Finance Business

The Significance and Various Modes of Alternate Dispute Resolution

Human conflicts are inevitable. Disputes are equally inevitable. It is difficult to imagine a human society without conflict of interests. During ancient time’s arbitration, conciliation and mediation were the means for the settlement of disputes outside the formal legal system. These alternate mediums were recognised not just in India but also in other parts of the world. Thus, the settlement of disputes outside the scope of the formal legal system is called an Alternate Dispute Resolution (ADR) system. At a time when Indian courts are clogged with a huge number of cases, these means of settlement of disputes may be a helpful mechanism. It should be made clear that the alternate means of settlement of the dispute is not an alternative to the formal judicial system, but it is only a supplement to it with an objective to render economic and speedy disposal of disputes. This article sheds light on the importance and different modes of alternate means of dispute resolution but before that, let’s have a clear understanding of the term Alternate Dispute Resolution.

Meaning of Alternate Dispute Resolution

Alternate Dispute Resolution (ADR) is an attempt to devise machinery which should be capable of providing an alternative to the conventional methods of resolving disputes. ADR intends to provide resolution to all kinds of issues pertaining to the civil, industrial, corporate, family etc. It is a mechanism to ensure co-operation, order and gives a scope of reduced hostility.

ADR can be defined as a technique of dispute resolution through the intervention of a third party whose decision is legally binding on the parties. The mechanism of ADR flourishes because it avoids rigidity and inflexibility, which is often found in the litigation process apart from high lawyer fees and long delays.

Role of Alternate Dispute Resolution in corporate disputes

There has been a considerable spike in the number of corporate disputes with respect to sale-purchase contracts, cancellation of contracts etc. There are disputes that may arise out of interpretations that are contentious of shareholders rights in newly made joint ventures. There may be disputes with respect to the commercial activities of a company. Therefore, there has been greater dependence of companies on the alternate means of settlement. The justice delivery system in recent times has struggled to keep up with the pace of the growing economy. In such a situation, Alternate dispute resolution has been the preferred alternative.

Many domestic companies have been resorting to arbitration as a means of Alternate Dispute Resolution in case of a dispute rather than resolving them through civil courts. Presently the judicial system is not equipped to deal with the large corporate disputes expeditiously due to large arrears and prevalent judicial system. It is neither administratively nor technically equipped; therefore, the ADR mechanism is seen as the alternate. Though the higher judiciary has the intellectual capabilities and skills, but it lacks infrastructure, enough judges, etc.

Another best way to settle corporate disputes could be mediation which is another form of ADR. It not only democratises insolvency processes but also creates an inclusive space that is effective to all parties. We shall discuss mediation and other modes of ADR in subsequent passages.

Importance of Alternate Dispute Resolution System

The Alternate Dispute Resolution plays a significant role in to deal with the pendency of the cases in courts. It helps in reducing the burden on the judicial system. The main objective of ADR is to ensure socio-economic and political justice in society. It is founded on the principles of equal justice to all. The prime reason for the origin of ADR is the tiresome processes of litigation and inadequacy of the court system. It broke through the resistance of vested interests because of its ability to provide cheap and quick relief. ADR has emerged as a powerful weapon for resolution of disputes at both international and domestic level.

ADR is of special significance because even in commercial matters, regular civil courts have to decide the cases on the basis of shreds of evidence and arguments presented before it. The court has to give preference to evidence and arguments instead of thinking in terms of commercial sense or improved business relations.

The importance of ADR is relatively higher, considering that it provides the parties with a cheap, speedy and less formalistic remedy to the aggrieved party. It aims to provide a remedy that is most appropriate in the circumstances of the case. The alternate means of dispute resolution mechanism can be invoked at any time, even if the matter is pending in the court of law.  The disputes can be resolved comparatively more economically and speedily. This system is also significant by the reason that it reduces the workload of the court and provides flexible procedure. It ensures that the relationships between the parties are kept intact and preserves the best interests of the parties. People or the companies can resolve the disputes in shorter periods as compared to court under ADR. It is also cost-effective than the litigation process, that’s why the majority of them resort to it.

Modes of Alternate Dispute Resolution

There are various modes of Alternate Dispute Resolution (ADR) that can be employed as a means of dispute settlement. These modes of alternate means of dispute settlement are discussed below in detail.

Mediation

Mediation is a non-binding procedure where a third party assists the parties to a dispute in reaching a mutually satisfactory and agreed settlement of the dispute. It is a process by which parties at dispute engage the assistance of the mediator who helps the parties in resolving their disputes by negotiated agreement without adjudication.

