DEVELOPMENTS IN ADR IN INDIA
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© Cooperjal 2003
This eArticle cannot undertake to cover all aspects of ADR India but will concentrate of a few topics of this large field of law and will briefly compare this to ADR in England.
1. To begin with a very brief history of arbitration in India. It is as old as civilization itself. Dispensation of justice by arbitration was by means of a “Panchayat" which can be considered as a tribunal in modern times. Even during the Muslim Rule in India which was for about eight hundred years, this ancient system was to a great extent, not disturbed.
2. With the advent of British rule in India and codification of laws, the provisions regarding arbitration were first contained in the Code of Civil Procedure of 1859. These provisions were in operation when the Indian Contract Act, 1872 came into force, which permitted settlement of contractual disputes by arbitration under Section 28 thereof. The Arbitration Act, 1899 was the first Indian Act, exclusively dealing with Arbitration, but that Act applied only to the Presidency towns of Calcutta, Bombay and Madras. For the rest of British India, law and procedure laid down by the Code of Civil Procedure, 1882 applied and after 1908, the new Code (enacted in 1908) was made applicable. It was in the year 1940 that the law of arbitration was consolidated and amended and an exhaustive code on the law of arbitration was enacted in the form of The Arbitration Act, 1940 (Act 10 of 1940).
3. Arbitration in India including statutory arbitrations provided under certain Indian Statutes were governed and regulated by the law and procedures laid down by the Arbitration Act 1940. The provisions contained in the Act could be divided into three major divisions: Firstly, those which regulate arbitration without intervention of a court; secondly, those which regulate arbitration with the intervention of the court and thirdly, which regulate and govern all arbitrations irrespective of intervention of the court.
4. The Indian Parliament then enacted the Arbitration and Conciliation Act 1996 (the ‘Indian Act’). This is an act intended to consolidate and amend the law relating to domestic and international arbitration, enforcement of arbitral awards and the law relating to conciliation. The dominant features of the new law are that it recognizes the autonomy of the parties in the conduct of arbitral proceedings. The law promotes transparency in the matter of decision making by the arbitral tribunal by providing that the arbitral tribunal shall give reasons for its arbitral award. The supervisory role of courts has been minimised as it is practically nil till the award is made. The old system of making the arbitral award a rule of court before it is enforced has been dispensed with. The arbitral award itself, once it becomes final, will be enforced as if it was a decree of the court, without going through the erstwhile process of its becoming a rule of the court. A significant feature of the new law is the provision relating to the appointment of arbitrators by the Chief Justice of India (i.e. the Chief Justice of the Supreme Court of India) or the Chief Justice of a High Court or their nominees when the parties are not in a position to agree on a procedure for appointment of arbitrators. Arbitrators should be independent. In case of International disputes, the Chairman arbitrator should be from a neutral country, i.e. from a different country. Under the Indian Act, the arbitral award must contain reasons unless the parties have agreed that no reasons are to be given. This is a significant departure from the provisions of the Arbitration Act, 1940, which contained no mandatory provision requiring the arbitrator to record reasons for his award and the court could not interfere with the findings of the arbitrator on the ground of non-provision of reasons. However, the new law also restricts the scope of judicial scrutiny of the award. It clearly defines the grounds on which an application for setting aside an award can be entertained by a court. These grounds are confined to lack of capacity of a party, invalidity of the arbitration agreement under the law, violation of principles of natural justice and the arbitrator exceeding the terms of reference.
5. The Indian Act, for the first time in the country, provides a detailed statutory framework for the conduct of independent conciliation proceedings outside the court. It is based on the conciliation rules adopted by the United Nations Commission on International Trade Law (UNCITRAL) in 1980 which were conceived primarily in the context of dispute resolution in international commercial relations. Similarly the Arbitration Act 1996 in England is based upon the UNCITRAL model. A settlement agreement reached by the parties and signed by them with the help of the conciliator shall be final and binding on them and the persons claiming under them. The parties may terminate a conciliation proceeding by giving a written notice addressed to the conciliator to the effect that the proceedings are terminated from the date of notice. The conciliation proceedings are entirely dependent on the continued goodwill of the parties and could be terminated by the parties at any time before the signing of the settlement agreement. The new law provides that notwithstanding anything contained in any other law, the principle of confidentiality shall be maintained by the parties as well as the conciliator except where its disclosure is necessary for the implementation and enforcement of the settlement agreement. The demand for ADR has led to an increase in demand for arbitral institutions. A systematic approach and effective institutions to conduct ADR are the needs of the day. Keeping in view such a requirement, the Indian Society of Arbitrators (‘ISA’) was set up as a trust. ISA is a non-profitable society for the promotion and development of Arbitration and ADR techniques. The main objectives of the ISA are:
(i) The society shall promote and popularise the concept of arbitration by organising seminars, conferences, workshops, training programmes, etc. on international and domestic arbitration.
