Arbitration Proceeding (Working Guidlines)

Arbitral Proceeding (a guide note for NBFC as an Alternate to Dispute Resolution)

SME Online Technologist Pvt. Ltd. FF – 53, Omaxe Square, Jashola, New Delhi – 110 025 T : +91 11 45792951 / 92; F: +91 11 45792954; M: + 91 9811092951

E Mail : [email protected]; www.smetechnologist.com

mailto:[email protected]



http://www.smetechnologist.com/





Preface…

Law derives its authority from the obedience of the people. However, the corpulent backlog and sluggish delays of our litigation redressal system defeats the very purpose of fair and just system of law. Though the civil judicial system assures independent and impartiality of judiciary in delivering justice with consistency in procedure, long drawn procedures, complicated laws, shortage of judges, inadequate infrastructure facilities in the courts all result in delays in obtaining relief and legal disputes started piling up in courts.

ADR (Alternate Dispute Resolutions) therefore, particularly in the form of Arbitration, has done yeoman’s service in restoring faith in our system because ADR methods for settlement of disputes outside court are flexible, speedy, efficient and economical.

This Presentation explains briefly the conduct of arbitral proceedings being followed by most of Non-Banking Finance Companies in effecting recoveries from their debtors borrowers)/settlement of dispute and outlines the ways and means available to genuine borrowers to challenge the arbitral award to safeguard their interest.

Basic Concept…

In the past, NBFCs and Financial Institutions were provided with powerful and effective means by which they could recover dues from the borrowers quite easily through exhaustive discovery, pre-judgment remedies such as attachment etc. But with the passage of time Courts changed its views in favor of consumers holding that lenders owe their customers a ‘fiduciary duty’ and hence they cannot deal with them at arms length like other parties to business transactions.

Normally three alternatives are available to NBFCs for

recovery of outstanding loans and dues from the defaulting borrowers :-

• The first alternative is to issue notice and file criminal complaint under section 138 of the Negotiable Instruments Act, against EMI cheques bounce or blank cheques collected initially from the borrowers by NBFCs towards repayment of loans, by filling the amount of outstanding loan/disposal loss.

• The second alternative available with NBFCs (where the loan agreement/hire purchase agreement does not contain the ‘arbitration clause’ for resolution of dispute) is to file Civil Suit for the amount outstanding. However filing a civil suit is a time consuming and costly affair.

• The third best alternative for recovery of outstanding's is to invoke arbitration clause (in case loan agreement/hire purchase agreement contains ‘arbitration clause’), and commence arbitral proceedings and file execution application on passing the arbitral award.

Regulatory Framework…

As per Section 18 on "Conduct of Arbitral Proceedings", “the parties shall be treated with equality and each party shall be given a full opportunity to present his case.”

• Equal treatment of the parties (parties must be granted same procedural rights (as, e.g. with regard to written submissions, questioning of witnesses, filing of documentary evidence)

• Right to be heard in adversarial proceeding includes: • to participate in evidentiary hearings

• to rebut the other party’s allegations, and

• to examine and challenge the evidence brought forward by the other party

• by bringing evidence of its own

• Violations: • Restrictive approach?

• Causality?

• Safeguard: Right to challenge the award in case of a violation of due process • (see, e.g., Art 34 (2) (a) (ii) “the party making the application was not given proper notice of the appointment of an

arbitrator or of the arbitral proceedings or was otherwise unable to present his case”)

• Duty to object to procedural irregularities (see, e.g., Art 4 Model law)

For BARE ACT Click at OBJECT

Downloads/Bare Acts - Arbitration.pdf

Arbitration Timeline

Pre - Arbitration Commencement

of Arbitration Arbitral

Proceedings Post Arbitration

Contract & Legal

Agreement for

Arbitration Dispute & Case

Analysis

Request for Arbitration

Constitution of

Arbitral Tribunal (Appointing an

Arbitrator)

