Arbitration is a form of ‘alternative dispute resolution’ that has been widely promoted by all the three organs of the State for speedy and efficient delivery of justice and yet, only a few know of its advantage over the traditional method of demanding justice, that is, litigation. The Arbitration and Conciliation Act came into force in 1996 keeping in mind the ‘Model Law’ adopted by the United Nations Commission on International Trade Law (UNCITRAL) on International  Commercial Arbitration in 1985. Since then, very few contracts in India have had arbitration as its dispute resolution (albeit a growing number of companies are now resorting to arbitration)[1]. This has also led to India fairing a mere average in the World Bank’s Ease of Doing Business index, with a rank of 100 amongst 189 countries (this after major improvements in resolving insolvency, paying taxes, protecting minority investors and getting credit). The reasons could be many-fold but I would like to restrict myself to lack of awareness in this particular method of dispute resolution.

 

Many, in the commercial community as well as the general public, are unaware of the benefits of arbitration over litigation. Arbitration provides a faster, more efficient and more specific justice delivery mechanism. According to the NITI Aayog Report, an estimated 31 million cases are pending before various courts in India with 26% of these cases being more than 5 years old. Litigation, therefore, cannot be a reasonable method of enforcing a contract. The requirement of specialized forums to counter such delay is highly sought after and arbitration is the answer to that call. Through arbitration, parties can themselves appoint arbitrators which they consent to and in return agree to the arbitral award, which, according to the Arbitration and Conciliation Act,1996, is final and binding.

 

One other reason why arbitration is not popular or lacks awareness is 5due to the fact that most of the arbitration proceedings in India are ad-hoc (almost 90%), meaning, the parties themselves regulate the proceedings resulting in delays, unprofessional arbitrators and poor quality of awards.

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This, then, paves way for intervention from the courts, delaying the process further. The remedy to this problem is found in Institutional Arbitration, the form of arbitration which is more popular in Western Countries as well as in Singapore (the most sought after seat for international arbitration). In this type, arbitration is regulated by institutions which specialize in this field (Examples: Indian Institute of Arbitration and Mediation, Mumbai Centre for International Arbitration, Nani Palkhivala Arbitration Centre). Here, although the parties lose a decent part of their autonomy, they benefit from the expertise provided by the institution and good quality infrastructure. The problem with such institutions is , however, the lack of modern day procedure and inadequately trained staff ( albeit there is a surge in highly advanced institutions such as IIAM). Another reason why parties refuse this path is because of the high cost it comes with.

 

Finally, and most importantly, the chief reason why people neglect arbitration is because litigators encourage them to petition before the judicial courts.

Parties are seldom aware of such proceeding by themselves; they require legal advice in order to approach arbitration institutions. Lawyers readily advise them to approach the courts as litigations serves as a more lucrative career then arbitration (although the arbitration process is much more costly then litigation). A dedicated bar comprising of professionals competent to conduct arbitration in accordance with the rules of the institutions and provide competent viable services is the need of the present hour (Example: International Bar Association Arbitration Committee).

 

There are some limitations with arbitration; the foremost being that the award is final and binding. One can appeal against the award but there can be no second appeal (Arbitration and Conciliation Act, 1996). However, the pros clearly outnumber the cons here, therefore making arbitration the frontrunner in a business friendly India.

 

References:

[1] NITI Aayog Report, http://niti.gov.in/writereaddata/files/document_publication/Arbitration.pdf

[2] http://www.livemint.com/Opinion/AXgpyH01L4oIMw43nDx5NN/Pushing-institutional-arbitration-in-India.html

[3] http://niti.gov.in/writereaddata/files/document_publication/Arbitration.pdf

[4] https://www.pwc.in/assets/pdfs/publications/2013/corporate-attributes-and-practices-towards-arbitration-in-india.pdf

[5] http://lawmin.nic.in/ld/P-ACT/1996/The%20Arbitration%20and%20Conciliation%20Act,%201996.pdf