Arbitration v. Litigation

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Introduction

India has one of the world’s fastest-growing economies, and it is frequently true that where there is a high rate of economic growth, there is also an increase in income and purchasing power, resulting in the growth of effective demand and supply, ultimately resulting in an improvement in standard of living, life expectancy, human life quality, and other factors. The opening of Indian markets to foreign enterprises in different areas, particularly the service sector, has resulted in a massive increase in the number of lawsuits in the courts. The courts are already overburdened due to a large backlog of cases that have been waiting for an extended period of time. This has an impact not just on people or organisations, but also on the entire growth of the Indian economy. There are an estimated 31 million cases in various courts in India.

As of December 31, 2015, there were 59,272 cases outstanding in the Supreme Court of India, around 3.8 million cases pending in High Courts, and over 27 million cases pending before the lower judiciary. More than 8.5 million instances, or 26% of all cases, are more than 5 years old. It is believed that 12 million Indians are awaiting trial in criminal cases across the country. A real estate or land dispute takes an average of twenty years to resolve. The settlement of disputes has a significant influence on the Indian economy and the global perception of “doing business” in India. This is plainly demonstrated by the World Bank’s “Ease of Doing Business 2016” assessment, which places India 131st out of 189 nations in terms of how simple it is for private enterprises to follow rules and do business. According to the survey, India might take up to 1,420 days and 39.6 percent of the claim amount to resolve a dispute. Several measures have been launched in this area to minimise the number of cases pending and to guarantee that cases are resolved as quickly as possible. Furthermore, the legislature established a new alternative conflict resolution process in the shape of the Arbitration and Conciliation Act, 1996, by abolishing the previous Arbitration and Conciliation Act, 1940, which had outlived its usefulness. The Arbitration and Conciliation Act, 1996 was introduced by the Indian Parliament with the intent of expressly adopting and implementing the UNCITRAL Model Law in International Commercial Arbitration. Since its inception in 1996, the Arbitration and Conciliation Act has undergone two revisions in the years 2015 and 2019, all of which have only served to make the legislation more efficient. The Civil Procedure Code, as well as the 2000 Amendment and 2002 Amendment to the Legal Services Authority Act, have also been enacted, allowing courts to send parties to Alternate Dispute Resolution, such as Arbitration, Settlement, and Mediation, as an option.

As a matter of course, many company owners and construction industry entities prefer that construction disputes be resolved through binding arbitration. Others argue that because arbitration lacks some of the procedural and legal framework of court action, traditional litigation is the only way to achieve a conclusion that is really based on facts and law. These perspectives are frequently impacted by positive, or more commonly, negative, experiences in either forum. Depending on the nature of the disagreement, any forum may have advantages and drawbacks.

What is Arbitration?

Arbitration is one type of what is usually referred to as Alternative Dispute Resolution. It is a procedure in which both parties agree to obey and accept the arbitrator’s judgement. This is one option for resolving a problem other than filing a lawsuit and going to court. The arbitrator is generally an attorney who is well-versed in the area of law under consideration. The arbitrator’s ruling is legally binding on both parties; however, it may be challenged in some situations. Arbitration is used as a private method of settlement between parties by designating persons as arbitrators and is seen as a beneficial means of resolving disputes that may arise from business transactions in the sphere of products and services in a timely and fair manner. Arbitration provides various benefits to the parties involved in the dispute due to their faith in the arbitrators, the secrecy of information, the speed with which the solution is adopted, the cheap court expenses, and the prospect of worldwide recognition of arbitration rulings.

Arbitration can be voluntary (agreed upon by the parties) or mandated (required by law). The majority of contract arbitrations take place because the parties incorporated an arbitration provision mandating them to arbitrate any disputes “arising under or connected to” the contract. Arbitration is not feasible, however, where there are issues pertaining to:

  1. Family law; 
  2. rental contracts for accommodation, including disputes over the validity, termination, and qualification of such contracts; 
  3. patrimonial property rights; 
  4. insolvency; 
  5. alienation of public domain property;
  6. life and health; 
  7. non-property intellectual property rights; 
  8. other litigation to which the law delegates exclusive jurisdiction of the courts.

What is litigation?

