This article has been written by Taniya Yadav, a law student at Allahabad University. This article talks about the difference between mediation and arbitration and various other aspects of alternative dispute mechanisms.

It has been published by Rachit Garg.

Introduction 

The Indian judicial system is one of the oldest judicial systems in the world. It is no secret that a judicial system in a country with a population of 1.4 billion people has to deal with an enormous number of cases. In the 2022 monsoon session of Rajya Sabha, it was informed by the Union Minister of Law and Justice that 4.7 crore cases are pending in various courts of the country, out of which 71,000 are pending in the Supreme Court, 42 lakhs are pending in various High Courts, and 2.7 crores are pending in the subordinate courts. 

The inefficiencies in the judicial system are leading to the pendency of cases, because of which the judiciary is becoming overburdened with cases. To reduce the burden on the judicial system, an alternate dispute resolution mechanism was introduced. Arbitration and mediation are two such mechanisms. They appear to be similar at face value, but there are a lot of differences between them. This article is an attempt to simplify the concepts of mediation and arbitration and the differences that make them different.

Alternate dispute resolution mechanism

Alternate dispute resolution mechanisms are an alternate method of solving disputes. It involves arbitration, mediation, conciliation, Lok Adalat,  judicial settlement, and any other process that involves settling disputes through negotiation and not through the traditional form of litigation. 

Even though these mechanisms were prevalent in India in the form of panchayats for a long time, they got legal authority only after the arrival of the British. 

The Arbitration Act of 1889 was the first enactment that dealt with the concept of alternate dispute mechanisms in India. The Arbitration and Conciliation Act, 1996, is an Act that is in force today, and it has been amended thrice in 2015, 2019 and 2021.

Alternate Dispute Resolution Mechanism system came into existence for primarily promoting out-of-court settlements but there are a few more objectives which it tries to achieve along the way:

  • Affordable and speedy trial with less procedure involved.
  • Settlement of disputes through compromise, negotiation, or fair offers.
  • Enables the parties to have a better understanding of each other’s views, so that they can go for an amicable settlement.
  • Works on the principle of diplomacy, a win-win situation for both parties.
  • Creates pre-dispute guidelines to prevent future issues and give a systematic framework.

Arbitration

I can imagine no society which does not embody some method of arbitration.” – Herbert Read 

According to the Oxford Dictionary, “arbitration” means the settlement of a question at issue by one to whom the parties agree to refer their claims to obtain an equitable decision.

The Arbitration and Conciliation Act, 1996, came into existence to make arbitration, domestic and international, simpler in India. This Act is based on the UNCITRAL Model Law on International Commercial Arbitration, 1985. Arbitration can be classified into two categories: (1) domestic arbitration and (2) international arbitration.

International commercial arbitration is defined in Section 2(1)(f) of the Arbitration and Conciliation Act, 1996. 

The UNCITRAL Model Law is developed for international arbitration. Redfern and Hunter’s leading commentary on the subject of international arbitration has provided three approaches to dealing with the word “international” in the context of arbitration. The three approaches are the nature of the dispute, the nationality of the parties, and the blend of the first two in addition to a chosen place for arbitration. Indian law has adopted nationality as the subject matter to define international arbitration. 

The Act does not mention the word “domestic,” but it means that both parties are from India. 

Arbitration and Conciliation (Amendment) Act, 2021

This Act was last amended in the year 2021. The Amendment provided for the following changes:

  • Unconditional stay on the enforcement of arbitral award of an India seated arbitration award until the challenge to the award is determined.
  • Deletion of qualifications and rules for accreditation of arbitrators provided in the Eighth Schedule of the Arbitration Act, 1996.
  • The enforcement of an award in an arbitration induced by fraud or corruption has been given retrospective application.

How does arbitration take place 

Every case that goes to arbitration has unique circumstances, but more or less all of them follow the given arbitration procedure.

