ARBITRATION

Arbitration is a procedure in which a dispute is submitted, by agreement of the parties, to

one or more arbitrators who make a binding decision on the dispute. In choosing arbitration,
the parties opt for a private dispute resolution procedure instead of going to court.

Introduction
In India, at present, the arbitration is governed by the law of arbitration which is mainly
provided under the Arbitration and Conciliation Act, 1996. Before this Act, there were 3 Acts
that governed the law of arbitration such as:

1. The Arbitration (Protocol and Convention) Act, 1937.

2. The Arbitration Act, 1940.
3. The Foreign Awards (Recognition and Enforcement) Act 1961. 
These aforesaid Acts were repealed by the Arbitration and Conciliation Act in 1996, in order
to exercise the duty provided under the Constitution of India in its Article 51. However, the
Model Law which was adopted on 21 June 1985 by the United Nations General Assembly on
the recommendation of the United Nations Commission on International Trade Law
(UNCITRAL). It also contributed in drafting and implementing the provisions of the
Arbitration and Conciliation Act, 1996.

The Arbitration and Conciliation Act, 1996

The Arbitration and Conciliation Act of 1996 is the main governing law for arbitration in
India. This was enacted with the objective of “to consolidate and amend the law relating to
domestic arbitration, international commercial arbitration and enforcement of the foreign
award, and also to define the law relating to the conciliation”.

This Act is divided into 4 parts:

 Part-1 (Section 2 to 43) This part sets out general provisions of both types of
arbitration, domestic as well as international commercial arbitration in India;
 Part-2(Section 44 to 60) This part sets out rules regarding the enforcement of foreign
awards;
 Part-3 (Section 61 to 81) This part sets out rules regarding conciliation; and
 Part-4 (Section 82 to 86) This part sets out certain supplementary provisions.
This Act is a composite piece of the legislature, Parts I and Part II are the most significant
parts that govern both domestic and international arbitration in India.

Part 1 (Section 2 to Section 43)

Part 1 of this Act deals with any arbitration (domestic as well as international) which was
majorly based on UNCITRAL Model law. This part describes the following provision.

Definitions

 Arbitration
In this Act, arbitration includes any form of arbitration whether it is administered by
permanent arbitration or not.

 Arbitration agreements
An arbitration agreement means the agreement between the parties under which they agree to
submit their dispute to the arbitration.

 Arbitration tribunal
The arbitration tribunal may consist of a sole arbitrator as well as the panel of arbitrators.

 Court
In this Act, the word ‘Court’ means:

 The District Courts and High Courts; In the cases of arbitration other than
international commercial arbitration, and
 The High Courts and the Supreme Court, in the cases of international commercial
arbitration.

 International Commercial Arbitration

International commercial arbitration is an arbitration agreement under which the parties
constitute a legal relationship between them which is commercial in nature where at least one
party is:  

 Either an individual who is the national or habitual residence of any country other
than India; 
A body corporate incorporated in a foreign country other than India; 
 An association of person or a body of individuals who are controlled and managed by
another country other than India; or 
 The authority is managed by the government of any foreign country. 

Arbitration award
In this Act, an arbitration award is defined inclusively which says that it includes interim
awards however what exactly is an award is not fined. Generally, it is considered as
adjudication and final decision of arbitrator which is based on the contention of the disputing
parties.

Receipt of written communication

According to this Act, any receipt of written communication is deemed to have been received
when it is delivered to the residential or business place of the person concerned. And if in any
case his place is not described under the agreement then the receipt is sent to the addressee’s
last known place of work and habitual residence. 
Arbitration agreement
An arbitration agreement is a written document upheld by the parties of arbitration in order to
settle their dispute outside the Court by the process of arbitration. There is no specified form 
given under which such agreement is required to be drawn, however, in order to constitute a
valid arbitration agreement, the following attributes are necessary:

 The agreement must contemplate that the decision of the tribunal will be binding on
the parties;
 Theagreement must contemplate that the jurisdiction of the tribunal or rights of the
parties must derive either from the consent or from the order of the Court;
 Theagreement must contemplate that  parties substantive rights must be determined
by the agreed tribunal;
 Theagreement must contemplate that the tribunal will impartially and in judicial
manner determine the rights of parties;
 The agreement must contemplate that the arbitration agreement of the parties must be
intended to be enforceable in law; and
 The
agreement must contemplate that the tribunal will make a decision upon a dispute
which is already formulated at the time when a reference is made to the tribunal.

Number of arbitrators
This Act leaves at parties to decide the number of the arbitrator with a condition that such
number shall be an odd number. In case parties fail to determine the number the arbitrator
shall consist of a sole arbitrator.

