Mediation in Banking Disputes-An Effective Conflict Resolution & Alternative Dispute Resolution Strategy


Banking Disputes- Mediation in Banking Disputes-An Effective Conflict Resolution & Alternative Dispute Resolution Strategy

Disputes are widespread every day in Banks. These Disputes arise between the customers and banks or between the customers and bank officials as well. Numerous kinds of Banking Disputes happen on a regular basis, but a major influence created by one of the disputes is Default in repayment of loans or installments.

The default in repayment is broadly categorized into two types, Major Defaults is when the payment is not made more than 90 days and minor defaults are payment which is not made in due time but not more than 90 days.

The other kind of dispute includes misleading information is when the customer produces false statements or misrepresents the profession, skill, education, statements, etc.

Business debt happens when a huge amount of money is obtained for business and if it is used for personal purposes, Liabilities when usually a responsibility on payment or stand as a guarantee for the loan, problems with debit cards and issues in credit cards and bank accounts, etc.


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BANKING DISPUTE RESOLUTION MECHANISM IN INDIA-Mediation in Banking Disputes-An Effective Conflict Resolution & Alternative Dispute Resolution Strategy

Banking Dispute Resolution from the customer’s side emerges in three ways.

Initially, any dispute raised in a bank will be resolved by bank officials. The complaints registered on the complaint portal will be solved within 30 days from the date of the complaint made. If complaints are not received and resolved, then the complaint registered will be looked at by the higher officials of the bank. If the Dispute is not solved, the second step is approaching an Ombudsman.

The second method of Dispute Resolution is by approaching the Ombudsman appointed for Banking disputes. The Banking Ombudsman is a senior officer appointed under the Banking Ombudsman Scheme in accordance with Section 35A of the Banking Regulation Act, 1949 by the Reserve Bank of India and the scheme emerges as a platform for settling disputes between the banks and the customers.

At present, there are 20 officials as Ombudsman in Banking Sector located in state capitals. Customers can raise complaints by writing their complaints on a white sheet of paper or through an online portal.

The third way of resolving a Banking Dispute is by approaching the consumer court. The Consumer Protection Act 2019 under Section 42 defines services in which the banking sector comes within the purview of services provided to customers and disputes raised can be resolved in consumer courts and if any appeal can be made before High Court and Supreme Court.

Resolution of Disputes by the bank can be made by approaching the Debt Recovery Tribunal. Debt recovery emerges as one of the problems among banks and the dispute raised in the issue can be solved by approaching the Debt Recovery Tribunal.

This approach of the Debt Recovery Tribunal will be encashed from the side of Banks. Debt Recovery Tribunals and Debt Recovery Appellant Tribunal are created under the Recovery of Debts and Bankruptcy Act, of 1993. This Debt Recovery Tribunal is established for the recovery of unpaid debts. 



BANKING DISPUTES CASES REFERRED FOR ADR-Mediation in Banking Disputes-An Effective Conflict Resolution & Alternative Dispute Resolution Strategy

In the case of Afcons Infrastructure Ltd vs Cherian Varkey Construction Co Ltd, the Hon’ble Supreme Court held that cases arising out of business and commercial contracts which include Disputes raised between bank and account holders can be resolved by Alternative Dispute Resolution.

In the case of Bhagwandas Auto Finance Ltd and Ors. vs H.D.F.C Bank when the dispute was raised between the bank and customers regarding the non-repayment of the loan amount sanctioned, and the issue involved whether a dispute involving a claim amount more than Rs. 10,00,000 comes within the jurisdiction of an Arbitral tribunal, the Calcutta High Court by upholding the held that the appointment of Arbitrator under Section 9 of Arbitration and Conciliation Act 1996 by the Petitioner is valid, and the court held that the movable property involved can be sold by submitting the claim to the arbitral tribunal.

In the case of Chanda Engineers (India) Ltd vs U.C.O Bank, The Calcutta High court viewed that when initiating mediation for banking disputes, the mediation proceedings cannot happen in a strict procedure, but the procedure must be upheld to the principles of natural justice

From the inference, it is viewed that Loan disputes, disputes arising out of contracts executed between banks and customers which include matters of the sale, purchase, lease, etc, and banks' investment cases can be mutually settled by ADR.



MEDIATION AS A MECHANISM OF BANKING DISPUTES-Mediation in Banking Disputes-An Effective Conflict Resolution & Alternative Dispute Resolution Strategy

Mediation services form a part of World Bank Internal Justice services. Mediation as defined by the World Bank is a conflict resolution process where a neutral third party helps to understand two or more parties and bridges the gap or differences between them.

The broad array of banking disputes which includes debt recovery, claims on liability, misleading information, credit, and debit cards had created pressure on courts and the pressure had enhanced the use of Mediation.

Mediation can also be effective in resolving disputes raised in international financing as well, transactions related to the sale or business of a company by another investment bank, private banking activities, and interbank disputes when a contract is entered with another financial institution.

This Mediation emerges as a voluntary process where the parties have full control over the dispute. Mediation emerges as a confidential process and the mediator who acts as a neutral third-party act in an impartial way and does not act in a prejudiced manner. Mediation is considered a friendly and flexible process as well.  

BENEFITS OF MEDIATION IN BANKING DISPUTES-Mediation in Banking Disputes-An Effective Conflict Resolution & Alternative Dispute Resolution Strategy

When an issue or a dispute related to banking comes up for mediation, these disputes regarding the financial institution and how these financial institutions or banks work need an expert to handle them.

Mediation as a mechanism to resolve mechanism requires an expert to solve the disputes and the expertise of mediators emerges as an advantage of the mediation mechanism.

Litigation favors extensive evidence discovery and creates up aggressive environment between the parties in circumstances and leads to bad faith and there is no possibility of entering into a future relationship, rather Mediation can solve the harsh characterization and solve disputes peacefully and this, in turn, makes to engage in a future relationship as well after the peaceful solution of disputes.

Even if the possibility of a future relationship is less, Mediation acts as a cure rather than completely diminishing it. The advantage of Mediation is that unlike relying more on evidence, parties can concentrate more on solutions and needed evidence. By aiding in differences in an informal way, the solved financial arrangement can be redressed.

Finally, Mediation emerges as a confidential and private room process and mediation offers banks or institutions the offer to avoid publicizing disputes.

CONCLUSION-Mediation in Banking Disputes-An Effective Conflict Resolution & Alternative Dispute Resolution Strategy

Alternative Dispute Resolution is an emerging trend and Mediation is seen as one of the most flexible methods. Settling Disputes by way of Mediation is an easy and effective process. In addition, these Bank Disputes are solved by way of Lok Adalat as well.

These Lok Adalat emerge as a cost-effective process for resolving Disputes. Banking Disputes as mentioned earlier arises every day and the interference of the court for every dispute increases the pendency of cases.

Thus, there is a need for speedy disposal of cases and Mediation emerges as an effective mechanism for the same.