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Arbitration in industrial relations

June 6, 2024

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This article is written by Akshay Gendle. It discusses in detail the role of arbitration in resolving industrial disputes. Further, it explains in detail voluntary arbitration and arbitration agreements under Section 10A and the binding value of their awards.

Table of Contents

Introduction

There are two types of people working in society: those who work on daily wages in various establishments and those who own these establishments like factories, machines, etc. Primarily, the owners focus on profits, and the workers focus on increasing their daily wages. This basic difference often leads to disagreements between them, which, if not solved in time, may lead to major disputes eventually called Industrial Disputes.

Such disputes create major losses for both parties, hence the Industrial Disputes Act of 1947 provides an amicable method of solving such disputes through arbitration. Parties, instead of going for an adjudication, can settle their dispute outside the court of law through these methods of peaceful settlement.

But the question remains: How does this happen? Why do they believe in the out of court settlement? What role does the government play? We will discuss all these questions hereafter. Furthermore, the article exhaustively discusses the role of arbitration in resolving industrial disputes between workers and their employers.

What is arbitration

An overview

Arbitration is also one of the means of alternative dispute resolution mechanisms in which parties refer their dispute to the arbitrator or number of arbitrators, and then the arbitrators try to solve their dispute amicably. The whole process happens without the intervention of a court of law.

Primarily, the origin of arbitration can be traced in the history of Britishers in the Middle Ages. The concept of arbitration evolved because of commercial disputes happening between merchants. Therefore, merchants demanded an alternate method of solving disputes that could be speedy and easy to apply in such cases. Hence, arbitration originated, which started solving disputes without the strict litigation procedures of England’s court and was even accessible to non-English merchants/parties having commerce on the British shores. With the rise of arbitration in commercial disputes, the British Parliament passed the first Arbitration Act in 1698.

When it comes to India, the origin of arbitration can be traced back to when people used to submit their disputes to the village panchayat. This village panchayat shall act autonomously and consist of the sarpanch or mukhiya of the village and other noble persons in his panchayat. The decision of such a panchayat shall be binding on both parties, and they will try to resolve disputes amicably without the intervention of formal dispute-resolving bodies existing during that period.

In India, the first attempt at a proper arbitration law was made by Britishers in the year 1772 with the help of the Regulating Act. This Regulating Act of 1772, instead of abolishing traditional panchayats, gave proper recognition to them in the form of arbitration and recommended parties with certain disputes approach them to resolve their disputes. The Act even said the award of the panchayat shall be binding and shall have the equal status as the decree of the court.

Statutory and contractual arbitration

In India, a person can refer their dispute to arbitration, either with the help of a statute called statutory arbitration or with the help of an express clause present in their contract called contractual arbitration. Some of the prominent examples of statutory arbitration are the Railways Act 1989, the Electricity Act 2003, the National Highways Act 1956, the Micro, Small and Medium Enterprises Development Act, 2006, etc. A person having any dispute that falls under any of the provisions of these acts has to resolve such dispute with the help of arbitration.

On the other hand, contractual arbitration refers to the incorporation of a separate clause by parties in their contract or the signing of an entire arbitration agreement stating all future disputes pertaining to this agreement shall be referred to arbitration, and the decision shall be binding on parties to this agreement. Furthermore, such a clause or agreement shall contain mutually accepted basic guidelines to solve disputes between contracting parties, like the seat of the arbitration, venue, number of arbitrators, language of the proceeding, etc.

What is industrial dispute

Before jumping to the concept of industrial dispute, we need to understand what industrialization is and its basics. The concept of industrialization can be defined as the process of transforming a traditional agrarian economy into a manufacturing economy with the help of advanced technological machines. In India, industrialization started in the mid-19th century with the incorporation of the first steam-powered cotton mill in Bombay. With time, a number of industries were incorporated all over India that completely transformed the Indian economy into a manufacturing economy.

