ADR Mechanism In India And Its Effect On Traditional Court System
Author: LawSphereX
Category: General Law
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ADR MECHANISM IN
INDIA AND ITS EFFECT ON TRADITIONAL COURT
SYSTEM
Bejita Banerjee, BBA LLB, Birla Global University, Bhubaneswar, Orrisa Anirudh Modi, BA LLB, Maharishi University of Information Technology, Noida, Uttar Pradesh
ABSTRACT
ADR means Alternative Disputes Resolution is a mechanism which resolves conflicts in a peaceful manner where parties in the dispute accept the decision given by the Arbitral Tribunal. It gives an option to parties in the contract to skip the traditional method of resolving disputes. ADR is not only limited to resolving commercial disputes but extends to industrial, civil, family, etc. The decisions of the Arbitral Tribunal are called ‘Award’ which is binding on the parties. Law Minister Arjun Ram Megwal told in December 2023 before the Lok Sabha that India has almost 5 crore pending cases in the district and sub-ordinate courts have almost 4.4 crore pending cases. He further said that 61.7 lakh cases are pending before 25 High Court where Allahabad High Court has more than 10 lakh cases, Sikkim High Court has
171 cases, and the Supreme Court has more than 80 thousand pending cases.
Human conflicts are an inevitable part of society and the traditional court is not the only place where disputes will be solved. The emergence of other mechanisms to solve disputes is the need of the hour because there are many loopholes in the present system. ADR mechanism fulfills all the needs of society as it gives speedy relief, is economical and cost-effective, is more cooperative and less competitive, and regressive procedure. In our research, we have dealt with ADR origin, its present and upcoming transformation in the judicial system. We cover the development of ADR internationally and find out the reasons to promote ADR in India. We also found out about some online Arbitration systems where disputes easily get resolved. Keywords: ADR, Arbitral Tribunal, Judicial System, UNCITRAL
1. Introduction
Life is full of conflicts, and there is a continuous fight among individuals. Since 1760, when the Industrial Revolution started, Capitalism has gained momentum around the world, especially in Europe and America in the early 19th century. 1 The origin of the ADR Mechanism has roots all over the world. Arbitration and Mediation are part of every country’s internal dispute resolution. The elder person of a family to the King of the state mediates between parties. Increased commercial disputes and time-consuming traditional courts brought lawmakers' attention to codifying the ADR. In the USA, mediation was authorised for the first time in 1898 because of the disruptive conflict between labour and management. The US Parliament i. e. , Congress authorised Mediation in New York and Massachusetts states for collective bargaining between parties.
2 Later in the 1940s-50s, Domestic courts used conciliation to prevent the family structure and reconciliation to reduce divorce cases instead of court proceeding timings. The Community Relations Services (CRS) of the US Department of Justice initiated a mediation program for civil rights in 1972. 3 Currently, the USA has the Alternative Disputes Resolution Act, 1998 which replaced the previous act i. e. , the Federal Judicial Code of 1946. 4 In the UK, The first commercial court was established in London to solve the disputes of the business community in 1895. Before the creation of the Commercial Court, the commercial disputes went through various procedures, and courts were filled with litigations.
Lord’s Chief Justice Lord Russell (a well-known former commercial practitioner) introduced the special court dedicated to commercial disputes with the help of the Queen Court (later King’s Court). 5 Currently, the UK has the Arbitration Act of 1996 to resolve disputes. In ancient India, disputes were resolved by the Panchayat in which a group of elderly people listened to both sides' grievances and pronounced their judgment. India has a strong system of 1 Jeffrey D. Sachs, Twentieth-century Political economy: a Brief History of Global Capitalism, 15 OXFORD
REVIEW OF ECONOMIC POLICY 90
(1999), https://www.earth.columbia.edu/sitefiles/file/about/director/pubs/Oxfordreview_winter99.pdf.
2 Lora Aptaprava, Alternative Dispute System in India: An overview, ASIAN JOURNAL OF MANAGEMENT 211
(2023), https://ajmjournal.com/HTMLPaper.aspx?Journal=Asian%20Journal%20of%20Management;PID=2023 -14-3-10 (last visited October 6, 2024).
