Online Dispute Resolution of Banking Disputes in the wake of COVID-19

The prevailing COVID-19 situation and the lockdown has brought about an unprecedented change in the functioning of courts in India. Now, judges and counsel of parties are meeting through a virtual platform in a bid to contain the spread of virus.

It is indeed a novel step considering the procedural delays attached with physical court proceedings, which has resulted in a massive 32 million cases pending across courts in India. To make matters worse, huge backlog of cases in Debt Recovery Tribunals (DRTs) and benches of the National Company Law Tribunals (NCLT) have adversely affected the rate of recovery of debts, causing concern to banks.

In an effort to improve recovery of loans from defaulting entities and individuals, Online Dispute Resolution (ODR) can be used to resolve banking disputes where complex questions of law are not involved.

As per information placed before the Supreme Court earlier this year, there are over 35 lakh cheque bouncing cases pending in courts across the country. Considering the mammoth challenge posed by cases under Section 138 of the Negotiable Instruments Act, and for expeditious disposal of such cases, the Apex Court in Meters and Instruments Private Limited and Anr. v. Kanchan Mehta opined that some cases can be decided online where the complainant consents to drop the criminal charges and the accused agrees to pay compensation.

Benefits of ODR

One of the hallmarks of ODR is that it is cost-effective and provides speedier resolution of disputes as compared to traditional litigation. Further, proceedings under ODR are settled in a time-bound manner and do not drag on for years. Moreover, use of online mechanism in India is gaining prominence day by day because it allows parties, who are settled in different states, to communicate remotely via telephone call/video conferencing to settle their dispute rather than moving back to physical face-to-face meeting.

Banks are set to see a surge of bad loans due to the impact of COVID-19. Notwithstanding the limitations attached with online technology, the advent of ODR has been a blessing in disguise for banks, who are saddled with high volume of pending cases against defaulting entities and individuals.

Recently, ICICI Bank started a pilot project with SAMA, a Bengaluru based ODR platform for resolving nearly 10,000 disputes with customers of ICICI and with values of up to Rs. 20 lakh. Thus, ODR platforms provide accessible, transparent and speedier resolution for parties who are dealing with high number of cases and low value transactions.

Online Resolution Portal

Although these are early days for ODR in India, the time is ripe for banks, both public and private, to move towards online resolution of disputes involving low cost transactions with customers. The benefits of ODR are manifold. Recent studies point out that major online e-commerce retailers and auction sites use ODR to settle more than 60 million disputes a year, with 90% of financial cases resolved without the engagement of a judge or mediator. Back in 2002, eBay created a Resolution Center, an online redress portal for every eBay and PayPal user in the world, customized to address most of the dispute volume that arises between buyers and sellers that utilize eBay’s services around the world.

The banking sector in India must take a cue from eBay’s effort to launch an online redressal portal. Banks should also attempt to start an online resolution portal for customers which ensures low cost and timely adjudication. Alternatively, banks may approach an ODR platform so that they can appoint a neutral party to resolve claims regarding loans, recalculate and decrease interest rates, and reschedule or reorganise loans within a fixed time period between banks and consumers.

Impact of COVID-19 on ODR

The COVID-19 crisis may have badly impacted the economic conditions of our country, but it has definitely brought a positive change in the way people look at dispute resolution. With the Apex Court allowing hearings of urgent matters through video conferencing, it is only a matter of time before disputes start getting resolved online.

In China, the Ministry of Justice issued a guideline on March 3 emphasizing the importance of ODR for achieving its goal of getting the economy back on track, as the government anticipates an increase in domestic disputes like debt issues emerging from the Coronavirus pandemic.

As countries like China aim to bolster their ODR system in order to tackle a surge in cases, it is high time that the government and the judiciary in India work actively to make ODR a grand success. Post-lockdown, it is anticipated that there may be steep rise in the number of loan-default cases due to rising non-performing assets (NPAs) as a result of prolonged lockdown. The only way to deal with the increasing volume of post-COVID disputes in a timely manner, is if they are routed to private ODR platforms.

Conclusion

As the world tries to find the elusive vaccine for COVID-19 and with the Indian government easing lockdown measures, ODR may be the way forward for resolving disputes of low-cost transactions and where complex questions of law are not required to be decided. Moreover, accredited ODR platforms like SAMA has umpteen advantages such as the ability to appoint a neutral arbitrator/mediator, confidentiality of the proceedings, data protection and most importantly enforceability of awards. In a nutshell, banks must evolve a new strategy of moving online for settlement of claims against customers in order to reduce the burden of cases in courts and tribunals.

The author is a law student at National University of Study and Research in Law (NUSRL), Ranchi. He has written this article while interning at SAMA.