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The Amarchand Dispute and the misunderstood practice of Commercial Mediation in India

Bar & Bench

Anuroop Omkar and Kritika Krishnamurthy

End of 2014 onwards, the legal and business fraternity has been keenly following the dispute that split the largest law firm in India, Amarchand Mangaldas Suresh A. Shroff (AMSS). In 2014, upon death of Mrs. Bharati Shroff (Cyril Shroff and Shardul Shroff’s mother), the will of Late Mrs. Shroff was reported to bequeath her entire controlling stake in AMSS to Shardul Shroff instead of maintaining equality between the brothers as mandated by the Family Framework Agreement (FFA) executed by her. The entire Shroff family (including Late Mrs. Bharati Shroff, Shardul Shroff and Cyril Shroff) had entered into the FFA which provided for the rules for succession and devolution in the Shroff family and particularly in AMSS. Over the last fourteen years, the FFA had become the main agreement of the partnership understanding in AMSS. Upon Bharati Shroff’s demise, Shardul approached the court by filing a notice of motion and a declaratory suit and a petition for probate seeking to be declared as the sole executor of his mother’s will.

Although the brothers themselves did not make any public statements, documents once filed in court and arguments presented by their legal counsels became public records available to all and sundry. Consequentially, goodwill and business were both adversely affected. With every passing day, threat of clients choosing sides and even opting for other, more stable law firms grew. The brothers finally opted to settle their dispute through mediation under a referral from the Bombay High Court.

The Shardul-Cyril mediation has brought into spotlight a lucrative mode of dispute resolution for commercial enterprises in India. With the piling backlog of cases in litigation and the high costs associated with arbitration, India is in urgent need of another mode of alternate dispute resolution to supplement litigation and arbitration. High stake business matters like the AMSS dispute require higher party autonomy, confidentiality and high speed settlement to prevent loss of business.

Mediation is a peaceful and voluntary negotiated dispute resolution process that occurs outside the courtroom. In mediation, a third party neutral person manages the interaction between disputing parties. This ensures constructive negotiation and helps the parties to agree on a resolution that is fair, durable and workable. It is the disputants and not the mediator who creates and finally agrees on a mutual solution.

In addition, mediation allows building stronger relationships between the parties. The mediator has to use psychological and communication skills in order to understand the parties and influence them to agree on a single mutual solution.

Many myths surround mediation that mask its benefits and prevent its popularity in the marketplace. There is a common belief among business professionals that mediation lacks closure or binding authority. However this is not the case. A settlement agreement executed by the parties post mediation is as binding as all other contracts.

While Shardul and Cyril were referred to mediation by courts, the best way to initiate commercial mediation is by the parties themselves, in the privacy of their offices or a conference room without reporting the initiation of the proceedings in media or any other third party is not required to be kept in the loop.

AMSS mediation was a brave attempt and the first of its kind publicly reported commercial mediation in India. However, mediation has failed to garner attention of the Indian businesses who are otherwise constantly seeking to reduce their litigation cost. Mediation in India tends to become a hybrid of arbitration and conciliation due to lack of requisite quality of training. Internationally, mediation has been found to be most effective when undertaken by a trained mediator. As a case study, business houses, counsels and potential mediators shall benefit from taking note on how the Shardul-Cyril mediation deviated from the established and proven beneficial international best practices on mediation.

Confidentiality of Mediation Proceedings and Outcome

The cornerstone of mediation proceedings is maintaining complete confidentiality of the party names, all information disclosed by parties during the mediation proceedings and finally the mediation outcome. Confidentiality is a valuable asset for most businesses. Few want their dirty laundry aired in public. The entire mediation proceedings are strictly confidential for the mediator as well as the participants. The process is confidential, and materials assembled for mediation are usually not admissible in court if the mediation fails and the parties resort to litigation.

This complete guarantee of confidentiality is sadly lacking in the way mediation is presently practiced by mediators and mediation organizations in India. Some of the ways in which this confidentiality is breached is by making cause list of mediation proceedings public by providing them outside mediation offices. In the Shardul-Cyril mediation, the mediators issued a press release which clearly provided the outcome of the mediation with complete details of what each party had agreed to. Even before the High Court for withdrawal of suit, the affidavit submitted provided for the final outcome of the mediation proceedings.

