CONTRACTOR – OWNER RELATIONSHIP AND COMMERCIAL COURTS ACT

Understanding with the help of an illustration:

 

A, a civil contractor enters into a contract with B, a owner of a vacant site to construct a commercial complex.   The contract involves construction of a three storied commercial complex at a total cost of Rs.2.5 Cr, to be completed within a period of 18 months from the date of commencement.  B, accordingly hands over possession and makes initial payment of Rs.25.00 lakh and the balance payment in stages of construction  as agreed under the contract.  After the commencement of   construction, the parties nurture a disagreement with regard to progress, quality and quantum of work of the proposed commercial complex,  which results in serious differences.  As a direct consequence B halts making further payments towards the construction, resulting in stoppage of work by A.

A taking stock of the situation caused due to stoppage of work,  assessing the quantum of work done and the materials consumed realises that the value of the work done is about Rs 2.00 Crs while B had in terms of the contract  has paid only Rs.1.5 Crs,, in instalments,  thus is due in a sum of Rs. 50 Lakhs as on the date of stoppage of  work.

A demands for the balance payment, to recommence the work; B refuses to pay A questioning the quality of construction as  not up to the assured  standards  and also that the construction has deviated from the sanctioned plan etc.,  Now the dispute has arisen between the two, with regard to the  balance payment and continuation of construction work .

Prior to 2018, both A and B would have had to approach the (competent jurisdictional) Civil Court for adjudication. The dispute being  in respect such  commercial transactions and for an amount exceeding Rs.3.00 lakhs, parties now would have to compulsorily  explore Pre-Institutional Mediation, before approaching  the jurisdictional Commercial Court.

The jurisdictional Legal Services Authority, being the service  provider under the Commercial Courts Act, offers  services of Pre- Institutional         Mediation, in commercial disputes. The law, recognising the sensitivities of the disputants, seeks minimal details viz., name, addresses, contact details of himself and his opponent i.e. B the owner, the nature of the dispute, the nature of the agreement between parties, and the valuation of the dispute, (in this case it is Rs.50.00 lakhs) in   Form-1, to be submitted along with the demand draft of Rs.1,000/-.  following which a  case number  with a suffix PIM…………., a number will be allotted, followed by an invitation to B to utilise the services of dispute resolution offered by the Authority.

In the event disputants consent for resolution, a nominal  mediation fee payable would be equally shared by both, following which the Authority allocates  the services of a mediator from its panel who facilitates the process of mediation.

As the role of the mediator is to facilitate the resolution of a dispute  using several of the techniques to help the disputants identify their best interest in the situation without Mediator himself offering any solution; the  terms of resolution is reduced into a memorandum of settlement duly verified both by the parties and their respective advocates  after  their signatures, is referred back to the Legal Services Authority to be given the status of an award under Section 12-A of the Commercial Courts Act ,  which would have the effect of a decree of a Court and enforceable under law.

As the participation in PIM is voluntary,  the Authority cannot compel participation,  failure to appear or refusal to appear despite receipt of the invite by B,  the matter would be  treated as a Non-starter following which,  both the parties would be intimated. A, the disputant then would  have no other alternative but approach the Commercial Court by instituting a Commercial suit, in such an event  the said proceedings,  the disputants would still be at liberty to invoke mediation or any other Alternative Dispute mechanism  under Section 89 of  Code Civil Procedure, and seek to resolve their dispute  out of Court.

Benefit of  participation in PIM  process is that it  provides a neutral platform for the parties to understand, identify their interests,  generate options and offer proposals that would be in their  best interest ; parties control the  outcome of  their dispute and settle out of  their own self-determination. Flexibility of the process, participation satisfaction  and freeness to withdraw without prejudice  apart from confidentiality protection  provided in a neutral platform by a neutral third party are key features which make the new  law a friendly mechanism for commercial parties.

Now, the Parties in dispute can unhesitatingly say  “I WILL  SEE YOU IN MEDIATION”,

much unlike the fretted “I WILL SEE YOU IN  COURT”.