  1. Initiation stage: The parties are notified by the arbitration centre that the case has been registered. The parties are also informed about the arbitration process, the due date to file the responses, the documents which need to be submitted and fees (if any) to be paid before the process starts.
  2. Invitation stage: Depending upon the rules which govern the arbitration of the parties, the arbitration centre arbitrator or arbitrators serve on the case. The arbitrator reviews the documents, studies the dispute and returns a signed oath document with any needed disclosure.
  3. Appointment stage: The parties are notified about the appointment of the arbitrator and provided with the opportunity to raise any objection regarding the same. If any objection is raised before the due date, the arbitration centre decides whether to replace the arbitrator or not. If the arbitrator is removed, then the case goes back to the invitation stage and if the arbitrator is not removed then the case moves to the next stage.
  4. Preliminary hearing and information exchange stage: After an arbitrator is confirmed for the case, a preliminary meeting is scheduled and held with the parties and the arbitrators. During this meeting, issues of both parties are addressed, information is exchanged between the parties and a hearing date is scheduled.
  5. Hearing stage: Both parties present their case to the arbitrator. This stage can take place either in-person or through the medium desirable by the parties. The arbitration agreement and the rules governing the case will govern the proceedings.
  6. Award stage: When the arbitrator has heard all the points of both parties and is satisfied that the parties don’t have any new evidence to submit, the hearing is closed and a date is scheduled for announcing the award. The arbitrator provides the parties with the written award with which the case comes to an end and the file is closed by the arbitration centre.

Mediation

“An ounce of mediation is worth a pound of arbitration and a ton of litigation”. – Joseph Grynbaum

Mediation is a voluntary, binding process in which an impartial and neutral mediator helps the disputing parties arrive at a settlement. A mediator does not impose a solution but creates a conducive environment in which disputing parties can resolve all their disputes.

Mediation was traditionally used to resolve family disputes arising between husband and wife or between brothers. In recent years, it has also been used for resolving disputes of a commercial nature.

Legislation such as the Consumer Protection Act, 2019, as well as the Companies Mediation Rules, 2016, and Pre-Institution Mediation Rules under the Commercial Courts, the Commercial Courts, Commercial Division and Commercial Appellate Division of High Courts (Amendment) Act, 2018 provide mediation as one of the modes of amicable resolution of disputes. Given the absence of unified legislation, mediation is not treated as seriously as other modes of dispute resolution. 

Mediation Bill, 2021

The Mediation Bill, 2021, is a step towards the creation of a specific statute for mediation in India. 

The features of the bill are as follows: 

  • Regulation and promotion of mediation in the country.
  • It obligates the parties to opt for mediation before going for litigation.
  • It protects the interest of the parties who approach the courts for immediate relief.
  • It provides for the secrecy of the process and restricts disclosure in certain cases.
  • The outcome of mediation that is Mediation Settlement Agreement (MSA) will be legally enforceable and registrable with the State/district/taluk legal authorities within 90 days to bring the settlement on record
  • It provides for the establishment of the Mediation Council of India. 

There are some problems with the bill. They are:

  • The mandate of pre-litigation mediation is violative of Article 21 of the Constitution of India.
  • Orders and directions of the courts cannot override statutory provisions of the Constitution. Therefore, Clause 26 of the Bill is violative of the Constitution.
  • The Bill is unclear on the enforceability of international settlements and international obligations.

This bill is a right step in the right direction, but it is also giving birth to a few challenges that need to be taken care of to accelerate the usage of this mechanism in the country.

How does mediation take place

Mediation appears to be a less formal process than other modes of dispute resolution mechanisms, but that’s not the reality.  Mediation involves a multi-stage process to arrive at a desired solution. 

The mediation proceeding takes place in the following order:

  1. Commencement of mediation: The process of mediation begins when one of the parties submits the dispute to the mediation centre and requests that mediation proceedings take place. The submission contains the details of the dispute and information regarding the parties.
  2. Appointment of mediator: After receiving the request the mediation centre will start the process of appointing a mediator following the circumstances of the dispute. The mediator is appointed after consulting both parties. 
  3. Pre-mediation communications: After the appointment of a mediator, he communicates with the parties through telephone or any other means of communication to finalise the schedule of the mediation. He also informs the parties to provide him with documents related to disputes before the first meeting and the deadline to submit those documents. 
  4. First meeting: At the first meeting, the mediator introduces everyone and explains the objective of the meeting, and the rules to be followed during the whole procedure and encourages the parties to communicate to settle the dispute amicably. Both parties are asked to explain their reason for the dispute and the repercussions it is going to have on them. The mediator encourages the parties to respond to each other’s questions to help them communicate their points.
  5. Private meetings: The private meeting is an opportunity for both parties to separately meet the mediator. Each party is placed in a separate room. The mediator goes between the two rooms to discuss the strengths and weaknesses of each party and to exchange offers.
  6. Joint negotiation: After a private meeting, the mediator brings the parties to negotiate directly, but this rarely happens. The mediator brings the parties back together only when a settlement has been reached or the time allotted for the mediation expires.
  7. Final decision: When parties arrive at a unanimous decision, the mediator puts it in writing and asks both parties to sign the written document of the settlement. When they don’t agree with the final decision, the mediator suggests the parties either once again meet for further discussion or to go for other modes of dispute resolution.

