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Is Outside The Court Room The Better Way To Justice Is Arbitration: An Effective Mechanism?

Alternative dispute resolution (ADR) mechanism is often hailed as the new, modern, cost-effective, and efficient pathway to justice. Compared to the traditional court proceedings, ADR mechanisms are held to be less stressful, less formal, and more convenient for the parties involved to solve the dispute. But, this opinion of the majority may not be valid all the time. One of the mechanisms of ADR is Arbitration which is government by the Arbitration and Conciliation Act, 1996[1].

The objective of this Act is to resolve the dispute as expeditiously as possible with the minimum intervention of the court of law so that the trade and commerce is not affected on account of litigation before a court. The effectiveness of such a mechanism is brought into question. In this article, an attempt is made to shed light on the actual point of the Arbitration as a mechanism to ADR process and how it has proven to be just as costly as a court proceeding and the cases have been dragged on for years together which is against the objective of this Act.

It is always perceived that the process of arbitration is a more effective way of solving disputes amicable between parties when compared to litigation in the Court. However the process of arbitration compared to other forms of ADR such as Conciliation, mediation and Lok Adalath has many drawbacks such as numerous parties, arbitrators, advocates. It is always looked as a less expensive when compared to a litigation however many times it is seen that arbitration is more expensive when compared to litigation as the parties are supposed to pay for the advocates, arbitrator, arbitrators when there are three arbitrators appointed to solve the dispute.

The arbitration process may not be fast when there is a panel of arbitrators involved. While the Supreme Court in Vidya Drolia And Others v/s Durga Trading Corporation [2] has clearly articulated that the fact finding process in arbitration is not equivalent to judicial fact finding procedures which is far more comprehensive and in-depth, there is limited or lack of reasoning in awards; arbitrators enjoy and exercise extensive and unhindered powers and therefore are prone in making arbitrary and despotic decisions; there is no appeal process in arbitration which combined with the above and limited review of an arbitral award in post-award court proceedings, arbitration may have devastating consequences for the losing party and undermines justice; arbitration proceedings are usually private and confidential; arbitrators are unfit to address issues arising out of the economic power disparity or social concerns[3]; business and industry, by adopting and compulsorily applying arbitration process, leave the vulnerable and weaker sections with little or no meaningful choice but to accept arbitration. A few people realize and understand the importance of loss of their right to access the court of law or public forum, which are impartial, just and fair[4] and arbitration is expensive and costly in comparison to court adjudication[5].

The Supreme Court in its Judgement in Dolphin Drilling Ltd. v. M/s. Oil and Natural Gas Corporation Ltd[6]. In this judgment of the Hon'ble Supreme Court, amongst other things, acknowledged that arbitration in India is an expensive and time consuming dispute resolution mechanism. The very objective of providing for arbitration, which is to ensure fast and efficient disposal of disputes between the parties to the arbitration agreement, has been lost. In the plea raised by the Oil and Natural Gas Corporation (Respondent) raised a real problem "It is unfortunate that arbitration in this country has proved to be a highly expensive and time consuming means for resolution of disputes"[7].

However the costs of arbitration depends on various factors. A blanket statement cannot be made about the same. Arbitration and other ADR fees rely massively on the nature and the details of the case. The qualification and demands of the particular arbitrator may also affect the fee payable in such cases. Despite the popular opinion that ADR is much more economical and time effective than litigation, ADR has proven to be just as costly as litigation in some cases and sometimes more expensive.

ADR has often been described as following a "take it or leave it" policy, especially arbitration. Such a policy may leave the parties with extreme options of following the arbitrator's decision strictly or not, which takes them back to the initial position.

The parties also would have little or no power of bargaining. The effectiveness of an arbitration process largely depends on the arbitrator's expertise, attitude, and temperament.

It cannot be said that ADR is preferable over litigation in all scenarios. The mechanism of ADR is purely based on the cooperation of the parties involved. Even if one party is very uncooperative, the process will be hampered. In few instances during the Arbitration proceedings, one must also pay for the room's rent and travel expenses of arbitrators, witnesses, etc,. This may again increase the overhead costs of the process.

