Evolution of arbitration in India

Introduction

It is a well-known fact that the Indian Judiciary is one of the oldest judicial
systems, but it is also known that the Indian Judiciary has become inefficient in
settling disputes despite a large number of fast-track courts that have been created.
The Indian courts are clogged with thousands of cases and the problem is far from
being solved as the cases keep on piling up. The reason is not only the inefficiency
of the courts to solve them in a limited time but also the fact that small matters
which can be discussed outside the courts are also filed before the courts.

Alternative Dispute Resolution is the process of initiating alternative methods

and procedures of resolving a dispute without resorting to litigation. It is
therefore any means of settling dispute outside the courtroom with the help of
an impartial third party, providing a confidential and alternative method to
resolve legal disputes.

In India, there were kulas, and people used to live in joint families with their
clans. When the caste system became prevalent people began living in the societies
along with the members of their caste. The disputes among the kulas were
resolved by the heads of the family and clan. After this came the system of
forming trade associations where the head or the President of the association was
appointed to resolve the dispute between the transacting parties.

In India, arbitration was known even before the British rule but in the form of
‘Panch’ and ‘Panchayat’ which are now known as ‘Arbitration’ and
‘Arbitrators’ respectively. Panchayat means a proceeding before a person who
was considered to be the head of the village and he used to adjudicate the dispute
between the parties amicably and his decision was considered to final and
binding upon both the parties.
ADR: Why needed.
1. Amicable settlement of disputes

ADR provides for a friendly settlement of disputes. In business it is a prudent

approach to have a competitor not a rival. It is clear that a healthy competition
brings improvement and it’s also cost effects cost of service or commodities in
every sphere.

 Speedy disposal of trial

ADR provides for speedy disposal of trials. Unlike litigation process in ADR there
is no scope of adjournment or stay order.

 Economical settlement of disputes

Unlike litigation process where huge expenses are incurred to pay the advocates
and other people involved in the trial, in ADR it is not the case and minimum
amount of money is required.

 Time saving management

In ADR the dispute is resolved without following the cumbersome procedure of

ordinary litigation that’s why ADR is also known as dispute management.

 Legal recognition

This system has been recognized in the Indian Statutes. For instance- now the Civil
Procedure Code,1908, Order 32-A, Rule 3 contains scope for compromise and
the decree evolved from that compromise is not appealable. Notably, section 12 of
the Industrial Disputes Act,1947 contemplated provisions for conciliation as pre-
requisite for any pressure tactics/collective bargaining.

 Advent of multinational corporations

A number of multinational corporations are coming to invest and establish their

business. These businesses have dynamic approach in their business activities.
Therefore, in case of disputes they should be provided with such a mechanism
which can resolve their dispute immediately and without delays.
Kinds of ADR
 Ad-hoc arbitration

When a dispute or difference arises between the parties in the course of

commercial transaction and the same could not be resolved either through
negotiation or mediation, in such cases ad-hoc arbitration may be sought by the
conflicting parties. It is not administered by an institution and therefore the parties
are required to identify all aspects of arbitration. Ad-hoc proceedings can be faster,
cheaper and flexible than an administered proceeding.

 Institutional Arbitration

When there is a prior agreement between the parties that in case of any differences
or conflicts in the future the matter would be resolved through arbitration and it
would be referred to the named institution of which one or more of them are
members it is known as institutional arbitration.

 Contractual Arbitration

Due to the growth of commercial activities in the modern times there are frequent
differences and disputes between the parties which are required to be settled
amicably. Thus, to seek early settlement of differences and disputes without taking
recourse to the court of law, the parties involved choose to incorporate an
arbitration clause as a part of the agreement to refer their future or existing
differences to a named arbitrator to be appointed by a designated authority. This is
known as contractual arbitration.

 Statutory Arbitration

When a law specifies that if a dispute arises in a particular case it has to be referred
to arbitration, the arbitration proceedings are called “statutory arbitration”.

 Fast-track Arbitration

Fast track arbitration is a time bound arbitration, with stricter rules of procedure,
which do not allow any laxity for extension of time, and the resultant delays, and
the reduced span of time makes it more cost effective.

