ARBITRATION v. LITIGATION

ARBITRATION v. LITIGATION

India is one of the fastest-growing economies in the world and it is more than often true that in places where there is a high rate of economic growth, there is also an increase in income, and increased purchasing power, thereby leading to the growth of effective demand and supply, ultimately resulting into the improvement in standard of living, life expectancy, quality of human life and others. The opening up of Indian markets to foreign firms in various industries including the service sector has tremendously increased the volume of cases in the courts. The courts are already over-burdened with a huge backlog of cases that have been pending for a long time. This not only affects the individuals /institutions, but also the overall growth of the Indian economy. India has an estimated 31 million cases pending in various courts.

As on 31.12.2015, there were 59,272 cases pending in the Supreme Court of India, around 3.8 million cases were pending in the High Courts and around 27 million pending before the subordinate judiciary. 26% of cases, more than 8.5 million, are over 5 years old. It has been estimated that 12 million Indians await trial in criminal cases throughout the country. On average, it takes twenty years for a real estate or land dispute to be resolved. The dispute resolution process has a huge impact on the Indian economy and the global perception of “doing business” in India. This is clearly indicated by the World Bank rating of “Ease of Doing Business 2016” which has ranked India at 131 out of 189 countries on how easy it is for private companies to follow regulations and conduct business. The study notes that India takes as much as 1,420 days and 39.6% of the claim value for dispute resolution. [1] It is in this context that several initiatives have been taken to reduce the pendency of cases and to ensure that cases are disposed of in a speedy manner. In addition to this, the legislature has introduced the new alternative dispute mechanism in the form of Arbitration and Conciliation Act, 1996, by repealing the old Arbitration and Conciliation Act, 1940, which has outlived its utility. The Arbitration and Conciliation Act, 1996 has been passed by the Parliament of India for the purpose of specifically adopting the UNCITRAL Model Law in the International Commercial Arbitration and implementing the same. The Arbitration and Conciliation Act, 1996 has undergone two amendments in the years 2015 and 2019 since its enforcement and these amendments have only gone to make the law more expeditious. The Civil Procedure Code, 2000 Amendment and 2002 Amendment in the Legal Services Authority Act have also been implemented, which further empowers the courts to mandatorily refer the parties to Alternate Dispute Resolution including Arbitration, Settlement, and Mediation as an option.

Many business owners and construction industry entities prefer, as a matter of course, that construction disputes be submitted to binding arbitration. Others maintain that, because arbitration lacks facets of the procedural and legal structure of court litigation, only traditional litigation will ensure an outcome that is truly premised on the facts and law. These opinions often are influenced by favorable, or more likely, unfavorable, experiences in either forum. There are potential advantages and disadvantages to either forum, depending upon the nature of the dispute.

Litigation implies a method in which a dispute between two parties is resolved by going to the court, for a judgment. However, due to the rigidity and high cost involved in the litigation process, the parties go in for arbitration. Arbitration is a method of settling a dispute between parties wherein an independent person, selected by the parties, mutually, to decide the case. The basic difference between arbitration and litigation is that the court is involved in the case of litigation, as it is a lawsuit, whereas, in arbitration, a settlement between the parties is done out of court.

The primary difference between arbitration and litigation is that Arbitration is always civil in nature while conversely, litigation can be either civil or criminal in nature. The pace at which both the proceedings proceed also varies greatly. Disputes which are taken to arbitration can be resolved faster than a lawsuit in court. In general, lawsuits can take years to get decided while arbitrations can take place in as little as 60 days. Additionally, the limited right to appeal arbitration awards typically eliminates an appeal process that can delay the finality of the adjudication. [2]

The next big difference between the two is the cost involved. Since most arbitration proceedings take lesser time than a lawsuit in a court, they will end up being less expensive than a case that goes to trial. There is also a difference in the specialization of the decision-makers in the two methods. Judges will often know very little about certain types of cases. This will often make it difficult for the attorney to effectively present the case. Arbitrators are selected from a pool of professionals, typically with experience in the industry pertaining to the arbitration disputes and, therefore, may provide a greater level of expertise in comparison to a judge. Such persons have a greater capability of comprehending project issues and documents and of scrutinizing liability and claim for damages which is common to the construction industry than most trial court judges. [3]

Arbitration is a private method of resolving controversies between the parties, wherein complete confidentiality is maintained and on the contrary, litigation is a public proceeding. Parties may be compelled to participate in arbitration proceedings only by agreement. [4] Thus, if any additional parties are necessary for complete relief, those other parties either must have agreements requiring such participation or otherwise must consent to their joinder in the proceedings.  In contrast, in court proceedings, all persons and entities involved in a dispute typically can be joined as parties.

When in court, a judge’s decisions are constrained by statutes and precedents and the conduct of the trial is governed by established rules of evidence.  In contrast, an arbitrator has considerable flexibility to consider any evidence he/she deems relevant and may issue an award based upon perceptions of fairness or equity and not necessarily on the evidence or rules of law. The parties in arbitration can agree to hold the arbitration in a certain location regardless of where the action took place. This often results in the party who drafts the arbitration clause having all the arbitrations in a certain city or state in which they are located.

Lastly, in the arbitration process, the parties select the arbitrator(s).  Any pre-hearing disputes between the parties are decided by the same arbitrator(s) who ultimately decide the case. In contrast, in many courts, no individual judge is assigned to a case and, therefore, multiple judges may be involved in adjudicating disputes. The judge is assigned by the court without input from the parties. Thus, arbitration affords the parties with the ability to select the adjudicator, whereas court litigation does not. [5]

Thus, arbitration is preferred by the parties over litigation due to many reasons such as greater confidentiality, quick judgement, choice of solutions, higher chances of settlement, low cost, flexibility in process, etc. Although, litigation has a number of advantages, such as numerous appeals can be made and easy enforcement of the final outcome.

[1] Strengthening Arbitration and its Enforcement in India – Resolve in India by Bibek Debroy and Suparna Jain NITI Aayog.

 

[2] Litigation v. Arbitration: Pros and Cons by Brenton D. Soderstrum.

[3] Arbitration vs. Litigation: The Great Debate by David K. Taylor.

[4] Arbitration vs. Litigation: The Right to Appeal and Other Misperceptions Fuelling the Preference for a Judicial Forum by Rebecca Callahan.

 

[5] Advantages of Arbitration over Litigation: Reflections of a Judge, Harry T. Edwards.

 

Disclaimer:

The information contained in this document is intended for informational purposes only and does not constitute legal opinion, advice or any advertisement. This document is not intended to address the circumstances of any particular individual or corporate body. Readers should not act on the information provided herein without appropriate professional advice after a thorough examination of the facts and circumstances of a particular situation. There can be no assurance that the judicial/quasi-judicial authorities may not take a position contrary to the views mentioned herein.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances

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