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Development of Arbitration and other ADR Practices in India
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Settlement of disputes through reference to a third party is a part of the volkgiest of India since times immemorial. It has undergone a phenomenal metamorphosis, growing from the stage of village elders sitting under a banyan tree and resolving disputes to the stage of gaining a statutory recognition. India has put in place a progressive piece of legislation which is essentially based on the Model Law and the UNCITRAL Arbitration Rules. The Parliament enacted the Arbitration and Conciliation Act of 1996 with a view to making arbitration less technical and more useful and effective, which not only removes many serious defects of the earlier arbitration law, but also incorporates modern concepts of arbitration. What it now needs is inculcation of the culture of arbitration within the bar, the bench and the arbitral community.
“I realized that the true fiction of a lawyer was to unite parties… A large part of my time during the 20 years of my practice as a lawyer was occupied in bringing out private compromise of hundreds of cases. I lost nothing thereby- not even money, certainly not my soul.”
- Mahatma Gandhi
ADR is not immune from criticism. Some have seen in it a waste of time; others recognize the risk that it be only initiated to check what is the minimum offer that the other party would accept.[3]he delay in disposal of cases in Law Courts, for whatever reason it may be, has really defeated the purpose for which the people approach the Courts for their redressal. In many parts of India, rapid development has meant increased caseloads for already overburdened courts, further leading to notoriously slow adjudication. As a result, alternative dispute resolution mechanisms have become more crucial for businesses operating in India as well as those doing businesses with Indian firms.[1] So Alternate Dispute Resolution (herein after as ADR) is necessary as a substitute to existing methods of dispute resolution such as litigation, conflict, violence and physical fights or rough handling of situations. It is a movement with a drive from evolving positive approach and attitude towards resolving a dispute.[2]
In the subsequent parts of the paper we will discuss the evolution of ADR and its present scenario in the Indian context.
In India, the law and practice of private and transactional commercial disputes without court intervention can be dated back to ancient times. Arbitration or mediation as an alternative to dispute resolution by municipal courts has been prevalent in India from Vedic times. The earliest known treatise is the Bhradarnayaka Upanishad , in which various types of
arbitral bodies viz (i) the Puga (ii) the Sreni (iii) the Kula are referred to. These arbitral bodies, known as Panchayats , dealt with variety of disputes, such as disputes of contractual, matrimonial and even of a criminal nature.[4] The disputants would ordinarily accept the decision of the panchayat and hence a settlement arrived consequent to conciliation by the panchayat would be as binding as the decision that was on clear legal obligations.
The Muslim rule in India saw the incorporation of the principles of Muslim law in the Indian culture. Those laws were systematically compiled in the form of a commentary and came to be known as Hedaya. During Muslim rule, all Muslims in India were governed by Islamic laws- the Shari’ah as contained in the Hedaya. The Hedaya contains provisions for arbitration as well. The Arabic word for arbitration is Tahkeem , while the word for an arbitrator is Hakam. An arbitrator was required to posses the qualities essential for a Kazee – an official Judge presiding over a court of law, whose decision was binding on the parties subject to legality and validity of the award. The court has the jurisdiction to enforce such awards given under Shari’ah though it is not entitled to review the merits of the dispute or the reasoning of the arbitrator.[5]
ADR picked up pace in the country, with the coming of the East India Company. The British government gave legislative form to the law of arbitration by promulgating regulations in the three presidency towns: Calcutta, Bombay and Madras. Bengal Resolution Act, 1772 and Bengal Regulation Act, 1781 provided parties to submit the dispute to the arbitrator, appointed after mutual agreement and whose verdict shall be binding on both the parties.[6] These remained in force till the Civil Procedure Code 1859, and were extended in 1862 to the Presidency towns.
