of dealing with the resolution of a dispute.
  • Maintaining Good Relations between disputed Parties as not happens generally I Court Proceedings
  • Nowadays it is a little costly affair if Arbitration Clause is not drafted properly, the results are being delivered within a period of 12 months and if the period is to be extended then the permission of Court is required and or as per provisions of Arbitration and Conciliation Act

ADR includes (a) Arbitration; (b) Conciliation; (c) Mediation; (d) Negotiation; (e) Judicial Settlement and (f) Lok Adalat. Some of these programs are voluntary; others are mandatory.

A] Arbitration:

Arbitration is of the most popular method of ADR and in fact, it has gained immense popularity amongst business entities and the results are quite positive and this resulted in having the Statutory Arbitration under the provisions of MSME.  Arbitration is a simplified version of trial proceedings involving limited discovery and simplified rules of evidence. At the time of entering into business relations, Parties enter into a binding commercial contract wherein arbitration clause is a part of it or separate arbitration agreement that allows them to layout major terms for the arbitration process. Arbitration can be either Ad-Hoc Arbitration and/or Institutional Arbitration and Parties are free to decide which method to be adopted for their resolution of disputes if any arose between them. Arbitration in India is at present governed by the Arbitration and Conciliation Act, 1996 (as amended) and certain relevant provisions are as under:

a)  Parties are free to determine the procedure, language, and place of Arbitration and also the Rules of Arbitration which shall be made applicable for the resolution of disputes. However, in my view, the Parties shall take the advice of the Lawyer to ensure that the Arbitration clause is not unfair and is in favor of closing the matter within the time limit. Further, the Parties shall adopt institution arbitration rules for faster results.

b)  Arbitration proceedings are not bound by the Code of Civil Procedure 1908 or the Indian Evidence Act 1872, but the Limitation Act, 1963 shall apply to arbitrations as it applies to proceedings in Court.

c)  Parties are free to determine the number of arbitrators and procedure for their appointment.

d)  It is mandatory that there has to be an Arbitration Agreement or clause being agreed for referring the dispute to Arbitration.

e)  Notice under Section 21 is mandatory to invoke to Arbitration proceedings as issuing of Section 21 stops the expiry of limitation period.

f)  Parties have been given the right to approach High Court directly to get the interim order and or before Arbitration Tribunal.

g) The Arbitral Award shall be made within Twelve (12) months from the date the arbitral tribunal enters upon a reference, and the Parties may by consent, extend the time for a further period of six months but not thereafter without permission of the Court and with reasonable reasons.

h)  There are appeal provisions but to get the stay on the Arbitration Award, Award money has to be a mandatory deposit, and filing of Appeal under Section 34 is not an automatic stay on the Arbitration Award.

Advantages of Arbitration, in brief, are as under:

a) Faster than Court proceedings.

b) Can say it is cheaper and more flexible but this seems now on another end, as the charges have been on the very higher side and hence Parties shall take the advice of Lawyer to ensure appropriate Arbitration Proceedings Rules.

c) Arbitral proceedings and Awards are Confidential.

d) In Arbitral Proceedings the language of Arbitration may be chosen, whereas in judicial proceedings the official language of the competent Court will be automatically applied.

e)  Limited Avenues for the appeal of an Arbitral Award.

f) When the subject matter of the dispute is highly technical, arbitrators with an appropriate degree of expertise can be appointed as one cannot choose judge in litigation.

Contractual Arbitration:

The term “Contractual” means, a contract between two parties doing business or entering into any legal transaction under the laws of India. Any business transaction which is legal in nature is a contract, either in writing or oral. However, it is always advisable to have a contract in writing or at least if not, then action shall be written such as supplying the goods on the written work order or purchase order, having delivery challan as proof of supply, email correspondence, etc. further, it is also meant the terms the business parties have agreed too. The term “Arbitration” means a private process set up by the parties as a substitute for court litigation to obtain a decision on their dispute. The Arbitration in India is regulated by Arbitration and Conciliation Act, 1996 (as amended). The term “Contractual Arbitration” means, wherein the business parties have agreed in writing either in form of Purchase Order or separate agreement dealing with terms of business or separate arbitration agreement and contains the clause of referring the disputes to arbitration means contractual arbitration. The term “contractual arbitration” itself speaks of its binding force under the Laws of India. The business contracts are regulated by the Indian Contract Act, 1872.

