Evolution of ADR Mechanisms in India

Introduction

Human beings’ need for survival brought competition for resources, which are limited in nature, with its fellow beings. And, with competition, came disputes and conflict, which were resolved firstly and foremost, part of human existence, by fighting or war. This instinctive phenomenon continues till today. But for particular disputes, human beings have been able to come up with other systems for resolving disputes; firstly, distribution of justice by the king (in case of tribes by the tribal chief); secondly, the most prominent method used in today’s world, litigation.

Litigation as a process involved to party contending of their rights, in front of an impartial Judge, through their respective advocates. The Judge after hearing the contention of both the parties delivers a judgment which determines the rights and liability of the parties. No doubt, this method is better than justice delivered by kings/queens (which can be on their whims and fancies) or war (which leads to damage to both the parties on a massive scale).

Litigation is a consequence of one of the human beings’ another instinct i.e. evolution. War and arbitrary judgments evolved into litigation because of limitations in those systems. Litigation, also, is not devoid of limitations, hence, human being’s quest for a better way of resolving disputes lead them to evolve an efficient and effective way of resolving the disputes i.e. the alternative dispute resolution (hereinafter referred to as “ADR”) system.

ADR is an alternative to litigation; and, involves mediation, arbitration, conciliation, negotiation, settlement by judiciary and any other process of resolving dispute which does not involve court; and is governed by certain rules. The result (or settlement) of the proceedings shall be enforceable in law. With the passage of time, ADR is becoming a popular method of resolving disputes between the parties, particularly, in commercial disputes. These methods allow the parties to make choices with regard to law or rules which will be applicable to these proceedings. All the methods in most of the proceedings use a third party as an adjudicator or mediator (as per the method chosen by the parties) chosen by the parties with their consent. This provides satisfaction to the parties with regards to the process and adjudicator because these processes make people feel empowered and in control of the proceedings. After all, people desire certainty the most in life.

Evolution of Modern Arbitration Law in India

Though arbitration prevailed in India, in the form of panchayats (which have been now given recognition in the Constitution of India)[1] before the Britishers came in and established their authority. In 1923, the League of Nations gathered and agreed to the Geneva Convention. The Geneva Convention also contained clauses for arbitration.[2] The first arbitration dedicated provision in the Civil Procedure Code, 1908 which had Section 89 providing for arbitration but the same was repealed by Section 49 and Schedule III to the Arbitration Act, 1940.[3] Prior to enactment of the Arbitration Act, 1940, the Britishers enacted Arbitration (Protocol and Convention) Act, 1937 wherein the Preamble of the Act stated that India was signatory as a State to the Protocol on arbitration as established by League of Nations.[4] The League of Nations intended to bring the world closer through trade which made it realise the importance of arbitration. As a result, the Protocol on Arbitration Clauses, 1923 came into existence. There were several lacunae in the Protocol, hence, a need for amendment was felt. The League of Nations came up with another Convention for Enforcement of Foreign Arbitral  Awards which was lacking in the 1923 Convention.[5] This Convention of 1927 is also known as the Geneva Convention of 1927. This Convention formed the basis for other enactment i.e. the Arbitration (Protocol and Convention) Act, 1937. Section 3 of the Arbitration (Protocol and Convention) Act, 1937 refers to the existence of the Arbitration Act, 1899.[6] The Arbitration Act, 1940 came into picture repealing all the previous laws governing arbitration. The Arbitration (Protocol and Convention), 1937 failed to achieve its objective. Then after several years of work, in 1958, the world came up with a convention i.e the New York Convention, which is still running its course till date. Then, the Arbitration Act, 1940 was repealed and replaced by the Arbitration Act, 1960. The New York Convention inspired another legislation in the Foreign Awards (Recognition and Enforcement) Act, 1961 which was lacking in the Arbitration Act, 1960.

In 1981, in Guru Nanak Foundation v. Rattan Singh[7], Desai, J. observed with regards to the 1961 Act that the arbitration system has become ineffective. The point was that even in cases if the arbitrator passed an arbitral award, the parties used the provisions of the Act to challenge the award. This observation presented the 1961 Act as an additional layer which party may choose or not, prior to the litigation process. The lacunae in the provisions of the 1961 Act, made it redundant and people ended up approaching the courts for litigation. Arbitration as a process was meant to be cost effective and time efficient, but the 1961 Act failed miserably to achieve this objective. This Act would be further repealed and replaced by the Arbitration and Conciliation Act, 1996. In 1985, United Nations Commission on International Trade Law (UNCITRAL) presented a comprehensive model for arbitration. The present Arbitration and Conciliation Act, 1996 is based on that UNCITRAL model. The Arbitration and Conciliation Act, 1996 has been subjected to two more amendments in 2015 and 2019.