Exchange of Submissions Hearing Arbitral Award

Challenge Enforcement and Recognition of Arbitral Awards

PRE (10 Days) DURING (90 Days) POST (90 +30

Days) YES -

Arbitration

Concept Outline… (Minimum Standard of Due Process)

Pre Arbitration II During Arbitration II Post Arbitration

Pre Arbitration…

Case Identification

• Selecting the cases against which Arbitral Proceedings need to be started

• Ideal Process of Identification of Cases Should be Via System Pop-up*

Selection of Arbitrator

• Selecting a arbitrator which has credentials of delivering unbiased judgments

Appointment of Counsel

• Selecting and Appointing an Advocate for taking our plea and representing company during Arbitral Proceedings

Filing & Documentation

• Preparing a set of documents required by our counsel for substantiating and advocating or plea during Arbitral Proceeding

This part of process note explains the system readiness for starting any arbitration cases and making due process by which it become helpful in taking the arbitral proceeding smoother and on predefined way

*Annexure-7

Case Identification & Allocation to Legal

Case Identification Criteria

Identification: 3 (Three) Unpaid EMI

70th Days Past 1st EMI Due

No Payment History during Last 70 Days (Internal Software MIS)

Negative Field Collection Report

Allocation to Legal Cell*: “Internal Software” allocation on 5th

& 20th of Every Month by MIS to CM (Legal) and copy to MD, BH & SH*

Closure Report by CM (Legal) in “Internal Software” for start of Arbitration with 15 Days*

* There is restriction on case allocation numbers with Arbitrator & Advocate. Please refer Annexure – 5& 5A


Appointment of Advocate

File Preparation

Case Identification


Basic Criteria : LLB Degree (Full Time) 10 plus year of Legal Practice

in Session Court Conducting Experience

Arbitration Proceedings High Level of Reputation &

Credentials for Fairness to the Proceeding

Desired Criteria (Additional): High Court Practicing

Experience Experience conducting

Arbitration for Banks / NBFC * Refer Annexure-1 for Fee Structure



File Preparation

Case Identification

Appointment of Counsel

Basic Criteria :

LLB Degree (Full Time)

10 plus year of Legal Practice in Session Court

Conducting Experience Arbitration Proceedings

Fee Agreement as per Company Policy*

Desired Criteria (Additional):

High Court Practicing Experience

Experience conducting Arbitration for Banks / NBFC

* Refer Annexure-2 for Fee Structure

** Refer Annexure-3 for Counsel Hiring Criteria


Appointment of Advocate**

File Preparation

Case Identification

File Preparation

This is an exhaustive exercise of preparing a FULL set of documents generally required during the entire course of arbitral proceeding. Customer Document : Application Form Loan Agreement (Duly Filled-up) Guarantee Documents (Duly Filled-up) Sanction Letter Board Resolution Internal Documents (Internal Software): Loan Repayment Schedule Loan Account Statement Loan Foreclosure Statement Loan Sanction Term Sheet Internal Documents (Additional): Detailed Net-Worth Statement (From Credit

CAM) Detailed Debtor's Analysis Sheet (From Credit

CAM) Copy of all Communication Demanding

Overdue EMI & Charges Summery Sheet of Other Parallel Legal

Proceedings



File Preparation

During Arbitration…

Demand Notice

Termination of Agreement & Loan

Recall

Appointment of Arbitrator

“Statement of Claim” by Claimant

Reply to the “Statement of

Claim” by Respondent

Rejoinder by Claimant

Submission of Witness & Evidence

Arguments & Cross

Framing of Issue and Accepting

Written Submission

Award Pending / Award

Execution of Award

This a general outline of various steps involved in the arbitral proceeding where both parties are heard and given time to submit reply and witness as per the fair practice under the Law.

