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Hybrid Dispute Resolution- its advantage over other Methods in BFSI

        Krusch Pathippallil Antony

 

1.0 Hybrid Dispute Resolution- its advantage over other Methods.

Alternative Dispute Redressal (ADR) is defined in various ways. The National Alternative Dispute Resolution Advisory Council (NADRAC), Victoria, has defined ADR as an ‘umbrella’ term for processes, other than judicial determination, in which an impartial person assists those in a dispute to resolve the issues between them. ADR offers rich variety of process designed to suit all types of disputes and all types of disputants.

 Hybrid Dispute Resolution (HDR) is a development over ADR, and offers significant advantages over mediation alone and arbitration alone. Mediation and Last Offer ( aka arbitration) Arbitration / Med-Arb / Arb-Med / Hi-Lo Arbitration / Base-ball or Final Offer Arbitration / ‘Night Baseball Arbitration’ are the various forms HDR26. The split or hybrid clause covers a variety of hybrid dispute clauses, the most common being a clause which provides for both court jurisdiction and arbitration coupled with a mechanism allowing one or both parties the right to determine the procedure once a dispute arises. Expert Determination is one of the best ADR forms, which can be used in HDR format, whereby parties to a contract ask an independent expert to give binding decision on a dispute, more particularly in technical disputes where valuation is required. Tiered Dispute Resolution Clauses allows parties to make a claim escalated at different stages, and would provide for negotiation at different levels within each party’s business, mediation and then litigation or arbitration.

HDR in Indian context is an emerging concept , and the HDR clauses is yet to get recognised , since the law does not support any non-statutory dispute resolution mechanism as binding and it is being subjected to get challenged in the court of law just as a concluded contract can be challenged. As per sec 28 of the Indian Contract Act, there cannot be any restraint on legal proceedings or a mechanism which shuts off judicial review. Exception is the Arbitration & Conciliation Act, 1996 and the Industrial Dispute Act, 1947.

1.1 Consumer Arbitration and dispute resolution clauses

Consumer Arbitration in India as well as in many European Countries is not enforceable, where as in USA it is encouraged. In Skypay Couriers Ltd v Tata Chemicals Ltd, Supreme Court held that even if there exists an arbitration clause in an agreement and a complaint is made by the consumer, in relation to a certain deficiency of service, then the existence of an arbitration clause will not be a bar to the entertainment of the complaint of the complaint by a rederessal agency, constituted under the CPA, since the remedy provided under the Act is in addition to the provision of any other law.  In USA, in AT&T Mobility v/s Conception, in a legal dispute that was decided by the US Supreme Court, and it is a landmark judgement which favoured consumer Arbitration. Unlike other Arbitration agreements, AT & T Mobility arbitration agreement was designed to facilitate the pursuit of small claims in arbitration. The arbitration would take place in the country where the consumer was located, and forms for arbitration were made available on AT&T Mobility’s website. The arbitrator was not limited in the damages it could award to consumer. AT&T Mobility’s agreement was “quick, easy to use, and prompts full or, as described by plaintiffs, even excess payment to the customer without the need to arbitrage or litigate”.

American Arbitration Association (AAA) applies the Consumer Arbitration Rules to arbitration clauses in agreements between individual consumers and business where the business has a standard, systematic application of arbitration clauses and where the terms and conditions as to a forced arbitration, the arbitrator’s decision is binding, and the results are not public. The AAA Consumer Rules includes a glossary of alternative dispute resolution (ADR) terms. These rules apply when arbitration clauses exist in agreements between individual consumers and businesses where the business has a standardised, systematic, application of arbitration clauses with customers and where the terms and conditions of the purchase of standardised, consumable goods or services are non-negotiable or primarily non-negotiable in most or all of its terms, conditions, features, or choices. The product or service must be for personal or household use. AAA will have the discretion to apply or not to apply the Consumer Arbitration Rules, and the parties will be able to bring any disputes concerning the application to the attention of the arbitrator.

1.2 Financial Consumer Complaint Resolutions- promising role models

The Financial consumers in the BFSI in India find it difficult to secure redress because they are unaware of their legal rights or the mechanisms under which they can seek a resolution, and are confused with selective options available, for the consumer welfare and protection, by approaching Consumer Forums, Regular Court of Law, Debt Recovery Tribunals, Ombudsman, Grievance Redressal Mechanisms, Tribunals, Arbitration, Mediation or Conciliation, Credit Counselling and Lok Adalaths. Moreover, they have least know-how about the alternative dispute redressal mechanisms like Arbitration, Mediation or Negotiation and Credit Counselling. Thus, the absence of knowledge and information as to obtaining correct redressal mechanism, confidence and recourses contribute to consumer vulnerability.

Consumer complaints, with cross-border complaints are more vulnerable, and they are often reluctant to pursue a case in court, due to litigation costs with complex and lengthy procedures. This has resulted in dependency on ADR mechanisms across many nations.

