In traditional legal procedures, matters are taken to the court of the relevant jurisdiction. Alternative Dispute Resolution (ADR) was introduced to resolve disputes ‘out of court’, including mediation and arbitration. Compared to the traditional dispute procedure, ADR has many benefits that are suitable for disputes between the parties and lessens the burden on the court. ADR is a more cost-effective and time-efficient resolution process, and the parties have more control over the process as they decide the most appropriate decision—maker in their case, and ADR proceedings are more confidential.[1]
1. Understanding Mediation
Mediation is a confidential and informal process in which the parties resolve their matter with the help of a neutral third party, called the ‘mediator’. The parties control the proceedings and work towards reaching a harmonious settlement with the mediator’s advice. The advantages of choosing mediation are faster settlements, less expensive than litigation, party autonomy, reserving the relationship between the parties, and the cases cannot be appealed or revised.[2]
Read more: The Role Of Technology In Streamlining Insolvency Processes
2. Understanding Arbitration
Arbitration is a method of resolving disputes that is more formal than mediation and less formal than the traditional legal process. An arbitrator will be elected, usually advocates or retired judges, to resolve the dispute. The benefits to the parties in choosing arbitration is party autonomy, court interference is limited, arbitration results in an ‘arbitral award’ which is binding and enforceable as a decree in the court,[3] and ensures confidentiality between the parties.
3. Differences Between Mediation and Arbitration
| Aspect | Mediation | Arbitration |
| Costs | Economical | Expensive |
| Nature of proceeding | It is more flexible as it is not governed by any specific statute | Governed by the Arbitration and Conciliation Act, 1996 |
| Neutral third party | Mediator | Arbitrator |
| Nature of decision | The settlement is only binding when it is mutually agreed upon | An arbitral award is given that is binding and can be challenged under section 34, Arbitration and Conciliation Act, 1996 |
| Communication between parties | Parties interact with each other in the presence of the mediator | Parties do not have direct communication with each other |
| Court fees | Refundable when the court has annexed mediation | No court fees |
| Why choose this? | It is more time and cost-efficient, and parties can preserve their relationship, and control over the dispute process. | It is a formal and complex process with binding and enforceable decisions, overlooked by an individual(s) who have the relevant technical knowledge. |
4. Legal Framework for Mediation and Arbitration
Understanding the legal context of dispute resolution is important to ensure that the ADR mechanism complies with the legal and regulatory requirements and avoids legal risks:
ADR proceedings are governed by the Arbitration and Conciliation Act, 1996.
Section 89 of the Code of Civil Procedure, 1908, recognises ADR mechanisms, arbitration, conciliation, mediation, and judicial settlement.
On 14.09.2023, the Mediation Bill, 2023 was enacted as the Mediation Act, 2023 to supervise mediation steps such as pre-litigation mediation and online mediation.
5. Choosing the Right Mediator or Arbitrator
The first step to successfully settling the dispute is that it is important that the parties choose a mediator or arbitrator that has particular expertise in the dispute, such as real estate, or those that are commercial litigators. By choosing someone with experience, parties can ensure that the neutral party is aware of the complexities of the dispute. It is important that the mediator or arbitrator remain impartial and neutral, facilitating the communication between the parties by identifying the barriers to an agreement and the interests of the parties.
Read more : How do international insolvency laws affect local practices?
6. Preparing for Mediation or Arbitration
Before starting the mediation or arbitration process, you should know the goals and interests, the best alternative mechanism of an agreement, and what you are trying to achieve. This will help you evaluate the options and any proposals that may arise during the mediation or arbitration process, which will help you negotiate the terms and conditions effectively and efficiently. It is also important to have clarity about the dispute’s main issues and understand the other party’s position to choose a suitable neutral third party.
7. The Role of Mediation and Arbitration in Business Disputes
Mediation is beneficial in business disputes as it maintains the business relationship between parties. The main aim of using mediation to resolve business litigation is to reach a compromise and draft an agreement that is beneficial to both parties. On the other hand, arbitration has an advantage in business disputes as companies with a large public profile may have their value reduced because of legal disputes. Arbitration clauses may be included in agreements or contracts between the parties, conflicts amongst the company’s members, real estate disputes, consumer complaints, etc.
8. Mediation and Arbitration in Insolvency Cases
India has taken steps to introduce arbitration to insolvency cases. However, mediation has not significantly emphasised placing a binding regulation.[4] The mediation process is a more confidential process as it does not follow any judicial or legislative methods. With the ADR mechanism, it is possible for the stakeholders to satisfy their claims by justifying the demands. Further, court proceedings could severely affect the commercial relations and credibility of the parties, which could only increase the financial burden of the debtor. Mediation is not binding on the parties, and it may actually be approachable in cases where the ultimate resolution is not the goal of the stakeholders. This may be a better option for certain cases as ADR promotes the settlement of the dispute before reaching this stage. Mediation and arbitration avoid the shortcomings of traditional proceedings, such as cost, lack of flexibility, and publicity. This is important as the debtor’s values are not spent on litigation.[5] Tranzission Knowledge Experts can help in further understanding the need to include mediation and arbitration in insolvency matters. On its website https://www.tranzission.com/ , there are certification courses, recorded lectures, online training, cases of insolvency law, etc.
9. Enforcing Mediation and Arbitration Agreements
A mediation agreement or arbitration agreement is drafted between the parties with the help of the neutral third party. If a party does not adhere to that particular agreement or a clause of it or the arbitral award, the party can approach the court for such action. To ensure that there is compliance with the ADR outcomes, include a mediation or arbitration clause in a written agreement between the parties, select a suitable neutral third party, ensure constant communication, and adhere to the legal requirements.
10. Future Trends in Mediation and Arbitration
A few future trends in mediation and arbitration to look forward to include[6]:
· Online dispute resolution to include remote work through digital platforms, improving the effectiveness of ADR
· Artificial intelligence in proceedings for managing cases and decision-making
· Globalisation of disputes and cross-cultural mediation for international dispute resolution.
Conclusion
There are many benefits of using the ADR methods for resolving commercial and insolvency conflicts in comparison to litigation, such as it is more cost and time-effective, it encourages party participation, is flexible and confidential and protects the face of the company that is in public view. Parties are able to reach a mutual settlement while protecting the commercial relationship. With the complexities of the legal proceedings and introduction of technology, by approaching the ADR mechanisms, it is a more financially and legally viable action. Tranzission Knowledge Experts has many courses and educational resources to properly understand the complexities the ADR mechanism in insolvency law.
