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Voluntary Arbitration

Voluntary Arbitration

December 13, 2022

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This article is written by Upasana Sarkar, a student of Jogesh Chandra Chaudhuri Law College. This article aims to provide an understanding of the concept of voluntary arbitration. This article also deals with various cases on the subject.

This article has been published by Sneha Mahawar.

Table of Contents

Introduction

Arbitration is a system by which disputes are resolved. It is an alternative dispute resolution form by which disputes are resolved outside the courts. Arbitration is a procedure in which a dispute is submitted to one or more persons who act as arbitrator or arbitrators and solve the dispute by giving a decision. The decision will be legally binding on both parties who submitted their disputes by agreement. It will be enforceable in a court of law. This is a process by which a dispute is resolved through a private dispute resolution procedure. The arbitrator hears the facts and arguments of both parties and then gives his judgement on that particular matter. The method of arbitration is less formal and less expensive than a courtroom hearing or trial. So parties have often agreed to resolve their disputes through this procedure.

Arbitration mainly arises due to the presence of an arbitration clause in a contract where the parties have decided to resolve their disputes through the process of arbitration if any dispute arises out of the contract. Arbitration is most often used to solve commercial disputes.

What is a voluntary arbitration

An important objective of industrial law is to resolve industrial disputes peacefully and expeditiously. Arbitration can either be mandatory or voluntary. In order to achieve this objective, it is necessary that there must be speedy disposal of disputes and effective means for their resolution. In India, the decision or judgement given by the arbitrators is binding and can be overturned by the courts only as per the Arbitration Act. In the case of mandatory arbitration, also known as forced arbitration, one must go through arbitration. On the other hand, in cases of voluntary arbitration, the parties decide to resolve their disputes through the process of arbitration.

Voluntary arbitration is a process of settling disputes by submitting the issue to an independent and neutral third party for a final and binding decision, which is mainly said to be an ‘award’ or ‘decision’. Arbitration in some form has an important place in most of the government systems of labour dispute settlement and is also at times used voluntarily by disputing parties for settling their disputes. The terms of collective agreements may be provided to deal explicitly with rights disputes originating out of the agreement, as is common in the United States and Canada, or to deal with interest disputes that are occurring elsewhere.

Voluntary arbitration, though an easier method of settling disputes, was still not encouraged in India before 1956. After several criticisms of the conciliation and adjudication system, it led to the introduction of Section 10A relating to voluntary arbitration by the Industrial Disputes (Amendment) Act, 1956. This amendment, to some extent, gave binding force to voluntary arbitration.

Voluntary arbitration takes place when two parties voluntarily or mutually agree to submit their issue to a third party. It is normally done by parties entering into a formal, written agreement. This is a binding adversarial dispute resolution process where the disrupting parties decide to choose one or more arbitrators to hear their disputes and give a final decision on that matter.

In the industrial sector, collective bargaining has been adopted as an important method of regulating labour-management relations. One of the alternative methods of collective bargaining is voluntary arbitration. When negotiation fails, arbitration may prove to be a satisfactory and easier method of settling industrial disputes.

Voluntary arbitration is of great significance, especially in the industrial sector, because it is

assumed to take into consideration the realities of the situation;
expected to meet the desire of the parties;
voluntary whim of both parties;
expected to dissolve the dispute in private with mutual trust; and
expected to dissolve the dispute between themselves without compromising their position.

Features of voluntary arbitration

Section 10A(1) of the Industrial Disputes Act, 1947, permits the parties to make a reference to the voluntary arbitrator. Nevertheless, before a reference may be made to the arbitrator, four conditions must be met :

Industrial disputes must exist or be apprehended;
The agreement made by the parties must be in writing;
Under Section 10A, the reference must be made before a dispute has been referred to a labour court, tribunal or national tribunal;
The name of the arbitrator or arbitrators must be specified.

Some essentials of voluntary arbitration are as follows:

Submission of the dispute to the arbitrator must be voluntary.
Investigation and examination of witnesses.
The decision is not necessarily binding on the parties.
Disputes arising out of agreements between the parties.

Voluntary arbitration takes mainly two forms:

Pre-dispute arbitration: There must be a contract between the parties before the dispute arises through an arbitration clause.
Post-dispute arbitration: There may not be an arbitration clause beforehand, but the parties may enter into an agreement after the dispute arises to resolve the dispute through arbitration.

When is voluntary arbitration needed

In almost every country, rights disputes are adjudicated by a court or tribunal, with few exceptions. Where an arbitration system is established by collective agreements, it most often acts more like adjudication than arbitration.

Voluntary arbitration is mainly used on an ad hoc basis, with the appointment of individual arbitrators or by way of arbitration boards set up to deal with specific disputes. When arbitration boards are established, they generally include representatives of both workers and employers. Both in the case of individuals and boards, the question arises of how to figure out appropriate arbitrators for a specific dispute that has arisen. Arbitration tribunals, courts, or other bodies may be established by the government.

