COVID-19 pandemic has brought the Indian legal industry to a standstill. Even after the substantial reopening of the economy, Indian Courts and tribunals have continued to exhibit a cautious attitude by completely restricting physical functioning and functioning restrictively through virtual courts. Regrettably, with the COVID-19 cases on the rise, it is unlikely that this status quo would change any time soon. Such a scenario has only added to the woes of an average litigant who was already aggrieved due to the huge pendency and backlog of cases. Given such a backdrop, litigants have now started exploring the option of the settlement of disputes.
The settlement of disputes can be done in a number of ways including mediation, negotiation, conciliation, etc. Traditionally, settlement and mediation have been advocated to be ‘alternatives’ of court-based dispute resolution in lieu of their time savings and cost-efficiency. However, such alternatives have not been preferred as there is no certainty that a settlement exercise would necessarily result in the final resolution of a dispute. In other words, a settlement talk may or may not resolve the dispute.
This mindset underwent a radical shift during the nationwide lockdown when an aggrieved litigant had no option but to resort to the ‘so-called alternatives’ like settlement etc. This is because practically, settlement talks are not riddled with procedural requirements and could even take place over a phone call, thus making it the ‘preferred alternative’ in light of the social distancing norm of COVID-19. Moreover, the increased usage of the internet in the resolution of disputes has opened up new avenues like online mediation, settlement, etc. which is being rapidly adopted by the masses.
The Underrated Benefits of Settlement
The USP of the settlement of disputes lies in its time efficiency and cost savings. For instance, a typical arbitration dispute can take years after the amount is finally released to the claiming party. On the contrary, settlement of the dispute prior to initiation of arbitration can save this time as well as legal costs. Moreover, the paying party also saves substantial money on account of non-payment of interest due to early settlement of the dispute. Furthermore, in cases of sensitive disputes, the parties also have an option to keep the terms of their settlement confidential, and such settlement also helps to preserve the relationships of parties.
Apart from this, sometimes settlement becomes the only viable option especially in cases of impending criminal prosecution. To elaborate, one may choose to settle a dispute to avoid prison time, being banned from trading by authorities like SEBI etc. In such cases, the desire to avoid prison time and other penalties assume greater significance than to paying compensation in monetary terms. This can be seen in the case of Vijay Mallaya, who had recently proposed a settlement offer of Rs. 14,000 crores in exchange for dropping all criminal charges against him.
An underrated characteristic of settlement is that it has virtually no bearing on the final decision of the case. This implies that even if the settlement talks fail, the parties can always resort to formal adjudication of the dispute. Moreover, anything disclosed during settlement talks is not admissible in a court of law. Thus, a prudent litigant should always try to settle his dispute before resorting to litigation or arbitration.
Existing Legal Framework for Settlement of Disputes in India
One question that has held back litigants from opting for settlement is the lack of clarity in the enforcement of settlement agreements. Theoretically, every dispute is capable of being settled, however, depending upon the nature of the dispute, there is a separate procedure of settlement and subsequent enforcement.
In case a dispute has not been referred for adjudication by any forum, there is no formal requirement to initiate settlement talks. The parties can themselves take the initiative of entering into settlement talks and the result of a successful settlement can be penned down in the form of a legally enforceable settlement agreement. However, in case of a dispute pending before a court, either the parties on their own or the court on its own motion may refer the parties for settlement under Sec. 89 of CPC, 1908. In both these cases, the outcome of the settlement talks has to be communicated to the Court. If the parties are able to arrive at a settlement agreement then the same would require the approval of the Court and it can only then be said that the case is settled.
The provisions of the Arbitration and Conciliation Act, 1996 provide a slightly different but more effective mode of settlement of the dispute. This Act provides for two modes of settlement namely, settlement by a conciliator and the second being a settlement award. In the former, parties attempt to settle a dispute with the assistance of a third party, namely, the conciliator. In case a settlement is reached which is agreeable to both the parties, the same is recorded in form of settlement agreement by the conciliator under Sec. 73 of this Act which is final and binding on both the parties. Similarly, in case of an ongoing arbitration, the parties may agree to settle a dispute and the terms of the settlement are then intimated to the arbitrator who may record the same as a settlement award in terms of Sec. 30(2) of this Act. The primary advantage of settling a dispute within the parameters of this Act is that such a settlement agreement or settlement award (as the case may be) is treated like an ‘award’. This implies that such a settlement is treated equivalent to a decree of a court under Sec. 36 of the Act which can be directly enforced. Thus, the Arbitration Act offers faster legal recognition and enforcement to settlements arrived under the Act.