Differences between mediation and arbitration

Point of differencesMediationArbitration
CostsEconomical ProcessExpensive Process
Neutral third partyThe mediator acts as a facilitator.The arbitrator acts as an adjudicator.
Nature of the proceedingThe proceedings are not governed by any specific statute and therefore are flexible.The proceedings are governed by the provisions of the Arbitration and Conciliation Act, 1996, and are rigid. 
Nature of decisionA settlement is binding only when it is mutually agreed upon by both parties. The award given in an arbitration proceeding is binding on the parties and can be challenged only on some specific grounds.
Level of formalityAn informal proceeding is held in private with flexible procedural stages.A formal proceeding is held in secret and consists of strict procedural stages. 
Communication between partiesParties communicate with each other in the presence of a mediator.Parties do not communicate with each other.
Court FeesCourt fees are refundable in cases of settlement where the court has annexed mediation.There are no court fees.

What is a preferable option between mediation and arbitration and why

Mediation is the preferred option between the two as it is a more flexible process. The flexibility of the mediation proceedings is not the only reason to make them more favourable. The other reason is the confidentiality of the process. For instance, many times the public revelation of disputes causes non-reversible harm to the reputation of the parties, which can be easily avoided as long as the mediation proceedings are kept between the two parties and the mediator. 

In addition to confidentiality, with economies facing uncertain times, the players in the business are opting for mediation to resolve disputes over any other dispute resolution mechanism, as it enables the parties to arrive at solutions that are beneficial for both parties through proper communication facilitated by the mediator. 

Furthermore, it is a more preferable option in comparison to other modes of dispute resolution because it involves minimum cost and there is much scope for the production of evidence that would not have been considered otherwise.  

Another reason for parties going to mediation is that the mediator helps the parties find better solutions but doesn’t force them to attend mediation or choose suggestions from the mediator if they are not interested. Moreover, the concluding solution is non-binding and ultimately depends on the discretion of the parties to accept or reject it.

Looking forward to the developments in arbitration and mediation 

A specific law on mediation is still missing from the Indian scenario, but with the Singapore Convention coming into effect and the Mediation Bill, 2021, being implemented after due diligence, we can expect a better scenario for mediation in India in the years to come.

The Singapore Convention seeks to unite global efforts and accelerate the adoption of mediation in commercial disputes.

India is one of the original signatories to the New York Convention, but it has failed to maintain international standards. However, parties constantly opt for arbitration with the pro-arbitration approach of courts and the 2015, 2019 and 2021 amendments in the Arbitration and Conciliation Act, 1996 are improving India’s position on the international level. 

Conclusion

India has become the fifth largest economy in terms of size in the world, replacing the United Kingdom in the year 2022. India, to sustain this position and move forward, needs a robust dispute resolution mechanism to be able to attract foreign investment. With so many cases pending before the courts in India, the first preference for businesses involved in India as well as abroad is to resolve disputes through arbitration or mediation.

The concept of arbitration and mediation has been present in India for many years, and the recent developments in these areas are going to further strengthen their legitimacy.

In the last five years, India has witnessed constant positive changes in the approaches of courts and legislators towards alternative dispute mechanisms such as arbitration and mediation. These changes will surely bring India on par with international standards of alternative dispute resolution.

Frequently Asked Questions (FAQs)

What is the key advantage of mediation over arbitration?

Mediation is cheaper and involves fewer formal procedures than arbitration when it comes to dispute resolution. 

What is the difference between the roles of arbitrators and mediators?

Mediators assist the parties in resolving the dispute by facilitating a dialogue between them whereas, arbitrators give a fair judgement after examining the dispute

In what situations arbitration can be used over mediation?

Arbitration comes with a prescribed procedure and can be used when the parties have grave disagreements and the matter involves a serious issue to be resolved.

References


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