3 ALTERNATIVE DISPUTE RESOLUTION IN
INDIA, https://www.fdrindia.org/old/publications/AlternativeDisputeResolution_PR.pdf.
4 H.R.3528 - 105th Congress (1997-1998): Alternative Dispute Resolution Act of
1998, CONGRESS.GOV (2024), https://www.congress.gov/bill/105th-congress/house-bill/3528 (last visited October 6, 2024).
5 The History of the Commercial Court - Courts and Tribunals Judiciary, COURTS AND TRIBUNALS
JUDICIARY (2022), https://www.judiciary.uk/courts-and-tribunals/business-and-property-courts/commercialcourt/about-the-commercial-court/the-history-of-the-commercial-court/ (last visited October 5, 2024).
Panchayat which can still be seen in present days in various villages. The system works on equity, fairness, and justice through mediation, negotiation, and arbitration. During the Mauryan and Gupta Periods ( 321 BCE to 550 CE), they used mediation, arbitration, and negotiations in their royal courts. They appointed “Dharmasthas" or "Amatyas” who followed the principles of Dharma (righteousness) to ensure fair justice. 6 When the Mughals came to India, they brought their Islamic Law i. e. , Sharia Law to govern their Muslim community while Hindus relied on their traditional methods. 7 At Last, the Britishers came to India and colonised and Introduced their law which is also known as “Common Law”. British Government Codified the Arbitration Act for the first time after establishing its power over Bengal in 1757.
Bengal Resolution Act, 1772, and Bengal Regulation Act, 1781 were introduced to facilitate arbitration in Bengal. The meditator was appointed after a mutual agreement between the parties and their decision will be binding on them. Indian Arbitration Act of 1899 was passed in India based on the British Arbitration Act of 1889. By the act of 1899, the British introduced Arbitration as substantive law for the first but its scope was limited to the Presidency towns of Bombay, Madras, and Calcutta. Indian Arbitration Act of 1899 was replaced by the Arbitration Act of 1940 because many defects arose from it and faced criticism from judicial bodies. The Arbitration Act of 1940 remains enforceable after the Independence till 1996. 8 In 1991, India brought major changes in its economy so it brought a new law on arbitration which would meet global needs.
India’s Arbitration Act of 1996 is based on the United Nations Commission on International Trade Law (UNCITRAL) Model Law on International Commercial Arbitration, 1985, and the UNCITRAL Conciliation Rules, 1980. 9
2. Research Methodology
The method of research adopted for the purpose is Doctrinal Methodology and it will depend mainly on the secondary sources such as libraries and internet forms of research that have been 6 IJLMH, The Evolution and Development of ADR in India and its Different Kinds - International Journal of Law Management & Humanities, INTERNATIONAL JOURNAL OF LAW MANAGEMENT & HUMANITIES (2020), https://ijlmh.com/the-evolution-and-development-of-adr-in-india-and-its-differentkinds/ (last visited October 8, 2024).
7 BBC - Religions - Islam: Mughal Empire (1500s,
1600s), BBC.CO.UK (2014), https://www.bbc.co.uk/religion/religions/islam/history/mughalempire_1.shtml#:~:te xt=Aurangzeb%20was%20a%20very%20observant,law)%20over%20the%20whole%20empire. (last visited October 8, 2024).
8 ADR System in India: A Brief Historical
Background, LEGALSERVICEINDIA.COM (2015), https://www.legalserviceindia.com/legal/article-8265-adrsystem-in-india-a-brief-historical-background.html (last visited October 9, 2024). 9 ALTERNATIVE DISPUTE RESOLUTON IN INDIA, https://legalaffairs.gov.in/sites/default/files/arbitrationand-mediation_0.pdf.
utilized for this purpose. Most of the information is, however, from authentic Internet sites.
3. Problems in the Traditional Court System
India follows the common law system which follows bottom-to-top i. e. , District Court-High Court-Supreme Court. The present form of Judicature of India evolved from various phases but the present system is overburdened with crores of cases. As of January 2024, over 5 crore civil and criminal were pending in India. 10 It will take 300 years to dissolve these cases. India has among the lowest ratio of Judges i. e. , 21 judges per million population while the USA has 150 Judges per million people. Lawyers' endless arguments and lengthy written submissions in courts are major problems in reducing cases. 11 In the case of ONGC V. Collector of Central Excise12, the Hon’ble Supreme Court held that the dispute between the government of India and Public Sector Undertakings should not be brought before the court because it is just a waste of money of the general public. In the case of ONGC V.
