By Himanshu Jakhmola
India has always wanted to be a commercial hub and has always wanted to attract itself as the big commercial market because labour is cheaper than all the western countries, not comparing it with Asia we also get cheaper labour in other Asian countries but you talk across the globe our manufacturing capabilities and our contract performance are quite high. But India has always lacked as the primary destination to attract big contracts because of India’s litigious nature. Whenever there is a dispute any party/ foreign party wanting to enter into a contract with India party very reluctant because of interference by courts even there is an alternative dispute resolution mechanism. India has lost the lot of credibility because of that and India also has to keep pace with international norms where parties knowing the nature of time consuming litigation in India. We know that there are so many cases which are going for years and year’s parties dies there legal heirs coming and cases are going on so to give more sanctity to commercial relation or family settlement, people have started bringing in concept of alternate dispute resolution of arbitration, mediation, and conciliation. The most used form formats of alternative dispute resolution are arbitration and mediation so both are at different stages. You have pre arbitration mediation possibility you have post litigation mediation possibility.
Arbitration as a concept is a process where two parties who is contracting into a commercial contract. They decide that there disputes are going to be decided by a third party of their choice. One cannot go for arbitration for any or everything.
Arbitration will only be available in a right of personam i.e personal right and not in a right in rem i.e against whole world. So one cannot enter into contract with someone for any contract of nature where any repercussion are going to operate against the whole world but one can definately enter into a contract against a third party where the repercussion or effect are going to be only on parties. So for right in rem parties have to move court.
To have a valid arbitration you need to have-
An arbitration agreement – according to arbitration act parties allow to choose the number of arbitrators, they can be of any number but it must not be in even number.
In practice if there are smaller contract parties usually opt for the sole arbitrator to be mutually decided whereas if there is a big contract such as commercial contract parties usually adopt for the three member tribunal.
Arbitration act went to a measure change in the year 2015 to bring in the IBA rules of evidence and to bring the conflict of law principles within the arbitration act. When the case (Perkins Eastman v. HSCC Ltd) was filed the basic argument taken in this case was where is the fairness and how to do give effect to the 2015 amdt where there is a specific provision to challenge the bias of an arbitrator. Supreme Court went on to say that such contract where the arbitrator so appointed or the authority appointing the arbitrator have any kind of interest in the outcome of arbitration such an arbitration appointment mechanism is invalid and they have to move court for appointment.
In three members tribunal there appears to be an element of fairness. The first step to commence arbitration is – sending a notice for invocation of arbitration, one cannot invoke arbitration by filling a statement of claim telling other party about the dispute. Availability of dispute and notice for invocation are sine qua non.
The difference between section 9 relief and arbitration is that in arbitration it just binds the parties only but under sec-9 relief it binds third party also because the court has wider powers than an arbitration tribunal. An arbitral tribunal is a creature of a contract but courts are creature of law so there powers are wider which will bind the court authorities as well as other parties. This practice was really looked down upon by international community they said it defeats the purpose of arbitration and this practice was usually invoked for a bank guarantees. This really deterred the parties from coming to India as a practice.
So in BALCO case the court went on to say (apart from issue of seat and venue) that this will not apply. And govt. was not happy with it. So to get these powers back to them got the latest amendment which says unless the parties in international commercial arbitration specifically exclude applicability of part I (some sections of part I) e.g. sec-9…
It will also apply to international commercial arbitration seated outside India.
It is not something which is thrust upon people but have a choice and it must be exercised judiciously at the time of entering into a contract.
So there is a difference between domestic arbitration and international commercial arbitration. Till BALCO there was a lot of confusion on issue of the seat and venue. BALCO said that your seat will never change, your venue can change.
Why arbitration as an alternative dispute mechanism?
- It is quicker.
- Less formal than court
An arbitration award is binding because parties decided to trust the judgment of a third person and gave this right to a third person. Arbitration award can only be challenged under section 34 not as a measure of appeal but on very limited grounds. But in practicality there is lies appeal, under clause 2(b)(ii) of section 34 which says an arbitration agreement can be challenged if it is against public policy of India. Public policy means it is against the scheme of legal system in India.
Mediation is better as well as weaker method which is not that binding. So mediation can become a more effective method bring it in form of a med/arb where mediator mediates a dispute. If disputes are not resolved through mediation, same person act as arbitrator. The concept is not really accepted in India right now. Mediation as an alternative dispute resolution is very prevalent in divorce cases, matrimonial cases, any family issue.
The only point relevant in mediation is lack of sanctity, unless one agrees to something in mediation it cannot bind. So mediation is usually used to assuage egos concerns. The trial court often refers to mediation by an expert mediator to mediate the issues between the parties. He cannot compel the parties but just guide.
Conciliation has an element of bidingness but is never exercised in practicality.
Among the three methods of alternative dispute resolution, arbitration is the most preferred method with the new act.
In conclusion Med/Arb is being personally recommended by me in the alternative dispute resolution mechanism mediation with arbitration but it actually depends upon what the parties aiming to achieve.