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To Identify The Corporate Disputes In All Forms Of Business Organization And Its Resolution Through The Process Of ADR

Corporate disputes in all forms of the Business organization include disputes that are Breach of Contract, Antitrust, Breach of Fiduciary Duty, Mala-Fidei, Business Torts, Class Actions, Debtor/Creditor, Employment and Labour, Fraud and Misrepresentation, Insurance Coverage, Intellectual Property, and Patent Infringement, Board Member Disputes, Partnership Disputes, Privacy, Cyber Security and Data Breach, Product Liability, Real Estate, Land Use, and Environmental Litigation, Shareholder Disputes, Tax disputes and few more.

Now, these corporate disputes are resolved through practical exposure and specialized skills required in an individual dealing with the disputes. Alternatives that are consensus-based aid in resolution, prevention, and mitigation of the negative impact of corporate conflicts that leads to efficiency in company performance, maintaining investor confidence and ensuring continuity of business.

The research highlights the amendments that taken place in the Companies Act, 2013, and various techniques for the resolution of the dispute through the method of ADR process. Further, it elaborates the integration of the alternatives incorporate legal world and enforceability of arbitration in Business organizations and their disputes.

Introduction
Section 89 and Order X Rules 1A, 1B and 1C of the Civil Procedure Code, 1908 has included ADR mechanism that is a radical step towards the growth and development of ADR mechanisms in India. The commercial disputes have been expanded with an increase in business activities in the last few years.

There are disputes which arise out of sale-purchase contracts, shareholder rights in joint ventures, foreign judgments and awards in India, rescission or cancellation of contracts and all or any of them are choosing arbitration to resolve their disputes. Companies are increasingly depending on the alternate dispute redressal mechanism and on arbitral institutions such as the LCIA, SIAC, or ICC.

Even the sectors like oil and gas, offshore services and telecom and power have been dealing with their corporate dispute through the ADR mechanism[i]. In recent years, maximum Business organizations whether partnership firm, proprietorship, one person company, joint-stock company, etc. have a clause of ADR mechanisms to solve their disputes because the institutional nature of parties affects the dispute at every stage in its life from the creation of injury or grievance to the development of dispute to deciding whether to choose litigation or arbitration for resolution and finally processing and eventually resolution of a dispute.[ii]

The awareness has been increased among the organizations regarding the costs of disputing and the potential savings that have lead to the movement towards alternative forms of dispute resolution.

The business sector's influence on the alternatives movement has primarily been funneled through relatively new organizations established specifically for this purpose. There are various ADR committees like National Institute for Dispute Resolution (NIDR) that are supported by large corporate foundations.[iii]

These bar committees are useful as they are cost-effective and have created their own publications, such as Alternatives and Corporate Dispute Management to promote greater awareness and use of alternatives. Few major reasons why the corporate sector has been driven towards alternative dispute resolution are[iv]: 1) a desire to improve access to justice for individuals who believe they have been left out of the public dispute resolution process due to its fees or formality, 2) the goal to promote community empowerment in the process of conflict resolution.[v]

Corporate law departments should make applying these or other rules to each dispute at every stage of its development, from original assertion to trial and appeal, part of their regular operating process. Furthermore, the corporate client must take affirmative steps to inform outside lawyers of its commitment to cost-effective conflict settlement, including the use of alternative dispute resolution (ADR). For example, at Chevron, ADR-based mediation of a single issue costs $25,000, compared to $700,000 for mediation through outside counsel and $2.5 million for going to court over a three- to five-year period.

A Reversal Arbitration Board set up by Toyota's U.S. division to settle disputes between the corporation and its dealers over automobile allocation and sales credits have resulted in a continuous drop in the frequency of these cases, from 178 in 1985 to 3 in 1992.[vi]

The parties propose solutions that are less time-consuming, less tedious, less confrontational, and more productive of goodwill and long-term relationships by allowing them to resolve their problems amicably through arbitration.[vii]

Data of usage of ADR process
According to research done by GNLU professors, 93 percent of advocates have advocated using the ADR system to resolve their issue, while the remaining 7% have refused to consider it at all. Out of this, 93 percent of advocates proposed using an alternative dispute resolution (ADR) method to resolve the disagreement, and roughly 83 percent of litigants are interested in using an ADR system to resolve their conflict, with the remaining 17% not interested.

