83

CHAPTER-3

ALTERNATIVE DISPUTE RESOLUTION

INTERNATIONAL AND NATIONAL
PERSPECTIVE

3.1 INTRODUCTION

In this chapter the researcher had studied the evolution and

development of the concept of alternative dispute resolution mechanism at
ancient time, Muslim rule, British rule and post-British period. Then the
need and significance of the ADR procedures, the legislative recognition
given to the ADR process for increasing its propagation and faith of the
people on this new system, at the same time the judicial interpretation of the
legislative enactments in favour of the implementation of the ADR process,
the common modes used in ADR mechanism viz., Arbitration, Conciliation,
Mediation and Lok Adalat in detail with its practical implications and
conclusion of this chapter.

3.2 INTERNATIONAL PERSPECTIVE

The concept of ADR is not a new phenomenon. For centuries,

societies have been developing informal and non-adversarial processes for
resolving disputes. In fact, archaeologists have discovered evidence of the
use of ADR processes in the ancient civilizations of Egypt, Mesopotamia,
and Assyria.1

In the late 1980s and early 1990s, many people became increasingly
concerned that the traditional method of resolving legal disputes in the
United States, through conventional litigation, had become too expensive,

1
Nelson “Adapting ADR to Different Culture” (Dec 15, 2001). Online www.gowlings.com/
resources/publications.asp?pubid=776.
 84

too slow, and too cumbersome for many civil lawsuits (cases between
private parties). As of the early 2000s, ADR techniques were being popular,
as litigants, lawyers and courts realized that these techniques could often
help them resolve legal disputes quickly and cheaply and more privately
than court process also ADR approaches are being more creative and more
focused on problem solving than litigation through court.

3.2.1 United States

In the United States, Chambers of Commerce created arbitral

tribunals in New York in 1768, in New Haven in 1794, and in Philadelphia
in 1801. These early panels were used primarily to settle disputes in the
clothing, printing, and merchant seaman industries. Arbitration received the
full endorsement of the Supreme Court in 1854, when the court specifically
upheld the right of an arbitrator to issue binding judgments in Burchell v
Marshall.2 Writing for the court, Grier J stated that - Arbitrators are judges
chosen by the parties to decide the matters submitted to them, finally and
without appeal. As a mode of settling disputes, it should receive every
encouragement from courts of equity.3

The federal government has promoted commercial arbitration since

as early as 1887, when it passed the Interstate Commercial Act 1887. The
Act set up a mechanism for the voluntary submission of labour disputes to
arbitration by the railroad companies and their employees. In 1898,
Congress followed initiatives that began a few years earlier in
Massachusetts and New York and authorised mediation for collective
bargaining disputes. The Newlands Act 1913 and later legislation reflected
the belief that stable industrial peace could be achieved through the
settlement of collective bargaining disputes; settlement in turn could be
advanced through conciliation, mediation, and voluntary arbitration. Special
2
Burchell v. Marsh 58 US 344.
3
Ibid
 85

mediation agencies, such as the Board of Mediation and Conciliation for

Railway Labor 1913 [National Mediation Board in 1943] and the Federal
Mediation and Conciliation Service 1947 were formed and funded to carry
out the mediation of collective bargaining disputes.

Beginning in the late 1960‘s, American society witnessed the start of

a significant movement in ADR, in a climate of criticism of the adversarial
nature of litigation, and, perhaps, loss of faith in traditional adjudication and
the competence and professionalism of lawyers.4 It is, however, the Pound
Conference held in 1976, which is recognised as being the birthplace of the
modern ADR movement. The Pound Conference full title was the ‘National
Conference on the Causes of Popular Dissatisfaction with the
Administration of Justice.’ The Pound Conference picked up on the
dissatisfaction with the adversarial system.5
Professor Frank Sander’s speech entitled ‘Varieties of Dispute
Processing’, urged American lawyers and judges to re-imagine the civil
courts as a collection of dispute resolution procedures tailored to fit the
variety of disputes that parties bring to the justice system. The goal, Sander
argued, should be to ‘let the forum fit the fuss’. Sander criticised lawyers
for tending to assume that the courts are the natural and obvious dispute
resolvers, when, in point of fact there is a rich variety of different
processes…that may provide far more effective conflict resolution.6 He
advocated “a flexible and diverse panoply of dispute resolution processes,
with particular types of cases being assigned to different processes”.7

4
See Shone, “Law Reform and ADR: Pulling Strands in the Civil Justice Web” Paper presented at
the Australasian Law Reform Agencies Conference April 2006 Wellington New Zealand at 3.
Available at http://www.lawcom.govt.nz/UploadFiles/SpeechPaper/8208298e-fef7-4c6b-a38
9e65ed2f99f9//Session%202B%20-%20ADR%20-%20Shone.pdf.
5
Stempel, “Reflections on Judicial ADR and the Multi-Door Courthouse at Twenty; Fait
Accompli, Failed Overture, or Fledging Adulthood?” (1996) 11 Ohio St J on Disp Resolution at
297, www.lawreform.ie.
6
Sander , “Varieties of Dispute Processing” (1976) Federal Rules Decisions 79 at 112-113.
7
Ibid, note 5 at 131
 86

Sander then outlined the spectrum of disputing methods he regarded as apt,

these included; adjudication, arbitration, problem-solving efforts by a
government ombudsman, mediation or conciliation, negotiation, avoidance
of the dispute.8
He stated that we should “reserve the courts for those activities for
which they are best suited and to avoid swamping and paralyzing them with
cases that do not require their unique capabilities.” He envisioned that “not
simply a court house, but a Dispute Resolution Center, where the grievant
would first be channeled through a screening clerk who would then direct
him to the process (or sequence of processes) most appropriate to his type
of case.”9 The room directory in the lobby of such a Center might look as
follows:
“A screening unit at the centre would diagnose disputes, then using
specific referral criteria, refer the disputants to the appropriate dispute
resolution process, the door, for handling the dispute. Sander’s idea was a
catalyst for what later became known as the “Multi-Door Courthouse”.
Multi-door courthouses were established, initially on a pilot basis, in Tulsa
(Oklahoma); Houston (Texas); and in the Superior Court of the District of
Columbia. From these experiments, the idea spread to many courts
throughout the world. In a relatively short amount of time, the use of ADR
processes in American courts has increased to the extent that this once
unusual process is now commonplace …and hailed as the most important
tool available to the courts.10

Arbitration as a well established alternative to litigation is not a new

procedure for America. Only the development and use of alternative dispute
resolution mechanism has proliferated in recent years. As early as is the

8
Ibid, note 5 at 114
9
Ibid note. 5 at 120.
10
Benham & Boyd Barton, “Alternative Dispute Resolution: Ancient Models Provide Modern
Inspiration” (1995-1996) 12 Ga St U L Rev 623 at 635.
 87

year, 1768 arbitration as a well established alternative, was made available

in New York, and thereafter in other cities, to settle dispute in the clothing,
printing and merchant seaman industries by setting up arbitration tribunals.

Arbitration first received the endorsement of the Supreme Court in

1854 when the court upheld the right of an arbitrator to issue binding
judgements.11 In Burchell v. Marsh12 , Justice Grier stated that “Arbitrators
are judges’ choosen by the parties to decide the matter submitted to them,
finally and without appeal. As a mode of setting disputes, it should receive
every encouragement form the courts of equity.”

In 1920, New York passed the first state law recognizing voluntary
arbitration agreement. In 1925, the federal Arbitration Act (FAA) was
enacted to provide statutory framework to enforce arbitration clauses in
interstate contracts and created the foundation upon which modern
arbitration agreements are built today In 1926, the American Arbitration
Association (AAA) becomes the largest private ADR service provides in
united states. Moreover, the arbitration was not accepted everywhere in the
United States. In contractual arbitration clause was made revocable at the
option of either party. Until 1970, the United Nations Convention on the
Recognition and Enforcement of Foreign Arbitral Awards, 1958 (New York
Convention) has not ratified despite of difficulties is implementation.
At the Pound Conference, in 1976, leading jurists and lawyers
expressed concern about increasing expense and delay for parties in
crowded justice system. A task force resulting from the conference was
intrigued by Prof. Frank Sander’s vision of a court that included a dispute
resolution centre where parties would be directed to the process most
appropriate for a particular type of case, the task force recommended public
funding of a pilot program using mediation and arbitration and The

11
Burchell v. Marsh,58 U.S.344 ( 1854)
12
58 U.S.344 ( 1854)
 88

American Bar Association’s news committee on dispute resolution

encouraged the creation of three model “multidoor courthouses.”13 In the
same year, 1976 the alternative Dispute resolution movements was
officially recognised by the American Bar Association. It established a
special Committee on Minor Disputes. Due to these initiatives, the ADR
movement increased its pace. Not only use of arbitration but at the same
time different ADR techniques mediation, conciliation, facilitation mini-
trials, summary jury trial, expert fact-finding and early neutral evaluation
etc. developed.
Presently in this global era, ADR mechanisms have proliferated and
their use has expanded According to needs of communities and businesses
with the support of lawyers and judges, modern laws were enacted for
providing binding as well as non-binding ADR mechanisms.
3.2.1.1 Primarily used Alternative Dispute Resolution Processes

American Society witnessed an extraordinary flowering of interest in

alternative forms of dispute settlement. ADR have been developed form
elements of procedural reform into an integral part of the American legal
system. At present many kinds of ADR exists in United States. American
lawyers count about twenty different alternative proceedings for settling
legal disputes.14 There are wide away to ADR processes, but primarily there
are three well known processes - negotiation, mediation and arbitration.
Elements of these processes have been combined in a number of ways to
create a rich variety of so-called “hybrid” dispute resolution techniques
such as mini-trial, early neutral evaluation, med-arb, rent-a-judge and
ombudsman etc. All these methods described as non-court or private ADR
practices. In addition to private sector, ADR programs have been

13
See, STEPHEN B. GOLDBERG ET. AL., DISPUTE RESOLUTION: NEGOTIATION,
MEDIATION AND OTHER PROCESSES, 3rd ed.,1999 page 8
14
See, Tom Arnold, Why ADR? Alternative Dispute resolution: How to use it to Your Advantage,
ALI- ABA, COURSE OF STUDY, 19( 1996)
 89

implemented into the public justice system. We will learn the inherent
characteristics of these processes separately. Mostly adopted ADR
processes are as follows:-

1) Negotiation-

Negotiation is the process most commonly used by disputants to

resolve a dispute. In which the disputants retain control over both the
process and the outcome. It is a vital and pervasive process. Negotiation is
primarily a common mean of securing one’s expectations from others. It is
a form of communication designed to reach an agreement when two or
make parties have certain interests that are shared and certain others that are
opposed.15

The Pepperdine University of USA has developed an explanatory

definition for ‘negotiation’.