The majority of the legislation for dispute settlement systems makes provision for the voluntary submission of disputes to be legally binding arbitration, which is the most commonly used form of arbitration. There are various ways of encouraging and promoting voluntary arbitration, including:

granting it a statutory basis;
making arbitration decisions or awards legally binding on the disrupting parties;
offering machinery and facilities for arbitration;
providing that a conciliator should attempt to convince the parties to submit the dispute to arbitration if conciliation is unsuccessful; or
empowering the conciliator to arbitrate a dispute with the consent of both parties.

Where provisions are made by legislation for voluntary arbitration, it usually requires the disputing parties to submit their agreement to arbitration. This may take place at any stage of the dispute after the competent authority becomes aware of it, or, as is usually provided if conciliation is unsuccessful. In some cases, this may simply be left to the parties to decide as part of the content of their collective agreements.

In many countries, the legislation requires the conciliator or another authority to submit the dispute to an arbitration procedure, yet the parties retain the right to reject the award or decision within a specified period after it is issued, thereby imparting a voluntary character to the award or decision.

The legislation that establishes voluntary arbitration procedures may provide for the submission of disputes to the arbitration body by:

the request of both parties; or
the conciliation body with the consent of or at the request of both parties; or
the conciliation body or other authority, considering the right of the parties to reject the award or decision after it is issued.

Provisions of law dealing with voluntary arbitration

Section 10A of the Industrial Disputes Act, 1947, gives parties the choice of entering into an agreement for voluntarily resolving their disputes through arbitration before it has been referred by the government to the Labour Court or Industrial Tribunals. The Section mentions that there can be an odd number of arbitrators, and in the case of an even number of arbitrators, an umpire should be appointed, as is mentioned in the agreement. The agreement to arbitrate has to be sent to the appropriate government, which shall ensure its publication within a period of one month of receiving it in the Official Gazette. The arbitration agreement must be in such form as may be prescribed, and it must be signed by the parties to the contract.

The government shall make sure that those who are not parties to the agreement but are involved with or affected by the dispute get an opportunity to put forward their case before the arbitral tribunal, and a notification to that effect has to be issued. The arbitrators have to investigate, examine, and submit a report to the appropriate government. Where a notification has been issued to the concerned parties, the government can prohibit the continuation of ongoing strikes and lockouts. The section also clearly excludes the application of the Arbitration Act of 1940, as it has been replaced by the Arbitration and Conciliation Act, 1996.

An important question faced during the process of interpreting was whether Section 10A, i.e., arbitration, was statutory in nature or not. It is necessary to understand whether a decision or judgement given by the arbitrator could be challenged in a higher court or not. As the implementation of the Arbitration Act, which usually provided for the method and requirement for setting aside the decision of the arbitrator, had been excluded, the only remedy was to go to the high courts or the Supreme Court via Article 226 and Article 136, respectively.

Difference between voluntary and mandatory arbitration

Arbitration takes place in case of a dispute over a contract or other legal matter. Arbitration is the method of settling disputes by having a neutral party review and help settle the dispute. The process of arbitration helps keep disputes from going to court and may be either mandatory or voluntary.

In mandatory arbitration, the disputing parties are required to go to a neutral party for review and help settle the dispute. If the contract itself is valid and includes an arbitration clause, the parties must abide by the clause. The arbitration may also be ordered by the court as a measure to prevent a situation from going to trial, and the parties must abide by it or face possible sanctions. This often happens in the workplace, where workers are made to sign a binding mandatory arbitration clause as a requirement for getting a job or are ordered to do so afterwards with the risk of being fired on the spot.

In voluntary arbitration, the parties involved agreed on their own to refer their matter to an outside party, like an arbitration attorney, to help settle their disputes. There is no law that states that arbitration is required for settling a dispute, yet deciding to use arbitration can save money, time, and sometimes even goodwill. These are mostly important in business relationships. If the matter is personal, like in the case of a divorce proceeding, voluntary arbitration can be equally valuable.

The main difference between the two is that in voluntary arbitration the parties involved mutually give their consent to submit to the third party for covering and settling down the conflicts by their own wish; on the other hand, in mandatory arbitration, which is also known as compulsory or forced arbitration, the parties involved are ordered or instructed to move to the third party for settling down the disputes as a compulsion to resolve their matter.

Voluntary arbitration and labour policy

Voluntary arbitration is a very useful and convenient way for settling industrial disputes. Labour policy is of great importance, especially in a planned economy like India. It is a very useful method of settling disputes that is supplementary to collective bargaining. This method gives both parties the opportunity to discuss their issues in confidence with the arbitrator. Voluntary arbitration provides a chance to get the dispute settled by a person they prefer. It is very helpful for the weaker section of society in maintaining industrial peace and harmony. Therefore, voluntary arbitration is a more convenient method of dispute settlement than adjudication in the long run.

