DAMODARAM SANJIVAYYA NATIONAL LAW UNIVERSITY

VISAKHAPATNAM, A.P., INDIA

TOPIC

ROLE OF ADR IN TAKEOVERS AND MERGERS

SUBJECT

ALTERNATE DISUTE RESOLUTION

FACULTY

K. SUDHA

STUDENT NAME

L. SAI RADHA KRISHNA

ROLL.NO/SEC

2016055-A

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 ACKNOWLEDGEMENT

I am using this opportunity to express my gratitude to everyone who supported me through

the course of the project. I would like to thank our teacher who encouraged and supported me
for doing this project. And I am sincerely grateful to them.

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OBJECTIVE

The objective of the study is to know about the future trends and developments in dispute
resolution and the usage of it.

SCOPE

The scope of this project is limited to Indian context.

RESEARCH QUESTION

Whether the developments in dispute resolution have impact on the issues and how fa rthes
developments are useful?

RESEARCH METHODOLOGY:

This Research is purely doctrinal type. The type of study done here is Descriptive and
exploratory. This Research process deals with collecting and analysing information to
answer questions.

REVIEW OF LITERATURE:

Both on primary and secondary sources are taken such as websites, and internet sources. The
Research is purely descriptive in its boundaries of the topic

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 ABSTRACT

Disputes and problems can arise during commercial transactions no matter how well planned
the business was or how comprehensively the drafted the contracts signed between the
parties. Alternative dispute resolution (ADR) processes, substituting litigation have become
popular for helping parties resolve disputes amicably, among other advantages. Alternative
dispute resolution is a new system of conflict management which established a mechanism
other than litigation. Methods introduced in ADR scheme facilities parties to deal with
dispute through much easier way which is indeed cost effective. Few advantages/benefits of
ADR are as follows:

 Reduction of cost and time

 Improve or maintain the relationship
 Satisfactory outcome
 Deals with emotion
 Avoid future disputes
 More economic

In India, there is a use of such alternative dispute mechanisms. It is because the number of
cases filed in courts has shown a tremendous increase in recent years resulting in pendency
and delays. These mechanisms are formulated to lessen the burden borne by the justice
system in the country and to avoid the stress of conventional trail.

In this paper, the main focus will be on the role of ADR being played in mergers, takeovers
and acquisitions in India. Basically in ADR, we can go either for arbitration or mediation in
case any issue arises during or after mergers and takeovers. All areas of ADR related to
takeovers and mergers will be dealt in details

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 INTRODUCTION

It is a well known fact that the Indian judiciary is one of the oldest judicial systems in the
world but nowadays it is also a well known fact that Indian judiciary is becoming inefficient
to deal with pending cases as the courts are clogged with long unsettled cases. The current
situation is that even after setting up more than a thousand fast track Courts that already
settled millions of cases the problem is far from being solved as pending cases are still piling
up.

To deal with such a scenario, Alternative Dispute Resolution can be helpful mechanism. This
kind of mechanism resolves conflict in a peaceful manner where the outcome is accepted by
both the parties. Alternative Dispute Resolution (ADR) is an indispensable process for
making social life peaceful. Such a resolution process tries to resolve and check conflicts,
which enables people to maintain cooperation. ADR is a term used to describe different
modes of resolving legal disputes. It is experienced by the corporate world as well as
common people that it is not practicable for many individuals to file law suits and get timely
justice. To solve the problem of delayed justice ADR mechanism has been developed in
response thereof.

This technique of Alternative Disputes Resolution has been used by many countries for
effective disputes resolution. The most common types of Alternative Disputes Resolution is
Mediation. In, fact mediation had been described by some as the most Appropriate Dispute
Resolution method. Mediation as a tool for dispute resolution is not a new concept. In simple
words, mediation is an amicable settlement of disputes with the involvement of a neutral third
party who acts as a facilitator and is called a Mediator. ADR is usually less formal, less
expensive and less time consuming then regular trial. ADR can also give people more
opportunity to determine when and how their dispute will be resolved.

