Case Analysis

Authors – Naman Gowda & Ibban Javed Year – 3rd Year Institute – National Law Institute University, Bhopal Introduction Mediation is a form of Alternative Dispute Resolution (ADR) outside the confines of courts wherein a neutral third party assists the parties to the dispute in arriving at a mutually amicable solution. ADR as a whole is gaining more traction nowadays due to the strenuous process of resolving disputes in a court of law. However, the drawbacks associated with different forms of ADR makes it necessary to look at the suitability of each approach. Section 89 of the Code of Civil Procedure allows Courts to refer a dispute to ADR for resolution. The four methods of ADR that are mentioned under section 89 are: – Arbitration, Conciliation, Judicial settlement including settlement through Lok Adalat, or Mediation Effectiveness of mediation In the Afcons Construction Ltd. v. Cherian Varkey Construction[1] judgement, the Supreme Court held that the while the court can consider the aforementioned methods, arbitration can only be referred when both the parties to the dispute have consented to the same. The reason behind this is that arbitration is the only adjudicatory method amongst the four and the absence of consent of a party makes it even more likely that one of them may not be content with the award pronounced by the tribunal. Making things worse, an appeal cannot be made against the award of a tribunal based on its merits and it can only be set aside based on certain grounds mentioned under section 34 of the Arbitration and Conciliation Act, 1996[2]. In this regard, why is mediation more effective? It is a non-adjudicatory method which keeps the dispute within the judicial system and in case an amicable settlement is not reached between the parties the same goes back to trial. While this may seem to be defeating the intention behind referring the dispute to ADR, it preserves the essence of the justice system in ensuring aggrieved parties have some form of legal recourse. Additionally, the Court also enumerated certain types  of disputes as unsuitable for ADR and thus reducing the chance of failure of the those referred to ADR. Disputes suitable for ADR Disputes that are suitable for resolution through mediation are ones which are complicated and lengthy and mediation would be very effective as there is a chance of quicker resolution. The court listed the types of disputes suitable for ADR:- All cases relating to trade, commerce and contracts; All cases arising from strained or soured relationships such as matrimonial disputes and partnership disputes. All cases where there is need to continue a pre-existing relationship in spite of the dispute such as disputes arising between employers and employee. All cases relating to tortious liability including claims for motor accidents; All consumer disputes. The Supreme Court, in the matter of M.R. Krishna Murthi v. The New India Assurance Co. Ltd and Ors.[3], laid emphasis on the need for ADR with regard to motor vehicle accident claims. The Court recognized the need for speedy resolution of accident claims in order to ensure that victims are awarded compensation at the earliest. The Court also recommended the establishment of a Motor Accidents Mediation Authority (MAMA) in every district and incorporating a provision for the same in the Motor Vehicles Act[4]. Furthermore, it also recommended the National Legal Services Authority to oversee the setting up of Motor Accident Mediation Cells as an interim measure until a provision is made for the same in the Motor Vehicles Act. The Supreme Court’s effort in this regard has been continuous as it recently constituted a panel of mediation experts to prepare a draft mediation law, seeking to define a code of conduct for mediators and address aspects such as the enforceability of mediation settlements, confidentiality of the proceedings and neutrality to name a few[5]. Conclusion There is a very minimal chance of a mediation settlement being appealed by one of the parties. A mediation settlement can be challenged on the same grounds as an arbitral award is challenged. But the non-adjudicatory nature of mediation significantly reduces the risk a settlement being challenged as both the parties work together towards reaching a mutually beneficial compromise and after having made such an effort, the likelihood of them being content with the same is more as opposed to an arbitration. Despite all these benefits, conventional methods are still preferred by a vast majority. The shift to mediation was never expected to be immediate one, but a central legislation, which provides legal sanctity to mediation settlements, is necessary in order make mediation the go-to platform for dispute resolution. [1](2010) 8 SCC 24. [2]The Arbitration and Conciliation Act, 1996, d 34. [3]2019 (4) SCALE 362. [4]Motor Vehicles  Act. [5]Ajmer Singh, Supreme Court forms committee to draft mediation law, will send to government, The Economic Times, (Sept. 9, 2020, 11:45 PM), https://economictimes.indiatimes.com/news/politics-and-nation/supreme-court-forms-committee-to-draft-mediation-law-will-send-to-government/articleshow/73394043.cms?from=mdr.

