Chapter 3 & 4 ADR: Alternative Dispute Resolution

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1 Chapter 3 & 4 ADR: Alternative Dispute Resolution a. Definition b. History, Background of ADR c. Need of ADR d. LEGISLATIONS related to ADR IN INDIA e. ADR and Constitution f. Advantages and disadvantages of ADR g. Modes of ADR I realized that the true fiction of a lawyer was to unite parties A large part of my time during the 20 years of my practice as a lawyer was occupied in bringing out private compromise of hundreds of cases. I lost nothing thereby not even money, certainly not my soul. Mahatma Gandhi To resolve disputes we have structured judicial system which incorporates rule of law (as explained by Le Principe Legality i.e., governance not by persons but by principles or a system or by the developed constitution) and principles of natural justice i.e., fairness, equity, equality and reasonableness in the process to administer justice. We have formal and rigid court system. Courts are empowered to decide the cases in accordance with; justice, equity and good conscience. In the present scenario due to the rapid economic growth and development in the society, the traditional judicial process has turned out to be overburdened. To help or assist the judiciary in the administration of justice, there must be an alternative mechanism. India has put in place a progressive piece of legislation which is essentially based on the Model Law and the UNCITRAL Arbitration Rules. The Parliament enacted the Arbitration and Conciliation Act of 1996 with a view to making arbitration less technical and more useful and effective, which not only removes many serious defects of the earlier arbitration law, but also incorporates modern concepts of arbitration. What is ADR? An alternative to traditional litigation or administrative agency complaint process is ADR. It includes consensual, voluntary processes where there is no judge or decision makers (such as negotiation, meditation and facilitation), as well as adjudicative process where the parties hire a private judge or decision maker. ADR techniques are extra judicial in character. They have been employed with very encouraging results in several categories of disputes, especially civil, commercial, industrial and family disputes. In particular, these techniques have been shown to work across the full range of business disputes: banking, contract, contract performance and interpretation, construction contracts, intellectual property rights, joint ventures, insurance liability, partnership differences, personal injury, product liability, real estate and securities. ADR is not intended to supplant altogether the traditional means of resolving disputes by means of litigation. It offers only alternative options to litigation.

2 There are still a large number of important areas, including constitutional law and criminal law, in respect of which there is no substitute for court decisions, ADR may not be appropriate for every dispute even in other areas; even if appropriate, it cannot be invoked unless both parties to a dispute are genuinely interested in a settlement. In its philosophical perception, ADR process is considered to be the mode in which the dispute resolution process is qualitatively distinct from the judicial process. It is a process where disputes are settled with the assistance of a neutral third person generally of parties own choice, where the neutral is generally familiar with the nature of the dispute and the context in which such disputes normally arise, where the proceedings are informal, devoid of procedure technicalities and are conducted by and large, in the manner agreed to by the parties, where the dispute is resolved expeditiously and with less expenses, where the confidentiality of the subject matter of the dispute is maintained to a great extent, where decision making process aims at substantial justice, keeping in view the interests involved and the contextual realities. In substance the ADR process aims at rendering justice in the form and content which not only resolves the dispute but tends to resolve the conflict in the relationship of the parties which has given rise to that dispute. HISTORY The origin of ADR could be traced to the origin of political institutions on the one hand and trade and commerce on the other hand. In rural India Panchayats (assemble of elders and respected inhabitants of a village) decided almost all disputes between the inhabitants of the village, while dispute between the members of a clan continued to be decided by the elders of clan. In India, the law and practice of private and transactional commercial disputes without court intervention can be dated back to ancient times. Arbitration or mediation as an alternative to dispute resolution by municipal courts has been prevalent in India from Vedic times. The earliest known disputes between members of a particular clan or occupation or between members of a particular locality are referred to, by Kulas (assembly of the members of a clan), Srenis (guilds of a particular occupation) and Pugas (neighborhood assemblies). These arbitral bodies, known as Panchayats, dealt with variety of disputes, such as disputes of contractual, matrimonial and even of a criminal nature. The disputants would ordinarily accept the decision of the panchayat and hence a settlement arrived consequent to conciliation by the panchayat would be as binding as the decision that was on clear legal obligations. The Muslim rule in India saw the incorporation of the principles of Muslim law in the Indian culture. Those laws were systematically compiled in the form of a commentary and came to be known as Hedaya. During Muslim rule, all Muslims in India were governed by Islamic laws the Shari ah as contained in the Hedaya. The Hedaya contains provisions for arbitration as well. The Arabic word for arbitration is Tahkeem, while the word for an arbitrator is Hakam. An arbitrator was required to posses the qualities essential for a Kazee an official Judge presiding over a court of law, whose decision was binding on the parties subject to legality and validity of the award. The court has the jurisdiction to enforce such awards given under Shari ah though it is not entitled to review the merits of the dispute or the reasoning of the arbitrator. The British government gave legislative form to the law of arbitration by promulgating regulations in the three presidency towns: Calcutta, Bombay and Madras. Bengal Resolution Act, 1772 and Bengal Regulation Act, 1781 provided parties to submit the dispute

