Arbitration
It was only during the British rule that arbitration was introduced in India as a mode of ADR. After a very chequered history, the Arbitration Act, 1940 came into being which was a complete code on the law of domestic arbitration. However, in the implementation of the Arbitration Act, 1940 several drawbacks were noticed leading to inordinate delays in Arbitration instead of facilitating quick disposal of the disputes. The scope for court intervention at various stages of arbitration was grossly misused by lawyers to defeat the very purpose of the Act, that is, to provide a speedy, inexpensive, and effective alternative to court litigation.
It is a binding procedure where the dispute is submitted for adjudication by an arbitral tribunal consisting of a sole or an odd number of arbitrators, which gives its decision in the form of an award that finally settles the dispute and is binding on the parties. Arbitration is adjudicatory and results in a binding decision.
The concept of arbitration is not complicated. Two or more parties who are unable to agree upon a decision appoint another of their own choice to make a decision for them and agree to be bound by it. That is a simple contractual agreement. The only absolute requirements are that, for a reference to arbitration to bind the parties, first, there must be no doubt that they all have agreed to it, then there must be no doubt about the authority conferred on the arbitrator by the parties and finally, the reference must be conducted openly and fairly. Although Arbitration is a contractual and not a legal process, like many contractual matters, it is subject to a measure of legal regulation and that regulation is the Arbitration and Conciliation Act, 1996.
Arbitration is the substitution by the consent of parties of another tribunal for the tribunal provided by the ordinary process of law, a domestic tribunal as distinct from the regularly organized court, proceeding according to the course of the common law depending upon the voluntary act of parties, disputants, on the selection of judges of their choice. The object of arbitration is the final dispensation in a speedier, inexpensive way of the matters involved so that they must not become the subject of future litigation between the parties.
Important Definitions
Section 2(1) (a) of the Arbitration and Conciliation Act, 1996 says that arbitration may be administered by a permanent arbitral institution or otherwise.
Halsbury says: “An arbitration is the reference of a dispute or difference between not less than two parties for determination, after hearing both sides in a judicial manner, by a person or persons other than a court of competent jurisdiction.”
Ronald Bernstein giving, what he calls, the legal definition says: “Where two or more persons agree that a dispute or a potential dispute between them shall be decided in a legally binding way by one or more impartial persons in a judicial manner, that is upon evidence put up before him or them, the agreement is called an arbitration agreement or a submission to arbitration. When, after a dispute has raiser, it is put before such person or persons for a decision, the procedure is called arbitration and decision when made is called an award.” He further explains it in layman’s term:
“In arbitration, your claim, instead of being heard publicly in occur and decided by a judge, is heard privately by one, two or three persons (Arbitrators”) chosen by agreement between you and the person against whom you are claiming (“The respondent”); or, if you cannot agree upon the choice, chosen by someone whom you have agreed upon to choose; or if all else fails, chosen by the court. The procedure for deciding your claim can, if you insist, be almost as formal as if you had gone to court. But it is much more likely to be a relaxed and informal procedure; the arbitrator is likely to be very experienced in deciding this kind of dispute. Your claim, and the respondent’s answer to it, will be put forward at a hearing before the arbitrator(s) unless, as often happens, you agree or have already agreed that it shall be decided on the documents without a hearing. If there is a hearing, it will be in private. Whether it is cheaper or not depends on the kind of procedure adopted. If you and the respondent want a full-scale hearing, as if you were in court, it may well cost even more than a court hearing. Otherwise, it is likely to cost less: than going to court. Above all, it is in most cases much quicker than going to court. And when the arbitrator has made his decision (which is called an award) it can be enforced as if it were an order of the court.”
