Professional Documents
Culture Documents
TABLE OF CONTENTS
Acknowledgement...........................................................................................................ii
List of abbreviations......................................................................................................iii
List of Cases....................................................................................................................iv
Introduction.....................................................................................................................1
Legislative problems.........................................................................................................4
Intervention of courts.......................................................................................................6
Cultural norms..................................................................................................................9
Financial resources.........................................................................................................13
Conclusion.......................................................................................................................17
Bibliography....................................................................................................................18
Acknowledgement
I deem it my proud privilege to express my indebtedness and sincere thanks to all those who
have in various ways, helped in the successful completion of the project and without their
invaluable help this project would not have been a reality.
I am extremely thankful to Mr. Prashant Chauhan Faculty of law who was constant source of
knowledge and inspiration at all levels throughout my project who took a lot of pain in
providing guidance about project report.
Finally, I express my most sincere gratitude to my Parents and my Family members for
supporting and encouraging me to do this challenging project. I deeply acknowledge the support
and inspiration by my academic career.
Ii
LIST OF ABBREVIATIONS
ADR
Edn.
Edition
e.g.
Example
No.
Number
Para
Paragraph
p.
Page
Sec
Section
US
Vol.
Volume
ICA
UNCITRAL
SCC
iii
LIST OF CASES
1
INTRODUCTION
The aim of the project is to critically examine the Challenges in introducing ADR system in
India. Our aim is to conduct a critical study of these problems in the light of various cases and
also in reference to various other authorities on the subject.
HYPOTHESIS
The hypothesis so assumed in this study is that ADR mechanism is marred by various Socio,
Economic and Legal Barriers and that Government and citizens must work hand in hand
to overcome these Problems.
METHODOLOGY
In this project my research methodology is not an empirical one but analytical. To prepare
this project I had referred the books on ADR available in the Library of the Gujarat National
Law University, and also used the web browsing for my research.
The Alternative Dispute Resolution (ADR) mechanisms slowly but gradually evolved to
provide justice to the persons in legal disputes. It is a process voluntary in nature and has
gained legal recognition in the contemporary world over a period of time. In India,
Arbitration is an ancient concept, finding its roots in ancient India. Panchayats are an
1
example of such out of court dispute resolution. The practice is still prevalent in
villages even today where senior villagers sits and resolve disputes of fellow villagers.
ADR in India is governed by the Indian Arbitration and Conciliation Act 1996. The
Arbitration and Conciliation Act, 1996 as applicable in India today was created on the lines
of the Model Law of the UNCITRAL (United Nations Commission on International Trade
Law) but Alternate Dispute Resolution as such was incorporated in laws of India as way back
2
in 1840 . Over a period of time, processes, procedures and powers pertaining to Arbitration
and the right of parties to the same were incorporated in The Civil Procedure Code, Indian
Contract Act, Specific Relief Act and by further incorporation of Indian Arbitration Act
1899, subsequently repealed by the Indian Arbitration Act of 1940 and them finally by the
Arbitration and Conciliation Act, 1996 which came in force with effect from 25th January
1996.
As said above originally, in ancient India, ADR as we know today was the way disputes were
generally settled. The whole village by way of Gram Panchayat used to solve the problems of
3
the villagers by sitting together and mediating the problems faced by the two parties. Since
the advent of the modern legal system, this method of dispute settlement has largely been set
aside. Today, this age old method of dispute settlement has become corporate savvy and
4
exclusive to big concerns. It has become the talk of the boardrooms and the way
the
corporate world now looks towards settlement of disputes.
