Introduction:
A commercial dispute is described to comprise any dispute linked with transactions between financiers’ merchants, bankers, traders, etc. Such transactions are related to mercantile documents, partnership contracts, insurance, intellectual property rights, etc. The rudimentary meaning of the term ‘commercial transaction’ is when two or more parties enter into an agreement relating to the exchange of goods or services having value or utility.
The Commercial Courts Act provides the constitution of Commercial Courts, Commercial Division which certainly includes the Commercial Appellate Division. This Appellate Division is present in the respective High Courts and is competent to arbitrate the commercial disputes of the specified value and other related matters.
Section 2(c) of the Commercial Courts Act provides a comprehensive definition of the term “Commercial Disputes”. It shelters every commercial transaction inclusive of general commercial contracts, shareholder & joint venture contracts, intellectual property rights, contracts concerning movable and immovable property, and natural resources, among others.
The definition of “Specified Value” is given under section 2(i) of the Commercial Courts Act. It is the value of the subject matter concerning the suit and it shall not be less than one crore (ten million) rupees or even a higher value, as it will be notified by the Central Government. However, the Amendment Act substituted the lower limit of “specified value” from INR 10,000,000 to INR 300,000.[1]
Origin of Commercial ADR
The commercial business world is growing at a faster pace. There has been a significant rise in both the domestic as well as global commercial transactions. The world of commercial business has attained more value and is spreading across globally. Hence, the need to discover an easy and uncomplicated mechanism arose. The legal machinery was already flooded with endless cases and their court proceedings. Thus, a mechanism for resolving all the legal issues arising out of domestic and international agreements was the need of the hour.
Even thejudiciary was seeking a refined solution. Various suggestions were offered regarding the replacement of the Arbitration Act of 1940. This resulted in the declaration of the Arbitration and Conciliation Ordinance, 1996.
The provisions laid down in the Arbitration Act, 1940 certainly provides a forum for resolving the commercial disputes between the conflicting parties. The mechanisms of ADR provides a quick and prompt remedy to the aggrieved. Hence, the parties get immediate relief and justice without going through the lengthy and time-consuming litigation proceedings. The origin of Commercial ADR removed all the technicalities which were previously faced by the aggrieved.
The origin of commercial ADR in India was a challenging task as this Act with the involved several drawbacks and postponements. The majority of commercial disputes resolved through the mechanisms of Alternative Disputes Resolution included transactions of purchase of goods in bulk and provision of services of higher value. Hence, the aggrieved parties instead of approaching the court of law invoke their arbitration clause laid out in their respective agreements or contracts. This ADR clause clearly states that in case if any dispute arises between the parties to the agreement in the future, then, in such a scenario, the conflicting parties would resort to the mechanism of ADR for arriving at the desired result/solution. However, as already stated, the incorporation of commercial ADR in practice was full of ups and downs, hence, delays were also observed in the decision-making process through commercial ADR.
The introduction of ADR is explained through this timeline; where in the year
- 1800 B.C. Mari Kingdom (in modern Syria) uses mediation and arbitration in a dispute with other kingdoms.
- 1400 B.C. Ancient Egyptian Amama system of international relations use diplomacy.
- 1624-1664 During the Dutch colonial period, commercial arbitration was widely utilized in New York City.
- 1664-1776 Following which in the British colonial period, the use of commercial arbitration continued
- 1995 Martindale-Hubble published the Dispute Resolution Directory, a comprehensive directory on ADR.
- In the year 2000-2001 U.S. v. Microsoft antitrust case was resolved through mediation.
Thereafter, substantiate efforts were taken to incorporate the mechanisms of ADR from the 1750s to 2001.[2]
What does Commercial ADR constitute?
If two commercial bodies get involved in a dispute, they try to bring about a solution to which both parties agree through Alternative Dispute Resolution (ADR). Litigation can be expensive for both parties concerned, which makes ADR an appealing alternative in commercial disputes. During dispute resolution, the disputed parties will be able to take part more fully than they would through other legal modes.
Arbitration and mediation are the most frequent methods of ADR used to settle a commercial dispute. Negotiation may be followed by arbitration and mediation between the parties in the dispute. Apart from the fact that both arbitration and mediation can save the parties in the dispute considerable amounts of time and money, there are some key distinctions between these two processes.