This rapid industrialization also leads to a rise in industrial disputes among workers and their employers. The management or the employers try to focus on maximising the profit; on the other hand, workers or labourers expect to maximise their income or daily wage to the extent possible, which leads to conflict between them and eventually leads to an industrial dispute.

Broadly, there are two facets to this industrial dispute. Firstly, the management, who owns all the necessary equipment, machinery, and infrastructure to run the business, can be called factors of production and secondly, the workers, who actually manufacture the goods. The management focuses on profits; hence, try to implement discipline, good conduct, and rules among the workers, whereas workers focus on high income, freedom of speech, having a say in management’s decisions, a safe working environment, etc. Here, both parties have different interests hence disputes are bound to happen between them.

Industrial Dispute Act, 1947 under Section2(k) defines industrial disputes as “any dispute or difference between employers and employers, or between employers and workmen, or between workmen and workmen, which is connected with the employment or non-employment or the terms of employment or with the conditions of labour, of any person.”

Thus according to the definition, industrial disputes may happen between the following parties

Employers and Employers
Employers and Workmen
Workmen and Workmen

Furthermore, grounds for disputes are also given in the definition viz

Employment or Non-employment
Terms of employment
Conditions of labour

There are various ways in which workers may show their dissatisfaction with respect to the terms and conditions of their employment. Some of them are strikes, lock-outs, go-slow strikes, pen-down strikes, bandh gherao, etc. Prominently, with the help of a strike, workers stop the ongoing work and try to create pressure or compel the employer to agree to their demands. If the employer, instead of agreeing to workers’ demands, puts a lock on the factory and refuses to employ workers, thereby refusing their demands, the situation is called a lock-out. When such a situation happens, dispute redressal mechanisms kick in to solve such problems and try to bring consensus between the disputing parties, mainly with the help of arbitration and conciliation, discussed in further sections.

Types of industrial disputes

Industrial disputes can be classified into four categories.

Interest disputes

Generally, interest disputes are also known as economic disputes. These disputes happen when there is a demand from workers to increase the wage, job security, or terms and conditions of their employment and the employer is not ready for it. Here, the economic power lies in the hands of the employer; hence, these issues must not escalate to the extent that they become a test of economic power between both parties. These disputes shall be resolved through negotiations and conciliation at the very moment.

Grievance or rights disputes

When an employee is not satisfied with the terms of their employment and the employer tries to violate the rights of the employee, a grievance dispute takes place. Generally, when there is some dissatisfaction among the employees, they try to raise a complaint regarding the same. When such a complaint goes unaddressed by an employer, it turns into a grievance. Such grievances can be filed by an employee, worker, or group of workers, or by the union on their behalf.

Grievances, when not resolved properly by the management or an employer, may turn into legal disputes, which may lead to significant costs to both parties. Furthermore, such disputes may create unending tensions between workers and management for a long time. The government in such a dispute encourages parties to seek arbitration for a speedy and peaceful redressal mechanism. Some of the main causes of such disputes are

Dismissal and reinstatement of an employee and the compensation for the same
Wages, mode of payment, Denial of the right of an employee when two awards regarding wages are given and the employee has the liberty to choose either one
Disputes related to providing a safe working environment, safety measures and health
Working hours, provident fund, gratuity, pension, promotions, demotions, seniority

Unfair labour practises disputes

Labourers are the working force for employers and they get paid for their work. But sometimes labourers work more than required because of the pressure from their employers, which leads to unfair labour practices. There are a number of unfair labour practices that are prescribed in the Industrial Dispute Act under Schedule V. Furthermore, the act also recognises the unfair practices by the labour, employer, and even trade union and prescribes punishment for the same under Section 25 and Section 25 respectively.

Some of such unfair labour practices from the employer side are given below.