(ii) To provide facilities for settlement of disputes by ADR methods including arbitration.
(iii) To undertake research activities in the field of arbitration and ADR techniques and publish books, journals and newsletters.
(iv) To maintain panels of experts from various professions to act as arbitrators, mediators and conciliators.
(v) To interact with national and international institutions related to arbitration for their cooperation.
6. The society has established an Indian Court of Arbitration and Conciliation at New Delhi and State Courts of Arbitration and Conciliation in each state capital.
7. The parties to a contract may either enter into a separate arbitration agreement or may agree upon an arbitration clause in the main contract/agreement itself. Generally, the latter course is adopted by most of the parties.
Arbitration clause in an agreement between the parties is the starting point for arbitration. "Arbitration agreement" has been defined in Section 7 of the Indian Act as "an agreement by the parties to submit to arbitration all or certain disputes which have arisen or which may arise between them in respect of a defined legal relationship, whether contractual or not”. No particular form is necessary for an agreement to constitute an arbitration agreement. It is sufficient that the terms are reduced to writing. Such an agreement need not be a formal document. However, it is necessary to establish that the parties had an intention to resort to arbitration for settlement of their disputes. The Supreme Court has held in the leading case of Renu Sagar Co. Vs. Electric Company, AIR 1985 SC 156 that, "whether a given dispute comes within the scope or purview of the arbitration clause or not primarily depends upon the terms of the clause itself; it is a question of what the parties intend to provide and what language they employ."
8. The Law recognises the validity and effect of a commitment by the parties to submit to arbitration an existing dispute or a dispute which may arise between them in respect of defined legal relationships, whether contractual or not. The expression “International Commercial Arbitration" has been defined to mean in short an arbitration relating to a commercial dispute which has at least one of the parties belonging to a foreign country.
9. The ISA has drafted the following model clause: "Any and all disputes or differences whatsoever arising between the parties out of or relating to the construction, meaning or the performance or effect of the contract or breach thereof shall be subject to arbitration/conciliation/mediation by the Indian Society of Arbitrators, New Delhi under its Arbitration and Conciliation Rules and the award rendered by the arbitrator/conciliator/mediator shall be final and binding on the parties. The venue of arbitration/conciliation/mediation shall be fixed by the Court of Arbitration unless otherwise agreed to by the parties."
10. India has other of forms of ADR which covers the spectrum for court litigation to bi-partite negotiation. For example, there are ‘Lok Adalats’ which are tribunals created by statutes which deal with disputes in the use of electricity, telecommunications etc. It is submitted that due to the large population and level of awareness of courts and litigation, the majority of disputes in India are probably resolved by alternative means. With regard to negotiation, O. P. Malhotra argues that “Negotiation does not fall in the concept of ADR because it is a bipartite process and does not involve a third party to facilitate the settlement, whereas ADR essentially involves a third party…Negotiation is superior even to ADR…”[ii]
11. England also has its Arbitration Act 1996 parts of which were also taken from the UNCITRAL model.
12. There are advocates of ADR, and in particular Mediation, in England, e.g. CEDR. It is submitted that when ADR is referred to in England it is restricted to Mediation as this appears to be the dominant form of ADR and is what most people would associate with ADR. The courts themselves are now to consider whether parties in litigation proceedings should undertake ADR procedures and stay court proceedings while this is done – CPR 1.4 (e) – part of the Overriding Objective. There may also cost implications for the parties if they do not submit to ADR – CPR 44.5
13. Thus, ADR appears to have the backing of the authorities in England and it is submitted that the Courts can actively encourage use of ADR just as they are encouraged to actively manage cases.
