India: Alternate Dispute Resolution – An Overview

Last Updated: 5 August 2004
Article by Rajkumar Dubey

Alternate Dispute Resolution (ADR) is a medium of resolving dispute outside the formal legal system. There is a long and old tradition in India encouraging resolution of disputes informally, wherein disputes are referred to third parties. The ADR mechanism consists of negotiation, conciliation, mediation, arbitration and an array of other hybrid procedures. ADR has witnessed phenomenal growth over the past several years to include many areas in addition to the resolution of traditional commercial dispute through mediation, as a significant first step towards the development of this process.

As a part of the effort to make the judiciary work in a more effective and efficient manner and to resolve commercial disputes, without the intervention of the courts, ADR is being encouraged in India. The efforts are not restricted to the national territory of India but even beyond. With this end in mind, India has signed bilateral investment protection agreements with United Kingdom, Germany, Russian Federation, The Netherlands, Malaysia and Denmark. Each agreement makes provision for settlement of disputes between an investor of one Contracting Party in relation to an investment of the former through the following ADR procedures:

Negotiation

A non-binding procedure in which discussions between the parties are initiated without the intervention of any third party with the object of arriving at a negotiated settlement of the dispute.

Conciliation

A non-binding procedure in which an impartial third party, the conciliator, assists the parties to a dispute in reaching a mutually satisfactorily and agreed settlement of the dispute.

Arbitration

A procedure in which the dispute is submitted to an arbitral tribunal, which makes a decision on the dispute that, is binding on the parties.

In addition to these Agreements, India is the member of the two main Conventions namely the "Geneva Convention on the Execution of Foreign Arbitral Awards, 1927" and "New York Convention, 1958".

The New York Conventions came into force for facilitating and encouraging the recognition and enforcement of commercial arbitration agreements in International Contracts. It also aims at unifying the standards by which agreements to arbitrate are observed and arbitral awards are enforced in signatory countries. The Convention was designed to subserve the cause of facilitating international trade and promotion thereof by providing for speedy settlement of disputes arising in such trade through arbitration.

The two most common ADR procedures practiced in India are arbitration and conciliation.

Laws Applied For International Commercial Arbitration Agreement

An arbitration agreement may be in the form of an arbitration clause in a contract or in the form of a separate agreement. It has the following main aspects:

(a) Procedural Law

The parties are free to agree on the procedure to be followed by arbitral tribunal in conducting the proceedings. In case the parties fail to agree upon the procedural law, the arbitral tribunal may conduct the arbitration in such manner, as it considers appropriate. The arbitral tribunal is not bound by any technical rules of procedure, which a Court in India must follow. But the rules of natural justice cannot be ignored.

(b) Venue of Arbitration

The parties are free to fix a venue of their choice, failing which the arbitral tribunal, keeping in view the convenience of the parties, may fix the place where arbitration hearing shall take place.

(c) Substantive Law

The parties are free to make an express choice regarding the application of the proper law or the substantive law to be applied to the contract as a whole or the arbitration agreement in particular. The parties expressly state their choice of law, which is to govern their rights and obligations. It is the duty of the arbitrator to respect the choice, and to apply the provisions of the law in question. However, if the parties have not expressly or impliedly selected the proper law, the Courts impute an intention by applying the objective test to determine what the parties would have as just and reasonable persons intended.

The main contract and the arbitration clause have different objects. The main contract concerns the relationships between the parties and determines the rights and obligations thereunder. Therefore, the parties may rightfully choose different governing law for the main contract and the arbitration agreement. For example, they may agree that their contract will be governed by laws of India (or any other country) while the arbitration agreement and the procedure thereof shall be governed and regulated by the rules of arbitration of the International Chambers of Commerce (ICC), Paris.

Arbitration And Conciliation Act, 1996

The opening up of the economy brought about a climate of global investment in India. The growing trend of globalization, privatization and liberalization in India led to the requirement of an improved legal device of settling disputes. Keeping this in mind the legislators formulated the Arbitration and Conciliation Act, 1996 (‘Act’) with the aim to consolidate the law on arbitration – both domestic and international, enforcement of foreign arbitral award and law relating to conciliation.