Few important provisions related to ADR:

 Section 89 of the Civil Procedure Code, 19o8 provides that opportunity to the people,
if it appears to court there exist elements of settlement outside the court then court
formulate the terms of the possible settlement and refer the same for: Arbitration,
Conciliation, Mediation or Lok Adalat.

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  The Acts which deals with Alternative Dispute Resolution are Arbitration and
Conciliation Act, 1996
 The Legal Services Authority Act, 1987

VARIOUS MODES OF ALTERNATIVE DISPUTE RESOLUTION

A. ARBITRATION:
As we already know the importance of the agreement, the process of Arbitration
cannot exist without valid arbitration agreement prior to the emergence of dispute. In
this process of resolution, the parties refer their dispute/problem to one or more
persons called arbitrators. The decision of the arbitrator(s) is bound on parties and
their decision is called ‘Award’. The object of Arbitration is to obtain fair settlement
of dispute outside of court without necessary delay and expense.

Any party to a contract where arbitration clause is there, can invoke arbitration clause
either himself or through their authorized agent which refer the dispute directly to the
arbitration as per the Arbitration clause. Here, arbitration clause means a clause that
mentions the course of actions, language, and number of arbitrators, seat or legal
place of the arbitration to be taken place in the event of dispute arising out between
the parties. Also, Section 8 of Arbitration and Conciliation Act, 1996 provides if any
party disrespects the arbitral agreement and instead of moving to arbitration, moves
that suit to civil court, other party can apply the court for referring the matter to
arbitration tribunal as per the agreement but not later the submission of the first
statement. The application must include a certified copy of arbitration agreement and
if courts satisfy with it, the matter will be referred to arbitration. The essence lies in
the point that it is a forum chosen by the parties with an intention that it must act
judicially after taking into account relevant evidence before it and the submission of
the parties. Hence it follows that if the forum chosen is not required to act judicially,
the process it is not arbitration.1

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“Different Modes of Alternative dispute Resolution (ADR)”

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B. MEDIATION:
Mediation is an Alternative Dispute resolution where a third neutral party aims to assist
two or more disputants in reaching agreement. It is an easy and uncomplicated party
centred negotiation process where third party acts as a mediator to resolve dispute
amicably by using appropriate communication and negotiation techniques. This process
is totally controlled by the parties. Mediator’s work is just to facilitate the parties to
reach settlement of their dispute. The Mediator doesn’t impose his views and make no
decision about what a fair settlement should be. In fact this kind of mode of ADR is
used widely by the people in the world.

In India, mediation has not yet been very popular. one of the reasons for this is that
mediation is not a formal proceeding and it cannot be enforced by courts of law. There
is a lack of initiative on the part of the government or any other institutions to take up
the cause of encouraging and spreading awareness to the people at large.

C. NEGOTIATION:
Negotiation process is the pre-eminent mode of dispute resolution. Compared to
processes using mutual third parties, it has the advantage of allowing the parties
themselves to control the process and the solution.
Essentials of Negotiation are:
 It is a communication process
 It resolves conflicts
 It is a voluntary exercise
 It is a non-binding process
Parties retain control over outcome and procedure there is a possibility of achieving
wide ranging solutions, and of maximizing joint gains.

In India, Negotiation doesn’t have any statutory recognition. Negotiation is self

counselling between the parties to resolve their dispute. Negotiation is a process that has
no fixed rules but follows a predictable pattern.

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D. LOK ADALATS:
The concept that is gaining popularity is that of Lok Adalats, also known as people’s
courts as established by the government to settle disputes through conciliation and
compromise. It is a judicial institution and a dispute settlement agency developed by the
people themselves for social justice based on settlement or compromise reached through
systematic negotiations.

