Role of ADR in Mergers and Acquisitions

Introduction:

Throughout the decade we noticed several changes on the planet which forced us to reconsider what is upcoming and what methods we would have to undertake. The pandemic has brought about an unforeseen devastation globally influencing human life as well as business organizations and world economies after many countries have come under the shackles of COVID-19 with hardly a pause in between. While intently checking the wrath of Covid-19 around the globe,1.3 billion people were kept under lockdown from 25th Mar.,2020 till 8th June,2020 all over India, and then individual State governments, according to the situation in their states, made autonomous decisions on the fate of lockdown, however, with certain relaxations to shun the economic downfall and help businesses thrive. The lockdown has been a period of epiphany for all with regards to the fact that one not only needs to be self-sufficient but should also adapt to the changing technology and its advantages which has become an unavoidable necessity rather than a luxury.

To prevent people from getting infected from the virus, lockdown was enforced, but it looks like it not only reduced the count of patients getting infected but also the economy of our nation which ultimately resulted in the shutting down of companies permanently, an increase in the financial stress and work delays. This inevitable environment left no other option for the parties but to appeal for judicial remedies accessible to them i.e., Arbitration or Litigation. Everyone imagines the approach of legal development to be quick and less cost-effective in case of dispute settlement. Currently, everyone around us is searching for an alternative procedure that is more efficient and provides justice without any delay.

Reminiscing what was claimed by the experts and executives back in the 1980s, Alternative Dispute Resolution (‘ADR’) is a reasonable, less expensive, less formal way to avoid courtrooms and litigation that devastates winners almost as much as losers. Things that pop up in our minds when we talk about our Indian Law System are the time delays, never-ending court lines, and the expenses, so considering these factors, both the corporations and the normal public accepted the method of ADR in recent years.

Most common amicable method adopted by the nation in solving the conflicts through:

• Arbitration
• Conciliation
• Mediation
• Negotiation

The Arbitration and Conciliation Act, 1996

The law courts are already overburdened with mounting arrears of cases, so to ease the workload of the courts, an alternative mechanism was needed to be established so that justice is served at the earliest. ‘Section 89’ in the CPC was introduced initially, 1908, and eventually, the Arbitration and Conciliation Act, 1996 came into force.

According to Section 89, CPC, the acts mentioned below can be referred to for clearing the dispute:

1. Arbitration and Conciliation Act, 1996.
2. Section 20 (1) of the Legal Services Authorities Act 1987 is applicable for Lok Adalat.
3. For resolving a dispute of a Judicial Settlement, any person or body which the court finds worthy and suitable shall be deemed to be a Lok Adalat with concurrent applicability of all provisions of the 1987 Act.

ADR in Mergers and Takeover Disputes

Special tribunals and courts are set up for conflict resolution in case of ADR and disputes, Arbitration and Mediation are used in case of M&A. The parties appoint an unbiased third party that could be an accountant, lawyer, retired judge, or an expert as an arbitrator or mediator, as the case may be, to address the scope of dispute in a proper manner.

There should be a valid Arbitration Agreement in writing between the parties to initiate the process of arbitration. The parties provide information to the arbitrator or a forensic accountant (in case of M&A disputes) who further outlines the entire procedure of resolving and adjudicates the arising dispute. In Arbitration, the agreement between parties decide whether they are bounded by the decision or not. So, when it is binding according to the agreement between the parties, the decision is final and it can be enforced by a court of law. And when non-binding, the decision made by the arbitrator acts as advice until the parties agree to it.

The authority of the arbitration is allowed to be challenged before the tribunal by any party to such merger or takeover. And if the request gets rejected then the court of original jurisdiction can be approached for an appeal without any further recourse.

Arbitration

It is an adjudicatory wherein parties present their disputes to an unbiased third party (arbitrator) to make a decision. The proceedings when compared to that of a litigation is faster, less expensive, confidential, and more adaptable. Autonomy is enjoyed by the concerned bodies. The parties must have a valid Arbitration Agreement to initiate a contract according to Sections 11 and 12 of the Indian Contract Act,1872. The decisions made under this process are conclusive and binding on the parties. In arbitration, it is a relief that is awarded to the parties and not a punishment. So, there is no jury to act as a catalyst in giving punishment rather there is the arbitrator who comprehends the situation with predisposed knowledge in regards to the issues and attempts to reach out for a solution for the current standing problems.

