Litigation and dispute resolution in India

December 2011 | 10QUESTIONS | LITIGATION & DISPUTE RESOLUTION

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FW speaks with Udaya Holla at Holla & Holla about litigation and dispute resolution in India.

FW: Could you outline some of the current market challenges at the centre of commercial disputes in India? What recurring themes are you seeing?

Holla: In India we have seen delays in cases resulting from the explosion of litigation and the inadequate number of judges. Although India has an excellent court system which is independent of the executive, there are infrastructural inadequacies and a shortage of judges. The judge to population ratio is quite low, compared to developed countries. This causes delays in resolving disputes. Any commercial dispute ought to be disposed of as early as possible. Delays are counter-productive. Because of delays, defaults in payment have also increased, so defaulters stand to benefit. Delays result in the decree-holder not receiving the true value of the money, on account of tremendous depreciation and purchasing power. Newer commercial papers, bonds, and so on, have also thrown up new challenges. Courts are ill equipped to handle these new commercial papers and bonds, which again results in not only delays, but also, in a few cases, erroneous decisions.

FW: What is your advice to companies on implementing an effective dispute resolution strategy to deal with conflict, taking in the pros and cons of in-court versus out-of-court methods?

Holla: Resolving disputes through the court can delay recovery, end a business relationship, and lead to depreciation in respect to money claims. Court action also wastes the precious time, resources, and money of the company fighting the litigation. Out of court settlements result in faster dispute resolution, a continued business relationship, and quicker receipt payments in respect of money claims. Out of court settlement means a reduced expenditure of time, resources and money, which a business can better utilise elsewhere. Out of court settlements should be the preferred route. Litigation should be the last resort.

FW: What alternative dispute resolution (ADR) options are available to companies in India?

Holla: Conciliation, mediation and arbitration are the ADR options available to companies in India. There are a good number of retired judges who have the necessary capacity and capability to arbitrate. However, there are only a few institutional arbitral forums for the resolution of disputes. Mediation centres have been established in several cities and many of these are set up and monitored by the courts. They are doing a commendable job with a success rate of nearly 50 percent. Private conciliation and mediation is yet to catch on in India, though efforts are being made in cities like Mumbai and Bangalore.

FW: How would you describe arbitration facilities and processes in India?

Holla: Arbitration facilities are inadequate. Despite this, there are some excellent retired judges who are doing a commendable job. There are a few institutionalised forums of repute which carry out arbitration. Recently endeavours have been made in different parts of India to provide more institutionalised arbitration, and several such forums have sprung up. It is only a matter of time before institutionalised forums gather the strength to match the arbitral institutions in more developed countries.

FW: What influence, if any, has the UNCITRAL Model Law had on dispute resolution in India?

Holla: The Indian Arbitration and Conciliation Act is modelled on the UNCITRAL Model Law. This has resulted in an arbitration law similar to those in other countries. Precedent in other countries is easily used in dispute resolutions in India, due to the uniformity of laws. It provides for fair and efficient settlement of disputes. The UNCITRAL Model Law provides for minimal interference by courts in arbitration.

FW: What measures have been implemented or suggested by the Indian government to make dispute resolution more efficient? In your opinion, is there scope for further improvement?

Holla: The Law Ministry in India has been making efforts to improve infrastructure in courts and also to increase the number of judges. The Government of India has spent over US$200m on the computerisation of the court system. Even the lowest level judge has been provided with a laptop. All judgments of the court are placed on the website of that particular court to allow litigants and lawyers access to case law and developments in law. Judicial academies have been set up all over India to provide continuing education to judges. Definitely, more can be done in selecting better quality judges, and judges with expertise.

FW: Are there any obstacles or challenges to the Indian arbitration process that companies should bear in mind?

Holla: As Justice Cardozo said in his famous book ‘Judicial Process’, “Quality of judgments depends on the personality of judges”. This is even more applicable in the case of arbitration. Companies should choose the arbitrator wisely. Often, arbitrators who are ill equipped to deal with the complexity of the case are chosen, resulting in enormous delays resolving disputes. The expertise and capability of the arbitrator to deal with the specific issues which arise must be weighed before appointing the arbitrator. It is always advisable to fix a lump sum arbitral fee, to ensure early disposal of cases, as the arbitral fee fixed on the basis of date of hearing often results in prolonging the process.

FW: Typically, what are the circumstances in which Courts may interfere in arbitral proceedings?

Holla: Section 5 of the Arbitration and Conciliation Act 1966 (Indian Arbitration Act) specifically restricts the interference of judicial authority and stipulates that no judicial authority shall intervene, as provided under the Act. Courts have been empowered to grant interim measures before or during arbitral proceedings, or any time after passing arbitral award. Section 34 of the Indian Arbitration Act provides for an appeal against an application to set aside an arbitral award and specifies that an award may, inter alia, be set aside: first, if the arbitration is not valid under the law to which parties have subjected it; second, if the arbitral award deals with disputes not contemplated, or not falling within terms of the submission to arbitration; third, if the composition of the arbitral tribunal is not in accordance with the agreement of parties; fourth, if the subject matter of the dispute is not capable of settlement through arbitration; and finally, if the award is in conflict with the Public Policy of India. An application for setting aside the award has to be filed within 120 days.

FW: What practical issues need to be dealt with when undertaking complex international, multi-jurisdictional disputes in India? Are such cases traditionally problematic, or are there mechanisms in place to ease the process?

Holla: Choosing the arbitrator wisely is the primary consideration. Arbitrators must have the expertise and wherewithal to deal with disputes which have arisen. Courts have held that even in the case of complex international, multi-jurisdictional disputes, courts in India have the power to grant interim orders and also have the power to decide the validity, or otherwise, of the awards. There have been a few conflicting decisions of the Hon’ble Supreme Court in this regard which are in the process of being resolved, the matter having been referred to the larger benches. Over the course of time these irritants will surely be resolved.

FW: In your experience, what legal and contractual considerations should companies make to address the possibility of encountering future disputes in their commercial activities?

Holla: Contracts should be properly worded, and simple language should be used. Complex language and legal jargon results in misunderstandings, and gives rise to scope for unnecessary disputes and for parties to wriggle out of the terms of the contract. Wherever it is possible, unconditional bank guarantees or letters of credit should be put in place to ensure that the need to go to court is avoided for realising the dues. Indian courts have repeatedly held that in cases of unconditional bank guarantees and letters of credit, courts should not interdict, except in the case of fraud and irretrievable injury. In cases of licensing of intellectual property rights, the procedure set out under the Trademarks Act and Copyrights Act must be scrupulously followed.

Udaya Holla is a partner at Holla & Holla. He holds a Master’s degree in Law. Mr Holla enrolled as an Advocate in 1973 and is a designated senior counsel. He founded the legal firm Holla and Holla, one of the boutique law firms situated in Bangalore. Mr Holla was, three times, the Advocate General of the State Government. He is the past president of the International Commission of Jurists, Karnataka Chapter, and is the recipient of many awards. He can be contacted on +91 80 2253 6000 or +91 09 8868 35343, or by email: udayaholla@gmail.com.

THE RESPONDENT

Udaya Holla

Holla & Holla