December 11, 2023
The corporate sector carries on its shoulders a great responsibility to create wealth and employment opportunities, strengthening the economy of the country. It is one of the most important pillars of an economy, however, the corporate world is full of challenges and disputes arising from corporate governance, share transfer, disagreement between shareholders, mergers and acquisitions etc. Although disputes in any business are inevitable, what is important is to resolve these disputes and have different mechanisms for the same. Very often companies and their shareholders suffer from disputes of disagreement among them, the issues over voting rights, variations of shareholders' rights etc. These disagreements and issues tend to arise in many companies, businesses especially startups of the changes in work culture and the changes in the legal definitions and constitution of different associated bodies.
In order to better understand why, there arises a need for Alternate Dispute Resolution Mechanisms in the disputes between or within companies, businesses and other corporate bodies, we first need to have a glimpse at the already existing statutes devised for the friction-free functioning of these bodies and the need to address the voids within these legal frameworks, to expedite the resolution process and amplify the outputs across various sectors. The introduction of the Insolvency and Bankruptcy Code (IBC) brought a sweeping change in the resolution of financial distress and insolvency in companies, providing a time-bound resolution mechanism aiming to maximize the value of assets and ensuring a fair distribution to creditors. It incorporated the CIRP i.e. Corporate Insolvency Resolution Process, involving negotiations and disputes. Furthermore, it provides for liquidation and moratorium, but it doesn't provide a direct legal mechanism to deal with and resolve the company law disputes, it is only complementary to the company law by providing a specialized mechanism for dealing with insolvency-related issues.
The Arbitration and Conciliation Act, which provides the legal framework for the conduct of arbitration proceedings and the enforcement of arbitral awards, is a well-established form of Alternate Dispute Resolution and can be used to resolve various kinds of disputes, even being a distinct statute in its own, it provides for different methods of resolution of corporate disputes. However, the resolution processes offered by the Arbitration and Conciliation Act can extend to the matters of Company Law, only when the company or any such corporate body incorporates in the articles of its' memorandum, the different provisions and methods of alternate resolution as stated by the Arbitration and Conciliation Act, they help in reducing the burden of the courts and tribunals involved and allow the parties to choose a suitable method of arbitration, mediation, conciliation etc.
Now the question arises as to why companies and businesses need to adopt well-organized and effective mechanisms of Alternative Dispute Resolution, even when legal frameworks for various dispute resolution are already well in place for the same. While statutes like Arbitration and Conciliation Act and Insolvency and Bankruptcy Code, provide a legal framework for dispute resolution, ADR mechanisms are still valuable as they have their perks. ADR mechanisms are quicker and more flexible compared to the conventional, or the traditional methods of dispute resolution especially litigation which mostly cost a lot and are time-consuming. They also offer a high level of confidentiality as opposed to the traditional litigation route and thereby help in avoiding unnecessary public and media attention which very often poses negative impacts on the growth of newly-formed companies, especially startups. A healthy public image plays a vital role in maintaining the goodwill and reputation of a company or a business among not only the relevant stakeholders but also the general public. Therefore such ADR mechanisms provide a confidential environment, especially for sensitive companies. By helping the quicker resolution of disputes, they help in reducing the burden of the courts.
ADR methods allow the parties to have a say in the decision-making part of the resolution, the parties are given more flexibility to voice their concerns and have a well-tailored approach for different disputes. This makes ADR mechanisms much more efficient and cost-effective than the traditional legal route, which not only costs time by minimizing the legal expenses but also saves reputation as very often, the negative media attention becomes fatal to the growth of companies and businesses even before the final verdict is passed making posing a huge hindrance in their right of being heard violating the principles of Natural Justice. Many times they are subjected to unwanted public and media trials triggering personal attacks on the parties. In such a situation, ADR offers a better and a positive approach to resolving conflicts more healthily and effectively.
Moreover, the parties involved in the dispute or conflicts have the right to select and appoint arbitrators, mediators etc with excellent expertise in the relevant subjects and corporate law, ensuring that there is transparency and greater understandability of the legal matters among the stakeholders namely the parties involved. The ADR mechanisms have an equally binding judgment as that of a court and therefore they are equally effective in resolving disputes. They have the power to reach legally binding settlements and enforce them. ADR mechanisms allow a more concerted approach to the dispute, i.e. aimed at providing a positive solution to the dispute. This helps in maintaining smooth relationships among the parties to the case despite the dispute and after the decision comes out.
While corporate law, requires specialized and extensive knowledge of the subject, ADR methods provide a very simple but effective, and very well-tailored approach to resolving disputes that is in sync with the demands of the parties. The use of arbitration and mediation methods in corporate disputes brings about a sense of harmony in business relations within the corporate world, offering many advantages. Therefore ADR mechanisms should be used to complement the existing legal framework, not as a replacement to extract the best solution out of a given situation and for the other benefits and advantages that are produced as an outcome of using ADR.
