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Arbitration: A Better Approach Of Dispute Settlement In India

Judiciary is one of the best and oldest judicial system but now it becoming incapable to handle all the pending cases. To deal with this problem, the judicial system introduced a new process which is called the Alternative Dispute Resolution to solve cases as soon as possible. Alternative Dispute Resolution solves cases in an efficient and peaceful manner and the result of the dispute is mutually accepted by both the parties.

ADR is a dispute settlement mechanism which resolves all types of disputes such as civil, commercial, family and divorce, industrial, housing, and etc. ADR in its process takes help of a neutral third party (ex: arbitrator, mediator) who helps both individuals and groups to communicate with each other and resolves their dispute in an efficient manner and maintain social order which ultimately helps them to minimizes hostility.

One of the most important aspects for which parties may prefer alternative dispute mechanism over litigation because it allows party to understand each other's position and the actual reason for arising of the conflict and also gives opportunity to adopt more innovative way of solving disputes which may not be accepted in the court of law.

Acts which describe about ADR are the Arbitration and Conciliation Act, 199 and Legal Service Authority Act, 1987. Articles 14 and 21 of the Constitution of India also describes about ADR which provides with equality before law, right to life and personal liberty of every citizen.

The main motive of this dispute settlement mechanism is to accomplish equal justice and free legal aid which is provided under Article 39-A of the Constitution of India relating to Directive Principle of State Policy (DPSP). Under Section 89 of the Civil Procedure Code of India, 1908, it states that if the court satisfies with the situation and elements of the case then the court can ask the parties to settle the dispute outside the court and refers the case for: Arbitration, Conciliation, Mediation or Lok Adalat.

ADR And Its Different Methods

To solve dispute quickly and efficiently, ADR adopted different methods which will help the party to resolve their dispute in a peaceful manner outside of the court with the help of a neutral third party.

Here are the most common and used ADR methods:
  • Arbitration and Conciliation
  • Mediation
  • Negotiation
  • Mini-trial
  • Early non-binding neutral evaluation
  • Settlement Conferences


Arbitration is one of the most used methods all over the world for dispute settlement includes under ADR. Arbitration is used in the dispute settlement mechanism when the conflicting parties mutually agree to accept the decision of the neutral third person and the neutral third person is known as the Arbitrator who carefully listens arguments from both parties, considers all evidence then decides the matter which will help both the parties to resolve their conflict.

Generally, the decision of the arbitrator is final and binding and there is no appeal but in exceptional situation, there are need for judicial intervention, if the parties will not satisfy with the decision of the arbitrators, then they can go to pursue the trial of the court. According to the Arbitration and Conciliation Act, 1196 under section 2, Arbitration means any arbitration whether or not administered by permanent arbitral institution[1].

In the Arbitration and Conciliation Act, 1996 there are some important terms mentioned. They are arbitration, arbitration agreement, arbitral reward and arbitral tribunal which is mentioned under sec 2(1)(a) to sec 2(1)(d) in the act.

According to Sec 7(1), arbitration agreement means an agreement by the parties to submit to arbitration all or certain disputes which have arisen or which may arise between them in respect of a mentioned legal relationship, whether it is contractual or not[2].

Arbitral award is the final decision and it is granted by the arbitrator and it includes interim awards[3]. Arbitral award means an arbitration hearing decision granted by the neutral third party in arbitral tribunal and it is treated equally with a judgment of a court.

Arbitral tribunal refers to a sole arbitrator or a panel or group of arbitrators[4].

Arbitration Or Litigation: The Better Approach

Litigation is a very formal process and it must give respect and obey the rules and procedures made in the court of law. Litigation is a time consuming and complex process as it is necessary to follow all the rules mentioned in CPR rule books.

Generally, parties prefer to go for arbitration instead of litigation as it is less time consuming, expensive, formal and flexible over the process of litigation. Arbitration can also deliver better quality or efficient judgement which is mutually accepted and benefited for both the parties than any judgement of a civil court because all the courts in India are already overloaded with a huge number of pending cases.

