Alternate Dispute Resolution in India

by Durai on August 26, 2009

Introduction:

People who knock the door of Court’s of law will certainly get justice but at the cost of one party loosing the battle but people trying to resolve the matter through ADR will have high satisfaction with nobody loosing the legal battle indeed, that’s the essence of ADR. An attempt has been made in this research work to highlight the ADR process in the light of the UNCITRAL model law with special focus to Indian legal regime governing Alternative dispute resolution.

The settlement of disputes is tending to shift from national courts to arbitration by neutral private tribunals and other modes of Alternate Dispute Resolution[1]. With ever escalating costs of litigation by way of lawyer’s fees, Court fees and other expenses, Court litigation has been progressively becoming more and more prohibitive. The dilatory tactics adopted by the defending parties in the over-crowded courts makes for indefinite delays. This has resulted in the evolution of the Alternative Dispute Settlement Resolution[2]. In the language of Justice Krishna Iyer “a legal adjudication may be flawless but heartless, but a negotiated settlement will be satisfying even if it departs from strict law[3]”.This has lead to the evolution of ADR across the globe which ensures an “all win” situation to the parties.

Arbitration and Conciliation Act modeled in the light of UNCITRAL Model law-

The UNCITRAL was created by the General Assembly in 1966[4] to enable the United Nations to play a more active role in reducing or removing legal obstacles to the flow of international trade[5]. The U.N. recognized that various economic and legal differences existed between States. These differences were the source of many of the problems that hindered the advancement of an integrated international trade system. “The General Assembly considered it desirable that the process of harmonization and unification of the law of international trade be substantially coordinated, systemized, accelerated, and that a broader participation by States is secured[6].”

The 1996 Act consolidates and amends the law relating to Domestic Arbitration, International commercial arbitration and enforcement of foreign arbitral awards taking into account the UNCITRAL Model law on International commercial arbitration and UNCITRAL Conciliation rules[7].

The Model law on International Commercial Arbitration is designed for use in all legal and geographical regions. The General Assembly recommended to all the states throughout the world to enact modern arbitration legislation based on the Model law. These guidelines have since been codified in the Arbitration and Conciliation Act 1996[8].

The Model law is tailored to apply to arbitration where (a) the parties to an arbitration agreement have, at the time of the conclusion of that agreement, their places of business in different states; or (b) the place is situated outside the state in which the parties have their place of business[9].

The Indian Act adopts the following provisions from the Model law:

a)      The definition and form of the arbitration agreement under Section 7 of the Act.

b)      The duty of the judicial authority to refer the parties to arbitration where an action is brought before it in breach of the arbitration agreement under Section 8 of the Act.

c)      The power of the Tribunal and of the Court to grant interim measures of protection in support of arbitration Sections 9 and 10 of the Act.

d)     The composition of the arbitral Tribunal under Section 2(d) read with Section 10.

e)      Appointment of Arbitrators under Section 11.

f)       Grounds of challenge to an Arbitrator under Section 12.

g)      Procedure to challenge an arbitrator under Section 13.

h)      The grounds for setting aside the arbitral awards under Section 34 of the Act.

The Apex court of the country has opined that “The provisions of the 1996 Act have to be interpreted uninfluenced by the principles underlying the 1940 Act. In order to get help in construing these provisions, it is more relevant to refer to the UNCITRAL Model law rather than to the 1940 Act[10]. The Apex court went ahead to pronounce that “Though the 1996 Act was enacted in the light of UNCITRAL Model rules but it has gone beyond the scope of the said Rules[11].

Conciliation and Mediation used as ADR in India-

Regulation of Arbitration laws by conciliation or mediation is a novelty of modern arbitration law[12]. The Arbitration Act of 1996 by virtue of Section 30 highlights the importance of Settlement and suggests that the Tribunal may encourage the parties to settle the disputes through Mediation, Conciliation or any other procedure to encourage a settlement.