To recruit workmen during a strike which is not an illegal strike.
To refuse to bargain collectively, in good faith with the recognised trade unions
To Transfer a worker mala fide from one place to another
To dismiss workmen by way of victimisation
To dismiss a workman for taking part in any strike
Refusing to promote workmen to higher posts on account of their trade union activities

Recognition disputes

Most of the time, trade unions represent employees and negotiate with employers or management on behalf of such employees. This is due process, but the problem arises when there are multiple trade unions and all of them claim that they are representing the best interests of their employees. Now, in order to solve the dispute, employers wish to start negotiations, but they don’t know which trade union they should recognize for such negotiations.

This recognition of an exact trade union is important because such a trade union gets bargaining rights and the ability to negotiate collective agreements on behalf of employees. Furthermore, sometimes employers do not wish to recognize a particular trade union because of their hatred, which leads to the victimisation of such trade unions by employers.

But in the end, this negotiation process is important and supposed to happen quickly, as the delay in negotiation leads to hampering production, unnecessary delays in orders, and strained worker-employer relations that ultimately affect industrial peace and profits in the long run. Recognition disputes are settled based on the guidelines made by the government for the recognition of trade unions.

Role of arbitration in industrial dispute

As discussed earlier, arbitration plays a vital role in settling disputes outside the court of law, therefore many times, parties choose arbitration as a method of solving their disputes without the intervention of traditional courts. This is because parties have a wide scope in choosing so many things while referring their disputes to arbitration. For example, parties can choose the number of arbitrators, the governing law, the seat and venue of the arbitration, the language of the arbitration, the jurisdiction etc.

Even under the Industrial Disputes Act, parties may refer their dispute to arbitration before choosing adjudication as the final option to resolve their dispute. Since there is no prior agreement between these parties to refer their future dispute to arbitration, the act gives the option of voluntary arbitration as a means of settlement under Section 10A of the ID Act, 1947.

Voluntary arbitration

The original draft of the ID Act of 1947 did not contain a provision for voluntary arbitration. The only way to resolve the dispute was through adjudication and conciliation. This led to severe criticism, and consequently, the government introduced Section 10A through the Industrial Disputes Miscellaneous Provision (Amendment) Act, 1956. Even though voluntary arbitration was introduced, the award of the arbitration did not hold equal status to that of the decision of the adjudication or conciliation. But later, the Amendment of 1964 introduced Section 10A (3A), which eventually gave equal status to the award of the arbitration.

The government even set up the National Arbitration Promotion Board with the recommendation from the National Commission on Labour in 1969 to promote voluntary arbitration. Even the Indian Labour Conference in 1962 emphasised the importance of arbitration.

Still, voluntary arbitration did not hold a great position in India, and the commission did cite the following reasons for the same:

Lack of skilled arbitrators
Deep trust in adjudication
No appeal against the award of arbitrators
Cost to the parties, especially workers

It was even argued that the government has some sort of control over the process of voluntary arbitration, hence not getting much attraction from the disputing parties. But the government under, New Economic Policy (NEP) 1991, chose a policy called the Disinvestment Policy, thereby limiting its interference in industrial disputes.

Furthermore, the government was only playing the role of referring the dispute to arbitration under the ID Act and was not acting as an arbitrator; hence, it never had any control over the process of arbitration.

The NEP, 1991 opened the Indian economy on a global scale by promoting liberalisation, privatisation, and globalisation. With the opening of the Indian economy, many private sector companies formed and the government started encouraging these private companies to resolve their disputes through the process of voluntary arbitration.

Arbitration agreement

Section 10A of the ID Act provides for arbitration agreements and we will break down this Section further hereinafter.

Under this Section, parties may refer their dispute to voluntary arbitration; such dispute may exist or be apprehended. But one of the prerequisites of voluntary arbitration is that parties just cannot refer any dispute to voluntary arbitration; such a dispute must be an industrial dispute, and only then will voluntary arbitration kick in.