Negotiation is a communication process used to put deals together or

resolve conflicts. It is a voluntary, non-binding process in which the parties
control the outcome as well as the procedures by which they will make an
agreement. Because most parties place very few limitations an negotiations
process, it allows for a wide range of possible solutions maximizing the
possibility of joint gains, [Institution for Dispute Resolutions, Pepperdine
University [USA, Mediation. The art of facilitating the settlement]

P Gulliver has explained Negotiation in following words:

As a first description the picture of negotiation is one of two sets of

people, the disputing parties or their representatives, facing each other
across a table. They exchange information and opinion, engage in argument
and discussion and sooner or later propose offers and counter offers relating
to the issue in dispute between them seeking an outcome acceptable to both

15
Roger Fisher, William Ury and Bruce Pattou, Getting Yes Negotiating Agreement without Giving
In,1992 P xiii.
 90

sides.16 Negotiation is an art of knowing how to exchange concessions. The

parties have to develop new options so that every party gets some kind of
share in the benefit of negotiation.

2) Mediation-

There are two distinct forms of mediation right based and interest
based mediation. In right based, the mediator looks to the rights that the
disputants to resolve the dispute within those parameters. For example- In
accident claims, right the court process and then use that information to
help the parties to reach to an acceptable settlement. Hence, rights based
approach would look to the outcome if this case were to go to court and
seeks to use that ‘shadow’ to facilitate a settlement.17 An interest based
approach would look to the needs of the parties, regardless of what a court
might decide in the particular dispute for instance if there is a dispute
between two partners of a small manufacturing business, one of whom has
contributed the capital and other all invention. Suppose, the inventor partner
has come forth with some product which has initially rejected by other
partner, but after passing 3 years he wants to appropriate this product for
the partnership. In the situation, less emphasis is given to what court will
decide in the matter if it will be before the court and parties more tends
towards interest of both the partners complex arrangement for their
settlement.

3) Adjudication-

In the United States there are several kinds of adjudication. In

addition to Court redressal system then is also private adjudication i.e.
arbitration. There are two kinds of private adjudication, one the parties may
voluntarily submit their dispute or pursuant to a clause in their contract that

16
P. Gulliver, Disputes and Negotiations. A cross cultural perspective,1979, PP 3-7.
17
Cf. R. Mnookin and L. Kornh auser, “ Bargaining in the shadow of the law: The case of Divorce,
88 Yale L. J. 950 (1979)
 91

provides resolution of disputes. The later type of arbitration has been

practiced in United Status, particularly in commercial disputes between
companies having continuing relationship as well as in labour disputes of
Unions and employers.

Presently Different kinds of arbitration has been commonly used in

United States viz. Voluntary and binding arbitration, compulsory and non
binding arbitration.

4) Hybrid Processes-

In US, there is significant development in dispute resolution

movement by spawning up various hybrid dispute resolution processes for
instance. Mini-trial Early Neutral Evaluation, Summary Jury Trial, Neutral
Expert, Med-Arb etc.

Mini-trial does not require a case filed in court it can be applied just
as well to an incipent dispute. It is totally flexible and can be tailored to the
needs of the individual case. A jury session of mini trial is called summary
jury trial. Hence the abbreviated prosecution is made to a mock jury of 6
which then renders an advisory verdict that is used as a basis for
settlement.18 In early neutral evaluation process, one or more experienced
attorneys hear abbreviated presentation by each side and then decide
evaluation of case. It resembles to right base mediation and court annexed
arbitration method. In United States District Court of Northern California
this process is more successful as to the cases of torts or certain money
claims when liability is not an issue.19 The med-arb is the process in which
mediation is blended with its persuasive force and arbitration with its
guarantee of an assured outcome. Another new techniques used by some
courts in U.S. is settlement week, where a large number of lawyers in

18
See S.Goldberg, F.Sander and N. Rogers, Dispute Resolution P.235 (Little Brown 1992)
19
Brazil, W. D., Effective Approachers to Settelment: A Handbook for Lawyers and Judges,P.26
 92

settlement skills and then use these additional personnel during a particular
week to seek to settle long pending cases.

Presently ADR is quite widely used outside the courts viz voluntary
arbitration in commercial and labour cases, consumer disputes. Many
companies and other institutions have their own internal dispute resolution
mechanisms such as an ombudsman or a mediator to handle disputes arising
within their jurisdiction. Hence the ADR use in the United States will
continue to expand.

3.2.1.2 Development of ADR system

A. Community Related Services

With the promulgation of Civil Rights Act in 1964, Congress

established the Community Relation Service (CRS) of the Justice
Department, to assist the courts to utilize mediation and negotiation in
preventing violence and resolving community wide racial and ethnic
disputes. During 1960s the CRS helped resolve numerous disputes
involving schools, police, prisons and other government entities.
In 1970s arbitration program and mediation programs are funded by
the federal Law Enforcement Assistance Administration (LEAA). These
programs designed to help the resolution of disputes within these
communities. Thousands of cases were being resolved utilizing these
programs. By 1980 more than eighty community based alternative dispute
resolution centers were formed. Recent estimates indicate that more than
400 Local Community Justice Centers handle more than several hundred
thousand cases per year.
The public and private schools were not remained immune from
adopting such community based justice program. Presently, more than 4000
 93

schools throughout the United States have developed mediation programs

to resolve the disputes among the students peaceably.20
B. ADR through Judicial System-
i) Federal Courts- For the early and easy resolution of disputes
the Civil Justice Reform Act (CJRA), 1990 was enacted. It make mandatory
to every federal district court to implement a civil justice expense and delay
reduction plan. Since, then there has been tremendous growth in the
creation of ADR programs and the use of ADR by federal and State courts.
As a result, judges were authorized to recommend or require litigants to
participate in ADR procedures such as summary jury trials, early neutral
evaluation, mini trials mediation and arbitration. In1995, 80 federal district
courts had authorized or established some form of ADR program.21

In District of Columbia, the United States District Court introduced a

voluntary mediation program in 1989. The Program has been running
22
successfully having settlement rate 50% The Court of Appeals for the
District Court of Columbia also implemented the mediation Program in
which cases are selected for mediation by the court’s Chief Staff Counsel,
and not voluntary. This Program reports a settlement rate of 31%.

In 1988, Congress formally authorized ten districts courts, viz.

Arizona, Middle Georgia, Western Kentucky, Northern Ohio, Western
Washington to conduct mandatory court annexed arbitration programs
according to the rules in Judicial Improvements and Access to Justice Act
of 1988. However, these programs provide that one or more of the litigants,
after an arbitration decision is rendered, many demands, and in a majority

20
“Children Courts and Dispute Resolution,” Disp.Resol.Mag.2 (Fall 1995)].
21
Proposed final Report of the Chief judge’s New York state court Alternative Dispute Resolution
Project, P.12 (Sept.1,1995) - From P.C.Rao’ and William Sheffield, ADR what it is How it works,
2003.
22
Dispute Resolution Programs: United States District Court for the District of Columbia
(November 1995). From P.C.Rao’ and William Sheffield, ADR what it is How it works, 2002
 94

of the cases have demanded, a trial de novo. Despite of these findings, most
of the parties reported that arbitration was worthwhile and was a good-
starting point for settlement negotiations.23 97% of the judges surveyed
agreed that the county caseload burden was reduced as a result of
arbitration programs.24

In 1994 some districts adopt opt-in and opt-out systems in voluntary

arbitration program in which litigants are free to opt for arbitration and
continue with the litigation.

Judges in the federal court system are used to resort to ADR. In

Home owners funding corp. of America V. Century Bank25, Judges in the
United States Districts courts in the District of Massachusetts utilized an
“array of Alternative Dispute Resolution Choices such as summary jury
trial, trial before a magistrate, trial before a retired Massachusetts Superior
Court Justice, and the court mediation Project.” Even without a court rule,
judges are ordering or suggesting to parties towards the use of ADR. In G.
Heileman Brewing Co. V. Joseph Oat corp.,26 court order client’s
attendance at non-binding ADR.

ii) State Courts - In 28 State courts, there is mandatory non-

binding arbitration programs. Most of the courts have formally
incorporated ADR method into their systems through statewide
legislations.27

23
Rauma, D. and Krafka, C., Voluntary Arbitration in Eight-Federal District Courts: An Evaluation
(1994). From P.C.Rao’ and William Sheffield, ADR what it is How it works, 2003.
24
Ibid at 6
25
695 F. Supp. 1343, 1347 (D. Mass. 1988)
26
871 F.2 648 (7th cir 1989)
27
Filner, “Dispute Resolution Options in State Courts: NIDR Survey Reveals Significant Growth,”
NIDR News, Vol.II No. 2 at1 (Mar/April 1995) From P.C.Rao’ and William Sheffield, ADR what
it is How it works, 2003.
 95

The State Court ADR programs have been implemented successfully

in California, Connecticut, Minnesota, New Jersey, North Carolina, and
Texas spontaneously. Also, Special business courts, offering relatively
expeditious processing of commercial dispute resolution have been set up in
New York Chicago and Wilmington. This court is proving to provide high
quality dispute resolution service, fair and expeditious proceedings one
third of the states have established high level commissions to structure and
plan for ADR use and to address related confidentiality, ethics and other
issues on a state wide basis.28

iii) Federal Agencies - Court annexed ADR programs increased

due to the enactment of ADR legislations within the government and
industry. The Alternative Dispute Resolution Act of 1990 (ADRA) and the
Negotiated Rulemaking Act of 1990 helped to adopt resolution officer is
designated and ADR training imparted. ADRA expired in 1995 but by
executive orders the government agencies authorized to use ADR.

iv) Corporate Class - Many Companies in Unites States have

developed and implemented ADR programs to handle complaints and
resolve disputes of customers’ franchisees, employees and others. Such
programs include multilevel review by peers of the employee confidential
employee advisers, ombudspersons, voluntary arbitration and arbitration
and third party mediation programs.

The major banks, entered into an agreement subscribed to the CPR

Institute of Dispute Resolution Banking Industry Dispute Resolution
Commitment for resolving a number of common transactional disputes
within Banks .Several banks include mandatory arbitration clause in all
agreement for governing important monetary bank transaction.

28
Sherman, E., “Policy Issues for State Court ADR reform”, 13 Alternatives 142 (November 1995)-
From P.C.Rao’ and William Sheffield, ADR what it is How it works, 2003.
 96

Sixteen major food companies have subscribed to CPR institute

“Food Industry Dispute Resolution Commitment” which provides that
parties to dispute use ADR for 90 days before instituting litigation and
maintain status quo while ADR is being pursued.29 Another approach to
the resolution of inter corporate disputes has been a pledge by corporations
to explore alternative means of setting disputes with other pledge
signatories before initiating litigation.

v) Law Firms in United States - Law firms in United States had

effectively incorporated ADR into their practice. Being responsive to client
demands and court imposed rules, U.S. lawyer’s development of ADR
expertise has been promoted in a number of jurisdictions (e.g. Arkansas,
Colorado, Kansas, Hawaii and Georgia) by the issuance of ethics rules or
opinions that require or encourage attorneys to advice clients about the
availability of ADR under certain circumstances.30 e.g. Rule 2.1, Colorado
Rules of Professional conduct (1995); Ark. Stat. Ann’s 16-7-204(1995);
Georgia Supreme court Uniform Rule and Order for Alternative Dispute
Resolution Programs and related amendment to ethical considerations 7-5
of the Rules and Regulations of the State Bar of Georgia; Hawaii
Professional Conduct Rule 2.; Kansas Bar Association Professional Ethics
Advisory Committee opinion 94-1, dated April 15, 1994.

vi) The Multidoor Court House Approach - Instead of just one

‘door’ leading to the courtroom, many doors through which individual
might pass to get to the most appropriate process. Among the doors such as
arbitration, such as medical malpractice screening boards or tax courts. In
multidoor courthouse approach, disputes would be analyzed according to
various criteria to determine what mechanism would be best suited to
29
“Major Food Companies Agree to CPR plan to try ADR for 90 days before filing how suits”,
Alternation 23 (Feb.1993).
30
Dana H. Frayer, The American experience in the field of ADR, ADR what it is and how it works?
2003 PP 108-122.
 97

resolve the dispute. While selecting the criteria among ADR mechanism the
following factor are to be taken into consideration viz. nature of case,
relationship of parties, history negotiations between disputants, nature of
relief sought by plaintiff; size and complexity of claim etc.31 Some U.S.
Jurisdictions, though not yet having anything as all encompassing as the
multidoor courthouse, do have the functional equivalent in that they give
judges the power to refer appropriate cases to any of a listed set of ADR
options.32

The basic thrust behind the multidoor approach is to provide more

effective and responsive solutions to disputes which is important to
maintain good relation between the parties. Prof. Frank E. A. Sander who
was the author of the said system identified two important questions:

1) What are the significant characteristics of various alternative dispute

resolution mechanisms (such as adjudication by courts, arbitration,
mediation, negotiation, and various blends of these and other
devices)?