Appointment of the arbitrator 

According to this Act, there are two ways to appoint an arbitrator. First, if the parties have
agreed upon any specific procedure for the appointment then the dispute between them is
decided in accordance with that and recourse to the Chief Justice or his designate cannot be
taken straightway, however, if they fail to decide the said procedure, then the Chief Justice or
any person or institution designated by him shall have to appoint an independent and
impartial arbitrator.

Grounds for challenging the appointment

This Act requires a prospective arbitrator to disclose any circumstances likely to give rise to
justifiable doubts in the minds of the parties about his independence and impartiality. It
seems to be an obligation upon the appointed arbitrator to make such disclosure even during
the arbitral proceeding proclaim the unambiguous legislative disapproval of the appointment
or continuance of a person against whom circumstances exist giving rights to justifiable
doubts as to his independence and impartiality.
Equal treatment of parties
This Act imposes a dual-duty on the arbitral tribunal, firstly it will act in an impartial manner
and should give equal treatment to each party. Secondly, the arbitral tribunal should give each
party a full opportunity to present its case.

Determination of rule of procedure

This Act expressly excludes the applicability of the Code of Civil Procedure, 1908 in an
arbitration proceeding that is required to be concluded and resolved by the arbitration tribunal
and, if it fails to do so, the arbitration tribunal will conduct its proceeding in the manner in
which it considers appropriate. However, in the case of Municipal Corporation of Delhi v.
International Security and Intelligence Agency Ltd 2003, the Apex Court said that “the
applicability of the Code of Civil Procedure to the arbitral proceeding under the Arbitration
and Conciliation Act 1996 shall be subjected to effecting any rights of the party under a
special law or local law in force which relates to the arbitration proceedings”.

Place of arbitration
In this Act, the parties are free to agree to a place of arbitration, however, in case of failure of
the parties to agree to a place of arbitration, the arbitral tribunal after considering the
circumstances of the case and convenience of the parties will determine the place for holding
the arbitral proceedings.

Language of arbitration
In this Act, the parties have the freedom to decide the language or language to be used in
arbitral proceedings by agreement. In case of no agreement on it. then power to determine the
language has been vested in the arbitral tribunal.

Rules applicable to the arbitration proceeding

In this Act, excepting arbitration other than international commercial arbitration, an arbitral
tribunal shall decide the dispute submitted to it for arbitration in accordance with the
substantive law for the time being in force in India. However, in case of international
commercial arbitration, the arbitral tribunal shall decide the dispute according to the law or
legal system specified by the parties unless otherwise agreed, as referring directly to the
substantive law of the specified country and not to its conflicts of laws, rules. If no law is
specified by the parties, the arbitral tribunal shall apply the rules considered to be appropriate
according to the overall circumstances of the dispute.

Settlement
In this Act, it is the duty of the arbitral tribunal to encourage the party to settle their dispute
by using conciliation, mediation or any other procedure at any time during the arbitration
proceeding. And if the parties agree for settlement, the arbitral tribunal shall terminate the
proceedings and record such settlement in the form of an award made in accordance
with Section 31 of this Act. This award will have the same status and force as an award on
merit i.e. an award made after completion of arbitration proceedings.
Form and content of the arbitral award
In this Act, an arbitral award is considered as the determination of arbitrator in the arbitral
proceeding. It must be written and signed by parties. It also contains the following attributes:

1. The reason for passing the award; 

2. The date and place of arbitration;
3. The amount of money if imposing on any party; 
4. The parties who bear or who entitled for such amount of money; and
5. Any other information considered necessary by the arbitrator.  

Termination of proceedings
In this Act, the arbitral tribunal is empowered to terminate the proceeding of arbitration
through passing the final arbitral award or any other order. The termination shall be made in
the following cases:

1. When the claimant withdraws his claim;

2. When the parties agreed on the termination of proceedings; or
3. When the arbitral tribunal finds that continuation of proceeding has become
unnecessary and impossible.

Correction and interpretation of awards

This Act gives the following powers to the arbitration tribunal with respect to the award made
by itself:

 To correct any computation errors, clerical errors, typographical errors or any other
similar errors of similar nature accruing in the award;
 To interpret any specific or part of the award; and
 To make any additional arbitral award in respect of claims already presented to the
tribunal in the arbitral proceeding but omitted by the arbitral tribunal.
These powers are exercised either on request present by parties or on its own initiative within
30 days from the date of the award.