1st Day

10th

20th

30th

70th

60th

50th

40th

80th

110th

200 Or

230

To be sent on 75th Day

of No Payment


Demand Notice

• mentioning the loan amount outstanding/disposal loss incurred by NBFC (Claimant), is sent to the principal borrower as well as guarantor (Respondents) of the borrower, giving time period to pay the amount mentioned in the demand notice

Appointment Of Arbitrator

• After expiry of the time period allowed to pay, NBFC intimates the arbitrator/arbitration tribunal appointed by them to commence the arbitral proceedings requesting the arbitrator to act as sole arbitrator and brief him about the history of the case and amount claimed with supporting documents.

• A commence letter is issued to the arbitrator marking copy to the borrower/guarantor

Acceptance of Appointment by Arbitrator

• The arbitrator will accept to act as sole arbitrator by commencing arbitral proceedings giving arbitral proceedings number and inform the NBFC to file "Statement of Claim" within time limit prescribed.

Annexure-4


Filing of Statement of Claim

•NBFC files "Statement of Claim" with the arbitrator giving all the details of borrower/ guarantor, loan amount, EMI, assets finance etc. with all the supporting documents.

•On submission of "Statement of Claim" the arbitrator issue ‘Summon’ for appearing and answering the claim filed by the NBFC, to the Borrower and the Guarantor and to file their reply/statement of defense, if any, with supporting documents.

Reply to Statement of Claim

•On receipt of "Statement of Claim" from the lenders, after study of the claim, a suitable reply/ statement of defense should be submitted to the Arbitrator with supporting documents by Respondents (Borrower & Guarantor).

•Arbitrator as a fair practice gives 2/3 opportunities to the borrower/guarantor to represent his case and if borrower does not appear or does not file statement of objections, the Arbitrator passes an ‘Exparte arbitral award’ directing the borrower/guarantor jointly and severally to pay the amount mentioned in the award served to both parties to the dispute.

Rejoinder by NBFC (Claimant)

•On receipt of Defense by respondents, along with supporting documents, NBFC again files the reply with supporting documents stating his claim. At the filing of Rejoinder, NBFC submit the LIST of WITNESSES & EVIDENCES after which ADMISSION & DENIAL of both the parties are HEARD. It Normally takes 2-3 Dates for REPLY / SUBMISSION and ARGUMENTS and sufficient time is provided for same


Argument & Evidences /Witness Examination

• In this situation of Proper contest, all the evidences and Witnesses are Examined by Arbitrator. Sufficient time is provided for making the arbitral proceeding free & fare to both the party

Framing of Issue & Cross of Both Party

• After Arguments where both the parties are heard properly and making examination of documents submitted as evidence, Cross Examinations are done and Issue Framing starts taking shape.

Award Pending / Award

• After successfully conducting the free and fare TRAIL proceeding where both the parties are able to provide and get sufficient time to counter and claim and make defense, Arbitrator makes the award pending.

• After certain period which is defined at the date of last hearing AWARD is delivered.

Post Arbitration…

Receipt of Award

• The award is due 30 days after the arbitrator closes the record and should address all claims raised in the arbitration. The award may direct one or more parties to pay another party a monetary amount or it may direct parties to take specific actions based on how the arbitrator decided the matters in the case.

Execution of Award

•If borrower/ guarantor does not challenge the arbitral award, within 3 months of the receipt of award, the NBFC shall lodge the award with the concerned High Court for preparing "Transfer Decree" to transfer the award to concerned District Civil Court where the borrower/guarantor resides having jurisdiction to entertain execution proceedings.

•On filing the Execution Application with the concerned District Civil Court, the Court issues ‘returnable notice’ to the borrower/guarantor through the court bailiff.

Enforcement of Award

•After giving reasonable opportunities to both the parties, suitable order is passed attaching the properties of the borrower/guarantor by the Court.

•The DECREE can be utilized by NBFC to have GARNSHEE also on the expected receivable.

