By Pragya Richa Tiwary
[Authors is a student at Dharmashastra National Law University, Jabalpur]
Abstract
The legal domain is advancing and adapting itself to the contemporary tech driven world. In alignment with such evolutions, Alternate Dispute Resolution has advanced to being Online Dispute Resolution. To enhance efficiency and reduce pendency, employing blockchain technology in out of court settlements is suggested. This assures data protection and easy implementation of awards, while enhancing transparency. The Digital Personal Data Protection Act strives to ensure protection of personal data provides for integration of blockchain technology in ADR processes. Blockchain in ADR offers multiple advantages and hence must be perceived as a practicable solution to privacy concerns around ODR.
Introduction
The legal landscape of India is evolving to adapt itself to the era of Industry 4.0. The era attains its distinction through an expansive reliance on digital data, human-machine interactions, and artificial intelligence. The legal system is not untouched by such technological advancements. From courts having records stored in online databases to alternative dispute resolution (“ADR”) metamorphosing to online dispute resolution (“ODR”), the transformative capacity of technology is huge. As data is the fuel of today’s technologically driven era, analyzing the impact of Digital Personal Data Protection Act, 2023 (“DPDP Act”)on the adaptation of blockchain in alternative dispute resolution in India becomes vital.
Understanding tech integration in ADR and emergence of ODR
ADR refers to outside court settlements. In India it includes the processes of arbitration, conciliation, mediation, arbitration, and judicial settlements including Lok Adalat. Most other nations including USA, UK and Japan follow similar practices however, Lok Adalats sustain as an exclusively Indian practice. Major reasons for preferring ADRs over court settlements is the time and cost efficiency that ADR offers along with ensuring privacy of enterprises. Post the onset of Covid-19 pandemic, almost every institution adapted itself to virtual processes. Proceedings via video conferencing became a common occurrence in The Supreme Court, High Courts, and subordinate courts.
ODR is expected to gain popularity in India as it allows for integration of innovative technology and provides for remote dispute resolution, making it beneficial for the contemporary fast paced world. One such technology is blockchain, primarily preferred to ensure security of data. Both private and public entities can be observed to incrementally employ technologies to resolve disputes thereby enhancing execution of contracts.
Understanding blockchain technology
Blockchain refers to a digital ledger of transactions in which data is stored in the form of blocks. Blocks are a set of programming code that are encapsulated so as to protect it from external tampering with an internal referencing system that links the blocks together ensuring operation in a chronological sequence. Usually, blockchains are used as facilitators in cryptocurrency transactions. However, their employability in ADR for storing records, evidence, and transfer of finances, especially after a realized importance of ODR is noteworthy. Blockchains are easily accessible without compromising data privacy through public and private keys. Public key is used to send and receive encrypted data, whereas private key acts as a password used to decrypt data and establish access.
Legal backing for employing blockchain in ADR
India currently has no legislative force exclusively regulating the functioning of blockchains. However, the use of blockchains is not prohibited under any legislation. It is predicted that the use of blockchains will witness a surge in governmental operations, as various departments are exploring possibilities of employing blockchains. One of the most striking endeavors is optimizing fertilizer subsidy supply chain using a blockchain. This blockchain generates requests and distributes fertilizer subsidies to farmers. In addition to this, India taxes cryptocurrency transactions which are based on blockchain technology. Therefore, the use of blockchains is legitimate in India, and prospects appear bright too.
Blockchain would be most useful in commercial disputes, where they may be used to store evidence, and to facilitate transfer of monetary awards. This would be done by transferring currency from one node or participant to another, when given conditions are met, thereby preventing delays in enforcement of awards.
The Bhartiya Sakshya Adhiniyam, 2023, under Sections 61 and 62 provides for permissibility of electronic records, while under Section 63 provides for admissibility of electronic records as evidence. Section 63(3) provides for admission of records, which were processed or stored in one or more computers, or even network of computers. This section sets a scope for employing blockchain in ADR as blockchains have multiple nodes or computers that are connected as a network. Hence storing of evidence in blockchain is legitimate and acceptable, to be used in ADR.