Part -2 (Section 44 to Section 60)

This part specifically deals with enforcement of foreign awards. The provisions of this part
are based on the New York Convention and the Geneva Convention respectively. This part
describes the following important provisions:

Meaning of Foreign award 

In this Act, the foreign award is defined as an award of dispute which arises due to the legal
relationship between the parties whether contractual or not but commercial in nature. In order
to apply the provision of an arbitration agreement for enforcement of foreign award, it is
necessary that:

1. It should be made on or after 11 October 1960 in pursuance of an agreement in

writing for arbitration to which the convention set forth in the first schedule applies,
and
2. It should be made on one of such territories as the central government may, by
intimation in the official gazette, declare to be territories to which the said
Convention applies.

Enforcement of foreign award

This Act merely empowers the Court to declare that the foreign award is enforceable under
the provisions of its chapter 2. At the moment such declaration is granted, an award shall be
deemed to be a decree of the Court, it is open to the parties to seek its execution in
accordance with the provisions of the code of civil procedure, 1908.   

Condition for enforcement

For the enforcement of the foreign award made under this Act, the following conditions shall
be necessary:

1. The award has been made in accordance with the submission made by the party for
arbitration; 
2. The award must be settled on such subject matter applicable for arbitration in India;
3. The award must be made according to the submission declared in the manner and
governing laws;
4. The award will become final in the country in which it is made in this sense it will
not be on appeal;
5. The enforcement of such awards is not contrary to any law or public policy of India.

Conclusion 
In recent years, the arbitration and other ADR mechanisms have gained more importance
than the traditional judicial method due to low risk and time factors and the Arbitration and
Conciliation Act,1966 has not left any stone untouched to simplify the procedure for it.
However, time to time amendment is necessary for its effective implementation.   

Advantages Of Artbitration

Supporters of arbitration hold that it has a multitude of advantages over court action. The
following are a sample of these advantages.

Choice of Decision Maker – For example, parties can choose a technical person as arbitrator
if the dispute is of a technical nature so that the evidence will be more readily understood.

Efficiency – Arbitration can usually be heard sooner than it takes for court proceedings to be
heard. As well, the arbitration hearing should be shorter in length, and the preparation work
less demanding.
Privacy – Arbitration hearings are confidential, private meetings in which the media and
members of the public are not able to attend. As well, final decisions are not published, nor
are they directly accessible. This is particularly useful to the employer who does not want his
‘dirty laundry’ being aired.

Convenience – Hearings are arranged at times and places to suit the parties, arbitrators and
witnesses.

Flexibility – The procedures can be segmented, streamlined or simplified, according to the

circumstances.

Finality – There is in general, no right of appeal in arbitration. (Although, the court has
limited powers to set aside or remit an award).

MEDIATION

In a mediation procedure, a neutral intermediary, the mediator, helps the parties to reach a
mutually satisfactory settlement of their dispute. Any settlement is recorded in an enforceable
contract.

Mediation is the facilitation of a negotiated agreement by a neutral third party who has no
decision-making power.

Mediation is now recognised as one of the quickest and most cost-effective ways of resolving
a dispute and is the most common form of ADR.  The number of disputes mediated annually
has increased rapidly in the past decade and evidence suggests that the numbers of mediations
each year will continue to increase.

A mediator is an independent third party who is appointed by the parties to help them attempt
to negotiate a solution.  He will not propose his own solution. The mediation process involves
each party sending short written submissions to the mediator followed by a mediation
hearing.  At the mediation hearing each party will begin by making a presentation to the
mediator and normally the other side.  The mediator will then meet with each party
individually in private in an attempt to facilitate a settlement.  The individual private
meetings are often known as caucuses.  Caucusing may be followed by one or more joint
sessions (plenary sessions).

An Alternative Dispute Resolution is an outcome of all such problems which are facing by
the public constantly in the litigation. It is like a substitute to the traditional method of
resolving dispute and justice. An ADR mechanism mainly focuses on delivering justice
through mutual consent of the parties in the minimum time without any delay like in
litigation. An ADR mechanism recognized four methods to resolve any dispute such as
arbitration, conciliation, mediation and negotiation. Alternative methods are work on the
mutual consensus and try to settle dispute with as early as practicable. ADR mechanism is an
option to the public who don’t want to go for conventional method or want to resolve their
matter without courts interference. These mechanisms have their own advantage as well as
flaws, like any other process have might do.

Yet, particularly in the context of mediation, it needs emphasis that this is only one of the
important objectives. Mediation as a processual intervention in the legal system fulfills other
instrumental and intrinsic functions which are of an equal, if not greater importance. In its
instrumental function, mediation is a means to fulfilling stated objectives. The intrinsic
function of mediation emphasizes the value of mediation as an end in itself.