The Code of Civil Procedure, 1859 in its sections 312 to 325 dealt with arbitration in suits while sections 326 and 327 provided for arbitration without court intervention. The Code of Civil Procedure (Act 5 of 1908) repealed the Act of 1882. The Code of Civil Procedure, 1908 has laid down that cases must be encouraged to go in for ADR under section 89(1).[7] Under the First Schedule, Order XXXII A, Rule 3 a duty is cast upon the courts that it shall make an endeavor to assist the parties in the first instance, in arriving at a settlement in respect of the subject matter of the suit.[8] The second schedule related to arbitration in suits while briefly providing arbitration without intervention of a court. Order I, Rule 1 of the schedule says that where in any suit, all the parties agree that any matter in difference between them shall be referred to arbitration, they may, at any time before judgment is pronounced; apply to the court for an order of
International Commercial Arbitration if UNCITRAL would initiate steps leading to the establishment of uniform standards of arbitral procedure. The preparation of a Model Law on arbitration was considered the most appropriate way to achieve the desired uniformity. The full text of this Model Law was adopted on 21 st^ June 1985 by UNCITRAL. This is a remarkable legacy given by the United Nations to International Commercial Arbitration, which has influenced Indian Law. In India, the Model Law has been adopted almost in its entirety in the 1996 Act.[13] This Act repealed all the three previous statutes. Its primary purpose was to encourage arbitration as a cost-effective and quick mechanism for the settlement of commercial disputes. It covers both domestic arbitration and international commercial arbitration.[14] It marked an epoch in the struggle to find an alternative to the traditional adversarial system of litigation in India.
The changes brought about by the 1996 Act were so drastic that the entire case law built up over the previous fifty-six years on arbitration was rendered superfluous. Unfortunately, there was no widespread debate and understanding of the changes before such an important legislative change was enacted. The Government of India enacted the 1996 Act by an ordinance, and then extended its life by another ordinance, before Parliament eventually passed it without reference to Parliamentary Committee.
Arbitration, as practiced in India, instead of shortening the lifespan of the dispute resolution, became one more “inning” in the game. Not only that, the arbitrator and the parties’ lawyers treated arbitration as “extra time” or overtime work to be done after attending to court matters. The result was that the normal session of an arbitration hearing was always for a short duration. Absence of a full-fledged Arbitration Bar effectively prevented arbitrations being heard continuously on day-to-day basis over the normal working hours, viz. 4-5 hours every day. This resulted in elongation of the period for disposal.
Veerappa Moily also said in the ADR congress held in the year 2010 that the 1996 Act, although modeled along international standards, has so far proved to be insufficient in meeting the needs of the business community, for the speedy and impartial resolution of disputes in India.[15]
The Law Commission of India prepared a report on the experience of the 1996 Act and suggested a number of amendments. Based on the recommendations of the Commission, the Government of India introduced the Arbitration and Conciliation (Amendment) Bill, 2003, in the Parliament. The standing committee of law ministry felt that provisions of the Bill gave room for excessive intervention by the courts in arbitration proceedings. [16]
ADR can be broadly classified into two categories: court-annexed options (Mediation, Conciliation) and community based dispute resolution mechanism (Lok-Adalat).
The following are the modes of ADR practiced in India:
The definition of ‘arbitration’ in section 2(1) (a) verbatim reproduces the text of article 2(a) of the Model Law-‘arbitration means any arbitration whether or not administered by a permanent arbitral institution’.[17]It is a procedure in which the dispute is submitted to an arbitral tribunal which makes a decision (an “award”) on the dispute that is binding on the parties.[18] It is a private, generally informal and non-judicial trial procedure for adjudicating disputes. There are four requirements of the concept of arbitration: an arbitration agreement; a dispute; a reference to a third party for its determination; and an award by the third party.[19]
The essence lies in the point that it is a forum chosen by the parties with an intention that it must act judicially after taking into account relevant evidence before it and the submission of the parties.[20]Hence it follows that if the forum chosen is not required to act judicially, the process it is not arbitration.[21]
Types of arbitration are:
Ad Hoc Arbitration
An ad hoc arbitration is one which is not administered by an institution and therefore, the parties are required to determine all aspects of the arbitration like the number of arbitrators, manner of their appointment, etc. Provided the parties approach the arbitration in a spirit of cooperation, ad hoc proceedings can be more flexible, cheaper and faster than an administered proceeding. The advantage is that, it is agreed to and arranged by the parties themselves. However, the ground realities show that arbitration in India, particularly ad hoc arbitration, is becoming quite expensive vis-à-vis traditional litigation.[22]
Institutional Arbitration
mediator alters the dynamics of negotiations.[28] The concept of mediation is not foreign to Indian legal system, as there existed, different aspects of mediation. The Village Panchayats and the Nyaya Panchayats are good examples for this. A brief perusal of the laws pertaining to mediation highlights that it has been largely confined to commercial transactions. The Arbitration and Conciliation Act, 1996 is framed in such a manner that it is concerned mainly with commercial transactions that involves the common man rather than the common man’s interest.
In India, mediation has not yet been very popular. One of the reasons for this is that mediation is not a formal proceeding and it cannot be enforced by courts of law. There is a lack of initiative on the part of the government or any other institutions to take up the cause of encouraging and spreading awareness to the people at large.