Mediation not only democratises insolvency processes but also creates an inclusive space that is effective to all parties. It has been utilised in many jurisdictions for insolvency resolution of disputes and provides some specific advantages. In an insolvency resolution process, creditors of a corporate debtor know the least amount of repayment that they are intending to receive and the requirement of conceding to the needs of a debtor. Mediated discussions, with this beginning, for settlement with creditors may help to put together a resolution plans which is achieved through understanding and finding the needs and the interests of the stakeholders.

There are some other advantages in using mediation in settling corporate disputes. An Insolvency resolution plan is based on a persistent relationship with the creditors. Operational creditors of the corporate debtors have no power to make decisions in the resolution plan under regulations. If there is any dissatisfaction with the resolution plan enforced on them, these creditors may discontinue their business or services to the corporate debtor. By virtue of discussions through mediation, these relationships can be continued and preserved effectively. It would provide an opportunity for new investors to build their relationships with the stakeholders.

Mediation can be utilised in negotiating settlements on repayment of dues that are owed to the company. It is speedier and cost-effective. Mediated settlements are more effective in terms of compliance as well. It also has many advantages over bilateral settlement negotiations. The process of mediation takes advantage of varied interests and different needs of creditors to provide a settlement that treats the groups of creditors differently but doesn’t affect their interests.

Arbitration

Arbitration means the determination of disputes by the decision of one or more person called the arbitrator. A question that may be determined by a civil action is referred to as Arbitration. It is a process set up by the parties to a dispute as a substitute for litigation to obtain a decision on their dispute. Arbitration has been the mother of all sources of other alternatives not just in substance but also in the procedural functioning of the alternative methods. The procedure and principle of arbitration have influenced the development and growth of many ancillary and hybrid processes used in the methods of Alternate Dispute Resolution.

Both arbitration and mediation may be binding and employs a neutral third party, but it must be noted that arbitration is a binding procedure, unlike mediation which is a non-binding procedure.

In recent times there has been a definite shift in the paradigm where domestic and foreign parties have started favouring arbitration over litigation in India. Earlier litigation was the primary refuge for most despite a huge backlog of cases, but it has changed in the recent past though the parties appeal against arbitrational awards which have resulted in long delays in the cases. Arbitration has not been too effective compared to the legislative intent. This has been due to the fact that the ADR legislation in India contains certain ambiguities which have been exploited while challenging awards by the losing parties. This has lead to a lack of finality of awards in arbitral proceedings.

The process of arbitration has been included in many business contracts as a compulsory or an alternative means of dispute resolution because in comparison to litigation it is a flexible process and provides a result in a final, binding decision. The main object of arbitration is to ensure a fair settlement of dispute without any delays and high expense.

Conciliation

If the parties to a dispute fail to arrive at any settlement of their dispute, the parties may take the help of a third person who is independent in regard to the subject matter of the dispute. Such a third person may induce the parties at dispute to come to an amicable settlement of their dispute through the alternate means of conciliation. During the process of conciliation, that independent person uses his goodwill and impression in resolving the disputes.

There has been a significant rise in various reforms to improve the ease of doing business in India. Various old laws are either modified or repealed with new laws with a common objective to settle the disputes early, especially in corporate matters.

Companies Act 2013 provides for ADR mechanism Conciliation for parties involved in a proceeding.  A conciliator can be appointed, and the conciliation proceedings can be initiated upon the consent of the parties or if the court is of the opinion that there is a chance of settlement through ADR mechanism. A conciliator can be appointed by the court or by mutual consent of the parties. The conciliator makes various proposals to solve the disputes and formulates the terms of a possible settlement.

A time limit of three months has been given to conclude the Conciliation proceedings. However, it may be noted that such time limit may be extended upon an application from either the conciliator or the parties to the dispute.

Negotiation

The parties to a dispute on their own motion can start a process of negotiation through one or two mediators or through correspondence with a view to find a mutually acceptable resolution. One can find provisions in the Civil Procedure Code in which courts are required to provide all the facilities to bring about a compromised settlement.

It is the simplest form of ADR. In this mode parties usually begin their talk without the interference of a third party. The main object of this mode is to settle the disputes by an exchange of views and issues concerning the parties. If the parties are wise and patient enough, then this mode is considered the simplest and cheapest of all.

Conclusion

With each passing day, the pendency of cases is increasing and to deal with such issue; the Alternate Dispute Resolution mechanism can be helpful. It will help in resolving a conflict in a peaceful manner where the final decision shall be accepted by both the parties. Its biggest attraction has been its cost-effectiveness and timely disposal.  The technicalities of a court system may be avoided by using this mode of ADR as informal ways are employed in resolving the dispute.