It is a non–binding procedure in which an impartial third party, the conciliator or mediator,

assists the parties to a dispute in reaching a mutually satisfactory and agreed settlement of the
dispute. Mediation is a process by which disputing parties engage the assistance of a neutral
third party to act as a mediator.

Principles of the mediation

Every process of ADR mechanism has its own basic principles on which it’s work and giving
positive outcomes. Like as other process mediation has its own fundamental principles which
are helpful in settling disputes between the parties on their mutual consensus. Parties choose
mediation process over litigation may be because of these principles which have given
effective way to the process. Mediation usually has seen in the family matters or any
neighboring issues which could be resolve by mediation process rather than go to court for
justice.

In generally there are 5 basic principles usually seen in the mediation process and it should be
followed strictly by the mediator as well as the parties for an effective outcome. Five basic
principles of mediation process are as follows:-

Parties should participate voluntarily

It is necessary that no one should forced to mediate, it should be in the hands of parties and
they have to decide whether they want to mediate or go to the courts. Parties have their
voluntary participation in the mediation process. It is going to be more fruitful.

People will cooperate more fully if they know they are free to leave at any point. This
engages their own free will and sense of purpose and enables them to drive the process
towards agreement rather than to be led to an understanding by a third party. If they drive the
process they are more committed to the outcome.

Confidentiality matters in the process

Within the mediation itself the mediator must not divulge any confidences that are shared
with them unless given permission to do so. Unless someone shares a criminal intent or act
that involves harm to self or other.

 In respect of further proceedings (except with the express permission of both sides)
 In order for people to feel safe to explore their fears and anxieties the process must be
perceived to be entirely confidential.[5]
All the information given in the mediation shall be kept confidential and it cannot be used in
the court proceedings neither by the mediators nor court can ask why the mediation did not
work.

Mediators are impartial

The mediator must act impartially and neutrally. He/she should observe all principles of
mediation and consider only matters of procedure. He/she should not comment, value
judgments, nor give advice or suggesting solutions. Impartiality of a mediator should ensure
that the parties accept him/her as a person who is sincerely dedicated to resolving the dispute
and who favors both sides in the dispute, seeking solutions that would satisfy both sides in
the dispute. The mediator must keep in mind that his/her behavior, attitude, and sometimes
the techniques of mediation can bring a sense of sympathy towards one side. When that
happens, then the mediation went the wrong way. The mediator cannot perform the function
if there are circumstances that indicate doubts about his impartiality and objectivity.

An agreement has to be settled with the satisfaction of parties concerned

The responsibility for defining the problem, setting the agenda and agreeing the solution rests
with the people in the dispute.[7] The mediation procedure can be started only if there is an
agreement between the parties. Mediation will not be started without both parties intending to
resolve the dispute. In such cases, mediation is misused only as a mean of withholding the
court process and keeping the situation at the “status quo”.

A mediator needs to know how to explain the advantages of such dispute resolution to the
parties, so that they themselves voluntarily agree to be part of such process. The parties
should be informed on the possibility to interrupt the mediation process at any stage, if they
express need for such. The principle of willingness applies at all stages of the proceedings. A
party or the mediator may at any time withdraw and then transfer the case to the judge.

A mediator can interrupt mediation if he/she feels that parties turn away from the solution or
that are even more opposed than they were at the start of mediation. The basic principle in the
process of mediation is that the mediation procedure should not harm the parties in any way,
but to contribute to the resolution of their dispute.

Given that mediation is only a supplement to the court proceedings, it must not prevent a
party from exercising the right of access to court and use of judicial protection.

Mediation is without prejudice to other procedures

It is important that people reserve the right to invoke other measures. If the mediation were
seen as an enforced procedure or one that removes an individual’s rights it would constrict
the creativity and increases the potential for resistance.

Is mediation an effective ADR mechanism or not?

The use of the term “mediation” is well known in International Law. It is the technical term
in International Law which signifies the interposition by a neutral and friendly state between
two States at war or on the eve of war with each other, of its good offices to restore or to
preserve peace. The term is sometimes as a synonym for intervention, but mediation differs
from it in being purely a friendly act.
Mediation at one level of perception is a means of avoiding the pitfalls of litigation. The
problems which arise in the resolution of disputes through litigation are well known.

These are, broadly

 (i) delay
 (ii) expense
 (iii) rigidity of procedures and
 (iv) a reduction in the participatory role of parties.[11]
In the path of resolving these pitfalls of litigation, mediation is the most frequently adopted
ADR procedure.

