Mediation in the key in real estate and construction, writes Sumit Banerjee, Chairman, ASAPP Info Global Group

01 Jun 2018 CW Team

Implicit or explicit agreements are a way of human life; contracts, written and unwritten, pervade our day-to-day lives, and govern our relationships, interactions and transactions. And, as long as there are contracts, there will be scope for disagreements and disputes, simply because no agreement can be so detailed as to cover all possibilities and connotations, and close all loopholes for disputes. Conflicts inevitably arise owing to opposing interpretations of open-ended or subjective clauses, occurrence of unforeseen events, situations going beyond the control of either party, loss of trust, bankruptcy, inadequate upfront disclosures, and other such issues. Disputes fester until resolved and, therefore, dispute-resolution mechanisms assume great relevance in our lives, businesses and society as a whole. Historically, in India, we have been over-dependent on formal justice systems, meaning the courts, and have somehow not given alternate or informal methods of dispute resolution the place they deserve. Maybe this is owing to the hangover of our colonial legal systems or perhaps the absence of enabling legislation or even our cultural biases. In any case, the result has been a huge backlog of cases in civil suits and criminal cases clogging up the judicial pipeline up to the Supreme Court, leading to the unfortunate phenomenon of justice being inordinately delayed, and thus effectively denied. The real estate and construction sectors: The context The total number of cases pending in our courts is in excess of 3 crore. The real-estate industry in India has more than its rightful share of unfulfilled promises, delayed payments and/or deliveries, non-transparent regulations, cases of apparent abuses of dominance, reported non-compliances, defects in construction quality, commercial issues around valuations, taxes, and so on. All these have given rise to obvious disputes and consequent litigations moving at a slow pace through our labyrinthine adjudication processes, such that the litigants' grandchildren ultimately settle suits filed by their grandfathers. If we were to expand the domain of real estate to include all land and immovable properties, the intensity of real-estate disputes in the family as well as the corporate sector would appear be mindboggling. Given this stifling ambience, the sector was ripe for interventions and disruptive regulatory changes. And these have now arrived in the form of the Real-Estate Investment Trust (REIT) and the Real-Estate Regulation Bill. Although some of the rules or clarifications are still awaited and the Regulator Bill will only have teeth once all the states get their act in place by appointing the regulators, these are welcome developments that may nip some potential litigations in the bud. But this will only be clear as things unfold around these regulations. Besides these regulatory developments, we also have a very healthy Competition Commission and consumer courts, both of whom have been seen to be visibly active and supportive of consumers. The welcome entry of private equity or foreign institutional investors in the real-estate space will no doubt force improvements in governance standards in the sector. All these augur well for the future, although the present situation remains dismal and disappointing, to say the least. The diverse stakeholders In this scenario congested with disputes and litigations, the thought of mediation comes as a breath of fresh air. Any process of dispute resolution that works on the principle of disputants working together to arrive at an amicable win-win solution and an agreement that is normally not up for further courtroom activity is indeed a godsend! However, considering the sector has a diverse group of stakeholders pulling apart vigorously in different directions, it may not be an easy going journey for mediation. So, who are the stakeholders? They include developers; contractors; consumers or buyers; landowners or farmers; landlords and tenants; regulators; special-interest groups or NGOs; lawyers, judges and arbitrators. For obvious reasons, some stakeholder groups might find it in their interest if the current spate of litigations continues unabated. To break this traditional pattern, more disruptive interventions are required to change mindsets. Possible role of mediation: How is it different? In recent years, our world and our society have witnessed a dramatic increase in litigation. Going to the courts to resolve disputes seems to be an almost instinctive reaction of our citizens. However, the underlying reality is that lawsuits can be financially and emotionally challenging for all litigants, and can even have an adverse impact on our economic progress over the long run, particularly when they immobilise businesses. While buyers and sellers of real estate usually are able to settle the smaller irritants that come up in the course of their deals, many other disputes sadly end up in the courts. Fortunately, there are healthier alternatives to litigation to resolve disputes. Mediation is one such option that is growing rapidly in popularity in developed economies - a path that has the potential to dramatically reduce the time and cost of dispute resolution. It can be the first step of resolution between the parties. Mediation is the term used to describe a relatively informal form of dispute resolution that occurs outside of the dysfunctional court system. In mediation, the parties are facilitated by a neutral third person called a mediator. The mediator is not authorised to impose a decision on the parties or even suggest settlements; instead, the mediator only catalyses or promotes negotiation between the disputants with the aim to help them reach a mutually acceptable settlement of their dispute. To understand how mediation is different from other dispute-resolution processes, it is helpful to keep in mind that both litigation as well as arbitration are adjudicatory in nature wherein an empowered body/person(s) decide the outcome. In both these processes, the disputants automatically take up adversarial positions, which leads to loss of trust and fissures in relationships. Perhaps the most attractive aspect of mediation that scores over the other choices is that, here, the disputants find no need to resort to appeals and prolong the dispute, as the settlement arrived at is mutually agreeable! So, it is evident that mediation should be the first choice of people in the real-estate sector. But what needs to be done to popularise this alternate mode of dispute resolution? The way ahead The following lines of action can be recommended to make mediation the first choice of all parties: Increase awareness about mediation, its positive effects, and why it is far better than traditional channels of adjudication. For this, a professionally designed communication campaign must be put in place by the government, the bigger corporates in the sector, industry bodies and chambers and large law firms, all acting together. For this purpose, an appropriate body may be formed by the Ministry to coordinate all aspects of the promotion drive, something similar to the PCRA or BEE, supported by a strong communication strategy and a commensurate budget. We also have to nudge people towards mediation. For this, subject to legality, the government can make it mandatory or recommendatory for all contracts or agreements to have a clause stipulating mediation as the compulsory first stop in case of any disputes, much like the position enjoyed by the arbitration clause today. It has to be seen whether this would require the passing of an appropriate Act on mediation. Third, we have to strive to make mediation as friendly and non-adversarial in reality as it promises to be in theory. This can only be achieved if we avoid people with traditionally adjudicatory mindsets (such as most judges) who come from a position of power and authority, as well as people with deep-seated adversarial mindsets (such as most lawyers), as we create a facilitating mediation universe in our country. Evidently, we do not need professionally judgemental personalities in this business, because a mediator has to be the exact opposite of being judgemental. People with insights into people's mind, like those with education in behavioural sciences, and people with a negotiator's bent of mind, like qualified interlocutors, as well as domain experts in relevant fields of dispute, who will be able to open up new and unseen opportunities of resolution, are the right kind of people to populate the roles of mediators. Anything less and mediation will stumble early on its journey and may quickly lose its appeal instead of gaining ground. One can only earnestly hope that someone, somewhere, is listening, and will perhaps consider acting on these suggestions. About the author: Sumit Banerjee, Chairman, Board of Directors, ASAPP Info Global Group, is also the Chief Mentor of the 'Centre for Mediation and Conciliation' set up by the Bombay Chamber of Commerce and Industry. Previously, he has been the vice chairman of Reliance Cement, and CEO of Reliance Infrastructure. He has also held the position of managing director and CEO in ACC.