Role of ADR Mechanisms in Resolving Disputes under Section 138 of the NI Act

Role of ADR Mechanisms

Written by Manya Vikram

Table of Contents

Introduction:

The Negotiable Instruments Act, of 1881 (NI Act) provides a legal framework for dealing with disputes related to negotiable instruments such as cheques, promissory notes, bills of exchange, etc. Section 138 of the NI Act deals with the dishonour of cheques and provides for criminal liability in case of non-payment of the amount mentioned in the cheque. However, the traditional court system is often seen as time-consuming and expensive. Alternative dispute resolution (ADR) mechanisms such as mediation, conciliation, and arbitration have emerged as effective alternatives to traditional court proceedings. This article explores the role of ADR mechanisms in resolving disputes under Section 138 of the NI Act.

I. Understanding Section 138 of the NI Act:

Section 138 of the NI Act provides for criminal liability in case of dishonour of cheques. The section provides that if a cheque is dishonoured due to insufficient funds, the payee can issue a legal notice to the drawer demanding payment of the amount within 15 days. If the drawer fails to make payment within 15 days, the payee can file a complaint under Section 138 of the NI Act. The complaint must be filed within one month of the expiry of the 15-day period.

II. Limitations of Traditional Court Proceedings:

Traditional court proceedings can be time-consuming and expensive. Court cases under Section 138 of the NI Act can take several years to resolve. In addition, legal fees and court fees can be prohibitively expensive for small and medium-sized businesses. Moreover, the adversarial nature of traditional court proceedings can often lead to a breakdown in relationships between parties.

III. Role of ADR Mechanisms:

ADR mechanisms such as mediation, conciliation, and arbitration have emerged as effective alternatives to traditional court proceedings. These mechanisms are designed to be less adversarial and more collaborative, with the aim of finding a mutually acceptable solution to the dispute.

A. Mediation:
Mediation is a voluntary process in which a neutral third party, the mediator, assists the parties in reaching a mutually acceptable solution to their dispute. The mediator does not make a decision or impose a solution on the parties. Instead, the mediator facilitates communication between the parties and helps them to explore options for resolving the dispute. Mediation can be particularly useful in cases under Section 138 of the NI Act where there is a breakdown in the business relationship between the parties. Mediation can help to restore communication and build trust between the parties, which can be important for future business dealings.

B. Conciliation:
Conciliation is similar to mediation, but the conciliator may make proposals for resolving the dispute. However, the parties are free to accept or reject the proposals. Conciliation can be particularly useful in cases under Section 138 of the NI Act where there is a dispute over the amount to be paid. The conciliator can help the parties to come to a mutually acceptable agreement on the amount to be paid, which can save time and money compared to traditional court proceedings.

C. Arbitration:
Arbitration is a process in which a neutral third party, the arbitrator, makes a decision on the dispute. The decision of the arbitrator is binding on the parties. Arbitration can be particularly useful in cases under Section 138 of the NI Act where the parties are unable to reach a mutually acceptable solution through mediation or conciliation. Arbitration can be faster and less expensive than traditional court proceedings.

IV. Advantages of ADR in Resolving Disputes under Section 138 of the NI Act

ADR has several advantages over traditional litigation, especially in cases relating to Section 138 of the NI Act. Some of the advantages are as follows:

  1. Time and cost-effective: ADR mechanisms are generally less time-consuming and less costly than litigation. This is because ADR mechanisms are informal, and the parties have more control over the process. In contrast, litigation can take years to resolve, and the costs can be exorbitant.
  2. Preservation of business relationships: Disputes under Section 138 of the NI Act often arise between parties who have an ongoing business relationship. ADR mechanisms allow the parties to resolve their disputes in a way that preserves their business relationship. This is especially important when the parties want to continue their business relationship in the future.
  3. Flexibility: ADR mechanisms are flexible and can be customized to suit the needs of the parties. The parties can choose the ADR mechanism that is best suited to their dispute and can agree on the procedure to be followed.
  4. Confidentiality: ADR mechanisms are confidential, which means that the proceedings and the outcome of the dispute are not made public. This is important for parties who want to keep their dispute and its outcome private.
  5. Greater control over the outcome: In ADR, the parties have greater control over the outcome of the dispute. They can work together to find a solution that is acceptable to both parties. In contrast, in litigation, the outcome is determined by the court, and the parties have little control over the outcome.

V. Conclusion

In conclusion, Section 138 of the NI Act has been enacted to provide a speedy and efficient mechanism for the recovery of dishonored cheques. However, the lengthy and complex legal process involved in litigation has made it difficult for creditors to recover their dues under this section.

ADR mechanisms provide an alternative to traditional litigation and can be an effective way of resolving disputes under Section 138 of the NI Act. ADR mechanisms are time and cost-effective, preserve business relationships, are flexible, and confidential, and provide greater control over the outcome of the dispute.

The success of ADR in resolving disputes under Section 138 of the NI Act depends on the willingness of the parties to engage in the process. The courts can play a significant role in promoting ADR by encouraging parties to consider ADR before resorting to litigation. This can be done through awareness campaigns, training programs, and by incorporating ADR mechanisms into court procedures.

Overall, ADR can provide an efficient and effective way of resolving disputes under Section 138 of the NI Act and can help to reduce the burden on the courts. Therefore, it is essential to promote and encourage the use of ADR mechanisms in resolving disputes under Section 138 of the NI Act.

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