The process of mediation may have to pass through several stages such as :-

 opening statement
 opening statement to the parties
 summarizing and agenda setting.
 exploration of issues.
 private sessions or caucuses
 joint negotiation session
 agreement
Practitioners in this field adopt their own perfected styles. They differ in their basic steps. A
lot depends upon the nature of the dispute. The more complicated a matter, the more private
meetings would be necessary to pave the ground for a joint meeting.

A mediator may adopt either a facilitative or evaluative approach. Mediators try to avoid
opinions and judgments.  They rather facilitate and encourage parties to open up their
communications and disclose their interests and priorities. In this process the mediator gets
the opportunity of locating the points of difference and the area of controversy or dispute. He
may then help the parties to bridge the gap between them.

The essence of mediation lies in the role of the mediator as a facilitator. The mediator is not
an adjudicator. Unlike the Judge in a traditional Court setting or for that matter even an
arbitrator, the mediator is neither an adjudicator of facts nor an arbiter of disputes. The role of
the mediator is to create an environment in which parties before him are facilitated towards
resolving the dispute in a purely voluntary settlement or agreement.

The mediator is a neutral. The neutrality of the mediator is akin to the neutrality of a Judge
but the role of the mediator is completely different from that of a Judge. The mediator does
not either deliver judgment or dictate to the parties the terms of the agreement.[13]

Mediation is an effective ADR mechanism can be seen by these 4 benefits of the process such
as

1. Informality – No court rules or legal precedents are involved in mediation. The
mediator does not impose a decision upon the parties. As opposed to adversarial
forums, the mediator helps to maintain a business like approach to resolving a
 dispute. There are no fixed solutions in mediation. Parties can look to developing
creative solutions to resolve matters and the solution rests with the parties
themselves.

2. Privacy and confidentiality – The mediation conference takes place in a private

setting such as a conference room at any of the Arbitration Associations. Mediation
is not a matter of public record. Its confidentiality is maintained.

3. Time and cost savings – Mediation generally lasts a day. Complex matters may
require more time due to highly technical issue and/ or multiple parties. Without the
formalities found in litigation, mediation usually results in substantial costs savings.

4. Control – Parties have control over their participation in mediation. A party can
decide to terminate their participation at any point in mediation. Mediators help
parties maintain control over the negotiation that takes place.[14]

Implementation strategies
For an effective implementation, there is always a need of strategies and policies. Mediation
process is frequently used by the public but there is lack of implementation. More mediation
centres have to be set up by High courts and particular sect of cases should be giving to the
mediation by courts.

The development of mediation as a viable alternative to litigation is still in the incipient

stages in India. Mediation centre’s have recently been set up by a few industry and trade
associations. Similarly, professional lawyers have in certain isolated instances attempted to
develop into fullfledged professionals with expertise in mediation. These instances are,
however, sporadic and the overall potential of mediation still remains to be explored.
Strategies for successful implementation of mediation must, be carefully assessed and a
conscious effort has to be made towards the evolution of a process that will be acceptable to
the society at large. In achieving a high level of acceptability for the mediation process,
several issues need be focused upon and these include:

(i) Developing awareness;

(ii) Advocacy;

(iii) Building capacities;

(iv) The creation of an institutional framework; and

(v) Actual implementation.[15]

Conclusion
There is no necessary interference of court in ADR techniques but yet in different stages
court would have discharge some important functions. The mediation is not adjudication of
cases but in the settling dispute. Mediator is also not allowed to adjudicate but can only try to
settle dispute or could communicate with the parties.
Implementation of the process does not mean to take every case under mediation but initially
it should apply on the small plot of cases and after witnessing the success implementation
could be done on large number of cases. Mediation is a significant process for reducing
burden from the judiciary and it is capable enough to shifts the focus from adjudication
towards resolving or settling dispute under fundamental legal system.

It is more facilitative for the development of law to approach preventive process unlike
litigation oriented approaches only. Above all, confidence in the mediation process will be
fostered only if the mediator discharges in positive terms the ethical concerns of a process to
which the role of the mediator is central.

Difference between Arbitration and Mediation

Basis Arbitration Mediation
1. Nature of proceedings Formal Informal
2. Nature of matters Mainly commercial Commercial, contractual,
diplomatic, family,
matrimonial, property, etc
3. Costs Expensive Comparatively Less
expensive
4. Decision Made by the arbitrator Made by the parties with
Mediator’s assistance
5. Binding effect Legally Binding Not legally binding. Parties
can move to court for further
redressal
6. Modus Operandi Similar to litigation Friendly; No defined process
(Mode of Operation) (Application, facts, evidence,
witnesses and decision)