INDIA: TRANSITION FROM LITIGATION TO ALTERNATIVE DISPUTE RESOLUTION MECHANISM IN THE TIMES OF PANDEMIC

Arbitral Dispute Resolution - Serious competitor to State Judiciary? -  Gecić Law

by Divya Vishal           15 October 2020

INTRODUCTION

Justice Warren Burger, the former Chief Justice of the Supreme Court of America had rightly said: “The obligation of the legal profession is to serve as healers of human conflict and we should provide a mechanism that can produce an acceptable result in shortest possible time, with the least possible expense and with a minimum of stress on the participants. That is what justice is all about.”

A compelling legal framework requires not just that fair outcomes are reached but also they be reached quickly. If it is not resolved at the beginning, it grows at a very fast rate, and with time, it becomes very difficult to resolve it.[1] If a case is not solved within a certain period, it leads to a sequence of cases and it almost becomes impossible to end the case. Sometimes civil cases may also lead to criminal cases.

In any case, it takes an extremely long effort to get justice through the setup court system. The equity conveyance framework through courts has resulted in some serious issues like unnecessary deferrals, colossal pendency of cases, and costly litigation. In this way, it has gotten hard for poor people to approach equity. In these conditions, it turns out to be altogether fundamental to discover some components where such situations can be successfully and satisfactorily dealt with. Therefore, there are Alternative dispute resolutions mechanisms for the prevention of piling up of cases and provide economically sound justice to different businesses as well as customers.

CONCEPT OF ALTERNATIVE DISPUTE RESOLUTION

Alternative Dispute Resolution is the technique for settling issues between the parties without approaching the courts, for example, negotiation, mediation or arbitration. ADR systems are typically not so much expensive but rather more speedy. They are progressively being used in questions that would some way or another outcome in litigation, including prominent labor issues, divorce cases, and claims in case of personal injury.

One of the essential reasons the PARTIES may favor ADR procedures is that not like the litigation procedure, ADR systems are regularly communitarian and permit the parties to see and know each other’s positions. ADR additionally permits the parties to think of progressively innovative ways to solve the case that a court may not be lawfully permitted to force.

The different modes of ADR are as follows:-Lokadalat, Mini Lok Adalats, Village Courts, Arbitration and Conciliation, Mediation Centers. It was recommended by the Justice Malimath Committee in its report that after the framing of the issue it should be made obligatory for the court to refer the dispute for settlement either by way of arbitration, conciliation, mediation or through Lok Adalat.[2] Therefore, it is a principal right of each citizen to get fast justice, which likewise is the fundamental imperative of good legal organization.

This research paper mainly deals with the concept of arbitration and mediation which are two essential modes of ADR. Arbitration is a result of an agreement between the parties, and the details of the parties’ specific agreement of arbitration are commonly controlling. Before any debate has emerged, parties may agree to refer to arbitration in future issues; arbitration arrangements are mainly involved in commercial cases or for business contracts or in labor agreement for the sale of services.

Arbitration additionally includes an unbiased authority (the arbitrator) who is capable of running the procedure and settling on the choices important to determine the issue. In contrast to an adjudicator who is a public authority, the arbitrator is ordinarily a private individual picked by the party’s only. The individual picked to parley the issue between the parties regularly has particular aptitude in the matter of dispute; lawful qualification is required in case the parties require so.

On the other hand, Mediation includes the involvement of a mediator who is a third party and dissimilar to a judge or an arbitrator has no power to force a decision on the parties in dispute. Rather, the mediator’s objective is to encourage negotiation and help the parties themselves to arrive at a commonly satisfactory settlement of their own issue. Mediation is regularly an intentional procedure where the parties themselves may pick the individual who will go about as the third-party mediator who is neutral towards the parties. It is private and secret, and not open to the general population. In spite of the fact that the mediator is regularly liable for dealing with the mediation procedure, there are no standard strategies or fixed principles. The procedure by which the mediator encourages exchange is frequently casual and unstructured. The real acts of individual arbitrators change incredibly.

