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Estonia: Country as a service

The biggest disruption in this world is that the concept of physical boundaries is constantly challenged by internet and more pronounced through rapidly changing technologies.

Globalization has not only made companies to do things in new ways but has also forced governments and sovereign nations to think differently to attract businesses around the world (and therefore attract income from taxes).

Mr John Perry Barlow in his letter ‘A Declaration of the Independence of Cyberspace’ addressing sovereign governments has stated that “cyberspace does not lie within your border” and that “you have no sovereignty where we gather”. His intentions were to strictly warn the sovereign governments, who in 1996 were thinking of governing and regulating cyberspace; however, under this article attention has been restricted only to the literal meaning of the two statements quoted above.

Estonia with only 1.3 million inhabitants has proved the statements of John Perry Barlow true by becoming the first country in the world to introduce e-residency. E-residency is a mechanism to enhance the prospects of digital trade, by providing remote access to its own digital infrastructure, economy and trade. E-residency has proved to blur the interstate borders which have long existed on the world map.

‘Vasudhaiva Kutumbakam’ is a Sanskrit phrase found in Hindu texts, such as the Maha Upanishad, which means “the world is one family”. Is this possible?

Physical boundaries of nations have its many reasons namely formation of governments, constitution, citizenship, currency, legislative and judicial powers, taxation and many others following from these.  We are living in exciting times where the operative word is “disruption” – cryptocurrency to traditional currency, internet to physical borders and Estonia is now creating a new kind of disruption to residency/ citizenship.

In Estonia as an e-resident, one will be able to:

  • establish and run a company online, from anywhere in the world;
  • conduct banking online (e.g. open a bank account, make electronic bank transfers);
  • have access to international payment service providers;
  • digitally sign documents (e.g. annual reports, contracts) within the company as well as with external partners;
  • verify the authenticity of signed documents;
  • encrypt and transmit documents securely; and
  • declare taxes online.

E-Residency thus offers the opportunity to establish and run a location-independent international business in Estonia. Estonia has been ranked highly for its transparent and competitive business environment and was placed sixth among the European Union economies by the World Bank for the ease of doing business (World Bank, 2016).

How do they do it?

It is very simple. All one has to do, is fill out an online application form. Then the Estonian Police and Border Guard will do a background check. Upon this background verification, the person will receive a digital card, which is nothing but a digital access to Estonian economy and trade.

Currently, one can choose any one of the Estonian consulate or embassies out of the 38 across the world to physically pick up this e-resident card, one being in Delhi. Applicants for e-residency undergo a background check, submit biometrics, and meet face-to-face with an Estonian official before obtaining the e-Residency digital ID. The program claims strong privacy protection, reinforcing trust in the internet as a place to do business and manage personal data.

The European ‘Digital Single Market’

The European Union has created a Digital Single Market. To support this, the regulation on electronic identification and trust services for electronic transactions in the internal market (eIDAS Regulation) adopted in 2014 aims to enable secure and seamless electronic interactions between businesses, citizens and public authorities. In this regard, the eIDAS Regulation ensures that: (a) people and businesses can use their own national electronic identification schemes (eIDs) to access public services in other EU countries; and (b) creates an European internal market for eTS – namely electronic signatures, electronic seals, time stamp, electronic delivery service and website authentication – by ensuring that they will work across borders and have the same legal status as traditional paper-based processes (European Commission, 2015).


E-residency does not have any direct influence on the tax residency. Being an Estonian e-resident does not mean that one becomes the Estonian tax resident.

An individual is a tax resident in Estonia if

  • his or her place of residence is in Estonia or
  • he or she stays in Estonia for at least 183 days over the course of a period of 12 consecutive calendar months

If an e-resident has established the Estonian company, then such company is regarded as Estonian resident. The profit of the Estonian resident company derived from all countries is taxable in Estonia, which is subject to the tax regime in Estonia and the Double Tax Treaties entered with Estonia and the country of the incorporator.

The Tax and Customs Board of Estonia, mentions that the profit is taxable at the moment of payment out, for example as dividends. It is really nice to know that double taxation is avoided, which means, if the actual activity of the Estonian resident company is only in foreign countries, the profit paid out as dividends in Estonia from profit taxable abroad, may be exempted in Estonia.

Estonia is experimenting with a concept called “data embassies”, where friendly countries would host servers housing Estonia’s critical data and applications and, in the event of an attack, the Estonian government could switch over to those external databases to keep the country running and keep the data safe.[1]

Food for Thought

Can Aadhar provide for being such a game changer? (i.e., assuming after Aadhar addresses all the teething trouble that it currently has, in terms of security, privacy, confidentiality, robustness, authenticity, etc.). Would such a program enable e-residency to foreign directors to set up companies in India and conduct trade?

Can Aadhar provide a digital gateway for interested companies to virtually enter the Indian economy and market?

There is a lot of flak Aadhar is facing and below is an “only if” scenario:

Aadhar provides a very strong foundation to build upon for doing business with accountability, without any hassle and to cut short the bureaucracy. Aadhar uses bio-metric information of an individual to identify and verify their authenticity which provides an additional layer of cybersecurity while trading or doing business digitally.

For a country this large as India, with 1.2 billion population, it is a daunting task to recreate something like what Estonia has achieved.But, wouldn’t virtual businesses, who become tax-residents in India, be another income possibility for the country?

With ‘Digital ho Raha hai India’ can we create a virtual economy, with KYC, with security, with legislative backing, with ease, with new India Shining?  Can we use programs/disruptions such as these to jump-start and skip the moves, to becoming a highly developed nation?

It might also be a way to not get caught in the digital-divide that the world is moving towards.

Author: Manas Ingle is an Associate with NovoJuris Legal.


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Supreme Court Judgement on ‘Existence of Dispute’ under Insolvency and Bankruptcy Code

‘Existence of Dispute’ in case of application by Operation Creditor

This blog is in continuation to our earlier blog dated 15 September 2017 which was titled as “Dispute” is heavily disputed under Insolvency and Bankruptcy Code (IBC) and written about the NCLT Order. On appeal, Supreme Court has weighed in on “existence of dispute” under IBC.  Read on.


