Concept of Arbitration in India


As a law student whenever I write about an issue I try to look from its history . When it comes to arbitration , I am reminded of the panchayati system that used to prevail during old age days. Then, the elders of the village used to adjudicate or decide on the issues that have been fallen up between the parties. It proved to be a good system as usually both the parties used to go home happily, hence we can say that India has been an arbitration friendly country right from the beginning .

Settling a dispute by referring to a third party was well known and practiced in ancient and medieval India .India got its first enactment on Arbitration known as ‘Indian arbitration act,1899’ but was only applicable to Calcutta,Madras,Bombay presidencies, then came the Arbitration act 1940 which applied to whole of India including Pakistan and Baluchistan.

What is Arbitration?

Arbitration is a procedure of solving an argument between people by helping them to agree to an acceptable solution.

It is part of Alternative dispute resolution(ADR) mechanism that benefits people who don’t want to go long court procedures. It is a way to settle disputes outside the courts saving time and resources.

In an English Judgement named Collins v Collins , the court gave wide definition to concept of arbitration as: An arbitration is a reference to the decision of one or more person either with or without an umpire , a particular matter in difference between the parties.

It is a quasi judicial process that can be done voluntary i.e. agreed between the parties or it can be ordered by the court.

There are two types of arbitration proceeding –

  • Domestic Arbitration: It deals with the dispute between two Indians.
  • International Commercial Arbitration: It occurs between the parties in which at least one  of them is a  national of a country other than India.

Characteristics of Arbitration

  • It should be consensual i.e. both the parties must agree to it then only it can take place. The dispute can be referred to arbitration by means of ‘submission agreement’ between the parties. None of the party can withdraw from arbitration unilaterally.
  • It must be confidential i.e. there should be confidentiality of the existence of arbitration . No disclosure should me made during the procedure.
  • Parties choose the arbitrator, they mutually do so. If they are choosing solo arbitrator then must be made mutually. If they choose 3-member tribunal then , each party appoints one of the arbitrator those two then agree to presiding arbitrator.
  • The decision given by the arbitrator is final and binding on the parties.
  • The act avoid certain issues that are not arbitral in nature-
    • Criminal offences
    • Matrimonial disputes
    • Guardianship disputes
    • Insolvency and winding up disputes
    • Tenancy disputes
    • Patent, trademark, copyright
    • fraud

Types of Alternative Dispute Resolution in India

Apart from arbitration there are few ADR available in India-

Mediation- Mediation is a process in which the mediator guides in reaching to a settlement, clarify any misunderstanding that may have occurred in order to help them. The mediator would not impose his opinion on them. The mediator is appointed either by the parties or by the court.

Conciliation – It is an another mehod where by the discussion between the parties is kept going through the participation of conciliator. It can be formal as well as informal . In formal conciliation the lawyer and client meets to discuss , while in informal conciliation disputes can be addressed over the phone or by mail.

Lok Adalat– it is  a kind of out of court mechanism where the pending cases or at pre- litigating stage are settled. The parties don’t have to pay any court fee and no strict procedural requirements have to be fulfilled. The parties cannot appeal against the settlement of the Lok adalat.

Need for Arbitration

  • One of the major problem that our judicial system is facing now a days is the huge pendency of cases in the courts. Hence it has failed to deliver justice properly. The problem has raised to an alarming rate that if it is not solved then people ‘s faith would be shaken.
  • The number of judges in lndia is also very less, thus judgements are not given on time.
  • There are no fixed period for disposal of cases.
  • Due to globalization, liberalization and advancement of international business it needs flexible ,favourable and time saving method of resolution of disputes without making parties to go through rigorous time consuming exhausting court procedures of delivering justice.

Advantages of Arbitration

  • Arbitration is speedy and hence time saving.
  • Minimalisation of court intervention
  • Reduction in cost of dispute redressal and resolution
  • Privacy in procedure are maintained, no unnecessary publicity of disputes.
  • Helps in encouraging foreign investment by recognizing the country as having sound legal framework.
  • An arbitrator can easily deal with technical matters in which is scientific in nature because they are appointed based on their expertise and skill in their field.
  • More convenience because the parties are able to decide the language, venue and time of proceedings
  • Proceedings are flexible and doesn’t have to follow strict and rigid rules and regulations.

Shortcomings of Arbitration

  • The decision of arbitration cannot be appealed. So the binding nature of the decision and general lack of ability to seek recourse from an incorrect decision make the consequences of the arbitration more profound.
  • Although arbitrations are typically going to be less expensive than litigation, the cost of arbitration is on the rise, making arbitration more expensive than any other ADR proceedings.
  • In some countries there are different statues for domestic and international arbitration. This makes it difficult in applicability of laws related to international arbitration.
  • There is always a cultural- language barrier faced during arbitration. There is always a discrepancy in language and culture of two regions, so it sometimes becomes difficult to bridge the gap and come to a unified solution.

Author: Aditi Trivedi,
Faculty of law, Delhi University ,1st year law student

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