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Alternate Dispute Resolution system: ARBITRATION ( Part 1 )

Updated: Mar 6

What is an Alternate Dispute Resolution system?

The Alternate Dispute Resolution system has left its mark, both in the pre-Independence and Post Independence eras, but the 8th Amendment of 1908 in the Code of Civil Procedure facilitated prompt progress in this Field. This system ensured the settlement of cases, beyond the frontiers of the traditional courts by a fair-minded 3rd party.

This method of solving cases can be performed in the following manner:

1. It can be directed by Courts to use this system.

2. A condition can be inserted in the contract between 2 parties to use this system to settle disputes in future.

3 It can be a voluntary decision of the parties instead of going through the long-established path of settling disputes i.e. By way of the courts, using the Alternate Dispute Resolution system.

The various stages that this system encompasses are:

1. Initial stages:

  • In this stage, both parties put forth their stances and discuss the facts at hand, to reach an amicable conclusion.

  • The Confidentiality Agreement is furnished to provide the required secrecy of the documents unveiled in the process of negotiation.

  • A mutually agreed-upon schedule for meetings for further negotiation if one session is not sufficient to conclude.

  • in the process of discussion, both parties ascertain their anticipations from this process and assume positions and their duties towards each other.

2. Final stages:

  • At this point, whether the parties have reached an equally acceptable solution or not.

  • If a satisfactory conclusion has been drawn out then a settlement agreement gets made including the provisions relating to the accepted obligations by the parties that they have towards each other.

  • In case the matter doesn’t get resolved by way of the Alternate Dispute Resolution System then the parties may appeal to the court.

The Important Provisions about the Topics:

1. Rules 1-A, 1-B and 1-C read with Section 89 of the Code of Civil Procedure.

2. Articles 14 and 21 are Equality before the law and the right to life and human dignity respectively. Both of these are Fundamental Rights enshrined in the Indian Constitution.

3. Article 39A of the Indian Constitution is a part of Directive Principles of State Policy, which talks about equal justice and free legal aid.

4. The Arbitration and Conciliation Act

5. The Legal Services Authority Act.

Advantages of Alternate Dispute Resolution System:

The pros which advocated the rise in acceptance and adoption rate of time-consuming:

1. This process is not as formal, hectic and time-consuming as the traditional judicial system. According to Harvard Business Review, more that than Institutions have adopted this system because of the provided benefits.

2. The cost incurred to settle the disputes this way is lesser to a large extent than the conventional courts. For example: Upon analyzing the data of resolved cases of the Chevron company, it was found that their adopted mediation system, which is a form of the Alternate Dispute Resolution system, costs around $25,000 which is just approximately 4% of what is the cost of outside mediation. If the case is taken to court without using the Alternate dispute Resolution system, then that can cost around $2.5 million for 3-5 years.

3. It helps reduce the crushing burden of the judicial system due to the increasing number of cases as well as already present pending cases awaiting serving of justice. For example, Toyota U.S. saw a tremendous drop in several pending cases i.e., 178 cases in 1985 to 3 in 1992. Likewise, this system paves the way for the innovation of creative and tailor-made solutions solely based on the facts of the case, which renders satisfaction to the parties, outside the conventional judicial system.

4. Since this method gets embarked upon by the unanimous decision of both parties, it provides a sense of command to the parties over the whole process, whereby both the parties, by the way of negotiations, compromise and fair settlement try to reach a form of justice which is accepted by both the parties. Not only does it promote the establishment of a better relationship among the parties but also educates them on Judicial Policies without forcefully governing their process of Acquiring a peaceful resolution of disputes among the parties.

5. This system takes its power of enforceability from the New York Convention of 1958, which makes the decision drawn out of this system equivalent to that of the District Courts and also can be held valid in other nations. Such a decision can be overruled by the superior authorities and in many cases these decisions are even advisory.