Kirusa Software Private Limited (Kirusa) had filed an application before the National Company Law Tribunal (NCLT), Mumbai for initiation of Corporate Insolvency Resolution Process (CIRP) of Mobilox Innovations Private Limited (Mobilox) under Insolvency and Bankruptcy Code, 2016 (the Code).  The NCLT, Mumbai dismissed Kirusa’s application on the ground that Mobilox has issued a Notice of Dispute. An appeal against the NCLT order was filed by Kirusa before the National Company Law Appellate Tribunal (NCLAT). The NCLAT allowed Kirusa’s appeal on the ground that Mobilox’s reply to the demand notice does not raise any dispute within the meaning of Section 5 (6) or Section 8 (2) of the Code, that Mobilox has disputed the payment merely on “some or other account” and that its defence was “vague, got up and motivated to evade the liability”. Accordingly, the NCLAT had set aside the order of NCLT, Mumbai and remitted the case to it for consideration. Mobilox has appealed the NCLAT order with the Supreme Court of India (the Court) to set aside the order of the NCLAT highlighting that there is an “existence of dispute” and therefore the CIRP application has to be dismissed.

Excerpts of the Judgement by the Supreme Court

While passing an order by the Court in relation to aforementioned case in determining “existence of a dispute” occurring in Section 8(2)(a) of the Code, the Court uplifted Mobilox’s appeal holding that there was a dispute in existence which was sufficient to withhold and dismiss the CIRP application filed by Kirusa with the NCLT, Mumbai. Few considerations by the Court before its verdict is discussed below:

Existence of Dispute prior to the Demand notice issued by the Operational Creditor

The Court contented that the CIRP applications filed by operational creditors should be dismissed, in case if it is corporate debtor is able to prove that the existence of the dispute and/or the suit or arbitration proceeding must be “pre-existing” i.e. it must exist before the receipt of the Demand Notice.

Test to be tried by the adjudicating authority and ambit of the “Dispute”

The NCLT, while admitting the CIRP application is only required to identify is whether there is a plausible contention which requires further investigation and that the “dispute” is not a deliberate legal argument or an assertion of fact unsupported by evidence. The Court also contended that, the NCLT while determining whether dispute exists or not, it is not required to satisfy itself that the defence is likely to succeed or examine the merits of the dispute. So long as a dispute truly exists in fact and is not spurious, hypothetical or illusory, the adjudicating authority has to reject the application.

One of the arguments made by Kirusa was that since Non-Disclosure Agreement executed between Kirusa and Mobilox does not fall under any of the three sub-clauses of Section 5(6), no “dispute” is there on the facts of this case. However, the Court rejected the argument and said that the intention of legislature was to make the definition of “dispute” to be an inclusive one and therefore, the word “includes” substituted the word “means” which occurred in the first Insolvency and Bankruptcy Bill. The “dispute” is said to exist, so long as there is a real dispute as to payment between the parties that would fall within the inclusive definition contained in Section 5(6). The correspondence between the parties would show that on 30 January 2015, the appellant clearly informed the Kirusa that they had displayed the Mobilox’s confidential client information and client campaign information on a public platform which constituted a breach of trust and a breach of the NDA between the parties. They were further told that all amounts that were due to them were withheld till the time the matter is resolved. Basis this Mobilox in response to the demand notice, disputed in detail in its reply dated 27 December, 2016, which set out the e-mail of 30th January, 2015. Going by the test of “existence of a dispute”, the Court held noted that without going into the merits of the dispute, the Mobilox had raised a plausible contention requiring further investigation which is not a deliberate legal argument or an assertion of facts unsupported by evidence. The defense is not spurious, mere bluster, plainly frivolous or vexatious. A dispute does truly exist in fact between the parties, which may or may not ultimately succeed, and the Appellate Tribunal was wholly incorrect in characterizing the defense as vague, got-up and motivated to evade liability.

Conflict between “AND” – “OR” in Section 8(2)(a) of the Code

Section 8(2)(a) of the Code reads that the corporate debtor in within 10 days from the date of receipt of Demand Notice from operational creditor, had to bring to the notice of operational regarding the existence of a dispute, if any, and record of the pendency of the suit or arbitration proceedings filed before the receipt of such notice or invoice in relation to such dispute. In this case, the Court has highlighted that the word ‘and’ occurring in Section 8(2)(a) must be read as ‘or’ and also highlighted that the legislative intent and the fact that it will be inconsistent if it is not read as ‘or’. Further, one may note that if the aforementioned section is read as ‘and’, then the corporate debtor could stave off the CIRP only if the dispute is already pending in a suit or arbitration proceedings and not otherwise before the demand notice is received from operational creditor. This would lead to great hardship; in that a dispute may arise a few days before triggering of the insolvency process, in which case, though a dispute may exist, there is no time to approach either an arbitral tribunal or a court. This would cease the right of the corporate debtor available under the said section.

Timelines under the I&B Code – Mandatory

The Court held that the timelines fixed under the Code are intrinsic to the CIRP and are important to its effectiveness. It pointed out that the intention of the legislature is to speedy CIRP and both the NCLT and NCLAT shall be adhere to the timelines prescribed under the Code. The Court, referred to the judgment delivered in Innoventive Industries Ltd. v. ICICI Bank & Anr, wherein, it has clearly laid down that strict adherence of the timelines is of essence to both the triggering process and the insolvency resolution itself. It also stated that one of the principal reasons why the Code was enacted was because liquidation proceedings went on perpetually, thereby damaging the interests of all stakeholders and in which case the management would continue to hold on to the company without paying its debts. Therefore, Court directed both the NCLT and the NCLAT to keep in mind this principal objective sought to be achieved by the Code and to strictly adhere to the time frame within which they are to decide matters thereunder.

Considering above-mentioned points, the Court has set aside the order passed by the NCLAT and rejected the application made by the Kirusa for CIRP.


Since the Code become effective, there were ambiguity and the conflicting interpretation of Dispute and the Existence of Dispute. With the intervention of the Court, there is a clear instruction to the NCLT and NCLAT on the tests to be adopted while entertaining the CIRP application from the operational creditor with reference to the “existence of dispute” and it is hoped that the uncertainties and ambiguities in the Code, would get settled. However, the wide meaning that has been accorded to the term ‘dispute’ may become a shackle around the necks of operational creditors.

It is also pertinent to note that with the clear instruction of the Court in adhering to stricter timelines, it can be expected that the NCLT and NCLAT would take note of the principal objective of the Code as discussed above and completion of CIRP process would be expected within the timeline provided under the Code.