The Report of the Expert Committee on Legal Aid: Processual Justice to the People,
Government of India, Ministry of Law, Justice and Company Affairs, 1973 Report
2
Act IX of 1840
3
K Ravi Kumar, Alternative Dispute Resolution in Construction Industry, International
Council of Consultants (ICC) papers, available at www.iccindia.org, at p. 2
4
Report on National Juridicare Equal Justice Social Justice, Ministry of Law, Justice
and Company Affairs, 1977 Report
The reason as to why such a phenomenon is witnessed in our country is very interesting. First
of all, the process still is a very costly affair as very few people specialize in this field that are
competent enough to arbitrate on various matters, thereby resulting in making ADR a very
5
exclusive and high end service. Secondly, ADR is just too flexible in nature and there is no
guarantee in its proceedings. There is no set procedure which is required to be followed while
finding solutions through ADR. Such a system juxtaposed with the modern legal system
which is time-tested, predictable and follows a set procedure, becomes a much safer and
6
hence attractive option for dispute settlement for the common man than arbitration.
Also, the Indian Law recognizes mainly Arbitration as a way of ADR which pretty much
curtails the full scope of ADR. The major drawback due to the same is that Arbitration
involves the principle of arbitrability of subject matter. Since most matters which have a
specific legislation to its name are left out due to the non-arbitrability of its subject matter,the
actual scope of ADR is heavily compromised on. It is important that if ADR has to reach the
common man and not just remain a corporate toy then it be allowed to spread out its wings
and fly. Fed up with the regular litigation in courts, business persons very smartly resorted to
arbitration, as a large number of companies in the world do, only to discover shockingly that
7
on most of the occasions it is even worse than litigation.
Conference on
Institutional Arbitration in Infrastructure and Construction, New Delhi, October 16, 2008
6
Rishabh Sinha, Sarabjeet Singh, Taking Alternative Dispute Resolution To The Common
st
Legislative Problems
The 1996 Act was brought on the statute book as the earlier law, the 1940 Act, did not live up
to the aspirations of the people of India in general, and the business community in particular.
The primary purpose of enacting the 1996 Act was to conform to the UNCITRAL Model
Law and thus fulfil the international obligation and also to placate the business community.
Unfortunately, at that time there was no thorough scrutiny of the Model Law. While the U.K.
did not adopt the Model Law completely and several other countries, including the U.S.,
8
never went to adopt the Model Law, India adopted it fully. As a matter of fact, India
simply
copied the provisions of UNCITRAL Model Law. No attention was paid to the special needs
of business community in India, the legal environment, social conditions, lack of judges and
infrastructure in the courts, etc.
The result was predictable there would be chaos. Whenever there is chaos and confusion,
certain groups of people prosper. They make the most of the chaotic situation. The same
happened in India. During all this confusion with the enforcement of new law, the lawyers, as
always, emerged as the group benefiting most from the situation. As the situation was unclear
as to what would happen with the new sections in the new law, how the courts would
interpret different words and phrases, the business communitys anxiety grew with each
9
passing day. Besides the lawyers, the retired judges also made a lot of hay. And, as the sun
is
10
still shining bright, they are continuously making more and more hay. We will do well to
remember that judges and lawyers, somewhere in the heart of hearts, are not two different
sections. They are the same. Most of the judges, at some point of time in their career, have
been lawyers. Thus, it is a simple case of you scratch my back and I will scratch yours.
Barring a few, with their spine intact, others give arbitration reforms only a lip service.
The new Act has, more than once, proved to be a legislative failure. A number of loopholes
have made this legislation a good example of bad legislative effort. The definition of
Paul Whitley, ARBITRATION IN INDIA, Talk to the European Branch of the C.I.Arb. at
11
Court in the Arbitration and Conciliation Act, 1996, is substantially different from that
in the earlier law of 1940. Due to this new definition, there is tremendous load of work on the
District Judge, which was earlier shared by other judges in the Civil Court. The experience of
the last ten years testifies it amply that the District Judge is not able to devote as much time
as is expected to arbitration matters and the cases are simply poling up. It adds to the delay
and makes matters worse for the litigants. The District Judge is the senior-most judge in the
district taking care of civil matters and as a matter of practice, she is also the senior-most
judge taking care of criminal matters as the Sessions Judge. The designation of the head of
the District Judiciary is, therefore, District and Sessions Judge. As the routine criminal
matters of bail, interim applications, etc. are much more urgent than the civil matters like
arbitration, most of the time of the District and Sessions Judge is devoted to criminal matters.