The European Commission has set –up a specific dispute resolution network of national ADR bodies called Financial Dispute Resolution Network (FIN-NET) . This network was established in 2001 and deals with HDR cross-border disputes between consumers and financial services providers from European Union, Norway, Iceland and Liechtenstein. FIN-NET provides the consumers with access to ADR through co-operation and assistance of national ADR bodies and ensures that they operate under a common set of principles. Similarly, European Consumer Centres Network (ECC-Net) was established in 2005 to help consumers in the resolution of cross –border complaints and disputes. However, the 2010 report of the European Consumer Centre’s Network shows that the cross-border complaints received by the ECC –NET in 2010, 91% could not be referred to ADR scheme in another member state, since no suitable ADR scheme existed.

The Hague Institute for Global Justice known as PRIME Finance provides an Arbitration model for BFSIs. PRIME Finance established to help resolve, and to assist judicial systems in the resolution of, disputes concerning complex financial transactions. P.R.I.M.E. Finance has the support of key international regulatory bodies and is complementary to the on-going financial market regulatory reform process.

The three pillars, upon which P.R.I.M.E. Finance is based, include:

  • dispute resolution services, including arbitration, mediation and expert opinions, determinations and risk assessment;
  • judicial support and education; and
  • the compilation of a central database of international precedents and source materials.

PRIME Finance Arbitration is modelled on the UNCITRAL Arbitration Rules, and when the parties agree that disputes between them in respect of a defined legal relationship, whether contractual or not, shall be referred to arbitration by PRIME Finance or under the PRIME Finance Arbitration Rules (as revised in 2010) .The P.R.I.M.E. Finance Mediation rules are based on the commonly used UNCITRAL Conciliation Rules 1980. The Panel of Recognized International Market Experts in Finance (“P.R.I.M.E. Finance”) is composed of a panel of over 100 legal and financial experts with a collective 3000+ years of relevant experience.Exceptionally diverse in geographical representation, market and jurisdictional experience, linguistic skills and nationalities, all P.R.I.M.E. Finance experts share a deep commitment to the goals of the organization, including its independence. Neutrality and transparency are not only organizational precepts, but also the ethical responsibility of panel members who are sitting judges.

In India, the working of the Financial Literacy and Credit Counselling Centres (FLCCCs),established under the RBI guidelines offers an emerging model within ADR. The reach, participation and resolutions of FLCCCs in Kerala can be cited as an emerging role model and can move towards the goal of 100% financial literacy and credit counselling. Kerala Sate in India has achieved 100% financial inclusion, and the FLCCCs are aiming for 100% financial literacy.  The Credit Counselling and Mediation by FLCCCs endeavour to build awareness, and opt for an all inclusive Mediated Settlement under the same umbrella, undeniably resulted in a facilitative, autonomous and a self-determined resolution. The status report on FLCCCs shows the progress and development of the activities under taken, number of credit counselling centres opened in Kerala.This shoes that the present focus is more on financial literacy and less on credit counselling and debt mediation, as per the State Level Bankers’ Committee Reports (SLBC) Reports and the SLBCs can take cue from the successful debt mediation organisations elsewhere like National Debt Mediation Association (NDMA), South Africa, The NDMA is a non-profit organisation designed to assist over-indebted consumers by resolving their indebtedness where possible through debt mediation. It is also empowered to receive and resolve complaints by consumers or debt counsellors against credit providers who subscribe to the Code. Under the National Credit Act (NCA) consumers experiencing payment difficulties can take advantage of various legal and voluntary options to resolve their problem. This includes direct negotiation with their credit providers or approaching a debt counsellor where the level of over indebtedness is severe. The NDMA, which is currently in the process of transitioning into an independent consumer services NGO is considering applying a mixed model where those who can afford the dispute resolution services are charged a nominal fee, but those who can afford the dispute resolution services are charged a nominal fee, but those who cannot afford it are assisted for free through donor funding or partnership referrals. This is because the report indicates that consumers sometimes prefer to pay for these services as this gives as this gives them confidence that their ADR agent will be on their side and will be committed to ensuring the case is resolved in their favour .This should however not discount the important role played by the various Ombudsman schemes as they serve an undeserved and often low income and vulnerable market. Consumers need to understand that ADR often happens through mediation where the purpose is to find win-win solutions and therefore there is always a balance of rights and responsibilities.The working, style, function and objective of the FLCCCs, when fine tuned on similar lines of the NDMA can create more confidence to the BFSI consumers, for building a pro-active ADR format with inclusive Counselling and Debt Mediation in India.

The proposed amendments to CPA by the Ministry of Corporate Affairs for facilitating mediation and arbitration between parties to bring down the load of cases in consumer courts is a positive sign for consumer ADR movement in India. The structure proposed involves a plan to empower Panchayats, Gram Sabhas, or such similar institutions to mediate and arbitrate between the parties or designating and appointing such persons.

Thus, in India, the social and the regulatory obligations are taken together and the policy of holy trinity of financial inclusion, financial education and consumer protection is pursued proactively.

 

2.0 Conclusion

The state of affairs of the proposed changes in the Arbitration and Conciliation Act 1996, and in  IFC;  and with the role of FSDC getting crystallized, BFSI consumers in India can look forward to a positive all inclusive dispute resolution under a single umbrella.

I recommend for:-

  1. Amendments to CPA, with enabling hybrid dispute resolution clause.
  2. Unified Consumer Arbitration Rules for an ingenious, quick, easy and cost effective solution for BFSI consumer dispute resolution along with changes in the Arbitration and Conciliation Act 1996.

 

*Views are independent and not related to representing Institutions