2) How can these characteristics be utilized so that, given the variety of

disputes that presently arise, we can begin to develop some rational
criteria for allocating various types of dispute resolution processes?

Upon analyzing various factors of comparing systems the learned

Professor Sander recommended: “…………A flexible and diverse panoply
of dispute resolution processes with particular types of cases being assigned
to differing processes (or combination of processes) mentioned.
Conceivably such allocation might be accomplished for a particular class of
cases at the outset by the legislature that in effect is what was done by the

31
Frank E.A. Sander, Disputes Resolution within and outside the courts –An Overview of the U.S.
Experience, attorney general and new methods of dispute resolution, 13, 24 (National Association
of Attorneys General and ABA, 1990).
32
S. Goldberg F. Sander, and N.Rogers, Dispute Resolution Ch. 6 (Little Browen 1992).
 98

Massachusetts legislature, for malpractices cases. Alternatively one might

envision by the year 2000 not simply a court house but a Dispute
Resolution Centre where the grievant would first be channeled through a
screening clerk who would then direct him to the process or sequence of
processes most appropriate to his type of case.”33 The theory of Prof.
Sander has been tested in different States of USA such as Columbia, New
Jersey, Houston and Philadelphia and a number of American cities and
countries now offer multidoor programme.34 Presently ADR is quite widely
used outside the courts viz .voluntary arbitration is commercial and labour
cases, consumer disputes. Many companies and other institutions have their
own internal dispute resolution mechanisms such as an ombudsman or a
mediator to handle disputes arising within their jurisdiction. Hence the
ADR use in the United States will continue to expand.

3.2.2 United Kingdom

The United Kingdom has three different legal systems: England and
Wales, Scotland and Northern Ireland. Each system has its own. The
information on ADR in the United Kingdom in this section applies mainly
to the situation in England. Some comments about the ADR situation in
Scotland are presented at the end of this section.

Sander’s concerns for the future of the civil justice system were
echoed in the Woolf Reports on the civil justice system of the 1990‘s when
the system in England and Wales was viewed as … too expensive in that
the costs often exceed the value of the claim; too slow in bringing cases to a
conclusion and too unequal: there is a lack of equality between the
powerful, wealthy litigant and the under resourced litigant. It is too
uncertain: the difficulty of forecasting what litigation will cost and how
33
see, STEPHEN B. GOLDBERG ET. AL., DISPUTE RESOLUTION: NEGOTIATION,
MEDIATION AND OTHER PROCESSES, (3rd ed., 1999), p.8.
34
Justice S, B. Sinha, Judge, Supreme Court of India from (http://delhimediationcentre.gov.in/
article.htm, 18/3/2011
 99

long it will last induces the fear of the unknown; and it is incomprehensible
to many litigants.35

The then Lord Chancellor appointed Lord Woolf in 1994 to review

the rules of civil procedure with a view to improving access to justice and
reducing the cost and time of litigation. The aims of the review were “to
improve access to justice and reduce the cost of litigation; to reduce the
complexity of the rules and modernise terminology; to remove unnecessary
distinctions of practice and procedure”.36 Perceived problems within the
existing civil justice system, summed up by Lord Woolf in his review in
England and Wales as - the key problems facing civil justice today...cost,
delay and complexity.

The Woolf Reports led to the enactment of the UK Civil Procedure

Act 1997 and the Civil Procedure Rules 1998 (CPR). The new CPR Rules
apply both to proceedings in the High Court and the County Court. The
stated objective of the procedural code is to enable the court to deal with
cases justly.37 Dealing with a case justly includes, so far as practicable:

• Ensuring that the parties are on an equal footing;

• Saving expense;

• Dealing with the case in ways which are proportionate;

• Ensuring that the case is dealt with expeditiously and fairly;

and

• Allotting it to an appropriate share of the court’s resources.38

35
See Lord Woolf, Access to Justice, Interim Report (1995) and Lord Woolf, Access to Justice
Final Report (1996). From www.lawreform.ie
36
Ibid
37
CPR 1.1(1).
38
CPR 1.1(2).
 100

The CPR vests in the court the responsibility of active case

management by encouraging the parties to co-operate and to use ADR.
Under the CPR a court may either at the request of the parties or of its own
initiative stay proceedings while the parties try to settle the case by ADR or
other means. Since the introduction of the CPR, ADR has significantly
developed in England and Wales and the judiciary has also strongly
encouraged the use of ADR. The judgments of the Court of Appeal in Cowl
39
v Plymouth City Council and Dunnett v Railtrack plc40 both indicated
that unreasonable failure to use ADR may be subject to cost sanctions.
Indeed, the CPR has also introduced the possibility for cost sanctions if a
party does not comply with the court’s directions regarding ADR.41

The English judge, Lightman J who is a strong supporter of

incorporating mediation into the justice system, summarised the main
developments in relation to ADR since the introduction of the CPR Rules as
follows:

(1) The abandonment of the notion that mediation is appropriate in only

a limited category of cases. It is now recognised that there is no civil
case in which mediation cannot have a part to play in resolving some
(if not all of) the issues involved;

(2) Practitioners generally no longer perceive mediation as a threat to

their livelihoods, but rather a satisfying and fulfilling livelihood of its
own;

(3) Practitioners recognise that a failure on their part without the express
and informed instructions of their clients to make an effort to resolve
disputes by mediation exposes them to the risk of a claim in
negligence;
39
[2001] EWCA Civ 1935; [2002] 1 W.L.R. 803.
40
[2002] EWCA Civ 303; [2002] 2 All E.R. 850.
41
CPR r. 44.5(3)
 101

(4) The Government itself adopts a policy of willingness to proceed to

mediation in disputes to which it is a party;42

(5) Judges at all stages in legal proceedings are urging parties to proceed
to mediation if a practical method of achieving a settlement and
imposing sanctions when there is an unreasonable refusal to give
mediation a chance; and

(6) Mediation is now a respectable legal study and research at institutes

of learning.43

For some time it has been UK Government policy that disputes

should be resolved at a proportionate level, and that the courts should be the
last resort. Although ADR is independent of the judicial system, a judge can
state that parties involved in litigation should first attempt to resolve the
dispute through ADR. The court may also impose sanctions if it decides
that one or more of the parties has/have been unreasonable in refusing to
attempt ADR. The UK courts will also take pre-litigation behavior into
account including whether or not an attempt has been made to use ADR.
For some types of dispute, there are specific pre-action protocols to set out
the steps parties are expected to take before starting judicial proceeding. For
all other types of disputes parties are expected to follow the Practice
Direction for pre-action Protocols.

3.2.2.1 Primarily used alternative dispute resolution processes in the

UK
1. Arbitration such as the Association of British Travel Agents, a
scheme to deal with problems in the travel industry, in particular
with package holidays.

42
In March 2001, the Lord Chancellor published a formal pledge committing Government
Departments and agencies to settle disputes by ADR techniques. See ://www.ogc.
gov.uk/documents/cp0077.pdf.
43
Speech by Mr Justice Lightman Mediation: An Approximation to Justice 28 June 2007. Available
at http://www.judiciary.gov.uk/docs/speeches/berwins_mediation.pdf.
 102

2. Mediation is increasingly used in commercial, personal injury and

clinical negligence cases. But that short list is not restrictive.

3. Contractual adjudication less familiar methods include:

4. Neutral Evaluation where a neutral third party provides a non-

binding assessment of the merits of the case.

5. Conciliation, which is similar to mediation but the third party,

(conciliator) takes a more interventionist role.

6. Expert Determination where an independent expert is used to decide

the issue.

7. Neutral Fact Finding is used in cases involving complex technical

issues where a neutral expert investigates the facts of the case and
produces a non-binding evaluation of the merits.

8. Med-Arb (a mixture of mediation and arbitration) where parties

agree to mediate but refer the dispute to arbitration if the mediation is
unsuccessful.

9. Ombudsmen an ombuds is a third party selected by an institution For

example-A hospital, university, or constituents. The ombuds works
within the institution to investigate complaints independently and
impartially. For e.g., Parliamentary Ombudsman, the various
Regulators like the Energy Regulator, Ofgen or the Rail Regulator.

10. Mini-trial, it is a private trial, consensual process where the attorneys

for each party make a brief presentation of the case as if at a trial, the
presentations are observed by a neutral advisor and representatives
from each side, at the end of the presentations the representatives
tries to settle the dispute. If the representatives fail to settle, the
neutral advisor, at the request of the parties may issue a non-binding
opinion as to the likely outcome in court.
 103

3.2.2.2 Legal Provisions

The Civil Procedure Rules, introduced in 1999, place great emphasis

on the fact that parties in a dispute should make every attempt to resolve
cases without going to court. Judges are also strongly encouraged to
facilitate that process. Extract from a speech by the then Lord Chancellor,
Lord Irvine, to the Faculty of Mediation and ADR in January 1999. ‘In the
UK the Centre for Dispute Resolution (CEDR) was launched with the
support of the Confederation of British Industry in 1990 to promote ADR in
dispute handling. CEDR pro-motes ADR, trains and accredits mediators
and arranges mediations and they claim a 95 per cent success rate in
resolving disputes. The Academy of Experts, although its main purpose is
to promote the better use of experts, is also at the forefront in the
development of ADR processes and was the first UK body to establish a
register of qualified mediators. The British Association of Lawyer
Mediators was set up in 1995 with the aim of promoting mediation in the
UK and of the role of lawyers in mediation and the maintenance of high
professional standards. The City Disputes Panel was founded in 1994 to
settle financial disputes in the financial services industry. Its panelists are
dedicated to the resolution of financial disputes through mediation,
evaluation, determination and arbitration. Also the use of ADR has been
established in the UK in resolving family and divorce disputes, employment
disputes, environmental disputes, and community or neighbourhood
disputes. The Government freely recognises that ADR has a significant part
to play in the delivery of civil justice.’