14. The reasons behind this sea-change in attitude may be many and varied. It is submitted that settlement of litigation by means of ADR where adjudication is not used deprives parties, and society in general, of an essential element of the function of the Judiciary, namely to adjudicate on behaviour. It is submitted that a very important part of the Judiciary’s role in society is to lay down what behaviour is acceptable and to punish behaviour found to breach the norms in any society by means of either criminal sanctions or by means of payment of damages or granting restitution in civil proceedings.[iii] Having said that it is submitted that ADR may be more suitable to certain kinds of disputes – “It is not suitable for resolving all disputes which form the subject-matter of court litigation. For example, it cannot be used to resolve disputes from relationships between the State and citizens”.[iv]
15. In India The Code of Civil Procedure (Amendment) Act 1999 which came into force on 1st July 2002 was intended to have a like effect. This Act inserts a new section 89 into the Code of Civil Procedure 1908 under which a court is able to refer proceedings to arbitration or conciliation. The Report by the Law Commission states that the amendment to the Code has been passed by the Parliament but has not yet come into force as the date of its enforcement has not yet been notified.[v] Again, the reasons why India is pursuing a similar line to that in England may be varied e.g. to reduce costs, reduce litigation time etc. As far back as 1977 the Supreme Court of India recognised the benefits of some form of ADR which did not involve adjudication – “a legal adjudication may be flawless but heartless; but a negotiated settlement will be satisfying even if it departs from strict law” – per Krishna Iyer J.[vi]
16. Part III of the Arbitration and Conciliation Act 1996 of India deals with conciliation. The Act adopts the UNCITRAL Conciliation Rules 1980. India therefore has an Act of Parliament which specifically deals with conciliation (or ‘ADR’). It is submitted that the words ‘mediation’ and ‘conciliation’ can be used interchangeably as with ADR “it has become increasingly clear that there is no single philosophy underpinning it, but rather a number of different strands, sometimes, but not always, overlapping…”.[vii] Although the Advisory, Conciliation and Arbitration Service does differentiate between the two.[viii]
17. Section 66 of the Indian Act provides that a conciliator is not bound by the Code of Civil Procedure not the Indian Evidence Act 1872. It is submitted that the effect of this section is implied in English mediation simply by the normal procedure followed in mediation here. Section 74 of the Indian Act holds that a settlement agreement in conciliation proceedings has the same status as if it were an award in arbitration proceedings. It is submitted that in England a settlement agreement reached in mediation proceedings here could be enforced as a contract.
18. It can be seen that whereas India has legislated for some form of ADR which is not by means of adjudication, England has not but has simply chosen to amend civil procedure rules to encourage parties to use non-adjudication methods of dispute resolution.
19. Since the English CPR came into force there has been some case law on whether the Courts can impose an ADR order on the parties despite resistance from them.[ix] Also Dunnett –v- Railtrack Plc  EWCA Civ 303 is a case where a party has been penalised on costs for not considering ADR.
20. In Cable & Wireless PLC –v- IBM  2 All ER (Comm) 104 the argument that the agreement to use ADR was unenforceable because it lacked certainty was dismissed by Judge Colman and held to be an agreement to attempt in good faith to resolve a dispute and in this particular case it was held that agreement had certainty. Freshfields argue that a clause in an agreement to refer a matter to ADR is analogous to an agreement to arbitrate and amounts to a free-standing agreement ancillary to the main agreement.[x] Compare this with paragraph 8 above regarding the Indian Act.
21. It appears that England and India are legislatively heading in the same direction with regard to their use of ADR. India perhaps is lagging behind with its formalised use of ADR. I say formalised as Indian society as a whole with its large population and educational level does not perhaps make as much use of the Courts or formal ADR methods for resolving disputes as perhaps the population in England and, therefore, in India perhaps more informal methods of ADR are used. In a study of litigation rates by country it was found that the UK had 64.4 cases per 1000 population whereas India had only 3.5 cases per 1000 population.[xi] One can imagine that the population’s awareness of the Indian Act is very low especially outside the main urban centres. The difference between England and India will be in the use made of ADR due to cultural and societal differences.
