More Buzz, Less Bite : Arbitration

by July 16, 2019 0 comments


The lack of laws surrounding arbitration has made it not only a complex process but often delays resolution

When an unresolved dispute is referred by parties, who have disagreements over an issue, to a third party who stands to be neutral, the process of resolution is known as “arbitration.” When instead of the litigation process, the concerned parties mutually agree to resolve the matter through a neutral party, it is known as “voluntary arbitration.” But when the Government instructs the two parties to resolve their issues through mediation, it is known as “compulsory arbitration.” While the former is not legally binding to both parties, the latter is subject to be abiding by both. Although arbitration seems to be simple, easy and cost-effective, the process is full of practical demerits, which remain disguised until the parties come to know that they had spent a lot. The results, however, are still unsatisfactory.

Extravagant alternative to litigation: More buzz, less bite is the perfect phrase to describe why arbitration is a white elephant. Yes, expensive but worthless. Though it was introduced as an alternative to a lawsuit, in a highly populated country like India, arbitration is not an antidote to the established legal procedure that is followed by the courts. First, a majority of the people do not have faith in this alternate way of resolving disputes because of the many complications involved in the arbitration procedure. Second, in the case of non-satisfaction, the loser does not have much scope for appellate jurisdiction.    

In India, the binding value of an arbitration verdict has always been questionable in the legal term because as per the Supreme Court of India, a writ can lie against an arbitrator under Article 226 of the Indian Constitution. There are also some legal challenges that affect the effectiveness of the arbitration. According to the Supreme Court, an arbitrator’s decision must not go against the provisions laid down by the law, else it will be considered illegal. After spending a significant amount of money in the arbitration agreement, dissatisfaction among the parties over its legal power is always a common issue. Further, when the legal cost is high and its recovery is unavailable, it becomes more difficult for an aggrieved party, who do not have sufficient funds or unwilling to bear arbitration cost.

When influence gets biased: Another big disadvantage of arbitration is the influence of the powerful in the system over the decision of an arbiter, who is not as protected as the judge of a tribunal court. The vested interest of the arbitrator from the stronger party may also nullify the purpose of arbitration. And once the decision goes wrong, the sufferer has very limited scope to challenge the verdict as there are not many avenues for appeal and chances of making any major change in the decision are always very slim, which means an upside down of the table is rarely possible.

Complexities make things rigid: Apart from the functional demerits, there are also many structural shortcomings that make arbitration the least preferred choice. It becomes quite annoying for solution-seekers to expect early resolution of a dispute when there are two or more arbitrators on the panel. Availability of arbitrators on a particular date is often a challenge because of differences in their work schedules. On the other hand, rule of applicable law is binding only to the parties, who seek justice through arbitration but arbitrators are not necessarily bound to it. In addition, hassles are also there in the enforcement of interlocutory measures against a party to resolve disputes related to relocation of assets among other things.

Arbitration is not a very good alternative to the lawsuit that takes place through the courts in a systematic and more transparent manner. Usually, in our country, retired judges from High Courts and the Supreme Court are hired as arbitrators by big firms where they make decisions to impress their bosses. In such an influential scenario, where there are no set rules and responsibilities defined by the law for an arbitrator, getting an acquaintance with justice is not just difficult but costly, too.

(The writer is a practising lawyer at the Supreme Court of India)

Writer: Vivek Singh 

Courtesy: The Pioneer

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