The Standing Labour Committee at the 17th session restated its recommendations relating to voluntary arbitration and also suggested a few measures for securing increased recourse to voluntary arbitration, which will help in amending the difficulties faced while working in the system:

Voluntary arbitration in its present state does not bind workers of a trade union who enters into an agreement with the employer. Amendment of the relevant Act should be made so that the decisions become binding on all the employees, irrespective of whether they belong to the union or not. While amending the Act, the recent judgements of the Supreme Court should be taken into consideration while framing the proposed legislation.
The Industrial Disputes Act, 1947, places certain restraints on the parties while referring a dispute to a Tribunal. These should also be applicable to the parties if they take recourse to voluntary arbitration.
A list of persons should be prepared by the central and state governments who would accept the responsibility of acting as arbitrators after consulting the employers and workers of the organisation. The persons acting as arbitrators of the parties should be such as would induce confidence in them. It would be open to the parties to select an arbitrator. The parties can select an arbitrator from the list or even from outside.
An important question is whether those persons who would act as arbitrators be paid or not need further discussion.
For the success of voluntary arbitration, recognition of trade unions by employers is needed. The Committee acknowledges the need to intensify efforts to assure a better working of the voluntary arrangements regarding the recognition of unions.

Voluntary arbitration in relation to its jurisdiction

The jurisdiction of the arbitrators is derived from the agreement of the parties under Section 10A when an arbitrator is appointed by the parties. He acts beyond his jurisdiction when he decides matters not referred to him by the parties.

In Raza Textile Labour Union v. Maharaja Shri Umaid Mills Ltd. (1958), the court quashed the decisions in three matters. This was because the award given in those three matters was not covered by the 167 disputes that were referred to him. Therefore, the court said that he had acted beyond his jurisdiction.

In Vaikuntam Estate v. Arbitrator, 1967, the arbitrator exceeded the terms of reference. So the Madras High Court quashed the interim award of the arbitrator as he acted beyond his jurisdiction.

Under Section 10A, an arbitrator ceases to have jurisdiction after the expiration of the time period that was mentioned in the agreement. The court also stated that if the parties themselves do not raise any objections against the expiration of the time limit of the arbitrator that was mentioned in the agreement then they cannot, later on, challenge the decision of the arbitrator under Article 226 of the Constitution.

Government intervention in voluntary arbitration

The government has no role to play in the choice of dispute settlement systems under the Industrial Disputes Act. Though it is true, a receipt for a copy of a valid arbitration agreement is sent to the government. The government then regulates the process of settlement of the industrial dispute by voluntary arbitration in the following ways:

The arbitration agreement is published;
The notification under Section 10A(3A) is issued;
During arbitration proceedings the continuance of strikes and lockouts is prohibited;
Arbitration award is published;
Arbitration award is operated;
Arbitration award is enforced.

Issuance of notification by the government

The appropriate government is empowered under Section 10A(3A), where :

an industrial dispute has been referred to arbitration; and
it is convinced that the person making the reference represents the majority of each party

to issue a notification within a term of one month with a view to providing a chance to persons who are not parties to the arbitration agreement but are interested in the dispute to put forward their case to the arbitrator or arbitrators.

On whom voluntary arbitration awards are binding

Under Section 10A, the award or decision of the arbitrators is binding on the parties to the arbitrations unlike the awards of industrial tribunals. But under Section 10A(3A), when a notification has been issued, the arbitration award shall not only be binding on all parties to the industrial dispute but also on:

all other parties summoned to present themselves in the proceedings as parties to the dispute unless the arbitrator is himself of the opinion that they were summoned without proper reason;
where a party is an employer, or his heirs, successors or assigns in the matter of the establishment to which the dispute relates referred to in the above point;
all persons who were employed in the establishment or part of the establishment or a party is composed of workmen referred to in the above points and also on persons who were present on the date of dispute and all those persons who afterwards become employed in that establishment.

Power of the High Court over voluntary arbitration

The award of the arbitrators can be challenged in court by filing a writ petition under Article 226 of the Indian Constitution. Under Article 227, the High Court has the power of superintendence over all the lower courts and tribunals within its jurisdiction. The main question was whether a high court can interfere with an award of the arbitrator under Article 227. The Supreme Court gave a negative answer and placed Article 227 on par with Article 136. The Supreme Court stated that the High Courts were not competent to have powers of superintendence over the voluntary arbitrators under Section 10A because arbitrators are not tribunals.

