- Arbitration is a process of settling disputes out of court among the disputing parties.
- It is a preferred mode of dispute settlement for private parties involved in a trade.
- In India, we have Arbitration and Conciliation Act, 1996, which governs the arbitration proceedings for dispute settlement.
- The arbitration procedure is less formal and less time-consuming.
- Arbitration is mainly of two types- Ad hoc arbitration and Institutional Arbitration.
Disputes or conflicts can arise anytime in any legal relationship, and sometimes these disputes are unavoidable, particularly in commercial relations. The emphasis should be on the quick resolution of these disputes.
The conventional legal system in India is marked by massive pendency of cases in the courts. Moreover, unnecessary delays in regular court proceedings and trials lead to a rise in the cost of litigation. Since justice delayed is justice denied, we need to provide for a speedy resolution of conflicts.
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Is there any alternative method to settle the disputes, and what is that?
The solution is found in the Alternative Dispute Settlement processes, like arbitration, conciliation and mediation. These are legal processes where proceedings are conducted outside the court without following regular legal procedural codes but within the limits of a simplified legal framework.
The procedures followed are simple, making the entire process short and effective. The cost factor is also not very high as in ordinary court proceedings.
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What is arbitration?
Arbitration is a process of settling disputes out of court among the parties who have mutually agreed by including arbitration clauses in the agreements.
It is a preferred mode of dispute resolution for private parties involved in a trade. However, certain statutes in India mandate arbitration as a process for resolving a dispute with a Government entity.
It is an alternative dispute resolution process but complementary to the litigation in Courts.
In simple words, arbitration means adjudication over disputes between parties by a judge, as mutually agreed. The parties appoint a neutral person to act as a judge, known as an Arbitrator.
The Arbitrator presiding over the arbitration proceedings constitutes Arbitral Tribunal. The proceedings may be heard by a sole arbitrator or a panel of arbitrators as decided by the parties.
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How different is the arbitration procedure from regular court proceedings?
The procedure to be followed is also mutually decided by the parties. However, the arbitration rules are not made at the whims and fancies of the parties. These are guided by the law of the land and internationally accepted arbitration rules.
In India, we have Arbitration and Conciliation Act, 1996, which governs the arbitration proceedings for dispute settlement. The said Act is based on the 1985 UNICTRAL Model on International Commercial Arbitration and UNCITRAL Arbitration Rules of 1976. (UNICTRAL rules are arbitration rules adopted by United Nations Commission on International Trade Law).
The arbitration procedure is less formal and less time-consuming. The rules of evidence followed are not as technical and complicated as in usual court proceedings.
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What are the different types of arbitration?
Arbitration is mainly of two types- Ad hoc arbitration and Institutional Arbitration.
Ad hoc Arbitration
The arbitration is conducted and arranged by the parties without involving any institution. The parties appoint the Arbitrator, and he follows the procedure as decided by the parties.
This method is no doubt faster, cost-effective and efficient. Still, the success depends on the parties’ intention to co-operate and the skills and expertise of the Arbitrator.
An institution conducts the arbitration proceedings. The agreement between the parties contains a clause for referring the matter to an institution for arbitration.
There are many arbitral institutions in India, some of which are “International Centre for Alternative Dispute Resolution (ICADR), Indian Council of Arbitration (ICA), the Delhi International Arbitration Centre (DAC), Mumbai Centre for International Arbitration (MCIA).
These institutions have framed their own rules for arbitration based on UNCITRAL rules.
The Arbitrator is provided by these institutions, which have their arbitral panels.
What are the advantages of arbitration?
- It is a private process, unlike court proceedings. It has more confidentiality.
- The parties choose the Arbitrator themselves, reducing the fear of biased decisions. The parties appoint a person having specialized knowledge of the subject matter of the dispute.
- It is not expensive and is cost-effective. The cost is divided among both parties, so it becomes less burdensome. The parties can themselves represent their case and do not necessarily need an attorney; therefore, the cost is reduced.
- The process is less technical and less formal. It becomes shorter and less time-consuming and offers more flexibility.
- Arbitral Awards, i.e. the decision of an Arbitrator is final, and there is significantly less scope of appeals. (The 1996 Act provides for the grounds of appeal against the Award. However, Judiciary in India ordinarily refuses to interfere in the Award). The finality of the decision reduces the chances of further delaying the resolution of a dispute.
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What are the disadvantages of arbitration?
- Since there are no rules for the admission of evidence, the parties may miss relevant evidence. One depends more upon the skill and experience of the Arbitrator for accepting or rejecting the evidence.
- The documents accepted in evidence are without the testimony of the witnesses.
- Arbitration Awards are generally binding. Parties forego their right to appeal, and in case the Arbitrator has been biased, the party needs convincing reasons to prove the fact.
- Execution of Awards is just like execution of a decree of the court and may take a lot of time, delaying the benefit of the outcome of arbitration proceedings.
How do legal firms help in arbitration?
Though arbitration is devoid of technicalities and formalities of usual court proceedings yet, we may need the assistance of legal firms in various forms for desired results, like:
- Drafting and incorporating arbitration clause. It has to be carefully worded as the door for arbitration to resolve the conflict is opened by this clause only.
- Drafting of pleadings and representing before the Arbitrator if the subject matter of the dispute is complex.
- Arbitration is a legal process affecting the rights of a party. Awards are generally binding. The other party may be more familiar with the process. So, one may need to present the case more effectively.
- In some kinds of contracts like consumer/employment contracts, the arbitration clauses are mandatory and favour large companies/employers. Here the consumer/employee might need better representation.
In short, legal assistance helps to achieve a strategic advantage in the arbitration proceedings. If stakes are high, it is better to have proper legal advice and representation for arbitration proceedings.
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What is better, Arbitration or Litigation?
Alternative dispute resolution or settlement is a favourite for resolving commercial disputes. Nowadays, the Judiciary is supporting the processes like mediation and Lok Adalats for all kinds of conflicts, as it will help in reducing the burden on courts and is more cost and time effective.
Arbitration in India
The Indian economic reforms of the nineties necessitated the existence of a dispute resolution system that could resolve commercial disputes quickly and effectively. Arbitration is a popular choice as an alternative dispute resolution process in the business world. However, Institutional Arbitration is still evolving in India and has a long way to go.
With the presence of expert legal advice and assistance around the corner and given the level of understanding within the Judicial System and pro-arbitration Judiciary, things favour the growth of arbitration.