Towards A More Speedy Dispute Resolution System

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.