Judicial pronouncements

In the case of Engineering Mazdoor Sabha v. Hind Cycles Ltd. (1963), the Supreme Court of India observed that an arbitral tribunal set up under Section 10A, arbitration was statutory. It was held that the decision given by an arbitrator was a quasi-judicial decision and open to judicial review by the Supreme Court under Article 136. In the future, it will be asserted that it is open to the writ jurisdiction of high courts under Article 226 and stated that the arbitrations are different in nature from those adjudicated upon by private arbitrators.
In the case of Rohtas Industries Ltd. v. Rohtas Industries Staff Union (1976), the Apex Court further expanded the meaning of Section 10A. The court explicitly observed that since this section had the power to bind even the parties who are not directly involved in the agreement, it was amenable to the jurisdiction of the High Courts under Article 227, as these tribunals formed an extension of the sovereign justice system.
In the case of Gujarat Steel Tubes Ltd. v. Gujarat Steel Tubes Mazdoor Sabha (1980), the court held that the amendment of 1964 to the Industrial Disputes Act extended the application of article 136 to an award of an arbitrator under Section 10A.

The Supreme Court, through its several judgements, has opined that while the arbitration legislation might not be applicable to the arbitration under the Act, there are some significant provisions that have to be adhered to and are indispensable. The arbitral tribunal, while awarding, cannot exceed the strict boundaries of reference, and doing so would render the award illegal and not binding. The reward also has to be in accordance with the existing laws of the legislature and the Supreme Court, and any award to the contrary would also be invalid.

The information about the arbitration agreement has to be published for the benefit of all the workers, and failure to do so would be fatal to the award. The Bombay High Court also held that the remedies under Section 10 and Section 10A are alternatives to one another. Hence, where an agreement of arbitration has been entered into by the parties, the government cannot refer the same to any of the authorities mentioned in Section 10 of the Act.

Conclusion

Voluntary arbitration is a growing global trend as it encourages class-action arbitration as a quicker, cheaper, and faster means of resolving disputes. It also allows the workers in industrial disputes to slightly balance the scales of bargaining power in their favour, which are mainly biased towards the employer because of their dominant economic position. Similarly, it will be helpful to conduct multiple and expensive disputes at the same time when both parties mutually agree to do so. It will also be helpful for improving the arbitral infrastructure and literature in India. Voluntary arbitration requires less time to settle disputes. Time is an important factor, and a delay in the resolution of disputes may be detrimental to the interests of the parties. This is why voluntary arbitration is a wise choice. This makes it especially important for the parties to have a non-adversarial mode of dispute resolution.

Voluntary arbitration is very helpful in maintaining proper relations in the industrial sector. Voluntary arbitration can only succeed in a suitable environment if collective bargaining is encouraged. It is necessary to amend the Trade Union Act to acknowledge trade unions. The trade unions must change their attitude towards voluntary arbitration. A clause is needed to be inserted in the collective bargaining agreement so that in the event of any difference between parties over the interpretation of any terms of the agreement, the dispute should be settled by voluntary arbitration. Voluntary arbitration, as a dispute settlement mechanism, has been functioning for decades in resolving disputes. The court has time and again given several views and decisions in several areas. Voluntary arbitration has succeeded in resolving various issues.

An important aspect behind the choice of voluntary arbitration is that it allows the parties to the dispute to decide the procedure and the people adjudicating it, therefore making it more likely to be acceptable. Confidentiality of proceedings is another aspect that most industries would like to consider in order to prevent any public defamation of their image. Voluntary arbitration is open to judicial review by the superior judiciary. In spite of these clear benefits, voluntary arbitration has not been used as extensively as would have been expected.

Frequently Asked Questions (FAQs)

How does one challenge a decision of an arbitrator in voluntary arbitration?

Voluntary arbitration is a non-judicial process. It is, therefore, not necessarily, binding on the parties. An arbitration award can be challenged in an Art. III Court. The standard for challenging an arbitration award differs between voluntary and mandatory arbitration.

What is the review of voluntary arbitration awards?

The disputing parties may challenge an arbitration award when the arbitrator exceeds her authority or is based on a contractual defence to the validity of the arbitration agreement. The court will not interfere with an arbitrator’s award based upon an error in the application of law or determination of a fact. The disputing parties must file a legal suit attacking the validity of the arbitration agreement or the authority of the arbitrator. In short, the fact that the arbitrator reached an erroneous conclusion or erroneous finding of fact is not grounds for setting aside the award. In cases where there is an error of law, it may render the award void if it requires the parties to commit a crime or otherwise violates a positive mandate of law. Therefore, judicial review of the arbitration award may rectify fraudulent or arbitrary actions by an arbitrator.

What are the advantages of voluntary arbitration?

Voluntary arbitration, unlike a trial in court, leads to a private resolution of disputes. As it is done privately, the information brought up in the matter is kept between the parties only. The resolution can be kept confidential between the parties. This could be very helpful for well-known public figures, businessmen, and clients of big firms, as all the details, evidence, statements, and arguments will be kept undisclosed and completely confidential.

References

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