Use of ADR in commercial dispute resolution

The origin of Commercial Dispute Resolution- An Overview

It is interesting to trace the origin of the ‘Commercial Courts’ in the United Kingdom.1 Time
travelling to trace the history of introduction of Commercial Court in itself is no less than satire
exposing the dull colours of judiciary. In a nutshell the case of Rose v. Bank of Australlia2, in
which Lawrence J., who had no grounding of commercial matters, still gave the judgement and
was overtly criticized for the same. But this event though being a blunder on the part of
judiciary came out to be an overhauling and prudent creator of commercial courts. The
commercial court was one of the most successful and enduring judicial experiments,
implemented without legislation or government assistance, to the enormous benefit of the city
of London and the international community.3 Over the years the commercial courts has seen a
phase of evolution that has transformed the settlement of disputes dealing with trade and
commerce and bringing a transparent and efficient atmosphere for doing business.

Similarly, India who is infamous for having an overburdened legal system that leads to
indefinite delays in the disposal of cases. Foreign as well as domestic investors have often
found it difficult to protect their investments in India because of the inefficiencies in the
disposing at an effectual rate. Moreover, there was a spate of judgments of the US and UK
Commercial Courts declaring that the Indian Court system has “collapsed” because there are
delays upto twenty years or more, and that, therefore Indian defendants can be sued in US and
UK Commercial Courts, even if there is no cause of action in those countries.4 Thus, there has
always been a long standing requirement for a stable and efficient dispute resolution system
ensuring quick enforcement of contacts, easy recovery of monetary claims, and award of just
compensation for damages suffered. All of which are critical in encouraging investment and
economic activity. To battle out this kind of legislation the Law Commission of India (headed
by M. Jagannadha Rao J.) in its 188th report proposed for constituting Hi-tech Fast Track
Commercial Courts.

With the growth of Indian markets, the Indian economy has poised to move its curvature of
marketing to various other fields of commerce. This eventually pushes the index of EoDB
(Easy of Doing Business) in a country. Ease of doing business is an index of the World Bank
which refers to the dispute resolution environment in a country that facilitates an investor in
deciding to set up and operate a business. This index is formerly determined by various
parameters, one of which is the rate of disposal of commercial matters (also known as the
Insolvency resolution rate) in the area of operation of business. In October last year, the ease
of doing business rankings jumped 30 points to 100 driven by reforms in access to credit, power
supplies and protection of minority investors.5 Moreover the insolvency resolution has also
improved.

1
Mr. Lawrence, ‘The True Begetter of English Commercial Courts, Vol. 110, Law Quarterly Review, p.292
(1994).
2
[1894] AC 687.
3
‘The Origin of the Commercial Court’, Law Quarterly Review, p. 324, (1994).
4
LAW COMMISSION OF INDIA, 188TH REPORT, pg. 2.
5
https://www.ndtv.com/business/ease-of-doing-business-ordinance-to-allow-speedy-disposal-of-commercial-
disputes-rolls-out-1846783. Last Accessed: October 3, 2018, 10:30 p.m.
Meaning of Commercial Disputes

The 20th Law Commission has proposed a wide definition of ‘commercial disputes’ which will
include not only disputes between tradesmen but also disputes relating to commercial property,
movable or immovable.6 In the case of R. M. Investment & Trading Co. v. Boeing Co.7. In
1986, RMI (an Indian company) entered into an agreement with Boeing (a U.S. company) to
provide consultancy services for promoting the sale of Boeing aircrafts in India, and agreed to
arbitrate any disputes under AAA rules. A dispute arose, and RMI brought suit in the Calcutta
High Court. Boeing moved for stay of the suit on the ground that its subject matter was covered
by the arbitration clause in the contract. The High Court dismissed Boeing’s application to stay
the suit in April 1993, holding that the agreement in question was not a “commercial”
agreement under India’s 1961 Foreign Awards (Recognition and Enforcement) Act ("1961
Act"), which implemented the NYC, and that therefore the 1961 Act did not apply. The
Division Bench of the High Court, however, dismissed this decision in October 1993. RMI
appealed to the Supreme Court of India, arguing that the consultancy agreement was not a
commercial agreement under Section 2 the 1961 Act. The Supreme Court held that the
agreement fell within the definition of “commercial” under Section 2 of the 1961 Act (which
incorporated Articles I (1) and II (1) NYC but expressly required a "commercial" relationship).
The Supreme Court took guidance from Article 1 of UNCITRAL Modal Law8 in giving a wider
meaning to the “commercial” so as to include all ‘relationships of a commercial nature’ such
as ‘commercial representation or agency’ and ‘consulting’.9 The Supreme Court assessed the
conditions and wording used in the Consultant Agreement and concluded that “the agreement
to render consultancy services” was “commercial in nature” and the parties did stand “in
commercial relationship with each other” as well. and therefore that the stay could be granted
under the Act. The Court emphasized that the purpose of the 1961 Act was to facilitate
international trade by providing for dispute settlement through arbitration. It accordingly read
the term “commercial” broadly, finding that it encompassed the promotion of commercial
activity, in order to further the goals of the 1961 Act. RMI played an active role in promoting
the sale of Boeing’s aircraft and provided managerial assistance in the process; therefore, the
transaction was commercial in nature. The impact of this judgement from a pro litigation
Judicial system had not only challenged the criticism but has cumulatively paved a way for
settling of commercial disputes by way of arbitration.

