This Article is written by Raza (from Amity University, Lucknow)
Introduction
Arbitration is a private dispute resolution process that parties may choose as an alternative to going to court. The arbitration process is consensual in that the parties must agree to refer their dispute to arbitration. The arbitration agreement (typically referred to as an ‘arbitration clause’) is usually contained in the main contract between the parties. However, parties may separately agree to arbitration after a dispute has arisen.
In arbitration proceedings the dispute is decided either by a single arbitrator or a panel of arbitrators (usually three in number). An arbitrator performs a similar role to that of a judge in that they are responsible for managing the proceedings to ensure the parties to the dispute have a reasonable opportunity of presenting their case. At the conclusion of the arbitration, the arbitrator will deliver an award which is final and binding on the parties.
In a recent judgment, the Supreme Court of India in VidyaDrolia& Others v. Durga Trading Corporation[1]has made an attempt to clear the decade-old uncertainty on this issue and has proposed a four-fold test to determine the question of arbitrability in India along with an interpretative guide for forums adjudicating this issue.
The Supreme Court held that, disputes are not arbitrable when the cause of action and/or subject-matter of the dispute:
1. relates to actions in rem, that do not pertain to subordinate rights in personam that arise from rights in rem;
2. affects third party rights, have ergaomnes effect, require centralized adjudication, and mutual adjudication would not be appropriate;
3. relates to inalienable sovereign and public interest functions of the State; and
4. is expressly or by necessary implication non-arbitrable under a specific statute.
An affirmative answer in respect to any of the above would render the dispute non-arbitrable. The Supreme Court clarified that although these tests are not “watertight compartments”, they would assist greatly in determining when a particular subject-matter would be non-arbitrable under Indian law.
The Supreme Court’s judgment in Booz Allen and Hamilton Inc v. SBI Home Finance Ltd. &Others forms the foundation for any discussion on the question of arbitrability in India as it laid down a test for determining whether a subject-matter of a disputeis capable of arbitration in India or not (the “Booz-Allen Test”). In Booz-Allen, the SupremeCourt observed that the question of arbitrability is to be decided on the basis of the ‘nature ofrights’ involved in the dispute. If the dispute involves a right in rem, i.e., a person’s right against the world at large, the dispute is not arbitrable. On the other hand, if a dispute involves a right in personam, i.e., rights against specific individuals, such as in a contract, the dispute is arbitrable.
The Supreme Court applied the test and carved out a list of six categories of disputes that are not arbitrable:
(1) disputes which give rise to or arise out of criminal offences;
(2) matrimonial disputes,
(3) guardianship matters;
(4) insolvency and winding up matters;
(5) testamentarymatters; and
(6) eviction or tenancy matters.
The Booz-Allen Test supplemented the earlier Supreme Court decision in Sukanya HoldingsPrivate Ltd. v. Jayesh H. Pandya and Another where it held that where claims cannot be bifurcated into arbitrable and non-arbitrable claims and if a non-arbitrable claim exists, the arbitrable claim cannot be arbitrated as well.
The Booz-Allen Test of arbitrability was examined by the Supreme Court in the context ofallegations of fraud in A. Ayyasamy v. A. Paramasivam and Otherswhere it held that, if the jurisdiction of the ordinary civil court is excluded by the conferment of exclusive jurisdiction on a specified/special court or tribunal then such a dispute would not becapable of resolution by arbitration as a matter of public policy. Further, in Ayyasamy, theSupreme Court had ruled that mere allegations of fraud, which touch upon the internal affairs of the party and has no implication in the public domain, cannot oust the jurisdiction of anarbitral tribunal. However, serious allegations of fraud would render the dispute non-arbitrablewhich would have to be adjudicated only by a court
M/s Dharmaratnakara Rai Bahadur v. M/s Bhaskar Raju & Brothers[2]
The Court held that when a lease deed or any other instrument is relied upon as containing the arbitration agreement, the Court is required to consider at the outset, whether the document is properly stamped or not. If the instrument is not properly stamped, it should be impounded and the Court cannot act upon such a document or the arbitration clause therein.