3 to the arbitrator, appointed after mutual agreement and whose verdict shall be binding on both the parties.these remained in force till the Civil Procedure Code 1859, and were extended in 1862 to the Presidency towns. One of the main characteristics of these traditional institutions is that they were recognized system of administration of justice and not merely alternatives to the formal justice system established by the sovereign the feudal lords, kazis, the adalat system introduced by the British and the existing court system. The two systems continued to operate parallel to each other. But as regards the procedure and the nature of proceedings these institutions were very much similar to the ADR procedures simple, informal, inexpensive and quick, and the decisions were based not on abstract notions of justice but on the prevalent norms of expected behaviour. The procedure followed by the traditional institutions was that of arbitration and conciliation, depending on the nature of dispute, except that decision makers were not chosen by the parties. LEGISLATIONS OF ADR IN INDIA Indian Arbitration Act, 1899: This Act was substantially based on the British Arbitration Act of It expanded the area of arbitration by defining the expression submission to mean a written agreement to submit present and future differences to arbitration whether an arbitrator is named therein or not. Arbitration (Protocol and Convention) Act 1937: The Geneva Protocol on Arbitration Clauses 1923 and the Geneva Convention on the Execution of Foreign Arbitral Awards 1927 were implemented in India by the Arbitration (Protocol and Convention) Act, This Act was enacted with the object of giving effect to the Protocol and enabling the Convention to become operative in India. The Arbitration Act of 1940: The Arbitration Act, 1940, dealt with only domestic arbitration. Under the 1940 Act, intervention of the court was required in all the three stages of arbitration in the tribunal, i.e. prior to the reference of the dispute, in the duration of the proceedings, and after the award was passed. This Act made provision for a) arbitration without court intervention; b) arbitration in suits i.e. arbitration with court intervention in pending suits and c) arbitration with court intervention, in cases where no suit was pending before the court. Before an arbitral tribunal took cognizance of a dispute, court intervention was required to set the arbitration proceedings in motion. The existence of an agreement and of a dispute was required to be proved. During the course of the proceedings, the intervention of the court was necessary for the extension of time for making an award. Finally, before the award could be enforced, it was required to be made the rule of the court. This Act did not fulfill the essential functions of ADR. The extent of Judicial Interference under the

4 Act defeated its very purpose. It did not provide a speedy, effective and transparent mechanism to address disputes arising out of foreign trade and investment transactions. The Legal Services Authorities Act, 1987 brought about the establishment of Lok Adalat System Organization of Lok Adalats : Lok Adalats are judicial bodies set up for the purpose of facilitating peaceful resolution of disputes between the litigating parties. They have the powers of an ordinary Civil Court such as summoning, examining, taking evidence etc. These Adalats can resolve matters except criminal cases that are non compoundable. Arbitration and Conciliation Act, 1996 The government enacted the Arbitration and Conciliation Act, 1996 in an effort to modernize the 1940 Act. In 1978, the UNCITRAL Secretariat, the Asian African Legal Consultative Committee (AALCC), the International Council for Commercial Arbitration (ICCA) and the International Chamber of Commerce (ICC) met for a consultative meeting, where the participants were of the unanimous view that it would be in the interest of International Commercial Arbitration if UNCITRAL would initiate steps leading to the establishment of uniform standards of arbitral procedure. The preparation of a Model Law on arbitration was considered the most appropriate way to achieve the desired uniformity. The full text of this Model Law was adopted on 21 st June 1985 by UNCITRAL. This is a remarkable legacy given by the United Nations to International Commercial Arbitration, which has influenced Indian Law. In India, the Model Law has been adopted almost in its entirety in the 1996 Act. This Act repealed all the three previous statutes. Its primary purpose was to encourage arbitration as a cost effective and quick mechanism for the settlement of commercial disputes. It covers both domestic arbitration and international commercial arbitration. It marked an epoch in the struggle to find an alternative to the traditional adversarial system of litigation in India. The changes brought about by the 1996 Act were so drastic that the entire case law built up over the previous fifty six years on arbitration was rendered superfluous. Unfortunately, there was no widespread debate and understanding of the changes before such an important legislative change was enacted. The Government of India enacted the 1996 Act by an ordinance, and then extended its life by another ordinance, before Parliament eventually passed it without reference to Parliamentary Committee. Arbitration, as practiced in India, instead of shortening the lifespan of the dispute resolution, became one more inning in the game. Not only that, the arbitrator and the parties lawyers treated arbitration as extra time or overtime work to be done after attending to court matters. The result was that the normal session of an arbitration hearing was always for a short duration.