 Mediation
Mediation is a process in which an external person who is known as mediator
works with the transacting parties to resolve the dispute and differences between
them. Mediation is always carried out with an assistance of third party. The
mediator has no power to impose his/her decision on the parties.

The village Panchayats and the Nyaya Panchayat are good examples of this.

 Conciliation

Conciliation is an alternative out-of-court dispute resolution instrument.

Conciliation is a voluntary, flexible, confidential, and interest-based process. The
parties seek to reach an amicable dispute settlement with the assistance of the
conciliator, who acts as a neutral third party. The main difference between
conciliation and mediation proceedings is that, at some point during the
conciliation, the conciliator will be asked by the parties to provide them with a
non-binding settlement proposal. A mediator, by contrast, will in most cases and as
a matter of principle, refrain from making such a proposal. Conciliation is a
voluntary proceeding, where the parties involved are free to agree and attempt to
resolve their dispute by conciliation. The process is flexible, allowing parties to
define the time, structure and content of the conciliation proceedings. These
proceedings are rarely public. They are interest-based, as the conciliator will when
proposing a settlement, not only take into account the parties’ legal positions, but
also their; commercial, financial and / or personal interests. Like in mediation
proceedings, the ultimate decision to agree on the settlement remains with the
parties.

 Lok Adalat

The establishment of Lok Adalats under the Legal Services Authority Act, 1987 is
one of the alternative means of dispute resolution or redressal.

The word “Lok Adalat” means “People Court”. The Lok Adalat is an old form of
adjudicating system prevalent in India which is based on Gandhian Principles. Lok
Adalat is another alternative to judicial justice. It is a strategy of delivering of
delivering informal, cheap and expeditious justice to the common man by way of
settling disputes which are pending in courts and those also which have not
reached the courts.[6]
Honorable Delhi High court has given a landmark decision highlighting the
significance of Lok Adalat movement in the case of Abdul Hasan and National
Legal Services Authority v. Delhi Vidyut Board and Others[7]. The court passed
the order giving directions for setting up of permanent Lok Adalat.
  Negotiation

Dictionary meaning of the word Negotiation is discussion aimed at reaching an

agreement. Basically, negotiation is a method to settle disputes peacefully by being
flexible in various aspects. This method can be applied in every kind of dispute
such as technical, legal or political.

Advantages of Alternative Dispute Resolution (ADR)

1) Alternative Dispute Resolution (ADR) is Speedy: While the adjudicatory
method of dispute resolution takes time in the determination of a case or settlement
of a legal dispute, non-adjudicatory methods on the other hand are speedy, saves
time, and avoids delays and uncertainties of adjudicatory trials.

2) Alternative Dispute Resolution (ADR) is Cost efficient: This means that ADR
is comparatively less expensive than litigation as there will be less fees incurred
by the parties in the determination of their case.

3) It is flexible: This is so as parties have the flexibility to select the procedural

rules which will apply to their dispute and they have the power to control their
own fate rather than relinquishing the power to decide their rights to an
adjudicator, and they also have the power to select their arbitrator or mediator.

Additionally, ADR is free from formalities of Court such as the rules of

Evidence, witness, con comitant delays, and all that.

4) Technical Expertise: In arbitration, the arbitrator is an independent

professional who has technical knowledge of the matter before him, as such is a
specialist in that field and has experience of arbitral process. Meaning that he
will be able to dispense justice effectively and efficiently unlike in the
adjudicatory method wherein a judge may be ignorant of some technical aspects of
the case at hand.

5) Alternative Dispute Resolution (ADR) fosters cooperation as it allows parties

to work together with the neutral arbitrator or mediator to resolve the dispute and
come to a mutually acceptable remedy.
6) Proceedings in ADR are confidential: The parties usually agree to keep the
resolution reached at the negotiation or arbitrator hearing private. This is not
possible in an adjudicatory method, as most trials and proceedings in the
adjudicatory method are open to the general public/ press. The confidentiality of
ADR allows them to focus on the merits of the dispute without concern about it’s
public impact.

7) Alternative Dispute Resolution (ADR) permits parties participation: This

means that in an Alternative dispute resolution, parties are allowed to participate
in ways such as telling their side of the story, suggesting remedy, and even
having control over the outcome of the trials. This is not obtainable in a Court
system.