Author: Ashwin Bhat is a Senior Associate with NovoJuris Legal


Medical devices have seen quantum leaps in terms of functionality, intelligence, and usefulness in the last decade. Improved design, better and cheaper production materials, and more sophisticated software, and have all contributed to this improvement. However, perhaps the biggest recent development that has greatly enhanced the ability and uses of medical devices, is the use of technology to connect medical devices (including those implanted in humans) to the internet, to hospital systems, and to other devices. This makes it possible to make these devices smarter, to control them remotely if required, to monitor their activity and functioning, and to pause or alter their operation without having to remove them from the human body.

However, like all devices that come with internet connectivity, these connected medical devices come with one major potential harm – the vulnerability to hacking, malware, and/or viruses. Potentially, this could create havoc for health care providers and patients, as third-parties may be able to break into and dictate the functioning of medical devices such as drips or other implanted devices. This problem is not new either. Since 2012, the Food and Drug Administration of the USA (the “FDA”) has been increasing security infrastructure standards for all connected medical devices, and has been constantly warning manufacturers of potential threats.

Sure enough, a short while ago, the first major medical device manufacturer in the USA suffered from the threat of security breaches. On August, 30, 2017, the FDA announced the recall of approximately 465,000 pacemakers manufactured by Abbot (previously St. Jude Medical), due to the fear of security vulnerabilities being exploited by hackers. As per the FDA, if the vulnerabilities were left unremedied, hackers could reprogram the pacemakers to alter the heart rate of the patient and/or to drain the batteries quickly. Both scenarios could have potentially catastrophic effects.

Fortunately for Abbot, the vulnerabilities could be fixed via a firmware update that could be installed by health care providers in just 3 minutes. The pacemakers did not need to be removed from the patients’ bodies, as the update could be installed wirelessly. Further, Abbot was able to report that there had been no incidents of a security breach/hack before the firmware update was rolled out. Yet, this should not detract from the seriousness of the situation and the extent of the harm that could have been suffered by both the manufacturer and the patients. In light of this, we find it pertinent to take a deeper look at the different minds of medical devices available today, and the potential harm that can be caused through them if the current security infrastructure is not in place.

Medical Devices and Their Potential Harms

Medical devices, apart from being controlled remotely, are also great repositories of data. In order to be able to automatically adjust their own functionality, alert users/controllers at times of low battery, and to be able to provide efficient statistics as to the health of a patient, they have to constantly collect, monitor and analyse data from the patient’s body. This means that they contain sensitive personal information regarding patients’ medical conditions, bringing in the important aspect of data privacy.

Medical devices have been used for a variety of purposes – from diagnosis of multiple diseases, to studying patient’s conditions during treatment of diseases, and to ensuring patient adherence to a prescribed treatment plan. Perhaps, given the wide range of uses for connected medical devices, it will be easier to understand the problems that they may face, by taking a few examples:

  1. OpenAPS – Closed loop insulin delivery – This software, which can be used along with standard medical devices, allows patients to track data from their CGM (continuous glucose monitor), and use it to control/trigger their insulin pump whenever glucose levels demand the same. The patients PII is not owned by any third party here, but if hacked, this system could not only give hackers access to this information, but could also allow hackers to alter the trigger mechanism/program that controls when insulin is released to
  2. Activity trackers during cancer treatment – These devices are used to gather lifestyle data regarding patients, during their treatment from various forms of cancer. These are wearable devices (like many other activity trackers/smart watches), but they track the patient’s energy levels, fatigue, and appetite automatically. The data generated via these devices is usually accessible and analysed by doctors and other health care providers. In a disease where the treatment is actively changed depending on the patient’s reaction to the ongoing medication/therapy, such a device is extremely important. Additionally, it aids doctors to keep track of a patient’s lifestyle, to ensure that patients are taking care of themselves appropriately. Thus, this device places data privacy and security restrictions on doctors etc., with respect to the PII that they hold. Additionally, there is a responsibility on the manufacturers of such devices to ensure that the security infrastructure of the device is strong enough to protect it against hacks/malware. If hacked, not only will the critical data regarding a patient’s current condition be available to the hacker, but they can also alter the functioning of the device to change the readings. This could potentially prevent a cancer patient from receiving the correct follow-on treatment, which is critical to their health.
  • Connected inhalers – Devices like Propeller’s Breezhaler connect wirelessly to a digital platform available on the patient’s mobile phones and with the doctors as well. This helps in tracking the usage of the inhaler, sending reminders to the patient in case of sporadic usage, and ensuring patient adherence to a treatment plan. If such systems are hacked, patients and doctors could stop receiving accurate data regarding inhaler usage, potentially leading to non-adherence to treatment plans and a worsening of existing breathing problems.
  1. Parkinson’s – Pfizer and IBM have collaborated on Project Blue Sky, a planned clinical trial involving the use of a system of sensors, mobile devices, and machine learning to provide round-the-clock monitoring of the symptoms, development and progression of Parkinson’s in patients. Though more research oriented, such a system could potentially be extremely important in discovering a cure for Parkinson’s.

The above are only a few examples of connected medical devices available today. Yet some common themes run through all of them – (a) they all record and store sensitive personal information regarding patients in order to function; (b) they are all accessible remotely; and (c) this makes them vulnerable to hacking/malware etc. Considering the nature of the information stored on the devices, it becomes even more important for the manufacturers to ensure data security of the devices, and for the doctors/other entities storing and analysing the data to ensure its privacy and non-disclosure. No data security infrastructure is fool proof or completely protected from hackers. However, increased standards and more robust protection techniques could help in ensuring that these devices remain protected in the near future.

Author: Madhav Rangrass is an Associate with NovoJuris Legal.


Comparative Stack between Litigation, Arbitration, and Mediation


  Litigation Arbitration Mediation
What is? Litigation is the process of going to Court to enforce one’s legal right.

Litigation is an adjudicatory process.

Arbitration is a private Court, where a neutral third party is appointed by the parties as an arbitrator, who renders a decision after hearing both sides.

Arbitration is an adjudicatory process.

Mediation is a voluntary process, where a mediator assists the parties in negotiating with each other to develop their own settlement terms to resolve their disputes.

Mediation is assisted negotiation, which is a collaborative process.

Nature of Cases The types of cases include criminal, civil, constitutional, tax matters etc. Mostly civil commercial matters are arbitrated. All Civil disputes except those requiring statutory and constitutional interpretation, public policy issues and establishing precedents.