22. India has a great deal of what is called Public Interest Litigation. This is not so prevalent in England. In England for example the rules on Standing to enable a person to bring Judicial Review proceedings are relatively strict compared with India and as a result PIL has flourished in India particularly in regard to environmental disputes. The Indian High Courts also have the ability to bring cases on their own motion (Suo moto) – Ram Pyari AIR 1988 Raj 124. The rules as to the formalities required to initiate proceedings can be relatively lax compared to England. For example, a claimant could bring proceedings before the Supreme Court simply by writing a letter – ‘epistolary jurisdiction’ – S. P. Gupta AIR 1982 SC 149. There is a written constitution in India which is used widely in Public Interest Litigation. Articles 32 and 226 of the Constitution are of particular use here where Fundamental Rights, protected by the Constitution, are breached. The Supreme Court has the power to set up commissions of inquiry to investigate cases which report back to the Supreme Court – e.g. M. C. Mehta AIR 1987 SC 965. This provides little incentive to an impecunious person trying to battle against a larger more wealthy entity to resolve the dispute by mediation when the Supreme Court might do all the work itself.
23. Public Interest Litigation is a whole subject in itself but it does demonstrate what the higher courts in India can do and this may indicate a possible divergence between England and India in the use of ADR methods.
24. Recently the Law Commission of India completed a report on the Arbitration and Conciliation Act 1996 and made certain proposals for amendment.[xii] This report is very detailed and very lengthy. But what is most notable about it is that the Law Commission of India has deliberately decided to only deal with Part I of the Indian Act i.e. to deal only with how the law relating to arbitration has been functioning and to make proposals for amendments to this area of the law. It does not deal with conciliation in any way. It therefore seems that the Arbitration and Conciliation (Amendment) Bill, 2001 will only amend the law in relation to arbitration. The report, therefore, does not deal with how the law relating to other methods of dispute resolution have been functioning and, in particular, conciliation.
25. The Law Commission’s report recommends proposals for amending the law relating to domestic arbitrations i.e. where the parties in India. But in §1.8 the report states ‘Great care has been taken to see that there is no change in the law relating to international arbitration’.
26. Clearly, conciliation is still in its infancy compared to arbitration. It is reasonable to assume that the Law Commission see amending the law in relation to arbitration as more important than dealing with conciliation. The author speculates that one reason for looking at arbitration only may be that arbitration and, in particular, commercial arbitration is more lucrative at the present time and that in order for the jurisdiction to be seen as a good place to resolve disputes by way of arbitration proposals are being put forward to make it more attractive.
27. For example, the report looks at, in §2.2.1, the extent of judicial intervention into arbitration proceedings to ensure that there is a balance to ensure intervention is kept to a minimum but also parties can have recourse to the courts when necessary. Further, a new section 8A is proposed which might allow parties in pending legal proceedings to seek arbitration.[xiii] The Law Commission also propose an amendment to section 33 of the Indian to speed up all proceedings and time limit for passing awards - §2.42.1.
28. It is submitted that at least for resolution of commercial disputes England and India are heading in the same direction. It is submitted that this may be due to the effects of globalisation of business and trade and in particular India’s growing Information Technology sector. Offshore outsourcing is booming and India still dominates this market according to an article in The Lawyer.[xiv] This article suggests that when considering outsourcing a number of issues need to be considered including the law governing the outsourcing agreement and the jurisdiction and enforcement of the agreement. Clearly, India Plc will want to ensure companies that are considering outsourcing to its jurisdiction are not deterred because of perceived poor dispute resolution processes.
29. One point to note with respect to globalisation is there are of course disputes between nations concerning commercial interests. Promod Nair in his article ‘Developing Country Concerns in WTO Dispute Settlement’[xv] argues that “…it is necessary to study the concerns of developing countries like India in the dispute resolution process of the WTO. In a far-reaching legal framework that the WTO is, it is but natural that disputes arise between countries and an efficient dispute settlement mechanism is a sine qua non for an efficient multilateral trading framework”. The WTO has established a new structure for the settlement of disputes – WTO Dispute Settlement Understanding. This mechanism will come under scrutiny. Promod Nair sees this as a move away from the old power-based system that prevailed in international law to a rule-based system in the form of the WTO. For example, some states in the USA are proposing measures to prevent companies from outsourcing abroad. This is seen by India as protectionism which will adversely affect its IT services industry. It is concerns like these that will test the WTO dispute mechanism to the full.
30. Further, it is submitted that like in England the use of conciliation or mediation will increase in India with respect to commercial dispute resolution.
31. With regard to resolution of other types of disputes this will be prone to more societal and cultural differences between the two countries. There will clearly be a divergence between the two jurisdictions in relation to resolution of, say, family disputes. India does not have a ‘unified’ system of personal laws. So marriage disputes between Hindus, Muslims, Parsis etc are resolved differently according to the personal laws of the parties. Although, it is submitted that England is not totally free of some personal laws for certain minorities. There is a great deal of debate about whether India should have a Unified Civil Code. It is submitted that there is a very slow move towards uniformity of personal laws on a piecemeal basis by judicial decision-making. But this issue is very political and prone to controversy.