A mediated result may from one viewpoint essentially mirror the net expected estimation of what is likely to occur in court or, on the other, can be formed to address the issues and interests of the parties by making exchanges that are inconsequential to the lawful issues. As the subsequent resolution is commonly acceptable to the parties, there is no need that it includes the utilization of formal lawful standards or approaches the courts for it. In Mediation there is commonly no procedure of audit. In the event that parties can resolve their issue by agreeing mutually and reaching a resolution, that understanding is consequently enforceable as a contract.

CONTRACTUAL AND ECONOMIC CHALLENGES FACED BY INDIVIDUALS, ASSOCIATIONS, AND COMPANIES POST COVID-19

  1. Postponement of obligations under a Contract- The whole nation has been in lockdown for a long time because of the spread of COVID-19. It is a remarkable circumstance that has taken the whole world by stun. Contractual commitments have either gotten difficult to satisfy or their exhibition has been deferred uncertainly.

In this circumstance, a ton of agreements has been ‘suspended’. The rights and commitments of the parties have been brought to an unexpected stop. Most contractual agreements neglect to accommodate a way out of such a situation. In such a case, the parties decide to simply suspend the commitments under the agreement until further notice, until the circumstance ad-libs. Henceforth a business or contract, as usual, is forced on the exhibition of the agreement, until further notification whereby parties commonly consent to move or end the current contract. Sharath Srinivasamurthy, the Research Director, Enterprise Solutions and ICT Practices, IDC India says, “While the actual impact of COVID-19 on India market will be evident by middle of 2020, we expect a slowdown in terms of discretionary IT spending, contract renewals and new deals getting signed as enterprises recalibrate by cost structure in coming months. Existing project executions have also taken a hit due to travel restrictions in place. IT vendors will be forced to relook at their growth targets for the rest of the year as the impact will become evident in the next few quarters.”[3]

In such incredibly uncommon situations, the contract accommodates the suspension of the commitments of the parties under agreement. The clause of suspension for the most part indicates the methodology to be trailed by the parties if such suspension is unavoidable. The provision additionally sets out the most extreme timeframe for which the agreement might be suspended. In the current COVID-19 situation, it has been seen that not many contractual agreements accommodate suspension of an agreement and a large portion of them prefer to put an end to the contract.

  1. Ending of Contract– Most Contracts accommodate an exit route to parties if they can’t satisfy their commitments. But the vagueness present in such exit routes can end up being hindering to the privileges of the parties represented by the agreement.

In many cases, the end of an agreement can be started uniquely by a particular party to the agreement. Certain agreements necessitate that the solicitation of the end of an agreement might be endorsed by a particular party to the agreement at their sole caution. Besides, certain agreements likewise require a mutual understanding and agreement of parties for the end of the Contract.

Most parties to business contracts have started the end of agreements. If these end conditions don’t provide an appropriate system, heavy fines might be exacted on parties. The Pandemic has started a distinct acknowledgment of the antagonistic impacts of unacceptable agreements. The basic contractual formats that are used by parties have terrible results. COVID-19 has featured this cruel reality as losses and legitimate ramifications against parties to such contractual agreements.

  1. Absence of Force Majeure Clause– This is likely the most discussed provision in pandemic times. From being the least utilized condition in an agreement, it has now gotten the most investigated and the most summoned proviso of in a current situation, in any agreement. Most of the contracts did not even include such a clause. Its quality was constrained to a little, three-four line section which was the aftereffect of the same passage from an original contract that may not be identified with the present contract.