This Section 10A gives the term ‘at any time parties can refer their dispute to voluntary arbitration’. But that certainly does not mean that parties can at any time refer their dispute; rather, they are required to refer their dispute to voluntary arbitration before the appropriate government makes reference of their dispute to adjudication under Section 10 of the ID Act.

Section 10A 1A states that parties may choose an adjudicating officer of the labour court or tribunal to act as an arbitrator in their dispute if they fail to choose arbitrators with mutual consent. Even if the parties choose an even number of arbitrators, the Section mandates them to choose an umpire in case a tie happens between them while rendering their decision. In the event of a tie, the decision of the umpire shall prevail. Earlier, there was no option for the parties to choose an umpire, so when a tie used to happen, the only recourse for the parties was adjudication.

Section 10A 2 states that an arbitration agreement shall not only be in writing but also signed by the parties to the industrial dispute. Such agreement shall also have the name of arbitrators and be in the prescribed manner.

Further, Section 10A 3 states that a copy of the arbitration agreement shall be sent to the appropriate government, and the same shall be published in the official gazette within 1 month by the appropriate government. The Section mandates publishing the arbitration agreement within the period of 1 month, but still, some High Courts have taken other stances on the same issue. For example, The MP High Court in Modern Stores v. Krishnadas (1969) held that “requirements under S10A 3 are partly mandatory and partly directory”.

However, the Supreme Court cleared the confusion and resolved the same in the Karnal Leather Karmachari Sanghatan v. Liberty Footwear Company(Regd.) & Ors. (1989) case, wherein the appropriate government did not publish the arbitration agreement in the official gazette within a period of 1 month. The apex court observed that this arbitration agreement will bind all the parties to this agreement including workers; hence, they should be made aware of such an agreement. Further, workers must know about the dispute, an agreement, and even the arbitrator who is dealing with their own case. Publishing this agreement even gives them an opportunity to present their views before an arbitrator if necessary. Thus, this agreement must be published in the official gazette by the appropriate government.

Furthermore, under Section 10A 3A, the act gives the opportunity to the workers who are not a direct party to the arbitration agreement but are concerned with the dispute, to present their case before the arbitrator. Such workers shall also be bound by the award of the arbitrator.

The question lies: as Section 10A 3A is based on the principle of voluntarism, does binding the parties who are not directly party to the arbitration agreement or who did not give their consent for such arbitration constitute a violation of the principle of voluntary arbitration? The answer is no because the right under this Section is not an absolute right and is subject to the object of the act. The court, while addressing this issue, contended that even the Fundamental Rights under the Constitution are not absolute rights but are subject to reasonable restriction.

Lastly, Section 10A 4A says that the appropriate government has the power to stop a strike or lock-out once the dispute is referred to arbitration by the parties to the dispute.

An arbitration agreement is important as it governs the whole proceedings of arbitration once the dispute is referred. Section 10A provides one last option for the disputing parties to resolve their dispute outside the court of law with the help of impartial, independent arbitrators. Though it is not mandatory to refer the dispute to arbitration, it is still highly encouraged by the government to refer the dispute to arbitration if conciliation does not happen between the parties. The intention of the government is quite clear, as they want to reduce industrial disputes to the extent possible, and even if they happen, they must be resolved through arbitration and conciliation instead of going for adjudication.

Binding nature of these awards

Section 18 of the ID Act expressly talks about the binding nature of the arbitration award on the parties. According to Section 18(2), an arbitration award is binding on the parties who referred their dispute to arbitration under Section 10A of the ID Act. Furthermore, Section 18(3) explains the further enforceability of an arbitration award, like, in the case of an employer, the award shall be binding on his legal heirs, successors, etc. The award shall be binding on the persons who are employed in that establishment or part of the establishment to which the dispute relates.

How is arbitration beneficial

Speedy

Usually, proceedings under arbitration are quicker than those in traditional courts, thereby providing speedy justice or settlement to the parties. This was one of the reasons why voluntary arbitration was introduced in the ID Act.

