ARBITRATION, CONCILIATION & ADR

ALTERNATIVE DISPUTE RESOLUTION

 
Introduction
Indian judiciary is one of the oldest judicial system, a world-renowned fact but nowadays it is
also well-known fact that Indian judiciary is becoming inefficient to deal with pending cases,
Indian courts are clogged with long unsettled cases. The scenario is that even after setting up
more than a thousand fast track Courts that already settled millions of cases the problem is far
from being solved as pending cases are still piling up.
 
Arbitration

Meaning
Section 2(1)(a) of the Act, defines the term "arbitration" as to mean any arbitration whether or
not administered by a permanent arbitral institution.
 
The concept of arbitration means resolution of disputes between the parties at the earliest point
of time without getting into the procedural technicalities associated with the functioning of a
civil court. The dictionary meaning of Arbitration is "hearing and determining a dispute
between the parties by a person or persons chosen by the parties."
 
In an English judgement named Collins v. Collins, 1858 28 LJ Ch 184: 53 ER 916 the court
gave a wide definition to the concept of Arbitration which reads as follows : "An arbitration is
a reference to the decisions of one or more persons either with or without an umpire, a
particular matter in difference between the parties." It was further observed by the court that
proceedings are structured for dispute resolution wherein executives of the parties to the
dispute meets in presence of a neutral advisor and on hearing both the sides and considering
the facts and merits of the dispute, an attempt is made for voluntary settlement.
 
Arbitration can be voluntary one i.e., agreed between the parties or it can be ordered by the
court. Unlike litigation, arbitration proceeding takes place out of the court and the arbitrator's
decision is final and the courts rarely re-examine it.
 
There are several modes of dispute resolution outside the judicial process. These modes are as
follows:
1. Negotiation
2. Mediation
3. Conciliation
4. Arbitration
5. Mini trial
 
But arbitration is considered as an important Alternative Dispute Resolution mechanism and is
being encouraged in India due to high pendency of cases in the courts.
 
Principle Characteristics of Arbitration
 
 Arbitration is consensual - An arbitral proceeding can only take place if both the parties
to the disputes have agreed to it. Generally, parties insert an arbitration clause in the
contract for future disputes arising from non-performance of contractual obligations. An
already existing dispute can also be referred to arbitration if both the parties to the
dispute agree to it (submission agreement).
 
 Parties choose the Arbitrators - Under the Indian Arbitration Act, parties are allowed to
select their arbitrator and they can also select a sole arbitrator together who will act as
an umpire. However, the parties should always choose an arbitrator in an odd number.

 Arbitration is neutral – Apart from selecting neutral persons as arbitrators, the parties
can choose other important elements of proceeding such as the law applicable, language
in which the proceedings should be conducted, the venue for arbitration proceedings. All
these things ensure that no party enjoys a home court advantage.

 Decision of the Arbitral Tribunal is final and easy to enforce – The decision or award
given by the arbitral tribunal is final and binding on the parties and persons only after
the expiry of the time limit prescribed under Section 33 and 34 of the Act.

When the award becomes final it shall be enforced under the Code of Civil Procedure, 1908, in
the same manner, one enforces a decree passed by the court.

Kinds of Arbitration
Unlike civil or criminal cases, a dispute is sent to the arbitration tribunal. The tribunal resolves
the disputes and the final decision cannot be appealed, making it binding on both parties. No
judicial proceedings are involved to ensure the swift resolution of the disputes. The following
are the different types of arbitration as per the jurisdiction of the case:

1. DOMESTIC ARBITRATION
In domestic arbitration, both the parties must be Indians and the proceedings take place
in India itself. In the Arbitration and Conciliation Act, 1996 there is no specific definition
given to domestic arbitration. A mere reading of Section 2(2) can lead us to infer that
domestic arbitration is when the parties had agreed to resolve any disputes that arise in
India. The proceedings must be held in the domestic territory and must be in lieu of the
procedural and substantive law in India.

2. INTERNATIONAL ARBITRATION
 As the name suggests, international arbitration occurs outside the domestic territory
because of either a clause inserted in the agreement between the parties or the cause of
action that arises from a foreign element relating to the dispute or to the parties.
According to the circumstances that led to a case being filed foreign or Indian law would
be applicable.

3. INTERNATIONAL COMMERCIAL ARBITRATION

According to Section 2(1)(f), international commercial arbitration can be understood as
arbitration that takes place because of a dispute arising from a commercial contract
where either one of the parties resides in a foreign country or is a foreign national; or
the core management committee of an association, company or body of individuals is
controlled by foreign individuals.

