Overview of ADR (Alternate Dispute Resolution) Mechanisms in India

Rajkumar Adukia/ 16:42 , Oct 04, 2012 However, where there is dispute there must also be a mechanism for resolution of these disputes. Disputes can be resolved either through litigation i.e. in court of law or through Alternative Dispute Resolution (ADR) Mechanism, Rajkumar Adukia explains.

Discourage litigation. Persuade your neighbors to compromise whenever you can. Point out to them how the nominal winner is often a real loser in fees and waster of time. As a peacemaker, the lawyer has a superior opportunity of being a good man. There will still be business enough.Abraham Lincoln Words of wisdom from one of the greatest statesman who used a unique strategy to deal with his critics and to deflect the prejudices of his supporters without yielding to them. Try as we can, disputes are an unavoidable part of any relationship or organisation. However, where there is dispute there must also be a mechanism for resolution of these disputes. Disputes can be resolved either through litigation i.e. in court of law or through Alternative Dispute Resolution (ADR) Mechanism, Rajkumar Adukia explains. 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. ADR is a system whereby disputants resolve their disputes with minimum outside help. The ADR procedure consists of four basic methods of dealing with disputes which are: 1. Negotiation 2. Mediation 3. 4. Conciliation Arbitration

Alternative dispute resolution is not new to India. The concept is analogous to the panchayat or similar bodies consisting of influential and elderly men from the community who were bestowed with power to manage of religious and social functions and who were called upon to decide the

dispute between parties in the particular village, be it civil or criminal or revenue. Also, arbitration was enshrined in three different enactments, namely, The Arbitration Act, 1940, the Arbitration (Protocol and Convention) Act, 1937 and the Foreign Awards (Recognition and Enforcement) Act, 1961. The Arbitration Act laid down the framework within which domestic arbitration was conducted in India, and the other two Acts dealt with foreign awards. The Arbitration and Conciliation Act, 1996 has repealed the three past acts, consolidated and amended the law relating to domestic arbitration, international commercial arbitration and enforcement of foreign arbitral awards and also defines the law relating to conciliation, providing for matters connected therewith and incidental thereto on the basis of the Model Law on International Commercial Arbitration adopted by the United Nations Commission on International Trade Law (UNCITRAL) in 1985. India is also a party to the following international conventions on arbitration: The Geneva Protocol on Arbitration Clauses of 1923 The Geneva Convention on the Execution of Foreign Arbitral Awards, 1927; and The New York Convention of 1958 on the Recognition and Enforcement of Foreign Arbitral Awards. It became a party to the 1958 Convention on 10th June, 1958 and ratified it on 13th July, 1961. Kinds of arbitration Adhoc arbitration: In the course of a commercial transaction if a dispute arises and could not be settled amicably either by way of mediation or conciliation, the parties have the right to seek adhoc arbitration. It is a process entrusted to a non-institution with all the procedural laws set out in specific agreement of the parties for that particular arbitration only. Institutional arbitration: In this kind of arbitration there will be a prior agreement between the parties regarding the institution that they will refer to in order to resolve their disputes in the course of a commercial transaction. Contractual arbitration: In the present scenario, where the number of commercial transactions as well as the number of disputes are increasing, the parties entering into a commercial transaction prefer to incorporate an arbitration clause in their agreement. The arbitration clause provides that if in future any dispute arises between the parties they will be referred to a named arbitrator (s). Statutory arbitration: If by operation of law the court provides that the parties have to refer the matter to arbitration it is termed as statutory arbitration. In this kind of arbitration the consent of the parties is not required. It is more of a compulsory arbitration and it is binding on the parties as the law of the land. The Arbitration and Conciliation Act, 1996 provides two alternate method of ADR: Arbitration and Conciliation. Arbitration may be conducted ad hoc or under institutional procedures and rules. Institutional arbitration is conducted under the guidance and well-tested rules of an established arbitral organization whereas under Ad hoc arbitration, the parties have to draft their own rules and procedures to fit the needs of their dispute. There are number of national and international organisations set up with the main object of settling commercial disputes by way of arbitration and other alternative dispute resolution mechanism. These organisations lay down rules for the conduct of arbitration. These rules, however, cannot

override the Act. These organisations handle the arbitration cases of the parties and provide valuable services like administrative assistance, consultancy and recommending names of arbitrators from the panel maintained by them. The Act contains general provisions on arbitration, enforcement of certain foreign awards, conciliation and. supplementary provisions. The three schedules reproduce the texts of Geneva Convention on the execution of Foreign Arbitral Awards, 1927, the Geneva Protocol on Arbitration Clause, 1923 and the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards, 1958. The Act differs from previous acts in many ways. Firstly, where there is an arbitration agreement, the judicial authority is required to direct the parties to resort to arbitration as per the agreement, provided the application for that purpose is made before or when a written statement on the merits is submitted to the judicial authority by the party seeking arbitration. Secondly, the grounds on which award of an arbitrator may be challenged before the court has been severely trimmed. For e.g. a challenge will now be permitted only on the basis of invalidity of the agreement, want of jurisdiction on the part of the arbitrator or want of proper notice to a party of the appointment of the arbitrator or of arbitral proceedings or a party being unable to present its case. At the same time, an award can now be set aside if it is in conflict with the public policy of India a ground which covers, inter alia, fraud and corruption. Thirdly, the powers of the arbitrator himself have been amplified by inserting specific provisions on several matters, such as the law to be applied by him, power to determine the venue of arbitration failing agreement, power to appoint experts, power to act on the report of a party, power to apply to the court for assistance in taking evidence, power to award interest, and so on. Fourthly, obstructive tactics sometimes adopted by parties in arbitration proceedings are sought to be thwarted by an express provision whereunder a party who knowingly keeps silent and then suddenly raises a procedural objection will not be allowed to do so. Fifthly, the role of institutions in promoting and organising arbitration has been recognised. Sixthly, the power to nominate arbitrators has been given (failing agreement between the parties) to the Chief Justice or to an institution or person designated by him. Seventhly, the time limit for making awards has been deleted. Eighthly, present provisions relating to arbitration through intervention of court when there is no suit. Advantages of arbitration over litigation 1. 2. 3. Arbitration carries a number of advantages over usual method of dispute resolution of redressal through a court of Law. 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 selcted 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

