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India was already reeling under an economic crisis. And then came COVID-19. Demands have plunged, funds have dried up, labour has left, employee claims are hanging like a Damocles’ sword, the list goes on.
How does one reboot and get to work again?
Amid this lockdown, we have realised our deep inter-dependence, and know that we need to hold each others’ hand to move forward.
‘Static agreements’ have a negligible chance of coming out of this pandemic unscathed. A large category of contractual relationships is already succumbing to the pressure of COVID-19. Agreements are essentially meant to be mutually beneficial and long-lasting.
For the uninitiated, frustrated contracts are those that, subsequent to its formation, and without the fault of either of the contracting parties, become impossible to perform in the manner that was originally contemplated by the contracting parties. This leaves no choice for the contracting parties but to revisit the terms of the contract and redraw the roadmap ahead, while accepting the changes as the new normal. To put it in simpler words, contracts will have to be re-negotiated.
Here is a list of contract categories that require re-negotiation as soon as you finish reading this article:
Employment contracts: With the economy taking a beating, drastically reduced demands, and budget cuts (right from the individual to the government level), bonuses and promotions will be off the table. Layoffs may become necessary for survival. Terms of ESOP arrangements may have to be modified. Salary payments may have to be delayed.
Vendor arrangements: Logistical delays, non-availability of raw materials, stretched timelines, vendor payments, andmaintenance contracts may all require revisiting.
Lease arrangements: With a significant drop in revenues, and working from home becoming the new normal, lease arrangements may require modifications. Downsizing of offices will become inevitable to cut costs. This would mean working around the lease lock-in periods, relooking at security deposits, or even terminating the lease altogether.
Financing arrangements: With reducing top lines and shrinking bottom lines, a disruption in cash flow projections and working is unquestionable. This will require refinancing or renegotiating terms of repayment of borrowings, both short-term as well as long-term.
Industrial Labour contracts: Law provides protection, but the employers are squeezed out of funds. Conciliatory talks will need to be held with labour unions and litigation needs to be avoided, if the industry is to survive.
While entering into a contract, the benefit is maximum when the agreed terms are a ‘win-win’, where each party gives up something to get something equally or more valuable. Correspondingly, a renegotiated contract will also have maximum benefit when parties create a win-win situation, giving due consideration to the constraints.
And the most optimal way to do that is to involve a ‘mediator’ for renegotiating the terms, a neutral third person who is perceived as independent, fair and just by all the contracting parties. During trying times, one-on-one interactions often aggravate the matter, with each party being a lawyer of their side of the story and judge of the other side of the story. To emerge victorious (read: minimize damages), the solution is the involvement of a mediator, to understand each side of the story and to aid each party to understand the other side of the story.
It is akin to settling a quarrel with your sibling in the presence of your mother. It gives an ‘emotional relief’ to the other party that he/she is being heard and his/her concerns are being addressed. It causes a paradigm shift in the mind of the relatively weaker party, from seeing the dominating party as a predator to seeing it as someone battling its own challenges, and at the same time, ensures that the dominant party is giving due consideration to the weaker party’s perspective. It creates a level playing field for both the parties, and synergizes acumen with empathy. This significantly increases the chances of a successful renegotiation, also making the entire process optimal.
As a result, the outcome of the re-negotiations will be perceived to be fair and satisfactory (of course, given the constraints and limitations), and the best way forward can be accordingly mapped out.
A recent example of this model of restructuring involving a neutral third party was the successful bailout of Yes Bank. A reconstruction scheme proposed by the Reserve Bank of India (RBI) prevented the untimely death of this bank with Rs. 12,000 crore being pumped in by a consortium of banks led by the State Bank of India.
The deal was renegotiated by the RBI, and a forward solution was arrived at. If Yes Bank can successfully renegotiate with all their stakeholders and re-emerge, so can other businesses in our country, provided they have the right mediator to renegotiate their deals!
With a change in the climate, every organization needs to adapt, and that too quickly. And this climate demands contract renegotiations.
It is time to approach professional mediation. It’s confidential, quick and inexpensive.
Tanu Mehta is a seasoned Mediator and Conciliator, empanelled with the Bombay High Court . She is also the Honorary Director of Centre for Mediation and Research at MNLU Mumbai.
Namita Shah is the co-founder of Pre-Solv 360, a legaltech company focused on providing professional online, out-of-court mediation and arbitration.