The Lok Adalat is presided over by a sitting or retired judicial officer as the chairman,
with two other members, usually a lawyer and a social worker. There is no court fee,
thus making it available to those who are the financially vulnerable section of society. In
case the fee is already paid, the same is refunded if the dispute is settled at the Lok
Adalat. The Lok Adalat are not as strictly bound by rules of procedure like ordinary
courts and thus the process is more easily understood even by the uneducated or less
educated. The parties to a dispute can interact directly with the presiding officer, which
is not possible in the case of normal court proceedings.

E. CONCILIATION:
Conciliation is an alternative dispute resolution process whereby the parties to a dispute
use a conciliator, who meets with the parties separately in order to resolve their
differences. They do this by lowering tensions, improving communications, interpreting
issues, providing technical assistance, exploring potential solutions and bring about a
negotiated settlement. It differs from Arbitration in that.

The party initiating conciliation shall send to the other party a written invitation to
conciliate under this part, briefly identifying the subject of the dispute. Conciliation
proceedings shall commence when the other party accepts in writing the invitation to
conciliate. If the other rejects the invitation, there will be no conciliation proceedings.
Parties are also permitted to engage in conciliation process even while the arbitral
proceedings are on.

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 GENERAL GUIDELINES

The Supreme Court has given general guidelines regarding the procedure to be adopted by a
court under Sec. 89, CPC relating to settlement by ADR methods in Afcon’s case:

 When the pleadings are complete and before framing the issues, the court shall fix a
date for preliminary hearing and appearance of parties, to know about facts of the case
and nature of the dispute between the parties.
 The court should first consider whether the case falls within the excluded category of
cases which are unsuitable for ADR processes. If the court finds that the case falls
under any excluded category, it should record a brief order mentioning the nature of
the case and why it is not fit for reference to ADR Processes. In such cases, the court
will proceed with framing of issues and trial.2
 In other cases (which can be referred to ADR Process) the court will explain the
choice of five ADR Mechanisms to the parties to enable them to exercise their option.
 The court should first ascertain whether the parties are willing for arbitration. The
court should inform the parties that
 Arbitration is an adjudicatory process by a chosen forum and reference to
arbitration will permanently take the suit outside the ambit of the court.
 The cost of arbitration will have to be borne by the parties. It is significant to note
that matter should be referred to the arbitration only if both the parties agree for
arbitration.
 If the parties’ do not agree for arbitration, the court should ascertain whether the
parties are agreeable for reference to conciliation. If the parties agree, the court can
refer the matter to conciliation in accordance with S. 64 of the Arbitration and
Conciliation Act, 1996.
 The matters referred to arbitration or conciliation will be governed by the provisions
of the Arbitration and Conciliation Act.
 If the parties do not agree for arbitration or conciliation, the court should consider the
preferences/options of the parties and refer the matter to any of the other ADR
Processes
 In simple cases relating to the matters where legal principles are clearly settled and
there is no personal animosity between the parties, (as in the case of motor accident
claims) the court may refer the matter to Lok Adalat.
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Dispute Resolution in India”

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  Complicated cases which may require several rounds of negotiations, may be referred
to mediation. Where the parties opt for the guidance of a Judge to arrive at a
settlement, the court may refer the matter to another Judge for attempting settlement.
 If the reference to the ADR Process fails, the court shall proceed with the hearing of
the suit.
 If there is a settlement, the court shall examine settlement and make a decree in terms
of it, keeping in view the principles of order 23, Rule 3, CPC.

INTRODUCTION TO MERGERS AND ACQUISITION

In corporate capital plan, there are two different ways for any company to raise its capital,
through loan and equity. A company can raise its capital by issuing shares on stock market as
it is one of the easiest ways to fund its task. What's more, second is take credit from banks or
some other sources to raise capital of the company. With this underlying reason and in light
of financial points of view further, the idea of merger and acquisitions is developed. Mergers
and Acquisitions, in the context of corporate strategy, is an integration of two companies with
a certain mechanism in particular business area that ultimately result in a large capitalization
in the market economy. As mentioned before, it is one of the easiest ways to raise capital of
company or reconstruction of the company, simply combining two entities to increase
opportunities in the given market.