Under Indian law, the involvement of a foreign party would come under the purview of
international commercial arbitration. But it would be inapplicable in case the
international commercial arbitration takes place outside the territory of India. By virtue
of the 2015 Amendment Act, ‘company’ has been removed from the ambit of ICA. The
Supreme Court scrutinized the scope of Sections 2(1)(f)(iii) in TDM Infrastructure Pvt.
Ltd. v. UE Development India Pvt. Ltd. (TDM Infrastructure) wherein, even if a company
is in foreign hands, it would be considered as an Indian Company as it was incorporated
in India. Therefore, companies that have Indian nationality and have been registered in
India would be excluded from the ambit of foreign body corporate, regardless of the fact
that the company is in foreign hands.

On the basis of the established procedure and rules, there are further three types of
arbitration that have been recognized in India:

(a) AD-HOC ARBITRATION

Ad-hoc arbitration refers to when parties with mutual consent opt for arbitration
to resolve the dispute. It is the most common form of arbitration used in India
owing to reasonable costs and adequate infrastructure. Arbitration is conducted
without having any institutional proceedings, that is, it does not comply with the
rules of an arbitral institution. The parties have the option to choose the rules and
the procedure to be followed. This form of arbitration can be used for
international commercial transactions and domestic disputes. The jurisdiction is of
utmost importance since a majority of the issues are resolved in conformity with
the applicable law in respect to the seat of arbitration.

The Act also provides that the arbitral tribunal or the parties can determine
whether to receive assistance from an appropriate institution or individuals. In
case the parties are unable to reach a consensus on the number of arbitrators, one
arbitrator would be part of the tribunal after being appointed by the Chief Justice
of a Supreme Court or the Chief Justice of a High Court.
 (b) FAST TRACK ARBITRATION
Fast track arbitration can be seen as an effective solution to solving the problems
faced because of delays and time-consuming proceedings in other forms of
arbitration. It does not involve any procedure that takes time and upholds the main
objective or arbitration, that is, to resolve a dispute in a short period of time. In
the provision of the Act, fast track arbitration is given a stipulated time period of
six months. The arbitrator only makes use of the written submission and unlike
other forms of arbitration, one sole arbitrator is sufficient to resolve the dispute.

(c) INSTITUTIONAL ARBITRATION

In Institutional Arbitration, the parties are free to choose a particular arbitral
institution in the arbitration agreement itself. The institution’s governing body or
the parties can appoint one or more arbitrators from a panel of arbitrators that
had been previously agreed upon. Part I of the Act gives parties the freedom to
appoint an arbitrator to deal with a specific issue.

The institution selects one or more arbitrators who possess the skills and
experience stipulated applicable in a given case when the parties do not appoint
an arbitrator themselves. On the other hand, if the parties choose to appoint one
themselves they can choose from the list provided by the institution.

It is mainly used by business organizations worldwide owing to a specific

procedure being deployed as well as an efficient dispute resolution procedure
provided by the institutions. A few prominent arbitration centres are the Chartered
Institute of Arbitrators UK, the London Court of International Arbitration, the
National Arbitatiorn Forum USA, Singapore International Arbitration Centre, and
the International Court of Paris.

In M/S Nandan Biomatrix Limited vs D 1 Oils Limited, 2009, the parties had
agreed to resolve any dispute arising from the agreement via institutional
arbitration. The Supreme Court assessed the validity of the agreement and whether
the absence of a specific institution would make the agreement invalid. It was held
that the parties had expressly desired to settle the disputes through institutional
arbitration, making the agreement between them valid.

Scope of Arbitration
The Act does not make provisions for the matters of inclusiveness within the purview of
Arbitration nor does it enlist cases that would exclude from the focal point of Arbitration.

 The Supreme Court in the case of Booz-Allen & Hamilton Inc. vs. SBI Home Finance
Ltd. & Ors that The Arbitration and Conciliation Act, 1996 does not specifically exclude
any category of disputes as being not arbitral.
 Going back to time, we can neither infer nor find any provisions from either the Indian
Arbitration Act, 1899 or The Arbitration Act, 1940 with respect to the matters to be
under the blanket of Arbitration. This postulates that what can be referred to the
arbitrator is only that dispute or matter which the arbitrator is competent or empowered
to decide. However, certain cases are under the jurisdiction of the concerned judicial
courts.

 This can be evidence in the case of HARYANA TELECOM LIMITED vs. STERLITE
INDUSTRIES INDIA LIMITED where the Supreme Court of India has held:
Where a petition is filed for the purpose where the company is commercially insolvent is
bound to wind up under the Companies Act. The power to order winding up of a
company is contained under the Companies Act and is conferred on the court. An
arbitrator, notwithstanding any agreement between the parties, would have no
jurisdiction to order winding up of a company.

