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BW Businessworld

Out Of Court Solution

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If you have been  signing legal contracts lately, you would have noticed that an increasing number of them now have a standard arbitration clause. Even a few years ago, the clause used to state which city’s court would have jurisdiction when disputes arose.

Arbitration is not a new concept. It’s part of what are termed “alternative dispute resolution mechanisms”, and which include mediation and negotiation. Arbitration has been used informally for years in India. But of late, formal arbitration proceedings are becoming increasingly popular.
Why is that happening? There are several reasons. For one, courts in India are struggling with a huge backlog of cases, and any new case  is likely to drag on for years. Then, even if one party wins in a lower court, the judgement is invariably appealed in a higher court by the loser. Also, the warring parties in a dispute can choose the arbitrator who will hear their dispute — choosing a judge is not possible. Finally, they can pick an expert who has specialised in that particular industry or sector as an arbitrator.
Despite the increasing number of disputes going into arbitration, India is not considered an ideal venue for arbitration proceedings by many companies. They prefer to go to either the Singapore International Arbitration Centre (SIAC) or to the London Court of International Arbitration (LCIA). Both have very clear rules, follow time-bound proceedings, and experts who specialise in arbitration.
Arbitration awards are supposed to be final, though in most countries, courts do allow an award to be challenged. In many cases though, if the arbitration has been conducted professionally, and the arbitrator is acceptable to both parties, the judgement is accepted gracefully even by the loser and there is no further move to drag the affair to court.
Most Indian companies are still new to the game, and many of them think nothing of challenging an arbitration award in court, even if they had agreed to abide by the arbitrator’s judgement before the proceedings started. But that is bound to change as formal institutional arbitration — as opposed to ad hoc — gains in popularity, and more lawyers specialise in arbitration. Special correspondent Abraham Mathews looks at the world of arbitration and how it is progressing in India.

(This story was published in Businessworld Issue Dated 03-09-2012)