The concept of conciliation is new in India and for the first time in the history of Indian legislation a comprehensive legislation was introduced to resolve the controversy between the parties. It is significant to point out that the Act is in pursuance to the adoption of United Nation's Commission on International Trade Law (UNCITRAL), which has adopted the model law on International Commercial Arbitration in 1985. This adoption is also made on the recommendation of the General Assembly of United Nations that all countries give due consideration of the said model law, in view of the desirability of uniformity of the laws of arbitral procedure and the specific needs of international commercial arbitration practice. 

This presentation has been broadly divided into three segments:

I. International Commercial Arbitration

II. Conciliation

III. Settlement of dispute under Code of Civil Procedure, 1908

I International Commercial Arbitration

The Act defines "International Commercial Arbitration" thus:

"International Commercial Arbitration" means an arbitration relating to disputes arising out of legal relationships, whether contractual or not, considered as commercial under the law in force in India and where at least one of the parties is –

(i) an individual who is a national of, or habitually resident in, any country other than in India; or

(ii) a body corporate which is incorporated in any country other than India; or

(iii) a company or an association or a body of individuals whose central management and control is exercised in any country other than India; or

(iv) the Government of a foreign country.

In the Indian context, international commercial arbitration can be discussed under two heads:

(1) Awards passed within the country

(2) Awards passed outside the country, i.e. foreign award

(1) Awards passed within the country

(i) Appointment of arbitrators

The composition of the arbitral tribunal shall be in accordance with the terms contained in the arbitration agreement. If the arbitration agreement does not specify the number of arbitrators, then the referenc shall be to the sole arbitrator. The number of arbitrators cannot be even.

A person of any nationality may be an arbitrator and the parties are free to agree upon a procedure for appointing arbitrator(s). If the parties fail to agree in case of appointment of three arbitrators, each party shall appoint one arbitrator and the two appointed arbitrators in turn shall appoint the third arbitrator who shall act as the presiding arbitrator.

If the parties fail to agree on the appointment of the arbitrator within thirty days from the receipt of a request by one party to the other party to so agree, the appointment shall be made, upon the request of a party, by the Chief Justice at the national and Chief Justice of India at the international levels or any person or institution designated by them. The decision of the Chief Justice or the person or institution so designated shall be final in this regard.

However, it is necessary that the request made to the Chief Justice of India should be accompanied by a copy of the original arbitration agreement or a certified copy thereof.

(ii) Arbitral Proceedings

  • The arbitral proceedings in respect of a particular dispute commence on the date on which a request for that dispute to be referred to arbitration is received by the respondent.
  • The parties are free to agree upon the language or languages to be used in the proceedings.
  • The claimant shall state the facts supporting his claim, the points at issue and the relief or remedy sought and the respondent shall state his defence in respect of these particulars within the period of time agreed upon by the parties or determined by the arbitral tribunal.
  • The parties may submit with their statements all documents they consider to be relevant or may add a reference to the documents or other evidence they will submit.
  • Unless otherwise agreed by the parties, either of the parties may amend or supplement his claim or defence during the course of the arbitral proceedings, unless the arbitral tribunal considers it inappropriate to allow the amendment or supplement having regard to the delay in making it.

Hearings and Written Proceedings

  • Unless otherwise agreed by the parties, the arbitral tribunal shall decide whether to hold oral hearing for the presentation of evidence or for oral argument, or whether the proceedings shall be conducted on the basis of documents and other materials:

Provided that the arbitral tribunal shall hold oral hearings, at an appropriate stage of the proceedings, on a request by a party, unless the parties have agreed that no oral hearing shall be held.

  • The parties shall be given suffient advance notice of any hearing and of any meeting of the arbitral tribunal for the purposes of inspection of documents, goods or other property.
  • All statements, documents or other information supplied to, or applications made to the arbitral tribunal by one party shall be communicated to the other party, and any expert report or evidentiary document on which the Arbitral Tribunal may rely on making its decision shall be communicated to the parties.

(iii) Interim Measures

The Act provides that a party to the arbitration can apply to the court for interim measures. The interim directions can be issued under this section only for the purpose of arbitration proceeding and with a view to protect the interest of the parties, which otherwise cannot be protected or safeguarded by the Arbitral Tribunal.