One of the most positive aspects of perusing arbitration is that it gives surety of privacy and confidentiality in the matter of the conflict and in certain situations it also does not reveal the names of parties involved in a dispute. Arbitration allows the conflicting parties to customise and improvise the rules, regulations and procedures relating to the specific conflict which is not possible in case of litigation.

Arbitration Or Mediation: The Better Approach

In case of arbitration, the arbitrator passed the final order which is binding on both the parties, but in case of mediation, the neutral third party (Mediator) only assists the parties to reach to an agreement and the order passed by the mediator is not final and binding on the parties. Mediation process is more informal than the process of arbitration.

Limitations Of Arbitration

Like any other process in dispute settlement mechanism, arbitration has also its drawbacks. The main limitation of arbitration is that, there is no appeal after the final grant by the arbitrator. So even in certain cases one of the parties think that the arbitral award is not justified and it is biased in nature, in those situations also they cannot appeal (there are only certain situations when the arbitral award can set aside).

In case of litigation, the evidence which brought before the court are strictly observed that whether the evidences are admissible or not in the court of law. But in arbitration cases, illegally required evidence admission is a significant problem due to absence of proper evidences rule for arbitration and there is a lack of cross examination and consistency also.

Litigation must follow all the rules and regulations but in case of arbitration it is not that much of necessary to follow all the rules and this creates lack of transparency and consistency in the decision. Due to this may be the decision which will be made by the arbitrator will be biased in nature and cause damages to one party.

Salem Advocate Bar Association V. Union Of India[5]

Section 89 of CPC, 1908 describes about when and how a court can refer a case to ADR. This section says that when the court thinks that there exists an element of settlement between the parties, in this situation the court can make the terms of the settlement and give that to the parties for their comment and after receiving the comment the court can create the possible settlement or refer the case to follow the methods of ADR (arbitration, mediation, conciliation, Lok Adalat).

In this case the court gave instruction to make an expert committee of the institution to design the manner in which Section 89 and other provisions introduced in CPC have to be brought into operation. The court also gave instruction to design a model case management formula along with all the rules and regulations, which should be followed while referring a case to ADR as mentioned under Section 89 of The Code of Civil Procedure, 1908.

ADR Options (Involves Both Arbitration And Mediation)


In the process of med-arb and arb-med, it both includes mediation and arbitration. In case of med-arb, the conflicting parties will first go for mediation and then if they don't receive a satisfactory outcome from pursuing mediation, then they can go for a binding result in arbitration. The process of Med-Arb has evolved in the United States and it deal with disputes like labour disputes, international disputes and corporate disputes.

In case of Arb-Med, the parties in order to solve their dispute first approach the method of arbitration which is non-binding in nature, then they can go for mediation. But if they will not be satisfied with the outcome of the mediation, then they can accept the arbitral award grated by the arbitrator which is binding upon the parties. Both the process of Med-Arb and Arb-Med are flexible and efficient form of dispute settlement mechanism.


MEDALOA refers to 'mediation and last offers arbitration'. It is a very useful settlement process. When the outcome of the mediation process is not satisfactory, in those situations the mediator listens to each party's last offer and then the mediator made a final decision which is the most efficient one for both of the parties and it should be accepted by both of the parties as the final settlement.

From the above findings of comparison among litigation, arbitration and mediation, we here concluded that, arbitration is the best method to approach in most of the cases in order to solve cases more quickly and efficiently and in order to clear the backlog of cases in the court of law.

  • Arbitration and Conciliation Act 1996
  • Code of Civil Procedure 1908
  • Salem Advocates Bar Association v. Union of India [2003] AIR 189 (SC)
  1. Arbitration and Conciliation Act 1996, s 2(1)(a)
  2. Arbitration and Conciliation Act 1996, s 7(1)
  3. Arbitration and Conciliation Act 1996, s 2(1)(c)
  4. Arbitration and Conciliation Act 1996, s 2(1)(d)
  5. Salem Advocates Bar Association v. Union of India [2003] AIR 189 (SC)

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