3.2.2.3 Steps taken by Government

Government departments and agencies have made the following

about the resolution of disputes involving them:

1) Alternative Dispute Resolution will be considered and used in all

suitable cases wherever the other party accepts it.
 104

2) In future departments will provide appropriate clauses in their

standard procurement contracts on the use of ADR techniques to
settle their disputes. The precise method of settlement will be
tailored to the details of individual cases.

3) Central government will produce procurement guidance about the

different options available for ADR in Government disputes and
ADR might be best deployed in different circumstances. This will
spread best practice and ensure consistency across Government.

4) Departments will improve flexibility in reaching agreements on

financial compensation, including using an independent assessment
of a possible settlement figure. At the moment these pledges do not
apply to local government authorities or agencies

Promotion of ADR became a key strategic imperative for the

Department of Constitutional Affairs (DCA) following the publication of
the Government’s 2002 Spending Review White Paper. The former Lord
Chancellor’s Department’s Public Service Agreement (PSA) included a
target to reduce the proportion of disputes resolved by resorting to the
courts. In particular, two sub-targets have been set to reduce the number of
allocated cases that are resolved by a civil trial. The key activities in the
PSA Delivery Plan to achieve these targets are a range of initiatives to
promote mediation.

There are two strands to the DCA work to meet the PSA3 target:

1. Initiatives are being developed that will help people resolve their
disputes in the earliest possible stage so that they do not have to
incur the costs and stress that may be involved in entering the
judicial system.
 105

2. For those people who feel it necessary to have recourse to court

proceedings, mediation will be promoted as an alternative, faster
method of resolving their dispute.

The following ideas are also being developed:

3.2.2.4 Court Mediation Schemes

A range of court-based and court-endorsed mediation schemes have

been developed over recent years.

a) Automatic Referral to Mediation Scheme (ARMS)-

An automatic referral scheme is being piloted at the Central London

Civil Justice Centre. Under the scheme, a selection of appropriate cases
allocated to the fast- and multitracks proceedings are automatically referred
to mediation. The standard directives for court proceedings are suspended
while a mediation appointment is arranged. Parties can opt-out of the
scheme if they feel that pursuing mediation would be fruitless. However,
the reasons for opting out will be recorded in the court register, and
party/parties that has/have refused mediation may find themselves subject
to an adverse cost order at the end of a trial if the trial judge feels that a
settlement could have been achieved earlier on. The scheme commenced in
April 2004 and will run until March 2005.

b) Mediation Advice Service-

A civil mediation advisor has been appointed for a trial period by

Manchester Combined Court Centre. The advisor is primarily available to
talk to parties attending case management conferences at the court, but is
also available to the general public. She does not actually mediate cases but
discusses with and informs parties about the benefits mediation may bring
to their case, and then sets up a mediation appointment with a local provider
if they choose to try the process. The scheme commenced in March 2004
and will run as a pilot until the end of December 2004. The scheme is
 106

currently being evaluated and a decision on its future will be made in the
coming months.

c) Proportionate Dispute Resolution-

The DCA is also developing a vision for Proportionate Dispute

Resolution (PDR). PDR is about much more than ADR. The vision for PDR
is that people have access to the information and the range of services they
need to understand their rights and responsibilities, avoid legal problems
where possible, and where not, to resolve their disputes effectively and
proportionately. This vision is a radical departure from the traditional
approach to civil justice, which focuses first on courts, judges and judicial
procedure, and second on legal aid to pay mainly for litigation lawyers.

Mediation, however, is not compulsory. It is usual to incorporate an

ADR clause in business-to-business contracts. The general consensus is that
in the construction industry ADR clause in contracts is widely used. The
construction industry uses adjudication as their preferred ADR method.
Other industries do not yet seem to have adopted ADR so quickly.

d) Organisations-

Numerous bodies are available in connection with dispute resolution

e.g.:
a. Centre for Effective Dispute Resolution (CEDR)
b. Chartered Institute of Arbitrators
c. Permanent Court of Arbitration - The Hague
d. Academy of Experts
e. The ADR Group
f. Mediation UK
g. The Law Society
h. The Community Legal Service
 107

In addition there are many commercial bodies providing ADR

services including ‘on-line’ services.

e) Relation between judicial dispute resolution and ADR-

The DCA annual report 2003/2004, reported a significant increase in

the use of ADR compared to the initial year when 49 cases were reported,
in the period March 2002 to April 2003 when 619 cases were reported. The
estimated saving was £17m to June 2003 (NB. This is a measure only of the
cases that passed through the judicially directed system and accepted
mediation as an option.). ADR and judicial litigation are seen as
complementary means to resolve disputes.

Interest in alternative dispute resolution (ADR) has been growing

steadily among the Judiciary and legal profession over the last decade. A
significant impetus came from Lord Woolf's Access to Justice Report
(1996) that identified the need for fair, speedy and proportionate resolution
of disputes. Those principles are at the heart of the Civil Procedure Rules
(CPR), which came into force in April 1999. The CPR included references
to ADR in rules of court and introduced pre-action protocols, with their
emphasis on settlement, even before judicial proceedings are issued.
(Department of Constitutional Affairs) However: DCA also note that there
is a strong perception that anything that speeds up dispute resolution will
reduce the amount of conventional legal work (thus competitive with the
litigation process) It has been suggested in more than one report that some
opposition to ADR has resulted from the idea that if resolution is not
achieved by ADR then the total cost of resolution will be increased, as
recourse to the courts will be necessary. Also some researchers suggest that
the process of ADR can expose the parties’ arguments, which could be
damaging should the matter go to court if ADR failed. On the ‘consumer’
 108

side many parties are simply not aware of alternative methods of resolution,
particularly those with smaller claims44

3.2.3 European Developments

3.2.3.1 Council of Europe

In 1998 the Committee of Ministers of the Council of Europe adopted a

Recommendation on Family Mediation in Europe.45 This Recommendation
focused on the use of mediation in resolving family disputes. It sets out
principles on the organisation of mediation services, the status of mediated
agreements, the relationships between mediation and proceedings before the
courts and other competent authorities, the promotion of, and access to
mediation and, the use of mediation in international matters. In addition, it calls
for the government of all Member States to introduce or promote family
mediation and to take or reinforce measures necessary for this purpose, and to
promote family mediation as an appropriate means of resolving family disputes.

3.2.3.2 European Commission

I) Green Paper on Alternative Dispute Resolutions in Civil and

Commercial Law 200246

As a follow-up to the conclusions of the 1999 Tampere European

Council, the Council of Justice and Home Affairs asked the European
Commission to present a Green Paper on alternative dispute resolution in
civil and commercial law other than arbitration. Priority was to be given to
examining the possibility of laying down basic principles, either in general
or in specific areas, which would provide the necessary guarantees to
ensure that out-of court settlements offer the same guarantee of certainty as
court settlements.

44
ADR in UK www.google.in search
45
Family Mediation in Europe Recommendation No. R (98)1, www.google.in
46
Green Paper on alternative dispute resolution in civil and commercial matters COM/2002/0196
Final. Available at http://eurlex.europa.eu/.
 109

In 2002 the European Commission published a Green Paper on

Alternative Dispute Resolutions in Civil and Commercial Law. It deals with
the promotion on an EU wide basis of ADR as an alternative to litigation
primarily due to the ever increasing number of international disputes but
also with the aim of promoting a framework to ensure that disputes can be
dealt with in an efficient and cost effective manner.

II) European Code of Conduct for Mediators 2004

In 2004, a European Code of Conduct for Mediators was developed

by a group of stakeholders with the assistance of the European
Commission.47 It sets out a number of principles to which individual
mediators can voluntarily decide to commit. It is intended to be applicable
to mediation in civil and commercial matters. Organisations providing
mediation services can also make such a commitment, by asking mediators
acting under the auspices of their organisation to respect this code.
Adherence to the code is without prejudice to national legislation or rules
regulating individual professions. (Google search)

3.3 NATIONAL PERSPECTIVE

Alternative dispute resolution is a tool that refers to several different

methods of resolving to business related disputes outside traditional legal
and administrative forms. All countries, societies, communities, business
organization and individuals have to experience conflicts at one time or the
other. Instead of allowing conflicts to take a negative course, they are
required to be diverted towards growth and positive solutions benefiting all
the disputing parties by envisioning procedures for cooperative problems
solving so as to eradicate distrust and animosity among the parties. A
dispute is basically ‘lis inter partes’ and ADR mechanism is the most
efficient alternative to existing adversarial system.

47
Available at://ec.europa.eu/civiljustice/adr/adr_ec_code_conduct_en.pdf.
 110

Article 39A of the Constitution of India provides that State shall

secure that the operation of the legal system promotes justice on a basis of
equal opportunity, and shall in particular, provide free legal aid, by suitable
legislation or schemes or in any other way, to ensure that opportunities for
securing justice are not denied to any citizen by reason of economic or
other disability. Articles 14 and 22(1) also make it obligatory for the State
to ensure equality before law and a legal system which promotes justice on
a basis of equal opportunity to all. Legal aid strives to ensure that
constitutional pledge is fulfilled in its letter and spirit and equal justice is
made available to the poor, downtrodden and weaker sections of the
society48. Article 21 of the constitution of India guarantees the fundamental
right to life and liberty which includes right to speedy trial49. The Supreme
Court held the right to speedy trial a manifestation of fair, just and
reasonable procedure. The failures prosecuting agencies and executive to
act and secure expeditious and speedy trial have persuaded the Supreme
Court in devising solutions which go to the extent of almost enacting by
judicial verdicts bars of limitation beyond which the trial shall not proceed
and the arm of laws shall lose its hold.50 Article 39-A of the constitution
provides for ensuring equal access to justice. To achieve the objective, Lok
Adalat is being hold at various places in the country. So that seedy and
affordable justice could be mode available to the litigants at then door
steps51. Efforts are also being made at state, District and Taluka level52.

3.3.1 GENESIS AND DEVELOPMENT OF ADR IN INDIA

Informal dispute resolution to be prevailing in the ancient India.

Alternative dispute resolution system is rooted in the haze of ancient history.
48
Dr. J. N. Pandey, Constitutional Law of India, 47th edition, 2010, Central Law Agency, p 232.
49
Hussainara khatoon V. Home Secretary, State of Bihar AIR 1979 SC 1360.
50
P. Ramachandra V. State of Karnataka (2002) 4 SCC 578
51
Ibid
52
M. P. Jain, Indian Constitutional law, 5th ed., 2003, Wadhawa publication, Nagapur, p 221.
 111

The business community has now recognised that ADR, in one form or
other, is the acceptable mode of dispute resolution. The beginnings of
arbitration are lost in the mists of time and substantive records survive
showing to what extent and how disputes were resolved any such fashion. It
has a striking feature of ordinary Indian life and it prevailed in all ranks of
life.

3.3.1.1 In Ancient India

In ancient time to refer matters to a panch (neutral facilitator) has

been one of the natural way of deciding a variety of disputes. In some cases
the panch more resembled a judicial court because he could intervene on
the complaint of one party and necessarily on the agreement of both, e.g. In
a case matter however, in most cases the arbitral award was made by
agreement between the parties.53.

