History of development of law of Arbitration in India

In India, an alternative system is available to the disputing parties including Arbitration, Conciliation, Mediation, Negotiation etc. 

Arbitration was very popular and prevalent in ancient India and awards were known as decisions of panchayat, which were binding in nature. 

During the British Rule in India, the panchayat system was not abrogated. 

In West Bengal Regulation of 1772, a provision for arbitration was made and subsequent Regulations also provided for arbitration in certain matters. 

The Legislative Council for India came into existence in 1834 and Civil Procedure Code, 1859 was enacted which also dealt with law of arbitration. 

The next Code of Civil Procedure of 1882 repeated the same provisions about arbitration. Indian Arbitration Act was enacted in 1899 on the lines of English Arbitration Act, 1889. It made provision for reference of disputes, present as well as future, to arbitration without intervention of the court. 

The Indian Arbitration Act, 1940 consolidated and amended the laws relating to domestic arbitration very exhaustively. 

There were two more Arbitration Acts in India in relation to foreign awards namely - the Arbitration (Protocol and Convention) Act, 1937 and the Foreign Awards (Recognition and Enforcement) Act, 1961, which were enacted in compliance of International Conventions to which India was a party. 

Thus, the law of arbitration was scattered in three enactments. 

The Arbitration and Conciliation Act, 1996 had amended and consolidated the law of arbitration and repealed all the three enactments. 

The 1996 Act is based on the Model Law on International Commercial Arbitration recommended by United Nations Commission on International Trade Law (UNCITRAL).

Tribunals and Commissions

The tribunal system was evolved in our country to provide an alternative to the regular Courts. The tribunals are presided over by the experts of the respective fields and are not only less costly in comparison to regular Courts but also they effectively resolve the disputes by taking much less time in comparison to the regular Courts. Examples of tribunals are-Central Administrative Tribunal, Income Tax Appellate Tribunal, Central Excise and Service Tax Appellate Tribunal etc.

Tribunals are established under varied circumstances, for example Article 323A of the Constitution of India provides for the establishment of Administrative Tribunals for trial of disputes and complaints with respect to recruitment, conditions of service of persons appointed to public services and other allied matters. Article 323B of the Constitution makes provision for creation of tribunals for judging or trial of disputes, complaints or offences connected with tax, foreign exchange, industrial and labour disputes, land reforms, ceiling on urban property, election to Parliament and State Legislature etc. The Parliament has power to enact any law under Article 323A while both Parliament and Legislatures can make laws on matters under Article 323B.

Nayaya Panchayat and Gram Nayayalaya

Meaning of Nyaya Panchayat 

Nyaya Panchayats are village Courts with civil, criminal and revenue powers as granted to them under certain laws. Panchayat Courts also function in some States under various names like Nyaya Panchayat, Panchayat Adalat, Gram Nyayalya, Kachheri, etc. to decide civil and criminal disputes of petty and local nature.

Article 243B of the Constitution of India provides for the establishment of Panchayats at the village, intermediate and district levels in every state. In ancient times, the village Panchayats comprising of the elders, had administrative and judicial powers and exercised full control over the villages.Now a days, Nyaya Panchayats are established under statutory enactments in many States like Uttar Pradesh, Madhya Pradesh and West Bengal.

History of Nyaya Panchayat

The concept of Nyaya Panchayat was very popular and prevalent in ancient India. There was a tradition of Nyaya Panchayats. In fact, the Panchayat, in its original conception was, primarily, an instrument of law and order, a means of Conciliation and Arbitration within the community. The awards were known as decisions of Panchayats, commonly known as Panchs. There were three grades of judges or Panchs in ancient India, namely Puga, Sreni and Kula. The decision of Panchayat was subject to revision. A decision given by a Kula could be revised by a Sreni and further by way of second revision, it could be revised by a Puga. The decisions of the Panchayats were of binding nature in law in force in those times.

During the ancient Hindu period, the villages enjoyed autonomy and were governed by the Panchayats, which exercised administrative and judicial powers. These village bodies received a setback under the Muslim rule and almost disappeared, though they were there in their old form under the British, confining their authority only to the social life of the village community.

Jurisdiction of Nyaya Panchayats

The Panchayat adalats, now called Nyaya Panchayats, were established in the Mainpuri district in 1949 under the U.P. Panchayat Raj Act, 1947, to adjudicate upon petty civil and criminal disputes arising in the rural areas. The jurisdiction of a Nyaya Panchayat usually extends over an area of five to ten Gram Sabhas, depending on the population of the constituent villages. Their scope, powers and functions have been defined in the Act referred to above, and revisions against their decisions lie to Sub-divisional Magistrates in criminal cases and to Munsifs in civil suits.

