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MEDIATION IN THE REAL ESTATE AND CONSTRUCTION SECTORS


27 September, 2018

Context, Scope and Way Ahead

Preamble

Implicit or explicit agreements are a way of human life; contracts, written and unwritten, pervade our day to day lives, and govern our relationships, interactions and transactions. And, as long as there will exist contracts, there will be scope of disagreements and disputes, simply because, no agreement can be so detailed as to cover all possibilities and connotations, and close all loopholes for disputes. Conflicts inevitably arise due to opposing interpretations of open-ended or subjective clauses, occurrence of unforeseen events, situations going beyond the control of either party, loss of trust, bankruptcy, inadequate upfront disclosures and such other issues. Disputes fester until resolved, and therefore, dispute resolution mechanisms assume great relevance in our lives, businesses and society as a whole.


Historically, in India we have been too much over dependent on the formal justice systems, meaning the courts, and have somehow not given alternate/informal resolution of disputes the place that these deserve. May be this is due to the hangover of our colonial legal systems, or perhaps due to absence of enabling legislation or even due to our cultural biases. In any case, the result has been a huge backlog of cases in civil suits and criminal cases clogging up the judicial pipeline upto the Supreme Court, leading to the unfortunate phenomenon of justice being inordinately delayed, and thus effectively denied.


The Real Estate/Construction Sector : The Context

The total number of cases pending in our courts is in excess of 3 Crores. The real estate industry in India has more than its rightful share of unfulfilled promises, delayed payments and/or deliveries, intransparent regulations, cases of apparent abuses of dominance, reported non-compliances, defects in construction quality, commercial issues around valuations, taxes, etc., – all giving rise to obvious disputes and consequent litigations moving at a slow pace through our labyrinthine adjudication processes, such that the litigants’ grandchildren ultimately settle suits filed by their grandfathers.


If we were to expand the domain of real estate to include all land and immovable properties, the intensity of real estate disputes in family as well as corporate sectors will appear to be mind boggling. Given this stifling ambience, the sector was ripe for some interventions and disruptive regulatory changes. And, these have now arrived in the form of Real Estate Investment Trust ( REIT ) and Real Estate Regulation Bill. Although some of the rules/clarifications are still awaited, and the Regulator Bill will only have teeth once all the states get their act in place by appointing the regulators, one must accept that these are very welcome developments which may nip some of the potential litigations in the bud. But this will only be clear as things unfold around these regulations.


Besides these regulatory developments, we also have a very healthy and active Competition Commission and Consumer Courts, both of whom have been seen to be visibly active and supportive of the consumers. The welcome entry of private equity/foreign institutional investors in the real estate space will no doubt force improvements in governance standards in the sector. All these augur well for the future, although the present situation remains dismal and disappointing, to say the least.


The Diverse Stakeholders

In this scenario, congested with disputes and litigations, the thought of Mediation comes along as a whiff of fresh air. Any process of dispute resolution which works on the principle of the disputants working together to arrive at an amicable win-win solution and an agreement that normally is not up for further court room activity, has to be like a god-sent tool! However, considering that the sector has a very diverse group of stakeholders pulling apart vigorously in different directions, it may not be an easy going journey for mediation.


Who are the stakeholders ? These are :
  •  Developers

  •  Contractors

  •  Consumers/Buyers

  •  Land Owners/Farmers

  •  Landlords and tenants

  •  Regulators

  •  Special Interest Groups/NGO’s

  •  Lawyers and Judges and Arbitrators

 

For obvious reasons, some of the stakeholder groups might find it in their interest if the current spate of litigations continue unabated. To break this traditional pattern, some more disruptive interventions are required to change the mindsets.


Possible Role of Mediation: How is it Different ?

In recent years, our world, and our society have witnessed a dramatic increase in litigation. Going to the courts to resolve disputes seems to be an almost instinctive reaction of our citizens. However, the underlying reality is that lawsuits can be financially and emotionally challenging for all the litigants, and can even have an adverse impact on our economic progress over the long-run, particularly when they immobilise businesses. While buyers and sellers of real estate usually are able to settle the smaller irritants that come up in the course of their deals, sadly many other disputes end up in the courts.


Fortunately, there are healthier alternatives to litigation for resolving disputes. Mediation is one such option that is growing rapidly in popularity in the developed economies—a path that has the potential to dramatically reduce the time and cost of resolving disputes. Mediation can be the first step of resolution between the parties.


Mediation is the term used to describe a relatively informal form of dispute resolution that occurs outside of the dysfunctional court system. In mediation, the parties are facilitated by a neutral third person called a mediator. The mediator is not authorised to impose a decision on the parties oreven suggest settlements; instead the mediator only catalyses/promotes negotiation between the disputants with the aim of helping them in reaching a mutually acceptable settlement of their dispute.


To understand how mediation is different from other dispute resolution processes, it is helpful to keep in mind that both litigation as well as arbitration are adjudicatory in nature wherein an empowered body/person(s) decide the outcome. In both these processes, the disputants automatically take up adversarial positions which lead to loss of trust and fissures in relationships. Perhaps the most attractive aspect of mediation which scores over the other choices ( arbitration or litigation ) is that here, the disputants find no need to resort to appeals and prolong the dispute, since the settlement arrived at is mutually agrreable! So, it is clearly seen that mediation should be the first choice of people in the Real estate sector. But what needs to be done to popularise this mode of alternate dispute resolution ?


Way Ahead
The following lines of actions can be recommended to make mediation the first choice of all parties :
  •  Increase awareness about Mediation, its positive effects, and why is it far far better than the traditional channels of adjudication that we know of. For this, a professionally designed communication campaign must be put in place by the government, the bigger corporate in the sector, the industry bodies and chambers, the large law firms, all acting together. For this purpose, an appropriate body may be formed by the Ministry to coordinate all aspects of this promotion drive, something similar to the PCRA or BEE, supported by a strong communication strategy and a commensurate budget.

  •  We have to also nudge people towards mediation; for this, subject to legality, the government may make it mandatory/recommendatory for all contracts/agreements to have a clause stipulating Mediation as the compulsory first stop in case of any disputes, much like the position enjoyed by the Arbitration clause today. It has to be seen if this would require the passing of an appropriate act on Mediation or not.

  •  Thirdly, we have to strive to make Mediation as friendly, soothing and as non-adversarial in reality, as it promises to be in theory. This can only be achieved if we avoid people with traditionally adjudicatory mindsets ( such as most judges ) who come from a position of power and authority, as well as people with deep-seated adversarial mindsets ( such as most lawyers ), as we create a facilitating kind of mediation universe in our country. Evidently, we do not need professionally judgemental personalities in this business, because a Mediator has to be the exact opposite of being judgemental. Obviously, people with insights into people’s mind, like those with education in behavioural sciences, and people with a negotiators bent of mind, like qualified interlocutors, as well as domain experts in relevant fields of dispute who, with their expertise will be able to quickly open up new and unseen opportunities of resolution, are the right kind of people to populate the roles of mediators. Anything less, will make Mediation stumble early on its journey, and it may quickly lose its appeal instead of gaining ground.


One can only earnestly hope that someone somewhere is listening, and will perhaps, consider to act on these suggestions.


* Disclamer * : Views expressed above are authors own

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