“Society’s greatest opportunity lies in tapping the human inclination towards collaboration and compromise, in the most creative social experiment of our time.”
To state the obvious, the decision to take legal action needs to be carefully planned and taken only as part of a larger strategy. Legal battles are costly and require a high degree of commitment over a significant period of time. Although in certain circumstances, litigation becomes necessary and inevitable, there is an urgent need for introspection as to whether litigation is imperative! It is well known that excessive litigation leads to delay in delivering justice, and it is no secret that ‘justice delayed is justice denied’.
A well-recognized mode of resolution of disputes is the mechanism of courts. The judicial system prevalent in courts is governed by the procedure prescribed under various enactments. Unfortunately, these procedures have become synonymous with technicalities and obstructions leading to delays in the final resolution of disputes.
Now-a-days the business community is more concerned with finality rather than with the legality of decisions so that they know as to where they stand. Litigation, therefore, very often, proves to be unproductive.
The importance of Alternate Dispute Resolution (ADR) methods is best summed up by Sandra Day O’Connor, the first woman to serve on the US Supreme Court, “The courts should not be the places where resolution of disputes begins. They should be the places where the disputes end after alternative methods of resolving disputes have been considered and tried.”
ADR mechanism is an alternative to approaching the court(s) for resolution of disputes. It includes a variety of procedures and each procedure is an alternative to court adjudication. The ADR mechanism is informal and founded on agreement between the parties. This process is aimed at drastically curtailing the supervisory role of the courts and ensuring efficient and speedy trial giving finality to the decision. The ADR mechanism is considered a suitable way of settling commercial disputes due to a plethora of reasons, viz., ADR proceedings are conducted in privacy and the awards are kept confidential; the judge is usually an expert in the subject matter of the dispute; the dates for meetings are fixed as per the convenience of all concerned.
Let us now zoom in at each of the three essential ingredients of the ADR mechanism:
Various tools can be employed in negotiation, including persuasion or manipulation. Here the dispute is approached with a view to settling it to the mutual advantage of each party. The contract between the parties should not be interpreted, as lawyers would, rather it should be construed from the perspective of an entrepreneur. Although in the eyes of law every word in the contract is crucial, in practice, a contract between two businessmen reflects an understanding which can be admitted to negotiation in case of a dispute. Negotiation thus involves a compromise.
When negotiation fails, conciliation (also referred to as mediation) is the next logical step. It is a structured negotiation presided over by a facilitator with the skill, training and experience necessary to help the parties resolve their dispute. It is a confidential, non-binding process which is geared towards assisting the parties in structuring a mutually acceptable resolution to their dispute(s). Since the process leaves control of the settlement in the hands of the disputants and because it is geared to producing solutions that accommodate the fundamental needs of both sides, conciliation/mediation as a tool for dispute resolution is appropriate for circumstances where the conflicting parties have had or expect to have a continuing relationship in future.
It is a well acknowledged fact that arbitration ensures an inexpensive, flexible and quick resolution of disputes. Entrepreneurs are able to avoid adverse publicity of their businesses by opting for the extra-judicial process of arbitration. Consensus of the concerned parties is the key element of arbitration. The parties agree to submit their dispute to a person, referred to as the arbitrator, who decides the matter by applying the same law which the courts would have done. It is thus a ‘judicial determination of disputes. However, the arbitrators (unlike the courts) can frame their own rules, and are not bound by the technical rules of evidence or of procedure.
Globally efforts are now being made to bring about dispute resolution in an informal manner; with speed; and at least expense. The reason for this trend is not far to seek! Businessmen, particularly those involved in cross-border transactions, are focused on making optimal use of their time, energy and resources with the result that ADR is now preferred over courtroom battles to iron out differences between the parties.
A major method of resolving disputes in ‘International Commercial Transactions’ is via Arbitration. It is only if the parties have failed to enter into an Arbitration Agreement, that litigation in the national courts of one of the parties is considered. Interestingly, recent trends indicate that commercial entities are increasingly turning to Mediation or Conciliation as the favoured method of dispute resolution. When compared to Arbitration, Mediation offers a number of advantages.
