Arbitration
Introduction:
“Arbitration is no longer alternative, but the preferred method of seeking commercial justice.”[1]
– CJI D Y Chandrachud.
Presently, In India the courts are overburdened with huge number of cases that are filled before the courts every day. Despite the High Courts disposing of more than 2.15 million cases and the District Courts disposing of approximately 44.70 million cases in 2023, they are unable to fulfil the demand of the justice and resolution of disputes in the society while satisfying the trust that people have in judiciary. The pendency of cases across courts in India has increased significantly in the last decade. Currently more than 5.1 Crores are pending in the courts and they are on a rise because of more cases being filled than being disposed currently.[2] The major reason for such pendency lies in the traditional belief that every dispute needs a remedy before a court. However, a transformative shift driven by parties' preference for arbitration, a neutral third-party resolution, offers a viable alternative amidst the limitations of the court system. Because it
is not that the courts are not efficient and incapable rather it is the requirement of the present age and scenario as there are large disputes involving the commercial rights binding between the parties on their agreement or cases that trivial or amount involved and right involved can be settled through an alternate system which is as efficient as the system and can resolve their disputes through a neutral, third-party arbitrator as every dispute cannot be settled by the courts of the country.[3] The width of our jurisdiction was designed to ensure that there is widest access to justice. But it is not possible for every remedy to find a remedy before a court, with emerging forms of dispute resolution such as arbitration and mediation have to gain acceptance” This persistent challenge highlights the limitations of traditional court processes in meeting the escalating demand for timely justice and public trust. Amidst these constraints, arbitration has gained prominence as a viable alternative—a neutral, third-party mechanism that offers efficient resolution tailored to the specific needs of disputing parties. This shift not only acknowledges the limitations of the current judicial system but also seeks to address the growing complexities of commercial disputes with a solution that prioritizes efficiency and fairness.
What Arbitration is?
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. It is a nonjudicial legal technique for resolving disputes by referring them to a neutral party for a binding decision, or “award.”[4] Arbitration decisions are binding and not subject to appeal, except under very limited circumstances.
Arbitration, like a lawsuit in court (litigation), offers a final means of resolving a dispute. It could be preferable than a lawsuit due to the lower costs and time commitments for all parties involved[5]. However, there are several differences between a law suit and the process of arbitration. For Instance, there is a judge or jury in case of a law suit, whereas in the process of arbitration the parties select a neutral arbitrator or panel of arbitrators to decide if wrongdoing occurred and, if so, how to compensate the wronged party for it. Some other differences are:
- Unlike in litigation, arbitration decisions cannot be appealed; a party may seek to vacate (or overturn) an award on narro[6]w statutory grounds. Thus, arbitration decisions are unlikely to be overturned.
- Arbitrators are not bound by legal precedent, and are not required to follow state or federal rules of evidence. However, FINRA arbitrators must follow FINRA’s Code of Arbitration Procedure.[7]
- Parties may obtain documents from each other in arbitration, but compared to the discovery process in litigation, the process is much more streamlined.
- The arbitration settlement is cheaper than the actual court settlement or a law suit.
Scope & Usefulness of Arbitration:
Arbitration has traditionally served as a preferred method for resolving disputes within trade associations, as well as between different securities and commodities exchanges.[8]
For instance, contracts for the sale of manufactured goods frequently include arbitration provisions to address potential disagreements efficiently. Similarly, arbitration is commonly utilized in employment agreements to resolve disputes concerning terms of service. In the realm of construction and engineering projects, arbitration provides a structured approach to handling disagreements arising from complex contractual arrangements. Financial operations, agency agreements, and distribution arrangements also frequently stipulate arbitration clauses to resolve contractual disputes swiftly and effectively.
The increasing adoption of arbitration within the business community and legal profession worldwide underscores its utility and significance. Its flexibility and enforceability make arbitration an attractive alternative to traditional litigation, offering parties a reliable means to resolve disputes while maintaining confidentiality and procedural efficiency. This widespread acceptance and application of arbitration highlight its integral role in modern commercial and industrial practices across diverse sectors globally.
