Arbitration: An Alternative Form of Dispute Resolution

This blog is inscribed by Poulomi Sen.

Alternative Form of Dispute Resolution

Alternative dispute resolution, also known as external dispute resolution gives an alternative platform to resolve the issues and disputes arising between parties. The concept of ADR has been embraced worldwide in the legal profession. The rationale behind the acceptance of ARD platforms is that it tends to lower the burden of courts, as it is quite evident that all the three hierarchical courts are already overburdened with a humongous number of litigations. A survey conducted in April 2018[i]gives us an insight into the number of cases pending in the judiciary. As per that survey, in India, there are over three crores cases pending in Supreme Court, High Courts and other subordinate Courts. To dispose of the cases in the earliest possible manner and to further put a limit on the burden of courts; Alternative Dispute Resolution platforms are widely prevalent.

Modes of ADR in India

The following modes of ADR are prevalent in India:

Modes of ADRFunctionDecisionGoverning Acts
ArbitrationIt is a process of settling disputes in a private and in a confidential mannerBindingArbitration and Conciliation Act, 1996
MediationIt is a process in which an unbiased person, known as the mediator, is appointed who tries to encourage the parties to negotiate in good faith. The parties are not forced to settle their disputes but rather they are convinced to reach to a conclusion for their benefit.Non-bindingCivil Procedure Code, 1908
ConciliationIt is a process of settling disputes with the help of a neutral person who puts effort so that the parties sailing in the same boat agrees for an acceptable compromise for their benefits.Non-bindingArbitration and Conciliation Act, 1996
NegotiationIt is a process of mutual counselling amongst the parties aiming at maximizing individual gains.Non-BindingNo statutory recognition
Lok AdalatThis mode of settling disputes is analogous to the court model where parties along with their counsels are brought before a bench of judges who decides the case.BindingLegal Services Authorities Act, 1987

Advantages of ADR

There are numerable advantages of ADR[ii]. Some of them are as follows:

  • speedy administration of justice,
  • prevention from long waiting hours,
  • self-paced process, client-friendly process,
  • cost-effective process,
  • Supplement to adjudication

Arbitration

Arbitration is a procedure for settlement of disputes where the parties concur to submit their disagreement to one or more arbitrators which make binding decisions. This alternative method of dispute settlement was first enforced in India by virtue of The Arbitration Act, 1940 which was amended in 1996 recognizing another alternative form of dispute settlement i.e. conciliation. Therefore, the Act was named Arbitration and Conciliation Act, 1996 and it is the principal Act governing arbitration in India. Since certain Sections of the Act had ambiguity, in order to overcome those shortcomings, the Law Commission in its 246th report in 2014 put forward certain suggestion and recommendations. The Act was amended subsequently in 2015.

Limitations in the 1940 Act

  • The Arbitration Act of 1940 had failed to meet the basic purpose of ADR as it required courts to intervene in all the stages of the arbitral process. The court was required to intervene during:
  • The setting of arbitration proceedings
  • Course of proceedings
  • Granting of awards

Thereby adding on to the burden of courts and amplifying the number of cases pending.

  • Also, it dealt only with domestic arbitration and did not have any provisions for enforcement of foreign awards. It also failed to deal with international arbitration.
  • It failed to include another form of dispute settlement method i.e. conciliation.
  • The Act allowed the award to be challenged on a large number of grounds, including the merits of the award.
  • Arbitration Act of 1940 was based upon the English Arbitration Act of 1934 which prevailed in the British. The Arbitration Act of 1996 is based upon the UNCITRAL.

To eliminate all the aforementioned limitations, the 1940 Act was substituted by Arbitration and Conciliation Act, 1996.

Types of Arbitration

On the basis of process and rules

  • Institutional
  • Fast-track
  • Ad-hoc
  • Statutory

Statutory Arbitration

Section 2(4) of Arbitration and Conciliation Act, 1996 provides for statutory arbitration in India. Section 2(4) of the Act[iii]says:

“This Part except sub-section (1) of Section 40, Sections 41 and 43 shall apply to every arbitration under any other enactment for the time being in force, as if the arbitration were pursuant to an arbitration agreement and as if that other enactment were an arbitration agreement, except in so far as the provisions of this Part are inconsistent with that other enactment or with any rules made thereunder.”