For an accurate comparison of costs, we must not consider the fee paid to the advocates along, arbitrator, or mediator. The more experienced and qualified an arbitrator is, the more they demand. The same applies to litigation lawyers. So, a blanket statement cannot be made saying that litigation costs more than Arbitration.

The fee paid to different arbitrators can differ in thousands to lakhs, through the Act specifies the cost. Arbitration involves a lot of incidental expenses, which increase the cost substantially. The base cost of litigation is lesser than that of ADR. Although the ADR route proves to be more time effective in some cases, the quick handling of the case demands a hefty fee.

Apart from the cost aspect, there are some other shortcomings of Arbitration[8]. One such major drawback is that of judicial precedents. In arbitration, there is no involvement of judicial precedents. Arbitration does not work with all sorts of cases. Arbitration will work only in civil and financial disputes. The decision of a neutral arbitrator is binding on the parties. They have no other choice but to go by the decision. In the process of litigation, the determination of a lower court, although binding, can be appealed against in a higher court. This equips the parties with a second chance.

Such a mechanism is missing in arbitration. The litigation process is equipped with many safeguards put in by the constitution, which are lacking in the ADR mechanism. The processes of arbitration, meditation, and other ADR mechanisms are not without their own set of disadvantages. Often, ADR is used as a stalling technique to keep litigation at bay for the time being.

The non-cooperation of parties among themselves and with the arbitrator can result in the process being pulled for a long time. Most Arbitration hearings are billed on an hourly basis. Thus, when a case is held for too long, it may result in a heavy bill on the parties. Research and survey have proven that court-annexed arbitration can prove more costly than traditional litigation.

Court-ordered arbitration and mediation may have rigid procedures and strict guidelines, thus defeating the very purpose of an ADR mechanism. After long periods of ADR sessions, if the parties cannot reach an amicable solution, there is massive wastage of time, money, and human resources.

Although the process of ADR used to be pocket-friendly, over the course of time it has proven to be just as costly as litigation, sometimes more. The rising costs and the ineffective provisions of the Arbitration and Concialtion Act brought out the need for an amendment, to strength then the provision relating to costs.

The Arbitration and Conciliation (Amendment) Act 2015 was brought into the picture. Section 31A(1)[9]4 provides that in relation to any arbitration proceeding, the arbitral tribunal has discretion to determine whether costs are payable by one party to another ,the amount of such costs; and at what part of the proceedings such costs are to be paid. Despite such measures to keep in check the rising costs and arbitrary charges, the processes of ADR remain costly as ever. The effectiveness of such alternatives, lie in how the people receive and embrace the mechanism. This is only possible if the rising costs are kept in check.

To conclude, ADR is relatively new to the world of law. The knowledge and awareness around the same are currently low, but is on the rise. Without the parties completely understanding the implications of such mechanisms, the process will be futile. ADR is a concept that still requires changes, corrections, and modifications. If properly used, this can be a game-changer for the field.

  1. The Arbitration and Conciliation Act, 1996, Central Act No. 26 of 1996
  2. Civil Appeal No. 2402 OF 2019 With Special Leave Petition (Civil) Nos. 5605-5606 OF 2019 And Special Leave Petition No. 11877 OF 2020 dated December 14, 2020.
  3. (i) to (vi) from Prof. Stavros Brekoulakis � On Arbitrability: Persisting Misconceptions and New Area of Concern.
  4. (vii) from the preamble of the text of the bill of 2007 Arbitration Fairness Act as was written by the sponsor and submitted to the House for consideration
  5. Union of India v. Singh Builders Syndicate, (2009) 4 SCC 523.
  6. Dolphin Drilling Ltd vs Oil & Natural Gas Corp.Ltd on 17 February, 2010 in Arbitration Petition No. 21 of 2009;
  7. Idbi

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