Some time ago, a couple that owned a restaurant in Noida (neighbouring Delhi) fell out and the dispute reached the Company Law Board. The husband and wife were equal partners and after some haggling the husband agreed to sell his holding to the wife for Rs 10 lakh. The wife said she could pay Rs 1 lakh every month. It was agreed that the payment would be made on the 30th of every month in the presence of Board Chairman S Balasubramanian. When they came for the 10th and last payment, no money changed hands. Instead, the couple informed the chairman that meeting in his office every month had rekindled their romance and they were getting back together.
Not all disputes have such happy endings, but compromises and out-of-court settlements in corporate battles are becoming increasingly common. This has something to do with changes in the legal system as well as the attitude of courts. To settle the mother of all corporate battles, the Bombay High Court sent the Ambani brothers to their mother. More recently, it asked Jet and Sahara to settle their payment dispute out of court and, in the interim, appealed to the better senses of the litigants in the cricket telecast rights case.
The country inherited from the British a system of adversary litigation, in which both parties have to argue their case in full. Lawyers, generally paid on a per-hearing basis, have an interest in multiplying hearings and prolonging cases, and judges give adjournments at the drop of a hat and usually do not place a limit on the hours allotted for oral argument — as is the practice in many other countries, including Britain. The result is that there are some 30 million cases pending in various courts, though this problem is also the result of the failure to appoint enough judges in virtually all the courts.
It is an encouraging sign that the legal system has of late taken conscious steps in the direction that takes litigants away from protracted arguments. The Arbitration and Conciliation Act of 1996, an amendment to the Civil Procedure Code in 2002 and the Lok Adalats encourage warring parties to take their cases out of court and settle with the help of experts in conciliation and counseling. The new methods put mediation first, then conciliation and, as the last resort, arbitration. Even in arbitration, arbitrators are selected and the matter settled outside the courts — though the whole process takes much longer in India than in other countries, partly defeating the very purpose of arbitration. But Delhi and Chennai have set up mediation centres, and there are processes to train lawyers as mediators. In sync with these trends, all contracts and agreements have come to have clauses for arbitration and conciliation. And the number of corporate cases in the Supreme Court has come down significantly in the last 10 years. Even in matters concerning labour disputes, the labour tribunals and magistrates concerned tend to focus on finding amicable via media rather than taking a dispute to its logical conclusion.
Meanwhile, a battleground that has gained prominence in recent years is the Company Law Board, which has become the battleground for shareholder disputes under Sections 397 and 398 of the Companies Act, especially where oppression of minority shareholders is concerned. In 2008, the Board disposed of 77 cases, of which 57 ended in compromise between the warring parties. This year began with the Bajaj brothers — Rahul and Shishir — withdrawing their petitions, having resolved their six-year-old dispute. In all, the Board has disposed of 20 cases this year, of which 12 ended in compromise. These compromises are the real deal, because while many of CLB’s orders get challenged in the higher courts, the compromises, once sanctified by the Board, naturally cannot be challenged.