Emergence of Commercial Division and Commercial Appellate Division of High Courts

and Commercial Courts Act, (2015).

Over a period of time the legislation has tried to consolidate enforcement of domestic as well
as foreign arbitral award owing to which arbitration has become one of most preferred options
to settle commercial disputes.10 The amalgamation of the International Commercial Arbitration
and the need for an Act that may increase the efficiency of resolution of commercial dispute

6
LAW COMMISSION OF INDIA, 188TH REPORT, pg. 2.
7
1994 AIR 1136
8
Created by United Nations in 1985. See, J. Martin Hunter, India’s Arbitration and Legislation: Does the Single
Act Serve the Purpose, ‘..UNCITRAL Model Law was published in 1985. India is generally considered to be ‘on
the brink’ of enacting new legislation to govern arbitrations that take place in India
9
http://judis.nic.in. Last Accessed: October 3, 2018, 10:30 am.
10
Indian Vakil, Arbitration & Conciliation Amendment Act 2015 : The Way Forward, 246th Law Commission
Report, https://jashvaidya.wordpress.com/tag/246th-law-commission-report/. Last Accessed: October 5th, 2018.
with an homogeneity to the developing economy was considered as the need of an hour and
hence was the 246th Law Commission Report headed by A. P. Shah J., brought amendment to
the Arbitrtaion and conciliation Act, 1996. “The Arbitration and Conciliation Act 1996 was
enacted with the optimism that it would serve as a quick redressal mechanism to commercial
disputes”.11 The Government of India felt the need to amend certain provisions of the act so as
to make arbitration more user friendly as well as cost effective method of settling commercial
disputes. Further this has a provided a real push for the Commercial Dispute Resolution (CDR).
This promoted institutional international arbitration, rationalized the fee for arbitrators,
promoted efficient arbitral proceedings. Indian instead of relying on the other legislation for
enforcement, adopted the CDR.
A Price waterhouse Coopers (PwC) study reveals that nearly 91 per cent of Indian companies
with a dispute resolution policy have included arbitration, with around 61 per cent
incorporating arbitration clauses in their agreements. These trends, however, do not negate the
fact that CDR in India is still undeveloped and directed to time-consuming litigation.12

From Nothing to Something

The advent of Commercial Dispute Resolution (CDR) as being part of the
Alternative Dispute Resolution (ADR) has received renewed interest in
India after Singapore International Arbitration Centre entered the Indian
space through the Gujarat International Finance Tech-city (GIFT), Gujarat.
Further the establishment of the Mumbai Centre for International Arbitration
(MCIA) in June 2016 and the tie-up between SIAC

India is yet to take off as a dispute resolution hub in a big manner owing to
the lack of trained personnel to tackle the complex issues involved in
disputes of a commercial nature in addition to the delays in resolution, costs
involved, lack of state level Arbitration/ Mediation Centres, lack of adoption
of Dispute Resolution Rules etc. This has affected investments to the country
and the operation of various companies in India or foreign companies having
business relations in India. According to estimates, Commercial disputes
which end up in various courts in India take an average of 4-6 years for final
settlement and companies are considered to demarcate around 10-15% for
legal costs which is reflective of the low rank of India for ‘Enforcing Contracts’
at 180 in the 2016 World Bank Doing Business Rankings.
The Government of India recently provided a strong push for Commercial
Dispute Resolution by amending the Arbitration and Conciliation Act, 1996
based on the recommendations of the 20thLaw Commission Report (No.246)
to promote institutional international arbitration centres, rationalise fee for
arbitrators, conduct of Arbitral proceedings, decrease investment treaty risks
from delays of judicial intervention etc. The Mumbai Arbitration Centre and
the proposed Kolkata Centre in West Bengal have brought new vigour to the
dispute resolution scenario at the state level which will require adequate
resource pool.

11
Ibid.
12
It is in this context, that Alternate Dispute Resolution (ADR) Centre, the
dispute resolution wing of Centre for Public Policy Research (CPPR)
(established in 2009) is initiating a project with the support of British Deputy
High Commission Chennai focussing on the three states- Karnataka, Kerala
and Tamil Nadu. As per the initiative, ADR Centre-CPPR will assess the
reforms initiated at the state levels, assess the scope of Commercial Dispute
Resolution Centres to mitigate the flaws and failures existing in earlier or
existing dispute resolution systems and also develop a strategy plan for state
governments, companies and investors to develop effective dispute
resolution systems. Further CPPR will provide a unique training programme
focussed on CDR to develop resource pool at the state level.