A force majeure statement fundamentally diminishes the parties to the agreement from completing their commitments upon the event of some specific occasions, which are outside the ability to control of the parties. The current COVID-19 pandemic could possibly be considered as a force majeure occasion contingent upon the force majeure provision in an agreement. There is no restraint recipe that can be applied to decide a force majeure event. This Pandemic Business Cycle is ludicrous and extraordinary since it is exceptional to the Pandemic situation being looked at by the whole world for the absolute first time. This has expanded the likelihood of vulnerability in different legally binding contracts and commitments thus it is the need of great importance to comprehend the significance of including a Force Majeure Clause in our agreements and understandings.

  1. Lack of Income– Due to the current pandemic, the financial action went to a pounding stop in India from the March-end. Expenditure on domestic needs nearly cleared out. Pay cuts and unable to continue businesses due to financial distress or no availability of work in the market, joined with the dread of the spread of virus prompted the absence of shopping and totally dissolved interest. The profit-making of retailers like restaurant owners, clothing shops, grocery shopkeepers have ended with no demand for non-discretionary goods thereby leading to nonfulfillment of their contractual obligations with the manufacturers and thus, an economic slowdown has taken place. The entire supply chain has been disturbed. The Clothing Manufacturers Association of India (CMAI), which represents over 4,000 manufacturers, said in a survey in the month of May, “Compared to the corresponding period of May 2019, the members surveyed indicated a drop of 84% over last year–and that too, primarily because some factories had started manufacturing masks and other PPE products.”[4]

According to Facebook’s survey, 31% of small and medium-sized businesses have shut down in the last 3 months.[5] Figure 1 shows the condition of businesses that have come to halt as a result of the pandemic.

Fig.1[6]

The demand situation is required to stay frail for the vast majority of the current budgetary year. However, it could make a rebound one year from now.

  1. Availability of Capital-One of the major challenges that the companies or associations are facing is the lack of capital investment which will make their organizations run. To ensure a smooth supply chain and efficient working of its employees virtually or remotely, flowing capital investment is necessary. According to Facebook’s survey, while two-thirds of closed businesses expect to re-open in the future, (including a slightly higher percentage of women than men), among the one-third who did not, 34% said it will be because they can’t pay their bills or their rent.[7]
  2. Downfall of Industries -Business sectors like Hospitality and Tourism are adversely affected as a result of the pandemic. Suspension of road vehicles just as universal and domestic air travel, hotels, restaurants, and cafés, and a large number of places of interest h has an extreme hit to the travel industry promoting unemployment and a monetary effect that may take a very long time to heal. Tourism would return quite a while to get to its past magnificence. Business travel will limit. Recreation travel will get restricted as people would lean toward visiting less jam-packed goals. The cost of lodgings would diminish attempting to draw more visitors to take care of their operational expenses thereby giving a serious blow to the tourism sector.
  3. Unemployment-Because of the current pandemic, India is going into recession influencing the semi-skilled holders of jobs and the unorganized sector leading to unemployment. The labor sector is most exceedingly terribly affected as they are not given wages or employment because of lockdown, the greater part of the work divisions are related to the development organizations and those who earn on daily basis. Travel limitations influencing a huge number of individuals have left Indian manufacturing plants leading to a shortage of laborers and hampering of trade across research, car, merchandise, clothing, pharmaceutical, and different sectors.

CHALLENGES ADDRESSING B2B AND B2C DISPUTES DURING PRE AND POST COVID-19 PANDEMIC

The business houses and individuals have faced various challenges due to the pandemic leading to a breach of contractual obligations. The challenges faced by them in addressing B2B and B2C disputes are as follows:

  • In the pre-pandemic situation, the business houses and the individuals have to face the problem of overcrowding of courts leading to delayed hearings in the courts. The main reason behind it is the vacancy of the position of judges that further leads to overburdening of cases on courts with the lower appointment of judicial officers. As result business houses and individuals get delayed justice. On the other hand, in the post-pandemic situation, the business houses are facing the problem of delayed justice because no civil litigation process taking place i.e. no face-to-face hearing of disputes as a result of government directives to contain the spread of the virus. There are proceedings taking place virtually but many small-scale business houses or individuals like low-scale shopkeepers, restaurant owners do not resort to it owing to various reasons like being unaware of its procedure, believing in undergoing proper litigation process and so they are facing problems in the times of pandemic.
  • During the pre–covid-19 times, the individuals and the business houses have to undergo the issue of corruption in the lengthy litigation processes. The main reason for it is biased among judges towards a particular party. There is no arrangement in the Indian constitution yet for enlisting an FIR against an appointed judge who has accepted a bribe without taking the consent of the Chief Justice of India. Clearly, visiting the CJI, looking for his consent, and afterward enrolling an FIR isn’t what a helpless party to the dispute will want to do. This will end up being progressively costly and tedious for him, other than the court and legal counselor’s costs. Therefore, even after following all the legal procedures for filing a case in the court and undergoing the tiring litigation procedure, the parties are unable to get justice. Contrary to it in the post-Covid-19 situation, the parties are unable to follow the detailed formal procedure. No physical collaborations or meetings required for the execution of records/instruments and signing and validation of affidavits can take place because of the fear of the spread of the deadly viruses. For disputants based abroad in nations under lockdown, it would not be conceivable to get the records apostilled, execute records, and transfer them from or to India, which would unavoidably influence the time of documenting and may not be conceivable inside the recommended period.
  • In the pre-pandemic times, the entrepreneurs and the various industries have to face the problem of pendency of cases in the Indian Judicial system. The delay in justice is because of the piling of cases owing to the slow pace of India Judiciary due to the absence of transparency in appointment procedure of judges, lack of specialization in the allocation of judges, outdated legislations, etc. On the other hand, in the post-pandemic times, there is the postponement of cases according to the directives and only urgent cases are given priority. The term ‘urgency’ with respect to current times is very subjective as what one party doesn’t find urgent might be an urgent case for the other party. So many cases are overlooked over certain cases by giving dates for a future hearing.

Therefore, in the current, there is a need for alternative dispute resolution mechanisms and the ODR concept. ODR refers to an online dispute resolution mechanism. Online Dispute Resolution is a procedure to settle legal issues outside courts, consolidating innovation, and ADR processes. ODR covers debates that are settled online or virtually having been started on the internet however with a source outside it which means offline sources. ODR offers a quicker, straightforward, and convenient choice for some business houses to determine questions online especially in the times of Covid-19 and for the individuals who have high numbers and lower charged cases. In the past half-decade, India has seen critical development in the volume of online exchanges, no other position would be increasingly helpful to acknowledge ODR as an effective instrument to determine issues and thus execute a quick and reasonable dispute resolution framework.

There are various platforms for ODR mechanisms like Centre for Online Dispute Resolution (CODR), Agami, Centre for Alternate Dispute Resolution Excellence (CADRE), and SAMA. For reference, one can visit the website of SAMA[8] It encourages simple access to top-notch ADR specialists and helps business houses, individuals to determine disputes virtually. SAMA is being utilized by ICICI Bank as an ODR mechanism to determine almost 10,000 cases with values going up as high as 20 lakh.

CHALLENGES FACED BY ANY PARTY TO A CONTRACT IN EMBRACING ADR AND ODR MECHANISM INSTEAD OF CIVIL LITIGATION PROCEDURE

With the passage of time, the ADR mechanism is shifting from its aim of providing speedy and cheap procedures of justice. Some of the challenges faced in embracing ADR mechanism are-

1) Attitude- Firstly, there is a need to change our conventional way to deal with settling issues, even a need to change our mentality. The soul of ADR systems is to make a WIN-WIN circumstance, yet the disposition to individuals is transforming it into a WIN-LOSE circumstance, which isn’t totally different from the case of civil litigation. Our perspectives require rearrangement; we have to re-change in accordance with the soul of ADR and hold fast to its hidden way of thinking, which is that of good faith of the gatherings.