The recently enacted and enforced Consumer Protection Act, 2019 has also provided for settlement of consumer disputes through mediation. Even though the out-of-court settlement of consumer disputes is not a rare sight, the new law has empowered the consumer commissions to promote settlement of ongoing disputes. In fact, the preamble of the new Act recognizes settlement of disputes as one of the objectives for enacting a new law. In pursuance of the same, Sec. 37 of the new law empowers the adjudicating forum to refer the parties to settle a dispute through mediation. For these purposes, Chapter V of the Act establishes new mediation cells for settlement of disputes. The procedure of enforcement of settlement under the new consumer law is similar to a civil court, where approval of the Commission would be necessary to enforce a settled consumer claim.
Similarly, the criminal law also has mechanisms for settlement of disputes by way of compounding of offences etc. in exchange for no or lesser punishment.
Settlement Success Stories
Historically, matrimonial disputes and international disputes have shown great promise by being settled through various techniques like mediation, negotiation, etc. However, with increased usage, it has been seen that other forms of disputes including construction contract disputes, property disputes, labour disputes etc. are capable of being settled.
One recent success story in this regard is that of NHAI settling its arbitration claims. Recently, NHAI has settled an arbitration claim of around Rs. 13,349 crores for a little over Rs. 3,700 crores. Such a settlement offers twin benefits to the economy apart from the benefit incurred by the parties. On one hand, it reduces the liability of NHAI which ultimately reduces the burden on the public exchequer and the saved amount can be used to boost the economy. On the other hand, the Contractor receives substantial capital which would otherwise have remained tied up in years of litigation. This capital can be used to take up new projects, pay off existing liabilities, and expand business which would again inject capital into the economy and generate employment.
The success of the ‘Vivad se Vishwas’ scheme is another great example as to how even tax disputes can be resolved through settlement. In essence, this scheme was launched to settle tax disputes which are currently tied up at various stages of litigation or arbitration for years. Taking advantage of this novel scheme, large conglomerates like Max Financial Services Ltd, NTPC, Oil India, etc. have settled tax disputes worth crores of rupees apart from smaller businesses and individuals settling their disputes.
Another success story worth mentioning here is the settlement of salary disputes. During the period of lockdown, there was much hue and cry regarding payment of salary during the period of lockdown. While many employers grappled with this issue, smart and far-sighted MNCs and employers like Maruti were able to settle their salary disputes through strategic negotiation and mutual consultations.
Last but not least, there have been various instances where landlords and tenants, lessor and lessee have been able to renegotiate their rent agreements in light of COVID-19 without resorting to the now mainstream force majeure litigation.
Towards a Brighter Future
It can be seen that transformation of settlement as an ‘alternative’ mode of dispute resolution to ‘preferred alternative’ during the time of COVID-19 is in itself a testament to the success and utility of settlement of disputes.
The settlement of disputes which gained popularity as a product of necessity is now being recognized for its unique advantages which were historically unknown to an average Indian litigant. The credit of this development also goes to the judiciary and legal fraternity who are now regularly advising litigants to settle their disputes in light of the present state of affairs.
Moreover, it is noteworthy to mention here that with the signing of the Singapore Convention of Mediation, the Supreme Court had constituted a committee to draft a separation legislation on mediation. Given the current landscape, where mediation and settlement are now needed more than ever, it is possible that such legislation may be fast-tracked which would further promote the use of mediation in India.
Thus, on a concluding note, it can be said that an average Indian litigant who has been stereotyped as a spiteful litigant and unwary of benefits of settlement has now changed the status quo. If the current trend of increase in settlement of disputes continues, the day is not far when a litigant would not say that ‘I will see you in court’ but say ‘I will see you outside the court’.
Adv. Meenal Garg, Associate, AKB Lex practices in the Punjab & Haryana High Court.