Further, it has been observed by Russell as “the essence of arbitration is that some dispute is referred by the parties for settlement to a tribunal or their own choosing instead of to a court”. Lord Esher observed in Re, Carus Wilson & Greene as “If it appears from terms of the agreement by which a matter is submitted to a person’s decision that the intention of the parties was that he should hold an inquiry in the nature of judicial inquiry and hear the respective cases of the parties and decided upon evidence laid before him. Then the case is one of arbitration. The intention in such cases is that there shall be a judicial inquiry worked out in a judicial manner.”
A definition of ‘arbitrator’ may well also give the meaning of arbitration, for unless a person is an arbitrator, the proceedings conducted by him would not amount to Arbitration.
“An arbitrator is neither more nor less than a private judge of a private court (called an arbitral tribunal) who gives a private judgment (called an award). He is a judge in that dispute is submitted to him; he is not a mere investigator but a person before whom material is placed by the parties being either or both or evidence and submissions; he gives a decision in accordance with his duty to hold the scales fairly between the disputants in accordance with some recognized system of law and the rules of natural justice. He is private in so far as (1) he is chosen and paid by the disputants; (2) he does not sit in public; (3) he acts in accordance with a privately chosen procedure so far as that is not repugnant to public policy; (4) so far as the law allows he is set up to the exclusion of the State Court ; (5) his authority and powers are only whatsoever he is given by the disputants’ agreement; (6) the effectiveness of his powers derives wholly from the private law of contract and accordingly the nature and exercise of those powers, must not be contrary to the proper law of the contract or the public policy of England, bearing in mind that the paramount public policy is that freedom of contract is not lightly to be interfered with.”
Arbitration is a particularly attractive dispute resolution mechanism in international transactions due to its relative economy, speed, and privacy as compared to court procedures that may differ from country to country. Court proceedings are cumbersome, expensive, involve unnecessary delays, and require technical expertise in procedures. Further, the parties to the dispute are free to agree upon and nominate arbitrators of their choice. It is due to these differences that arbitration as a mode of dispute resolution is gaining momentum and importance all over the world.
The term arbitration is used in several senses. It may refer either to a judicial process or to a non-judicial process. A judicial process is concerned with the ascertainment, declaration, and enforcement of rights and liabilities, as they exist, in accordance with some recognized system of law. An industrial arbitration may well have for its function to ascertain and declare, but not to enforce, what in the arbitrator’s opinion ought to be the respective rights and liabilities of the parties, and such a function is non-judicial. Properly used, arbitration is an amicable and relatively informal method of resolving disputes. Its aim is not to persuade the parties to come to a settlement of the dispute between them. The aim of arbitration, like that of proceedings in court, is to produce a final and binding decision and this decision, expressed in the form of an award, is capable of being enforced through courts of law, both nationally and internationally, if the losing party is not prepared to carry it out voluntarily. Arbitration needs the support of national systems of law if it is to work effectively
To conclude we can say that Arbitration may be defined as a private process set up by the parties as a substitute for court litigation to obtain a decision on their disputes.
Conciliation
Parts I and II of the Arbitration and Conciliation Act, 1996 deal with the law and procedure governing the settlement of disputes through arbitration. Part III relates to conciliation which is another alternative mechanism for the settlement of disputes. The law relating to the conciliation process has been codified for the first time in Part III, following the UNCITRAL Conciliation Rules.
Conciliation is a process of persuading parties to reach an agreement, and is plainly not arbitration; nor is the chairman of a conciliation board, an arbitrator. The term conciliation is not defined in the Act. Article 1 of UNCITRAL Conciliation Rules corresponding to Section 61(1), refers to ‘the parties seeking an amicable settlement of their dispute.’ Section 67 of the Act relating to the role of conciliator requires the conciliator to assist the parties independently and impartially in their attempt to reach an amicable settlement of their dispute. Conciliation may be defined as a method used by parties to a dispute to reach an amicable settlement with the assistance of an independent third person or institution. Parties may wish to reach a settlement in the spirit of conciliation, i.e., a settlement that is not necessarily based on strict legal grounds but more on what they perceive as a just and reasonable settlement based on mutual concessions. Although legal rules cannot be fully disregarded, allowance should be made for the attempt of parties to find an acceptable compromise that need not necessarily coincide with the terms of a legally correct decision. This does not mean that relevant legal rules will not be taken into account by the conciliator.
