India: Towards A More Speedy Dispute System

Last Updated: 16 November 2016
Article by Jyoti Singh

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:

  1. Arbitration and Conciliation (Amendment) Act 2015 (Arbitration Amendment Act)
  2. Commercial Courts, Commercial Division and Commercial Appellate Division of the High Courts Act 2015 (Commercial Courts Act)
  3. Insolvency and Bankruptcy Code 2016 (Bankruptcy Code)
  4. 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.

This article was first published in the November, 2016 issue of the Legal Era .

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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