A quick glance at the global scenario of ADR mechanism reveals its popularity in various countries. In the UK, work on ADR mechanism started in 1975 with the formation of the Advisory, Conciliation and Arbitration Service (ACAS), a government-aided but an independent body. In USA, it was the historic ‘Roscoe Pound Conference’ of 1976 which profoundly influenced and transformed both ADR and the American legal system. As a result of the large-scale integration of ADR movement in USA, today, approximately 90% of the civil disputes are settled outside the courts. Similarly, in Europe, mediation is seen as a promising mechanism for the resolution of disputes.
In India, ADR is not a recent phenomenon. However, it has been organized, institutionalized and used more widely only in recent years. In order to effectively implement the ADR mechanism, organizations like Indian Council of Arbitration (ICA) and International Centre for Alternative Dispute Resolution (ICADR) were established. The ICA, established in 1965, promoted by the Ministry of Commerce is a leading institute for administration of arbitration. It provides arbitration facilities for all types of domestic and international commercial disputes and conciliation of international trade complaints received from Indian and foreign parties, for non-performance of contracts or noncompliance with arbitration awards.
More importantly, the Arbitration Act 1940 which was widely considered ineffective was repealed and a new and effective legislation was put in place, viz., the Arbitration and Conciliation Act, 1996. The new Act which is based on the United Nations Commission on International Trade Law (UNCITRAL) Model Law on International Commercial Arbitration, gave the much needed impetus to arbitration as well as conciliation in the country.
The Legal Services Authorities Act 1987 was also amended to encourage the use of ADR methods. But perhaps the most noteworthy development was the amendment of Section 89 of the Code of Civil Procedure 1908 (CPC) in the year 2002 which introduced the concepts of conciliation, mediation and pre-trial settlement methodologies for effective resolution of disputes. It is crucial to note that the judiciary has also been encouraging out-of-court settlements to deal with the increasing backlog of cases pending in the courts.
Despite the obvious advantages of using ADR mechanisms, India has not given adequate recognition to this mode of resolution. Experts believe that since our society is prone to litigation, exploring consensus in order to arrive at an amicable solution is, very often, not an option. There is thus a need to spread the awareness of ADR and to encourage its systematic implementation so that its effectiveness reaches out to a large section of the society. Pre-trial conciliation and fixing the targets for dispensation of justice are sine qua non for success of any ADR mechanism, which is currently lacking in India. We need more organizations such as the ICA; International Chamber of Commerce (ICC) India chapter; and Federation of Indian Chambers of Commerce and Industry (FICCI) ‘Arbitration and Conciliation Tribunal’ which render specialized services, promote ADR and play a critical role in resolving disputes, especially commercial disputes.
The 1996 Act consolidates and amends the law relating to domestic arbitration. It has made several noteworthy changes:
Courts in India do not review the merits of an award in an arbitration matter, unless it is at the request of a party and only under restricted grounds of challenge, as laid down in the 1996 Act.
Since the 1996 Act does not prescribe any “model arbitration agreement or clause”, the parties to a contract may either enter into a separate arbitration agreement or may agree upon an arbitration clause in the main contract/agreement itself. Nevertheless, it is desirable to bear in mind certain technicalities while drafting an arbitration agreement or clause.
The usefulness of arbitration in solving commercial disputes, especially those with an international dimension, cannot be over-emphasised. Backed by an open economy and pro-business environment, India now offers substantial legal and business expertise to the disputing parties. With the statutory adoption of the UNCITRAL Model Law for International Commercial Arbitration and the UNCITRAL Rules of Arbitration, with relevant modifications to fit into its institutional framework, India has witnessed a sharp increase in commercial arbitration as opposed to commercial litigation.
In addition to domestic arbitration, the 1996 Act also consolidates and amends the law relating to international arbitration. Although there are no bilateral Conventions between India and any other country concerning arbitration, India is a party to the two major international conventions on arbitration, viz., Geneva Convention on the Execution of Foreign Arbitral Awards, 1927 (‘Geneva Convention’); and New York Convention of 1958 on the Recognition and Enforcement of Foreign Arbitral Awards (‘New York Convention’).
The courts in India offer support and encouragement for international commercial arbitration matters. At the request of a party, the courts:
Despite the various benefits which ADR mechanism has to offer, there are certain drawbacks, particularly in the arbitration mechanism. Some of the notable problem areas are discussed below.
Firstly, once the parties have decided that the dispute will be resolved by arbitration and that such decision will be final and binding, the courts may interfere not to “do justice” between the parties, but only to ensure that such private administration of justice is not opposed to public policy. However, it has been seen that the courts usually tend to broaden their duty to ensure that ‘justice is meted’ in conformity with the courts.
