In today’s business scenario, the focus is not just on profit-making but on advancing the overall commercial interests and objectives. Embroiled in dispute, if a company falls short of meeting its commercial goals, it is considered to have failed in business. It is a known fact that businesses are like speed — impatient with delay and abhor unnecessary cost. The duration of a financial dispute can have direct economic consequences for a business, whether in terms of delay in the collection of amounts owed, or the setting of financial reserves that must be posted under accounting rules. All this impairs the reporting of profits until the final resolution of the dispute.
The system of dispensing justice in India has come under great stress for several reasons, the main being the huge pendency of cases in courts. There has been constant criticism that the judiciary is being operated under a totally run-down and obsolete system which has far outlived its utility and purpose. In a developing country like India, which has major economic reforms under way within the framework of the rule of law, strategies for swifter resolution of disputes both to lessen the burden on courts and to provide means for expeditious resolution of disputes, there is no better option but to strive to develop alternative dispute resolution (ADR) modes. This can be made possible by establishing facilities that provide for settlement of disputes through arbitration, conciliation, mediation and negotiation.
In India, the contract awarding companies mostly are public sector undertakings. This is due to the concentration of business into the hands of few PSUs thanks to the economic policies implemented by the government in the initial three-four decades post independence. Therefore, in most cases of disputes, the contending parties will be one PSU against one private sector corporate who is a contractor of the said PSU.
Since the client PSU companies are marred with red-tape and run in bureaucratic style, the claims by contractor are often not taken in the right spirit and negated outright without being judged on merit. A contractor has to be extremely diligent while claiming compensation from client, considering its long-term effects. With the recent emergence of many new competitors under liberalized economy, every contractor has to be extra cautious and ensure no such step is taken that can hamper its long-term business relationship with a client. Thus a contractor has to take a number of things into consideration before dragging the opposite party to the court. Even if a situation reaches a point where it is unavoidable to knock the doors of the court, under the current judicial system, justice can be inordinately delayed.
The alternative dispute resolution methodologies gain critical significance in the light of this backdrop
There are basically two popular ADR mechanisms — Arbitration and Conciliation. However, arbitration is much stricter and procedural, whereas conciliation is more flexible and lenient.
Due to inherent procedural deficiencies, arbitration unfortunately has an image synonymous with obstructions, astronomical costs and delays. Mostly, adhoc arbitration practices prevail in India which need to be standardized and institutionalized. A normal arbitration session does not last more than 2-3 hours while sittings are scheduled in gaps of weeks and months because of the nonavailability of time in the hands of arbitrators who are mostly retired judges. While these judges are certainly neutral in their roles as jurists after years of being on the tradition Bench, they are accustomed to the formality and deference that goes with their judicial office. Being used to giving orders and having them obeyed, judges are generally impatient with the informal, emotional venting and alternative procedures. The attempt for amicable resolution is absent. This creates a fair amount of hesitation and apprehension in the legal and business communities to opt for arbitration.
Conciliation processes have the advantage of providing parties the opportunity to reduce hostility, regain a sense of control, gain acceptance of the outcome, resolve conflict in a peaceful manner and achieve a greater sense of justice in each individual case. The resolution of disputes usually takes place in private and is more viable, economic, and efficient. The parties involved in ADR do not develop strained relations; rather they can continue to maintain their original, amiable relationship. Since the settlement is objectively ‘fair’, it is more likely to be acceptable.
Under Section 30 of Part 1 of the Act, the arbitral tribunal is also encouraged to settle the dispute by conciliation, mediation or other procedures at any time during the arbitral proceedings, with the agreement of the parties. Conciliation has also been well conceptualized in Industrial Disputes Act, 1947.
Many PSUs have now started drafting their contracts in such a manner that conciliation will be undertaken as a compulsory remedy before arbitration, in case a dispute arises. This way, time and cost of both parties is saved and amicable settlement is achieved within reasonable time. It is worth to mentioning here that many private contractors are willing to forego some of their monetary claims in the conciliation process to converge the proceedings towards an effective, efficient and expeditious settlement.
While arbitration could have increased chances of claiming more money, the delay in receiving that money (due to prolonged settlement) and the opportunity costs that were foregone on the receivables do not really make arbitration worthwhile. The entities are tempted to avail quicker settlement through conciliation and get their necks out of a dispute at soon as possible. This way, their balance sheets are not leveraged unreasonably and their working capital requirements are also met desirably.
Usually, the claim statements and counterclaims/ rejoinders are voluminous documents running into hundreds, at times thousands, of pages. It is practically not possible for the conciliators to read every document and if at all it is expected from them, it would not be an overstatement to call it a self-injured delay in settlement process. Conciliations are not strictly procedural unlike arbitrations which go strictly as per legal modalities. This very aspect of conciliation process needs to be well exploited by the parties to dispute.
In conciliation, the crux of the dispute is at the focus and not the circumferential eventualities which may not be that necessary to decide on the matter. Hence, representation of their stands by both parties in the form of effective presentations, charts, tables, summaries etc. is very important to expedite the process. In case of disputes involving some critical technical aspects which may go beyond understanding/evaluating capacity of the judges, they may call upon a third party expert to assess the merit in the arguments.
Each sitting can have a specific predetermined agenda with specific issues to address, thereby streamlining the process effectively and avoiding irrelevant references being introduced by a party that can only add to the confusion. The whole dispute can be categorized under various issues and each of them can be handled separately and specifically in separate sittings, so as to arrive at an early conclusion.
At the end, combining all individual results and taking a final holistic view of the situation allows both conciliators and disputing parties to rethink their positions and decide on final settlement agreement. When the parties finally agree to settle, usually it is a compromised mutual understanding arrived at by both of them as compared to their original stances and hence it is a win-win situation. It emanates from the priority to prompt justice over the unquenchable and unreasonable quest for ‘right’ justice. Suppleness in the process allows the precise jurisprudence to prevail and prevents unwarranted delays.
Often, disputes arise because of contract clauses which can be interpreted in more than one way on the principles of equity, good conscience and justice. The Doctrine of Contra-Proferentem is a widely used remedy in such cases, which states that when a contract provision can be interpreted in more than one way, the Court will prefer that interpretation which is more favorable to the party who has not drafted the agreement (or simply that interpretation which goes against the party who has inserted/insisted on inclusion of the alleged ambiguous clause in the agreement).
The rationale behind this doctrine emanates from the fact that parties to the agreement are often not in equal position. One party dominates the execution of the agreement while the other party merely signs on the dotted line. Such contracts are mainly “standard form take it or leave it” contracts. One such contract are government contracts wherein the tender notices floated by government agencies prescribe that the bidder will not put any condition in the tender. Contra-Proferentem places the cost of losses on the party who was in the best position to avoid the harm.
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