 In a distinctive case under Insolvency and Bankruptcy Code, 2016, the Income Tax
Appellate Tribunal (Delhi) in the case of SHAMKEN MULTIFAB LTD., NEW DELHI vs.
DCIT (2019) cited the judgement delivered by the Supreme Court of India in the case of
ALCHEMIST ASSET RECONSTRUCTION PVT. LTD. & ANR vs. M/S HOTEL
GAUDAVAN PVT. LTD. & ANR (2016) that even arbitration proceedings cannot be
initiated after imposition of the moratorium u/s 14(1)(a) of the Code.

So there came the question pertaining to the presence of specific condition or rather
provisions in different enactments to refer the matter under the purview of Arbitration.

 A distinct perspective was seen in the case of OLYMPUS SUPERSTRUCTURES PVT

LTD vs. MEENA VIJAY KHETAN AND OTHERS (1999) involving the case whether the
arbitrator has power and jurisdiction to grant specific performance of contracts relating
to immovable property falling under the Specific Relief Act, 1963 that issues relating to
immovable property cannot be referred to arbitration as contrasted with Section 15 of
the English Arbitration Act, 1950 or Section 48(5)(b) of the English Arbitration Act,
1966 which contained a prohibition relating to specific performance of contracts
concerning immovable property.

 The significant judgement by the Calcutta High Court can be inferred to chalk out the
scope of arbitration. The Calcutta High Court in the case of KEVENTER AGRO LTD vs.
SEEGRAM COMP. LTD (1998) opined that matters like criminal offences and
matrimonial disputes may not be subject matter of resolution by arbitration, matters
incidental thereto may be referred to arbitration. Reference is made there to certain
disputes like criminal offences of a public nature, disputes arising out of illegal
agreements and disputes relating to status, such as divorce, which cannot be referred to
arbitration. It has, however, been held that if in respect of facts relating to a criminal
matter, (say) physical injury, if there is a right to damages for personal injury, then such
a dispute can be referred to arbitration.
It can be hence brought out that unless any act specifically brings out the jurisdiction of a
specific autonomy of the court then such cases would not come under the ambit of Arbitration.
It was conventional to be decided by the courts of law what kind of disputes would come under
arbitration and what would not. Judiciary had in a conservative manner dealt with the
magnitude of the case and reiterated the cases to be settled under arbitration to avoid time
expanding litigation.

Lok Adalat

Meaning
NALSA along with other Legal Services Institutions conducts Lok Adalats. Lok Adalat is one of
the alternative dispute redressal mechanisms, it is a forum where disputes/cases pending in the
court of law or at pre-litigation stage are settled/compromised amicably. Lok Adalats have
been given statutory status under the Legal Services Authorities Act, 1987. Under the said Act,
the award (decision) made by the Lok Adalats is deemed to be a decree of a civil court and is
final and binding on all parties and no appeal against such an award lies before any court of
law. If the parties are not satisfied with the award of the Lok Adalat though there is no
provision for an appeal against such an award, but they are free to initiate litigation by
approaching the court of appropriate jurisdiction by filing a case by following the required
procedure, in exercise of their right to litigate.

There is no court fee payable when a matter is filed in a Lok Adalat. If a matter pending in the
court of law is referred to the Lok Adalat and is settled subsequently, the court fee originally
paid in the court on the complaints/petition is also refunded back to the parties. The persons
deciding the cases in the Lok Adalats are called the Members of the Lok Adalats, they have the
role of statutory conciliators only and do not have any judicial role; therefore they can only
persuade the parties to come to a conclusion for settling the dispute outside the court in the Lok
Adalat and shall not pressurize or coerce any of the parties to compromise or settle cases or
matters either directly or indirectly. The Lok Adalat shall not decide the matter so referred at
its own instance, instead the same would be decided on the basis of the compromise or
settlement between the parties. The members shall assist the parties in an independent and
impartial manner in their attempt to reach amicable settlement of their dispute.

Organization
ORGANIZATION OF LOK ADALAT [Section 19]

(1) 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 organize Lok Adalats at such intervals and places and for
exercising such jurisdiction and for such areas as it thinks fit.
 (2) Every Lok Adalat organized 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, organizing such Lok Adalat.

(3) The experience and qualifications of other persons referred to in clause (b) of sub-
section (2) for Lok Adalats organized by the Supreme Court Legal Services Committee
shall be such as may be prescribed by the Central Government in consultation with the
Chief Justice of India.

(4) The experience and qualifications of other persons referred to in clause (b) of sub-
section (2) for Lok Adalats other than referred to in sub-section (3) shall be such as may
be prescribed by the State Government in consultation with the Chief Justice of the High
Court.

(5) 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 organized:

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.

Jurisdiction of Lok Adalats

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:
a. any case pending before; or
b. any matter which is falling within the jurisdiction of, and is not brought
before, any court for which the Lok Adalat is organized.
The Lok Adalat can compromise and settle even criminal cases, which are compoundable under
the relevant laws.

