Arbitration, in law, is a form of Alternative Dispute Resolution -specifically, a legal alternative to litigation, whereby the parties to a dispute agree to submit their respective positions (through agreement or hearing) to a NEUTRAL third party called the Arbitrator (s) or Arbiter (s) for resolution.
Kinds of arbitration
(1) Ad-hoc Arbitration: When a dispute or difference arises between the parties in course of commercial transaction and the same could not be settled friendly by negotiation in form of conciliation or mediation, in such case ad-hoc arbitration may be sought by the conflicting parties. This arbitration is agreed to get justice for the balance of the un-settled part of the dispute only.
(2) Institutional Arbitration: This kind of arbitration there is prior agreement between the parties that in case of future differences or disputes arising between the parties during their commercial transactions, such differences or disputes will be settled by arbitration as per clause provided in the agreement.
(3) Statutory Arbitration: It is mandatory arbitration, which is imposed on the parties by operation of law. In such a case the parties have no option as such but to abide by the law of land. It is apparent that statutory arbitration differs from the above 2 types of arbitration because (i) The consent of parties is not necessary; (ii) It is compulsory Arbitration; (iii) It is binding on the Parties as the law of land.
(4) Domestic or International Arbitration: Arbitration, which occurs in India and have all the parties within India is termed as Domestic Arbitration. An Arbitration in which any party belongs to other than India and the dispute is to be settled in India is termed as International Arbitration.
(5) International Arbitration: When arbitration proceedings are conducted in a place outside India and the Award is required to be enforced in India, it is termed as Foreign Arbitration.
Today, 90% of international contracts include an arbitration clause. Why? Because it’s more feasible serves the purpose and is a lot faster. These reasons are the basic reasons why parties resort to arbitration, but let’s have a look further on the technical aspect of why it’s crucial.
Firstly, neutrality, now lets’s take for instance that two countries X & Y, are in a contract over leather trade. In the case of a dispute, if the matter is tried in a court of country X or country Y, there may be a question of biased judgment. But this is not the case with arbitration, a matter between X & Y can also be tried at country Z. This provides a better understanding of neutrality. Second, expertise, a normal civil court is burdened with a number of cases every day, all of them of a different nature and law applied. But with arbitration, the parties select the arbitrator and he is an expert on the nature of the dispute. This gives them an edge above normal litigation. And lastly, the most important is that there is a sense of coordinated dispute resolution.
A couple of decades ago, cross-border trade and transactions seemed to be a far-fetched dream, now when it’s become a reality, it has several benefits to it, although it has tagged along certain complications too. For being assured that such limitations and complications do not result in mega disputes and confusion which eventually defeats the purpose of cross-border trade, ADR and Arbitration have seemed to be the easy way out with the fastest solution.
It is nothing new now for most of the commercial and business transactions to include arbitration. In the USA, it was recorded that a matter is resolved through arbitration in approximately the time period of 7-8 months, whereas a dispute resolution sought through litigation takes an average of 3.2 years. The flexibility, convenience, and fast resolutions are a few reasons why arbitration has gained worldwide recognition so easily and in so less time, Governments, MNC’s, small and big outlets, all prefer inserting an arbitration clause instead of resorting to litigation. Demand for ADR is a lot more and new systems like ‘Online Dispute Resolution (ODR)’ are also rising, people choose to get solutions a lot faster now and easily.
Who can refer to Arbitration?
Contracts containing arbitration clause can be referred to arbitral tribunal.
An employer can enter into an arbitration agreement with any employee who is not a “Workman” within the meaning provided by the Industrial Disputes Act. Thus, making recourse to legal remedy inexpensive in cases of breach of employment contract by highly paid employees retaining whose services is in the best interest of the company.
Many lease agreements make provision for disputes arising between landlord and tenants to be dealt with by arbitration as opposed to a court of law. Major construction contracts can provide for arbitration as mode of dispute resolution.
Most hospitals are interested in retaining experienced, qualified doctors. Making recourse to legal remedy inexpensive in cases of breach of retainer ship contract by doctors retaining whose services is in the best interest of the hospital.
Dissolution of partnership firms and disputes as to liability, sharing of profits inter se can be resolved efficaciously by resorting to arbitration.
An award by the arbitrator can be equated to a decree a by Court and hence can be enforced. A party who wishes to enforce the award can file it before the Court and it will be treated as a decree unless set aside in an application under section 34.