On the other hand, 76 percent of litigants are interested in using an ADR mechanism to resolve their disagreement, while the remaining 24 percent are not. According to a study, 65 percent of litigants received advice on the ADR system before bringing a lawsuit. The instance is unique, and the remaining 35% of people do not receive any advice on how to use the ADR system.[viii]

Further study shows that majorly young advocates are satisfied and keen to adopt this new mechanism of settling disputes through arbitration, mediation and conciliation. The most preferable ADR mechanism is arbitration with 38.33% followed by mediation with 31%, Conciliation with 23%, and Lok Adalat with 6% among lawyers. The judges have voted for the highest number of preferences to Mediation with approx. 52% followed by Arbitration with approx. 41%, Conciliation and Lok Adalat with 3% each.

Among the three stakeholders i.e. advocates, clients and judges, the research shows that all the judges have introduced ADR mechanisms but if ask from clients only 60% were agreed that Judges have introduced the ADR mechanism, and the remaining 40% refused. When ask by advocates, only 81% of them agreed that they have been told to follow the ADR mechanism by the judges.

Furthermore, based on the nature of the dispute, it is important to know how long similar disputes have taken to resolve in the court system, because the importance or necessity for the ADR system may be understood based on the time consumption of cases. It has been observed that 57% of the case takes 0-2 years to complete and 28% of the cases take 2-5 years while remaining cases take more than 5 years.[ix]

Although, it is difficult to say that all the stakeholders have accepted the ADR process system but the rate is growing with time and many cases and agreements of the companies started including ADR mechanism clauses.

Nature of corporate disputes in a Business organization
Disputes can be classified more effectively in a qualitative manner. The most diverse kinds of corporate disputes are the disputes among disputant's relationships to the institution. These relationships include:
  1. employees;
  2. consumers;
  3. members or representatives of the general community;
  4. government;
  5. other private organizations.
Other classifications of corporate disputes based on substantive issues are:
  1. employment;
  2. product-related;
  3. environmental;
  4. regulatory; and
  5. commercial.
Types of conflicts tend to be channeled into various conventional dispute resolution systems due to the nature of the other disputant and the substantive concerns raised.[x] When determining whether an alternative dispute resolution process should be used to resolve a specific type of dispute involving a specific type of disputant, it is necessary to weigh the costs and benefits of the proposed process against the process that would be used if the dispute were handled traditionally.

Many alternative processes and strategies aim to move a disagreement from the adversarial, "win-lose" setting of adjudication to a less hostile, bargaining scenario in which the disputants have more result possibilities and influence. For similar reasons as the early focus on internal and entirely private processes, many of the early efforts by companies to build alternative conflict resolution and management methods also concentrated on the last category-inter-corporate or inter-institutional disputes.

Inter-corporate disputes frequently entail private rather than public law issues, therefore circumventing official procedures poses fewer public policy challenges. In this context, ADR proceedings are merely an extension of the settlement discussion process between parties of nearly equal power, and they can be rapidly and readily executed solely by the parties' consent.[xi]

The two major disputes that arise out of the processes of business organizations are external (inter-organizational) and internal (intra-organizational) ones.[xii] In internal conflicts, Organizations have a tendency to hide or cover them up, ignore them, or utilize internal coercive solutions if possible to suffocate them, leaving them unresolved. This can make it even more expensive because a disagreement can grow over time, leading to a crisis or, at the very least, a rupture that disrupts the organization's smooth operation. Employees, supervisors, functional departments, or, even worse, corporate bodies (so-called corporate disputes), involving shareholders, shareholder assemblies, boards of directors and boards of supervisors, factions within these, committees, and so on, maybe involved in such a conflict.

In external conflicts, if informal discussions (the most common type of negotiation, but one that is typically performed intuitively, without any framework, and thus without proper preparation) fail, court hearings (rarely arbitration proceedings) are held, with all the associated costs and complications. Vendors, creditors, debtors, clients, competitors, and partners are all targets for legal action by businesses.

