IAS Resources

IAS Score

ARBITRATION AND CONCILATION

 

Introduction

With the steep growth in the number of laws and the number of cases, the Court system is under great pressure. In order to reduce the heavy demand on Court time, efforts need to be made to resolve the disputes by resorting to Alternative Dispute Resolution Methods before they enter the portals of the court. The Arbitration, Mediation and Conciliation are tools of Alternative Dispute Redressal System.

Arbitration is a method for settling disputes privately, but its decisions are enforceable by law. An arbitrator is a private extraordinary judge between the parties, chosen by mutual consent to sort out controversies between them. Arbitrators are so called because they have an arbitrary power; for if they observe submissions and keep within due bounds their sentences are definite from which there is no appeal. Arbitration offers greater flexibility, prompt settlement of national and international private disputes and restricted channels of appeal than litigation. In the words of Richard Cobden "At all events, arbitration is more rational, just, and humane than the resort to the sword."

Arbitration is a simplified version of a trial involving no discovery and simplified rules of evidence. Either both sides agree on one arbitrator, or each side selects one arbitrator and the two arbitrators elect the third to comprise a panel. Arbitration hearings usually last only a few hours and the opinions are not public record. Arbitration has long been used in labour, construction, and securities regulation, but is now gaining popularity in other business disputes. Litigation is expensive, time consuming and full of complexities.

The technique of ADR is an effort to design a workable and fair alternative to our traditional judicial system. It is a fast track system of dispensing justice. There are various ADR techniques viz. arbitration, mediation, conciliation, mediation-arbitration, mini-trial, private judging, final offer arbitration, court-annexed ADR and summary jury trial.

Arbitration

Arbitration is a process in which a neutral third party or parties render a decision based on the merits of the case. In the Indian context the scope of the rules for the arbitration process are set out broadly by the provisions of the Arbitration and Conciliation Act 1998 and in the areas uncovered by the Statute the parties are free to design an arbitration process appropriate and relevant to their disputes.

Mediation

The Process of mediation aims to facilitate the development of a consensual solution by the disputing parties. The Mediation process is overseen by a non-partisan third party - the Mediator. The authority of the mediator vests on the consent of the parties that he should facilitate their negotiations.

Conciliation

Conciliation is a less formal form of arbitration. This process does not require an existence of any prior agreement. Any party can request the other party to appoint a conciliator. One conciliator is preferred but two or three are also allowed. In case of multiple conciliators, all must act jointly. If a party rejects an offer to conciliate, there can be no conciliation.

Parties may submit statements to the conciliator describing the general nature of the dispute and the points at issue. Each party sends a copy of the statement to the other. The conciliator may request further details, may ask to meet the parties, or communicate with the parties orally or in writing. Parties may even submit suggestions for the settlement of the dispute to the conciliator.

When it appears to the conciliator that elements of settlement exist, he may draw up the terms of settlement and send it to the parties for their acceptance. If both the parties sign the settlement document, it shall be final and binding on both.

Negotiation

Negotiation is a dialogue intended to resolve disputes, to produce an agreement upon courses of action, to bargain for individual or collective advantage, or to craft outcomes to satisfy various interests. It is the primary method of alternative dispute resolution.

Negotiation occurs in business, non-profit organizations, government branches, legal proceedings, among nations and in personal situations such as marriage, divorce, parenting, and everyday life. The study of the subject is called negotiation theory. Those who work in negotiation professionally are called negotiators. Professional negotiators are often specialized, such as union negotiators, leverage buyout negotiators, peace negotiators, hostage negotiators, or may work under other titles, such as diplomats, legislators or brokers.

 Procedure

The process of arbitration can start only if there exists a valid Arbitration Agreement between the parties prior to the emergence of the dispute. As per Section 7, such an agreement must be in writing. The contract, regarding which the dispute exists, must either contain an arbitration clause or must refer to a separate document signed by the parties containing the arbitration agreement. The existence of an arbitration agreement can also be inferred by written correspondence such as letters, telex, or telegrams which provide a record of the agreement. An exchange of statement of claim and defence in which existence of an arbitration agreement is alleged by one party and not denied by other is also considered as valid written arbitration agreement.

