Alternative dispute resolution methods: Arbitration and mediation

Asha Nayar-Basu.
The author is the managing partner of law firm S Jalan & Company.

Two of the most common alternative dispute resolution methods are arbitration and mediation. Arbitration is less formal than litigation, while mediation is even less formal than arbitration. Unlike that of an arbitrator, the decision of a mediator is not binding on the parties to the dispute. A mediator does not hold evidentiary hearings as would an arbitrator but instead may conduct informal joint and separate meetings with the parties to understand the issues, facts, and positions of the parties.

To be effective, mediation requires a temperament for settlement from all the parties involved. If successful, mediation is efficient. When parties do not reach an agreement on all the issues involved, mediation can still have a positive effect; it can create a more forthcoming attitude, narrow the issues, disclose some underlying interests, and set the stage for future settlement.

In contrast, arbitrators hear the testimony and receive evidence in a joint hearing, on which they render a final and binding decision known as an award. At the initial stages, the arbitrators and the parties together decide the procedural calendar and agree on ground rules. Arbitration also offers the parties a level playing field to resolve their disputes. It gives them an opportunity to decide for themselves the rules of procedure, the applicable substantive law, and even who will arbitrate. When cases are fact-intensive and technical, parties can benefit from choosing specialists.

Any person can be appointed as an arbitrator. These are usually impartial and independent persons in whom all parties repose confidence. If a specialist is chosen for the purpose, it saves the parties the trouble of having to educate a judge. Parties can rely on these arbitrators to render specialized decisions. In certain cases of failure to appoint the arbitrators, the Chief Justice of the High Court or his designate has been given power to appoint the arbitrator under Section 11(6) of the Arbitration and Conciliation Act (Act), 1996.

One of the factors for determining arbitration as an effective legal institution is the efficiency and efficacy of its award enforcement regime. Under Section 36 of the Act, an arbitral award is enforceable as a decree of the court, and could be executed like a decree in a suit under the provisions of the Civil Procedure Code, 1908. Awards are less susceptible to being challenged than court decisions. This greater degree of finality may be attractive to parties in certain situations. However, it should be remembered that the restrictions on the ability to set aside or vary the decision of the arbitral tribunal may be a considerable disadvantage if you are on the receiving end of a bad decision.

The Act also empowers the arbitrator to make an interim arbitral award. While there is no time limit for making the award by arbitrators, under Section 14, an arbitrator's mandate can be terminated if he fails to act without undue delay.

The parties are free to settle the matter any time during the arbitration proceedings.
A dissatisfied party may apply to the court for setting aside the Award, subject to the conditions as mentioned in Section 34(2) and 34(3). An Arbitral award may be set aside by the court only if the party making the application proves that:

• It was under some incapacity

• The arbitration agreement is not valid under the law

• The party was not given proper notice of the arbitral proceedings

• The award deals with a dispute not within the ambit of arbitration

• The composition of the tribunal or the arbitral procedure was not in accordance with the agreement

• The award can also be set aside if the court finds that:

• The dispute cannot be settled by arbitration under the law for the time being

• The award is in conflict with the public policy of India

The maximum permissible period for an application to set aside the award is a period of three months. This section provides, thus a sort of a limitation on the applicant.

Section 37 of the Act contains provisions regarding appeals against certain orders. There are limited grounds on which an appeal shall lie to the appellate court. The Act permits only one appeal. So, no second appeal can be made against an order passed in appeal. However, the right to appeal to Supreme Court is always there.

But these alternative methods have their drawbacks. If ordered by court or mandated by contract, they can restrict immediate access to the courts. This can result in lower compensatory awards, less negative publicity for the defendant, and a lack of precedent.

But having said that, the transactional real estate lawyer can no longer simply ignore the issues of how disputes might arise subsequent to execution of a contract. We have to place mandatory arbitration provisions in the agreements. At the bare minimum, there will have to be mediation. The process has to be given a chance to work and that process begins with mediation.

TYPES OF ARBITRATORS

Adhoc arbitrator

Anyone can be this type of an arbitrator. But he must be an impartial and independent figure, who has no social or personal links with any of the parties involved. This is the type of arbitrator you would approach as a lay person.

Institutional arbitrator

They are involved only in company or corporate disputes. The appointment of this category of arbitrators depends on the arbitration clause as well as the rules and regulations of the institution involved.

Statutory arbitrator

This category handles government-level disputes and the appointment of one is dictated by the provisions of the statute.