Secondly, if the arbitrator’s award is unfair or illogical, the aggrieved party will have no choice other than accepting it and will be barred from raising the dispute in the court.
Thirdly, instead of shortening the length of a dispute resolution, arbitration process tends to become protracted. Since in India, the concept of a separate Arbitration Lawyers Bar does not exist, it prevents arbitration matters from being heard continuously on a day-to-day basis during regular working hours. Usually, lawyers are engaged for arbitrations that are conducted over the weekends or after court hours. This prolongs the period for disposal of disputes.
Fourthly, it is often said that arbitration proceedings lack transparency. The fact that arbitration hearings are normally held in private rather than in an open courtroom, and decisions are not usually publicly accessible, often proves to be detrimental. It is argued that this lack of transparency makes the process more likely to be biased and tainted, which is especially unacceptable because arbitration decisions are rarely reviewed by the courts.
Fifthly, although with the establishment of Indian Council of Arbitration (ICA), institutional arbitrations made a beginning in India very early on, it failed to bring about an effective change in the culture and mindset of the arbitrators as also the lawyers involved in arbitration matters. The Supreme Court in Guru Nanak Foundation vs. Rattan Singh & Sons [AIR 1981 SC 2075] had observed that,
“Experience shows and law reports bear ample testimony that the proceedings under the Act have become highly technical accompanied by unending prolixity, at every stage providing a legal trap to the unwary. Informal forum chosen by the parties for expeditious disposal of their disputes has, by the decisions of the Courts been clothed with ‘legalese’ of unforeseeable complexity.”
Sixthly, very often arbitration lawyers, particularly in case of international commercial arbitration, do not understand the multi-cultural and the multijurisdictional aspects of international business. This very often leads to failure in tactful handling of the matter.
Lastly, with the court matters moving towards arbitration, there is today a greater demand for good arbitrators available at reasonable fees. However, the shortage of trained arbitrators in the country is a cause for concern.
The introduction of ADR mechanisms in the judicial system of the country has undoubtedly raised expectations of the litigants for a more satisfactory, acceptable and early resolution of their disputes. Today, the need of the hour is that the legislative foresight which we have witnessed in the form of introduction of ADR mechanism and vesting of power in the judicial administration to carry out these reforms, be ably supported by the executive’s ability and will to provide for a redressal machinery which is in the position to utilize these ADR
Fali Sam Nariman Senior Advocate, Supreme Court
Considering the delays in litigation, despite the best efforts of ourjudges to polish off arrears, alternative dispute resolution is the order of the day. Somehow arbitration has not taken off as well as it should have in this country, which is burdened with crores of cases, including civil cases. Therefore, I think that, it is imperative for the younger generation who go to law colleges and also younger lawyers to acquire skills in the art of arbitrating because it does require considerable skill. The skills involve accommodation of expertise in the subject of law.You must know your law before you think of arbitration and you must be able to marshal the facts of a case over a short compass of time, without delay. That is really the hallmark of a lawyer. He must be able to, within a few words, express what he/she wants to say with regard to the subject at hand. This is a very important aspect which is unfortunately ignored in schools and colleges. Hence, the more moot court competitions there are, (e.g. an attempt to argue before a group of arbitrators), the more it will help to sharpen the mind of the lawyers.
Young people today must acquire the art of arbitrating because arbitrating is not litigating. They are two separate things. Thus, the importance of knowing your subject, knowing the law of arbitrating which is the framework within which everything is done.
If you are in the cities, it is definitely an alternative career option but not in the rural areas as arbitration is yet to catch up in rural India and it probably, will not, for a long time. But in commercial cities, it is definitely a good option. People in industries who have disputes prefer to have it resolved at the earliest. Resolving the same through arbitration and negotiation is one of the greatest hallmarks of the skills of a lawyer, and it has to be acquired by training.
Yes, definitely! There are courses now – ‘Chartered Institutes of Arbitrators’ in England, offers courses in India. ‘London Court of International Arbitration’ has also opened a branch in India. There is a whole range of possibilities for commercial arbitration rather than commercial litigation.
You have to work very hard because your success in law depends on hard work at all times. There is very little inspiration in the law profession, but there is a lot of thinking involved in law, and there is a lot to learn in law. It requires a fantastic amount of application and work to be a successful lawyer.
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