Broad Principles of Conciliation
The procedure laid down in Part III (sections 61 to 81) of the Arbitration and Conciliation Act, 1996 reflects certain broad principles:
- Non-adversary nature of conciliation proceedings– There is no ‘claimant’ or ‘plaintiff’ in conciliation procedure;
- Voluntary nature of proceedings– Any party can commence and discontinue the proceedings and avoid further expenses in this regard;
- Flexible procedure- Discretion of the conciliator as to the adoption of procedural laws to ensure speedy and inexpensive conduct of the proceedings;
- Decisions are recommendatory- Dispute is to be settled by mutual agreement and not by any imposed decisions.
Conciliation as a mode of dispute resolution is well embedded in our Indian Culture. Our Indian culture is based on peace with respect and justice for all. All are equal before the law. While differences and disputes are inevitable among human beings and have been there since times immemorial, along with it there has been a process of resolution of such differences and disputes in the form of reconciliation, consequent on conciliation. While the shape and form of the conciliation process may have changed from time to time or any have of conciliation process may have changed from time to time or may have varied with individuals or situations the conception is as ancient as our Vedas.
Conciliation may trace its lineage to the Code of Civil Procedure, 1908 where it gets a passing reference only, but no statutory status as now. But conciliation has been inching its way to establish its existence in the scheme of things by being inscribed in the Industrial Disputes Act, 1947 and again in Hindu Marriage Act, 1995 and yet again in Family Courts Act, 1984, but now in the Arbitration and conciliation Act, 1996, it is accorded pride of place by sharing the honours as an equal partner in the title itself and being accorded an entire part of the Act to itself. Conciliation is a method of dispute resolution that has gained gear over the years but still awaits the statutory definition for itself. It may be so because “Arbitration” also does not get a statutory definition. Though not so defined, conciliation is well understood is consensual dispute resolution machinery – non-adversarial, non-litigious, and non-binding wherein the conciliator is not necessarily required to observe the law strictly but adopt a procedure and evolve the process best suited to affect the settlement satisfactorily to both the sides.
One advantage of conciliation is that both parties leave without loss of face. The end resolution is compromised, not a victory for one and defeat for the others. Legal adjudication may be fair and flawless, but it is heartless following strictly the law on the point. But conciliation is just and fair to both parties, not following strictly the law on the point and yet doing justice. Conciliation is concerned with justice according to the circumstances of that case with the consent of the parties and therefore, more satisfactory.
One can’t help saying that conciliation will be as good as the conciliator. It has been found that if the conciliator is neutral, impartial, yet understanding not only in the governing law but special circumstances of the case and can present a comprehensive and correct assessment of the case of each party, highlighting the weak points along with strong points of each, separate in a meeting and confidential to being with and then have a joint meeting to sort out the differences and presenting his compromise formula later in the day after the differences and presenting his compromise formula later in the day after the parties have exhausted themselves, it will have greater chances of acceptance particularly if the formula is flexible and undergoes changes minor or major, cosmetic or structural, to accommodate the suggestions of the parties, bridging the gulf gradually till there is no gulf left.
A conciliator must be a patient listener and a careful negotiator and it must not seem that he is imposing the solution on the parties. It should so appear that the parties themselves, by their endeavour have evolved an acceptable solution. If he is so, Conciliation will flourish, and “Lawyers will cease to laugh and Angels will cease to weep”.