Even with the best of intentions, the District and Sessions Judge is generally not able to
earmark sufficient time for arbitration matters which require in-depth study.
Barring a few cities where the High Courts exercise ordinary original civil jurisdiction, all
matters pertaining to arbitration have to be filed in the principal Civil Court of original
jurisdiction in a district. By definition this is the Court of the District Judge. Any civil court
of a grade inferior to such principal Civil Court or any Court of Small Causes has been
intentionally kept out by the legislature. This leaves the Court of the District Judge and only
this court to have jurisdiction over arbitration
12
matters.
Thus, the arbitration matters keep pending and litigants have no option but to wait patiently.
At times, litigants do opt for extra-legal methods to settle the dispute which is not a good
practice for the economy and the society. It brings a bad name to the judicial system and
erosion in faith starts taking place. It also forces foreign investors and business partners to
perceive India as a place with slow-moving judiciary. Therefore, there is an adverse effect on
the business in particular and economy in
13
general.
11
12
INTERVENTION OF COURTS
The primary purpose of Alternative Dispute Resolution (ADR) methods, of which arbitration
is the most popular, is to avoid going to the court. However, intervention by courts is
inevitable. At times the interference is desirable so as to prevent the arbitration process from
going astray. Interference by courts is universal and is observed throughout the world. In
most of the jurisdictions, the subordinate judiciary is empowered to look into arbitration
matters, however, a number of matters reach the highest court. India follows the same system
and a large number of arbitration matters are filed in the lower courts
As arbitration is a creation of contract between the parties. Hence, party autonomy is the
heart and soul of each and every arbitration contract. However, this autonomy is not
unbridled. The applicable law and public policy provide the boundaries to this autonomy.
Rules of arbitral institutions also curtail the autonomy of parties. Moreover, intervention of
courts becomes necessary in cases of bias of arbitrators, misconduct of proceedings, etc.
Courts also intervene in setting aside or enforcing an award. Complete freedom to parties to
do what they like in an arbitration is not acceptable and the natural corollary is that complete
14
non-interference by courts in undesirable. For instance, in the Hooters case, the court
refused to uphold the arbitration clause and said,
The parties agreed to submit their claims to arbitration-- a system whereby disputes are
fairly resolved by an impartial third party. Hooters by contract took on the obligation of
establishing such a system. By creating a sham system unworthy even of the name of
arbitration, Hooters completely failed in performing its contractual duty.
Interference by courts in such cases is essential, desirable and should never be done away
with, howsoever strong the critics are.
Major thrust and legislative intent of the new Arbitration and Conciliation Act, 1996 is to
reduce excessive judicial intervention due to which the earlier Arbitration Act, 1940 suffered
serious infirmities. Section 8(1) of the New Act, therefore, makes it mandatory duty for the
judicial authority i.e. court to stay legal proceedings if started, where the subject matter has
14
Hooters of America v. Phillips, U.S. 4th Circuit Court of Appeals, CA-96-3360-422, Decided: April 8, 1999
been referred to an arbitral tribunal. Similar provisions are made in connection with the New
York and Geneva.
The enactment of the 1996 Act was initially met with approbation by the Court in cases like
15
Konkan Case , (which stated clearly that the provisions of the 1996 Act unequivocally
indicate that the Act limits intervention of the Court with an arbitral process to the minimum)
but subsequent reality however, has been far from ideal. Even as a global study has indicated
that an overwhelming 91% of the respondents were against the mechanism of appealing
16
17
international arbitration, cases like ONGC Case and SBP & Co Case . Have sharply
belied governmental attempts to promote arbitration in India. ONGC Case witnessed the
challenge of an arbitral award on the ground that it was in conflict with the public policy of
India; instead of taking a narrow interpretation of the phrase public policy as being
something in excess of a prima facie transgression of Indian law, the Court adopted a very
broad understanding of the same. The Court went on to equate patent illegality with error
of law and held that any contravention of an Indian legislation would ipso facto make the
award violative of public policy.