The arbitral tribunal has also been bestowed with a power to order a party to take interim measures, at the request of the party, unless the power is excluded by agreement between the parties.

(iv) Limitation

The Act makes the Indian Limitation Act, 1963 applicable to international commercial arbitration, which is three years from the time the cause of action arises.

(v) Time limit for passing an award

No specific time limit has been set for passing of an award under the Act. However, the arbitrator may be removed if he is guilty of undue delay.

(vi) Arbitral Award

The arbitral award has to be in writing and shall be signed by the members of the Arbitral Tribunal. The award has to indicate the reasons upon which it is based, unless the parties have agreed that no reasons are to be given. The arbitration award is to be written on a stamp paper of the requested value depending upon the amount awarded. An award has to be registered, if the subject matter of the award creates any rights or interest in immovable property of the value of Rs. 100/- (Rupees one hundred) or above. An award exeeding the abovesaid value cannot be looked into as evidence by the court if it is not registered.

(vii) Grounds for setting aside an award

An appeal may be filed in the Courts for setting aside the award, within three months of the date of the award under the following circumstances, viz.,

If the party furnishes proof that:

  • the party to the agreement was under some incapacity, or
  • the arbitration agreement was not valid under the law to which the parties have subjected it or under the law for the time being in force, or
  • lack of proper notice of the appointment of an arbitrator or of proceedings, or was unable to present the case, or
  • the award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration, or
  • the composition of the tribunal or the arbitral procedure was not in accordance with the agreement of the parties; or

If the court finds that:

  • the subject-matter of the dispute is not capable of settlement by arbitration under the law for the time being in force; or
  • the arbitral award is in conflict with the public policy of India.

(viii) Enforcement of award

The award, on the expiry of 90 days, shall be enforced in the same manner as if it were a decree of the Court. The Executing Court is duty bound to accept the execution petition with a certified copy of the award.

(2) Awards passed outside the country, i.e. foreign award

A foreign arbitral award under the Geneva and New York Convention can be enforced in India under the provisions of the Act.

A foreign award under the New York Convention can be enforced in India when the Court is satisfied that it is enforceable. As per the Act, two conditions need to be satisfied before an arbitral award could be termed as a "foreign award". These are:

(a) the award should have been made in pursuance of an agreement in writing for arbitration to be governed by the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards, 1958, and not to be governed by the law of India.

(b) such an award should have been made outside India in the territory of a foreign state notified by the Government of India as having made reciprocal provisions for enforcement of the Convention.

(i) Limitation

Procedural laws of the country in which the award is relied upon would govern the procedural aspect of the filing of the foreign award and that would also include the question of limitation, being a procedural one.

(ii) Evidence required for the enforcement of foreign award

The party applying for the enforcement of foreign award shall, at the time of the application, produce the following before the court:

  • original award or copy thereof, duly authenticated as per the laws of the country in which the award was made;
  • original arbitration agreement or certified copy thereof;
  • such evidence as required to prove that the award is a foreign award;
  • in case the award or the agreement is in any foreign language, a translation in English duly authenticated by a diplomatic or consular agent of the country to which the party belongs must be produced.

(iii) Conditions for enforcement of foreign award

The Act lays down provisions for enforcement of foreign awards and also the direction of the Indian Courts to refuse execution. If the contesting party i.e. party against whom execution is invoked furnishes to the Court proof that:

  • the parties to the agreement were under some incapacity or that the agreement was not valid under the law to which the parties have subjected it;
  • that party against whom award is invoked was not given proper notice of appointment of arbitrator or of the arbitral proceedings or was otherwise unable to present the case;
  • the award deals with a difference not contemplated by or not falling within the terms of submission to arbitration;
  • the composition of the arbitral authority or the arbitral procedure was not in accordance with the agreement of the parties; and
  • the award has not become binding on parties, or has been set aside or suspended by a competent authority of the country in which the award was made.

The Court may also refuse enforcement if the subject matter of the award is not capable of settlement by arbitration law of India or that the enforcement of the award would be contrary to public policy in India.