Arbitration or mediation as an alternative to dispute resolution by

municipal courts has been prevalent in India from Vedic times The earliest
know treatise is the Brhadaranayaka Upanishad, in which sage Yajavalkya
refers to various type of arbitral bodies viz. i) the puga – a board of persons
belonging to different sects and tribes but residing in the same locality i.e.
neighborhood Assembly ii) the sreni – an assembly of tradesmen and
artisans belonging to different tribes but connected in some way with each
other i.e. guilds of particular occupation. iii) the kula- a group of persons
bound by family ties i.e. assembly of members of a members were known
as “Panchas”. Proceedings before these bodies were of informal nature, free
from technicalities of the municipal laws. The decisions of these bodies
were final and binding on the parties54. Though these bodies were non
governmental and the proceeding before them were of informal nature, their
decisions were receivable by municipal courts.
53
Chanbasappa Hiremath AIR 1927 Bom 565-568-69(F.B)
54
Kane, History of Dharmashastra ,Vol. III,1946 P 242
 112

Dr. Priyanath Sen in ‘The general Principles of Hindu Jurisprudence’

for exposition of the dispute resolution institutions prevalent during the
period of Dharmashastra. In the absense of some serious flows of bias or
misconduct by and large, the courts have given recognition and
confirmation to the awards of the Panchayats. For instance, in Sitanna V.
Viranna55 the Privy Council affirmed an award of the Panchayat in a family
dispute challenged after about 42 years.

Sir John Wallis observed that the reference to a village panchayat is

the times honoured method of deciding disputes. It avoids protracted
litigation and is based on the ground realities verified in person by the
adjudicators and the award is fair and honest settlement of doubtful claims
based on legal and moral grounds.

As Marc Galanter and Upendra Baxi56 observed, in Pre- British India

there were innumerable, overlapping local jurisdictions and many groups
enjoyed some degree of autonomy in administering law to them. Disputes
in villages and even in cities would not be settled by royal courts, but by
tribunals of locality of caste within which the disputes arise or of guilds
and association of traders or artisans are by panchayat of the locally
dominant caste landowners, government officials or religious dignitaries.
Panchayats used to enforce customary rules, fixed body of law and
sometimes created new rules for situation in hand. The process was formal
and quick. The sanctions imposed were in the nature of ex-communication
which forced the wrongdoers to abide by the decision.

With the establishment of Nyayapanchayat, village Panchayat lost

their adjudicatory power several efforts have been made for re-organisation
of rural self government through village panchayat in British era, viz., Lord

55
AIR 1934 PC 105,107
56
Marc Galanter and Upendra Baxi, Panchayat Justice : An Indian Experiment in Legal Access in
Pre- British India 1997
 113

Rippon’s Resolution in 1882, Government of India Resolution of 1915 and

Montague-Chelmsford Report of 1918. As a result, Mysore, Madras and
Kerala have Nyaya-Panchayat system at the time of adoption of the
Constitution. Madhya Pradesh, Uttar Pradesh States also have this system.
In introducing the Nyaya-panchayat system, State made an attempt to
replace the existing disputes processing institution like caste institutions
and other secular or special institutions by some social working like
Rangpur People’s Court.57

These arbitral bodies dealt with number of disputes such as matrimonial,

contractual as well as small crimes. The Raja was the ultimate arbiter of all
disputes between his subjects. However with the change in social and economic
requirements, such arbitral bodies become inadequate. But even today such
arbitral bodies are prevalent in some rural and tribal areas in India.

3.3.1.2 During Muslim Rule-

During Muslim rule, all Muslims in India were governed by the

Islamic laws. The shariah as contained in the Hedaya. The non Muslims
continued to be governed by their own personal laws. However, with
respect to transaction between Muslims and non-Muslims a hybrid system
of arbitration laws developed58.

The Hedaya (Commentary on the Islamic laws PP 325) Imam Abu

Hanifa, his disciples Abu Yusuf and Imam Mohammad, in the commentary
systematically compiled the Muslim Law which come to be known as
hedaya contains provisions for arbitration between the parties. The Arabic
word for arbitration is Tahkeem, while the word for an arbitrator is Hakam.
An arbitrator was required to possess the qualities essential for a Kazee an

57
Madabhush Sridhar, Alternative dispute Resolution- Negotiation and Mediation, 1st edition,
LexisNexis, Butterworths, New Delhi, India, 2006, page 85.
58
O. P. Malhotra, The law and practice of Arbitration and Conciliation, 2nd ed., Indu Malhotra ,2006
LexisNexis Butterworth,p.125
 114

official Judge Presiding over a court of law. If two parties to a dispute

appointed an arbitrator and expressed their desire to abide by his award, he
would proceed with the arbitration. Any one of the parties would proceed to
hear the arbitration and make the award. The award so made was binding
on the parties who appointed the arbitrator, except in cases where the award
was invalid on account of any legal infirmity.

Arbitration in most Islamic countries, is governed by shariah59. The

effect of the agreement to submit their disputes to the shari’ah law is that
parties agree that Shariah will govern all aspects of arbitration to the
complete exclusion of any Secular system.

However, in the area of international commercial arbitration strict

application of Shari’ah has diminished with emergence of arbitration rules,
UNCITRAL Model Law.

3.3.1.3 In British Rule-

The formal systems of administration of justice were introduced by

the Britishers and replaced the old systems of dispensing justice through
feudal set up. However, the traditional institutions such as Kula, Srenis and
Pugas continue to play their role of dispute resolution, though no longer
known by their old names.

The East India Company did not abrogate the law relating to
arbitration as prevalent in the country at the time it came into power. The
British government gave legislative form to the law of arbitration by
promulgating regulations in three presidency towns Calcutta,60 Bombay61
and Madras62 these regulations lacked uniformity of details and clarity.
However, they introduced substantial changes in the Panchayat Systems in

59
Basic law of Muslim Comprised of Quran , Sunnah, Ijma and Qiyas
60
Bengal Regulations I of 1772 IX 1833 etc.
61
Bombay regulations I of 1799, IV and VI of1827
62
Madras Regulations I of 1802 and regulations IV, VI and VII of 1822
 115

the presidency towns. For Instance, the Bengal Regulations LVIII of 1781
provided that the judges do recommend and so far as he can without
compulsion, prevails upon the parties to submit to the arbitration of one
person to be mutually agreed upon by the parties. It further provided that no
award of any arbitrator or arbitrators can be set aside except upon full proof
made by oath of the credible witnesses that arbitrators have been guilty of
gross corruption or partiality to the cause in which they had made their
awards.

The Bengal Regulations of 1787, 1793, 1795 introduced certain

procedure changes by empowering the court to refer suits to arbitration with
the consent of the parties. The limits of jurisdiction of arbitration were
extended by the Bengal Regulations of 1802,1814,1822,1883 by making
diverse procedural changes. Similarly in the presidency of Madras, the
Regulations of 1816 empowered the district munsifs to convene district
panchayats for settling disputes of civil nature in connection with real estate
and personal property. In the Bombay Presidency town, Regulation VII of
1827 provided for settlement of civil disputes and also case name down that
arbitration shall be in writing to a named arbitrator, wherein the time for
making the award had to be stated [Nu-seerwanji V. Moynoodeen (1855) 6
MIA 134] There remained in force till the Civil Procedure Code 1859
(Act No. 7 of 1859).

3.3.1.4 Enactment of the Code of Civil Procedure

After establishment of the legislative council for India in 1834, the

code of Civil Procedures 185963 was passed with the object of codifying the
procedure of civil courts except those established by Royal Charter, namely
the High courts in the presidency town of Calcutta, Bombay and Madras.
Section 312 and 327 provided for arbitration in suits while 325, 326 and

63
Act No. 8 of 1859
 116

327 provided for arbitration without court intervention. The Regulation in

the presidency towns continued to remain in force till the civil procedure
code 1859 was extended to all presidency towns in the year 1862.

The Act of 1859 was repealed by the code of civil procedure 1877,
which was again revised in the year 1882 by the code of civil procedure
1882 (Act No. 14 of 1882). The provisions relating to arbitration were
mutatis mutandis reproduced in section 85, 506 to 526 of the new Act.

The code of Civil Procedure 1882 was repealed and new code of
civil procedure 1908 (Act of 1908), where the provisions relating to
arbitration were included in the schedules of the Act. The first schedule to
this code contained provisions relating to the law of arbitration which
extended to the other parts of India while the second schedule dealt with
arbitration Act 1899.

The new section 89 has been inserted in the code in order to provide
for Alternative Dispute Resolution Mechanism. Section 89, provides for the
settlement of disputes outside the court. The provisions of section 89 are
based on the recommendations made by the Law Commission of India and
Malimath Committee.

3.3.1.5 Enactment of Arbitration Act

The legislative Council enacted the Indian Arbitration Act, 1899

(The Act No. 9 of 1899), this Act was substantially based on the British
Arbitration Act of 1889. (52 and 53 Vict C 49) Its working presented
complex and cumbersome problem and judicial opinion started voicing its
displeasure and dissatisfaction with the prevailing state of the arbitration
law. In Dinkar Rai Lakshmiprasad V. Yeshwantrai Hariprasad64 Rangneker
J. Suggested to take early steps in law of arbitration.

64
AIR 1930 Bom. 98,105
 117

The Geneva Protocol on Arbitration clauses 1923 and Geneva

Convention on the Execution of Foreign Arbitral Awards 1927 were
implemented in India by the Arbitration (Protocol and Convention) Act
1937. India was a signatory to the clauses set forth in the first Schedule.
This Act was enacted with the object of giving effect to the protocol and
enabling the convention to become operative in India.

The judicial reprimand and demands of the commercial community

led to the enactment of a consolidating and amending legislation led to the
enactment of the Arbitration Act 194065. This Act purported to be a
comprehensive and self contained code, having provision for arbitration
without court intervention, arbitration in suits i.e. arbitration with court
intervention in pending suits, (Ch. IV SS. 21-25) and arbitration with court
intervention, in cases where no suit was pending before the court (Ch. III,
S.20) It then proceeded to make further provision common to all the three
types of arbitration (Ch. V SS. 26-38).

After the Second World War in 1945, particularly after independence

in 1947, trade and industry received a great fillip and the commercial
community becomes increasingly inclined towards arbitration for
settlement of their disputes, as against court litigation. With escalating
emphasis on arbitration, the shortcoming and dawn in Arbitration Act of
1940 seen. For instance, the provisions about the duties and power of the
arbitrators, the procedure for conducting the proceedings after a reference
etc. were inadequate. The Act also did not make distinction between the
‘agreement’ made in advance to submit future differences and on
‘submission’ made after a dispute had arises66. Arbitration Act 1940 and
The Foreign Awards Act 1969 were replaced by Arbitration and
Conciliation Act 1996. This Act probably is the most radical advanced and

65
Act 10 of 1940
66
M/s Tractor export, Moscow V. Tarapore and Co. AIR 1971 SC 1 at 11
 118

sophisticated piece of legislation. As it is based on United Nations

Commission on International Trade Law will be beneficial in solving
domestic as well as international commercial disputes.

