While the government has amended existing legislations and introduced new ones to regulate the process of dispute resolution, particularly after June 2015, a lot depends on strict implementation of these provisionsEnforcement of contracts through an effective and speedy dispute resolution mechanism plays a significant role in determining the ease of doing business in any...
While the government has amended existing legislations and introduced new ones to regulate the process of dispute resolution, particularly after June 2015, a lot depends on strict implementation of these provisions
Enforcement of contracts through an effective and speedy dispute resolution mechanism plays a significant role in determining the ease of doing business in any country. The time, cost and quality of the judicial process are primary parameters for categorizing a dispute resolution mechanism as effective. As per the latest World Bank’s report on
‘Doing Business’
across the world, India ranked at 130 out of the
total 189 countries in the
‘ease of doing business’
category. India’s
poor ranking in the ‘ease of doing business’ category, could very well
be attributed to an inefficient mechanism in
‘enforcement of contracts’
and
‘resolving insolvency’.
However, post June 2015, the Indian government has taken serious
steps towards regulating the process of dispute resolution, more
particularly for commercial matters, by amending various existing
legislations and introducing new legislations aiming to ease the
conduct and closure of business in India for foreign investors. These
steps will deliver results in years to come. This article focuses on the following legislations from the perspective of speedier timelines
provided under these legislations:
(a) Arbitration and Conciliation (Amendment) Act 2015
(
Arbitration Amendment Act
)
(b) Commercial Courts, Commercial Division and Commercial
Appellate Division of the High Courts Act 2015 (
Commercial
Courts Act
)
(c) Insolvency and Bankruptcy Code 2016 (
Bankruptcy Code
)
(d) Enforcement of Security Interest and Recovery of Debts
Laws and Miscellaneous Provisions (Amendment) Bill 2016
(
Enforcement of Security Interest Bill
)
(a) Arbitration Amendment Act
One of the key concerns that parties had under the earlier
Arbitration and Conciliation Act 1996, while deciding whether
to subject their disputes to arbitration, was that arbitration was not a time-bound process, and hence, it was mostly a long-
drawn process and often seen as a pre-litigation stage.
The Arbitration Amendment Act has therefore introduced
certain provisions to rectify this problem, which are
summarized as follows:
- Applications
for the appointment
of an arbitrator
have
to be disposed of expeditiously within a period of 60
days from the date of service of notice to the opposite
party.
- Once
a court
passes
an order
for interim
measures
before the commencement of the arbitral proceeding,
the arbitral proceeding ought to commence within 90
days from the date of order.
- An
arbitral
proceeding
under
Part I of the Act has to
be completed, and an award should be passed within a
period of 12 months from the date of receipt of notice of
appointment by the arbitrators. This period can only be
extended for a maximum of up to six months with the
consent of the parties.
- Upon
failure
to pass an award
within
the prescribed
time,
the mandate of the arbitrator automatically terminates.
- The
Arbitration
Amendment
Act also introduces
a fast-
track arbitration procedure to resolve disputes, provided
such option is exercised prior to or at the time of the
appointment of the arbitral tribunal. The award ought to
be passed within six months from the date of reference
in such fast-track arbitrations.
(b) Commercial Courts Act
The Commercial Courts Act provides certain key amendments
to the Code of Civil Procedure 1908 (
CPC
) with a view to
expedite the trial in commercial disputes. It further explicitly
states that in any instance of conflict, it is the provisions of
the Commercial Courts Act that shall prevail over any other
law. Otherwise, provisions of the Commercial Courts Act
shall supplement the other laws. Some of the key changes
that have been brought about by the Commercial Courts Act
in procedural aspects are summarized below:
- Filing of written statement:
In case a written statement
is not filed within 30 days as prescribed under Order V
and Order VIII of the CPC, it can be filed later for reasons
recorded by the court in writing and on payment of costs.
However, the same must be done within a period of 120
days from the date of summons or the defendant’s right
to file a written statement will be forfeited.
- Disclosure of documents:
A list of all documents relied
upon by the party and relating to any matter in question
and which is in the power, possession or control of the
party on the date of filing must be filed along with the
plaint or written statement as the case may be. Leave of
court may be sought in case of urgent filing to rely on
additional documents, but such additional documents
must be filed within 30 days of filing suit. The parties
shall not be allowed to rely on documents other than
those disclosed with the plaint unless the court grants
leave to do so.
- Inspection of documents:
Inspection of all disclosed
documents must be finished by parties within 30
days of filing of a written statement or counter-claim,
whichever is later. The court may, on application, extend
this time period, but not beyond additional 30 days.