Disadvantages of the Alternate Dispute Resolution System:

There are certain reasons because of why the Alternate Dispute Resolution System is not able to be as successful as expected and they are:

1. The Harvard Business Review’s report revealed that the Arbitration which is directed by the courts, cost costs much as the court proceeding did by tradition in the Judicial system in the same amount of time that any other court trial takes to attain the pronouncement of final judgement.

2. The companies which adopted the Alternative Dispute Resolution system, begin to use this process as a Personal Judicial System and instead of peacefully coming to an amicable agreement and accepting the duties towards each other, the practiced elements of the proceedings involved all the personnel who are present in a time-honored trial of the courts like, motions, briefs, discoveries, depositions, judges, advocates, court reporters, expert witnesses etc.

3. Due to the element of confidentiality involved in such Alternate dispute resolution proceedings, neither the Public get the ac of such proceeding and thus don’t get the chance to critically examine the authenticity of the process that led to the decision pronounced by the Alternative Dispute Resolution System, nor precedents can get established, to resolve cases of similar nature in the future.

4. For this system to successfully work, there has to be a mutual agreement amongst the parties to use this system, rather than the conventional method of acquiring justice which is through the long-established judicial system. If either of the parties refused to comply with the proceeding of the Alternate Dispute Resolution System then this method of resolving disputes loses its credibility because the consensus of mind of both parties is a crucial element of this process.

5. Moreover, the nature of the enforceability of this system, which is non-binding makes it challenging to furnish a final decision to the parties.

All of these reasons almost defeat the purpose for which the Alternate Dispute Resolution System was introduced in the first place.

Various ways of Alternative Dispute resolution are:

1. Arbitration

2. Mediation

3. Conciliation

4. Negotiation

5. Lol Adalat


The definition clause for the term Arbitration is Section 2 clause (a) sub-clause (I) of the Arbitration and Conciliation Act 1996, which states that both administered and not administered Arbitration by a permanent arbitral institution, falls under the ambit of the term Arbitration. Hence the elements of Arbitration are:

1. It is one of the ways of the Alternate Dispute Resolution System whereby the cases are dealt with, outside the boundaries of the conventional judicial system.

2. Instead of a judge, an Arbitrator/ Arbiter/ Arbitral Tribunal can be consulted, which acts as an unbiased adjudicator for the dispute and they may be more than 1 person, depending upon the decision of the parties or parties can be directed by the traditional court to use this Alternate Dispute Resolution System.

3. Instead of the pronouncement of a final decision or judgement, an Arbitral Award is provided by the Arbitrator to the parties which, because of the New York Convention of 1958, holds a legally binding force on both the parties and can be proved valid in other nations.

Features of Arbitration:

1. The Arbitration clause is usually added to the contracts by the companies to facilitate a peaceful resolution of future disputes as a contingency clause.

2. There are 2 ways in which the Unbiased adjudicator/Arbitrator can be appointed by the parties:

A. Both parties can unanimously choose 1 Arbitrator.

B. Both parties appoint 1 arbitrator each and then those 2 adjudicators then further determine the 3rd arbitrator.

3. The language of the country applies to the cases of Arbitration so that none of the parties gets the upper hand on the bases of language.

4. All the documents which get unravelled in the process of Arbitration can be considered confidential by inserting a Confidentiality provision to protect the secrecy of the information which is deemed necessary by the involved parties.

5. The Arbitration award is conclusive and can simply be implied on both parties, which leads to a reduction in the time of acquiring the mutually accepted form of justice.

Scope of Arbitration:

The type of cases which cannot be referred to the Arbitration are:

1. Criminal Offences

2. Matrimonial Disputes

3. Guardianship issues

4. Insolvency petitions

5. Testamentary cases

6. Trust Disputes

7. Labor and Industrial disputes

8. Tenancy and Eviction matters governed by Rent Control Statutes

The type of cases which can be referred to the Arbitration are:

1. Breach of Contract whereby damages can be calculated.

2. Question of validity of marriage

3. Maintenance payable wife

4. Time-Barred claims

5. Commercial matters

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