Confidential

Unlike traditional legal courts, arbitration proceedings happen only between the parties who referred their dispute to the arbitration. There is no media coverage, and journalists are not involved which helps maintain the confidentiality of the proceedings.

Flexibility in procedure

10A arbitrator is allowed to follow the procedure of his choice, provided such procedure shall not go against the laws and rules that are already present and shall not go against the principles of natural justice. As long as these conditions are fulfilled, the arbitrator has full autonomy regarding the procedure of arbitration.

Expertise

In arbitration, parties do have the liberty to choose the number of arbitrators for their dispute. Thus, parties mostly choose people who are experts in such matters so that their expertise can be utilised in their cases. This benefit is not at all available in traditional courts.

Finality of the Award

Generally, arbitration awards shall always be final, and appeals lie to the higher courts only in some situations, i.e. the scope of appeals in arbitration is quite narrow. This leads to the finality of the award, and once decided parties are free from future litigation.

Case laws

There are some important questions regarding voluntary arbitration under Section 10A of the ID Act, and these questions stood before the High Courts and the Supreme Court, and they have tried to resolve such dilemmas with the help of case laws and we will be discussing the same case laws for further clarification on those questions.

Is the arbitrator allowed to follow a procedure of its own under 10A

In Daily Aljamiat v. Gopinath (1976), Justice Rohatagi opined that an arbitrator is not bound by any procedure. Even though the arbitrator is not bound by any specific procedure, he is bound to comply with statutory provisions and the rules that are present, and the procedure shall not be against the principles of natural justice.

What status does the 10A arbitrator enjoy Whether he can be regarded as a statutory arbitrator or a private arbitrator

The Supreme Court in Rohtas Industries v. Its Union, (1976), observed that an arbitrator under Section 10A has the power to bind the parties who are not even parties to the arbitration agreement as the statute allows it. Thus a 10A arbitrator can be considered as statutory arbitrator and his decisions are also amenable to judicial review.

Can the High Court quash the 10A award under Article 226 if there is an error of law or the arbitrator has exceeded his jurisdiction or acted without jurisdiction

In R. v. Disputes Committee of National Joint Council for the Court of Dental Technicians (1953), it was stated that the writ of certiorari or prohibition can only be sent to the statutory arbitrator and it was already established that the 10A arbitrator is a statutory arbitrator, and hence the High Court does have power to quash the 10A award under Art 226. The writ of certiorari can be sent to judicial and quasi-judicial bodies, and the 10A arbitrator is already established as a quasi-judicial body. Hence, it falls under the writ jurisdiction of the High Court.

Conclusion

One of the best ways to solve any dispute is to bring the disputing parties to the negotiation table, and that is a herculean task. But with these methods of dispute resolution, we can do the same job of bringing disputants together and allowing them to discuss their problems directly with the help of an impartial third party.

Arbitration helps parties find the best settlement for their disputes amicably; hence, there is always hope for a better future relationship between the parties and that is certainly important in industrial disputes. Furthermore, this method is also helping to reduce the burden on traditional courts; that’s why the government is also pushing it in industrial relations.

In conclusion, we can say that arbitration plays a vital role in resolving industrial disputes in India. It provides greater flexibility, speedy resolution, and good control over the resolution process to the disputing parties as compared to traditional courts. But, many times, parties do not wish to choose it as they are not aware of its advantages; hence, we must talk about it on every forum, through articles, social media, etc. to spread awareness about them.

Frequently Asked Questions(FAQs)

What is the difference between arbitration and conciliation

The arbitration is a quasi-judicial proceeding that involves an independent third party who shall act as an arbitrator to resolve the dispute and the award of the arbitration shall be binding on both the parties. Whereas, Conciliation is headed by a conciliator who shall help parties to reach a mutually accepted agreement with the help of negotiation and communication.

Who is an arbitrator

The arbitrator is an independent third party who shall render the decision on a dispute depending upon the evidence presented before him by the parties.

References

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