2) Create customer’s interests- An acceptable settlement of dispute takes place when it is to the customer’s or client’s advantage. It is the powerlessness to acquire such a settlement and in the first place, it incites the customer or business house to look for a legal advisor in any case. The legal counselor must consider what the customer needs as well as why the parties have been not able to settle their issue and at that point must discover a dispute resolution mechanism that is likely to conquer the obstacles to settlement.

3) Legal instruction in Law schools- A genuine exertion to give less expensive strategies for settling questions will require skilled arbitrators and judges, who are prepared to play a much progressively dynamic part in directing procedures towards a dispute resolution mechanism. The law schools have to understand the market’s demands have changed. They prepare their students more for litigation and the corporate world but not for the arbitration and conciliation procedure and thus serve the profession ineffectively. Simultaneously, students need to improve their aptitudes as an arbitrator, mediator, or negotiator. Due to this the individuals who are associated with an ADR procedure are not appropriately prepared and they don’t have satisfactory information on the most proficient method to oversee and persuade the disputants to settle the issue. ‘Arbitrators were frequently and strongly attacked as partial and immature in resolving the disputes. Probably many persons involved in the legal world are blissfully ignorant of the Alternative methodology in dispensing the even justice process through the Arbitral process. So the arbitral justice system has co-extensively remained with the legal system but without much-expected success.’[9]

Students in law schools additionally need to comprehend the reasonableness and promotion issues in ADR at increasingly modern levels and to comprehend the significant keys to critical thinking as they are the ones who will lead the profession ahead and need to know the intricacies of the profession that will help the business houses and individuals in approaching a competent authority in their commercial disputes.

4) Lack of communication-Poor interaction between the parties is the principal hindrance for ADR methodology. The connection between the parties and their legal counselors might be so helpless that they can’t successfully convey. This communication gap leads to the point that none of the parties accepts the other’s contention. A failure to convey obviously and adequately, which blocks fruitful dealings, is frequently, however not generally, the aftereffect of a poor relationship.

5) Biasness in the ADR procedures-Sometimes the arbitrators or mediators are more inclined towards one party because of motivation due to personal reasons. This results in loss to the vulnerable party to the arbitration. Generally, an arbitrator or any authority who is executing the ADR process should be neutral but this is not the case at the present time.

Even in times of pandemic, many companies are resorting to the ODR mechanism for resolving disputes but it has its own problems.

Resorting to ODR mechanisms in the times of pandemic also has its own disadvantages.

There are various technical glitches because of the internet connections that the parties have to face. Advocate Mehmood Pracha told about the technical problems he has to face while a virtual hearing. “The technical arrangement for the video conference was extremely poor. Since we did not get the links to join the call for a very long time, we went to the Supreme Court itself. We did not get the link till the very last minute and the quality of the call on the phone was so bad that we had to attend the video conference from the press room. Even then, we could not hear half the things that were being said by the Judges or the Solicitor General. Most of the things I was saying were not being heard by the judges, and thus it resulted in the order we got.[10] The poor people are unable to access ODR mechanisms. Senior Advocate Colin Gonsalves said that, “  In the beginning, the Supreme Court and the [Delhi] High Court were very poor in responding via video conferencing, but now the systems have improved and now they are average in functioning. If you look at high courts across the country, with the exception of a few doing extraordinary work like the Karnataka High Court, others have their doors shut on human rights cases.[11] So there are issues with ODR mechanism also but this mechanism is very helpful in the times of pandemic where it is better to deal with the cases through this process rather than piling up cases. Oral advocacy through video link offers a potential substitute to the conventional system.[12]

MANDATORY REQUIREMENTS IF A DISPUTING PARTY DECIDES TO RESOLVE IT’S DISPUTE THROUGH AN ADR MECHANISM

In cases the party go for arbitration, it has to take notice of the following requirements:-