Legality is the major factor that distinguishes an Arbitrator from a mediator since Arbitration is backed by a legal process with the expected adaptability, and in the case of other dispute settlement procedures, there is no such kind of legally bound situation. In a nutshell, the arbitration ends a dispute whereas in the case of mediation or conciliation the disputes are aimed to be settled where the parties are not bound to go by the decision of the mediator or conciliator.

Mediation

Mediation is also a substitute for litigation. Mediators are neutral people who are trained in communication. The parties in conflict are brought together in this process and are given a solution that can either be accepted or rejected by the parties. The mediator can only help the parties to find a mutually suitable resolution and is not allowed to decide on behalf of the parties in dispute.

The parties should willingly resolve all the folds in their relationship by a little external assistance as the focus in mediation is on the forthcoming. It is ideal when parties believe in improving their bond instead of playing the blame game. The process of mediation is said to be successful not based on the decision been taken but based on mutual acceptance. Mediation is not aimed at evaluating guilt or innocence but at promoting the understanding, focusing on the parties’ weaknesses and strengths, and encouraging them to reach their agreement.

The mediator comes up with a few of the standard rules and plans for the session. Mediation is more fruitful because parties are brought together in an unbiased situation where disputes are freely estimated. Forensic accountants act as a mediator and help parties in settling disputes in most of the cases of M&A and takeover disputes. The main objective of mediation is to derive settlement without going through a time-consuming and cumbersome method of litigation. It can happen either in a joint session, or it can move in separate sessions and shuttling back.

Negotiation

Even though the arbitration and mediation are the two most common forms of ADR, negotiation is almost always attempted first to resolve a dispute. Negotiation is a primary mode of ADR. It is a bargaining process that allows the parties to meet in order to settle an already existing problem by mutual agreement and there is no such involvement of a third party. It is more like a self-counseling method. The key benefit of Negotiation is that it permits the people in dispute to control not only the process but also the solution. 

Conciliation

Conciliation is an informal flexible process where an impartial and independent conciliator is appointed to resolve the differences between the parties without the court’s intervention.

It has no legal standing, and the conciliator usually has no authority to seek evidence or call witnesses, usually writes no decision, and makes no award. Disputes here can be settled separately and thus all the matters are kept confidential. The main difference between conciliation and mediation proceedings is that the primary objective of Conciliation is to conciliate, most of the time by seeking concessions, and in mediation, the mediator has an empathetic part to his approach wherein weightage is also given to the needs and feelings of the parties. 

Cases

• In the case of Afcons Infra Ltd v. M/S Cherian Varkey Constructions (2010),[1] it was held by the Supreme Court of India that all cases especially in matters concerning the business environment, and the consumer conflicts can be determined through mediation.
• In the recent case of Imax Corporation v E-City Entertainment[2] concerning the determination of limitation period of enforcement of a foreign award was decided to be 12 years starting from the award date.

Conclusion

If we resort to a problem-solving system that deals with a settlement of conflict at an early phase, Mergers and Takeovers can be effective. It gives parties more innovative business-oriented solutions and it assists with protecting the business relationships when the mergers happening cross-border having different governing laws. Diversified procedures used for resolving a conflict will ultimately help to settle a matter of mutual concern that could be formalized in a merger or takeover agreement.

These amicable methods have evolved in the past few years as the supreme procedures for resolution of disputes that spares the court’s time and largely instrumental in assisting the parties to resort to the quick remedial measures. It has appeared as the utmost ideal platform for quick resolution of disputes especially in the industrial and the corporate domain.

Saint Augustine rightly worded, “If two friends ask you to judge a dispute, don’t accept, because you will lose one friend; on the other hand, if two strangers come with the same request, accept because you will gain one friend”.

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References:

[1] Afcons Infra Ltd v. M/S Cherian Varkey Constructions ,2010 (8) SCC 24.

[2] Imax Corporation v E-City Entertainment, (2015) 2 BOM CR 43.