Disadvantages of Alternative Dispute Resolution

1) There is no guaranteed resolution of Dispute: In Alternative Dispute
Resolution (ADR), you may spend your money and time in hiring a third party
to settle your dispute, however there is no guaranteed settlement of dispute by
the third party as either of the parties to the dispute may disagree with his final
resolution, and this will Lead to the dispute still having to proceed to the Court for
hearing.

2) Decisions reached in ADR may not be binding on the parties especially in

cases of reconciliation and mediation proceedings. The final resolution to the
dispute is open to the parties either to accept or reject.

3) Alternative Dispute Resolution (ADR) does not give room for consolidation of
actions, as it is not possible to bring Multi-party disputes together because ADR
is a voluntary agreement between parties and parties cannot be compelled to
submit to arbitration, conciliation, mediation, or reconciliation.

4) Some decisions reached are subject to the overriding powers of the Court.
For example, the courts have an inherent jurisdiction to remit or set aside an
arbitral award where there is an error of law on the face of the award.

5) There is absence of Legal Precedent: In ADR, there is no rule of Judicial

Precedent, neither is there adherence to Precedent or the production of
Precedent as most of the proceedings are kept private and confidential.

6) Alternative Dispute Resolution (ADR) may more often than not protect the legal
rights of the parties.
The first Arbitration law in India was the Arbitration Act 1899 which was based
on the English Arbitration Act 1899.
The course of arbitration flourished in India since the end of nineteenth century.
Arbitration in India was statutorily recognized as form of dispute resolution for
the first time when Indian Arbitration Act, 1899 was enacted however; it was
confined to the three presidency towns only i.e. Madras, Bombay and
Calcutta. It was further codified in Section 89 and Schedule II of the Code of
Civil Procedure, 1908, where provisions of arbitration got extended to
different regions of British India to which the Act of 1899 was not extended.
The Act of 1899 and the provisions of the Code of Civil Procedure, 1908 were
found to be inexpedient and more technical and thus, Arbitration Act, 1940 came
into existence and repealed the Act of 1899 along with the relevant provisions of
the Code of Civil Procedure, 1908. the Arbitration Act, 1940 was enacted in
India to consolidate and amend the law relating to arbitration effective from 1 July
1940
The Act of 1940 was a reflection of the English Arbitration Act, 1934 and was
a comprehensive legislation on the subject but it had no provisions to deal with
enforcement of foreign awards and hence, dealt only with domestic
arbitrations. The Act of 1940 could not achieve its purpose as its working was far
from satisfactory.
Foreign awards were enforced in India through two separate legislations viz. (i)
the Arbitration (Protocol and Convention) Act, 1937 (for Geneva Convention
Awards) and (ii) the Foreign Awards (Recognition and Enforcement) Act, 1961
(for New York Convention Awards).
The Arbitration and Conciliation Act was again modified in 1996 with the aim
and the objective to give effect to the UNCITRAL Model Laws as adopted by
the United Nations Commission on International Trade Law on 21 June 1985.

Objectives of the Arbitration Act

• To cover both international & domestic arbitration & conciliation
• To make provisions for an arbitral procedure which is fair, efficient and
capable of meeting the needs of the arbitration
• To permit an arbitral tribunal to use mediation & conciliation to encourage
settlement of disputes
• To provide that a settlement reached by the parties as a result of conciliation
proceedings will have the same status and affect as an arbitral award
• To provide that the arbitral tribunal gives reasons for its arbitral award
• To provide that every arbitral award is enforced in the same manner as if it
were a decree of the court

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Principal Characteristics
• Arbitration is consensual
• The parties are free to choose the arbitrator(s)
• Arbitration is neutral
• Arbitration is a confidential procedure
• The decision of the arbitral tribunal is final and easy to enforce

Advantages of Arbitration • Choice of Decision Maker (Arbitrator) • Cost

Effective & Efficient • Privacy • Court intervention is minimum • Convenience •
Strict rules of CPC and Evidence Act are not required to be followed, the
Arbitrator is free to frame his own procedure to conduct arbitration proceedings •
Finality of Decision