Mediation
Mediation is a method which takes place independent of the legal system between two parties in a commercial disagreement. While mediation can be made necessary in the course of litigation to bring about a resolution, mediation can also happen between the exclusive parties without any order by the court. In mediation, the parties of the dispute are brought together to try to resolve the dispute with the help of a third party: a mediator, who is neutral and facilitates discussion and solution.
Mediation is different from arbitration in the sense that the mediator cannot make a binding decision concerning the dispute. In mediation, the two parties themselves must come to a mutual agreement to the dispute with the help of the mediator.
Arbitration
Arbitration is another common method of ADR used in commercial disputes by parties who want to avoid the expenses and time in litigation. In arbitration, both parties explain their side of the case to an impartial third-party, known as an arbitrator. Both parties must agree to the terms of the arbitration contract for a successful arbitration to take place.
Arbitration is a less formal sort of a trial. Both the parties will make their statements before the arbitrator, and produce evidence that supports their respective opinions. The arbitration procedure differs considerably from litigation in that the parties do not require to follow rules of evidence applicable in courts. Once the arbitrator has attended to the statements by both disputants and revised the evidence, he or she will then issue a verdict. The capacity of an arbitrator to make a final decision which is binding on both parties in a commercial dispute is the most noteworthy difference between mediation and arbitration. The decision made during arbitration will be legally enforceable and defended by the courts of law.[3]
History
While looking back at the history of India, it can be observed that the law and practice of resolving the private and commercial disputes without the involvement of courts originated from ancient times. Apart from the nomenclature being assigned to these modes of dispute resolution particularly arbitration and mediation, the same methods were followed by municipal courts in India since the Vedic times.
Bhradarnayaka Upanishad, being the first and the foremost treatise in India included Puga, Sreni , and Kula as arbitral bodies. Such arbitral bodies were named Panchayats, which resolved several disputes, relating to non-fulfillment of contractual obligations between disputes parties or disputes in family matters. The decision made by such arbitral bodies were diligently accepted and followed by the conflicting parties. Consequently, this leads to the settlement of the disputes between the parties by way of application of conciliation made by such arbitral bodies. Hence, it can be concluded that the decisions made panchayats were binding in the same manner as the decision made by the court of law. Some arbitral bodies included Village Panchayats and the Nyaya Panchayats.
In India, the concept of commercial ADR gained popularity with the emergence of the East India Company. The British government provided applied the mechanism of ADR in the three presidency towns namely Calcutta, Bombay, and Madras. Furthermore, the Bengal Resolution Act, 1772, and Bengal Regulation Act, 1781 mandated the parties to submit the dispute to the arbitrator. The appointment of an arbitrator would be done after mutual agreement between the parties and lastly, the decision made by such arbitrator shall be binding on the disputing parties. However, later the emergence of the Civil Procedure Code 1859, dissolved such rules and specific provisions were made in Civil Procedure Code 1859. [4]
UNCITRAL Model Law on International Commercial Arbitration
The modes of ADR has been transplanted from the English to the Indian Soil. The Indian Arbitration Act of 1889 was predicated on the English Arbitration Act. However, the usage of Arbitration laws in British India, and even after such a period, the arbitration laws were not given much significance. In fact, the concept of commercial ADR eventually gained popularity in Hindu or Muslim India.
The government enacted the Arbitration and Conciliation Act, 1996 with the intent of changing and adding new additions to the Arbitration and Conciliation Act 1940. In the year 1978, the UNCITRAL Secretariat, the Asian African Legal Consultative Committee (AALCC), the International Council for Commercial Arbitration (ICCA), and the International Chamber of Commerce (ICC) at a consultative meeting decided that the UNCITRAL must take efforts to make uniform standards of arbitral procedure. The same was done in the interest of International Commercial Arbitration as this would speedily resolve the matters thereby avoiding the time-consuming court proceedings. Moreover, the businesses would not suffer by indulging in lengthy and disorderly suits.
Hence, the Model Law was adopted on 21st June 1985 by UNCITRAL. The adoption of this model law by the United Nations was a noteworthy and phenomenal initiative in the interest of International Commercial Arbitration. The Indians were not left behind in adopting this model law. Hence, in India, this Model Law was adopted in the Arbitration and Conciliation Act, 1996.
This enactment of the Arbitration and Conciliation Act, 1996 led to the revocation of all the three previously enforced acts.