5 Absence of a full fledged Arbitration Bar effectively prevented arbitrations being heard continuously on day to day basis over the normal working hours, viz. 4 5 hours every day. This resulted in elongation of the period for disposal. Veerappa Moily also said in the ADR congress held in the year 2010 that the 1996 Act, although modeled along international standards, has so far proved to be insufficient in meeting the needs of the business community, for the speedy and impartial resolution of disputes in India. The Law Commission of India prepared a report on the experience of the 1996 Act and suggested a number of amendments. Based on the recommendations of the Commission, the Government of India introduced the Arbitration and Conciliation (Amendment) Bill, 2003, in the Parliament. The standing committee of law ministry felt that provisions of the Bill gave room for excessive intervention by the courts in arbitration proceedings. Section 89 (1) of CPC The Code of Civil Procedure, 1908 has laid down that cases must be encouraged to go in for ADR under section 89(1). To streamline the Indian legal system the traditional civil law known as Code of Civil Procedure, (CPC) 1908 has also been amended and section 89 has been introduced. Section 89 (1) of CPC provides an option for the settlement of disputes outside the court. It provides that where it appears to the court that there exist elements, which may be acceptable to the parties, the court may formulate the terms of a possible settlement and refer the same for arbitration, conciliation, mediation or Judicial settlement. At this juncture, the Court is not ascertaining the agreement of the parties but only their observations, because if there is agreement between the parties at the stage of formulation of possible terms of settlement, the Court can as well make it the basis of its judgment and there would be no need for further negotiations under the aegis of arbitration or conciliation. The Legal Services Authorities Act, 1987 brought about the establishment of Lok Adalat System Organization of Lok Adalats: Lok Adalats are judicial bodies set up for the purpose of facilitating peaceful resolution of disputes between the litigating parties. They have the powers of an ordinary Civil Court such as summoning, examining, taking evidence etc. These Adalats can resolve matters except, criminal cases that are non compoundable. The Emergence of Need of ADR : The need to resort to alternatives has emerged from these problems of litigation, such as unordinary delay, escalating costs of litigation, mounting arrears, pervasive corruption and inequalities in system, failing of nayaya panchayats. The legal profession ceased to be a Nobel service oriented profession and is operating to market principle of demand and supply, without carrying for the need for justice. The system ignored their legitimate interests of the people and boggled down to the techniques, rules and unreasonable levels of interpretation. This led to people being alienated from system and they avoided litigation. It is now widely acknowledged that our litigation system requires drastic curb on delaying. This is not to minimize the role our courts, especially the superior courts, play in the promotion of the rule of law.