- Admission/denial of documents:
The admission or
denial of all disclosed documents must be submitted
within 15 days of the completion of inspection.
- Production of documents:
Any party or the court may
seek production of any documents during the pendency
of the suit, and the same must be produced within a
period of 15 days from the issue of notice. In the event
of failure to do so without sufficient cause, the court
may order costs and draw an adverse inference against
the defaulting party.
- Case management hearing:
The Commercial Courts
Act empowers a court to conduct a case management
hearing to ensure that the trial gets conducted within a specified period of time. The first case
management hearing is to be held within four weeks
of filing of the affidavit of admission and denial of
documents by all parties. Courts must ensure that
arguments are closed within six months from the date
of the first management hearing. Recording of evidence
should be endeavored to be carried out on a day-to-day
basis.
- Pronouncement of Judgment:
As per the Commercial
Courts Act, the court must pronounce its judgment
within 90 days of the conclusion of arguments.
(c) Bankruptcy Code
The Bankruptcy Code provides a time-bound resolution
of insolvency resolution processes. Changes brought in
by the Bankruptcy Code are expected to ensure an early
identification of distressed assets and possibility of the
revival of such assets.
- Corporate Insolvency Resolution Process:
The
Bankruptcy Code proposes to introduce Corporate
Insolvency Resolution Process (
CIRP
) for companies
and LLPs, which processes an aim to consolidate the
entire mechanism from the filing of the proceedings for
the recovery of dues till the dissolution of assets in the
event of the debt or is determined insolvent or bankrupt.
In what is an unprecedented introduction to the
recovery process, every CIRP is required to be decided by
the concerned Adjudicating Authority, which in case of
corporate debtors would be the National Company Law
Tribunal, within 180 days from the date of admission
of the application to initiate CIRP and extendable by
another 90 days if more than 75% of the creditors agree
to the extension of time.
- Fast-track Resolution:
In addition, the Bankruptcy
Code also provides a fast-track corporate insolvency
process for entities with less complex structuring or
businesses. The Central Government will prescribe
the classes of entities based on assets and liabilities,
amount of debt and other criteria, which will be subject
to the fast-track process. The fast-track insolvency
process will be required to be completed within a period
of 90 days with a one-time extension of 90 days.
(d) Enforcement of Security Interest
Bill
Both houses of the Parliament passed the Enforcement
of Security Interest bill on 1 August 2016 and 9 August
2016, respectively, which is now pending assent from the
President. The bill essentially seeks to amend the following
debt security laws in order to make them more time sensitive
and effective: (i) Securitization and Reconstruction of
Financial Assets and Enforcement of Security Interest Act
2002 (SARFAESI Act); (ii) Recovery of Debts due to Banks
and Financial Institution Act 1993 (RDDB Act); (iii) Indian
Stamp Act 1899 and (iv) Depositories Act 1996.
Some of the key amendments proposed by Enforcement of
Security Interest Bill are as follows:
- SARFAESI Act – Application before District
Magistrate:
The Bill provides that an application filed
before the District Magistrate under the SARFAESI Act,
by a secured creditor for seeking assistance to take
possession over collateral will have to be disposed
within 30 days.
- RDDB Act – Written Statement:
The defendant shall
within a period of 30 days from the date of service
of summons present a written statement of his
defence including claim for set-off, if any, and such
written statement shall be accompanied by original
documents or true copies thereof with leave of the Debt
Recovery Tribunal (
DRT
) relied on by the defendant in
his defence.
- Where
the defendant
fails to file the written
statement
within the said period of 30 days, the Presiding Officer
may, in exceptional cases and special circumstances to
be recorded in writing, extend the said period by such
additional period not exceeding 15 days to file the
written statement of his defence.
- Disposal of the application:
The Bill provides that
the application filed by a bank or financial institution
under Section 19(1) or 19(2) shall be dealt with by
DRT expeditiously and that it shall take every effort to
complete proceedings in two hearings.
TAKE AWAY
Though the above-mentioned amendments largely bring a substantial and positive change
in the existing law dealing with the resolution of commercial disputes, a lot depends on the
strict implementation of these provisions. Needless to state, strict implementation of these
provisions would require better infrastructure and facilities in courts and tribunals. Further,
given the humungous backlog and vacancies in courts across the country, courts are likely to
find it extremely challenging to strictly adhere to these timelines.
Disclaimer
– The views expressed in this article are the personal views of the author and are purely informative in nature.