“Mediation may be regarded as a half-way house between conciliation and arbitration. The role of the conciliators is to assist the parties to reach their own negotiated settlement, and he may make suggestions as appropriate. The mediator proceeds by way of conciliation but in addition is prepared and expected to make his own formal proposals or recommendations, which may be accepted as they stand or provide the basis of further negotiations leading to a settlement. Such recommendations may be similar inform to an arbitrator’s award, but the crucial difference is that the parties do not undertake in advance to accept them[13].”

In its historic judgement in Salem Bar Association case[14], the Supreme Court has directed the constitution of a committee to frame draft rules for mediation under S. 89(2) (d) of the CPC. Consequently, the Committee presided over by Mr. Justice M. Jagannadha Rao, Chairman of the Law Commission of India has prepared a comprehensive code for the regulation of ADR process initiated under S 89 of 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[15]”.

Conciliation is a process to gain the goodwill by the acts of the Tribunal which induce friendly feelings between the parties and to compose their disputes by offering the parties a Voluntary settlement[16].

Mediation means that a third party acts as an intermediary between the parties for the purpose of reconciling the parties and inducing the parties to settle their disputes[17].

MED- ARB and ARB-MED-

The mediator becomes an arbitrator and renders as enforceable decision following the mediation process on all issues where the parties fail to reach an agreement this is called MED-ARB short for Mediation and Arbitration[18].

Another recent development is allowing as arbitrator to act as a mediator after he has heard the Arbitration which is called as ARB-MED short for Arbitration and Mediation. The arbitrator reveals the arbitration results only if there is no agreement in mediation. This gives the arbitrator-mediator considerable power in facilitating the negotiation[19]. This provision is based on Art (1) of UNCITRAL Conciliation Rules 1980. A prototype procedure was formulated in Art 30 of the Model law which has now been codified in Section 30 of the Act[20].

If through mediation and conciliation or any other procedure the parties settle their disputes the Tribunal terminates the arbitration proceedings. If the parties request and the Tribunal had no objection then the Tribunal records the settlement and makes an award on the agreed terms[21]. Such an award acquires the status of a decree[22].

Conciliation proceedings-

Part III of the Act 0f 1996 comprising 21 Sections deals with various aspects of the conciliation process. It adopts, with minor contextual variations, the UNCITRAL conciliation Rules 1980. One of the most important value additions in the Act is that the conciliator is not bound by Civil Procedure Code 1908 or the Indian Evidence Act 1872[23].

Enforcement of Foreign Arbitral Award-

The Arbitration Act of 1996 deals with the enforcement of foreign awards in Part III only in relation to States which were parties to the New York Convention on the Recognition and Enforcement of Foreign Awards of 1958, and the Geneva Protocol on Arbitration Clauses of 1923 and the Geneva Convention on the Execution of Foreign Awards of 1927[24].

Before moving on to the enforcement of foreign Arbitral award it would be more pertinent to deal with whether a particular award is a foreign award or not. It would be appropriate to refer to Section 44 of the Arbitration and Conciliation Act 1996, which reads as follows:

 

“Definition. – In this Chapter, unless the context otherwise requires, “foreign award” means an arbitral award on differences between persons arising out of legal relationships, whether contractual or not, considered as commercial under the law in force in India, made on or after the 11th day of October, 1960 –

(a) in pursuance of an agreement in writing for arbitration to which the Convention set forth in the First Schedule applies, and

(b) in one of such territories as the Central Government, being satisfied that reciprocal provisions have been made may, by notification in the Official Gazette, declare to be territories to which the said Convention applies”.

An award in pursuance of an arbitration agreement governed by Indian Law, if the conditions under Section 44 are satisfied, will not cease to be a foreign award, merely because the arbitration agreement is governed by the law of India[25]

An award for being a “foreign award” the following conditions must be satisfied (a) there is commercial relationship between the parties (b) award is made in a Convention country and (c) award is made in pursuance of a written agreement between the parties[26].