Any party to the dispute can start the process of appointing arbitrator and if the other party does not cooperate, the party can approach the office of Chief Justice for appointment of an arbitrator. There are only two grounds upon which a party can challenge the appointment of an arbitrator - reasonable doubt in the impartiality of the arbitrator and the lack of proper qualification of the arbitrator as required by the arbitration agreement. A sole arbitrator or panels of arbitrators so appointed constitute the Arbitration Tribunal.

Except for some interim measures, there is very little scope for judicial intervention in the arbitration process. The arbitration tribunal has jurisdiction over its own jurisdiction. Thus, if a party wants to challenge the jurisdiction of the arbitration tribunal, it can do so only before the tribunal itself. If the tribunal rejects the request, there is little the party can do accept to approach a court after the tribunal makes an award. Section 34 provides certain grounds upon which a party can appeal to the principal civil court of original jurisdiction for setting aside the award.

Once the period for filing an appeal for setting aside an award is over, or if such an appeal is rejected, the award is binding on the parties and is considered as a 'decree of the court'.

Advantages

  • Arbitration promises privacy. In a civil court, the proceedings are held in public.
  • Arbitration provides liberty to choose an arbitrator, who can be a specialist in the subject matter of the dispute. Thus, arbitrators who are sector specialists can be selected who resolve the dispute fairly and expeditiously.
  • The venue of arbitration can be a place convenient to both the parties. Likewise the parties can choose a language of their choice.
  • Even the rules governing arbitration proceedings can be defined mutually by both the parties.
  • A court case is a costly affair. The claimant has to pay advocates, court fees, process fees and other incidental expenses. In arbitration, the expenses are less and many times the parties themselves argue their cases. Arbitration involves few procedural steps and no court fees.
  • Arbitration is faster and can be expedited. A court has to follow a systematic procedure, which takes an abnormally long time to dispose off a case.

Ground reality

  • Delay: Arbitration in India is rampant with delays that hamper the efficient dispensation of dispute resolution. Though the 1996 Act confers greater autonomy on arbitrators and insulates them from judicial interference, it does not fix any time period for completion of proceedings.

          However, the reality is quite different. Arbitrators, who are mostly retired judges, usually treat the arbitration proceedings in the same manner as traditional litigations, and are willing to give long and frequent adjournments, as and when sought by the parties. Although the scope of judicial intervention under the 1996 Act has been curtailed to a great extent, courts through judicial interpretation have widened the scope of judicial review, resulting in the admission of large number of cases that ought to be dismissed at the first instance. Moreover, the parties usually approach arbitration with a similar mindset as for litigation, with the result that awards invariably end up in courts, increasing the timeframe for resolution of the disputes. Thus concept of fast track arbitrations has been established. Fast track arbitration is a time-bound arbitration, with stricter rules of procedure, which do not allow any laxity or scope for extensions of time and the resultant delays, and the reduced span of time makes it more cost-effective.

  • Cost: Arbitration is generally considered cheaper over traditional litigation, and is one of the reasons for parties to resort to it. However, the ground realities show that arbitration in India, particularly ad hoc arbitration, is becoming quite expensive vis-à-vis traditional litigation. A cost analysis on arbitration vis-à-vis litigation will throw light on the higher cost of arbitration over litigation. This is a crucial factor which weighs against developing a cost effective quality arbitration practice in India.

          Arbitration costs incurred by the parties may include the arbitrator's fees, rent for arbitration venues, administrative/clerical expenses, and professional fees for the representatives of the parties (which may include lawyers and expert witnesses). The sum of these fees may differ significantly between ad hoc and institutional arbitrations.

  • Flexibility of procedure, place and language in the arbitration proceedings: The parties to arbitration are free to determine the procedural rules subject, however, to certain mandatory rules. If the parties do not agree to the procedure, the procedure will be as determined by the arbitral tribunal. Arbitral Tribunal has powers to decide the procedure to be followed, unless parties agree on the procedure to be followed and conduct the proceeding in manner it considers appropriate. The Tribunal also has powers to determine the admissibility, relevance, materiality and weight of any evidence.