All Criminal disputes that are compoundable can be mediated. Non-compoundable criminal cases cannot be mediated, except dowry harassment cases filed specifically under Section 498A of the Indian Penal Code, 1860. A petition is required to be filed under S. 482 of the Criminal Procedure Code, 1973 at the High Court for quashing the S. 498A petition.

Procedure The Court identifies the issues in the matter, based on the pleadings submitted by the parties, and after considering the evidence presented, renders a binding order or judgment on who is right and wrong or what is fair and unfair. Arbitrator relies on facts, evidence and law to render an award. Mediator helps parties in identifying underlying interests and needs, core concerns, understand the issues and create options to negotiate a mutually acceptable settlement.
Timelines Cases litigated can go on for several years in Court. With recent amendments, an arbitration proceeding cannot exceed 18 months. Cases are usually concluded in a few sessions, with a majority of the cases being concluded on the same day in private mediation, where mediations could be day long

In Court- annexed mediations two months’ time is given with provision to extend for another one month.

Nature of Process Formal in nature, governed by strict rules of evidence and procedure. Cases can be rejected if proper procedure of filing is not adhered to. Formal – governed by the Arbitration and Conciliation Act, 1996. Flexible and informal – not bound by rigid rules. The mediation process is structured to suit the needs of the parties. Informal and holistic process as all connected issues and disputes are addressed.

Procedural rules prescribed in the Evidence Act, 1872 and Civil Procedure Code, 1907 do not apply in mediations.

Participation Participation almost only by Attorneys. Very rare instances of parties representing themselves. Participation primarily by Attorneys. Parties are central to the process and Attorneys are active participants.

Experts and others who can contribute positively to the negotiations can participate.

Privacy and Confidentiality Public hearings. Arbitration is essentially a private process, but the decisions are publicly available.

“Court-like” evidentiary hearings.

No private communications with the arbitrator.

Confidentiality is a fundamental principle of mediation. In confidential private sessions with mediator the core concerns of the parties can be addressed.

In Private mediations, confidentiality is protected through Confidentiality Agreements. In Court-annexed mediations, confidentiality is maintained through the Court prescribed mediation rules.

Nature of Outcomes Outcomes in win/lose judgments.

Invariably relationships are damaged.

Outcomes are unpredictable and beyond the control of the parties.

Result is win/lose award.

Invariably relationships are damaged.

Outcomes are unpredictable and beyond the control of the parties.

Mediation is negotiation in which parties attempt to find solutions that are mutually acceptable and therefore win/win.

The presence of a neutral mediator, makes the negotiation multi-dimensional and relationship may be maintained, enhanced or created.

Outcomes are controlled by the parties.

Finality Judgements are subject to appeals and  revisions at different levels. Awards can be challenged in Court on certain grounds. There is a high rate of settlement in mediation.

In case of a settlement in mediation, they are binding on parties as a contractual agreement or as a conciliator’s award under Section 74 of the Arbitration and Conciliation Act, 1996.

Mediated settlements are hardly reopened or challenged as there is a high level of self-determination in reaching the outcome, and hence enjoy a high degree of finality.

Conclusion of the Process Litigation continues until finally decided or withdrawn. Arbitration continues until final award is passed or withdrawn. Mediation is a voluntary process and the parties can decide to leave the process if they’re not comfortable with it, without affecting their rights to try other legal processes.


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Interview with Bruce Edwards, JAMS Founding Partner

In this special edition of our newsletter on Mediation, we caught up with Mr. Bruce Edwards.

Bruce A. Edwards, Esq. is one of JAMS founding partners and most experienced attorney mediators.Mr. Edwards has served as a mediator, arbitrator, and special master since 1986.  During that time, he has developed extensive expertise in handling complex, multiparty cases with emphasis on construction, engineering and infrastructure, business, employment, and traumatic personal injury matters.

Bruce has mediated over 4,500 disputes throughout the United States, Canada, and Mexico on a wide variety of legal issues including construction, engineering and infrastructure, personal injury, healthcare, employment, business, professional malpractice, mass tort, and insurance coverage. Bruce has settled over one-half billion dollars in construction claims since 2001 in California, Nevada, and Washington.

Sharda Balaji:  Bruce, you believe very strongly that mediation reduces the burden on courts. One of the aim of this special edition of the newsletter is to highlight how Indian courts could perhaps adopt mediation as an effective way to reduce its burden. What in your opinion has kind of helped US Courts to adopt use Mediation?

Bruce Edwards:  Mediation has effectively reduced the burden on courts in several meaningful ways. First, mediators are often called upon to assist judges in managing the case on its way to mediation, effectively reducing the judges need for oversight and court hearings. Second, most cases settle outside of court. If a case settles early because of mediation, it isn’t in the court system for as long as, if it settles on the courthouse steps. Cutting down the typical life cycle of a case by as much as half, has benefits to a court with limited capacity.   Third, and most important, mediation in the United States has effectively reduced the number of cases tried before a judge or jury in both State and Federal court. Federal court mediation programs have you been so effective that federal courts have seen substantial reductions in jury trials over the past 10 years. Fourth, as mediation becomes more widely accepted as a dispute resolution approach of first resort, whether through contract provisions or laws favoring its use, lawsuit filings have gone down, further reducing the burden on the court system.

Sharda: While Mediation is pretty effective in bringing out an array of solutions that the parties themselves determine, how binding are those “settlement agreements” on the parties and does it require to be formalized before the courts?

Bruce: It is important to remember that a mediated settlement agreement becomes binding primarily through the agreement reached between the parties. My experience in over 30 years of settling cases through mediation every week reveals only a handful of times when parties failed to comply with the terms of settlement once agreement was reached. Problems sometimes arise when parties aren’t clear on the specific terms of settlement when they leave the mediation. It is incumbent on the mediator, and is increasingly the standard of practice in the United States, to ensure the parties have a signed agreement setting forth specific understanding between the parties. This practice usually avoids the most common post-mediation concern regarding disputed settlement terms.

Increasingly, mediators are directing the parties to put the terms of the settlement on the record before a judge or otherwise formalize their understanding of settlement terms so they can be enforced. In some countries, the mediator will file with the court a document that will enable the judge to enforce settlement terms. In my practice, once a settlement agreement has been memorialized between the parties, I will stay involved through the drafting of final settlement documents and the compliance phase to ensure the parties follow through on their expressed intentions.