Companies are involved in other categories of dispute that are administrative conflicts like taxation, environmental protection, competition, etc. and hybrid conflicts for example labor disputes with employees or disputes with consumers, etc.

Dispute resolution process and techniques
A number of forums/bodies of dispute resolution have been included under the Companies Act 1956 for business organizations to resolve their disputes and to have a judicial settlement. The constitution and establishment of Commercial Courts, passage of Insolvency and Bankruptcy Code 2016 (Bankruptcy Code), amendments in the Arbitration and Conciliation Act, National Company Law Tribunal (NCLT), and Companies Mediation and Conciliation Rules, 2016 made a revamp in the dispute resolution machinery.[xiii] By this the government of India has taken major developing steps to ensure the efficient and speedy resolution of disputes of corporate/commercial litigations in India.

When the Court believes that there are components of a solution that may be acceptable to the parties, it shall construct the terms of settlement and present them to the parties for their consideration under Section 89 of the CPC. Following receipt of the observation, the Court may reformulate the parameters of a potential settlement and submit it to arbitration, conciliation, or judicial settlement.[xiv]

A variety of unique alternative dispute resolution processes and techniques have been successfully used to resolve institutional issues that were not expected or averted and may or may not have been adequately managed.

Mediation and Conciliation
Code of Civil Procedure recognized Mediation in its amendments and Arbitration and Conciliation Act, 1996 introduced the process of Conciliation.[xv]

In Conciliation, the dispute is settled in a friendly manner by the means of an extra-judicial process. Negotiation is used by the conciliator to bring the disputants to an agreement. In addition, the Conciliator is only selected once a disagreement has occurred. The Conciliator's decision is referred to as an "award."

In mediation, a dispute is settled when a third party interferes between the two contending parties to persuade them to adjust the disputes. Mediation is a methodical procedure. The Mediator supports the parties in reaching an amicable agreement. The Process leads to a formal agreement that determines the parties' future behavior.

Furthermore, the mediator's conclusion is referred to as a "settlement."

Institutions are increasingly turning to mediation to reach negotiated rather than judicial resolutions of organizational conflicts. The Ford Motor Company's Consumer Appeals Board is an example of a corporate mediation program for consumer disputes.[xvi] The third-party mediation program, which began in 1977, allows Ford customers to have their service concerns adjudicated by an independent authority without having to go through the costly and time-consuming process of going to court.

Under this initiative, any Ford owner with a service complaint who has a dealer in a participating state can have the matter reviewed by a five-member panel. In recent years, institutional mediation of environmental issues has gotten a lot of attention. The 1982 mediated solution to the projected Storm King Mountain Consolidated Edison Pumped-Storage Plant is a prime example[xvii]. The Storm King mediation lasted fourteen months, during which time there were twenty principles sessions and a number of technical meetings aimed at narrowing the scientists' differences. The issue was settled by Russell Train, a former administrator of the Environmental Protection Agency.

Section 442 is inserted in the Companies Act, 2013 that deals with mediation and conciliation and settlement of the dispute through an alternate dispute resolution mechanism so that burden of quasi-judicial bodies is reduced. [xviii]

Companies (Mediation and Conciliation) Rules, 2016 (hereinafter referred to as "Rules") were issued by the Central Government on September 9, 2016, in order to facilitate voluntary dispute settlement mechanisms.

The M&C Rules establish a system for resolving disputes via the use of alternative dispute resolution (ADR) methods by parties at any stage of an action before the Central Government, "Tribunal," or "Appellate Tribunal." The National Company Law Tribunal (NCLT) is a "Tribunal" established pursuant to Section 408 of the Companies Act, while the National Company Law Appellate Tribunal ("NCLAT") is an "Appellate Tribunal" established pursuant to Section 410 of the Companies Act.[xix]

Unscrupulous litigants have frequently used ad hoc application of ADR processes for dispute resolution under the Companies Act to induce delays. As a result, the implementation of M&C Rules is a positive step. The M&C Rules provide a framework for using alternative dispute resolution (ADR) processes to resolve issues originating under the Companies Act.