The jurisdiction and powers of the Nyaya Panchayats depends upon the respective statute under which it is constituted. It is a matter of State list as given in the Constitution. In U.P. State, the Nyaya Panchayats are empowered to try cases as given below:

(a) All cases under Panchayati Raj Act.

(b) The selected sections of I.P.C. i.e. involving property not exceeding an amount of Rs. 50 in value.

(c) The Nyaya Panchayats have original jurisdiction to try civil suits up to a valuation of Rs. 500.

(d) Any dispute not pending in any Court in accordance with some settlement compromise on oath, if the parties concerned agree in writing to such a course. They are not authorized to award sentences of imprisonment and can impose fines up to hundred rupees only.

(e) Any other cases as conferred by appropriate Government from time to time.

Constitution of  Nyaya Panchayats

The Nyaya Panchayat is a matter of State list; hence it is constituted under the respective State law. Generally, the Panchs of Nyaya Panchayats are nominated from amongst the elected Panchs of the Gram Panchayats by the District Magistrate with the assistance of an advisory body.

Members of the village Sabhas may also be nominated as Panchs in case the members of village Panchayats with requisite qualifications are not available. These Panchs elect from among themselves the Sarpanch, who is the Presiding Officer and an Assistant Sarpanch to assist him. The Panchs are honorary workers and hold office for a period of 5 years. Their term may be extended by another year by the State Government. The cases are heard and disposed of by benches consisting of 5 Panchs. The presence of at least three Panchs including a sarpanch is essential at every hearing.

What is Lok Adalat?

Lok Adalats are extempore Courts created as per the requirement of the people of a particular area. Camps of Lok Adalat were started initially in Gujarat in March 1982 and now they have been extended throughout the country. The evolution of this movement was a part of the strategy to relieve heavy burden on the Courts with pending cases. The reason to create such camps was only to dispose of the pending cases and to give relief to the litigants who were in a queue to get justice. The seekers of justice are in millions and it is becoming rather difficult for the Courts to cope up with the ever-increasing cases with the present infrastructure and manpower. Lok Adalats are organized with financial assistance by the government and monitored by the judiciary. Lok Adalats have set Conciliation process in motion in India. In Lok Adalat, voluntary efforts are aimed at bringing about settlement of disputes between the parties through conciliatory and persuasive efforts, and provide speedy and inexpensive justice. Members of Lok Adalats act as Conciliators. Lok Adalats have assumed statutory recognition under the Legal Services Authorities Act, 1987.

Section 19 of the Legal Services Authorities Act, 1987 provides for organisation of Lok Adalats. The section lays down that every State Authority or District Authority or the Supreme Court Legal Services Committee or every High Court Legal Services Committee or, as the case may be, Taluk Legal Services Committee may organise Lok Adalats at such intervals and places and for exercising such jurisdiction and for such areas as it thinks fit.

The section further provides that every Lok Adalat organised for an area shall consist of such number of-

(a) serving or retired judicial officers; and

(b) other persons,

 of the area as may be specified by the State Authority or the District Authority or the Supreme Court Legal Services Committee or the High Court Legal Services Committee, or as the case may be, the Taluk Legal Services Committee, organising such Lok Adalat.

Sub-section (5) of section 19 of the Legal Services Authorities Act, 1987 lays down that a Lok Adalat shall have jurisdiction to determine and to arrive at a compromise or settlement between the parties to a dispute in respect of-

(i) any case pending before; or

(ii) any matter which is falling within the jurisdiction of, and is not brought before, any court for which the Lok Adalat is organised:

Provided that the Lok Adalat shall have no jurisdiction in respect of any case or matter relating to an offence not compoundable under any law.

Section 21 of the Legal Services Authorities Act lays down that every award of the Lok Adalat shall be deemed to be a decree of a civil court or, as the case may be, an order of any other court and where a compromise or settlement has been arrived at, by a Lok Adalat in a case referred to it under section 20(1), the court-fee paid in such case shall be refunded in the manner provided under the Court Fees Act, 1870.

Every award made by a Lok Adalat shall be final and binding on all the parties to the dispute, and no appeal shall lie to any court against the award. 

What is Early Neutral Evaluation?