The doors were thus flung open for the very rounds of painstaking judicial review that the
18
Act was put in place to avoid . SBP & Co further extended the scope of judicial
intervention when the Supreme Court ruled that it was within the powers of the Chief Justice
of India to adjudicate on issues like valid arbitration agreements and went on to state that the
CJ could even call for evidence to resolve jurisdictional issues while performing the function
of appointing an arbitrator when the parties failed to come to an agreement. The Supreme
Court went on to say that such decisions would be final and binding upon the parties. This
effectively flouted the principle of competence and thus amounted to a situation where the
arbitral tribunals power to determine its jurisdiction was undermined.
Effectively therefore, Courts endowed themselves with powers which would substantively
delay arbitral proceedings (be it by raising specious objections to preliminary issues or by
15
16
17
18
Konkan Railway Corporation v. Mehul Construction Co., 2000 (7) SCC 201
Oil and Natural Gas Corporation v. SAW Pipes, (2003) 5 SCC 705
SBP & Co. v. Patel Engineering, (2005) 8 SCC 618
Aloke Ray, Dipen Sabharwal, What Next for Indian Arbitration?, The Economic Times,
29 August, 2006
sabotaging the appointment process) which goes against the fundamental reason for enacting
Section 13 of the 1996 Act. This thus brings us to what has been called the dispute between
high principles (stressing the need for justice, though the heavens fall) and low principles (an
19
equally insistent clamour to end litigation) in adjudication today . The expansion of the
Courts intervention into the judicial sphere has aroused serious misgivings; ONGCs
expansive interpretation of the term public policy has been followed by a catena of cases
which all reiterate the judiciarys right to review the arbitral award. In cases like Hindustan
20
Zinc Case, the Supreme Court has stated that awards could be set aside on grounds like
being contrary to the terms of contract since ONGC gave license for interference in such
grounds. This indeed sets a dangerous precedent since, as stated earlier; the encouragement of
ADR was based on a need to circumvent the lengthy court process.
The debate between finality and justice is perhaps best resolved by the reasoned judgment of
21
EVANS J., in Indian Oil Case where he held that these two factors are not inconsistent
with each other. If either of them is to prevail, then it should be the requirement of justice.
But justice, even fairness, is not an abstract concept. It has to be applied in this context
between two parties who were in dispute with each other and who agreed that the dispute
should be resolved by an arbitral tribunal. They agreed that the tribunal's award should be
final. But they agreed this on the basis that the arbitration procedure would be regulated by
law. The Court has statutory power to set aside an award when the arbitrators misconduct
themselves or the references. But it also has the unqualified discretion to remit the award to
the chosen tribunal. If the power is exercised, but only in circumstances when it would be
unjust not to do so, then there is not, in my judgment, an uncovenanted or an unacceptable
restriction on the agreed finality of the tribunal's award.
19
Zaiwalla, Sarosh, Challenging Arbitral Awards: Finality is Good but Justice is Better ,
CULTURAL NORMS
In general, the community throughout India is still manifesting its hostility to arbitration. The
continuing attitude of certain urban arbitrators being characterized by a lack of sensitivity
towards the national law of a developing country as ours and their mandatory application,
either due to the ignorance, carelessness, or to unjustified psychological superiority
complexes, negatively affecting the legal environment required to promote the concept of
arbitration especially in the field of business
22
relationships.
The arbitrators do not understand how things are done in various parts of India. Hardly any of
them have any connection with or understanding of traditions and cultures of whole India.
They do not even take the trouble to understand parties perspective in the proceeding at
hand.
Of themselves, such comments might simply be a reflection of sour grapes parties finding
some reason to criticise a process which they feel is outside their control or delivers a result
which does not reflect their wishful thinking. If that were the only (or predominant basis) for
such comments, they would be easy to explain away.
People from different backgrounds (ethnic, religion, racial, caste etc.) often harbour
predisposed standpoints regarding each others cultures, customs and attitudes. It is not
difficult to see how this could erroneously translate into a perception of bias vis an Arbitral
Tribunal which does not reflect the culture of one or more of the parties. Arbitrators above all
need to be aware of such considerations and adjust their approach
23
accordingly.