Every merger or acquisition includes at least one techniques for getting control of a public or
private company, and the legal aspects of these transactions include issues relating to due
diligence, defining the party’s contractual obligations, structuring exit options, and so forth.
Because of the positive and negative effect cross-border Mergers & Acquisitions may have
on the economy, every legal framework seeks to regulate it. Also, while regulating the cross-
border Mergers & Acquisitions, the government has to be cautious to avoid any kind of over
regulation, as the same may be fatal for the economic development and may result in
discouraging foreign investors as well as domestic investors, seeking to acquire foreign
companies.

ADR AND DISPUTE RELATED TO MERGERS AND ACQUISITIONS

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ADR is more efficient way out to resolve disputes arising from any contract or agreement.
Same goes with mergers and takeovers. In ADR, we can go either for arbitration or mediation
in case any issue arises during or after mergers and takeovers. There are two ways of
resolving disputes either standing for litigation through the process of courts and special
tribunals formed for such corporate litigation or going for ADR routes (arbitration &
mediation). ADR Arbitration and Mediation may be used in M&A disputes as an alternative
to litigation. Depending on whether arbitration or mediation is used, the parties will employ
the third party, i.e., arbitrator to address such disputed area in the proper forum.

ADR is more proficient way out to resolve disputes emerging from any contract or
agreement. Same runs with mergers and takeovers. In ADR, we can go either for arbitration
or mediation in case any issue arises during or after mergers and takeovers. There are two
different ways of settling disputes either remaining for suit through the procedure of courts
and tribunals formed for such corporate litigation or going for ADR routes (arbitration and
mediation). ADR Arbitration and Mediation might be utilized in M&A disputes and problems
as another alternative option to litigation. Depending on whether arbitration or mediation is
used, the parties will employ the third party, i.e., arbitrator to address such disputed area in
the proper forum. Matters arising in arbitration can provide expertise to the client in the
process of selecting appropriate arbitrator or mediator. Such arbitrator can be an accountant,
an attorney, an industry expert or a retired judge.

The essentials in ADR are as follows:

 Any party to the merger or takeover can initiate the process of arbitration.
 Such an agreement must be in consent by both the parties to such merger and
takeover.
 There must be an arbitration clause in agreement in writing or may be a separate
document signed by parties to such merger or takeover containing the arbitration
agreement.
 Such agreement must be in writing.
 The process of arbitration can be initiated if there exists a valid Arbitration
Agreement between the parties in the emergence of disputes.

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In Arbitration, the third party neutral arbitrators are engaged to act in a Trier of fact. Parties
to the dispute would provide facts to such neutral arbitrator, who evaluates make analysis and
adjudicates such dispute. In Mergers and Takeover disputes, probably forensic accountants
are engaged to resolve and adjudicate such dispute. In engagements, the forensic accountants
would testify such arbitrator at the hearing. often, in Mergers and Takeover disputes, the
practitioners also serve as a neutral arbitrator at a hearing.

Also, in Merger & Acquisition agreements, it can be clearly defined that the arbitration
process to be followed by the arbitrator. It is the duty of forensic accountants engaged as
arbitrators to outline the whole process of resolving the dispute, settling accounts and
hearing.

Mediation:

Mediation is one of the forms of ADR where an independent person known as mediator act as
a neutral person helps the parties to resolve the dispute. Here, the parties determine the
conditions of settlement .the mediator cannot mandate the parties to accept such settlement.
He uses his appropriate techniques to improve dialogue between the disputants. A third party
representative may contact and mediate between unions and corporations. The mediator does
not have the power to take decision for the parties, but can help the parties find a resolution
that is mutually acceptable.

 The mediation process can proceed in different ways. The mediator establishes
ground rules and agenda for the session.

 Mediation is more successful because parties are brought together in a neutral

environment where disputes are freely evaluated.