Meaning of Early Neutral Evaluation

'Early Neutral Evaluation' is an ADR process which is preventive in nature, the object of which is to settle the dispute amicably at the earliest stage. It is non-binding, flexible and confidential process in which a person experienced in the subject matter of the dispute is appointed by the parties for 'Early Neutral Evaluation' known as 'Evaluator' at the outset of the dispute. 'Early Neutral Evaluation' provides the parties with an early and confidential evaluation of the merits of a dispute at the initial stage. The Evaluator studies all materials provided to him, performs independent research into the relevant case law, considers presentations carefully, clarifies positions and facts through questioning and then he prepares an evaluation report.

Procedure of  Early Neutral Evaluation

The Evaluator convenes a meeting to listen the parties who outline the key element of the dispute. The Evaluator assesses the merits of case of each party and identifies the main issues to explore possibilities of settlement. If there is no settlement, the Evaluator may assist the parties by making procedural recommendations.

The Evaluator gives a non-binding decision indicating the way in which he considers the dispute would be determined by a Judge or Arbitrator.

'Early Neutral Evaluation' may be conducted without an oral hearing. If the parties so desire, a short hearing can be held to facilitate evaluation. The procedure at the hearing is determined by the Evaluator but witnesses are not normally heard. The parties make short submissions within a time limit set by the Evaluator. Settlement is very often achieved between the parties on the basis of the evaluation. The parties may, if they wish, agree to be bound by the decision of the Evaluator.

The 'Early Neutral Evaluation' process is very useful where the dispute involves a difficult point of law or interpretation of a contract that prevents the parties from successfully conciliating the dispute or otherwise reaching settlement.

 

What is Expert Determination?

Meaning of  Expert Determination

Expert Determination is a non-binding and flexible ADR process in which the parties agree to appoint an independent third party, who is expert in a particular field, to adjudicate on a dispute within the field of his expertise. The parties may settle the dispute based on Expert Determination. The decision of the expert is not binding on the parties but it opens the doors for an amicable settlement.

Usefulness of  Expert Determination

Expert Determination is useful for determination of technical or legal disputes that require technical expertise or evaluation by an expert to assist the parties to settle the dispute. In construction contracts, the dispute relating to quantities is generally settled, based on the measurements recorded by an expert appointed by the parties. Construction contracts generally have a clause in the contract for determination of technical issues by an expert engineer or architect prior to Arbitration. Expert Determination is also useful where the parties want to reduce the cost of litigation or Arbitration and they are genuinely interested in an early and fair settlement.

Advantages of Expert Determination

Expert Determination is an ADR process, which is very simple and does not require formal meetings and presentation of pleading and evidence. It is an efficient, economical and efficient process in which the parties can maintain a cordial relationship.

Procedure Expert Determination

The procedure for an Expert Determination is decided by the parties or the expert. The process is very flexible and efficient which may involve following steps:

(a) a meeting between the expert and the parties to decide the process for the determination;

(b) providing relevant information or evidence to the expert;

(c) a visit to the site of dispute for determination by the expert;

(d) decision by the expert;

(e) consideration of the decision by the parties;

(f) settlement of the dispute.

What is Negotiation?

Negotiation is an ADR process by which parties resolve their disputes. They agree upon course of action and bargain for advantage. Sometimes, they try to adopt such a creative option that serves their mutual interests. Because of its mutual advantages, people negotiate in almost all walks of life, from home to the courtroom. It is the most common form of resolving a dispute and this process solves most disputes. If Negotiations fail, it is necessary to seek the assistance of a neutral third party or several neutral third parties to reach a solution.

How is a dispute resolved by Negotiation?

Negotiation bargaining is a process in which both the parties cooperate and seek a solution that is mutually beneficial (a win-win solution or co-operative bargaining). It can also be confronting when each side seeks to prevail over the other. If Negotiation succeeds, the parties sign a settlement agreement incorporating the terms and conditions of the agreement or they can simply enforce the agreement. The definition of the Negotiation process, and how the process occurs differs across cultures.

What is 'Position-Based Negotiation'?

'Position-Based Negotiation' is a term that describes the traditional approach to Negotiation, in which the parties are firmly committed to their bargaining positions. It exchanges proposals and counter proposals in the anticipation that one or more parties will compromise to achieve a dispute settlement that satisfies all parties.

What are Facilitated Negotiations and what is the role of a Facilitator?