Conciliation

In 1987, prior to the enactment of the Arbitration and Conciliation Act, 1996, the Government enacted another legislation for resolving disputes i.e. the Legal Services Authorities Act, 1987[8]. The proceedings under this Act are in the nature of conciliation and the sitting Judge does not perform any adjudicatory function or there is no determination of rights.[9]

In P.T. Thomas v. Thomas Job[10], the Court highlighted the benefits of the legal Services Authorities Act, 1987 as following:

  1. No court fee is charged and if any fee is already deposited, it is given back on settlement of disputes.[11]
  2. It is very elastic as far as procedural law is considered and speedy in resolution of dispute. There is no application of rigid traditional procedural laws like the Civil Procedure Code, 1908 and the Evidence Act, 1872.[12]
  3. The Act enables the parties to directly interact with Judges (retired Judges who are appointed by the authorities concerned).[13]
  4. The proceedings cannot be conducted in an adversarial manner similar to what is done in courts.[14]
  5. The most important part of this Act is that if the dispute is settled; it is equivalent to a decree and enforceability of a court. The settlement arrived at by the parties is not appealable.[15] No civil appeal can be made from this settlement.[16]

In Bhargavi Constructions v. Kothakapu Muthyam Reddy,[17] the Court ruled that the settlement can be challenged on limited grounds i.e. challenge on the grounds of fraud, through writ jurisdiction under Article 226 or Article 227 of the Constitution of India.[18] [19]

The idea behind bringing the Legal Services Authorities Act, 1987 was “legal technicalities” does not get precedence over the resolution proceedings.[20]

The Arbitration and Conciliation Act, 1996 is another legislation which formally provides for the conciliation process. The conciliation process is mentioned in Part III of the legislation. The legislation also adopted as its rule the United Nation Commission on International Trade Law (UNCITRAL) Conciliation Rules. Section 66 of the Arbitration and Conciliation Act provides that the proceedings would not be bound by the Civil Procedure Code, 1908 and the Evidence Act, 1872[21]; no doubt this provision (and many other provisions) is for streamlining the conciliation procedures.

Section 18 of the Micro, Small and Medium Enterprises Development (MSME) Act, 2006, also provides for mandatory conciliation process by referencing the dispute with regards to payment due under Section 17 of the MSME Act.[22] Section 18(2) provides that Sections 65 to 81 of the Arbitration and Conciliation Act, 1996 should apply to seek conciliation as referred under Section 18(1) of the Micro, Small and Medium Enterprises Development (MSME) Act, 2006.[23]

Mediation

In 1996, the Government brought an amendment to Section 89 of the Civil Procedure Code, 1908 which gave scope to the court to formulate settlements, if it appears to the court that there is a possibility of settlement between the parties and after receiving the referral from the parties to make amendments in such settlement and refer the same to arbitration, Lok Adalat, conciliation or mediation.[24] Mediation in India is governed by the Mediation Rules of 2003.[25] These proceedings are more informal in nature as compared to arbitration and conciliation. The role of the mediator is more of a person who provides guidance and clears any misunderstanding that arises between the parties. The parties reach settlement on their own. Mediator regulates the settlement process. At the end of the process, a settlement is arrived between the parties rather than a decision.

The Law Commission of India suggested establishment of commercial courts, first, in the form of creating division in the High Court itself[26] or establishing separate commercial courts[27]. The second suggestion resulted in the passage of the Commercial Courts Act, 2015. In 2018, the present day Government, in alignment of its policy of improving the ease of doing business, came up with an amendment to the Commercial Courts Act, 2015. The President, in May 2018, promulgated an Ordinance which amended the Commercial Courts Act, 2015. As per this amendment, the Government introduced pre-litigation mediation for all the commercial disputes.[28] The provision concerned is Section 12-A(1) which states that in cases where no interim relief is required, the matter would be referred to compulsory mediation. Section 12-A(2) empowers the Central Government, through notification, to authorise the authorities under the Legal Services Authorities Act, 1987 for pre-institution  mediation.[29]