  • Parties are allowed to decide the method, language, and spot of Arbitration and furthermore the Rules of Arbitration which will be made material for the dispute resolution. Nonetheless, the Parties should consult a lawyer to guarantee that the Arbitration provision isn’t unreasonable for and is agreeable to shutting the issue in a particular as far as possible.
  • Arbitration procedures are not limited by the Code of Civil Procedure 1908 or the Indian Evidence Act 1872, yet the Limitation Act, 1963 will apply to it as it applies to procedures in Court.
  • Parties are allowed to decide the appointment procedure of arbitrators and their numbers.
  • It is required that there must be an Arbitration Agreement or provision being concurred for alluding the issue to Arbitration.
  • Notice under Section 21 is required to conjure to Arbitration procedures as the usage of Section 21 ends the expiration of the limitation period.
  • Parties have been given the option to move to High Court legitimately to get the interim order before Arbitration Tribunal.
  • The Arbitral Award will be made in a year from the date the arbitral council enters in a case, and the Parties may by assent, broaden the time period for a further time of a half year however not from thereon without authorization of the Court and with sensible reasons.
  • There are advance arrangements however to get the stay on the Arbitration Award, Amount of award be a compulsory deposit, and documenting of Appeal under Section 34 doesn’t mean a stay on the Arbitration Award.

When the disputing party opts for mediation, then the following procedure is to be followed-

  • Firstly the court refers to the dispute between to be resolved by mediation.
  • A qualified mediator will deal with the dispute and will give the opening statement encouraging the parties to decide the dispute through mediation and guiding about its rules. The qualification of the mediator is given under Rule 4 of Civil Procedure Code Mediation Rules, 2003.
  • Then both the parties will be given an opportunity to put forward their contentions regarding the case.
  • An opportunity for private discussion is given to each party with the mediator.
  • After the meeting both the parties are brought together and then sometimes a joint negotiation can take place to come to a conclusion.
  • Then finally an agreement has to be reached and the written agreement is to be signed by both the parties.

Therefore, an ADR mechanism is a speedy and cost-effective method for business houses and individuals.

 

 

 

 

[1] Anurag k. Agarwal, Role of Alternative Dispute Resolution methods in development of society : ‘Lok Adalat’ in India, available at www.napsipag.org/pdf/Lok_Adalat.pdf accessed on 01.10.2020.

[2] Avtar Singh, Law of Arbitration and Conciliation, sixth edition, Eastern Book Company, Lucknow, 2002, pg.51

[3] COVID-19 Impact: A Mix of Challenges and Opportunities for IT Vendors in India; says IDC, Available at https://www.idc.com/getdoc.jsp?containerId=prAP46181620 accessed on  01.10.2020.

[4] Suneera Tandon,Covid-19 impact: Apparel manufacturers report 84% drop in May sales, says CMAI, Available at https://www.livemint.com/industry/retail/covid-19-impact-apparel-manufacturers-report-84-drop-in-may-sales-says-cmai-11591367082150.html accessed on  01.10.2020.

[5] Benjamin Chacon,6 Small Business Challenges During COVID-19 (+ How to Overcome Them), Available at https://later.com/blog/small-businesses-challenges/ accessed on 02.10.2020.

[6] Ibid

[7] Supra note 5

[8]SAMA, an ODR Platform (2015)  Available at https://www.sama.live/neutral-detail.php?mr.-ethelwald-o-mendes&city=Goa&mediator&mediatortype=70efdf2ec9b086079795c442636b55fb&xdf=f55e0736ce741aad077ed45a7b50cc68

[9] JUSTICE B.K. SOMASHEKARA, Arbitral Process of Justice, IIA&M, Vol 3, Pg.no. 6

[10] Available at https://www.barandbench.com/columns/from-doors-of-justice-being-closed-for-poor-to-questions-on-confidentiality-lawyers-weigh-in-on-scs-hearings-via-videoconferencing accessed on 02.10.2020.

[11] Ibid

[12] Supra note 11

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