Introduction
A developed country is characterized by its strong economy. Therefore, countries strengthen their economy by boosting the credit environments for the businesses, trade and commerce from various investors and stakeholders in the market. Situations like Covid Pandemic that shuttered down many companies[i], and had hit the market of almost every country calls for a more appropriate dispute resolution mechanism for the debt recovery especially in the backlog of litigation. Be the need of the companies is to exit from the market or thrive competitively on the market, there is a risk of heavy loss in the capitals. Therefore, the picture of dispute resolution mechanism comes into picture, to resolve disputes related to debt.
What is a debt dispute?
Debt dispute are the disagreements that arise out of the transaction of lending and borrowing, besides any right of a party for a return value from other party. A party can be an individual (when taking a loan from a bank for the construction of the home etc.), a company (when entering into agreement with investors or holding large capitals etc.) or a country (when borrowing money from International Monetary Fund or from other countries for that matter etc.). To innumerate some of the disagreements among the parties are:
- differing opinions in the agreed value to be returned.
- if there is a breach of contract
- if the parties owe something
- when conflicts arise due to an unforeseen circumstance
The implications of these disagreements affect the nation’s economy when the parties involved are giant companies or organizations or countries as then stakeholders are large in number. Therefore, to resolve such disputes a range of factors are taken into consideration such as trust of the parties, jobs prospectives, or insolvency risks for that matter.
How Debt Disputes are resolved?
Debt disputes are resolved through various dispute resolution mechanism such as litigation, arbitration, negotiation, conciliation and mediation. Conflicts are inevitable and thereby most companies devote a separate team for handling disputes concerning their country. Disputes varies according to the nature of business, and keeping this in mind, the companies should promote the resolution process for the parties. For example: In India, government gives emphasis on the resolution of industrial disputes via conciliation and negotiation before presenting the matter in the court. Moreover, companies are also emerging that deals with resolving debt related disputes by person/persons as in the United States like Freedom Debt Relief[ii] or Century Support Services[iii] etc. These companies focus on resolving disputes via negotiation, conciliation and mediation.
Role of Mediation in debt disputes
Mediation is the process of resolving conflicts or disputes where a neutral third party facilitates the parties involve towards reaching a possible agreement. An understanding, knowledge and skills is essential for a professional mediator in resolving any disputes of this kind. Additionally, an insight on the debt related matters and professional advice or suggestions would be plus point in reaching any agreement or settlement. Involving any professional advisor in the mediation table, with the consent of the parties, may assist the parties in reaching to a possible agreement more conveniently and efficiently.
Mediation as compared to litigation in a debt dispute
Both the dispute redressal mechanism involves a neutral third party in the process, however, the significant difference is that of the authority to decide the outcome of the matter. Mediation gives an edge against litigation, when it comes to the power to decide on the matter. In this, parties drive the process and mediator only facilitates the parties in case of any impasse etc. Additionally, while litigation is characterized by its rules such as professionalism, specific hearing dates or a long list of formal procedures to be followed until the trial ends; mediation offers a discretion to the parties to decide on how they want to go about the procedure i.e., it is a client driven process. Moreover, it provides for a confidential space (unlike court room) where they can share any sensitive or personal information as disclosing any information shared in the mediation session is against the ethics of the process itself. Sometimes, there are no disputes among the parties, just a misunderstanding, in that scenario, litigation only worsens the relationship in the long run. Mediation gives an opportunity to the parties to directly talk it out among themselves and restores any broken relationship.
Challenges of Mediation in debt disputes
To broadly categorize, there can be two kinds of challenges to a mediation in a debt disputes. One that concerns that the question of law and the other is the dispute arising out of the disagreement among the parties involved. In the former, it is left to the interpretation of the court and therefore the extent of mediation fails to apply. However, in the case of latter, it depends on the various factors surrounding the parties like the willingness of the parties to negotiate on the matter or the professional skills of the mediator to lead the parties towards possible agreement. Since, debt related disputes can go to narrower and the mediator may not be an expertise of the same, that can also be a challenge as mediator will not be able to follow the decision of the parties. In such scenario, though, having an expert advisor in the session, could prove fruitful.
Advantages of Mediation in debt disputes
There are many advantages to the mediation process, to enumerate some of them:
- It is a client-driven process i.e., the parties can decide the way they want to go with the procedure. There are general rules per se, though, parties have the final say unlike litigation or arbitration for that matter.
- It is a voluntary process i.e., parties come for the mediation at their discretion and can also opt to leave the session, if they do not find it fruitful.
- It is confidential i.e., to disclose the information shared in the session is against the ethics of the mediation and therefore, it provides a safe space for parties to negotiate without any undue influence.
- Role of mediator is only to facilitate the party come to a possible agreement. They do not interfere in the matter, but acts only as a guiding person in case parties go out of the track of the matter or there is an impasse. A professional mediator gains the trust of the parties towards himself/herself by ensuring that his/her objectivity or neutrality to the matter at hand and also on the process of mediation as a whole.
Taking these advantages into account, even developing countries have started to formulate and enact the legislations of mediation as a dispute resolution process.
Statutory provision supporting mediation in debt disputes
In India, there is no statute per se which deals solely with the mediation as a dispute resolution mechanism, though an attempt has been made by the government and a mediation bill is under the scrutinization in this regard. However, the notion of mediation for resolving disputes is not new and provisions concerning mediation are present in some acts and legislations that are complex and social factors are entangled to it, are referred to mediation and negotiation. One of such legislations are Consumer Protection Act, 2019; Industrial Disputes Act, 1947 and Companies Act, 2013 etc. These laws deal with matters in which time is the essence and while resolving different angles of the society has to be taken into account and the underlying interests of the parties. At present, all civil matters are referred to the mediation in India before beginning of the trial in court.
Singapore Convention[iv] is one of the most significant steps towards development of mediation in the international arena. Be it giant companies or countries, the signatories of this convention enlarged the scope of mediation in debt related disputes. This also ensures the hold on the loss of capitals either while entering or leaving the market. The companies now have more alternatives for debt recovery or negotiating terms while ensuring a good relationship with the parties involve. World Bank Group[v] is one such international organisation that has robust dispute resolution team.
Conclusion
Dispute resolution companies that practice on the debt related disputes is not a new concept. Many top companies that deal with this debt related disputes are mainly based in the Europe or US, and the need for the same arouse especially after the 2008(US) and 2011(Greece) financial crisis. In 2021, world witness yet another unprecedented situation when coronavirus broke out and the economy of even the developed countries plummeted to the negative. All these should be taken as a future lesson, and the countries should focus on the ways in which it could resolve conflicts related to debt before it turns out into a dispute.
[i] 10,113 companies voluntarily shuttered operations during Apr 2020-Feb 2021 period: Govt data – The Economic Times (indiatimes.com)
[ii] What is Debt Settlement & How Does It Work? | Freedom Debt Relief
[iii] https://www.centuryss.com/how-it-works/
[iv] https://www.singaporeconvention.org/
[v] https://www.worldbank.org/en/home
Author
Name: BAHA RANI MURMU
College: Rajiv Gandhi National University of Law, Punjab
Semester: IV