3.3.1.6 Enactment of Legal Services Authorities Act, 1987

The Legal Services Authorities Act, 1987 was enacted pursuant to

the constitutional mandate in Article 39 A of the constitution of India, for
settlement of disputes through Lok Adalat. Under Section 19 of the Act,
Central, State, District and Taluka Legal Services Authority has been
created who are responsible for organizing Lok Adalats. The National
Legal Services Authority (NALSA), a statutory body constituted on 5th
December, 1995 by Legal Services Authorities Act 1987 as amended by the
Act of 1994, is responsible for providing free legal assistance to poor and
weaker sections of the society on the basis of equal opportunity. Similarly
the State Legal Services Authority have been constituted in every state
capital. Supreme Court Legal Services Committee, High Court Legal
Services Committees, District Legal Services Committees and Taluka Legal
Services Committees have also been constituted in every state to give effect
to the policies and directions of NALSA and give legal services to people
and conduct Lok Adalats in the State. The Legal Services Authorities Act,
1987 (as amended vide Act No. 37 of 2002) provides for setting up of a
“Permanent Lok Adalat” which can be approached by any party to a dispute
involving “Public Utility Services.”

Any conflict leads to another conflict, therefore, curb this cycle. It is

essential to resolve the dispute, the moment it raises its head. The method,
agreeable to both the parties as well as resolve it as early as possible with
participation of both the parties in dispute will definitely achieve the goals
of alternative dispute resolution programme.
 119

3.3.2 NEED AND SIGNIFICANCE IN INDIA

An independent, accessible and efficient justice delivery system is

needed for maintaining healthy, democratic, traditions and pursuing
equitable development policies. With the evolution of modern states and
sophisticated legal mechanisms, the courts run on formal processes and are
presided over by trained adjudicators entrusted with the responsibilities of
resolution of disputes on the part of the State. The seekers of justice
approach the courts of justice with pain and anguish in their hearts on
having faced legal problems and having suffered physically or
psychologically. They do not take the law into their own hands as they have
strong faith upon the judiciary. So it is the obligation of judiciary to deliver
quick and inexpensive justice shorn of the complexities of procedure.
However, the reality is that it takes a very long time to get justice through
the established court system. Obviously, this leads to a search for
alternative, complementary and supplementary mechanism to the process of
the traditional civil court for inexpensive, expeditious and less cumbersome
resolution of disputes. But the elements of justice, fairness and equality
cannot be allowed to be sacrificed at the cost of expeditious disposal. The
hackneyed saying is that ‘justice delayed is justice denied’. But justice has
to be imparted: ‘Justice cannot be hurried to be buried’. The cases have to
be “decided” and not just “disposed off.” This creates the dilemma of
providing speedy and true justice.

Before, the expansion of commercialization and industrialization the

justice delivery system was in sound condition. As the time passes, the
consciousness of fundamental and individual right, government
participation in growth of the nation’s business; commerce and industry,
establishment of the parliament and state legislatures, government
corporations, financial institution’s fast growing international commerce
and public sector participation in business, tremendous employment
 120

opportunities were created. Multiparty complex civil litigation, the

expansion of business opportunities beyond local limits, increasing popular
reliance on the only judicial forum of courts brought an unmanageable
expansion of litigation. The clogged courthouses have become an
unpleasant compulsive forum instead of temples of speedy justice. Instead
of waiting in queues for years and passing on litigation by inheritance,
people are inclined either to avoid litigation or to start resorting to extra
judicial remedies67.

Almost all the democratic countries of the world have faced this
situation. United States was the first in introducing law reforms about 30
years back, Australia followed the same then U.K. also adopted the ADR in
its judicial system. India is no exception to it. The Great thinker Victor once
said –“Stronger than armies of the world is the idea whose time has come”.
It is the time for change the pattern of administration of justice and ADR is
the idea whose time has come, and therefore it deserves foremost concern
as per the following situations in India.

3.3.2.1 Huge pendency of litigations

As per statistics available in India, it is unable to clear the backlog of

cases. Take a look upon the pendency figures68.

67
Mediation and Case Management- Their co-existence and correlation- A paper presented during
Indo-US Judicial exchange at U.S. Supreme court by Niranjan Bhatt on 15/12/2002
68
Source: www.supremecourtofindia.nic.in, also see Bar & Bench News Network Jul 15, 2010
Google search
 121

Table No. 3.1

Pending Cases

Courts 2008 2009 2010

Admission 26,863 30,834 33,352

Supreme
Regular 19,024 19,329 21,512
court*
Total 45,887 50,163 54,864

High Courts * 3,743,060 3,874,090 4,060,709

Lower
25,418,165 26,409,011 27,275,953
Courts**

Total
29,207,112 30,333,264 31,391,526
(All Courts)

*Statistics as of march 31, 2010

** Statistics as of December 31, 2009.

The backlog has been increasing at an average rate of 34 percent

annually. This huge backlog of unsolved cases, experts claim, is directly
proportional to a lack of judges. Statistics released by the Supreme Court
although shows a drop in vacancies of judges in the courts of the country,
the number is still very high. Here are the statistics for past three years and
vacancies that continue to exist

3.3.2.2 Vacancies in the Court and ratio of judges to population

As per statistics the vacancies of judges in the courts ratio of judges

per 10 lac population is as follows :
 122

Table No. 3.2

Vacancies in the Courts

Courts 2008 2009 2010

Supreme Court* Sanctioned 26 31 31

Vacancies 1 7 2

High Courts** Sanctioned 876 886 895

Vacancies 282 251 267

Lower Courts** Sanctioned 15,917 16,685 16,880

Vacancies 3,393 3,129 2,785

*Statistics as of march 31, 2010

** Statistics as of December 31, 2009.

The vacancies in the Supreme Court have been reduced by new

appointments this year and last year. The High Court’s statistics however,
show some concerns. There have been nearly 30 percent vacancies in High
Courts as well as lower courts

In Maharashtra state, total pending cases as of 31 December, 2009 in

Lower Courts is 4,158,458, i.e. 15 percent of total pendency and 338,183 in
High courts i.e. 8 percent of total pendency
 123

Table No. 3.3

Ratio of Judges to Population*

Ratio of judges to population

Country
(per 10 Lac population)

USA 107 Judges

Canada 75 Judges

Australia 57.7 Judges

England 50.9 Judges

India 10.5 Judges

*As per the Law Commission of India Report, 1987

The United Nations Development Programme reveals that

approximately 20 million legal cases are pending in India. India is a country
of 1.1 billion people. Presently it has approximately 12.5 judges for every
million people compared with roughly 107 per million in the United States
and Great Britain have around 150 judges for million of its population69. In
its 120th Report in 1988, the Law Commission of India had recommended
that “the state should immediately increase the ratio from 10.5 judges per
million of Indian population to at least 50 judges per million within within
the period of next five years.”70 The recommendation is yet to be
implemented.

Our justice delivery system is bursting at the seams and may collapse
unless immediate remedial measures are adopted not only by the judiciary
but also by the legislature and executive. It has been said by Lord Devlin:

69
Google search
70
120th Report of the Law Commission of India on Manpower Planning in the Judiciary: A
Blueprint, Ministry of Law, Justice and Company Affairs, Government of India (1987) 39.
 124

“If our business methods were as antiquated as our legal system, we

would have become a bankrupt nation long back”.

3.3.2.3 State is the largest litigator

The central and state governments are the single largest litigants,
abetted by government owned corporations, semi-government bodies and
other statutory organizations. In Bombay High Court alone, there were as
many as 1,205 writ petitions filed against these bodies between January 1 to
June 7, 2000- excluding those filed on the appellate side, while total
number of suits filed is 2,402.71

According to rough estimate, 70% of all cases are either agitated by

the State or appealed by it. The State fights cases against citizens at the cost
of citizens. Moreover, the officers neither allow the cases to got resolved
nor withdraws the same, as they have vested interest. All these facts are
also responsible for increasing weight of pending cases.

Government failure in filling up the vacancies and expanding courts

proportionate to the population ratio tends to work load on the existing
personnel.

Financial assistance for expanding and consolidating the judiciary, is

totally ignored as the state spends huge amounts on fighting frivolous cases
and appeals against the citizens. Some limit on government will put
litigations under controlled situation72.

3.3.2.4 Ability of Courts to disposal off the Cases

There is yet another aspect which the speed that the 21st century’s
demands and that is the complicated and burdensome procedural details
which are inherently very slow proving. Filing of the plaint, serving the

71
Subhash Kothari, Courting Disaster: A case for Judicial Reform, Times of India, 28-6-2000, p.14.
72
Madabhushi Sridhar, ALTERNATIVE DISPUTE RESOLUTION NEGOTIATION AND
MEDIATION, First edition,2006, LexisNexis Butterworths Wadhawa, Nagpur, page 58
 125

process filing the written statements, the time irresponsibly taken and given,
the discovery procedure, recording of depositions, ineffective court
management, fragmented and discontinuous trial unattractive alternatives to
trial and indifferent attitudes of legal actors, namely lawyers, judges and
litigants have resulted into vicious cycles of backlogs and delays. The lack
of financial and political support, accountability an the will to accept,
introduced and implement law reforms have resulted in a very sorry state of
affairs. In this fast changing world international trade, commerce and global
interactions in all fields have created an inevitable need to compare laws of
different countries of the world and adopt them with advantage. The
inordinate delay in disposal of cases and escalating costs of litigation are
alienating faith of the people from the court system73. To meet with the
growing trade, commerce and phenomenal rise in global context as well as
to cope out of fear of diversion of the business of multinational companies
to other countries having a more efficient system of dispute resolution,
ADR is inevitable.

3.3.2.5 ADR will serve true pace to Nation’s developmental issues

From ancient time Indian culture carry an inherent promise that ADR
mechanism is most likely to succeed in India, if implemented with an
administrative will and proper legal education. The economic liberalization
policies of the government, establishment of large multinational companies,
economic industrial and banking growth and opportunities for international
commerce and industries have increased to a large extent. ADR will
provide an expedited negotiated settlement to business and industry. When
a dispute arises, ADR will offer an opportunity to resolve the disputes in a
way that is private, fast and economical. In short, ADR provides a
mechanism whereby parties can find business solution for business

73
Ancient mediation rediscovered in India with global innovations. A paper presented by Niranjan
Bhatt at German Mediation Convyness at Frankfurt order on 25/09/2004 .
 126

problems, family solution for family problems and individually tailored

settlement package that will become a custom more for the litigants and
particular characteristics of each dispute. There is always a difference
between winning a case and seeking a solution. In foreign countries literacy
ratio is high and the distance between haves and the have note is not much,
but in India, the illiterate litigants as well as the socially backward and the
economically exploited have to be made aware of their legal rights. Hence,
ADR process will enable the poor to meet the better off opponents on an
equal footing to negotiate a settlement. When a person is called upon to
abstain from exploiting the weakness of the other person, the foundation of
human dignity will be laid. In cases of contract and property disputes
medial claims, motor accident claims conflicts overland and water,
religious rights, family matters, environmental disputes, employer –
employee disputes etc. ADR mechanism will provide satisfactory help.
Thus, Indian forms of dispute resolution, which were lost during British
colonial rule is now being rediscovered with global innovations in the
contemporary context of ADR system and mandatory ADR process through
courts has now a legal sanction.