Med-Arb
Mediation followed by an arbitration process directed by the mediator is a variation on mediation that is sometimes used in inter-corporate disputes. Any issues that the parties were unable to overcome through negotiation are so resolved. The separation of an architectural firm into two distinct firms is an example of the successful use of this procedure. The two new entities decided to have a mediator assist them in resolving their financial and occupancy issues to the extent that he could, and then to decide conclusively on anything they couldn't. The "med-arb" procedure offers two major advantages.[xx]

For starters, it aims to resolve as many issues as possible through voluntary means. As with all nonbinding processes, this allows for a broader choice of conflict resolution options, which leads to greater party satisfaction with the outcome and, as a result, increases the likelihood that the outcome will be accepted and implemented without further costly disputes.

Arbitration
It is considered to be the primary dispute resolution alternative. It resolves thousands of commercial disputes and labor-management every year. Arbitration is most commonly utilized in conjunction with other ADR processes when a multi-tiered dispute resolution clause is included in a contract. Such a clause would signal that the parties agree to try to address their disagreements through an alternative dispute resolution mechanism before resorting to arbitration.

The agreements must be drafted with due care by the parties as it could cause the dispute resolution clause to be unenforceable.[xxi] Arbitration takes place when both parties have agreed to it with the same mindset and under the Arbitration and Conciliation Act, 1996 the parties are given an opportunity to select their arbitrator together and it is neutral too. There are arbitral institutions like Indian Council of Arbitration, Indian Merchants Chambers, International Chamber of Commerce, etc.

Integrating alternatives into corporate legal culture
Corporations and other institutions are especially well-positioned to reap the benefits of alternative dispute resolution processes by incorporating them into their regular business and legal activities. This can be accomplished in the following ways: - prospectively, through the use of dispute resolution clauses in contracts; - contemporaneously, through the use of systematic procedures to assess each case's ADR potential; - retrospectively, but with an eye to the future, through the use of systematized conflict management systems that track the origins, costs, and outcomes of both open and closed cases.[xxii] There are also many changes that have happened in Arbitration while resolving disputes of parties in organizations.

Few major changes
  1. In Mandatory Shareholder Arbitration
    The Companies Act, 2013[xxiii] has introduced class action suits in order to reduce the cost and increase the efficiency of litigation in the matters of shareholders and Indian investors but it is not serving their interests and since arbitration is encouraged actively in India over a past few years, Indian investors found mandatory shareholder arbitration as a good alternative. As a result of many large-scale incidents, domestic securities laws have become more stringent. The legitimacy of mandatory arbitration clauses in shareholder agreements is called into doubt by these contrasting developments.[xxiv]

    The viability of mandatory shareholder arbitration in India is impacted by two laws that are the Companies Act 2013, and the Securities and Exchange Board of India Act 1992 (SEBI Act). But in the case of Richa Kar v. Actoserba Active Wholesale Pvt. Ltd.,[xxv] the Companies Act of 2013 established a parallel framework of tribunals to deal with disputes relating to corporate laws in India. Despite the fact that these National Company Law Tribunals are quasi-judicial, they have the authority to submit parties to arbitration under this clause.

    Now, the bye-laws[xxvi] of SEBI and even the National Stock Exchange contain the procedures and guidelines for arbitration to resolve investor grievances or disputes arising out of trading between members. Even the securities laws made disputes explicitly arbitrable.
     
  2. Third party joinder in Arbitration Proceedings
    The paramount principle of company law is the doctrine of corporate personality which means distinct legal personality from its shareholders.[xxvii] Now if the party gets involved in any dispute, it is resolved through the arbitration process. But now the arbitration agreement has been expanded and it also involves the joinder of non-signatory parties since in many business organizations third parties which has a separate legal status but single economic entity[xxviii] get involved in the dispute so to increase the efficiency of an arbitration agreement and to ease the resolving process, Supreme Court in Chloro Controls India Private Limited v. Severn Trent Water Purifications Inc. and Others[xxix] (Chloro Controls), held that non-signatories could be compelled to arbitration if the parties clearly intended for both the signatory and non-signatory parties to be bound. Non-signatories could also be submitted to arbitration without their consent, but only in extraordinary situations and when it would serve the interests of justice. This landmark judgment was proven a great move in alternative dispute resolution mechanisms since many companies now tilted towards arbitration before going to court.