Collector of Central Excise13, the Hon’ble Supreme Court held that the dispute could be solved through mutual consultation, or arbitration avoiding litigation. The court directed the Government of India to constitute a committee which will examine the dispute whether there is a need for litigation or whether it can be mutually resolved. The government of India itself is the biggest litigant in the Supreme Court. They are responsible for 73% of the total litigation in the Supreme Court which is found by Aparna Chandra, Sital Kalantry, and William H. J. Hubbard in their recently released book “Court on Trial: A Data-Driven Account of the Supreme Court of India”. 14 The Kolkata High Court disposed off the longest civil case dispute after 72 years in January, 2023. It was an insolvent case of Berhampore Bank Ltd. Hon’ble High Court order to wind up Berhampore
10 TNN, Over 5 crore court cases pending, government tells Lok Sabha, THE TIMES OF
INDIA (2023), https://timesofindia.indiatimes.com/india/over-5-crore-court-cases-pending-government-tells-loksabha/articleshow/106032857.cms (last visited October 9, 2024).
11 “A Lifelong Nightmare”: Seeking Justice in India’s Overwhelmed Courts, THE NEW YORK TIMES,
2024, https://www.nytimes.com/2024/01/13/world/asia/india-judicialbacklog.html?action=click&pgtype=Article&state=default&module=styln-indiageneral&variant=show®ion=MAIN_CONTENT_1&block=storyline_top_links_recirc (last visited October 14, 2024).
12 1992 Supp.2 SCC 432.
13 1995 Supp. 4 SCC 541.
14 All about Dr. Aparna Chandra’s New Book | Court on Trial: A Data-Driven Account of the Supreme Court of India - National Law School of India University, NATIONAL LAW SCHOOL OF INDIA UNIVERSITY (2023), https://www.nls.ac.in/news-events/all-about-dr-aparna-chandras-new-book-court-on-trial-adata-driven-account-of-the-supreme-court-of-india/ (last visited October 15, 2024).
Bank Ltd on 17th Nov. 1948 which was challenged on 1st January 1951.15
4. Why is there a need for Arbitration?
Arbitration is a simple and easy process to solve disputes between two or more parties. India is the world’s fastest-growing economy and ADR is becoming more and more important to the business world. India has significantly improved its ranking in the World Bank’s Ease of Doing Business index to 63rd position out of 190 countries in 2019 compared to 79th position in 2014.16 The disagreement between business contract parties can skip the long traditional process and the dispute can be resolved through arbitration, mediation, negotiation, or conciliation.17 In the World Investment Report 2023, India secured 3rd position in the highest Foreign Direct Invest in the world.18 There are many reasons why there is a need for the ADR, disputes are resolved timely with less expense, and saves time for parties.19 Companies are resolving their disputes through the ADR mechanism.
5. How Arbitration Can Transform the Traditional Court System?
The corporate cases in India are increasing day by day with the increase in business activities in the last few years. These corporate cases related to the business organisation include disputes related to breach of contract, Business of tort, Debtor or Creditor, Labour and Employment, Tax disputes, fraud and misrepresentation, Shareholder disputes, Partnership disputes, etc. The corporate world is becoming aware of the alternative means for resolving disputes without going through lengthy court processes.20 The companies like oil, gas, energy, Telecom, and
15 Saibal Sen, 72 years on, India’s oldest pending case finally settled, THE TIMES OF
INDIA (2023), https://timesofindia.indiatimes.com/city/kolkata/72-years-on-indias-oldest-pending-case-finallysettled/articleshow/97012986.cms (last visited October 15, 2024).
16 Embassy of India, Hague, Netherlands : Ease of doing business in
India, INDIANEMBASSYNETHERLANDS.GOV.IN, https://indianembassynetherlands.gov.in/page/ease-of-doingbusiness-in-india/.
17 Preeti Kumari, Alternative Dispute Resolution
(ADR), SSRN.COM (2020), https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3626625 (last visited October 15, 2024).