Conditions for Enforceability of Foreign Awards-

Section 48. Conditions for enforcement of foreign awards. –

“(1) Enforcement of a foreign award may be refused, at the request of the party against whom it is invoked, only if that party furnishes to the court proof that-

(a) The parties to the agreement referred to in section 44 were, under the law applicable to them, under some incapacity, or the said agreement is not valid under the law to which the parties have subjected it or, failing any indication thereon, under the law of the country where the award was made; or

(b) The party against whom the award is invoked was not given proper notice of the appointment of the arbitrator or of the arbitral proceedings or was otherwise unable to present his case; or

(c) The award deals with a difference not contemplated by or not falling within the terms of the submission to arbitration, or it contains decisions on matters beyond the scope of the submission to arbitration:

Provided that, if the decisions on matters submitted to arbitration can be separated from those not so submitted, that part of the award which contains decisions on matters submitted to arbitration may be enforced; or

(d) The composition of the arbitral authority or the arbitral procedure was not in accordance with the agreement of the parties, or, failing such agreement, was not in accordance with the law of the country where the arbitration took place; or

(e) The award has not yet become binding on the parties, or has been set aside or suspended by a competent authority of the country in which, or under the law of which, that award was made.

(2) Enforcement of an arbitral award may also be refused if the court finds that-

(a) The subject-matter of the difference is not capable of settlement by arbitration under the law of India; or

(b) The enforcement of the award would be contrary to the public policy of India.

Explanation. –Without prejudice to the generality of clause (b) of this section, it is hereby declared, for the avoidance of any doubt, that an award is in conflict with the public policy of India if the making of the award was induced or affected by fraud or corruption.

(3) If an application for the setting aside or suspension of the award has been made to a competent authority referred to in clause (e) of sub-section (1) the court may, if it considers it proper, adjourn the decision on the enforcement of the award and may also, on the application of the party claiming enforcement of the award, order the other party to give suitable security”.

Section 48 of the Act provides for various grounds on which a “foreign award” can be set aside by the Indian Courts and the person who wants enforce the foreign award has to satisfy the Court about the nature of foreign award.

Enforcement of Foreign Award-

An award is not a court-judgement as it is founded on a contract of the parties. Furthermore, it does not have the status of a judgment because it is not the act of a sovereign of the State in which it was made. It will not have the status of a judgment in any other country either. Hence it cannot be enforced without the court intervention in India or in any other country[27].

Section 49 of the Act deals with enforcement of foreign awards it says-

“Enforcement of foreign awardsWhere the court is satisfied that the foreign award is enforceable under this Chapter, the award shall be deemed to be a decree of that court”

The procedure for enforcement of a foreign award is the same as for the enforcement of a domestic Award. However, the provisions of the Act of 1996 shall prevail in case of any inconsistency with its provisions and other Acts[28]. If the conditions for enforcement are fulfilled for enforcement of a foreign award it shall be deemed a decree of the Court and executed as such[29]. Enforcement of a foreign award or execution of a foreign award will mean the same thing. The foreign award is treated as a decree of the Court[30].

Mediation Center’s in Bangalore and Delhi – A Step taken by the Judiciary towards “Co-operative problem settlement”-

There is no legal battle, there is no legal war and more importantly there is absolutely no defeats in the mediation process, the mediators are satisfied that they have settled some dispute and the parties are satisfied that both of them have won their case this is what they call as “co-operative problem solving” the outshoot of this is Mediation.

The High Court’s of Delhi and Bangalore have got their own Mediation Center’s trained by  American experts in Mediation with their own indigenous rules and keeping in mind the Statutory mandate under Section 89 of the Civil Procedure Code. Successful mediation, followed by a decree, does not alone leaves in happy ending but also ensures the plaintiff to a refund of court fees in terms of Section 16 of the Court Fees Act, 1870.