Award Utilization…

Every final arbitral award is enforceable and acceptable in the same manner as if it were a “decree of the Court”. it is up to the losing party to object to the award and petition the court for setting it aside (Refer Annexure -6 for Ground for Setting Aside). The winning party has to make no procedural move. If the objections to the award are not sustained (or if there are no objections within the time allowed) the award itself becomes enforceable as if it were a “decree of the court”. This decree can be utilized in TWO Prominent ways 1. Attachment of Movable & Immovable Property Here Court allows the winning party to take a course of recovering their awarded claim by selling the identified property of loosing party. The best way to identify the immovable property of defaulting client is OUR CREDIT APPRAISAL MEMORANDUM (CAM). We can have real estate detail analysis of client from it and / or ask our Field Officer to prepare report as per ANNEXURE-8. Local enforcement agencies are bound to co-operate and extend support in getting the order successfully executed. 1. Garnishee

If winning party can provide a information on definitive cash flow expected from any third party to the loosing party, court can provide a stay or injunction on same ,forcing loosing party to come for settlement of alternatively the expected cash-flow may be directly diverted for settlement of claim and as per award. Here NBFC will be treated as Judgment Creditor and Looser of Award as Judgment Debtor as per legal terminology. Third party is treated as GARNISHEE. For taking Garnishee Order and cutting short on timeline for its execution we need to

have following information as per Format ANNEXTURE - 9 For Recovery of Money as per award, winning party can make following third party as Garnishee Banks where funds are parked Third party which owes money to Loosing Party Business associates (Debtor’s) of Loosing party

Supplements to Presentation…

ANNEXUREs & SCHEDULEs

Annexure - 1 ARBITRATOR INDICATIVE FEE SCHEDULE (Multiple & Periodic Allocation)

S. No. Net POS Arbitrator Fee Range* – Both Party Charges (Rs.)

Clerkage (Extra) Taxes Payment Term

1 Less than 25 Lac 10,000 to 12,000 10% Actual 50% Advance at the time of

Sending Loan Recall cum Arbitrator

Appointment & Balance 50%

plus Clerkage & Taxes at

RESOLUTION / AWARD /

WITHDRAWAL

2 Between 25-50 Lac

12,000 to 14,000 10% Actual

3 Between 50-75 Lac

14,000 to 16,000 10% Actual

4 Between 75-100 Lac

16,000 to 20,000 10% Actual

5 Above 100 Lac 20,000 to 25,000 10% Actual

• Up to 25% Variation is permitted subject to Approval of President / MD with relevance to Fast Proceeding and Quality Delivery

• Fee conclusion has been arrived keeping the market practice, company’s cost consideration on legal expenditure &with respect to volume of cases to be handled.

GO BACK

Annexure - 2

ADVOCATE INDICATIVE FEE SCHEDULE RANGE ( FINAL)

S. No.

Net POS Maximum

Advocate Fee (Upto Rs.) *

Clerkage (Extra)

Taxes

Incentive for Time bound Proceeding

(120 Days from Loan Recall Notice)

Payment Term

1 Less than 25 Lac 12,000 /- 10% Actual 5000/- 50% Advance at the time of

Sending Loan Recall cum Arbitrator

Appointment & Balance 50% plus Clerkage & Taxes at RESOLUTION /

AWARD / WITHDRAWAL

2 Between 25-50 Lac 12,000/- 10% Actual 5000/-



5 Above 100 Lac 20,000/- 10% Actual 5000/-

• Up to 25% Variation is permitted subject to Approval of President / MD with relevance to Fast Proceeding and Quality Delivery

• ADVOCATE EMPANELMENT PROCESS – Refer ANNEXURE - 10

GO BACK

Annexure - 3 ADVOCATE SELECTION CRITERIA FOR EMPANALMENT ( SUBJECTIVE & BROADLINE) **

S. No.

Net POS Education

Qualification

Practicing Experience (Min. No of

Year)

Practicing Experience

Set –up (Office &

On Panel)**

Arbitration Experience

General Requirement

(Before Empanelment)

1 Less than 25 Lac

LLB 08 Session Court

Reasonable & 1-2 Assistant

NA

1. Profile of Firm with LIST of Client

2. Profile of Main Promoter of Firm

3. Bio Date of All Advocate on Panel

2 Between 25-50 Lac

LLB 10 Session Court

Reasonable & 1-2 Assistant

MUST (2-5)

3 Between 50-75 Lac

LLB 10 Session & High Court

Reasonable & 1-2 Jr.

