Globally, litigation and arbitration are the most commonly used methods for resolving commercial and transactional disputes. However, in India, in case of a dispute arising from financing transactions, the most preferred mechanism opted by banks and financial institutions is litigation. The statutory remedies available against a borrower in breach or default of any financing agreement are:
- Filing of debt recovery application before the Debt Recovery Tribunal under the Recovery of Debts and Bankruptcy Act, 1993.
- Taking action under the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, for enforcement of security interest without the intervention of the court.
- Initiating an insolvency application before the National Companies Law Tribunal under the Insolvency and Bankruptcy Code, 2016.
- Filing of ordinary recovery suit or summary suit under the provisions of Code of Civil Procedure, 1908.
Arbitration has become a mainstay in resolving commercial disputes as it gives parties the freedom to customize the procedural aspects of the dispute resolution process. This route offers the choice of governing law, neutral territory, speedy disposition, confidentiality of proceedings and awards, cost-effectiveness, specialized competence of arbitrators and the binding nature of arbitral awards, which makes it a popular dispute resolution alternative.
However, arbitration has not been embraced by banks and financial institutions. While parties to the arbitration exercise control over the manner of conduct of proceedings, it often becomes a costly and time-consuming affair, especially in cases of ad hoc arbitrations.
SNG & Partners has offices in New Delhi, Mumbai and Singapore. Nishtha Arora and Sounak Chakraborty are associates.