3.3.3 LEGISLATIVE RECOGNITION TO ADR PROCEDURES

The first footstep towards taking resort to alternate method of dispute

resolution in India can be traced back as early as The Bengal Regulation
Act 1772 which provided that in all cases of disputed accounts, parties are
to submit the same to arbitrators whose decision are deemed a decree and
shall be final. The Regulation Act 1781 further envisaged that judges
should recommend the parties to submit disputes to mutually agreed person
and no award two witnesses that arbitrator had committed gross error or
was partial to a party. A recommendation for the first time was made to the
second laws commission by Sir Charleswood to provide for a uniform laws
 127

regarding arbitration. The code of Civil Procedure was then enacted

accordingly in 1859.

Indian contract Act 1872 also recognizes arbitration agreement as an

exception to section 28, which envisages that any agreement in restraint of
legal proceedings is void. Later the Arbitration Act, 1899 was also enacted to
apply only to presidency towns to facilitate settlements of disputes out of
court74.

The Arbitration Act 1940 replaced the previous act75. When India
became a state signatory to the protocol on arbitration under the Geneva
Convention and in order to give effect to the same the Arbitration (Protocol
and Convention) Act was passed. Later, India also becomes a signatory to
the New York Convention and according Foreign awards (Recognition and
Enforcement) Act 1961 was passed. After liberalization of Indian economy
in the 1990’s Arbitration and Conciliation Act 1996 was enacted which
superseded the earlier Act of 1940 and brought about radical changes in the
laws of arbitration and introduced concept like conciliation (Under Part I of
the Act) to ensure speedy settlement of commercial disputes. A Key feature
of the act is that by virtue of section 5, the judiciary shall not intervene in
all arbitration agreement between parties to dispute except as provided
under the Act. The Act is a comprehensive one consisting of 39 section and
provides for judicial intervention only under sections 9, 11, 14 and34
dealing with exceptional situations. This legislation has been codified along
the lines of Model Laws on International Commercial Arbitration adopted
by United Nations Commission on International Trade Laws (UNCITRAL)
and therefore corresponds to international standards of norms.76

74
J. Beatson Anson’s Law of contract, 28th edition, 2002, Oxford University Press, P. 366.
75
Arbitration Act 1899
76
Justice Dr. B. P. Saraf, Justice S. M. Jhunjhunwala, Law of Arbitration and Conciliation, 3rd
edition, 200, Snow White Publication, p. 97.
 128

Industrial Disputes Act 1947 provides the provision both for

conciliation and arbitration for the purpose of settlement of disputes. The
conciliators appointed under section 4 of the Act are charged with the duty
of mediating in and promoting the settlement of Industrial disputes
complete machinery for conciliation proceedings is provided under the
Act77.

Section 7(h b) of the Notaries Act, 1952, states function of a notary

is to act as arbitrator, conciliator, if so required78.

Section 23 (2) of the Hindu Marriage Act, 1955 mandates the duty
on the court that before granting relief under this Act, the court shall in the
first instance make an endeavour to bring about a reconciliation between
the parties where it is possible according to nature and circumstances of the
case. For the purpose of reconciliation the court may adjourn the
proceeding for a reasonable period and refer the matter to person nominated
by court or parties with direction report to the court as to the result of the
reconciliation (Section 23(3) of the Act)79.

The Family Court Act 1984 was enacted to provide for the
establishment of family courts with a view to promote conciliation in, and
secure speedy settlement of disputes relating to marriage a family affairs
and for matter connected therewith by adopting an approach radically
different from that ordinary civil proceedings80. Section 9 of the Family
Court Act, 1984 lays down the duty of the family court to assist and
persuade the parting at first instance in arriving at a settlement in respect of
a subject matter. Family Court has also been conferred with the power to
77
S.K. Mishra, Labour and Industrial Law of India, third edition, 2005, Allahabad law Agency,
p.60.
78
Professional’s Bare Act, Notaries Act, 1952, Professional book publishers, 2003, p.23.
79
Prof. G. C. V. Subba Rao’s FAMILY LAW IN INDIA, revised by, Dr. T. V. SUBBA RAO,
Dr. VIJENDER KUMAR, Ninth edition, 2006, S. Gogia and Co., p. 217.
80
K.A. Abdul Jalees V. T.A. Sahida (2003) 4 SCC 166
 129

adjourn the proceedings for any reasonable period to enable attempts to be

made to effect settlement it there is a reasonable possibility81.

The Code of Civil procedures 1908, under section 80 (1) lays down
that no suit-shall be instituted against government of public officer unless a
notice has been delivered at the government office stating the cause of
action, name etc. The whole object of serving notice under section 80 is to
give the government sufficient warning of the case which is of going to be
instituted against it and the government if it so wished can settle the claim
without litigation or afford restitution without recourse to a court of laws82.
In Raghunath Das V. Union of India83 The supreme court lay down that the
object of sections 8, 80 is to give the government the opportunity to
consider its or his legal position and if that course if justified to make
amends or settle the claim out of court84.

Under order 23 Rule 3 of Civil procedure code is a provision for

making an decree on any lawful agreement or compromise between the
parties during the pendency of the suit by which claim is satisfied or
adjusted. The Scheme of Rule 3 of order 23 proves that if the court is
satisfied that a suit has been adjusted wholly or partly by a lawful
agreement or compromise the court shall pass a decree in accordance to that
order 23 Rule3 gives mandate to the court to record a lawful adjustment or
compromise and pass a decree in term of such compromise or adjustment.

Order 27 Rule 5B confers a duty on Court in suit against the

government or a public officer to assist in arriving at a settlement. In a suit
where Government or public officer is a party it shall be the duty of the
court to make an endeavor at first instance where it is possible according to
81
Professional’s Family Court Act Bare Act, 1984, Professional book publishers, 2005, p.45.
82
Ghanshyam Dass V. Domination of India (1984) 3 SCC 46
83
AIR 1969 SC 674
84
Dr. S. R. Myneni, Code of Civil procedure and Limitation Act, First edition, 2006, Asia Law
House,p.114.
 130

the nature of the case to assist the parties in arriving at a settlement. If it

appears to the court in any stage of the proceedings that there is a
reasonable possibility of a settlement the court may adjourn the proceeding
to enable attempts to be made to effect settlement.

Order 32 A of Civil procedure code lay down the provision relating

to “suit relating to matter concerning the family”. It was felt that ordinary
judicial procedure is not ideally suited to the sensitive area of personal
relationships. Litigations involving affairs of the family seem to require
special approach in views of the serious emotional aspects involved. In this
circumstances, the objective of family counseling as a method of achieving
the object of preservation of family should be kept forefront. Therefore,
order 32 A seeks to highlight the need for adopting a different approach
where matters concerning the family at issue, including the need for effort
to bring about amicable settlement. The provisions of this order applies to
all proceedings relating to family, like guardianship, custody of minor,
maintenance, wills, succession etc.

The concept of ADR has undergone a sea change with the insertion
of section 89 of civil procedure code, 1908 by Amendment Act, No. 46 of
1999 w.e.f. 2002 :

"89. Settlement of disputes outside the court. - (1) Where it

appears to the Court that there exist elements of a settlement which may be
acceptable to the parties, the Court shall formulate the terms of settlement
and give them to the parties for their observations and after receiving the
observations of the parties, the Court may reformulate the terms of a
possible settlement and refer the same for –

(a) arbitration;

(b) conciliation;

(c) judicial settlement including settlement through Lok Adalat; or

 131

(d) mediation.

(2) where a dispute has been referred -

(a) for arbitration or conciliation, the provisions of the Arbitration and

Conciliation Act, 1996 (26 of 1996) shall apply as if the proceedings
for arbitration or conciliation were referred for settlement under the
provisions of that Act;

(b) to Lok Adalat, the Court shall refer the same to the Lok Adalat in
accordance with the provisions of sub-section (1) of section 20 of the
Legal Services Authority Act, 1987 (39 of 1987) and all other
provisions of that Act shall apply in respect of the dispute so referred
to the Lok Adalat;

(c) for judicial settlement, the Court shall refer the same to a suitable
institution or person and such institution or person shall be deemed
to be a Lok Adalat and all the provisions of the Legal Services
Authority Act, 1987 (39 of 1987) shall apply as if the dispute were
referred to a Lok Adalat under the provisions of that Act;

(d) for mediation, the Court shall effect a compromise between the
parties and shall follow such procedure as may be prescribed.”85

Order 10 Rule 1A. Direction of the Court to opt for any one
mode of alternative dispute resolution.—After recording the admissions
and denials, the Court shall direct the parties to the suit to opt either mode
of the settlement outside the Court as specified in sub-section (1) of section
89. On the option of the parties, the Court shall fix the date of appearance
before such forum or authority as may be opted by the parties.

Order 10 Rule 1B. Appearance before the conciliatory forum or

authority.—where a suit is referred under rule 1A, the parties shall appear
before such forum or authority for conciliation of the suit.
85
Professional’s, code of Civil Procedure Bare Act, 2003, Professional Book Publishers, p. 37.
 132

Order 10 Rule 1C. Appearance before the Court consequent to

the failure of efforts of conciliation.—Where a suit is referred under rule
1A and the presiding officer of conciliation forum or authority is satisfied
that it would not be proper in the interest of justice to proceed with the
matter further, then, it shall refer the matter again to the Court and direct the
parties to appear before the Court on the date fixed by it.”

Section 89 (1) of civil procedure code lays down if there exists

elements of settlement which may be acceptable to the parties; the court
shall formulate the terms of the settlement and give them to the parties for
their comments. On receiving the response from the parties, the court may
reformulate the terms of settlement and refer it to either-Arbitration,
conciliation judicial settlement including settlement through Lok Adalat, or
Mediation. As per sub-section (2) of section 89 when a dispute is referred to
arbitration and conciliation, the provision of the Arbitrations and
conciliation Act, 1996 (26 of 1996) shall apply when the court refers the
disputes to Lok Adalat or for judicial settlement by an institution or person,
the legal services authorities Act, 1987 (39 of 1987) shall apply and lastly
for mediation, court shall follow such procedure as may be prescribed.

Order X, Rules 1 A to 1C are inserted by CPC (Amendment) Act,

1999, states that after recording the admission and denials, the court shall
direct the parties to the suit to opt. either mode of the settlement outside the
court as specified in sub-section (1) of section 89. On the option of the
parties, the court shall fix the date of appearance before such forum or
authority as may be opted by the parties. Order X Rule 1B further, states
that where a suit is referred under rule 1A the parties shall appear before
such forum or authority for conciliation of the suit. According to order X
Rule 1C, where a suit is referred under rule 1 A and the presiding officer of
conciliation forum or authority is satisfied that it would not be proper in the
interest of justice to proceed with the matter further, then, it shall refer the
 133

matter again to the court and direct the parties to appear before the court on
the date fixed by it.