Section 89 of the Civil Procedure Code 

In 2002, Indian Parliament brought an amendment to Section 89 of the Civil Procedure Code, 1908. The amendment brought in a different alternative dispute resolution mechanism in Section 89. The Bar at Salem was not satisfied by this and other amendments. In Salem Advocate Bar Assn.(I) v. Union of India[30], the constitutionality of Section 89 was challenged. The Court upheld the constitutionality of Section 89. The Court also observed that the availability of such provisions in foreign countries have been very successful. The Court constituted a committee under the chairmanship of Justice M. Jagannadha Rao (Retired) to review the difficulty in workings of the amendments. The Court also ordered for the formulation of rules with regards to meditation[31] and ADR. As per the Committee’s recommendation, the Supreme Court ordered all the High Courts to formulate their own rules for ADR and mediation.[32] The recommendations of the Committee were accepted by the Court in another judgment.[33]

Conclusion

Human civilisation has come a long way forward as far as methods for dispute resolution is concerned. The development of ADR mechanisms has been prominently driven by the objective of resolving the issues in a timely and cost effective manner. The evolution of ADR mechanisms portrays an entangled scenario; and, one thing is sure that both legislature and judiciary has had a hard time in streamlining all the ADR mechanisms and rules regarding them. The history of ADR mechanisms started with the enactment of arbitration laws which evolved a lot over time. With time the other ADR mechanisms knocked on the door of Indian Parliament and Parliament was prudent enough to incorporate these new methods for dispute resolution. The Government also ensured that these methods are used on a specific basis in particular industries, for instance, the Commercial Courts Act, 2015 and the Micro, Small and Medium Enterprises Development Act, 2006. There has been discontent within the legal fraternity with regards to amendments in Section 89, which has been resolved based on the recommendations of Justice (Retd.) M. Jagannadha Rao Committee Report. The present day Indian Government is taking further steps in the evolution of ADR mechanisms wherein it desires to make India a global destination for arbitration and other dispute resolution methods.


* BA LLB (Hons.), Associate at S&P LLP.

[1] The Constitution (73rd Amendment Act), 1992; also refer to Article 40 of the Constitution of India.

[2] League of Nations, Treaty Series, Publication of Treaties and International Engagements registered with the Secretariat of the League of Nations <https://treaties.un.org/doc/Publication/UNTS/LON/Volume%2027/v27.pdf>.

[3] Section 89 (repealed),  Civil Procedure Code, 1908;

 WIPO Document, p. 26 <wipo.int/edocs/lexdocs/laws/en/in/in056en/.pdf>.

[4] Preamble, Arbitration (Protocol and Convention) Act, 1937.

[5] Convention on the Execution of Foreign Arbitral Awards signed at Geneva on 26-9-1927 also known as the Geneva Convention, 1927.

[6] Section 3, Arbitration (Protocol and Convention) Act, 1937.

[7](1981) 4 SCC 634

[8] The Legal Services Authorities Act, 1987

[9] State of Punjab v. Jalour Singh, (2008) 2 SCC 660

[10] (2005) 6 SCC 478

[11] (2005) 6 SCC 478, 486, para 19

[12] Ibid.

[13] Ibid.

[14] Supra Note 8.

[15] Supra Note 9.

[16] Order 7 Rule 11(d) of the Code of Civil Procedure, 1908.

[17] (2018) 13 SCC 480

[18] Id., 487, para 24.

[19] Supra Note 8.

[20] Bar Council of India v. Union of India, (2012) 8 SCC 243

[21]Section 66, the Arbitration and Conciliation Act, 1996

[22] Section 18(1) of the Micro, Small and Medium Enterprises Development (MSME) Act, 2006

[23] Section 18(2) of the Micro, Small and Medium Enterprises Development (MSME) Act, 2006 

[24] Section 89, Civil Procedure Code, 1908

[25] Alternative Dispute Resolution and Mediation Rules, 2003.

[26] 188th Report of Law Commission of India on Proposals for Constitution of Hi-Tech Fast — Track Commercial Divisions in High Courts 

[27] 253rd Report of Law Commission of India on Commercial Division and Commercial Appellate Division of High Courts and Commercial Courts Bill, 2015

[28] Section 12-A of Commercial Courts Act, 2015

[29] Ibid.

[30] (2003) 1 SCC 49 

[31] Under Section 89(2)(d) of Civil Procedure Code, 1908

[32] Salem Advocate Bar Assn. (II) v. Union of India, (2005) 6 SCC 344

[33] Ibid.

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