The Supreme Court further clarified that a court’s power to intervene under the Arbitration Act is only limited to an examination of prima facie validity of the arbitration agreement. The Supreme Court’s interpretation on the permitted scope of interference by courts in deciding arbitrability is also notable and offers clear guidance to courts while deciding this question.
Concept of Alternative Dispute Resolution
The adversarial system of adjudication as adopted in India has been borrowed from the democracies of the west; the United Kingdom being the cardinal source. The adaptability of this method of imparting justice divorced from the ground realities has often been a subject of deepened controversies. Partly, the current ailments of the judicial processes, in particular, the mounting arrears of cases in all forms of the judicial tier is attributed to this setup. The complex procedures from the initiation to the final adjudication of a suit lead to inordinate delays in the working of the judiciary.
NaniPalkhiwala once describing the pathetic condition of the litigation in the country observed, “…The law may or may not be an ass but in India, it is a snail; it moves at a pace which would be regarded as unduly slow in the community of snails. A lawsuit once started in India is the nearest thing to eternal life ever seen on this earth….”.
The present-day adjudicatory system is the legacy of British colonial rule that reigned over India for centuries. There are many sides to the existing judicial system but its shortcomings have become more prominent than its achievements. The inherent shortcoming of this system of justice dispensation lies with its formalities and technicalities and on top of it, it is costly and time-consuming.
The judicial process is set in motion by the action of an aggrieved party. Each party’s case is presented before the learned judge in the straightjacket of rules of procedural and substantial law by advocates since the common man is not well versed with the court crafts and the legal language to be used. The judge understands the dispute involved and then pronounces the decree keeping in mind the known legal concepts, precedents, arguments advanced and the evidence led before him. The parties are then bound by the verdict and may face legal sanctions if not complied with. Even though the dispute gets adjudicated the interpersonal relationship of the parties worsens and the disputes between the parties remain there.
The ADR process is extra-judicial. It can be used in almost all contentious matters, which are capable of being resolved under the law by agreement between the parties. It can be employed with very encouraging results in several categories of disputes, especially civil, commercial, industrial, and family disputes. In particular, these techniques have been shown to work across the full range of business disputes, banking, contract of performance and interpretation, construction contracts, intellectual property rights, insurance coverage, joint ventures, partnership differences, personal injury, product liability, professional liability, real estate, and securities.
The processes like arbitration and mediation have been perceived as a valuable complement to this system not just because they help prevent some cases going to trial, but more widely because they speed up the process of settlement and thereby reducing the cost and time allotted in litigation. There is a striking contrast between this reality and the lack of attention devoted by most lawyers to the processes, problems, and skills involved in settling although trial attorneys are overwhelming dissatisfied with the typical ad hoc process of settlement and parties complain that compromise comes too late, is too expensive, and too stressful. Further, the urge to reduce disputes to mere private affairs and ensure active involvement in the proceedings at all stages can only be possible under the ADR method of dispute resolution.
The arbitration system that was proposed and is being followed in India is a very quick and somewhat cost-effective method of dispute resolution. It is detached from the delays and the hefty cost of litigation which form the litigation system. ADR is not an alternative to the court system but only meant to supplement the same aiming on less lawyering.
Different Kinds of Alternative Dispute Resolution-
1. Mediation: This kind of ADR makes use of an unbiased third party known as a mediator. The mediator does not have the right to decide any outcome of a dispute or compel the disputing entities to agree upon the same. The mediator working with the disputing entities tries to reach a mutual solution, which is usually non-binding. The mediation can be mandated by the courts if necessary, but the entire procedure remains voluntary, offering the disputing entities the chance to deny the agreement. Mediation is totally confidential and the entities can control the process. The disputing entities can even go for litigation after mediation if they do not agree to the agreement.
2. Arbitration: This kind of ADR is somewhat like a non-formal trial and makes use of an unbiased third party. A decision is issued by the chosen third party after it hears each side. According to what the disputing entities have agreed upon, this decision is non-binding or binding. If binding, this decision is considered to be final and can be legally enforced. Irrespective of the arbiter is a practicing facilitator, the process of arbitration is not considered formal since many evidence rules do not apply here.