Cases which are suitable for Mediation:

All civil cases, except those where there are serious allegations of fraud may be referred for Mediation. For eg., Rent cases, partition, matrimonial, labour, specific performance, money, damages, injunction, declaration, land-lord and tenant, intellectual property, Cheque Bounce Cases.[31]

Procedure for setting the Mediation-

Mediation is one of the Alternative Dispute Resolution Methods contemplated under Section 89 of the Code of Civil Procedure. Mediation is a process in which a neutral third party assists the disputing parties to creatively resolve their disputes without going to trial. Mediation presents a unique opportunity for dispute resolution with the involvement and participation of all the parties and their advocates[32]. As per provision of Order X Rules 1-A of the CPC after recording admission or denial of documents, the Court is under an obligation to direct the parties to opt for any of the four modes of alternative dispute resolution including mediation.

Bangalore Mediation Centre- Silicon Valley’s way of Mediating-

On the initiative of the High Court of Bangalore and with ample support from the Advocates from the High Court of Bangalore the Mediation Centre has been a success story and has induced the litigants to resolve the disputes amicably.

Under Sec.89 of CPC, in case there is element of settlement in a matter, the Presiding Officer may refer it for Mediation.  The parties are also at liberty to seek for mediation, if they so desire by filing a memo in Court. The Court may therefore suo motu refer the matter to the Mediation centre or the parties can volunteer to settle the matter amicably through Mediation. There are around 2414 number of cases settled[33]. All these things go on to establish that Bangalore is marching ahead not only in the IT industry but also in Mediating with the additional news that Bangalore Mediation Centre is also gearing up to take private cases for Mediation[34].

Delhi Mediation Centre- Capital City leading by Example[35]

The Delhi Mediation Centre has been a role model Mediation centre for many of the other Mediation center’s across the sub-continent. This pilot project is running under the auspicious guidance of the Supreme Court of India. The Mediation Centre is manned by Additional District Judges who have been given extensive training to act as mediator[36].

Three Mediation Centres are functioning in Delhi District Courts at Tis Hazari Courts, Karkardooma Courts and Rohini Courts Complex. Delhi District Court Mediation Centre’s receive cases for mediation not only from all the four District Courts but also from the Supreme Court of India and Delhi High Court. With has high as 9000[37] cases settled by the Delhi Mediation Centres. This centre certainly leads by an example in settling the disputes amicably through Mediation.

Mediation under USAID-

USAID works with NGOs in Karnataka and Rajasthan on the issue of violence against women. The program provides legal information, counseling, mediation and representation services. Nearly 75,000 women have directly benefited from the program[38]. USAID’s Gender and the Law program helps Indian women increase their access to justice. Working with state officials in Karnataka and Gujarat and local non-government organizations, the program:

  • Educates women about Indian laws and increases their access to paralegals and lawyers;
  • Works to combat skewed gender ratios by increasing the dignity of the girl child;
  • Disseminates information on Muslim women’s rights to Muslim women and religious leaders;
  • Establishes counseling centers for women that offer mediation, legal advice and referrals to experts;
  • Improves the knowledge, skills and gender-sensitivity of medical and legal sector personnel;
  • Conducts research on key legal and social issues and disseminates findings;
  • Attempts to change attitudes and behaviors regarding violence against women;
  • Creates local, alternative channels of dispute resolution that are more sensitive to the needs of women and their families; and
  • Provides technical advice to groups working for legal, policy and institutional reforms to protect women, such as the country’s recently passed domestic violence law.[39]

[1] Conciliation as a Necessary Precursor to Arbitration for Better or for Worse- Published in Manupatra online Articles. http://articles.manupatra.com

[2] O P Malhotra The Law and Practice of Arbitration and Conciliation, Lexis Nexis, Butterworth’s, First Edition 2002. at page 1007..

[3] Agarwal Engineering Co. v. Technoimpex Hungarian Machine Industries, Foreign Trade Co. AIR 1977 SC 2122.

[4] The full text of this Model law on International Commercial Arbitration was adopted on 21st June 1985 by the United Nations Commission on International Trade Law (UNCITRAL)

[6] http://www.cojcr.org/vol6no1/CAC106.pdf (last viewed on 03-03-2009)

[7] C R Datta, Law relating to Commercial and Domestic Arbitration, Wadhwa Nagpur, First Edition 2008 at page 1.