Surprisingly, Section 89 of the Code of Civil Procedure, 1908 under which the matter was referred to mediation gives the parties an option to withdraw the matter by only submitting before the Court that the matter has been settled through mediation without disclosing the outcome. The parties who agree to Section 89 mediations have two options in India as held by the Supreme Court of India in Salem Advocate Bar Association, Tamil Nadu v. Union of India, (2005) 6 SCC 344: (a) Request the court to record the terms of settlement in the form of a court decree which shall be enforceable under CPC; or (b) If the parties do not wish to disclose the terms of settlement, they can inform the court that the matter has been settled through mediation and enforce the settlement amongst themselves with or without a written agreement. Unfortunately, this second option of non disclosure of settlement terms is rarely, if at all, exercised in India.

Draft rules issued under Section 442 of Companies Act, 2013 which promises to give impetus to commercial mediation in India do not give parties an option to not disclose settlement terms. At the end of mediation proceedings under Companies Act, it is proposed that the court shall pass the settlement terms in the form of a decree. Once the settlement is passed as a decree, it shall become public record which may be detrimental in business disputes where saving goodwill and reputation may be one of the main reasons why businesses will opt for mediation. A loophole to this dilemma is parties taking up mediation even before a matter gets listed in court. Even after a matter is listed in court, the parties can undertake mediation privately without resorting to these provisions of law. Since private mediation in India is presently not governed by any law, the parties can contractually agree to maintain confidentiality and also bind the mediator through a Non Disclosure Agreement.

Mediators shall not play adjudicatory role and pass an order or award

Another interesting facet of AMSS mediation was that the press release issued by the mediators states that they have passed an ‘arbitral award’ at the end of the mediation proceedings. Arbitration is an entirely different process from mediation. In arbitration, the parties appoint a private judge who like a regular judge hears arguments from both sides, evaluates evidence and passes a speaking award.

Mediation at its best is assisted negotiation. Through mediation, businessmen do what they are best at – coming to a negotiated agreement that best fulfills their business objectives and interests. Unlike any other adjudicatory process where parties submit the outcome to an adjudicator, mediation allows parties to determine their own fate. The parties cannot be forced to settle or to agree to anything that they cannot live with. The disputing parties will not be at the mercy of a third party adjudicator who does not understand the consequences of the final decision or award. Mediation is based on the fact that no arbitrator or panel will ever be as familiar with the nuances of your business and its related disputes as your client is. Mediation allows a disputing party to decide how to respond to settlement proposals, whether they involve sensitive key issues or those of secondary importance. The party itself can decide when it can afford to be flexible and when it cannot.

The ideal outcome of mediation is an agreement between the parties. The parties must be convinced with the outcome of their mediation. If they are not convinced with their own settlement terms, the chances of non compliance become high. Such may be the case of AMSS mediation. The parties may have required an arbitral award instead of a written settlement since the award can be more easily enforced or rather forcefully enforced on either disputant. But an arbitral award can also be challenged under Section 34 of Arbitration and Conciliation Act, 1996. The validity of the arbitration award under AMSS mediation also seems questionable since the court empowered the mediators to mediate the dispute. They were never empowered to conduct mediation and then, out of the blue, pass an arbitral award.

Requirement of Formal Training

Mediation can be easily said to be the most misunderstood form of alternative dispute resolution (ADR) mechanism in India. The only way to remedy this situation and enhance the success rate of commercial mediations is by making training of mediators mandatory before empanelment on mediation panels. This mediation training itself should be conducted by practicing mediators who are well versed with international best practices and do not add an adjudicatory flavor to mediation practice.

Anuroop Omkar and Kritika Krishnamurthy are Principal Associate and Senior Associate respectively in the corporate team of Lakshmikumaran & Sridharan, New Delhi. 

They are also co-authors of the book ‘The Art of Negotiation and Mediation’ published by LexisNexis and available on Amazon, LexisNexis & Flipkart.

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