Employing blockchain in ADR
Broadly, there are four types of blockchains- public, private, consortium and hybrid. The distinction is majorly based on the ability of a blockchain to access existing records and participate in proof-of work for arriving blocks. Proof-of-work refers to an achieved consensus based on which the inclusion of a new block is accepted or rejected, thereby ensuring data protection. Public blockchains allow everyone to participate and, hence are unsuitable for ADRs; where the privacy of entities is of paramount importance. Consortium blockchains are ideally not required for ADR as they are semi-decentralized. Multiple organizations acting in the capacity of controlling heads expose the system to biases and more disputes since reaching a consensus becomes difficult. Inviting data irregularities, by allowing the hiding of data, such blockchain systems may obstruct the smooth working of ADR by enabling nodes to hide evidence presented. Further analysis exposes hybrid blockchains as being apt for ADR, as they allow for selected aspects to be private. However, private blockchains appear the most suitable as they allow for permissioned access. These blockchains uphold privacy of entities and simultaneously make the process of data alteration difficult.
An organization or institution can have its private blockchain for ADR, where information can be stored and accessed by selected participants. In cases of disputes, where external arbitrators, mediators, or counsellors are employed, new nodes can be inserted for them to access preexisting information. Private blockchains periodically synchronize all nodes to ensure the availability of same data to all existing nodes. Such blockchains also allow for deletion of nodes, hence permitting time bound access to such arbitrators, mediators, or counsellors. After a dispute is resolved, these nodes can be deleted. It is noteworthy that such deletion does not affect stored data, since each node has its own copy of the entire information.
Additionally, evidence can be uploaded in blockchains to facilitate the process of ODR. In addition to this, blockchains facilitate records of proceedings that can be presented before the court in cases of appeal.
Considering the facilitation of awards, a possibility of smart programming exists. Blocks could be designed in a way that they automatically transfer a pre-decided amount from one block to another, accessible by private keys in accordance with the award. This would significantly reduce the time of execution of awards, thereby aiding in creating an efficient justice system.
Blockchains also ensure transparency through a distributed ledger. Information is accessible from each node or user, thereby making the process of ADR transparent and trustworthy.
Hence, employing blockchain would make dispute resolution processes resilient and efficient.
Impact of implementation of Digital Personal Data Protection:
The DPDP Act, itself provides for online dispute mechanisms to resolve disputes. It provides for establishment of “Data Protection Board of India” under Chapter V. Functions of this board are described under Chapter VI and under which it is prescribed that the board functions as a “digital office” as far as practicable, and the board should adopt “techno-legal measures” as may be prescribed. This establishes a scope for implementation of blockchain for ADR processes under the DPDP Act.
When it comes to understanding the impact of DPDP Act on ADR processes, Section 17 attains paramount importance. It exempts data fiduciaries and processors from all obligations laid down under Chapter II and III, except obligations stated under section 8(1) and section 8(5), under certain circumstances. Both these provisions mandate ensuring privacy of personal data collected with the data principal’s consent. Section 17(1)(a) establishes that when processing of personal data is necessary for enforcement of a legal right or claim, then data fiduciaries and processors are exempted from obligations, and under Section 17(1)(b), exemptions are provided for judicial or quasi-judicial or regulatory or supervisory function, when such courts, tribunals or other bodies are entrusted by law to perform the same and performance of such function is dependent on collection or processing of personal data.
The DPDP Act, therefore allows ADR and ODR mechanisms to process personal data. When blockchains are used for ADR or ODR processes, the data stored in blocks is for a legitimate purpose, thereby falling under exemptions stated under Section 17(1)(a) and 17(1)(b). However, it is mandatory to take reasonable security measures, such as protecting data from external interference, or protection against unconsented processing of data. . The programming of blocks ensures security of data. They perform tasks in a chronological manner by way of “reference calling” and requiring “proof-of-work” to alter stored data. The use of private keys to access data further ensures that data remains untampered. Therefore, the cardinal characteristics of blockchain are built to facilitate easy implementation of DPDP Act by ensuring data security.
Further, the DPDP Act explains “digital office” under Section 2(m) as an office that adopts online mechanisms for proceedings, where every step from receiving data to final disposal of complaint begins and concludes online.
Conclusion
Technology is incrementally witnessing a surged integration across domains. Post pandemic, its integration is suggested in ADR. Blockchains, as one of the evolving technologies ensuring transparency and efficiency are reliable and resilient, since data tampering becomes difficult due to proof-of-work that requires a consensus to alter data. The DPDP Act sets a stage to employ blockchain to resolve disputes. In times of evolving technology, it becomes vital to upgrade and make ADR systems compatible with contemporary era, therefore an integration of blockchains in ADR is suggested. While blockchains have a broad legislative backing, there is enough scope of a targeted regulatory force permitting the integration of blockchain technology across judicial and extra-judicial processes.