What is a Corporate Dispute?
A corporate dispute is a conflict between a company’s board or the executive branch and a stakeholder. It is much more than an escalated workplace strife or miscommunication. Corporate disputes arise in situations involving money, power, and influence, and it often occurs due to discrimination, fraud, or misinformation. Since a company is considered a legal entity, corporate disputes come under the jurisdiction of several state and central bills.
Classification of Corporate Dispute
Corporate disputes can be classified into five broad categories, namely employment, product-related, environmental, regulatory, and commercial.
Some of the most common forms of corporate disputes are:
- Breach of Contract
- Breach of Fiduciary Duty
- Business Torts
- Class Actions
- Fraud and Misrepresentation,
- Cyber Security
- Product Liability
- Shareholder Disputes
- Tax disputes
Major Types of Corporate Disputes
There are two forms of corporate disputes:
Internal corporate disputes are intra-organizational conflicts that arise between members of the same corporation. The two entities driving the conflict can belong to either the executive branch, management, employees, shareholders, or the contractual branch.
The external disputes are inter-organizational conflicts between a company’s board or a liable agent and a third party with a quid pro quo relationship. This can include customers, agents, stakeholders, and the government.
How Corporate Disputes are Settled in India
The world of corporate disputes is complex and layered. There are many terms and clauses that are signed by employees, shareholders, and stakeholders during onboarding. Many corporate disputes are settled along the lines of pre-agreed terms. Furthermore, there are multiple courses of action which can be applied to resolve conflicts in the corporate world.
The conventional dispute resolution system includes filing a case, reaching out to arbitration, and mutual concession. Whereas the multi-tiered process such as Med-Arb and Mediation + concession are seen as the last resort towards resolution. Most cases of corporate disputes do not come down to a win-lose scenario for the parties. Once the private processes are played out with the help of inter-corporate and inter-institutional systems, dissatisfied parties can move on to non-traditional ways of conflict resolution.
1. Legal recourse
A straightforward way to deal with corporate and business law disputes is to take legal recourse. The parties can present the case in court with assistance from qualified corporate law firms. When the court believes that the components of the agreement are acceptable to the parties, it orders the settlement under Section 89 of the Code of Civil Procedure (CPC). Courts reserve the final order to remake the potential settlement and submit the case for further processes such as arbitration, mediation, or conciliation
Here are the laws which govern corporate disputes in India.
- Companies Act (1956)
- Bankruptcy Code (2016
- Arbitration and Conciliation Act
- National Company Law Tribunal (NCLT)
- Companies Mediation and Conciliation Rules (2016)
2. Mediation and Conciliation
The Law of mergers and acquisitions is one of the common laws that we can see in managing corporate disputes in India. Mediation and conciliation are two-tiered processes towards reconciliation and conflict resolution. Here’s how it unfolds:
- Mediation: Mediation is settled with the inference of a third party. The contending parties are persuaded by an agent who brings them to a common table and contends with them to manage the issues. It is a methodical procedure, and the mediator must reach an amicable agreement which can be enforced in a court of law.
- Conciliation: Conciliation is the process of settling a dispute with the means of an extra-judicial process. Both parties negotiate towards a common goal and continue to work through the conflict until they meet a roadblock in the form of a disagreement. The conciliator enters the scene only after the occurrence of a disagreement. The conciliator’s decision is commonly known as the ‘award.’
Mediation + conciliation is a unique approach to conflict resolution. The approach caters to unexpected issues in institutional operations that may not have been managed.
Jurisdiction: Mediation + conciliation comes under the Companies (Mediation and Conciliation) Rules of 2016, and Section 442 is inserted in the Companies Act (2013).
Arbitration is the process of involving a third-party counsel or arbiter to make binding decisions regarding a dispute. Arbitration is the most common dispute resolution in the world of corporate affairs and the top recommendation of the best corporate lawyers. Arbitration is a proven way to settle disputes and avoid the court. Thousands of commercial disputes are resolved using the ADR processes every year. The multi-tiered process of arbitration signals the parties to pursue clear communication and sign agreements beforehand.
Jurisdiction: Arbitration is enforced by the Arbitration and Conciliation Act of 1996. The concerned parties are given an opportunity to select a neutral arbitrator. India has numerous established arbitral institutions such as the Indian Merchants Chambers, the Indian Council of Arbitration, the International Chamber of Commerce, etc.
4. Mediation-Arbitration (Med-Arb)
Mediation-Arbitration is a combined process applied for inter-corporate conflicts. In cases where both parties refute the arbitrator or disagree on common grounds, the final attempt is pursued through mediation. Med-Arb is the final resort in cases of amicable disagreement between the parties. According to the lawyers at LEX Solutions, the process has a couple of advantages. For starters, mediation allows for a fresh assessment of the situation. The process also increases the likelihood of acceptance of the outcome.
5. Education on the corporate legal culture
Prevention is the best cure, as they say. Experts agree that corporations and financial institutions will do well if regular lessons about corporate legal structures and legal activities are distilled in all parties from the start. Seminars on conflict resolution, education on arbitration, and proactive resolution are some of the ways to minimize corporate disputes.
Also Read: What happens when a Company goes Bankrupt?
While lakhs of corporate disputes a year are settled with the above methods, thousands are resolved behind closed doors as well. Whenever there is a scope for the settlement, the parties prefer conciliation and mediation for resolution. An unpredictable economy and the lack of a unionized workforce are a lethal combination. Corporate laws and resolution methods are dedicated to settling disputes between the parties on the basis of common sense laws.