[8] O P Malhotra The Law and Practice of Arbitration and Conciliation, Lexis Neixs, Butterworths, First Edition 2002. at page 18.

[9] O P Malhotra The Law and Practice of Arbitration and Conciliation, Lexis Neixs, Butterworths, First Edition 2002. at page 20.

[10] Sundaram Finance Ltd v. NEPC India Ltd., AIR 1999 SC 565.

[11] Rashtriya Ispat Nigam Ltd v. Verma Transport Co., AIR 2006 SC 2800.

[12] O P Malhotra The Law and Practice of Arbitration and Conciliation, Lexis Neixs, Butterworths, First Edition 2002. at page 1005.

[13] O P Malhotra The Law and Practice of Arbitration and Conciliation, Lexis Neixs, Butterworth’s, First Edition 2002. at page 1013 as quoted in The Role of ACAS on Arbitration, Conciliation and Mediation, 1989; Brown and Marriott, ADR Principles and Practice, Second Edition, 1999 at pg 272 Para 11-018.

[14]Salem Bar Association v. Union of India AIR 2003 SC 189

[16] C R Datta, Law relating to Commercial and Domestic Arbitration, Wadhwa Nagpur, First Edition 2008 at page 351.

[17] C R Datta, Law relating to Commercial and Domestic Arbitration, Wadhwa Nagpur, First Edition 2008 at page 351.

[18] O P Malhotra The Law and Practice of Arbitration and Conciliation, Lexis Neixs, Butterworth’s, First Edition 2002. at page 1023.

[19] Ibid at page 1024.

[20] Section 30 of the Arbitration and Conciliation Act 1996, Settlement.

(1) It is not incompatible with an arbitration agreement for an arbitral tribunal to encourage settlement of the dispute and, with the agreement of the parties; the arbitral tribunal may use mediation, conciliation or other procedures at any time during the arbitral proceedings to encourage settlement.

[21] C R Datta, Law relating to Commercial and Domestic Arbitration, Wadhwa Nagpur, First Edition 2008 at page 351.

[22] Mysore Cements Ltd. v. Svedala Barmac Ltd. AIR 2003 SC 3493.

[23] O P Malhotra The Law and Practice of Arbitration and Conciliation, Lexis Neixs, Butterworth’s, First Edition 2002. at page 1006.

[24] Badat & Co v. East India Trading Co. AIR 1964 SC 538. (However this decision was made with regard to Arbitration Act of 1940.)

[25] Centrotrade Minerals and Metal Inc. v. Hindustan Copper Limited (2006) 11 SCC 245. Para 40.( the Division bench had dissenting opinions on the merits of the case, the Hon’ble judges referred the matter for a larger Bench even though they shared the same view with regard to the award being a foreign award).

[26] Ibid.

[27]  O P Malhotra The Law and Practice of Arbitration and Conciliation, Lexis Neixs, Butterworth’s, First Edition 2002. at page 909.

[28] Renusagar Power Co. ltd v. Brace Transport Corporation of Manrovia AIR 1994 SC 860. See also Orient Middle East lines ltd. V. Black Sea Shipping, AIR 1986 Guj 62.

[29] Koch Navigation Inc. v. Hindustan Corporation Ltd. AIR 1989 SC 2198.

[30] Western Ship breaking Corporation v. Clare Haven Ltd., (1998) 1 Raj 367. See also Motorola Inc Ltd., v. Modi Wellvest Pvt. Ltd., (2004) 3 Arb L.R 650 (Del).

[33] For the Period from: 01/01/2007 to 06/10/2008. http://bangaloremediationcentre.kar.nic.in/statistics.html (last visited on 02-03-2009).

[35] The Delhi Mediation Centre has been able to successfully train eleven judicial officers as mediators and has even been invited by the Madhya Pradesh High Court (at Jabalpur) and the National Judicial Academy at Bhopal to share its experiences and conduct training programmes in mediation. http://delhimediationcentre.gov.in/introduction.htm (last viewed on 02-03-2009)

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