(iv) Enforcement of award

The award shall be deemed to be a decree of the court when it is satisfied that the foreign award is enforceable.

2. Conciliation

The term ‘Conciliation’ is not defined in the Act. However, it may be defined "as a method used by parties to a dispute to reach an amicable settlement with the assistance of an independent third person or institution" .

The provisions of the Act shall apply to conciliation of disputes which had been pending before the arbitral tribunal and such disputes must be those which had arisen between the parties out of a legal relationship, whether contractual or not. However, the provisions shall not apply if there is an express arrangement between the parties to exclude conciliation or in the case of any specific prohibition in any other law for the time being in force.

There is no specific provision in the Act, unlike arbitration, to enter into an agreement to conciliate. The Act provide for the following:

i) Initiation of Conciliation

Conciliation is initiated by means of a written communication, briefly identifying the subject of the dispute, from one of the party to the other. The proceeding is deemed to commence when the other party accepts the invitation in writing. There shall be no proceeding if it is expressly rejected by the other party.

ii) Appointment of Conciliators

Conciliator(s) can be appointed by either of the parties or jointly or through an institution or a third person. In international commercial conciliation, if the latter option is availed, the institution or a third person should secure the appointment of an independent and impartial conciliator. There shall be one conciliator, subject to a maximum of three. There is no bar on an even number of conciliators.

iii) Submission of Statements

The conciliator, upon his appointment, may request each party to submit to him a brief written statement describing the general nature of the dispute and the points at issue. Each party shall send a copy of such statement to the other party.

vi) Settlement Agreement

During the process of conciliation, if the Conciliator feels that there exist elements of a settlement, which may be acceptable to the parties, then he shall formulate the terms of the settlement agreement and submit it to the parties. Alternatively, the parties may draw up and sign a written settlement agreement, duly authenticated by the Conciliator.

In the case the parties reach to an agreement on the settlement of dispute, a very judicious and diligent approach must be adopted in drafting the settlement agreement. The language of the agreement must be such that it is conclusive in itself and does not leave any scope for any further interpretation by any of the parties to the dispute.

The settlement agreement signed between the parties shall be final and binding and there shall be no scope of any amendments in the settlement agreement signed between the parties and authenticated by the conciliator. The idea behind making the settlement agreement ‘final and binding’ is to avoid further legal proceedings on the subject matter of the dispute. The whole purpose of introducing provisions on conciliation in the Act by the legislators would be defeated if the parties were to resort to judicial or arbitral proceedings after the subject matter of the dispute has been amicably resolved by the parties and terminated by signing of the settlement agreement by the parties.

On the signing of the agreement, it shall have the same status and effect as if it is an arbitral award rendered by an arbitral tribunal and shall be enforced in the same manner as an arbitral award (Already discussed in the segment on International Commercial Arbitration).

v) Confidentiality

All matters relating to the conciliation proceedings shall be kept confidential by the parties and the conciliator. This confidentiality shall extend to settlement agreement, except where its disclosure is necessary for implementation and enforcement.

vi) Termination of the Proceeding

The conciliation proceedings shall be terminated by –

  • signing of the settlement agreement by the parties on the date of the agreement; or
  • a written declaration of the conciliator, after consultation with the parties, to the effect that further efforts at conciliation are no longer justified, on the date of declaration; or
  • a written declaration of the parties addressed to the conciliator to the effect that the conciliation proceedings are terminated, on the date of the declaration; or
  • a written declaration of a party to the other party and the conciliator, if appointed, to the effect that the conciliation proceedings are terminated, on the date of declaration.

The proceeding shall stand terminated only when it is terminated by any of the above said means.

vii) Limitation

Unlike arbitration, no clear position is provided for in the Act. Although conciliation is a proceeding under the Act, however, it has been treated, in certain respect, on a different footing from arbitration.

viii) Resort to arbitral or judicial proceeding

The parties are specifically prohibited from initiating any arbitral or judicial proceeding in respect of the dispute, which is the subject matter of the conciliation during the conciliation proceeding. However, it has also been provided in the same breath that the party can initiate arbitral or judicial proceedings in case any of the party feels that it is necessary to preserve its rights.