 Mostly in M&A and takeover disputes, forensic accountants serve as a mediator and
assist parties in resolving disputes.

 The goal of mediation is to arise on settlement without undergoing in time consuming

and cumbersome process of arbitration and litigation.

 Mediation can happen in two ways either in joint session, or it can move in separate
sessions and shuttling back.

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Arbitration is different from mediation in a way that in arbitration the neutral arbitrator has to
make a decision about the dispute whereas, in mediation, the settlement is between parties,
the mediator cannot enforce his decision on parties to mergers and takeover whichever the
case is. The arbitration is similar to a trail and presenting evidence to the arbitrator. The
difference in arbitration and litigation is of time efficacy and cost affairs. The parties to the
dispute do not have to follow state or federal rules of evidence or rules of governing law. The
result of arbitration is the award issued to parties.

ADVANTAGES OF ADR IN MERGERS AND ACQUISITIONS

There are, of course, other means of dispute resolution than arbitration that can be resorted to
when M&A issues occur, such as conciliation and mediation, which may have their own
benefits and advantages. Particularly in the case of a merger, the parties usually have a
common perspective and a strong motivation to compromise. In fact the motive behind ADR
is to save money and time. However, practice has shown that parties today almost invariably
agree on arbitration for the resolution of their disputes arising out of M&A. Klaus Sachs (a
well-known German arbitration specialist) wrote that "Nowadays, arbitration agreements in
international and national M&A transactions are rather the rule than the exception". Most of
the businessmen and their lawyers make this choice of ADR. Besides the more general
arguments that we know in favour of arbitration, there are a number of advantages that are of
the importance in the M&A:

1. The parties have the right to choose their own arbitrators: Dealing with M&A
disputes often means dealing with complicated valuation and accounting issues. The
persons who decide the dispute must have the knowledge about the industry and
economic matters. Court judges may not always be qualified in this respect.
Arbitrators and experts involved in arbitral proceedings are service providers and may
be selected according to their professional and technical expertise, their language
proficiencies and availability
2. Parties to an M&A deal usually strive to keep their disputes "unspectacular”: It
is ideal thing to avoid the publicity. In anyway, the parties are often anxious to
safeguard any confidential information among competitors. Confidentiality is,
therefore, a crucial factor in Mergers & Acquisitions. Before the courts,

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 confidentiality is not assured. To some extent, the same is true for arbitration, as
confidentiality cannot overcome a publicly held or listed corporation’s obligation to
disclose the existence of the arbitration or the result of that arbitration.
3. Legal proceedings can be in any language: It is important, especially in
international transactions that the legal proceedings can be in any language. For
instance, in arbitration English may be chosen as the language of the proceedings,
even though the contracts may be drafted in German, governed by Swiss law and the
proceedings held in Argentina. Such combinations of relevant legal knowledge and
language proficiency can generally only be offered by an arbitral tribunal, especially
since courts only proceed in their official language(s), as a rule. Since commercial
cases tend to involve voluminous and complicated documentation, this flexibility of
language offered by arbitration can help avoid the necessity of translations, with
consequent significant savings in time and money.
4. Arbitrations take place in an often more amicable and business-like manner: The
arbitrations take place in an often more amicable and business friendly manner than
litigation before the courts. It is because economic aspects play a more central role,
they also frequently result in settlements. Consequently, arbitration can have a
defusing effect and foster the parties’ business relationships. This is particularly
important when the parties to a deal remain associated after the transaction and need
to find a way to cooperate in the future.