Conciliation is “a process in which a neutral person meets with the parties to a dispute which might be resolved; a relatively unstructured method of dispute resolution in which a third party facilitates communication between parties in an attempt to help them settle their differences”.[29]
This consists in an attempt by a third party, designated by the litigants, to reconcile them either before they resort to litigation (whether to court or arbitration), or after. The attempt to conciliate is generally based on showing each side the contrary aspects of the dispute, in order to bring each side together and to reach a solution.[30]
Section 61 of the 1996 Act provides for conciliation of disputes arising out of legal relationship, whether contractual or not and to all proceedings relating thereto. After its enactment, there can be no objection, for not permitting the parties to enter into a conciliation agreement regarding the settlement of even future disputes.
There is a subtle difference between mediation and conciliation. While in meditation, the third party, neutral intermediary, termed as mediator plays more active role by giving independent compromise formulas after hearing both the parties; in conciliation, the third neutral intermediary’s role, is to bring the parties together in a frame of mind to forget their animosities and be prepared for an acceptable compromise on terms midway between the stands taken before the commencement of conciliation proceedings.[31]
Negotiation-communication for the purpose of persuasion-is the pre- eminent mode of dispute resolution. Compared to processes using mutual third parties, it has the advantage of allowing the parties themselves to control the process and the solution.[32]
Essentials of Negotiation are:
In India, Negotiation doesn’t have any statutory recognition. Negotiation is self-counselling between the parties to resolve their dispute. Negotiation is a process that has no fixed rules but follows a predictable pattern.
Lok Adalat was a historic necessity in a country like India where illiteracy dominated other aspects of governance. It was introduced in 1982 and the first Lok Adalat was initiated in Gujarat. The evolution of this movement was a part of the strategy to relieve heavy burden on courts with pending cases. It was the conglomeration of concepts of social justice, speedy justice, conciliated result and negotiating efforts. They cater the need of weaker sections of society. It is a suitable alternative mechanism to resolve disputes in place of litigation. Lok Adalats have assumed statutory recognition under the Legal Services Authorities Act, 1987. These are being regularly organized primarily by the State Legal Aid and the Advice Boards with the help of District Legal Aid and Advice Committees.[34]
Legal Services Authorities Act, 1987:
The Legal Services Authorities Act, 1987 was brought into force on 19 November 1995. The object of the Act was to provide free and competent legal services to the weaker sections of the society to ensure that opportunities for securing justice are not denied to any citizen. The concept of legal services which includes Lok Adalat is a revolutionary evolution of resolution of disputes. Though settlements were affected by conducting Lok Nyayalayas prior to this Act, the same has not been given any statutory recognition. But under the new Act, a settlement arrived at in the Lok Adalats has been given the force of a decree which can be executed through Court as if it is passed by it. Sections 19, 20, 21 and 22 of the Act deal with Lok Adalat. Section 20 provides for different situations where cases can be referred for consideration of Lok Adalat.
Honorable Delhi High court has given a landmark decision highlighting the significance of Lok Adalat movement in the case of Abdul Hasan and National Legal Services Authority v. Delhi Vidyut Board and Others[35]. The court passed the order giving directions for setting up of permanent Lok Adalats.
ADR is successful in India with its own limitations and therefore carries scope of improvement within.
vii) The major lacuna in ADR is that it is not binding. One could still appeal against the award or delay the implementation of the award. “Justice delayed is justice denied.” The very essence of ADR is lost if it is not implemented in the true spirit. The award should be made binding on the parties and no appeal to the court should be allowed unless it is arrived at fraudulently or if it against public policy.[38]
With the advent of the alternate dispute resolution, there is new avenue for the people to settle their disputes. The settlement of disputes in Lok Adalat quickly has acquired good popularity among the public and this has really given rise to a new force to ADR and this will no doubt reduce the pendency in law Courts. There is an urgent need for justice dispensation through ADR mechanisms. The ADR movement needs to be carried forward with greater speed. This will considerably reduce the load on the courts apart from providing instant justice at the door-step, without substantial cost being involved. If they are successfully given effect then it will really achieve the goal of rendering social justice to the parties to the dispute.
SC: Referring Parties to
Arbitration has Serious Civil
Consequences
SC: Arbitration Clause Does not
Bar Filing of Complaint with
Consumer Forum
SC: Appeal against Enforcement
of Foreign Award to Lie u/
Section 50 of Arbitration Act
Only