Sharda: 30 years of extensive experience Bruce. I love the way you distill those learnings and provide it in a capsule form for upcoming mediators, in your training programs. In your opinion, what types of disputes are suited for mediation?

Bruce: An overwhelming majority of disputes can be resolved through mediation. Certain types of disputes including those deemed “complex” due to complicated issues of law, multiple parties or the presence of high emotion are especially well-suited for mediation. Recently, certain countries such as Uganda have attempted to implement the mediation process into its criminal justice system. Mediation is used in both reconciliation and sentencing.

Interestingly, it is sometimes thought that cases on appeal where parties have either won or lost in the underlying trial court would not be a worthy candidate for mediation. Yet in the United States most appellate courts employ staff and volunteer mediators who routinely mediate cases on appeal, often employing telephone and email mediation techniques given the geographic separation of parties. It’s worth noting that the majority of these cases also settle through mediation.

The types of cases thought to be poor candidates for mediation include those cases where legal precedent may be required.

Sharda: Over the many years that you have seen mediation being effectively used in the United States, what are your thoughts or perhaps top 5 issues on how mediation has been successfully used?

Bruce: I think, Mediation has been used successfully in the United States largely because:

  1. Mediation addresses the needs and interests of the parties in dispute often more directly than could otherwise be obtained in the legal system.
  2. Mediation allows for creative solutions to complex problems while results available through litigation are often more narrow and constrained.
  3. Mediation allows the parties to address meaningful settlement discussions on a day of their own choosing and often well in advance of when the court system can make itself available.
  4. Mediation offers clients the opportunity to maintain control of their disputes and exercise self-determination regarding their resolution, in contrast to historically feeling controlled by lawyers and at the mercy of the court system.
  5. Mediation often results in satisfactory settlements at a fraction of the cost of litigation.

Mediation 101: It is not who is right or who is wrong, but arriving at solutions

In late 2007, two pharmaceutical behemoths got involved in cross-border IP litigation, which changed the history of cancer in the world. Novartis International AG (“Novartis”), a Swiss MNC, and Sun Pharmaceutical Industries Private Limited (“Sun Pharma”), an Indian MNC were fighting over the patentability of Gleevec – a drug that aids in fighting cancer. Gleevec’s patent application in India was rejected after a long waiting period, by which time several generic versions of the drug came out in India. Novartis had filed a number of cases in India in an attempt to stem the mushrooming of such generic versions. Around the same time, Sun Pharma had filed another application in the United States challenging the patent renewal application for Gleevec in USA and for allowing generic versions to enter the US market.[1] Seven years later, the two pharmaceutical behemoths entered into a settlement agreement, which bought Novartis seven extra months before the generic version of Gleevec entered the US markets.[2] Why did they do that?

Why Mediation?

The following are essential needs of parties in disagreements that are not necessarily met in traditional adjudicatory processes for resolving disputes. These are, however, met through mediation.

  1. Control and Certainty over the Outcome: In the Global Pound Conference[3] (“GPC”) that was held in Chandigarh this year, 63% of the parties wanted a say in how the dispute is resolved and 50% of the parties believed that uncertainty in outcomes was an obstacle to resolving disputes. Like Novartis and Sun Pharma, all parties want to ultimately have some control over the outcome. This is possible in mediation because, parties do not sign a settlement agreement and can walk away from a mediation when they’re not in agreement with the settlement terms or believe that the process is not working for them. Is it any wonder that some of the biggest disputes in the country – such as the Reliance split or the Bajaj family dispute – have been mediated?
  2. Increased Compliance through Mediation: In the GPC, 56% of the users of dispute resolution processes believed that a non-adjudicatory method of dispute resolution would lead to better compliance with settlement agreement, contractual obligations and hence avoid unnecessary costs and sanctions. This understanding is practically reflected in statistics generated on mediation programs in US Courts. For example, rates of compliance and payments in small claims cases conducted in Maine, the United States, were much higher in cases that were mediated as opposed to cases decided by judges. In mediation, 70.6% of the defendants paid the amount in full and 12.8% did not pay at all. In adjudication, 33.8% paid in full and 45.1% did not pay at all.[4] This is because, parties are involved in the decision-making process leads to the final outcome in mediation. Hence, they have increased ownership over the results, leading to higher rates of implementation of mediation settlement agreements.
  3. Maintain relationships: 50% of the parties at the GPC in Chandigarh believed that non-adversarial dispute resolution processes would improve relationships and their understanding is with good reason. In a small claims dispute in a US Court, mediated by a mediator at CAMP, the dispute between a mason and a Buddhist monastery lead to not only payment of the disputed amounts, but also additional contracts for the mason and a small donation made by the mason to the monastery’s charity program.
  4. Confidentiality: Many parties in founder disputes, not only want the terms of their dispute to be confidential, but also the fact of the dispute itself. This is because of fears that the clients of the company may come to adverse conclusions about the state of the organisation. In mediation, confidentiality is maintained with respect to the terms of the conflict, the settlement agreement (if any) and other pertinent details. The fact of the dispute itself can also be confidential, protecting the parties from unnecessary public speculation.
  5. Cost and Time Effective: 67% of the parties in dispute believe that financial or time constraints are the main obstacles in resolving commercial disputes and for 63% of parties in dispute, time and cost efficiency of a process are the most important in determining the choice of dispute resolution process. Unnecessary cost and time expenditure are certainly contained in mediation. Chevron Corporation, the US-based multinational energy company mediated a dispute, which cost US$25,000. In a cost-benefit analysis undertaken by the company, it was discovered that if the same was taken to litigation, the corporation would have had to shell out US$2.5 million over a period of 3 to 5 years.[5] According to the statistics generated by the Singapore Mediation Centre, 90% of the cases that settle in mediation, reach resolution within one working day.[6] Infact, there are cases in Bangalore’s Centre for Advanced Mediation Practice (CAMP), there have been co-founder issues that have been resolved in a day.
  6. Reduction in litigation: When AT&T (the American telecommunications conglomerate) made a firm commitment to ADR, the number of cases filed by the company in the US reduced from 263 in March 1984 to 28 in November 1993.

What happens in Mediation to make it so effective?