PHASES RELATED TO ADR IN MERGERS AND ACQUISITIONS

In order to prevent the problem of arbitration clauses or parallel proceedings in M&A and in
order to manage the process, it is essential to determine following phases:

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NEGOTIATION PHASE:

The process usually starts when the management of one firm contacts the target company’s
management. on the other hand, it is common for third parties, such as investment or
merchant banks of each firm, to be involved. Sometimes this process works smoothly and
leads to a quick merger agreement. During preliminary contacts, the selling process is a
sensitive process with respect to the target and must therefore remain secret. A confidentiality
agreement may be executed between the parties during the initial part of process. Many
M&A transactions start with an invitation by the seller, or its investment banker, to potential
buyers to submit their offers. In virtually all M&A transactions, parties then sign a
preliminary document at the beginning of negotiations in the form of a letter of intent, or a
memorandum of understanding. In this document, parties typically confirm their intention to
continue, or begin, negotiations in good faith, and specify a set of provisions to govern the
negotiation process. It involves several sub-phases too.

SIGNING PHASE:

Where buyer decides to proceed with the transaction in view of what he has learned as a
result of the due diligence, i.e. if the latter has proven satisfactory and provided the parties
have managed to agree on all terms and conditions of the deal, the parties proceed to execute
the “real” agreement: usually called the ‘purchase agreement, or ‘share purchase agreement’
in the case of share deal, as opposed to an asset deal. one also encounters ‘merger
agreements’ (in the case of a merger as opposed to a plain acquisition) or ‘share swap
agreements’ (if consideration is paid through shares of another entity). In any event, this is
the contractual instrument pursuant to which the parties, in a binding manner, implement, or
agree to implement, the transaction, and list all terms and conditions thereof. It necessarily
includes the subject matter of the deal (shares, whole or part of the business, only assets,
etc.), as well as the price, or at least the way the price will be determined and the nature of the
consideration (cash, shares or a combination thereof).

CLOSING PHASE:

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In the vast majority of cases, the transaction is not actually implemented upon signing. There
are many reasons for this, usually because the parties have provided for various kinds of
condition(s) precedent. Some of the most common ones include:

1. In any deal of a certain size there will almost inevitably be competition law filing
requirements, which will make it advisable, or necessary, to obtain clearance from the
relevant authorities before the transaction can be completed.
2. Sometimes the buyer, but more often the seller, will have to take steps in order to
implement the deal. This can include restructuring the business, for instance by
assigning some assets to or from the target, refinancing it, or taking out all or part of
the available free cash.
3. The parties may recognise upon signing that the due diligence has not been completed
and that it will be concluded thereafter. This can occur, for instance, when the buyer
was deliberately not granted full access to very sensitive information before a truly
binding agreement was executed. This is sometimes referred to as “satisfactory (post-
signing) due diligence” condition precedent
4. Under the “no material adverse change” clause, the seller represents that, at closing,
the business will not be materially different to that known to the buyer through the
information memorandum, due diligence, and/or share purchase agreement.
5. The fact that all representations and warranties shall be true on the date of closing.

CONCLUSION

The Alternative Dispute Resolution (ADR) Mechanism is working well in India. Millions of
cases had been disposed of through Lok Adalats across the country. The National Lok
Adalats had achieved tremendous results in the past and huge money had been realized for
public exchequer. Millions of people got relief in these Lok Adalats where their long pending
cases were disposed off amicably. Wiping out tears from the eyes of poor litigants, even if it
comes after a long time is a great sigh of relief for the litigant who is in search of the most
precious virtue, that is “justice”.

Mergers and Takeover can be successful by implementing a problem-solving system that

deals with a dispute at an early stage. By stipulating such agreement of resolving dispute
would be problem-solving and gives parties more creative business oriented solutions and

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will help to preserve the business relationships when the mergers happening cross-border
having different governing law. Different procedures for resolving the dispute will help to
handle disputes. Such conditions can be formalized in merger or takeover agreement.

BIBLOGRAPHY

 The Code of Civil Procedure

 Arbitration and Conciliation Act, 1996
 https://bl0g.ipleaders.in/adr-alternative-dispute-res0luti0n/
 https://www.lawct0pus.c0m/academike/arbitrati0n-adr-in-india/
 http://www.m0ndaq.c0m/india/x/654324/c0urt+pr0cedure/Alternate+Dispute+Res0lut
i0n +ADR+In+India

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