18 Embassy of India, Athens, Greece :
FDI, INDIAINGREECE.GOV.IN (2021), https://www.indiaingreece.gov.in/page/fdi/#:~:text=According%20to%20th e%20World%20Investment,)%20was%20US%24%20614.02%20billion. (last visited October 15, 2024). 19 ALTERNATIVE DISPUTE RESOLUTON IN INDIA, https://legalaffairs.gov.in/sites/default/files/arbitrationand-mediation_0.pdf. 20 To Identify The Corporate Disputes In All Forms Of Business Organization And Its Resolution Through The Process Of ADR, LEGALSERVICEINDIA.COM (2016), https://www.legalserviceindia.com/legal/article-6851-toidentify-the-corporate-disputes-in-all-forms-of-business-organization-and-its-resolution-through-the-process-ofadr.html (last visited October 15, 2024).
power sector are resolving their disputes through the arbitration process.21 The main objective of the Arbitration and Conciliation Act of 1996 is as follows22:-
1. It minimizes the supervisory role of courts
2. It provides speedy disposal of disputes.
3. It is amicable, swift, and cost-efficient settlement of disputes.
4. It resolves the dispute by a formal award.
5. It ensures that arbitration proceedings are just, fair, and effective.
6. It comprehensively covers international commercial arbitration and conciliation as
well as domestic arbitration and conciliation.
7. It permits an arbitrator to use mediation, conciliation, or other procedures during the
arbitral proceedings to encourage the settlement of disputes.
8. It provided that every arbitral award is enforced in the same manner as if it were a
decree of the court. Arbitration is a quasi-judicial body where disputes are resolved by an arbitral tribunal which is headed by the arbitrators appointed according to the agreement between the parties. The Arbitrator cannot be an even number.23 The act gives provision that disputes can be resolved through private arbitral tribunals.
6. Process of Arbitral Tribunal
These are the following processes by which an arbitral tribunal gives awards i.e., the judgment of the Arbitral tribunal:-
21 in India, Financier Worldwide, FINANCIER
WORLDWIDE (2014), https://www.financierworldwide.com/resolving-commercial-disputes-in-india (last visited October 15, 2024). 22 ALTERNATIVE DISPUTE RESOLUTON IN INDIA, https://legalaffairs.gov.in/sites/default/files/arbitrationand-mediation_0.pdf.
23 Section 10 of Arbitration and Conciliation Act, 1996.
a. Arbitration Agreement or Arbitration clause in Contract The parties while drafting a contract whether it is a contract, partnership, insurance civil matter, etc. can add a clause for Arbitration if there is any possibility of arising of disputes. The parties can mutually agree to resolve a dispute if there is no provision mentioned in a contract. b. Notice of Arbitration Section 21 of the Act states that when the arbitration will commence. On the day on which notice of dispute will be received by the respondent, arbitration will commence. The respondent has to give a reply to the legal notice under the fixed period mentioned in it. c. Appointment of Arbitrators Section 10 of the act states that parties can agree on any number of arbitrators but the number should not be in even number. If the parties fail to appoint the arbitrator then a sole arbitrator can be appointed.
In the case of IBI Consultancy India v. DSC Limited24, Hon’ble Supreme Court held that parties in the agreement are free to appoint any number of arbitrators but the number should be in odd number. In case parties have disagreed with the procedure of appointment of the arbitrator or are unable to agree on an arbitral tribunal through mutual satisfaction. In that case, parties can take the remedy for the appointment of the arbitrators by following the procedure mentioned in Section 11 of the act. Section 11 states the detailed procedure and additional machinery for the intervention of the judiciary to appoint the arbitrator. d. Statement of Claim Section 23 of the act states that the claimant party will present his supporting claim, raise a point of issue, and ask for remedy and relief. On the other hand, the respondent
24 AIR 2018 SC 2907.
either accepts or rebuttal the claimant's claim. The claims of the parties can be changed if they agree to it, then parties can change or alter their claim during the arbitral proceeding until or unless the arbitral tribunal doesn’t declare the claim to be inappropriate. e. Hearing of Parties Section 24 of the act talks about hearings and written proceedings. It states that if parties fail to decide the way of proceeding then the Arbitral tribunal will decide the way of proceeding. The Tribunal will decide proceeding whether the evidence will be presented orally or arguments will be done orally or the proceedings will be conducted on the basis of documents and other materials relevant to the facts of the case. The tribunal will hold the oral proceeding during arbitration unless parties agree that no oral proceeding shall be held.