Enforceability/Arbitrability of Dispute Resolution Clause
In some jurisdictions, the application of public policy considerations has made determining the arbitrability of intra-corporate conflicts a contentious issue. But Supreme Court judgment in Vidya Drolia & Others v. Durga Trading Corporation[xxx], the case was a notable and positive step forward in India's arbitration growth. The judgment is likely meant to allude to shareholder or insolvency conflicts, which have traditionally been resolved through arbitration.

The Supreme Court in the Vidya Drolia case has devised a four-part test to decide when a subject is not arbitrable that are
  1. refers to actions in rem that are unrelated to subordinate rights in personam arising from rem rights;
  2. impacts third-party rights, has an erga omnes effect, necessitates centralized adjudication, and mutual adjudication is ineffective;
  3. pertains to the State's inalienable sovereign and public-interest functions; and
  4. is non-arbitrary either explicitly or by necessity
By applying these tests, the Supreme Court went on to hold that tenancy disputes[xxxi], allegations of fraud in civil dispute[xxxii] are arbitrable in nature. Apart from this, In keeping with the views of foreign jurisdictions like the United States, Singapore, the European Union, and Australia, as India develops into an economic powerhouse, there is a need for efficient, autonomous, and effective arbitrability of conflicts, particularly in commercial realms. India is at a fork in the road when it comes to selecting an arbitration-friendly environment, with questions about "subject-matter arbitrability" pending before the Supreme Court and different High Courts.

Courts cite federal and state policy in favor of arbitration, also, Most international arbitration rulings are enforceable in the courts of signatory countries under the New York Convention of 1958.[xxxiii] A mediation or mini-trial clause's enforceability is debatable. There are no cases directly on point due to the relative novelty of such phrases.

According to some observers, a mediation or mini-trial agreement would not be specifically enforceable because neither party is obligated to provide any ultimate benefit to the other.[xxxiv] The party attempting to enforce the provision is not harmed by the other party's refusal to participate in the process because such a clause does not bind any party to settle.

When considering the employment of an alternate mechanism, power imbalances between the parties must be taken into account. Because of the significant power differential between them, a dispute between an individual consumer and a huge manufacturer may not be suited for mediation.

Conclusion
Institutions and Business organizations are moving towards and taking interest in alternative dispute resolutions processes and mechanisms but still, India has to go far to resolve corporate disputes by such means. ADR system has a better impact on institutions because it is less expensive, takes less time than a usual court procedures. There are many techniques to resolve different types of disputes like mediation, conciliation, and arbitration.

The laws have been made like Arbitration and Conciliation Act, 1996 and many changes have been made in the company in order to encourage and develop the use of alternatives. It is no longer a narrow system but has become broader with time. Unscrupulous litigants have frequently used ad hoc application of ADR processes for dispute resolution under the Companies Act to induce delays.

If there is a scope to settle the dispute before approaching to the court, the central government, NCLTs, and NCLAT refer parties to the conciliation and mediation for resolution. Given the potential for expanding the range of issues that can be arbitrated, the establishment of a solid institutional system will undoubtedly aid India's transformation into an international arbitration center.