Process of Arbitration and its authority:
The process of arbitration begins with the selection of the arbitrator. Because the arbitrator’s ability and fairness are the decisive elements in any arbitration, the selection process is an important aspect of arbitration. Generally, both parties select an arbitrator at the time a conflict arises or at the time the arbitration agreement is concluded. The two arbitrators then select a chairman, forming a tribunal. The selection of arbitrators often is made by agencies [9]
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- Arbitration Proceedings:
The arbitration process is governed by the rules agreed to in the arbitration agreement; otherwise, the procedure is determined by the arbitrators. The arbitration proceedings must be conducted so as to afford the parties a fair hearing on the basis of equality. The arbitrator generally has the authority to request the parties and third persons to produce documentary evidence and to enforce such a request by issuing subpoenas. If a party fails to appear at a properly [10] If a compromise is reached by the parties during any arbitration proceeding, that compromise may be recorded as an award by the arbitrator.
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- Appeals from Arbitration proceedings:
Appeals to the courts from the award cannot be excluded by agreement of the parties, since the fairness of the arbitration process as a quasi-judicial procedure has to be maintained. However, any court control is confined to specific matters, usually enumerated in the arbitration statutes, such as misconduct of the arbitrator in [11]
Reasons for Hindrance in Growth of Arbitration in India
The Constitution of India provides ‘one’ with many reliefs and aims to deliver justice to each and every person, who has been wronged but the courts are not in a situation to deliver the justice to all in the traditional manner therefore it has become increasingly important to realize the Importance of alternate dispute resolution methods like Arbitration and enhance their implementation. But due to the following reasons, Arbitration in India has not grown properly as it is accepted to be:
- Lack of Proper Laws
The Arbitration and Conciliation Act was introduced in 1996, and last amended in 2015. In India, there is a serious need for introduction of more comprehensive law regarding arbitration process and proceedings. The law makers need to extensively study the problems regarding the needs and requirements of business houses, that usually deals with arbitration proceedings. The laws must become strict and more carefully elaborated so that more and more people gain assurance in Arbitration than the Judicial System. In simple terms, most of the people are still not willing to take risks or a leap of faith regarding matters of large magnitude that they may face in a business. [13]
- Intervention of Courts in Arbitration Proceedings
The intervention of courts in arbitration proceedings shall be kept to minimum. Due to such interventions, those who opt for arbitration rather than pleading to a court, also result in inclination towards courts furthermore. People sometimes find it better to approach the court at first. Court intervention should be kept in check, not only the intervention during arbitral proceedings, but the intervention after the proceedings are concluded. This means, there must be a limited scope to challenge the arbitral award under Section 34 of Arbitration Act, 1996. In White Industries Vs. Republic of India, two issues arise: [14]
a) Intervention of judiciary and,
b) Delay in arbitration. And, so it was well debated and agreed that the involvement of the judiciary should be minimised to an extent.
- Lack of Awareness
A major reason for the slow growth of arbitration in India is the widespread lack of awareness among the public. Many small-scale business owners, newcomers, and even some legal professionals are unfamiliar with arbitration proceedings and their benefits. This gap in knowledge means that those who could potentially benefit from arbitration are often left out, limiting the use of this alternative dispute resolution method. To address this issue, increasing awareness and education about arbitration is crucial for broadening its adoption and effectiveness.[15]
Addressing Issues and Overcoming them:
The above-mentioned points are the main reason as to why arbitration is not growing faster in India. And now, we must discuss how we can overcome these problems, so as to create a better image of India as a business and arbitral destination.
- Creating Awareness
Creating awareness among the public is essential for improving the position of arbitration in India. Effective messaging is crucial in promoting arbitration and encouraging parties to use arbitration provisions in their contracts rather than rushing to the courts. Without a clear understanding of their rights, people cannot seek justice effectively. Therefore, increasing awareness about arbitration, its benefits, and its importance is vital for ensuring that more individuals and businesses utilize this alternative dispute resolution method[16].
- Mandatory Arbitration
Introducing mandatory arbitration is crucial for developing a robust domestic arbitration environment in India. For this to happen, arbitration agreements should specify the particular institution responsible for conducting the proceedings. By making institutional arbitration a requirement, India can ensure a more structured and reliable framework for resolving disputes, which will strengthen the overall effectiveness of arbitration in the country.[17]
- Minimum Court Intervention
- Introduction of Proper Laws
Introducing proper laws is essential in this context. Arbitration laws need to be updated regularly to address emerging issues and improve the arbitration process in India. Regular amendments are crucial for enhancing the effectiveness and reliability of arbitration, ensuring it meets the evolving needs of businesses and individuals alike.[19]
Conclusion:
Such a system could be a secret ingredient to an efficient judicial system where we can provide justice to each and everyone in the society.
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