The term “litigation” refers to going to court to settle a disagreement between or among parties. It is a legal action launched by competing parties with the goal of enforcing or protecting a legal claim. The matter is taken to court during this procedure, and the judge (chosen by the court to function as the litigator) renders his/her judgement on the subject after evaluating all of the arguments, evidence, and facts offered by the attorneys of the parties. If the parties do not agree with the court’s rulings, they can appeal to a higher court for justice, provided certain requirements are met. The court has a precise and official system for resolving the issue between the parties involved, which must be properly followed. However, owing to the rigidity and high expense of the litigation process, parties may elect to move to arbitration.

Arbitration can be voluntary, in which the parties have previously decided to proceed in the event of a disagreement, or mandatory, as required by law. Most arbitrations take occur because the parties have included a provision for arbitration in the event of any disputes “arising under or connected to” the contract. Arbitration is not possible, however, when there are claims relating to health and life, patrimonial property entitlements, family law, non-property entitlements of intellectual property, the disaffection of property in the public domain, insolvency, rental contracts for accommodation, and other litigation to which the law delegates exclusive jurisdiction to the courts.

Furthermore, Disputes may not be arbitrable if they include a decision that must be enforced against anyone other than the parties, such as a disagreement over registration in a public register.

If the applicable contract does not include a clause requiring the parties to arbitrate rather than litigate any issues that occur, a party to a dispute can nonetheless request arbitration by delivering a written demand to the other. If the opposing party feels that the disagreement may be settled through arbitration, the procedures can begin right once.

Arbitration has a lot of advantages over litigation. Nonetheless, each and every issue must be thoroughly examined. The following key considerations must be considered:

No precedent — Because the arbitration procedure is secret, it will not present the parties with any binding precedent. Litigation is the preferred alternative if one side wants a definitive and binding judgement.

Summary determination – Although the tribunal has the option to determine the defences and claims summarily, the tribunal would not do so in practise.

Multiparty conflicts – The arbitration provision incorporated in the agreement gives the right to arbitrate and thereby limits the participation of other parties unless all of the parties and the third party agree.

When compared to litigation, the grounds for contesting and appealing the award are limited to a few. As a result, protracted appeals are nearly impossible in arbitration.

Delays – While the arbitration process is usually faster than litigation, it can nevertheless experience significant delays when one or more parties purposefully fail to meet deadlines and attempt to postpone the proceedings.

Expense – In litigation, the parties must pay a fee, although the cost of the judge and services are free. In contrast, in arbitration, the parties were required to pay the tribunal charge as well as administrative fees, which might be substantial at times. As a result, parties had to resort to procedural arbitration in order for it to be efficient, and it had to be incorporated into the agreement itself.

Neutrality – The disputing parties can guarantee that the site of the hearing, the seat of arbitration, and the organisation of the tribunal are all neutral. It will attract the majority of business parties, particularly when they are wary of conflicts referred in the home courts of another party.

Privacy – Because the hearings will be place in private, the proceedings will always be kept confidential.

Expertise – The parties are free to select the arbitrators and tribunals with the necessary expertise to resolve the issue.

Procedural flexibility — Nowadays, business parties prefer institutional arbitration since it is simple to follow the institution’s pre-set standard norms and procedures.

Certainty – The exclusive jurisdiction provision should be seen as a measure of increasing the efficiency of the arbitration clause, as it will provide the party’s trust.

Enforcement – The ease of enforcement is a major issue in selecting whether or not to use arbitration. Most nations have joined the New York Convention (NYC), and there are relatively few reasons for refusing to implement an arbitral judgement rendered outside the country. Because there is no mutual harmony between Russia and the United Kingdom, court rulings cannot be reciprocally implemented.

However, because both nations are members of NYC, they must recognise arbitral awards issued in other countries (for example, an arbitral award made in Russia should be recognised in the United Kingdom).

The New York Convention

The New York Convention was established as a result of the initiative to replace the Geneva treaties came from the International Chamber of Commerce (ICC), in the process of modernizing the law of international trade. The aim of the convention was there should not be any discrimination between foreign and non-domestic arbitral awards. When it comes to arbitration the first question raised was about the enforcement of the award. India is one of a member state of NYC with respect to the acknowledgement and implementation of Foreign Awards. If a binding award was received from an NYC member state who has signed the convention and the award has been notified as a ‘convention country’ by India, then it can be enforced in India. 