6 Of course, India is not the only country which is buffeted by arrears of court cases. Even the developed countries such as the United States of America and the United Kingdom suffer from this problem, albeit on a lesser scale. The USA and following its inspiration, several countries, including Australia, Canada, Germany, Holland, Hong Kong, New Zealand, South Africa, Switzerland and U.K. have used over the last 20 years or so what is popularly known as Alternative Dispute Resolution (ADR) that encouraged the disputants to arrive at a negotiated understanding with a minimum of outside help. Over the years, largely due to the development of trade and commerce, arbitration came to be recognized as an effective alternative to formal judicial system. Due to its own merit of being adjudicatory in nature resulting in binding decision it held the field of a widely practiced alternative to court system. The legal profession was soon attracted by the popularity and volume of arbitration in India. The result was obvious. The arbitral proceedings tended to be more and more formalized on the pattern of judicial adjudication in courts. The litigious nature of parties, encouraged by the legal profession and judge arbitrators who are mentally trained only in the judicial process, further contributed to judicialisation of arbitral process. Court s intervention, before, during, and after arbitration, made arbitration as dilatory as the court system. Hence new act of 1996 was required because: The Arbitration Act, 1940 was not meeting the requirements of either the international or domestic standards of resolving disputes. Enormous delays and court intervention frustrated the very purpose of arbitration as a means for expeditious resolution of disputes. The Supreme Court in several cases repeatedly pointed out the need to change the law. In the conferences of Chief Justices, Chief Ministers and Law Ministers of all the States, it was decided that since the entire burden of justice system cannot be borne by the courts alone, an Alternative Dispute Resolution system should be adopted. Trade and industry also demanded drastic changes in the 1940 Act. The Government of India thought it necessary to provide a new forum and procedure for resolving international and domestic disputes quickly. Thus "The Arbitration and Conciliation Act, 1996"came into being.comparison of different provisions of the Arbitration Act of 1940 with the provisions of Arbitration & Conciliation Act, 1996 would unequivocally indicate That 1996 Act limits intervention of Court with an arbitral process to the minimum. The old act doesn t include International matters. ADVANTAGES OF ADR They are: increased settlement improved satisfaction with the outcome or manner in which the dispute is resolved among disputants. It is free from technicalities as in the case of conducting cases in law Courts reduced time in dispute less expensive reduced costs in relating to the dispute resolution increased compliance with agreed solutions relationship between the parties is restored. Less burden of cases on Court ADR and Constitution ADR first started as a quest to find solutions to the perplexing problem of the ever increasing burden on the courts. It was an attempt made by the legislators and judiciary alike to achieve the Constitutional goal of achieving Complete Justice.

7 Alternative Dispute Resolution in India was founded on the Constitutional basis of Articles 14 and 21 which deal with Equality before Law and Right to life and personal liberty respectively. ADR also tries to achieve the Directive Principle of State Policy relating to Equal justice and Free Legal Aid as laid down under Article 39 A of the Constitution. ADR have been employed with very encouraging results in several categories of disputes, especially civil, commercial, industrial and Family disputes. In particular, these techniques have been shown to work across the full range of business disputes: banking, contract, contract performance and interpretation, construction contracts,

8 intellectual property rights, joint ventures, insurance liability, partnership differences, personal injury, product liability, Real estate and securities. Advantages of Alternative Dispute Resolution Sometimes people become involved in disputes which, although very important and worrying to those concerned, are better resolved outside the comparatively expensive court system. Some disputes do not have a legal solution, while others may be made worse by court action. There are a number of advantages of Alternative Dispute Resolution in general (and mediation in particular) over litigation: it is usually faster and less costly people have a chance to tell their story as they see it, without any advocate it is more flexible and responsive to the individual needs of the people involved it is more informal the parties' involvement in the process creates greater commitment to the result so that compliance is more likely the confidential nature of the process Alternative Dispute Resolution is more likely to preserve goodwill or at least not escalate the conflict, which is especially important in situations where there is a continuing relationship. Objectives of ADR Processes Reduce the burden on COURTS by reducing cases resolve or limit the issues in dispute; be accessible; use resources efficiently; resolve disputes as early as possible; produce outcomes that are lawful, effective and acceptable to the parties and the Tribunal; enhance the satisfaction of the parties The various ADR techniques now well recognized are: Arbitration: A binding procedure where the dispute is submitted for adjudication by an arbitral tribunal consisting of a sole or an odd number of arbitrators, which gives its decision in the form of an award that finally settles the dispute and is binding on the parties.