Advocate MUST (5-10)

4 Between 75-100 Lac

LLB 12 Session & High Court


Advocate MUST (10+)

5 Above 100 Lac LLB + Other 14

Session / High /

Supreme Court


Advocate

MUST (NBFC)

** For further reference, request you to refer Annexure - 10

GO BACK

Annexure - 4

BY REGISTERED AD/COURIER __.__.2015 To, ______ [Borrower] ______ [Gaurantor] SUBJECT: Demand of Rs. ______/- RE: Loan Agreement dated _____ between ______[Borrower] and M/s ABC Ltd. and ________ [Gaurantor] Dear Sir, In reference to the above said Loan Agreement dated _____, whereby you were granted loan of Rs. _______/-. In terms of the said Loan Agreement you have undertaken to pay back the loan in installments, in accordance with the schedule annexed with the said loan agreement. Despite your assurances, you have failed to maintain your commitment to pay the installments/ EMIs on time. As on day, Rs. _____/- is pending towards your installments/ EMIs for the date =======. In terms of the loan agreement, you are also liable to payment penalty @__% per month on the defaulted amount. Therefore, in the facts and circumstances stated above, please pay Rs. _____/- to regularize your installments/ EMIs, within 7 days from today. Thanks M/S ABC LIMITED.

TO BE SENT BY NBFC / COMPANY SEEKING ARBITRATION AWARD BEFORE START OF ARBITRATOR HIRING & SENDING CLAIM.

GO BACK

Annexure - 5 NUMBER OF PROCEEDING PER UNIT OF ARBITRATOR & ADVOCATE*

Arbitration – Below 50 Lac (Net POS)

0-30 Days 30-60 Days 60-90 Days 90-120 Days

Start of Arbitration

Rejoinder Stage

End of Proceeding (Award Pending)

AWARD

First Allocation ( Day Zero)

10 On Time (80% Success Rate)

On Time ( 80% Success Rate )

AWARD On Time ( 80% Success Rate )

First LOT Out after 120 Days

Second Allocation (Day 50th or Later)

0 10 On Time ( 80% Success Rate )

On Time ( 80% Success Rate )

Second LOT entering Rejoinder Stage

Third Allocation (90th or Later)

0 0 10 On Time ( 80% Success Rate )

Third LOT Finishing Start Stage

Fourth Allocation / First Allocation (120th Day)

0 0 0 10 …..and so on….

TOTAL (No. of Simultaneous Proceeding)

10 20 30 30

* At any Point of Time none of Arbitrator & Advocate should have 20 Cases under proceeding.

GO BACK

Annexure – 5 (A) NUMBER OF PROCEEDING PER UNIT OF ARBITRATOR & ADVOCATE*

Arbitration – Above 50 Lac (Net POS)

0-30 Days 30-60 Days 60-90 Days 90-120 Days

Start of Arbitration Rejoinder Stage End of Proceeding (Award

Pending) AWARD

First Allocation ( Day Zero) 08 On Time (80% Success

Rate) On Time ( 80% Success

Rate )

AWARD On Time ( 80% Success

Rate )

First LOT Out after 120 Days

Second Allocation (Day 50th or Later)

0 06 On Time ( 80% Success

Rate ) On Time ( 80% Success

Rate ) Second LOT entering

Rejoinder Stage

Third Allocation (90th or Later)

0 0 04 On Time ( 80% Success

Rate ) Third LOT Finishing Start

Stage

Fourth Allocation / First Allocation (120th Day)

0 0 0 08 …..and so on….