Unfortunately Politics and religion factors may also play a part in the dynamic which is the
relationship between the Tribunal and the parties. The role of the Tribunal should include
awareness of potential issues and using the process dynamically to avoid such issues
affecting the process negatively (a simple illustration of this might be persuading the parties
22
Sarah Hilmer, Did Arbitration Fail India or Did India Fail Arbitration, Int. A.L.R.
10
to shake hands with each other at the beginning of the hearing, and taking other steps to
break the ice, as well as making the atmosphere less confrontational).
Miscommunication is also a major barrier for arbitration in India. In a country which has
many languages, words spoken can often acquire a very different connotation when
24
translated. Body language, facial expressions and gestures can sometime send the wrong
signals.
How business is done in different cultures may reveal stark differences. In the not too distant
past, a nod and a handshake were often the only evidence to signify that an agreement had
been reached. Even now, some jurisdictions reveal very clear patterns of behavior in the way
business is done. Indeed, there have been dramatic changes over the past decade with
contracts in India becoming much more detailed and heavily negotiated than was previously
the case. However, the Tribunal needs to be alive to such potential differences of approach,
which might easily be interpreted otherwise as a lack of evidence to substantiate a particular
position.
24
11
Indian lawyers and judges will do well to be aware of and absorb some of the best arbitration
practices from jurisdictions which have a more developed culture of arbitration, if arbitration
is to provide the benefits it is capable of delivering. Ten years on, arbitration in India under
the 1996 Act is far from having fulfilled its potential and continues to be on probation.
25
26
Justice S.B.Sinha, ADR and Access to Justice: Issues and Perspectives, SCR, 2008
Nancy J. Manring, ADR and Administrative Responsiveness: Challenges for Public
Administrators, Public Administration Review, Vol. 54, No. 2 (Mar. - Apr., 1994), pp. 197203
12
Further, most ad hoc arbitrations or even institutional arbitrations in India are conducted by
retired members of the judiciary who by virtue of long tenures behind the Bench have got
accustomed to tedious civil procedure and evidence rules (which they are exempt from
applying to arbitration proceedings) and fall into that trap much too easily. As a result,
arbitrations effectively become a battle of pleadings and procedures, with each party trying its
best to stall if it works in their favour.
Moreover, having retired and having an opportunity to earn some post retirement money,
coupled with the fact that there is no fixed schedule of fees and it is totally up to the whim
and fancy of the Arbitrator to fix his fee, a self interest for prolonging the proceedings comes
into picture. Needless to say, quite a few arbitrators find it difficult to maintain that balance
unless they are either overloaded with work (in which case they are earning anyway) or they
27
find pride in quick disposal, monetary issues being irrelevant. The Arbitrator may not be
familiar with Arbitration law or how to properly conduct the process. Furthermore the retired
judge will also not be familiar with technical expert matters.
27
13
FINANCIAL RESOURCES
28
Christine Cervenak, David Fairman and Elizabeth McClintock, Leaping the Bar:
Overcoming Legal Opposition To ADR in the Developing World, Dispute Resolution
Magazine, Spring 1998
14
number of adjournments are certainly more. Parties pay fees to the arbitrator s for each
hearing running into thousands of rupees.
If indeed it is a partys plea that there is no dispute that can be referred to arbitration (because
the contractor has given a no claims letter) or if it is the plea that the dispute is excepted
from arbitration or if a person says, he is not a party to the arbitration, or that the arbitration
agreement is not in existence, these issues can normally be taken up only after at least five or
six adjournments have taken place. By that time, quite a large amount of money would
become payable towards the arbitration fees or may have been paid. Therefore, the cost factor
is also important for the parties and cannot be left out of
29
consideration.
Lastly, if the Government or a public sector undertaking has clear documents to show that
there is no dispute in existence or that the dispute relates to an excepted item, or if a person
says, he is not a party to the arbitration agreement, there is no reason why an expensive
procedure of arbitration should be invariably embarked upon.