Lok Adalat have the competence to deal with a number of cases like:
1. Compoundable civil, revenue and criminal cases
2. Motor accident compensation claims cases
3. Partition Claims
4. Damages Cases
5. Matrimonial and family disputes
6. Mutation of lands case
7. Land Pattas cases
 8. Bonded labour cases
9. Land acquisition disputes
10.Bank’s unpaid loan cases
11. Arrears of retirement benefits cases
12. Family Court cases
13. Cases, which are not subjudice

Award by Lok Adalat (section 21)

FINALITY OF LOK ADALAT AWARD
One issue which raises its head often is the finality of the award of the Lok Adalat. During the
Lok Adalat, the parties agree to abide by the decision of the judge at the Lok Adalat. However,
it is often seen that later, the same order is challenged on several grounds. In one of the recent
decisions, the Supreme Court of India has once again laid to rest all such doubts. In
unequivocal terms, the Court has held that award of the Lok Adalat is as good as the decree of
a Court. The award of the Lok Adalat is fictionally deemed to be decrees of Court and therefore
the courts have all the powers in relation thereto as it has in relation to a decree passed by
itself. This, includes the powers to extend time in appropriate cases. The award passed by the
Lok Adalat is the decision of the court itself though arrived at by the simpler method of
conciliation instead of the process of arguments in court.

Powers of the Lok Adalat (section 22)

1. The Lok Adalat shall have the same powers as are vested in a civil court under the Code
of Civil Procedure, 1908, while trying a suit in respect of the following matters namely:
a) The summoning and enforcing the attendance of any witness and examining him on
oath.
b) The discovery and production of any document.
c) The reception of evidence on affidavits.
d) The requisitioning of any public record or document or copy of such record or
document from any court of office and
e) Such other matters as may be prescribed.

2. Without prejudice to the generality of the powers contained in sub-section (1), every Lok
Adalat shall have the requisite powers to specify its own procedure for the determination
of any dispute coming before it.

3. All proceedings before the Lok Adalat shall be deemed to be judicial proceedings within
the meaning of section 193, 219 and 228 of the IPC and every Lok Adalat shall be
deemed to be civil for the purpose of section 195 of CPC.
Arbitration agreement
An arbitration agreement is the raison d’etre of an arbitration proceeding. It is only through an
arbitration agreement that parties can submit their issues to be adjudicated by the arbitral
tribunal. An arbitration agreement not only engenders an arbitral tribunal but also gives shape
to it. Therefore, it is crucial to understand the position of the arbitration agreement under the
statute.

In the 1940 Act, the Arbitration Agreement was defined under Section 2(a) as –
“A written agreement to submit present or future differences to arbitration, whether an
arbitrator is named therein or not.”

The vague definition was replaced in the 1996 Act by Section 7 which stated –
“7. Arbitration Agreement –
(1) In this Part, “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 defined legal relationship, whether contractual or not.

(2) An arbitration agreement may be in the form of an arbitration clause in a contract or in

the form of a separate agreement.

(3) An arbitration agreement shall be in writing.

(4) An arbitration agreement is in writing if it is contained in –

(a) A document signed by the parties;
(b) An exchange of letters, telex, telegrams or other means of telecommunication which
provide a record of the agreement; or
(c) An exchange of statements of claim and defence in which the existence of the
agreement is alleged by one party and not denied by the other.

(5) The reference in a contract to a document containing an arbitration clause constitutes an

arbitration agreement if the contract is in writing and the reference is such as to make
that arbitration clause part of the contract.”

Forms of Arbitration Agreement

A fundamental requirement under Section 7 of the 1997 Act is that an arbitration agreement
shall be in writing. Besides that, Section 7 grants liberty to the parties to form an arbitration
agreement in multiple ways as enumerated below:
 A STANDALONE SEPARATE ARBITRATION AGREEMENT
A separate arbitration agreement can be formed in addition and reference to the
operative agreement between the parties.

 AN ARBITRATION CLAUSE
 An arbitration clause can be formed in the operative agreement as to the section of the
agreement that deals with the rights and options of the parties in the event of legal
dispute arising out of the contract. An arbitration clause is construed as an arbitration
agreement.

 INCORPORATION BY REFERENCE
An arbitration clause contained in a separate contract can also be incorporated in a
contract being drafted. As per section 7(5), any reference to a document containing an
arbitration clause shall also be construed as an arbitration agreement provided that the
referred contract is in writing and the reference is made with the intention to make that
arbitration clause the part of the contract.

 BY COMMUNICATION
According to section 7(b) of the 1996 Act, an arbitration agreement can also be inferred
from the exchange of letters, telex, telegrams, or other means of telecommunication,
which provide a record of the agreement between the parties.