9 Fast track Arbitration: A binding procedure where parties agree to accelerated arbitral proceedings resulting in rendering the arbitral award in a short time. Negotiation: A non binding procedure involving direct interaction of the disputing parties wherein a party approaches the other with the offer of a negotiated settlement based on an objective assessment of each other s position. A trade off of other interests not involved in the dispute is not uncommon in a negotiated settlement. Objectivity and willingness to arrive at a negotiated settlement on the part of both the parties are essential characteristics of negotiation. Mediation: Mediation usually involves people meeting face to face in the presence of a neutral third person. This person listens to each party, helps them identify their real interests and needs and then the parties negotiate a settlement which will meet those needs. The mediator does not take sides, give legal advice or impose a solution. Mediators assist people by managing the negotiation process, helping people listen to each other and keeping them on track. Mediation is used to successfully resolve many community, family, tenancy, commercial, building, workplace, industrial relations and environmental disputes. Conciliation: In mediation, the mediator tries to guide the discussion in a way that optimizes parties needs, takes feelings into account and reframes representations. Conciliation differs from arbitration in that the conciliation process, in and of itself, has no legal standing, and the conciliator usually has no authority to seek evidence or call witnesses, usually writes no decision, and makes no award. Conciliation differs from mediation in that the main goal is to conciliate, most of the time by seeking concessions. Mediation Arbitration (MED ARB) : A procedure where the parties agree to settle their dispute first by attempting a conciliation within a specified time, failing which by arbitration. This is distinct from conciliation in the course of arbitral proceedings where, if a settlement is reached, the arbitration proceedings are terminated by making an award on agreed terms. Mini trial: A non binding procedure where the disputing parties present their respective cases before their senior executives who are competent to take decisions and who are assisted by a neutral third party. Thus, the executives have an objective assessment of the dispute and, if possible; they can mutually arrive at an amicable settlement. Expert Determination, the parties appoint an expert to consider their issues and to make a binding decision or appraisal without necessarily having to conduct an enquiry following adjudicatory rules. Private judging, the Court refers the case to a referee chosen by the parties to decide some or all of the issues, or to establish any specific facts.

10 Judge hosted settlement conference: In this court based ADR process, the settlement judge (or magistrate) presides over a meeting of the parties in an effort to help them reach a settlement. Judges have played a variety of roles in these conferences, articulating opinions about the merits of the case, facilitating the trading of settlement offers, and sometimes acting as the mediator. Court annexed arbitration, requires statutory introduction into the Court system, and which, depending upon the model adopted, may be binding or initially non binding, and may or may not provide for a rehearing by a judge under certain circumstances. The Code of Civil Procedure (Amendment) Act, 1999 provides for Court annexed ADR processes. Regulatory Negotiation or Reg Neg: Used by governmental agencies as an alternative to the more traditional approach of issuing regulations after a lengthy notice and comment period. Instead, agency officials and affected private parties meet under the guidance of a neutral Private Judging: A private or court connected process in which the parties empower a private individual to hear and issue a binding, principled decision in their case. The process may be agreed upon by a contract between the parties, or authorized by statute. facilitator to engage in joint negotiation and the drafting of the rule. The public is then asked to comment on the resulting, proposed rule. By encouraging participation of interested stakeholders, the process makes use of private parties perspectives and expertise, and can help avoid subsequent litigation over the resulting rule. Ombudsperson: An informal dispute resolution tool used by organizations. A third party ombudsperson is appointed by the organization to investigate complaints within the institution and prevent disputes or facilitate their resolution. The Ombudsperson may use various ADR mechanisms in the process of resolving disputes. Implementation of ADR The implementation of Alternative Dispute Resolution mechanisms as a means to achieve speedy disposal of justice is a crucial issue.. The first step had been taken in India way back in 1940 when the first Arbitration Act was passed. However, due to a lot of loop holes and problems in the legislation, the provisions could not fully implemented. However, many years later in 1996, The Arbitration and Conciliation Act was passed which was based on the UNCITRAL model, as already discussed in the previous section of the paper. The amendments to this Act were also made taking into account the various opinions of the leading corporate and businessmen who utilize this Act the most. Sufficient provisions have been created and amended in the area of Lok Adalats in order to help the rural and commoner segments to make most use of this unique Alternative Dispute Resolution mechanism in India. Therefore, today the provisions in India sufficiently provide for Alternative Dispute Resolution. However, its implementation has been restricted to just large corporate or big business firms. Lok Adalats, though a very old concept in Indian Society, has not been implemented to its utmost level. People still opt for litigation in many spheres due to a lot of drawbacks. Provisions made by the legislators need to be utilized. This utilization can take place only when a definite procedure to incerase the implementation of ADR is followed.