Mediate, not litigate

| Updated on January 20, 2018 Published on May 15, 2016

Disputes can be settled outside courtrooms if there is a willingness among businesses to try alternative mechanisms

Not all disputes in business need to be settled by a court of law. Nor are lawsuits the most efficient way to find a solution to a problem an enterprise may face with its stakeholders, business partners, associates, customers or the government. Sadly, in India, litigation seems to be the preferred mode for resolving disputes. That has resulted in a huge pile-up of cases before courts, putting further pressure on a system that is already over-burdened. Since litigation takes time, disputes often take a heavy toll on businesses and the parties involved — not just in terms of legal costs, but in terms of potential loss of business and erosion of asset value. Therefore, seeking alternative dispute resolution mechanisms is in the best interest of all involved, including the courts. Tough arbitration, conciliation and mediation are alternative mechanisms used worldwide by businesses to settle disputes; this has not been the case in India. Though we have had laws to facilitate arbitration and conciliation since 1996, there have not been many takers for the process. This is because the arbitration processes in India were not time-bound and were seen to be as tedious as litigation, involving complex paperwork and multiple hearings. Parties also had to incur high legal costs, just as they did for court hearings. Additionally, clauses in the Act say that if the arbitral award goes against public policy, it could be struck down by courts. This resulted in parties to high-profile arbitration cases often choosing London or Singapore to conduct the process. Given this history, it is indeed a welcome move that the Government is now planning to issue rules for mediation under the Companies Act 2013.

Mediation is a better way to settle commercial disputes, especially those the courts may not be fully equipped to deal with because they require in-depth understanding of a business. It is also faster and does not require a legal professional to be the mediator. A sector specialist with deep understanding of technical details and good communication skills can be an effective mediator. Thus it is more cost effective, faster and more efficacious than litigation or arbitration in the settling disputes. The Supreme Court and many High Courts have a mediation cell to help settle cases outside the courtroom. Settlements made at such mediation centres also have approval of the court and therefore become enforceable. The Companies Act 2013 also envisages mediation panels to settle cases pending before the National Companies Law Tribunal as well as its Appellate Tribunal.

Creating institutional structures is only one step towards making dispute settlement easier. India also needs to train enough specialists across sectors to carry out the process of mediation. Most importantly, a change of mindset on the part of parties to a dispute is required to reduce the backlog of cases in courts as well as to truly create an environment in which it is easy to do business.

Published on May 15, 2016
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