End-Notes:
  1. Resolving commercial disputes in India, https://www.financierworldwide.com/resolving-commercial-disputes-in-india (last visited July 11, 2021
  2. Miller, Grievances, Claims and Disputes: Assessing the Adversary Culture, 15 Law & Soc. Rev., 525 (2015).
  3. Green, E. D., Corporate Alternative Dispute Resolution, Journal on Dispute Resolution, 96 (2006).
  4. Goldberg, S., & Sander, E. G., Dispute Resolution, (1985).
  5. Singer, N., Law in the Future: What are the choices?, 51 Cal. St. B. J, (2010)
  6. Vondra, T. b., Alternative Dispute Resolution: Why it Doesn't Work and Why it does, Harvard Business Review, (2010).
  7. LM Power Engineering Corp. v. Capitol Industrial Construction Groups, Inc., G.R. No. 141833 (2003) 399 SCRA 562.
  8. A, D. M.,Resolving Pending Cases Through Alternative, Gujarat: Ministry of Law and Justice, Government of India, (2019).
  9. Id.
  10. Green, E. D., Corporate Alternative Dispute Resolution, Journal on Dispute Resolution, 96 (2006).
  11. Rao, M. V., Company Dispute Resolution in India - A brief, Taxguru.in (December 10, 2009), https://taxguru.in/company-law/company-dispute-resolution-mechanism-in-india-a-brief.html
  12. Stoica, S, Organizations and Their Conflicts, Mondaq (May 6, 2019), https://www.mondaq.com/corporate-and-company-law/803124/organizations-and-their-conflicts.
  13. Pandey, A., Dispute resolution under Companies Act, 2013, Ipleaders.in, (2017).
  14. Kohli, K., ADR Under The Companies Act, 2013 - Is India Inc. Ready? Mondaq (May 21, 2018), https://www.mondaq.com/india/corporate-and-company-law/702928/adr-under-the-companies-act-2013--is-india-inc-ready.
  15. Resolution of Corporate Disputes, non-compliances & Remedies, Mumbai: The Institute of Company Secretaries of India, (2020).
  16. Smith, Corporate Dispute Management, Center for Public Resources, (2000).
  17. Train, Mediating Storm King: A Non-Adversary Approach to Environmental Issues, Corporate Dispute Management, Center for Public Resources, (2000).
  18. Kohli, supra note 14
  19. Id.
  20. Green, E. D., Corporate Alternative Dispute Resolution, Journal on Dispute Resolution, 96 (2006).
  21. Gonzalez, A., Settling Business Disputes: Arbitration and Alternative Dispute Resolution, International Trade Centre, (2016).
  22. Green, E. D., Corporate Alternative Dispute Resolution, Journal on Dispute Resolution, 96 (2006).
  23. Sen, S., Class action suits in Indian company law, explained, Livemint.com (June 10, 2016), https://www.livemint.com/Companies/OhvhdZ4oAPmUCy5Ji9bWjM/Class-action-suits-in-company-law-explained.html.
  24. Ramakrishnan, A., Mandatory Shareholder Arbitration: moving the Debate to India, Kluwer Arbitration Blog, (2010
  25. Richa Kar v. Actoserba Active Wholesale Pvt. Ltd, 03 of 2019 (NCLAT January 11, 2019).
  26. National Stock Exchange of India Limited- Bye Laws, Indiacorplaw.in (2016), https://indiacorplaw.in/wp-content/uploads/2016/08/NSEbyelaws.pdf.
  27. Singh, S. K., & Malik, A. G., Is An Arbitral Tribunal Permitted To Lift The Corporate Veil In An Arbitration Proceeding?, Mondaq.com (April 14, 2021), https://www.mondaq.com/india/arbitration-dispute-resolution/1057980/is-an-arbitral-tribunal-permitted-to-lift-the-corporate-veil-in-an-arbitration-proceeding.
  28. Dow Chemical v. Isover-Saint-Gobain, ICC Case No. 4131
  29. Chloro Controls India Private Limited v. Severn Trent Water Purifications Inc. and Others (2013) 1 SCC 641.
  30. Vidya Drolia & Others v. Durga Trading Corporation, SCC Online (2019) SCC 532
  31. Himangni Enterprises v. Kamaljeet Singh Ahluwalia (2017) 10 SCC 706.
  32. N. Radhakrishnan v. Moestro Engineers (2010) 1 SCC 72.
  33. Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc. (1985) 53 U.S.L.W. 5069.
  34. Olson, P., Enforceability of Agreements to Participate in a Mini-Trial, in The CPR Mini-Trial Handbook, Corporate Dispute Resolution (2000).

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