The parties shall give advance notice of the hearing, proceeding, of any meeting of the tribunal for the purpose of inspection of documents, goods, or any other material. Any document, information, or statement made before the tribunal shall be communicated by one party to another. f. Arbitral Award An Arbitral Award of an Arbitral Tribunal is equivalent to court judgment. It can be both domestic as well as international arbitration. Some of the essentials of the Arbitral Awards are:-
1. It will be in writing.
2. All the Arbitrators will sign on the award.
3. Arbitral tribunal must state a reason behind their award.
4. The date and time of the arbitration shall be mentioned in the award.
5. It will be a complete award and don’t leave anything behind.
6. It must be possible to act and perform.
7. There is no need for registration because it acts as the final decree of the court.
Types of Arbitral Awards:-
1. Interim Award
This is a temporary award given during the proceeding of the arbitration by the tribunal. An interim Award can only be given by the tribunal which is empowered to give a final award. But, the tribunal can’t pass any award which will affect the rights of a third party.
2. Final Award
An Award is given by an Arbitral Tribunal mentioning the reason, date, time, and signature after the completion of the arbitration proceeding.
3. Domestic Award
An Award which is given within the territory of a country.
4. International Award/ Foreign Award
An Award which is given outside the territory of a country.
5. Settlement Award
During the Arbitral proceeding, parties may agree to go for the settlement instead of going through arbitration. In this case, the tribunal will assist the parties to come to settlement. If the tribunal has no objection to the settlement, the terms on which the settlement is done will be considered as an award.
6. Additional Award
When a final award is adjudicated, but later it is found out by the parties that some claims which are made before the tribunal have not been covered then parties can
request the tribunal to pass an additional award on the matters left out. The request for an additional award is made out within 30 days of passing the final award. g. Challenge in Court Section 34 of the act states the application for setting aside the arbitral award. The aggrieved party has to challenge the arbitral award within 90 days of the final award passed. Ø As per Section 34(2)(a) which states that the court can set aside the arbitral award if:-
1. Party: The party was under some incapacity.
2. Arbitral Agreement: The parties who made the contract of arbitration were not valid
under the law to which they were subjected.
3. Principle of Natural Justice not followed: The party was not given proper notice
for the appointment of the arbitrator or arbitral proceeding. The party was also not given a chance to represent itself.
4. Out of Arbitral Scope: The area on which the award was given is out of the scope
of the submission i.e., the matter in dispute falls outside the scope of arbitral agreement.
5. Arbitral Tribunal: There is an improper composition of the arbitral tribunal or
arbitral procedure was not followed as per the agreement between the parties. Ø Section 34(2)(b) states that the court can set aside an award if the court finds that:
1. Subject Matter is disputed: The subject matter of the dispute is not capable of
being settled by arbitration under the law for the time being in force.
2. Against Public Policy: The award given by the arbitral tribunal is against the
public policy of India.
7. Implementation of Foreign Award in India
Section 2(1)(f) of the Arbitration Act defines the meaning of “International Commercial Arbitration”. It says arbitration between two parties in which one party must be a foreign association, person, body of individuals, or government entity, will qualify as International Commercial Arbitration. • How will the jurisdiction be determined between Indian and foreign laws? In this case, the Arbitration uses the concept of a “seat” i.e., the Jurisdiction whose laws will apply to Arbitration Proceedings is determined based on the seat. For example, Two cases will come:-
1. Case I Arbitration Inside India
2. Case II Arbitration Outside India
1. Case I Arbitration Inside India
If an Arbitration happens in India (seat in India) in which one party is a Foreign company and the other is an Indian Company, it will be an International Commercial Arbitration.
2. Case II Arbitration Outside India
If an Arbitration happens outside India (seat outside India) in which one party is a Foreign company and the other is an Indian Company then it will be a Foreign Arbitration because it will be governed by foreign laws. • Foreign Arbitral Award Section 44 of the Arbitration Act, 1996 defined the meaning of a Foreign Arbitral Award. It is an award given by a foreign arbitrator. • What constitutes a foreign arbitration?