Type of Contractual Arbitration

Contractual Arbitration can be either Ad-Hoc Arbitration and/or Institutional Arbitration

Ad-Hoc Arbitration Institutional Arbitration
This method of arbitration comes from the terms agreed between the Parties. It is the Parties who decide what Arbitration Set-Up they want.
Example Clause of Ad-hoc:

Each Party will allow the other reasonable opportunity to comply before it claims that the other has not met its obligations under this Agreement. The Parties will attempt in good faith to resolve all disputes, disagreements, or claims between the parties relating to this Agreement and in the event of failure on the part of the Parties, to amicable resolve the disputes arising out of or in connection with this Agreement shall be finally settled by arbitration which shall be held in Vashi, Navi Mumbai, Maharashtra, India in accordance with the laws of India and Arbitration and Conciliation Act, 1996 (As amended) then in effect. The arbitration award shall be final and binding for the Parties without appeal and shall be in writing and set forth the findings of fact and the conclusions of law. The Seat and Venue shall be at Vashi, Navi Mumbai, Maharashtra, India. The Arbitration Proceedings shall be completed within 120 days. The number of arbitrators shall be three, with each side to the dispute being entitled to appoint one arbitrator. The two arbitrators appointed by the parties shall appoint a third arbitrator who shall act as chairman of the proceedings. If one of the parties refuses or otherwise fails to appoint an arbitrator within 30 days of the date the other party appoints its, the first appointed arbitrator shall be the sole arbitrator, provided that the arbitrator was validly and properly appointed. All proceedings shall be conducted, including all documents presented in such proceedings, in the English language. The English language version of this Agreement prevails over any other language version.

 

Example Clause of Institutional:

All disputes or differences whatsoever arising between the parties out of or relating to the construction, meaning or operation or effect of this Contract or breach thereof shall be settled by Arbitration in accordance with the Rules of Arbitration and Conciliation of the IIAM (One can put the name of any Institution having their own rules of arbitration. Ex, are Bombay Chamber of Commerce & Industry) and the Award made in pursuance thereof shall be binding on the Parties. The Seat and Venue shall be at Mumbai (Place parties can decide)

In Ad-Hoc, Parties agree upon a set-up of Arbitration which can be specific to a particular contract or dispute, without referring to any arbitral institution. The Parties may at their options choose to devise and agree to initiate arbitral process by their own rules. Institutional arbitration, as the name suggests, refers to arbitrations conducted in accordance with the rules and procedures of an arbitration institution. Examples of arbitral institutions include:

  • Bombay Chamber of Commerce and Industry
  • Nani Palkhivala Arbitration Centre
  • IIAM
  • NSE 
Best part of Ad-Hoc arbitration is that it can be tailored to the specific needs of the Parties and the nature of the dispute. However, the drafting of clause may involve lengthy negotiations and therefore may be more expensive and time consuming and hence great care is needed to ensure that any arbitral process is both enforceable and workable. In this, the clauses can be modified to suit the needs of the Parties. However, being this institutional, already set-up is ready and Parties just have to concentrate on their matter
Ad-Hoc Arbitration depends, to a certain extent, on the co-operation of the Parties which may be difficult to achieve if the relationship has broken down. Generally Ad-Hoc Arbitration is more vulnerable to procedural challenges and obstructive tactics. Parties may seek redress from the applicable procedural law but this will be both time consuming and expensive Institutional arbitration gives Parties the benefit of using a tried and tested process and a proven set of terms and conditions to rely upon. This means that the fundamental steps of the process, including costs, are managed and controlled by the institution
The choice of ad hoc or institutional arbitration is unlikely to have a fundamental impact on the costs of the proceedings as this largely depends on the method and rate adopted by the institution or tribunal. However, it may be argued that institutional arbitration offers more clarity on the issue of costs as the institutions have in place a framework of charges for administration services and arbitrators. A further advantage of institutional arbitration is that the major institutions can hold funds on behalf of the parties if appropriate. Arbitration Institutions have the benefit of a professional administration service which, in theory, ensures the smooth running of the proceedings, however with ad hoc arbitrations the appointment of an administration secretary may achieve the same result.