TOTAL (No. of Simultaneous Proceeding)

08 14 18 18

* At any Point of Time none of Arbitrator & Advocate should have 20 Cases under proceeding.

* With above constraints, Company should have ideally a panel of 30 Arbitrator & 15 Advocate on Panel with the Optimum

Cases Volume (Average) of 300 Cases under Trial / Arbitral Proceeding

GO BACK

Annexure - 6

Grounds for Appeal against Arbitral Award and Setting Aside of Award : Law, provides opportunity to loosing party for challenge to an arbitrator on the ground of lack of independence or impartiality or lack of qualification. In the first instance, a challenge is to be made before the arbitral tribunal itself. If the challenge is rejected, the tribunal shall continue with the arbitral proceedings and make an award. Section 13(5) of the 1996 Act provides that where the tribunal overrules a challenge and proceeds with the arbitration, the party challenging the arbitrator may make an application for setting aside the arbitral award under Section 34 of the 1996 Act. Hence, approach to a court is only at the post-award stage. Historical Analysis says that “Violation of natural justice & Haste in proceeding” is among the prominent ground where Objection on Award Execution were sustained by High Court.

GO BACK

Annexure - 7

SOFTWARE MIS FORMAT / TEMPLETS

GO BACK

Annexure - 8

REAL ESTATE DETAIL (COMPANY & GUARANTOR)

S. No

Property Address Owner Property Type (Flat

/Plot /Kothi)

Nature Of Property –Res. / Comm. /

Ind. / Agri. / Other

Area (Sq.Yd / Sq.Ft)

Approx. Value (Lacs)

Mortgaged / Free (Write Financer if

Mortgaged)

1

2

3

…

TOTAL VALUE

______ Lac

GO BACK

Annexure - 9

DEBTOR’s CUSTOMER ANALYSIS REPORT (COMPANY & GUARANTOR)

S. No

Customer / Debtor’s Name

Volume of Supply

(Approx. in Lac / PM

Percentage of Business

(Only TOP FIVE )

In Relationship / Business (No. Of.

Years)

Product Supplied

Contact Person at Customer

(Name)

Mobile & E mail ID

1

2

3

4

5

PROMOTER’s / GUARANTORS’s OTHER INCOME SOURCE (Rent / Investment etc) As Per Computation

1 Mr. A

2 Mr. B

GO BACK

Annexure - 10

ADVOCATE EMPANELMANT PROCESS

S. No. Selection Criteria Scoring Marks

10 (TEN) 20 (TWENTY) 30 (THIRTY)

1 Experience (Years) 8-10 Year 11-15 Year 16 Year Plus

2 Court (Practice) Session Court High Court Supreme Court

3 Arbitration Experience (No. of Cases) 0-10 11-25 25Plus

4 NBFC / Bank Arbitration NIL Yes / No Yes / No

5 Office Set-up (Visit Remarks) Average Good Excellent

6 No of Advocate on Panel 0-2 3-5 6 Plus

CASES ALLOCATION WRT SCORING**

Opting Advocate

for Net POS 0-25 Lac Net POS 25-50 Lac Net POS 50-75 Lac Net POS 75-100 Lac Net POS 100 Lac Plus

Score Required

Minimum 70 Minimum 80 Minimum 90 Minimum 110 Minimum 130

** Selection are again subjective and power of deviation from standard practice lies with President / MD on recommendation to CM (Legal)

GO BACK

Thank You

DISCLAIMER NOTE :

This publication has been prepared for general guidance on matters of interest only, and does not constitute professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is given as to the accuracy or completeness of the information contained in this publication, and, to the extent permitted by law.

SME Online Technologist Pvt. Ltd (SOTPL), its members, employees and agents accept no liability, and disclaim all responsibility, for the consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it.

Arbitration Proceeding (Working Guidlines)

Law

Transcript of Arbitration Proceeding (Working Guidlines)