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INDIA (DOMESTIC FIRMS): An Introduction to India

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DISPUTE RESOLUTION 

2020 took the world on a roller coaster ride and has in many ways changed the way we live, work, and resolve disputes!

It has been refreshing to see more and more litigants turn to alternate forms of dispute resolution to arrive at mutually beneficial terms of settlement. Conciliation, mediation and out of court settlements are on the rise as promoters prefer to focus on longevity and stability amidst the prevalent uncertainty. Moreover, court closures and inevitable delays in the judicial process are likely to push parties towards arbitration, which is increasingly being perceived as a more viable dispute redressal mechanism. Given the flexibility that is available to the parties in terms of time, cost and infrastructure (video conferencing is soon becoming the norm), Alternate Dispute Resolution (ADR) is here to stay and likely to become the trend in 2021 and in the years to come.

Another refreshing change has been an unprecedented style of arbitration and litigation through remote online hearings, which have given rise to the phenomenon of Online Dispute Resolution. In countries like India, where the backlog of cases is already high, the courts have had limited rosters for online hearings based on the urgency of the case. This has forced parties to explore other forms of dispute resolution including arbitration and mediation through the online medium to avoid litigating wherever possible. Albeit perceived as an interim stop gap arrangement during the pandemic, Online Dispute Resolution will in fact pave the future of dispute resolution in India in the years to come as the legal fraternity has come to realise its many advantages.

In so far as the economic impact of the pandemic is concerned, the first wave of the COVID-19 pandemic saw some industries such as manufacturing, real estate, travel and tourism, aviation, hospitality, trade fairs and exhibitions being adversely affected on a macro level as well as the closure of many small businesses on a local level. Companies faced enormous challenges as they were deluged with requests for cancellation and refund claims owing to the global lockdown. Unfavourable market conditions prompted numerous companies to downsize and restructure their teams, leading to greater unemployment and a consequent reduction in purchasing power which has adversely impacted not only manufacturing but also retail. Most sectors have had to create an online presence for themselves to tackle the lockdown and ensure relevance and accessibility to consumers.

In the second wave of the pandemic (which is underway), whilst the manufacturing sector is seeing a steep rise in exports, most of the other industries appear to be slowly but steadily recovering. However, there continues to be a liquidity crunch in the supply chain and resultant delays. This has led to lapses in delivery timelines and in the quality/condition of goods and services. To maintain customer loyalty and overcome the delay in the supply chain, businesses have been offering incentives to customers, many of which have been found to be misleading. The regulators are likely to take strict action against such companies for misleading consumers. The real estate sector also continues to be in a slump; in fact, things seem to have worsened for home buyers because of development projects being stalled due to the pandemic. While generally it may be a good time to buy property, one cannot overlook the inevitable delays that home buyers are likely to face in receiving possession of their units.

There is no telling how long the pandemic is going to last and even as we usher in a new year full of hope that the worst is behind us, the slow pace of recovery in market conditions is bound to bring forth a large number of disputes related to:

Performance of contracts 

There have been numerous instances of avoidance/breach of contracts and consequent claims for damages. Parties have commonly sought refuge under the doctrines of force majeure, frustration, and impossibility of performance. However, as seen across jurisdictions, these doctrines are not a ‘one-size-fits-all’ and their application by courts has been tailored to test the facts of each case.

Shareholders’ rights, exits & valuations  

Inter se disputes among shareholders have also grown during the last 9 months, giving rise to litigations characterised by claims against directors, allegations of shareholder oppression and mismanagement. Shareholders/investors facing liquidity issues are likely to gain an advantage by exercising contractual buy-sell rights built into shareholder and joint venture agreements, which may lead to disputes relating to share valuations.

Loan defaults  

As businesses grapple with the lack of domestic demand and liquidity, loan defaults and/or restructuring efforts may well find their way to the National Company Law Tribunals and/or Debt Recovery Tribunals should banks and financial institutions decide to seek refuge under the Insolvency & Bankruptcy Code, 2016 and/or the SARFAESI Act to recover outstanding dues.

Delays in housing projects 

The adverse impact caused by the pandemic on existing real estate development projects has resulted in the filing of a spate of complaints before the consumer courts as well as RERA to tackle the gross delay in construction and/or handover of possession on the part of developers.

Fraud 

A new wave of litigation in the COVID-19 era, which is now emerging, is characterised by fraudsters prying on persons who are vulnerable, cash strapped and/or unemployed due to the economic slowdown. These fraudsters seek to benefit from the chaos in supply chains to perpetrate deceptively simple frauds against businesses and individuals. Companies, directors and individuals should remain on alert to prevent losses.

Insurance claims 

Insurance litigation is also on the rise over liability for COVID-19-related losses. Most businesses hold relevant business interruption insurance, but these policies often contain exclusions for viruses and/or cover named diseases only. Only some claims will be successful, leading to more disputes wherein the insurer refuses to cover losses.

Technology 

The lockdown has seen numerous companies hurriedly launch an online presence to stay relevant and accessible to their consumers. This may lead to disputes pertaining to data privacy and protection, intellectual property, etc. and a resultant spike in litigation. It is also pertinent to note that close to 24 petitions are pending before various High Courts and the Supreme Court of India demanding regulation of OTT platforms. The impending regulation of digital media in India is anticipated to cause ripples within the media and entertainment industry as OTT platforms will have to re-align with the new legislation. India is unique in its demography; and consequently, any legislation pertaining to digital media may not necessarily be totally consistent with global norms. This may give rise to disputes concerning suitability of content, liability of OTT platforms, etc. It will also be interesting to note the mechanism of dispute redressal that the legislation provides for, as we may potentially witness the emergence of a new legal practice with a demand for experts in the domain of Information Technology.

In a post COVID-19 world, dispute resolution will undergo a major overhaul. Right from the stage of drafting their contracts, parties will consider favourable jurisdictions while deciding on governing laws, especially in cross-border transactions. There will be an increased emphasis on the wording of force majeure clauses to ensure they are inclusive and not exhaustive, and adequately protect the parties against unforeseen contingencies. With the domino effect of a crisis akin to COVID-19, parties will not only seek to safeguard their interests from the immediate consequences but also make provisions for alternate dispute resolution mechanisms which can be triggered contractually before resorting to litigation. Corporates will seek out legal advisors who are able to provide unique solutions to effectively resolve disputes and cut short the cost of litigation whilst focussing on growth.

This year’s tragedy has taught the world to come together, rethink and reform the way we engage our hearts and minds. We are hopeful that 2021 will usher in an era of meaningful engagements in the resolution of disputes such that parties adopt a more cooperative approach and rely less on the already over-burdened courts.