Conciliation is more suited to the commercial community than to others, as the dispute is an unwanted interruption to the continuation of a business relationship, and sooner removed the better. It is not only ancient wisdom but modern business management also to resort to conciliation for resolution of business disputes. “Pragmatism prefers it to be the hard, inflexible stand of legal rights contractual or otherwise, but the recommended settlement must be fair to both sides. It must not only be intrinsically fair but must seem to be fair. It is, therefore, desirable that the role of conciliator demands skill in presenting independent, impartial assessment to both parties, who would be persuaded to retreat from their initial stand and accept the same as the best solution.
The arbitrator has to decide according to law; the conciliator can conciliate irrespective of the law. The arbitrator has fallen in disrepute and has to live down his reputation, the conciliator has raised hopes of a high reputation and has to live up to that expectation. It is more difficult to be a successful conciliator than to be a successful arbitrator.
A conciliator to be successful has to carry both the parties’ right to the conclusion with their consent all along. He has to perform the miracle of transforming two warring parties into amicable associates by effecting mental metamorphosis from war to peace, by no means, an easy task. A conciliator cannot be a silent spectator but has to be an active participant in the process, yet not so active as to seem to impose a solution on the parties but be so adroit as to seem than the parties themselves have taken the initiative to suggest the solution which he has only assisted inputting into a shape acceptable to the parties.
There is no prescribed procedure for conciliation proceedings. The procedure must be tailored to the situation but generally speaking, it is helpful to have a separate initial meeting with each party – confidential and conducted with such skill that the party feels that he rigid sand taken by it is not sound as it seemed but can be shaken. This may help in putting the party in a frame of mind for compromise. This can be followed by a joint face to face meeting of the parties with the conciliator facilitating across the table talks. More than one meeting will be helpful, as the interval will serve the purpose of enabling each party to digest the weakness of his case and strong points of the case of the other party and mentally tune the parties for an eventual settlement.
Conciliation should not be viewed as an ad hoc solution of the present problem, hindering the business relationship of the parties, but panacea of restoring the smooth flow of permanent business relationship temporarily interfered with that problem. Conciliation proceedings are not judicial or even quasi-judicial. They are not subject to review by the court even in a limited sphere as arbitration proceedings are No order of the court is compulsorily required to make the settlement arrived at enforceable.
Experience has shown that normally, parties are ready and willing to implement the agreed terms of the settlement, rather keen to do so to remove the impediment to the continuous stream of the smooth business relations. It is only in rare cases where before implementation, one party comes to know of the relevant and material facts affecting the issue which were not known at the time of conciliation proceedings, which the other party knew but suppressed them and thus the proceedings were not fair as expected. It is, therefore, in the interest of both the parties to be fair to each other if they genuinely desire conciliation.
It would thus be concluded that the conciliation is a non-binding procedure in which an impartial third party, the conciliator, assists the parties to a dispute in reaching a mutually agreed settlement of the dispute.
The advantages of resolution of a dispute by conciliation can be summed up as follows:
- It offers a more flexible alternative, for a wide variety of disputes, small as well as large;
- It obviates the parties from seeking recourse to the court system;
- It reserves the freedom of the parties to withdraw from conciliation without prejudice to their legal position inter se at any stage of the proceedings,
- It is committed to the maintenance of confidentiality throughout the proceedings and thereafter, of the dispute, the information exchanged, the offers and counteroffers of solutions made and the settlement arrived at;
- It is cost-effective and procedures quicker resolution of the dispute;
- It facilitates the maintenance of the continued relationship between the parties even after the settlement or at least during the period the statement is attempted at. This feature is of particular significance to the parties who are required to continue their relationship despite the dispute, as in the case of disputes arising out of construction contracts, family relationships, family properties or disputes between members of any business or other organizations;
- There is no scope for corruption or bias.
The Authors of this article, Sanjeev Kumar is a Partner and Anshul Sehgal is a Managing Associate in the Litigation & Dispute Resolution Team at L&L Partners Law Offices, New Delhi. They can be reached out at sanjeevk@luthra.com and asehgal@luthra.com. The views expressed are personal.
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