The adversarial model of resolving disputes is so deeply entrenched in our psyche that we automatically think in terms of who is right and who is wrong. According to ADR experts Kenneth Cloke and Joan Goldsmith, the ‘right’ and ‘wrong’ that parties try to prove are often the surface tip of the iceberg of the conflict – they are the positions, facts and the law that parties use to justify their actions. The underlying causes of the conflict arise from other reasons such as misunderstandings, miscommunication, differing perspectives, emotions, needs, interests, fears, concerns, values etc. – which form the bottom part of the iceberg of conflict. This is called the Iceberg Model of Conflict. Through mediation, the mediator tries to expose the bottom part of the iceberg to the parties, and this is where solutions usually lie. The mediator exposes the bottom part of the iceberg in the following ways.

  1. Understanding Differing Perspectives: One of the jobs of the mediator is to help parties understand how each side perceives the same set of facts and circumstances differently. By trying to prove the other person wrong through facts, one tries to attribute motives and intentions to the actions of the other side, which may not have been the original intention. Such attributional errors in perspectives are uncovered through mediation.
  2. Identifying Underlying Interests: At the center of all conflicts are core needs, desires, goals and fears that remain unaddressed. It is these interests that drive the positions that parties hold when in dispute. Most dispute resolution mechanisms do not address these underlying needs but restrict the dispute to the facts, positions and the law. The mediation process explores the underlying interests of the parties and through such exploration allows the parties to move into a space of constructive negotiation and find more appropriate and long-lasting solutions.
  3. Creating Multiple Options: When the underlying interests of disputing parties is understood, it could emerge that there are several interests that overlap, be complementary and allow the parties to create multiple options that could meet their interests. Mediation is a flexible process and supports the parties to get creative in their negotiation to find out-of-the box, but legal solutions that holistically meet the parties’ needs and interests.
  4. Finding Mutually Acceptable Solutions: Once the parties have had the opportunity to brainstorm over several possible solutions to their disputes, they can narrow down on those solutions that are acceptable to them and are implementable. Solutions that emerge from mediation are therefore always Win/Win – being a completely voluntary process, parties do not accept settlement terms unless they are benefitted from such terms and they are agreeable to them.

In mediation, the settlement is reached in over 85% of the cases. Settlements are often reached within 1-2 days in CAMP.

The efficacy of mediation as a process for resolving disputes can be best illustrated through a vendor dispute that was recently mediated by one of the mediators at CAMP. X and Y were two companies, where X supplied goods to Y. Y defaulted in payment and X filed a petition to winding-up Y. Y, in turn, denied the amounts due to X and claimed defects in the goods sold by X. In mediation, a safe, non-judgmental environment was created by the mediator, where Y could appreciate the business relationship with X over the years. Being a confidential process, X, admitted that the last batch of goods had certain issues. The mediator also helped X and Y recognize the miscommunication between them. Eventually, Y explained that it had a liquidity crunch because of the diversification and expansion of its business. X saw an opportunity to grow and contribute to Y’s new business plan of expansion. The parties eventually worked out a payment method through several installments and renewed the contract between them which included X being a supplier for Y’s expansion.

With examples like the above, wouldn’t it make more sense to mediate disputes?

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Mediation: As an Alternative Dispute Resolution Method – An Overview

India, the largest democracy in the world, boasts of a unique Constitution. That Constitution promises justice, social, economic and political, to all its citizens.  For delivering that promise, an efficient justice delivery system is a sine qua non. It is common knowledge that judiciary is the last resort of the common man who crave for justice. Today our justice delivery system is going through a very difficult phase, if not a crisis. It no longer enjoys the absolute faith the people had in it, a few decades ago. A survey conducted by an agency, in 2005, as a prelude to introducing Mediation as a dispute resolution method in India is an indicator in that direction. The survey was conducted among the people inthe four southern states of Kerala, Tamilnadu, Karnataka and Andhra Pradesh. The Survey revealed that only 8% of the disputes among the people in the Society, fit to be resolved through the Courts, matures into a litigation in a court. More than 50% of the people, who have suffered legal injury, silently suffers the injustice meted out to them, primarily because of the expenses, time and energy wasted in the course of litigation, as also the uncertainty of the results in  litigation. The remaining, some try to get their disputes resolved getting politicians involved in the same. A few approach the police. Others approach goondas and quotation teams. One can visualise the quality of the justice obtained through these methods. If this trend continues, without doubt, we are bound to face anarchy in our country in the very near future.

The reasons for this alarming situation are several. But it cannot be denied that one of the main reasons is the inability of the Courts to dispose of cases filed before it, within a reasonable time. The oft repeated complaint for delay is that, advocates ask for adjournment of cases which is readily granted by the courts. The judges/judicial officers sit in courts throughout the working hours prescribed, often beyond also. Even if some of the cases are adjourned, the courts will have to hear other cases during court hours. Therefore, in the place of the adjourned cases, other cases are heard and disposed of. That would show that adjournment of cases does not actually result in increase in overall pendency of cases. In fact the judges, judicial officers and advocates in Kerala are very hard working and they strive their best to dispose of more and more cases to the best of their ability. Most of them work for 12 to 16 hours a day. The truth is that with the present infrastructure, it is physically impossible for the courts to dispose of the large number of cases being filed in courts every year. In fact the number of cases filed in courts in Kerala exceeds the number of cases disposed of, by about 20,000 every year. It is uncharitable to blame the hardworking judicial officers and advocates for the same. The disposal rate of cases in courts is much more in India than any other country and the disposal rate in Kerala is one of the best in India.

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Then where does the fault lie? The Population-Judicial officer ratio in India is only 12 per million, whereas the same is much higher even in developing countries and in developed countries it is even as high as 150 or more. The proposals for new courts and sanction of new posts in judiciary are met with stubborn resistance from the government on the ground of lack of fundsand are kept pending for decades. At the same time, the % of plan outlay for courts is less than 0.04, much less than what the courts bring into the state coffers by way of court fees, fines in criminal cases etc. The priority given by the Government for development of infrastructure in courts is the least. The Supreme Court had to step in to direct the State Governments to establish new courts and to increase the number of judicial officers, the efforts in implementing which, even, is progressing at a snail’s pace. This statistics belie the unjust allegation raised against courts and advocates for the increase in the pendency of cases in courts.