32. Finally, it is submitted that it can be seen from the Law Commission’s report that they have considered arbitration in other countries such as South Africa and other European countries and in particular, England. It is submitted that one can see this process of comparing other jurisdictions with your own not only in relation to arbitration but in Alternative Dispute Resolution in general in other writings. This has the effect that law makers will take parts from other jurisdictions that they see as beneficial to their jurisdiction and ADR in various jurisdictions will move in step with each other. This is process is helped along by the effects of globalisation and influential global organisations such as the United Nations.
33. This process of evolving dispute resolution mechanisms is pushed along by commercial interests and will therefore mainly benefit commercial interests, it is submitted. Whereas dispute resolution in non-commercial areas lags behind. Perhaps this can be seen in evolution of employment dispute resolution mechanisms in England where the employer clearly has an interest in resolving disputes quickly, quietly and cheaply. Compare this with dispute resolution mechanisms in non-commercial areas in India which, it is submitted, have not changed significantly as much as in commercial dispute resolution.
1. The Law and Practice of Arbitration and Conciliation – The Arbitration and Conciliation Act 1996 – by O. P. Malhotra – First Edition - 2002 – LexisNexis
2. Brown and Marriott – ADR Principles and Practice, Second Edition 1999
3. The Role of ACAS in Arbitration, Conciliation and Mediation, 1989
4. Dispute Processes – ADR and the Primary Forms of Decision Making – Palmer and Roberts
5. Out of Eden – 1985 - Owen Fiss - Yale Law Journal, Vol 94; Against Settlement – 1984 – Owen Fiss – Yale Law Journal, Vol. 93
6. United Kingdom: Courts’ Approach to ADR – Freshfields Bruckhaus Deringer – 2002 – published on the Mondaq.com website.
7. 176th Report of the Law Commission of India – The Arbitration and Conciliation (Amendment) Bill, 2001
8. ‘All Abroad’ – article published by The Lawyer.com – 23rd June 2003
9. ‘Developing Country Concerns in WTO Dispute Settlement’ – Promod Nair – published on Indlaw.com
[i] 176th Report of the Law Commission of India – The Arbitration and Conciliation (Amendment) Bill, 2001
[ii] The Law and Practice of Arbitration and Conciliation – The Arbitration and Conciliation Act 1996 – O. P. Malhotra – 2002 – p1009-1010
[iii] Against Settlement – Owen Fiss – 1984 – Yale Law Journal, Vol. 93; Out of Eden – Owen Fiss – 1985 – Yale Law Journal, Vol. 94
[iv] The Law and Practice of Arbitration and Conciliation – The Arbitration and Conciliation Act 1996 – O. P. Malhotra – 2002 – p1009
[v] 176th Report of the Law Commission of India – The Arbitration and Conciliation (Amendment) Bill, 2001 - §2.2.2
[vi] Agarwal Engineering Co –v- Technoimpex Hungarian Machine Industries, Foreign Trade Co. 1977 AIR SC 2122
[vii] Brown and Marriott – ADR Principles and Practice, Second Edition 1999 – p12
[viii] The Role of ACAS in Arbitration, Conciliation and Mediation, 1989
[ix] Kinstreet Ltd –v- Balmargo Corp Ltd – 3 December 1999 – unreported – Arden J
[x] United Kingdom: Courts’ Approach to ADR – Freshfields Bruckhaus Deringer – 2002
[xi] Christian Wollschlager, “Exploring Global Landscapes of Litigation Rates” in Jurgen Brand and Dieter Strempel (eds.), Socilogie de Rechts: Festschrift fur Erhard Blankenberg zum 60. Gebwtstag [Baden-Baden: Nomos 1998]
[xii] 176th Report of the Law Commission of India – The Arbitration and Conciliation (Amendment) Bill, 2001
[xiii] 176th Report of the Law Commission of India – The Arbitration and Conciliation (Amendment) Bill, 2001 - §2.5.2
[xiv] ‘All Abroad’ – article published by The Lawyer.com – 23rd June 2003
[xv] Promod Nair – ‘Developing Country Concerns in WTO Dispute Settlement’ – published on Indlaw.com