It is noteworthy to mention that the rudimentary objective of the Arbitration and Conciliation Act, 1996 was to inspire the confidence of disputing parties in utilizing ADR for settlement of commercial disputes. Moreover, the Arbitration and Conciliation Act, 1996 includes both domestic arbitration as well as international commercial arbitration.
Referring to the definition of “international commercial arbitration”, it is implied that:
An arbitration involving disputes arising out of legal relationships, whether contractual or not, will be considered as commercial under the law in force in India and where at least one of the parties is-
(1) an individual which is national of, or habitually resident in, any country other than India; or
(2) a body corporate which is incorporated in any country other than India; or
(3) 1 [***] an association or a body of individuals whose central management and control is exercised in any country other than India; or
(4) the Government of a foreign country
Role of ADR in Commercial Disputes
There has been a noteworthy increment in the role of worldwide trade which certainly helped in improving the financial or economic development of countries. Such growth in the economic development of the nations was accompanied by an impressive increment in the number of commercial disputes. Speaking of India, the fast globalization of the economy and the subsequent increase in the level of competition has prompted an expansion in commercial disputes.
The sudden increase in the number of commercial cases implies an overall increase in the total number of cases by and large consequently overburdening the courts which are now overburdened and ideal outcomes are simply an issue of perusing and discussion and deferral in settling such disputes. Such a delay in resolving the commercial disputes indicates the economic blockade and money drain. Therefore, incorporating the mechanism of Alternative Dispute Resolution Mechanisms in resolving commercial disputes has been quite significant for all the organizations working in India as well as for those organizations associated with Indian firms.[5]
Significance of Commercial ADR
One can understand the significance of commercial ADR by observing the cases resolved through such a mechanism of commercial ADR.
As perceived from the annual reports of 2012-2013, the Arbitration Centre at New Delhi received 44 cases for arbitration and 4 cases for conciliation. These cases were related to commercial disputes. Subsequently, 36 arbitration cases were resolved by the arbitral tribunals while 8 cases were pending. In total, there were 44 cases out of which two cases particularly belonged to international commercial disputes.
The very first case was between M/s. Motorola INC, Motorola India Pvt. Limited and Mahanagar Telephone Nigam Limited whereas the second one was between M/s. Fujitsu India Pvt. Ltd., M/s. Fujitsu Limited (Japan) and Mahanagar Telephone Nigam Limited.
Another example of usage of such a mechanism was the international commercial case between the Ministry of Defence, Government of India, and Denel (Proprietary) Limited, South Africa. The dispute was related to the receipt of the Arbitrator’s fees and its disbursement, etc. The matter was administered by ICADR. ICADR opened an Escrow Account with the State Bank of Patiala, Shastri Bhawan, New Delhi. This account is still being operated by the Secretary-General of International Centre for Alternative Dispute Resolution (ICADR). Hence, the arbitral tribunal in the present case was being reconstituted.
Conclusion
Even the laws relating to mediation focuses majorly on resolving commercial disputes. Thus, the Arbitration and Conciliation Act, 1996 is encircled in such a way, that it is concerned principally with commercial disputes where the individual is given more importance rather than the individual’s interest. Nowadays it has become a worldwide event to decide commercial disputes through the modes of ADR and not through the standard legal framework. Most of the people would prefer not to get worried in claims because of deferment, significant expenses, and disposed of promoting. Hence, the mechanism of Commercial ADR offers the most astounding solution to these problems.
References:
[1]Nitesh Desai and Associates, Dispute Resolution in India, (April, 2020) http://www.nishithdesai.com/fileadmin/user_upload/pdfs/Research%20Papers/Dispute_Resolution_in_India.pdf
[2] Jerome T. Barrett, A HISTORY OF ALTERNATIVE DISPUTE RESOLUTION, the story of a political, culture and social movement (July 17, 2019) https://www.adr.gov/events/2009/may7-2009-materials-history.pdf
[3] Bremer Whyte and Brown O’Meara, What is a commercial dispute (October 24, 2018) https://www.bremerwhyte.com/news-thought-leadership/what-is-a-commercial-dispute/
[4] ADR in Pracitices and Leglislations By S.Chaitanya Shashank, Kaushalya T. Madhavan, (January 7, 2015) https://www.lawctopus.com/academike/arbitration-adr-in-india/
[5] http://shodh.inflibnet.ac.in:8080/jspui/bitstream/123456789/2667/2/02_introduction.pdf
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