          The Place of arbitration will be decided by mutual agreement. However, if the parties do not agree to the place, tribunal shall decide the same after having regard to the circumstances of the case, including the convenience of the parties. Similarly, the language to be used in arbitral proceedings can be mutually agreed otherwise, Arbitral Tribunal can decide. The arbitral tribunal may order that any documentary evidence shall be accompanied by a translation into the language agreed upon by the parties or determined by the parties or determined by the arbitral tribunal.

Salient features of Arbitration and Conciliation (Amendment) Act, 2015:

The Amendment Act has introduced some major changes in the principal Act. We have prepared a brief summary of the following key amendments:

  • Relevant court for domestic and international arbitration matters: Under the Act, the relevant court for all arbitration matters would be a principal civil court or high court with original jurisdiction.
  • The Bill modifies this to state that in the case of international arbitration, the relevant court would only be the relevant high court.
  • Applicability of certain provisions to international commercial arbitration: Part I of the Act that included provisions related to interim orders by a court, order of the arbitral tribunal, appealable orders etc. only applied to matters where the place of arbitration was India.
  • Under the Bill, these provisions would also apply to international commercial arbitrations even if the place of arbitration is outside India. This would apply unless the parties agreed otherwise.
  • Powers of Court to refer a party to arbitration if agreement exists: Under the Act, if any matter that is brought before a court is the subject of an arbitration agreement, parties will be referred to arbitration.
  • The Bill states that this power of referral is to be exercised by a court even if there is a previous court judgment to the contrary. The Court must refer the parties to arbitration unless it thinks that a valid arbitration agreement does not exist.
  • Interim order by a Court: The Act states that a party to arbitration may apply to a court for interim relief before the arbitration is complete. For example, a party may seek interim protection of goods, amounts, property, etc. that is the subject matter of the arbitration before a court.
  • The Bill amends this provision to specify that if the Court passes such an interim order before the commencement of arbitral proceedings, the proceedings must commence within 90 days from the making of the order, or within a time specified by the Court. Further, the Court must not accept such an application, unless it thinks that the arbitral tribunal will not be able to provide a similar remedy.
  • Public Policy as grounds for challenging an award: The Act permits the court to set aside an arbitral award if it is in conflict with the public policy of India.  This includes awards affected by (i) fraud or corruption, and (ii) those in violation of confidentiality and admissibility of evidence provisions in the Act.
  • The Bill modifies this provision to also include those awards that are (i) in contravention with the fundamental policy of Indian Law or (ii) conflict with the notions of morality or justice, in addition to the grounds already specified in the Act.
  • Appointment of arbitrators: The Act permits parties to appoint arbitrators. If they are unable to appoint arbitrators within 30 days, the matter is referred to the court to make such appointments.
  • The Bill states that, at this stage, the Court must confine itself to the examination of the existence of a valid arbitration agreement.
  • Time period for arbitral awards: The Bill introduces a provision that requires an arbitral tribunal to make its award within 12 months. This may be extended by a six month period.  If an award is made within six months, the arbitral tribunal will receive additional fees.  If it is delayed beyond the specified time because of the arbitral tribunal, the fees of the arbitrator will be reduced, up to 5%, for each month of delay.
  • Time period for disposal of cases by a Court: The Bill states that any challenge to an arbitral award that is made before a Court, must be disposed of within a period of one year.
  • Fast track procedure for arbitration: The Bill permits parties to choose to conduct arbitration proceedings in a fast track manner. The award would be granted within six months.

Way forward

  • The amendments to the Act, though laudable, are only a first step towards making arbitration the preferred mode of dispute resolution in India. It must be acknowledged that increased efficiency in arbitration is unlikely to come solely from the imposition of top-down legislative change, especially one that is as inherently flawed as this one.
  • A change in the very culture of Indian arbitration is required.

    a) For one, there needs to be a change in the perspective with which arbitration is viewed. The pool of Indian legal practitioners who specialize in the practice of arbitration has to grow, with arbitration viewed as the priority rather than playing second fiddle to Indian court litigation work.

    b) And the pool of arbitrators needs to grow as well. Unfortunately, the tendency to appoint retired Indian judges as arbitrators is also stifling the growth of arbitration as a dispute resolution mechanism in India. What is needed is the growth of a community of arbitrators unfettered by the traditions of the Indian courts and focussed on growing arbitration in its own right.

    c) The final, and most important, change needed is the minimization of judicial interference.
Quick Contact