Global v. Indo Unique: Extrapolating Arbitration Clause from Unstamped Substantive Contract Date: 06/02/2021 Authors: Samyak Jain, Shalini Mishra Institute of Authors: B.A. LLB (Hons.)Institute of Law, Nirma University, Allahabad Year: 4th A three judge bench of the Supreme Court on 11 January 2021 pronounced the judgment in the case of NN Global Mercantile Pvt. Ltd v. Indo Unique Flame Ltd. & Ors. (‘Global Mercantile’). It was set forth that there is no legal impediment for enforcement of the arbitration clause if the underlying contract is unstamped. Additionally, the bench differed with the positions previously laid down in cases of SMS Tea Estates Pvt. Ltd. v. Chandmari Tea Co. Pvt. Ltd (‘SMS Tea Estates’), Garware Wall Ropes Limited v. Coastal Marine Construction and Engineering Limited (‘Garware Wall Ropes’) and the recent judgment of Vidya Drolia v. Durga Trading Corporation (‘Vidya Drolia ’). The court dealt with two interesting issues in the instant case, one pertaining to the validity of an arbitration agreement in an unstamped contract and the other issue was concerned with the arbitrability of allegations of fraud. The article broadly addresses the former issue pertaining to the doctrine of separability. The bench ruled that non-payment of stamp duty by Indo Unique would not render the arbitration agreement unenforceable on the ground of initial defect or irregularity. The post critiques the Court’s position in Global Mercantile on the question of whether an arbitration agreement would be non-existent in law, invalid or unenforceable, if the underlying contract was not stamped as per the relevant Stamp Act. Factual Background Indo Unique entered into a contract with Karnataka Power Corp. Ltd for washing of coal. It entered into a subcontract termed as Work Order with Global Mercantile for the transportation of coal. In regards of this Work Order, Global Mercantile furnished a bank guarantee of Rs. 3,36,00,000 in favor of the Indo Unique. Certain disputes arose which led to the invocation of the bank guarantee. Thereafter Global Mercantile filed a civil suit before Commercial Court stating that invocation of the bank guarantee was fraudulent in nature wherein the Commercial Court then passed an ex parte order for the enforcement of the said bank guarantee. Subsequently, Indo Unique filed a suit under Section 8 of the Arbitration Act before the High Court to refer disputes to Arbitration which was rejected by the High Court. Aggrieved by the order of the High Court, Global Mercantile filed a Special Leave Petition before the Supreme Court.  The Muddy Waters of Doctrine of Separability in Indian Cases There is an incessant dilemma surrounding the admissibility of an unstamped document and the Supreme Court has time and again delivered contradicting judgment on the same issue. The three judge bench in Global Mercantile posited that the finding in SMS Tea Estates and Garware Wall Ropes is not a correct position in law. Furthermore, the bench does not also concur with the position taken in paragraph 92 of Vidya Drolia by a coordinate bench which affirms the judgment made in Garware Wall Ropes. The Supreme Court in SMS Tea Estates dealt with the question of whether an arbitration agreement was valid and enforceable in an unregistered and unstamped lease deed which entailed compulsory registration under the Registration Act 1908, being a part of the said lease deed which was invalid and unenforceable. The Court decided that an arbitration agreement in an unregistered instrument would be valid and enforceable but an arbitration agreement in an unstamped commercial contract is unenforceable in law and it cannot be acted upon. In Garware Wall Ropes, the Apex Court had examined the question of stamp duty in an underlying substantive contract with an arbitration agreement. The Court reasoned that it is unfeasible to separate the arbitration clause from such agreement so as to give it an independent existence. The Garware Wall Ropes judgment has followed the judgment in SMS Tea Estates to contend that the arbitration clause would be non-existent in law, and unenforceable, till Stamp Duty is adjudicated and paid on the substantive contract. It was held that an arbitration clause in an agreement would not exist if it is unenforceable by law. In the recent judgment of Vidya Drolia, the Supreme Court briefly discussed the issue of arbitrability of the arbitration agreement. Moreover, the Court stated that an arbitration agreement exists if it is enforceable in law and wherein it satisfies the statutory requirements of both the Arbitration Act and the Contract Act. The three judge bench in Vidya Drolia  relied on the case of Garware Wall Ropes, which drew distinction between the two aforesaid terms. Judgment Analysis A conjoint reading of SMS Tea Estates and Garware Wall Ropes shows that the Apex Court erred in finding that Maharashtra Stamp Duty Act applies to the whole contract including an arbitration clause. Further, in case of non-payment of Stamp duty in respect of the instrument, the case also invalidates the arbitration clause. The aforementioned cases considered it essential to read the whole agreement as one without bifurcating between the underlying agreement and the arbitration clause on the basis of severability principle. The argument stems from the reasoning that as per Section 49 of the Registration Act, an unregistered document can be used as evidence in collateral transaction, i.e. an arbitration clause is separable and can be used for the resolution of parties. Whereas, Section 35 of Stamp Act does not prescribe any condition similar to Section 49 of Registration Act enabling the instrument to be used as collateral transaction. Furthermore, the Court opined that in absence of provision similar to Section 49 of the Registration Act, it is unviable to bifurcate the arbitration clause mentioned in the agreement so as to give it an independent existence. According to Section 34, unless the stamp duty is paid, the Court cannot act upon such an instrument; meaning thereby that an arbitration clause cannot be forced. It can be concluded that the arbitration clause in the main contract would be non-existent until the contract is duly stamped.