In the case of Serajuddin and co. v. Michael Golodetz and Ors25, the Hon’ble Calcutta High Court laid down certain essentials for what constitutes a foreign arbitration. According to this judgment, an arbitration will be considered as foreign arbitration when:-
1. There will be one foreign party.
2. Arbitration Occurred on foreign land.
3. Foreign Arbitration decides arbitration
4. Foreign laws will apply while deciding on arbitration.
Enforcement of Foreign Awards in India In India, Foreign Awards are enforced or recognised in two ways i.e., The New York Convention, 1958 mentioned in Chapter I (Section 44-52) of Part II of the Arbitration Act, 1996, and the Geneva Convention, 1927 mentioned in Chapter II (Section 53-60) of Part II of the Arbitration Act, 1996. The enforcement of a Foreign arbitral award is done when one country is recognised and enforced by another.
8. Online Arbitration Platforms
When covid pandemic spread all over the world, courts remained no longer the only place of justice. The world is involved from the traditional justice delivery system to technology integration in the justice process. To make affordable and effective resolution of disputes, the availability of technology transformed India's justice delivery framework, i.e., Online Dispute Resolution (ODR) or e-ADR. Now, the ODR is used for cost-effective and remote dispute resolution.26 ODR mechanism resolves disputes of small and medium cases using digital technology and techniques of ADR i.e., arbitration, conciliation, and meditation outside the
25 AIR 1960 CAL 47.
26 THE ODR POLICY PLAN FOR INDIA DESIGNING THE FUTURE OF DISPUTE
RESOLUTION, https://www.niti.gov.in/sites/default/files/2021-11/odr-report-29-11-2021.pdf.
traditional court system.27 An Online dispute resolution platform, Presolv360, offers negotiation, arbitration, and meditation to resolve disputes like money recovery, property, employment, insurance, or any other civil disputes. As per their claim, they have saved Rs 835 million by resolving the disputes online, 38 million days due to quicker resolution. They have an 80% success rate in pre-institution commercial meditation and are integrated with 12+ regional languages to increase accessibility. They also played a crucial role in saving the environment. They saved 20 million paper sheets, almost 2442 trees, and 203 million liters of water.28 Another online dispute platform, Sama, helps individuals and businesses in resolving disputes quickly, fairly, and completely online. Their average dispute resolution time is just 45 days.29
9. International Organizations on Arbitration
ADR has gained popularity in the world because of its less time-consuming, easy process, and transparent to the parties. Internationally arbitration mechanism is used in various international organizations to resolve various disputes in different fields such as the World Trade Organization (WTO), Permanent Court of Arbitration (PCA), International Chamber of Commerce (ICC), Court of Arbitration for Sports (CAS) etc. Diverse cases can be resolved easily through ADR and traditional courts can focus more on heinous crimes.
10. Conclusion
ADR mechanism is not only a solution to the present court system but also a way forward to increase the efficiency of justice delivery through various channels. ADR can be used for various civil disputes for easy and effective solutions. ADR is also based on the principle of natural justice. India has among the lowest ratio of Judges i.e., 21 judges per million population for which ADR is the perfect solution to reduce the burden of traditional court. Pending Commercial or cases involving money recovery is not a good sign for a developing country like India. India has significantly improved its ranking in Ease of Doing Business from 79th position to 63rd position from 2014 to 2019. To bring speed justice in commercial matters becomes a priority for the government and for that, ADR transforms the traditional court
27 NITI Aayog Pushes for Online Dispute Resolution for Speedy Access to
Justice, PIB.GOV.IN (2021), https://pib.gov.in/PressReleasePage.aspx?PRID=1776202 (last visited October 16, 2024).
28 Presolv360, PRESOLV360.COM (2024), https://presolv360.com/ (last visited October 16, 2024).
29 Sama, SAMA.LIVE (2019), https://www.sama.live/ (last visited October 16, 2024).
system. ADR gives parties for an alternate solution to the lengthy court process. Online dispute resolution or e-ADR perfectly environment-friendly solutions.