The Negotiations which have a coordinator known as Facilitator are called Facilitated Negotiations. Facilitated Negotiations are assisted by a qualified Facilitator. He runs the meetings, keeps the parties focused, guides them in the process, encourages ground rules, and takes notes. He helps the parties with divergent views to reach a goal or complete a task to the mutual satisfaction. He improves the definition of issues, develops options, keeps on task, and ultimately increases the likelihood that a consensus will be reached.

Conciliation and Mediation

What is Conciliation?

Conciliation is a process in which a third party assists the parties to resolve their dispute by agreement. A Conciliator may do this by expressing an opinion about the merits of the dispute to help the parties to reach a settlement. Conciliation is a compromise settlement with the assistance of a Conciliator.

Conciliation is a voluntary and non-binding process in comparison to Arbitration and Litigation. Any party may terminate Conciliation proceedings at any time even without giving any reason. The other important difference is that the parties control the process and outcome of the dispute, which is not the case in Arbitration as well as litigation. Conciliation is a consensual process whereas Litigation and Arbitration solemnly urge the parties for an amicable reconciliation and have no control on the outcome of the dispute or the process.

What is Mediation?

Mediation is a process for resolving disputes with the aid of an independent third person that assists the parties in dispute to reach a negotiated resolution. Mediation is the acceptable intervention into a dispute of a third party who has no authority to make a decision. The objective of the third party is to assist the parties in reaching an acceptable resolution of the dispute. The Mediation process is voluntary and does not eliminate other dispute resolution options. It is confidential, whether or not it results in the settlement and resolution of the dispute.

How is Mediation different from Conciliation?

Many a times, conciliation and mediation are used interchangeably and they are together referred to as Mediation. A Mediator assists the parties to reach an agreement for resolving the dispute and he does not express his opinion on merits of the dispute, whereas a Conciliator may express an opinion about the merits of the disputes. In both, a third party is appointed to assist the parties to reach a settlement of their dispute. The Mediator is not given any power to impose a settlement. His function is only to try to break any deadlock and encourage the parties to reach an amicable settlement. A Mediator does not determine a dispute between parties.

A Mediator may act as a communicator filtering out the emotional aspects and allowing the parties to focus on the key issues. He encourages the parties to reach an agreement on their own as opposed to having it imposed upon them.

What are the limitations of Conciliation?

ADR techniques such as Conciliation, Negotiation and Mini-Trials have the benefit of less time and less cost but there is no assurance that they would result in a settlement of disputes as these are non-binding and voluntary modes. These techniques bring the parties closer but the settlement is not compulsory. Any party may walk out of such proceedings at any time or may not agree even to a very fair settlement. Many times it has been observed that for the respondent, it is a case of either total liability or no liability and to avoid liability he may refuse even a fair settlement.

What is 'Pre-Trial Mediation'?

A provision is introduced in section 89 of the Code of Civil Procedure as amended in 2002 for encouragement of pre-trial alternatives for resolving the disputes. This provision provides for Conciliation, Mediation and pre-trial settlement methodologies. Pre-trial Mediation is a settlement of disputes by the efforts of the Courts before initiation of proceedings before it.

What do you mean by the expression 'Med-Arb'?

'Med-Arb' is a dispute resolution process that combines some of the features of both Mediation and Arbitration. Most 'Med-Arb' proceedings call for a third-party Neutral to first mediate or help the parties agree to as many issues as possible and then, by agreement of the parties, to arbitrate or make a decision on those that remain. The same neutral person may perform both roles.

When an Arbitration proceeding is pending in an Arbitral Tribunal, the Arbitral Tribunal may encourage the settlement of dispute by Mediation with the consent of the concerned parties. The Arbitral Tribunal may use Mediation, Conciliation or other procedures at any time during the arbitral proceedings with the consent of parties to encourage settlement. If, during arbitral proceedings, the parties settle the dispute, the Arbitral Tribunal terminates the proceedings. The Arbitral Tribunal can also record the settlement in the form of an Arbitral Award on agreed terms on the request of the parties. Such an award has the same status and effect as any other Arbitral Award on the substance of the dispute. It is called Mediation during Arbitration i.e. Med-Arbitration. Relevant provision is provided in section 30 of the Arbitration and Conciliation Act, 1996 in this regard.

What is 'Hybrid Conciliation, Mediation and Arbitration'?

In this ADR process, if the parties are unable to reach resolution through Conciliation, the Conciliator becomes an Arbitrator with written consent of the parties. He converts the proceedings into one of Arbitration and seeks additional evidence from the parties as, since witnesses are not normally called in Conciliation, and thereafter he renders an arbitral decision.

