Blog Details

Benefits Of Arbitration for Commercial Disputes in India

Author: Advocate Nishant Nigam and Associate Shreya Negandhi

Disputes are inexorable but combat is optional.

With the rapid globalization of the economy and the resulting increase in competition there has been a significant increase in commercial disputes. The outpaced rate of development has led to increase in industrial growth, modernization, improved socio-economic circumstances, technological development which in turn has led to an increase in case overloads for the already over burdened courts. India’s GDP which was expected to increase by 7.6 % in the year 2018-2019 as estimated by the World Bank data is a clear picture of the rate at which development is taking place. Advantages of Arbitration for Commercial Disputes in India and disputes are two sides of the same coin, which means that the alarming rate of development of Arbitration for Commercial Disputes in India has its snag, which is the increasing number of the disputes in various sectors.

The multiplying of outstanding cases in the courts, exorbitant delays in the administration of justice and expenses of litigation have continued to plague people thereby undermining their faith in the justice system. The issue at hand is to examine and choose a right formal legal system, such as Alternative Dispute Resolution procedures. India has a standing as being one of the oldest in the history of judicial system. However, according to the latest data given by National Judicial Data Grid as on February, 2019 2,97,97,288 cases have been pending in the country. Alternate Dispute Resolution has floated from the fundamental rights which have been enshrined in our Constitution, namely Article 14 which deals with Equality before law and Article 21 which deals with the right to life and personal liberty. The primary motive of this resolution mechanism is to provide social-economic and political justice and maintain integrity in the society. It also strives to achieve equal justice and free legal aid provided under Article 39-A relating to Directive Principles of State Policy.

Arbitration is an Alternate dispute resolution mechanism or more precisely a private process whereby, parties to a dispute submit to a neutral third party or parties (called arbitrator) by whose decision they agree to be bound, without resorting to court action.

The historical evolution of Arbitration in India can be traced back to “Brihadaranyaka Upanishad” under the Hindu Law. It provided for various types of arbitral bodies consisting of three primary bodies namely: The local courts, the people engaged in the same business or profession and Panchayats. In ancient times, people often voluntarily submitted their disputes to Panchayats for a binding resolution.Sandra Day O’Connor, the Hon’ble Retired Justice of the Supreme Court of the United States of America has appositely said that the courts should not be the places where resolution of dispute begins rather they should be places where the disputes end after alternative methods of resolving disputes have been meticulously considered and tried.

Arbitration has been promoted as a way to resolve disputes efficiently, proponents of arbitration commonly point to a number of advantages it offers over litigation. Its advantages include: Advantages & Benefits of Advantages of Arbitration for Commercial Disputes --

• FASTER THAN LITIGATION

The average time period within which a case is decided upon in a court of law is between 6 years to 30 years depending upon the subject matter. According to a recent amendment, it is mandatory for the arbitrator to pass the arbitral award within a period of 12 months from the date of reference of the case. This is a conceivable proof of the momentum at which the cases which have opted for the route of Arbitration are being decided.

• FLEXIBLE

Flexibility, especially procedural flexibility is the allurement of arbitration because it allows parties to set terms in their arbitration contract governing how the process will work. It also gives them freedom to agree to a suitable procedure in accordance with the dispute.

• PRIVATE PROCESS

Arbitration is a private process where only designated parties are in attendance and the proceedings are strictly confidential. Litigation on the other hand is a formal process conducted in a public courtroom. This feature is an aid as in certain cases the revelation of the subject matter of the dispute might affect the reputation of the company. It also allows the parties to focus on the dispute rather than the public impact.

• COST EFFECTIVE

Arbitration is considered to be cheaper than litigation especially because less time is spent to resolve a dispute. Also, rules of evidence and discovery are limited thereby leading to a considerable reduction in the costs.

• SELECTION OF ARBITRATOR

Parties are at discretion to choose an arbitrator with subject matter expertise, in contrast with litigation whereby a judge is appointed whimsically.

• SIMPLIFIED RULES OF EVIDENCE AND PROCEDURE.

The byzantine rules of evidence and procedure do not apply in arbitration proceedings -- making them less stilted and more easily adapted to the needs of those involved.

• AVOIDANCE OF HOSTILITY

The disputed parties in an arbitration are usually encouraged to participate fully and sometimes even to help structure the resolution. This aims at making them work together peaceably rather than escalating their perturbation and hostility toward one another, as is often the case in litigation.

Richard Cobden, a Liberal statesman in the United Kingdom has fittingly referred to Arbitration as being more rational just and humane than resorting to any other violent means of resolution. There have been great advances in order to promote Arbitration on a global level. Supportive laws are in place in many countries which provide with a suitable legal background required to resort to Arbitration as a Dispute Resolution Mechanism, namely Arbitration and Conciliation Act, 1996 in India, Federal Arbitration Act in United States of America, Arbitration Act, 1996 in United Kingdom, etc. Courts of Arbitration have been set up (Example: Permanent Court of Arbitration) in order to facilitate International disputes. The unprecedented growth of trade, especially international trade has led to an increase in Arbitration practices, specifically in the last decade.

Abraham Lincoln, the 16^th President of the United States of America has congruously stated in favour of Arbitration, “Discourage litigation. Persuade your neighbors to compromise whenever you can. Point out to them how the nominal winner is often a real loser—in fees, expenses, and waste of time.”