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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. 7. 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. A judicial settlement is a complicated procedure. A court has to follow the procedure laid down in the Code of Civil Procedure, 1908 and the Rules of the Indian Evidence Act. An arbitrator has to follow the principles of natural justice. The Arbitration and Conciliation Act, 1996 specifically states that the Arbitral Tribunal shall not be bound by The Code of Civil Procedure, 1908 and The Indian Evidence Act, 1872. Section 34 of the Act provides very limited grounds upon which a court may set aside an award. The Act has also given the status of a decree for the award by arbitrators. The award of the arbitrators is final and generally no appeal lies against the award.

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10. In a large number of cases, Arbitration facilitates the maintenance of continued relationship between the parties even after the settlement. Some important concepts Arbitral Award: Arbitral Award means an award given by the Arbitrator in an arbitral proceeding and Section 2(1)(c) mentions that Arbitral Award includes an interim award. Since the arbitrators are empowered to give an interim award, all the provisions which are applicable to arbitral award will be equally applicable to an interim award also. An award is nothing but a decision of the arbitrators in writing duly signed by them. Arbitral Tribunal: Sec 2(1)(d) defines the term Arbitral Tribunal to mean a sole arbitrator or a panel of arbitrators. The number of arbitrators is mutually decided by the parties. However, the Arbitral Tribunal must consist of an uneven number of arbitrators e.g. one, three or five arbitrators. Arbitration Agreement: Section 7 defines Arbitration agreement as follows. 1. In this part Arbitration Agreement means an agreement by the parties to submit to arbitration all or certain disputes which have arisen or which may arise between them out of a defined legal relationship, whether contractual or not. An Arbitration Agreement maybe in the form of an arbitration clause in a contract or in the form of a separate agreement. An Arbitration Agreement shall be in writing. An Arbitration Agreement is in writing if it is contained in

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A document signed by the parties b. An exchange of letters, telex, telegrams or other means of telecommunication which provides a record of the agreement; or c. An exchange of statements of claim and defence in which the existence of the agreement is alleged by one party and not denied by the other. The reference in a contract to a document containing an arbitration clause constitutes an arbitration agreement if the contract is in writing and the reference is such as to make that arbitration clause part of the contract.

An Arbitration Agreement is the very foundation on which the whole arbitration procedure rests. If there is no valid Arbitration Agreement, there cant be a valid arbitration. An Arbitration Agreement is a contract and it must satisfy all the essential elements of a contract. As per the Contract Act, 1872, an agreement between two parties which is enforceable by law is a contract. Section 11 of the Contract Act provides that all agreements are contract if they are: 1. Made by the Free Consent of parties competent to contract 2. For a Lawful Consideration and with Lawful objects, and 3. Are not expressly declared to be void.

Referring disputes to arbitration: Generally speaking, all disputes of a civil nature or quasi-civil nature, which can be decided by a civil court, can be referred to arbitration. Thus disputes relating to property, right to hold an office, compensation for non-fulfillment of a clause in a contract, disputes in a partnership etc. can be referred to arbitration. Thus disputes arising in respect of defined legal relationship, whether contractual or not, can be referred to Arbitration. Disputes which cannot be referred to arbitration: If a matter is governed by any other law which excludes reference to Arbitration, this Act will not apply. Since in those cases, the law has given precise jurisdiction to specified courts or tribunals only, those cases cannot be decided through the mechanism of Arbitration. The following matters in general practice, are not arbitrable. 1. Insolvency matters; 2. Matrimonial causes (except matters pertaining to settlement of terms of separation or divorce) 3. 4. 5. 6. 7. 8. 9. Testamentary matters; e.g., validity of a Will Suit under section 92 of the Code of Civil Procedure, 1908 Proceedings for appointment of guardian of a minor or lunatic person Industrial disputes Criminal proceedings [excepting matters relating to compoundable offences] Relating to charities Pertaining to dissolution or winding up of a company incorporated and registered under the provisions of the Companies Act, 1956 (Haryana Telecom Ltd. vs. Sterlite Ind. Ltd.) 1999 (4) L.J. (S.C.) 389.

10. Relating to claim for recovery of octroi duty 11. Pertaining to title to immovable property in a foreign country. 12. Relating to possession of leased premises governed by the provisions of the Bombay Rent, Hotel and Lodging House Rates Control Act, 1947