3. Negotiation: This kind of ADR does not involve any unbiased third party for assisting the disputing entities to come to a negotiation. The entities work together and reach a compromise. During negotiations, the disputing entities can get their lawyers to represent them.
4. Mini Trial: This kind of ADR happens to be more of a settlement procedure than a traditional trial. Each of the disputing entities presents its summarized case. Once the process comes to an end, the representatives of the entities try to resolve the issue. In case they fail to do so, an unbiased advisor issues a non-binding decision.
5. Summary Jury Trial: This kind of ADR is somewhat similar to what is called a mini-trial. That being said, in an SJT the matter is presented before an unbiased mock jury, who issues an advisory decision. After listening to the decision, the court generally advises the disputing entities to try to reach a settlement before proceeding for litigation.
6. Med-Arb: This kind of ADR involves an arbiter, who first acts as an unbiased mediator, but issues a binding agreement if the mediation fails. In general, Med-Arb happens to be an amalgamation of arbitration and mediation, which has advantages of both.
Tools to make ADR more effective–
Streamline the proceedings–
The parties must agree to stipulate undisputed facts and matters of law and to encourage the arbitrator to rule on disputed matters of law in the summary form before hearing evidence. The arbitrator should specify which issues are most likely to generate disputes, and he or she should carefully avoid asking the parties to submit pre-hearing briefs on other issues, which is inevitably a waste of time and resources.
Limit the necessity for briefs–
In some cases, no briefs are needed at all. For example, when NCR is the claimant in a hearing called to collect money on an account, the company usually cites the law orally or submits a photocopy of the relevant statute to the arbitrator. Even when briefs are appropriate—on developing matters of law, say, or where court decisions conflict—NCR has found that their greatest usefulness is in focusing attention on key issues. Arbitrators should be asked to identify the issues on which they want the parties to write briefs. NCR has even gone so far as to ask arbitrators to set page limits on briefs.
Participate in prehearing exchanges–
Prehearing exchanges are invaluable in smoothing the way toward a resolution. The parties trade exhibits and witness lists, and discuss which items are important to the case and which peripheral. It is very important that these exchanges not resemble the discovery process typical of litigation; they should focus instead on documents to be used in the hearing. Prehearing exchanges often lead to a reduction in the witness lists and to having less important witnesses submit their testimony by affidavit or even by telephone.
Agree to limit damages–
In order to restrict discussion and head off problems, NCR has drafted damage limitations into the standard ADR clause it includes in all commercial contracts. In many cases, there is or should be no legitimate argument about the amounts in dispute, which makes extensive damage proof unnecessary. Where possible, parties should stipulate the extent of damages and the arbitrator should rule on the reasonableness of damage limitations before hearing evidence. In more complicated cases, NCR may go so far as to exact agreement on a dollar floor or ceiling or on so-called baseball arbitration to keep the amount to a reasonable level. (In baseball arbitration, each party picks a figure and the arbitrator must choose one or the other.)
Use experts selectively–
In adversarial proceedings, each side typically tries to out expert the other; in arbitration, a limit on the use of experts saves time and money. For instance, instead of retaining opposing damage experts whose testimonies are likely to conflict, it makes good sense for both parties to agree on a single, neutral expert. This person’s report puts pressure on the two sides to negotiate, whereas divergent, partisan reports encourage opponents to dig in and harden their positions.
Conclusion
The primary object of ADR movement is avoidance of vexation, expense, and delay and promotion of the ideal of ‘access of justice’ to all. To put it otherwise, ADR aims at providing Cheap, Simple, Quick, and Accessible justice. In its philosophical perception, ADR is considered to be the mode in which the dispute resolution is qualitatively distinct from the judicial process. It is a process where disputes are settled with the assistance of a neutral third person generally of parties’ own choice. This neutral person is generally aware and familiar with the nature of the dispute and of the context in which such disputes normally arise. The proceedings under these procedures are mostly informal devoid of procedural wrangles and technicalities and are conducted in a manner agreed to by the parties.
[1]2019 SCC Online SC 358.
[2] Civil Appeal No. 1599/2020.