The Qatar Court of Cassation ruled that member nations of the NYC must abide by its terms. When the member nations were asked to apply the foreign award that was laid down in NYC, the member states were not allowed to impose harsher terms.

The Court of Cassation of Qatar reached a contentious judgement, emphasising the necessity of the arbitral ruling to be presented in the name of His Highness the Emir of Qatar. The judgement issued on Petition No. 64/2012 on June 12, 2012, prevents the implementation of an arbitral award issued by the Qatar International Centre for Conciliation and Arbitration (QICCA). Furthermore, the court has said that any tribunal judgement or decision must be conferred in the name of His Highness the Emir of Qatar, otherwise it would be declared null and invalid.

Arbitrators are not judges

Because the arbitration procedure is based on the contractual agreement between the parties, the awards are less likely to be scrutinised than court decisions, which are more likely to be appealed. Nonetheless, arbitrators must answer to the court if they are accused of corruption, misconduct, or fraud. If the parties expected more assurance, they should approach a panel with many arbitrators since panels with numerous arbitrators can deliver higher quality decision making than juries and judges.

Judges are experts in the court system, including pre-hearing exercises and courtroom management. The Court justices can handle a wide range of general situations, both civil and criminal, with only a small fraction of those cases proceeding to trial. The majority of cases go to a jury in order to settle factual issues, despite the fact that only a small percentage of cases get to trial. Even though the judges are retired, they may desire to serve as private judges on occasion. Arbitrators, on the other hand, are solely chosen by the parties, mostly based on their expertise and experience. Arbitrators always take an oath that they would operate fairly and impartially, and they are expected to apply the law in the same manner as judges do. Nonetheless, arbitrators convey their commercial needs to the parties from the start. Unlike the limited judicial procedure, arbitrators are allowed to apply the imaginative solutions proposed by the parties. Even the arbitrators have the authority to include the parties in the scheduling of the arbitration procedure.

Almost all of the arbitrators are legal specialists with experience in certain trade divisions. It is true in the majority of technological scenarios. Despite the fact that the majority of arbitrators have practised law as trial attorneys and are educated to handle the arbitration, their primary focus isn’t an on-court strategy; rather, arbitrators focus their attention on the substantive law and the facts of the case.

The parties expect the arbitrators to use their legal and industrial knowledge to make reasonable, fair, and business-practical decisions. In addition, arbitrators play an important role in international matters that extend beyond the confines of a single judicial structure.

To summarise, arbitrators have a closer contact with the parties than judges. Arbitrators are often a group of specialists selected by disputing parties to give a fair, appropriate, and practical solution to conflicts that cannot be settled via dialogue.

Reforms

To boost trust in arbitration, the Indian government has made a number of substantial changes to Indian arbitration legislation, which is regarded as an important step forward in fostering international investment in India. Among the notable changes are the following:

  1. Section 29A requires the tribunal to issue the award within 12 months, and if the parties wish to prolong the time, they must do so amicably, and the arbitration fee is lowered by 5% for the additional time. Similarly, under section 29B, a fast-track arbitration procedure was developed for people who desire the arbitration to be completed as soon as possible.
  2. Based on the changes made to sections 9 and 17 of the ACT, the tribunal now has the same authority as courts and can hear interim measures.
  3. The arbitral award can be set aside in the event of a stay of execution, according to section 36 modifications.

Conclusion

After scanning over all of the above, one may conclude that arbitration is the superior means of conflict settlement; however, this is not always the case. Arbitration may be a better option if the agreement to be resolved is so technical that it would be preferable to have (an) experienced arbitrator(s) decide it in the event of a dispute. Furthermore, arbitration may be the best option if the value of the agreement supports the considerable arbitration expenses. Based on the present scenario in India about the number of judges available and the number of cases pending in courts, one might choose arbitration to resolve the disagreement relatively quickly. On the other hand, if you want to engage into a common sort of arrangement (such as an annual leasing agreement), then going to court may be the preferable alternative.

Author: Srinibash Dash

Editor: Kanishka VaishSenior Editor, LexLife India

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