But at the same time there is no point in continuing the blame game endlessly.If we have to regain the faith of the common man in our justice delivery system, we have to adopt alternative dispute resolution methods for disposal of cases, since the courts alone cannot deal with the inflow of cases with the infrastructure they have.

Our Civil Procedure Code originally contained one alternative dispute resolution method in Section 89, in the form of arbitration. In 1940, when the Arbitration Act, 1940 came into force, Section 89, as it existed then, was deleted from the statute book. Taking stock of the situation as explained above, the Parliament also found it necessary to introduce new alternative dispute resolution methods for disposal of cases. The deliberations in this regard fructified in Act 46 of 1999 by the re-introduction of Section 89 in the C.P.C. which was brought into force with effect from 1-7-2002, in a novel form, prescribing five alternative dispute resolution methods and making it mandatory for courts to try one of those methods for settlement of disputes, before a case can go to trial. Section 89 envisages five types of alternative dispute resolution methods, which are, arbitration, conciliation, judicial settlement, lokadalat and mediation.

Arbitration was statutorily recognised as an alternative method of dispute resolution by the Arbitration Act, 1940. But the same, with almost all trappings of a judicial proceeding, have not been effective in reducing the pendency of cases in courts. Conciliation, despite the Arbitration and Conciliation Act, 1996, replacing the Arbitration Act, 1940, has not gained popularity among the litigant public. Since the Judicial Officers hardly get any time to spare, after their hectic court schedule and the work after court hours also, to try judicial settlements, that method has also not taken off in our country. Settlements and disposals through LokAdalats, which have the backing of the Legal Services Authority Act, have gained popularity to some extent, but success of the same in reducing the arrears is limited.

It is in this context, mediation assumes importance as an alternative dispute resolution method. The nomenclature ‘mediation’ does not actually convey the import of the concept of mediation. The word gives the impression that the same is a process in which a third party arrives at a settlement of the dispute through negotiation with both parties.But mediation does not work that way at all. It is a structured process, where the parties to a dispute, after talking between/among themselves with the help of a neutral trained mediator, who may also talk separately with the mediator in caucus, albeit with the consent of the parties, themselves voluntarily, without any compulsion from either the mediator, court or anybody else, arrive at a mutually accepted settlement. If possible, which settlement, if not illegal, is made into a decree by the court. The difference between mediation and other forms of dispute resolution can be demonstrated by a simple but, interesting story, which is used by master trainers in the training of mediators. The story goes like this:

In a household with a mother and two daughters, a dispute arises between the daughters,for possession of an orange in the fridge on a day of a fiercely enforced hartal by one or more political party/parties, which is very frequent and the bane of Kerala these days. No shop is open and no fresh oranges can be purchased from the market. One of the daughters picks up the orange from the fridge and the other daughter also stakes a claim for the very same orange. The dispute rages, both steadfastly sticking to their claim, forcing the mother to intervene. Mother can approach the dispute as a judge or a mediator or as a lokadalat. If she is acting as judge, she has to go strictly in accordance with the law applicable. The law may be that the elder has precedence in claim, or that the person who took the orange from the fridge has the first claim, or that both have equal claim etc. and the mother has to give a decision in accordance with the law, in which case either one or both would be unhappy. If the mother acts as a LokAdalat, she may prevail upon the sisters to divide the orange in equal proportion, in which case most probably both may be unhappy. If the mother approaches the dispute as a mediator, she encourages bot sisters to talk between themselves and would try to understand their needs as regards the orange is concerned. The elder sister’s case in the story is that she boasted to her friends that she is good cook, who can make great soufflés and she has promised her friends with a treat that day, with one made of the flesh from an orange for which she needs the flesh of the orange. The younger sister’s case is that she has marks of pimples on her face because of which her friends at the college are teasing her and she wants the skin of the orange to make a face pack. In the process the sisters resolve their dispute themselves, each agreeing to take the flesh and skin respectively required for their respective needs. The process of mediation encourages the sisters to make a need based assessment of their respective cases, for which there is no opportunity in other forms of dispute resolution,  as a result of which, the mother is able to generate options for an amicable solution to the dispute, acceptable to both sisters.


Presently what is in vogue in India is court annexed mediation which means that the mediation process can be initiated only in a case pending before a court. As per Section 89 of the CPC, in every case before a Civil Court, the Court is statutorily obliged to try one of the five methods of alternative dispute resolution methods prescribed therein, before the case can be taken up for trial. A case can be referred for mediation at any stage of the proceedings after the appearance of the parties, with or without the consent of the parties. The parties are referred to the concerned mediation centre, where a nodal officer appointed for the purpose would assign the case to a trained mediator attached to the mediation centre. The parties meet the mediator in a private, benign and confidential atmosphere, designated for the purpose by the mediation centre. The mediator would first make an opening statement familiarising the parties with the process of mediation and proclaiming his neutrality. If, for any good reason, any of the parties has any reservation about the neutrality of the mediator, the party can request for another mediator and the nodal officer is obliged to grant the request.In the mediation, the parties themselves state their respective case first, in a joint session and later in private sessions with the mediator, separately with each party, of course with the consent of the parties. During the discussion options for possible terms of settlement are generated, either by the parties themselves or subtly by the mediator, which, if accepted by the parties, are reduced into writing with the help of the advocates of the parties, signed by the parties and forwarded to the court through the mediation centre. The court would then examine the settlement and if the terms are legally enforceable under the law of the land, pass a decree in accordance with the terms of the settlement.

The advantages of a dispute resolution by mediation are many; in fact the same cannot possibly have any disadvantage.

In dispute resolution through court, or arbitration or even lokadalat, even after the case is over, the parties continue their antagonistic stand among them, whereas in mediation the parties part as friends, their original relations are restored and peace prevails among the parties. The process of mediation is completely voluntary at all stages. Only if all the parties to the dispute voluntarily agree to the terms of settlement, they need settle the dispute. Neither the mediator nor the Court or anybody else can require the parties to come to a settlement or to agree to any term of settlement. If at any stage of the proceedings, any of the parties does not want to continue to take part in the mediation process, they can withdraw from the mediation at any time before the court pronounces the decree. The mediator acts only as a catalyst or facilitator. He cannot even suggest that the dispute be settled on any terms. He can only generate options for settlement, that too subtly, without the parties feeling that it was he who generated the options for settlement. The parties themselves by discussion among themselves and with the help of the mediator, finds out ways to settle the dispute.

