INTRODUCTION
Increasingly, digital contract disputes, including those related to digital currencies and blockchain technology, as well as innovations in the form of Decentralised Finance, are resolved through the use of Alternative Dispute Resolution (ADR) mechanisms. ADR in India is governed by the Arbitration and Conciliation Act of 1996. Most parties in digital contracts waive their right to go to court and choose confidential alternative dispute resolution methods instead, with institutional rules/systems of organisations such as the Indian Council of Arbitration (ICA) and the Mumbai Centre for International Arbitration (MCIA) governing those proceedings. The terms of an agreement to arbitrate on digital platforms create obligations for both parties to abide by the final determination of the Court, affirming that the ADR is part of their contract.
The Supreme Court of India ruled in United Steelworkers v. American Manufacturing Co., and adapted to the Indian environment, through the principles outlined in Bharat Heavy Electricals Ltd v. Cochin Port Trust[1]. The existence of a valid arbitration clause is sufficient for a court to compel the attendance of unwilling parties to an arbitration proceeding. As such, the court will only enforce an arbitration agreement when there is a valid arbitration clause. The application of this principle to the digital world is becoming increasingly important, particularly in blockchain, due to the complexities it creates, including the potential for cross-border disputes and issues of admissibility of evidence.
Alternative Dispute Resolution (ADR) in India is currently evolving rapidly through the introduction of Blockchain technology, and the court system has begun recognising the value proposition that Blockchains provide in allowing them to expedite the resolution of disputes. The purpose of this research paper is to demonstrate how Blockchain technology interfaces with ADR processes in India, as well as demonstrate how Blockchain can connect with existing Indian legislation like the “Group of Companies” outlined in Section 45 of the Arbitration and Conciliation Act of 1996, which allows for the resolution of disputes through arbitration for companies that are not parties to the original contract, due to the interconnectedness of their respective operations. The paper will also identify the possible uses, benefits and challenges associated with using Blockchain technology in Indian ADR processes and how the incorporation of Blockchain technology into ADR systems could greatly impact how ADR is utilised across various industries, including Fintech and E-commerce.
THE ROLE OF BLOCKCHAIN IN ADR
With its decentralised ledger and feature of immutability, blockchain is consistent with India’s ADR Framework and defines a new level of effective and transparent processes for resolving disputes. The Arbitration and Conciliation Act, 1996, calls for arbitration to resolve commercial disputes because it helps to alleviate the caseload/court congestion seen today. The use of blockchain technology will make it easier to provide such services, as the ability to employ “on-chain” ADR through Smart Contracts allows for automated enforcement of agreements and the ability to automatically trigger arbitration in the event of a breach.
In India, Blockchain is used for alternative dispute resolution (ADR) through digital ecosystems. The Indian Supreme Court (in the Chloro Controls case[2]) applied the Group of Companies Doctrine in this manner when deciding to consolidate disputes of various companies that are affiliated with each other. As an example, by having multiple related protocols created via crypto-projects or Decentralized Autonomous Organizations (DAOs), blockchain allows for a collective treatment of those connected “protocols” as a single system so that any person who does not sign an agreement (such as an individual token holder) can be bound by the arbitration provisions of the agreement under the definition of “people claiming through or under” a party in Section 45 of the Act.
ADR (Automated Dispute Resolution) is a technology used to automate dispute resolution through a Decentralised Deed, which allows a user on the Ethereum Blockchain to request arbitration without having to go through the court system.
- The use of blockchain technology through a non-modifiable digital record (non-modifiable) can be used as proof in support of any evidence submitted to a court for disputes created under the Electronic Records (Information Technology) Act 2000 of India.
- Additionally, since blockchain is a decentralised technology, it makes sense for ADR to offer Legal Neutrality in the context of International Disputes from Indian entities, as there are no jurisdictional limitations on ADR to settle international disputes.
- Additionally, there are many similarities between the ADR trend and the use of ADR for the Consolidation of Disputes for Corporate Groups, as when a Corporate Group consolidates all its related disputes into one ADR case, it allows those disputes to be resolved simultaneously.
BENEFITS AND CHALLENGES OF BLOCKCHAIN
India’s legal and infrastructure environment presents obstacles to the full implementation of blockchain for Alternative Dispute Resolution (ADR) in India.
Benefits:
- Efficiency: Blockchain increases the speed and efficiency of dispute resolution through ADR due to India’s tremendous backlog of pending litigation (over 40 million pending cases), which complements the emphasis in the Act on fast resolution of disputes.
- Cost-Efficiency: The blockchain reduces costs associated with arbitration, allowing Small and Medium Enterprises (SMEs) in the digital economy, including e-commerce, to benefit.