If the Conciliator fails in his efforts, he can proceed as an Arbitrator to make an award on the substance of dispute. Initially, parties start with Conciliator but after sometime, they authorize the Conciliator to act as Arbitrator and decide the dispute. However, in such cases consent of both parties is required. These are called 'Hybrid Conciliation, Mediation and Arbitration'.

What is Arbitration?

Meaning of Arbitration

Where two or more persons agree that a dispute or potential dispute between them shall be decided in a legally binding way by one or more impartial persons in a judicial manner, that is upon evidence put before him or them, the agreement is called an Arbitration Agreement or a submission to Arbitration. When, after a dispute has arisen, it is put before such person or persons for decision, the procedure is called as Arbitration, and the decision when made is called 'award'.

Arbitration is a method whereby parties can resolve their disputes privately. It is known as an Alternative Dispute Resolution mechanism. In this mechanism, instead of filing a case in a court, parties can refer their case to an arbitral tribunal, which is the forum where Arbitration proceedings are conducted. The arbitral tribunal considers the cause of the conflict between the parties and arrives at a decision known as 'award'. The arbitral tribunal controls the process and outcome of the dispute. Generally, the hearing is limited by rules agreed by parties and is conducted in private and strangers cannot be present. While an Arbitrator does have greater flexibility than a judge, in terms of procedure and rules of evidence then the arbitration process is akin to the litigation process.

Advantages of Arbitration over litigation

Arbitration is preferred over traditional litigation because Arbitration is generally less expensive than litigation. It provides for faster resolution of dispute through flexible time schedule and simpler rules. Arbitration offers advantages that cannot be provided by litigation. In many cases, a big advantage is that the Arbitrator or arbitral tribunal is an expert in the field of the dispute so that the entire procedure can be conducted without the intervention of lawyers, or other representatives, with major gains in speed and economy. Thus, many disputes as to quality in the commodity trades, many disputes as to the rent of commercial property, and many small consumer disputes, are resolved in this way.

Disputes which can be settled by Arbitration

The disputes, which can be settled by an agreement between the parties, can be settled by Arbitration. All civil disputes can be referred to Arbitration unless prohibited by any law. Virtually, all disputes can be settled by Arbitration, including contract disputes involving businesses and consumers, employment claims, real estate and construction issues. As a general rule, matters involving criminal question or questions of public law cannot be resolved by Arbitration. For instance, the following matters are not referred for Arbitration:

·         Matrimonial matters, like divorce or maintenance;

·         Insolvency matters, like declaring a person as insolvent;

·         Criminal offences;

·         Dissolution or winding up of a company;

·         Disputes relating to age.

Put in a general way, it may be said that the disputes arising out of rights in personam may be settled by Arbitration and the disputes arising out of rights in rem cannot be settled by Arbitration.

Statutory Arbitration

In India a lot of Central and State Acts specifically provide for arbitration in respect of disputes arising out of matters covered by those enactments viz. Electricity Act, Electricity Supply Act. Since such an arbitration would be also governed by 1996 Act, to provide for statutory arbitration in such legislation is deemed to be arbitration agreement (Grid Corpn. of Orissa v. Indian Charge Chrome Ltd.,AIR 1998 Ori 101).

Ad hoc Arbitration

Ad hoc arbitration is a proceeding administered by the parties themselves (and not a stranger or institution) with rules created solely for that specific case. The parties make their own agreement with respect to all aspects of arbitration including applicable laws and rules, etc.

Fast Track Arbitration

Where the parties agree that no oral hearings shall be held, then the arbitral tribunal could fast track the arbitration process, by making the award only on the basis of documents submitted by parties, in respect of their case.

Attributes of Arbitration Agreement

• The arbitration agreement must contemplate that the decision of the arbitral tribunal will be binding on the parties to the agreement.
• The jurisdiction of arbitral tribunal to decide the rights of the parties must derive either from the consent of parties, or from an order of court or from statute, the terms of which make it is clear that the dispute will be subject to arbitration.
• The agreement must contemplate that the substantive rights of the parties will be determined by the arbitral tribunal.
• The arbitral tribunal must determine the rights of the parties in an impartial and judicial manner.
• The agreement of parties to refer their disputes to the decision of the arbitral tribunal should be enforceable at law.
• The agreement should contemplate that the tribunal will receive evidence from both sides and hear their contention or at least, give the parties an opportunity to put them forward.
• The agreement must contemplate that the tribunal will make a decision upon a dispute which is already formulated at the time when the reference is made to the tribunal.