The entire mediation process is confidential. Whatever statement is made in the mediation process, even if the same is against the person making the same, cannot be used in evidence or even referred to in the court, in the trial which ensues, if the mediation fails. The mediator is statutorily prohibited from being summoned as a witness in the case between the parties, to depose regarding what transpired during the mediation process. The mediator shall not disclose any matter revealed during mediation to third parties.

The parties are also prohibited from introducing anything that happened during mediation as evidence in the case during trial. Therefore even if the mediation does not culminate in a settlement acceptable to the parties, they do not lose anything by trying mediation to settle their disputes.The participation in the mediation process will not in any way affect their case in court adversely, of the mediation ultimately fails. Consequently, unlike in other proceedings, the parties can vent their feelings and express all their sentiments in respect of the subject matter.In court, the parties can only act through their advocates, whereas in mediation the parties can directly communicate with the opposite parties.

Often, a dispute remains unresolved because the parties do not communicate between themselves, especially in matrimonial matters. Further, once the parties give vent to their feelings in a neutral atmosphere, the differences between them may disappear completely. In mediation, the parties can settle even disputes which are not part of the pleadings in the suit.

The entire mediation process is controlled by the parties themselves and the mediator’s role is limited to ensuring that the mediation is conducted in an orderly manner, without the parties transgressing limits of good conduct.

The object of any justice delivery system is to bring peace and harmony in society. In a dispute resolution through court, the party who loses will continue his animosity towards the party who wins, and the party who wins will be motivated by arrogance towards the vanquished, thus perpetuating the ill feelings between the two, which will be shared by the friends and relatives of the respective parties. Therefore in that process, the ultimate object of peace and harmony in society intended through the system sadly fails. On the other hand if a dispute is settled through mediation, everybody involved finds peace and harmony among themselveswhich will be reflected in the society in which they are part, as well. Therefore mediation is the most sublime method of dispute resolution, which is the greatest advantage of the mediation process.

The Mediation and Conciliation Project Committee(MCPC) appointed by Chief Justice of the Supreme Court of India, consisting of three Judges of the Supreme Court, a Chief Justice of a High Court and a senior advocate, has taken up the task of implementing mediation as a dispute resolution method in India. In each State the respective High Court has established Mediation Centres as per the directions of the MCPC. The mediation process in Kerala is controlled by the Kerala State Mediation and Conciliation Centre (KSMCC) established by the Honourable High Court of Kerala.

Presently, only court annexed mediation is in vogue in India.Only cases referred by the Court can be mediated at present. There is no provision for the parties to have pre-litigation mediation as in the case of lokadalats. In many countries, there is provision for pre-litigation mediation and in some countries cases would be taken up for trial only if mediation is tried first for resolving the dispute. The KSMCC has initiated steps to start pre-litigation mediation also with the help of the Kerala State Legal Services Authority. If the same comes into being, the parties to a dispute can try mediation even without approaching courts for resolution of their disputes.

In foreign countries mediation is being tried as a dispute resolution method decades ago. In California, where also, the problem of pendency of cases was very acute (though not so acute as in India), mediation came into being in 1976. In America mediation has attained the status of an institution and is so successful that only less than 10% cases go to trial and the rest is settled through mediation. In Kerala the success rate is only about 30% to 40% presently. Indications are that the same will steadily rising and in the near future we also may attain a success rate to at least 70% to 80%.

But mediation may not be suitable in all kinds of cases. Therefore the courts should decide which of the cases is suitable for a particular alternative dispute resolution method envisaged in the C.P.C.Although mediation can be tried in all kinds of civil cases, mediation is more suitable in matrimonial cases, property disputes, commercial disputes, partnership disputes etc., where personal relationships between the warring parties are involved. Motor accident claim cases are more suited for lokadalath, since no personal relationship between the parties is involved in those cases. Although Section 89 strictly applies only to proceedings under the C.P.C., the same can be tried in criminal cases under Section 138 of the Negotiable Instruments Act, cases under Section 498A of the Indian Penal Code, domestic violence cases and other criminal cases compoundable under the Code of Criminal Procedure Code also.

Many of the ills plaguing the mediation programme in Kerala can be overcome if mediation is governed by a comprehensive legislation like the Legal Services Authorities Act. The MCPC is taking up the matter with the Government of India and if the same materialises as early as possible, the concept of mediation has a better chance of success in India.

There is an unfounded fear about the mediation process among advocates. Many think that mediation would eat into their work. But experience shows that mediation can result only in more work for advocates. Even for attempting mediation, the parties should fist approach advocates and the advocates are not deprived of their fees because the dispute is settled through mediation. The advocates are also spared the mental tension in a contested case. Secondly, if the common man gets the confidence that his dispute can be resolved through mediation, more and more of the 50%, who silently suffer the injustice meted to them, would come forward to try the new concept, resulting in more work for the advocates. If an advocate gets redress of the his client’s grievance through mediation, his reputation would grow among the public through word of mouth and more and more people would approach him with their case. The legal profession itself would get more acceptability and honour among the litigant public. One of the master trainers, who trains mediators in India and had initially led a delegation to the Chief Justice of the Karnataka High Court against mediation has now become the staunchest supporter of the mediation process and he sets apart considerable time for propagating mediation, that too taking only nominal remuneration. He has told this author that after he started encouraging mediation, his income has not doubled, but trebled. Therefore it is in the interest of the advocates themselves to promote mediation as an alternative dispute resolution method.

As stated in the beginning, what is at stake now is the faith of the people in the justice delivery system. If we are to regain the faith of the people in judiciary which is decreasing day by day, the institution of Mediation should gain wide acceptance in India and the concept of mediation should succeed as an alternative dispute resolution method. Towards that goal, courts, judicial officers including judges, advocates, advocate clerks, mediators and litigants should make earnest efforts, failing which anarchy would be the result, which our democratic country should avoid at all costs.

All said and done, what better and more exalted form dispute resolutioncan there be, where the parties themselves find a solution to their disputes? Therefore mediation should be practiced as the best from of dispute resolution and not merely as an arrears reduction method.The author is confident that if properly implemented, the Mediation Centres would run parallel to court centres rendering justice to the people equally as courts.

(Retired Justice Siri Jagan, the author is a former judge of the High Court of Kerala, who was a member of the KSMCC from its inception in 2008 and the President of the Board of Governors of the KSMCC during the last one year of his tenure as a judge)