- Global Interoperability: Blockchain can support Indian entities in resolving international cryptocurrency disputes using the UNCITRAL Model.
- Enforceability of ADR Awards: The disputes resolved through ADR using blockchain allow the enforceability of the outcome through the use of smart contracts, therefore eliminating the risk of non-compliance and supporting the recognition of foreign arbitral awards under Section 48 of the Act.
Challenges:
- Lack of Regulations: Uncertainty regarding ADR arising from the cryptocurrency ban imposed by the Reserve Bank of India (RBI) in 2022 [3]complicates the intersection of blockchain and financial regulation.
- Technical Insufficiency: Arbitrators may not have the technical background and familiarity with blockchain, and the level of digital literacy in India is varied.
- Confidentiality: Publicly available blockchain ledgers are incompatible with confidentiality and with the provisions of the Personal Data Protection Bill, 2019 (PDPA).
- Jurisdictional Issues: Courts in India may have difficulty making rulings regarding conflicts arising from blockchain and decentralised platforms, as demonstrated by the lack of direct precedents within India regarding Non-Fungible Token (NFT) disputes.
Determining the degree of interdependence between the parties involved in these fact-specific cases is critical, similar to determining interdependence under the group of companies doctrine.
JUDICIAL AND REGULATORY RESPONSE
In India, courts have been relatively slow in accepting blockchain technology for use in Alternative Dispute Resolution (ADR) procedures; however, Indian courts are beginning to incorporate blockchain based on precedents established by the Arbitration and Conciliation Act of 1996. In the case of Internet and Mobile Association of India v. the Reserve Bank of India[4]. The Supreme Court stated that regulatory oversight applying to digital assets would indirectly allow alternative dispute resolution (ADR) methods for cryptocurrency disputes and reduce the backlog in courts.
In Cox and Kings, Ltd. and SAP India (P) Ltd[5]., the decision of this case called into question the “group of companies” doctrine and analysed whether this could also be applied to blockchain technology. In the case of Quoine Pte, Ltd., v. B2C2, Ltd., courts in Singapore have accepted the use of evidence created by blockchain systems (in circumstances affecting Indian Tribunals) and have placed considerable emphasis on the necessity for human intervention in order to consider complicated cases.
Regulatory authorities such as the Securities and Exchange Board of India (SEBI) are examining the possibility of using blockchain ADR within the context of security disputes. Therefore, the Ministry of Corporate Affairs has been supporting technology in arbitration. The provisions provided by Section 45 of the Indian Arbitration and Conciliation Act create a foundation for the extension of ADR to parties involved in blockchain technology; however, similar to the issue outlined in Cox and Kings, this requires clarification from a larger Bench of the Supreme Court. The evolution of blockchain and continuing development is creating an absence of formal integration of decentralised platforms into existing legal systems; however, this gap has led to hybrid models that are a combination of traditional arbitration with blockchain technology.
CONCLUSION
The potential use of Blockchain in Alternative Dispute Resolution (ADR) in the Indian legal system presents opportunities for improving efficiency and coherence in the handling of digital disputes. This mirrors the consolidation of conflicts among corporations using the group of companies doctrine established in case law. As such, Blockchain ADR can support two main principles of the Arbitration and Conciliation Act, namely, consent and speedy resolution, as well as provide a platform that addresses other regulatory/technical areas.
In addition to these benefits, judicial refinements to the current frameworks for the management of dispute resolution are required as we develop ADR for Blockchain. By refining current legislation (i.e., the Arbitration and Conciliation Act), the Supreme Court can provide guidance on how to achieve an appropriate balance between continuing to support innovation through Blockchain-based solutions and supporting India’s existing arbitration ethos.
Author(s) Name: Preeti Priyasha (SOA National Institute of Law)
References:
[1] Bharat Heavy Electricals Ltd v Cochin Port Trust [2010] 3 SCC 282.
[2] Chloro Controls India (P) Ltd v Severn Trent Water Purification Inc [2013] 1 SCC 64.
[3] Reserve Bank of India, Circular on Prohibition on Dealing in Virtual Currencies (5 April 2022) https://www.rbi.org.in/Notifications/PDFs/CIRCULARONVIRTUALCURRENCIES5A4B2C2F4F4-4F4F-4F4F-4F4F-4F4F4F4F4F4F.pdf accessed 15 October 2023.
[4] Internet and Mobile Association of India v Reserve Bank of India [2020] 10 SCC 274.
[5] Cox and Kings Ltd. v. SAP India (P) Ltd. (2022) SCC Online SC 570.