Institutional Arbitration

In institutional arbitration, the dispute is referred to arbitrators of a specialized institution having its own framework of policies and guidelines. In a nutshell, it is an arbitral process which is governed and administered by arbitral institutions.Common institutions include the Hong Kong International Arbitration Centre (HKIAC) and the International Chamber of Commerce (ICC).[iv] Presently, India is having around 35 arbitral institutions. Some of the prominent Indian arbitral institutions are the Indian Council of Arbitration (“ICA”), the Delhi International Arbitration Centre (“DIAC”), the Mumbai Centre for International Arbitration (“MCIA”) and the ICADR.[v]

Ad-hoc arbitration

In ad-hoc arbitration, the parties themselves are required to initiate the initial steps of the process by appointing the arbitrator. The manner and method of appointing the arbitrator and the number of arbitrators to be appointed solely depends on the parties. Since there is no institution to administer the process, the parties have complete leverage to formulate their own rules and regulations regarding the arbitral process. Nevertheless, their parties are required to have a mutual understanding and they should be having a spirit of cooperation amongst themselves.

In case the party fail to cooperate, govern and administer the process and thereby delays the entire process, Ad-hoc arbitration can be converted to institutional arbitration.

Fast track arbitration

The Indian Council of Arbitration (ICA) has pioneered the hypothesis of fast track arbitration in India and according to its directives and orders parties may solicit the arbitral tribunal to settle disputes within a fixed timeframe[vi].

  • Sections 11(2) of the 1996 Act[vii] provide that the parties are free to agree on a procedure for appointing an arbitrator.
  • Section 13(2) of the Act[viii]allows choosing the fastest way to challenge an arbitral award.

Since the principal goal of fast track arbitration is to dispose of the cases efficiently and smoothly at a very fast pace, the procedural rules are very stringent. It is a very efficient and pocket-friendly method of resolving disputes.

On the basis of jurisdiction

  • Domestic
  • International

Domestic Arbitration

Though domestic arbitration is not defined in the 1996 Act per se,  Section 2(2) and 2(7) of the Act gives us an insight about domestic Arbitration in India. If harmonious construction of both the Sections is done, the following conclusions can be drawn:

  • The arbitral process should take place in India
  • Cause of action must have been aroused in India
  • Both the parties must be subjected to Indian jurisdictions
  • The subject matter of the dispute should be based on the substantive law of India

International Arbitration

International arbitration can be opted for in the following circumstances:

  • When either of the parties to the suit is domiciled outside India, or
  • Cause of action has aroused outside India, or
  • The subject matter of the dispute is not based on Indian laws

Arbitration proceedings can take place within India or beyond India depending on the applicability of the law and as per the facts and circumstances of each case.

Stages of Arbitral process

For opting to resolve disputes by the process of arbitration, the parties to the dispute are required to comply with the following legal points:

  • Inclusion of an arbitration clause in their agreement
  • An arbitration notice has to be first sent by the aggrieved party planning to initiate the arbitration process against the other party.
  • Subsequent to the receiving of notice, the parties have to mutually decide to appoint the arbitrator in as per the arbitration clause.
  • Statement of claims and counter-claims has to be drafted by the parties to the dispute.
  • Subsequently, the case will be presented before the arbitrator who will hear both the parties and the evidence provided by them will be taken into account.
  • In the end, the arbitrator will decide on the merits of the case and grant “awards” which will be binding on both the parties and will be conclusive.
  • The “award” so granted can be challenged, provided the applicant succeeds in furnishing proof of the grounds mentioned in Section 34(2) of the 1996 Act for setting aside the arbitral award.
  • Once the award has been granted,the party in whose favour the award has been grantedhas toexecute and thereby, enforcethe verdict with the assistance of a lawyer.

[i] Pendency of courts in the judiciary, available at, https://www.prsindia.org/policy/vital-stats/pendency-cases-judiciary

[ii] Differences between various types of ADR, available at, https://www.legalbites.in/difference-between-types-of-alternative-dispute-resolution/

[iii] Section 2, Arbitration and Conciliation Act, 1996, available at, http://icadr.nic.in/file.php?123?12:1461580854

[iv] Different types of arbitration, available at, https://www.lexology.com/library/detail.aspx?g=ed11f48d-7962-49d3-992e-2e116cba745e

[v] Arbitration newsletter, Link Legal, India law services

[vi]ADR in India: Legislations and Practices, available at, https://www.lawctopus.com/academike/arbitration-adr-in-india/

[vii] Section 11, Arbitration and Conciliation Act, 1996, available at, http://icadr.nic.in/file.php?123?12:1461580854

[viii] Section 13, Arbitration and Conciliation Act, 1996, available at, http://icadr.nic.in/file.php?123?12:1461580854

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