 

In practice, there is unlikely to be little difference between the processes.
One of the main advantages of arbitration is that awards are confidential to the parties and are not made available to the general public

B] Mediation:

Mediation is one of the best methods in Dispute Resolution and it is normally the first step prior to the matter being resolved under Arbitration proceedings. Section 89 of the Civil Procedure Code 1908 recognizes mediation as one of the methods of settlement of dispute outside the Court. Civil Procedure Mediation Rules 2003 covers various provisions for Mediation. Rule 4 dealt with the qualification of mediators and Rule 11 talks about the Procedure of Mediation. Rule 12 says the Mediator is not bound by Indian Evidence Act 1872 and Civil Procedure Code 1908 but guided by the principle of fairness and justice, have regard to the rights of the parties, usage of the trade if any and nature of the dispute. Mediation is available to the parties at any point in the litigation process including through the appeal.

C] Conciliation:

Conciliation is a non-binding procedure in which the conciliator assists the parties to a dispute to arrive at a mutually satisfactory and agreed settlement of the dispute. They do this by lowering tensions, improving communications, exploring potential solutions, and bring about a negotiated settlement. Conciliation is a dispute resolution method in which the parties take a coherent approach to settle the dispute with the assistance of a third party known as a conciliator. In India, Conciliation is governed by the provisions of the Arbitration and Conciliation Act (as amended).

D] Negotiation:

Negotiation is more flexible compared to the above three methods of ADR. A non-binding procedure in which discussions between the Parties are initiated without the intervention of any third party, with the object of arriving at a negotiated settlement of the dispute. It is a cooperative problem-solving method without the assistance of a third party unlike other methods of ADR. It doesn’t mean that parties cannot avail the services of professional negotiators, they can avail the services of professional negotiators to represent them while negotiating. The success of negotiation depends abound on the preparation, planning, and bargaining skills of the parties. In India, Negotiation doesn’t have any statutory recognition. Negotiation is self-counseling between the Parties to resolve their dispute. Negotiation is a process that has no fixed rules but follows a predictable pattern.

E] Lok Adalat:

Lok Adalat has almost become a movement in India and now most of the commercial matters filed before the Court is giving a trial to settle the matter via Lok Adalat and hence the term “Judicial Settlement”. Lok Adalat is not mandatory nor is bound on the Litigant Parties to opt for but as a trial, Judiciary tries to mediate first, and then if that mediation is successful or partially successful, the matter is then referred to Lok Adalat for trial and possible closure of the matter. Section 89 of the Civil Procedure Code also provides as to referring the pending Civil disputes to the Lok Adalat. When the matter is referred to the Lok Adalat then the provisions of the Legal Services Authorities Act, 1987 will apply. The order under Lok Adalat is termed as Decree under the provisions of Civil Procedure Code

F] Judicial Settlement:

Section 89 of the Civil Procedure Code also refers to the Judicial Settlement as one of the modes of alternative dispute resolution. Of course, there are no specified rules framed so far for such settlement. However, the term Judicial Settlement is defined in Section 89 of the Code. Of course, it has been provided therein that when there is a Judicial Settlement the provisions of the Legal Services Authorities Act, 1987 will apply. It means that in a Judicial Settlement the concerned Judge tries to settle the dispute between the parties amicably. If at the instance of judiciary any amicable settlement is resorted to and arrived at in the given case then such settlement will be deemed to be decree within the meaning of the Legal Services Authorities Act, 1987.

There is no doubt that (ADR) Alternative Dispute Resolution mechanisms have become more crucial for businesses operating. It is a movement with a drive from an evolving positive approach and attitude towards resolving a dispute.

ADR saves Your T(ime), M(oney), R(elations) and G(rowth)

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*Content of this post is a Copyright work and is owned by Adv. Lalit K Jain (THE LEGAL DESK)

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I have been in Law Practice since more than 15 Years . My practice areas include: (a) Drafting of Commercial and Non-commercial Agreements/Contracts; (b) Recovery Matters before all Forums/Courts; (c) Arbitration and Conciliation; (d) Cross-Examination, Admission and Interim Stay; (d) Devising Strat View Full Profile

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