29
Indu Malhotra, Fast Track Arbitration, ICAs Arbitration Quarterly, ICA, 2006, vol.
XLI/No.1, p. 29
15
30
Law Commission of India, One Hundred And Seventy Sixth Report On The Arbitration
16
Commission made various recommendations for bringing amendments in the 1996 Act. A Bill
entitled The Arbitration and Conciliation (Amendment) Bill, 2001 had also been prepared
by the Commission bringing out various provisions through which the 1996 Act was
proposed to be amended.
The Government was supposed to act with alacrity so that the necessary amendments could
be made timely. With such an innocuous thing as the definition of court, which should not
have been juggled in the first place, and for which there was agreement between all the
concerned parties and there was the recommendation of the Law Commission, the
Government did not act speedily resulting in further delay.
The Government took time in going through the Law Commissions report forwarded in
September 2001. It took two years to propose an amendment. On December 22, 2003, Mr.
Arun Jaitley, the then Law Minister, introduced the Arbitration and Conciliation
31
(Amendment) Bill, 2003 (hereinafter the 2003 Bill) in the Rajya Sabha. The Bill
proposed several amendments.
Political rivalry has resulted in the withdrawal of the 2003 Bill. Even when the amendments
suggested by the Law Commission and later introduced in the Rajya Sabha as the 2003 Bill
are apparently in the interest of the people at large, clash of two giants is holding the nation to
ransom.
The question which needs to be raised at this time is the wisdom of simply copying a
legislation without modifying it to our needs. Also, it is high time to question the wisdom of
constituting so many committees to look into the recommendations of the Law Commission.
It is a well-known fact that Law Commission has very eminent legal experts as members.
Law Commission reports are a work of collective wisdom. How can it be questioned? Not
once, but so many times. How many times do we need to review the work done by the Law
Commission and then the Legislative Wing of the Government? This must come to an end.
Also, the persons constituting all these committees must introspect as to whatever they have
been doing in the name of reviewing the reports of the Law Commission is worthwhile or
not.
31
Bill No. LXXV of 2003, Introduced in Rajya Sabha on December 22, 2003; available
th
at http://rajyasabha.nic.in/bills-ls-rs/arch2003.htm, accessed on 20 August, 2010
17
CONCLUSION
As discussed earlier, there are many legal, socio and economic problems in ADR mechanism
in India. These problems arise due to diverse and culturally rich population of India as well as
lack of political goodwill in this regard.
To overcome these barriers Government must act strictly and should first of all adopt
th
176 Law Commissions Report. Coupled with this Government at both state and Union
Level must come up with awareness programmes not only for the citizens but also for the
arbitrators. ADR is a fairly new concept and concepts like these not only take time in
percolating to the grass root levels, acceptance of such a concept is also a big problem.
Therefore a robust programme imparting legal literacy to the masses in India, especially in
the field of ADR becomes a necessity. Not only will this allow bringing ADR to the common
man, an aware citizen will contribute positively to the development of the nation too.
The common citizens are also to be blamed for this error in ADR mechanism too. People
should opt for ADR instead of litigation and use this mechanism wisely in order to get speedy
and cost efficient justice. The purpose which ADR was supposed to achieve. The legal
education of todays India needs to take the ADR mechanisms seriously. Today these
mechanisms are taught only as part of speciality courses which primarily focus on the
deployment of these processes pertaining to areas of corporate mergers and amalgamations.
India is a nation which epitomises a subtle mix of the modern and the ancient. The
preservation of the best of both is what Indians are best at. Keeping in mind the same spirit of
India, the common Indian of today should get the best of all the dispute resolution
mechanisms in India. The motive behind any legislation, amendment or new introduction has
and always been the welfare of the ordinary citizen of the country.
18
BIBLIOGRAPHY
References
Websites
1. www.lexisnexis.com
2. www.westlaw.com
3. www.jstor.org
4. www.wto.org
5. www.heinonline.com