The genesis of this provision lies in Article 16 of the UNCITRAL Rules, adopted by the General Assembly of the United Nations on December 4, 1980. The raisons de etre of the provision are as follows2:

"74. Article 16 deals with the delicate question whether a party may resort to court litigation or arbitration whilst the conciliation proceedings are under way….

75. Article 16 emphasizes the value of serious conciliation effort by expressing the idea that, under normal circumstances, court or arbitration proceedings should not be initiated as might adversely affect the prospects of an amicable settlement. However, the article also takes into account that resort to courts or to arbitration does not necessarily indicate an unwillingness on the part of the initiating party to conciliate. In view of the fact that, under article 15(d), an unwilling party may terminate the conciliation proceedings at any time, it may well be that, if a party initiates court or arbitral proceeding, he does so for different reasons.

76. For example, a party may want to prevent the expiration of a prescription period or must meet the requirement, contained in some arbitration rules, of prompt submission of a dispute to arbitration. Instead of attempting to set out a list of possible grounds, article 16 adopts a general and subjective formula: "…except that a party may initiate arbitral or judicial proceedings where, in his opinion, such proceedings are necessary for preserving his rights."

Article 16 of the UNCITRAL Conciliation Rules has also been analysed by Dr. Gerold Hermann3, an official with the United Nations at the time of writing of the article, as follows:

"The fact that a party during conciliation proceedings, resorts to adversary proceedings does not necessarily indicate that this party is no longer interested in reaching an amicable settlement. Other reasons for such step are even more likely than unwillingness to conciliate in view of the party’s faculty within the Rules to terminate at any time the conciliation proceedings. For instance, a party may want to prevent the expiration of a limitation period, or he may wish to meet the requirement, contained in some arbitration rules, to submit a dispute to arbitration within a specified period of time".

However, this is a view taken by the United Nations and its officials. The Courts in India have not crystallized the position. The Court may take its stand based upon the interpretation of the UNCITRAL Conciliation Rules.

ix) Costs

The conciliator shall fix costs of the conciliation and give written notice thereof to the parties, upon termination of the conciliation proceedings.

III Settlement of disputes under Code of Civil Procedure, 1908

The Code of Civil Procedure, 1908 (CPC) have introduced provisions to enable the courts to refer pending cases to arbitration, conciliation and mediation to facilitate early and amicable resolution of disputes. The Court can refer the case to arbitration etc. "where it appears to the court that there exist elements of settlement which may be acceptable to the parties." The Court can formulate the terms of settlement and give them to the parties for their observation and after receiving the observations, the Court may reformulate the terms of a possible settlement and refer the same for arbitration, conciliation, mediation etc. In case the court refers a dispute to arbitration or conciliation, the provisions of the Act shall apply as it is applied under the Act.

The Court can also refer the case to mediation. When the Court decides to refer the case to mediation "the Court shall effect a compromise between the parties and shall follow such procedure as may be prescribed". In its historic judgment in Salem Bar Association v. Union of India, the Supreme Court has directed the constitution of a committee to frame draft rules for mediation. Consequently, the Committee has prepared a comprehensive code for the regulation of ADR process initiated under CPC, which consists of two parts –

Part I: ADR Rules 2003 consisting of "the procedure to be followed by the parties and the Court in the matter of choosing the particular method of ADR", and

Part II: Mediation Rules, 2003 consisting of "draft rules of mediation under section 89(2)(d) of the Code of Civil Procedure".

FOOTNOTES

1. Commentary on the Revised Draft UNCITRAL Conciliation Rules: Report of the Secretary General

2.Commentary on the Revised Draft UNCITRAL Conciliation Rules: Report of the Secretary General

3 International Council for Commercial Arbitration, Yearbook, Vol. VI, 1981

Disclaimer

Actual resolution of legal issues depends upon many factors, including variations of fact and laws of the land. Though we have taken utmost care in the preparation of this Article, the information contained herein is not intended to constitute any legal advice and we cannot accept any responsibility towards those who rely solely on the contents of this article without taking further specialist advice. The reader should always consult with legal counsel before taking action on matters covered by this article.

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