Section 16 of Court Fees Act, 1870 is inserted by code of civil

procedure (Amendment) Act, 1999. Accordingly to section 16 Where the
court refers the parties to the suit to any one of the mode of settlement of
dispute referred to in section 89 of the code of civil procedure, 1908 (5 of
1908) the plaintiff shall be entitled to a certificate from the court
authorizing him to receive back from the collector, the full amount of the
fee paid in respect of such plaint.86 The Legal Services Authorities Act,
1987 has institutionalized the organizing of Lok Adalat. Though enacted in
1987, this Act come into effect only from 1996, prior to its implementation
Lok Adalat used to be organized by the committee for implementing legal
Aid Schemes. The Legal services Authorities Act, 1987 by constituting the
National Legal Services Authority as a Central Authority with the chief
justice of India as its patron in Chief. The Central Authority has been vested
with duties to perform inter alia, the following function a) to encourage the
settlement of disputes by way of negotiations arbitration and conciliation.
b) to lay down policies and principles for making legal services available in
the conduct of any case before the court any authority or tribunal. The act
was enacted with the object to constitute legal services authorities for
providing free and compliant legal services to the weaker sections of the
society and to organize Lok Adalat to ensure that the operations of the legal
system promoted justice on a basis of equal opportunity Chapter III of the
Act provides for constitution of the State Legal Services Authority and
District as well as Taluka level Legal Services Authority. The original
scheme of organization of the Lok Adalat under chapter VI of the Act was
mainly based on compromise or settlement between the parties. If the
parties did not arrive at a settlement, the case was either returned to the

86
C. K.Takwani, Civil Procedure, sixth edition, Eastern Book co., 2009, p. 215.
 134

court concerned or the parties were advised to seek remedy before the
competent forum Lok Adalat did not posses the power to decide the
diputes on merits in case the parties failed to arrive at a compromise having
realized this deficiency the parliament amended the Act by Amendment Act
37 of 2002 to set up Permanent Lok Adalat for providing compulsory pre-
litigation mechanism for conciliation and settlement of cases relating to
public utility services. While amending section 22, Chapter VI A consisting
of section 22 A to 22E has been added in the Act and it includes insurance
service as well. Under the Act, we thus have Lok Adalat as well as
permanent Lok Adalats, in Chapter VI and VI- A respectively.

Under Section 19(5) of the Act, a Lok Adalat shall have jurisdiction
to determine and arrive at a settlement between the parties in respect of-

a. any case pending before the court

b. any matter within the jurisdiction of and is not brought before

the court.

Whereas under section 22(1) of the Act, any party to a dispute may
before the dispute is brought before any court make an application to the
permanent Lok Adalat for settlement of dispute. Both the Lok Adalat as
well as permanent Lok Adalat shall not have jurisdiction in respect of any
matter relating to an offence not compoundable under any law. Both these
Adalats shall consist of three persons as members and one of them being a
retired or serving judicial officer who shall be the chairman. The experience
and qualifications of the other two members shall be as prescribed by the
state government in consultation with the chief justice of the High Court
and their appointments are to be made by the state legal service Authority.
Under such circumstances, the apprehension that the appointments of the
other two members may result in miscarriage of justice is ill-founded.
Award of the Lok Adalat or permanent Lok Adalat shall be final and
binding on all the parties to the dispute. No appeal shall lie to any court
 135

against such award pending cases can be referred to the Lok Adalat either
by consent of the parties. The lok Adalat or the permanent Lok Adalat can
take up pre-litigation cases only often issuing notices to parties. The
preliminary jurisdiation of Lok Adalat is Rs. 10 Lac both the Adalat shall
have the same power as are vested in a Civil Court under code of civil
procedure while trying a suit and it is not bound by the code of civil
procedure and the Indian evidence Act87.

Some of the relevant sections from the legal services Authority Act,
1987 are quoted as under-

Section 19-

1) Central state, District and Taluka Legal Services Authority has been
created who are responsible for organizing Lok Adalat.

2) Conciliators for Lok Adalat comprise the following-

a) A sitting or retired judicial officer

b) Other person of repute as may be prescribed by the state

Government in consultation with the chief justice of
High court.

Section 20- Reference of Cases-

Cases can be referred for consideration of Lok Adalat as under-

1) By consent of both the parties to the disputes.

2) One of the parties makes an application for reference.

3) When the court is satisfied that the matter is an appropriate one to be

taken cognizance of by the Lok Adalat.

4) Compromise settlement shall be guided by the principles of justice,

equity fair play and other legal principals.

87
Dr. Mamta Rao, Public interest litigation, Legal aid and Lok Adalat, 3rd edition, 2010.
 136

5) Where no compromise has been arrived at through conciliation, the

matter shall be returned to the concerned court for disposal in
accordance with law.

Section 21-

After the agreement is arrived by the consult of the parties award is

passed by the conciliators. The matter need not be referred to the concerned
court for consent decree.

The Act provisions envisage as under-

1) Every award of Lok Adalat shall be deemed as decree of Civil Court.

2) Every award made by the Lok Adalat shall be final and binding on
all the parties to the dispute.

3) No appeal shall lie from the award of the Lok Adalat.

Section 22-

Every proceedings of Lok Adalat shall be deemed to be judicial

proceedings for the purpose of-

1) Summoning of Witnesses

2) Discovery of documents

3) Reception of evidences

4) Requisitioning of Public record88

Mediating criminal cases is vague concept. As per the pendency

figures of Criminal trials and percentage of new admissions, it is imperative
to find out proper solution to cope up this problem.

For the purpose some legislative efforts have been taken some of
them are Section 320 of Code of Criminal Procedure,1978 which provides

88
Dr. S.S. Sharma, Legal services, Public Interest Litigations and Para-legal services, 2nd edition,
Central Law Agency, p 123.
 137

for compounding of offences, Section 125 deals with the maintenance to

widow, wife, children, parents etc. Its Chapter- XXIA allows plea
bargaining in criminal cases which set the process in motion. (Code of
Criminal Procedure 1978, Wadhava publication) Inclusion of Section 138
of Negotiable Instrument Act, section 498A of Indian Penal Code and the
Domestic Violence (Prevention) Act requires new law mandating case
management of criminal cases and recognizing the right to speedy trial
under Article 21 of the Constitution of India.89

3.3.4 JUDICIAL APPROACH TO ADR IN INDIA

Judiciary, in its zeal to ensure justice for all has been extremely
protective about its supervisory role in the ADR process. It has played a
substantial role in up gradation of ADR mechanism. The apex court has
recognised the alternate forum in its various decisions.

For effective implementation of provisions relating to Alternative

Dispute resolution system in various enactments, Supreme Court has taken
further steps. Supreme Court started issuing various directions as so as to
see that the public sector undertakings of the central government and their
counter parts in the states should not fight their litigation in court by
spending money on fees on counsel, court fees, procedural expenses and
waiting public time.

In Oil and Natural Gas Commission V. Collector of Central Excise90

there was a dispute between the public sector undertaking and Government
of India involving principles to be examined at the highest governmental
level. Court held it should not be brought before the court wasting public
money any time. In Oil and Natural Gas Commission V. Collector of
Central Excise,91 dispute was between govt. dept and P. S. U. Report was

89
Supra Foot Note 61
90
1992 supp. 2 SCC 432
91
1995 Supp. 4 SCC 541
 138

submitted by cabinet secretary pursuant to SC order indicating that

instruction has been issued to all departments. It was held that public
undertaking to resolve the disputes amicably by mutual consultation in or
through or good officers empowered agencies of govt. or arbitration
avoiding litigation. Government of India directed to constitute a committee
consisting of representatives of different departments. To monitor such
disputes and to ensure that no litigation come to court or tribunal without
the committee’s prior examination and clearance. The order was directed to
communicate to every High Court for information to all Subordinate
Courts. In Chief Conservator of Forests V. Collector,92 Supreme Court
relied on Oil and Natural Gas Commission Case I and II and it was said that
Union/State govt. must evolve a mechanism for resolving interdepartmental
controversies disputes between departments of government cannot be
contested in court.

In Punjab and Sind Bank V. Allahabad Bank93, it was held that the
direction of the Supreme Court in Oil and Natural Gas Commission Case
III,94 to the government to set up Committee to monitor disputes between
government departments and public sector undertakings make it clear that
the machinery contemplated is only to ensure that no litigation comes to
court without the parties having had an opportunity of conciliation before
an in house committee.

Under Industrial Disputes Act, 1947, conciliation has been statutorily

recognized as an effective method of dispute between workers and
management. In Rajsthan State Road Transport Corporation V. Krishna
Kant95, the Supreme Court observed: “The policy of law emerging from

92
(2003) SCC 472
93
2006(3) SCALE 557
94
(2004) 6 SCC 437
95
1955 (5) SCC 75
 139

Industrial Disputes Act and its sister enactments is to provide an alternative

dispute resolution mechanism to the workmen, a mechanism which is
speedy, inexpensive, informal and unencumbered by the plethora of
procedural laws and appeals upon appeals and revision applicable to civil
courts. Indeed the powers of the courts and tribunals under industrial
disputes Act are far more extensive in the senses that they can grant such
relief as they think appropriate in the circumstances for putting an end to an
industrial dispute.”

The only field where the courts in India have recognized ADR is in
the field of Arbitration. Their was much delay in settlement of disputes
between parties in laws courts, which prevented investment of money in
India by other countries. To coke up with this problem India has undertaken
major reforms in arbitration and parliament enacted Arbitration and
Conciliation Act, 1996 to bring substantial reforms regarding domestic as
well as international disputes96. In the M/s Guru Nayak Foundation V.
Rattan Singh and Sons97, the Supreme court observed thus-Interminable,
time consuming, complex and expensive court procedures impelled jurists
to search for an alternative forum less formal, more effective and speedy for
resolution of disputes avoiding procedural claptrap….

The Government of India realized that for effective implementation

of its economic reforms it was necessary to recognize the demand of the
business community. Food Corporation of India V. Joginderlal
Mohinderpal98, the Supreme Court observed:

“We should make the law of arbitration simple, less technical and
more responsible to the actual realities of the cannons of justice and fair
play and make the arbitrator where to such process and norms which will

96
AIR 1981 SC 2075 at 2076.
97
AIR 1981 SC 2075.
98
AIR 1989 SC 1263 at 1267, (1989) 2 SCC 347
 140

create confidence not only by doing justice between the parties but by
creating sense that justice appears to have been done.”

In case of Babar Ali V. Union of India and other99 the

constitutionality of the Act of 1996 was challenged. The apex court held
that the Act of 1996 was not unconstitutional and it does in any way offend
the basic structure of the constitution of India. The act was further
strengthened when in the case of Kalpana Kothari V. Sudha Yadav and
others100 the Hon’ble Supreme Court held that as long as the arbitration
clause exist, a party cannot take recourse to the Civil Courts for
appointment of Receiver etc. without evincing an intention to start the
arbitration proceedings.

In Konkan Railway Corporation Ltd. V. M/s Mehul Construction

Co.101, Supreme Court has summarized evolvements of Arbitration and
Conciliation Act 1996 and the main provision of the Act thus: “At outset, it
must be borne in mind that prior to the 1996 Act, the Arbitration Act of
1940, which was in force in India provided for domestic arbitration and no
provision was there to deal with the foreign awards. So far as the Foreign
Awards are concerned, the same were being dealt with by the Arbitration
(Protocol and Convention) Act, 1937 and the Foreign Awards (Recognition
and Enforcement) Act, 1961. The increasing growth of global trade and the
delay in disposal of cases in courts under the normal system in several
countries made it imperative to have the perception of an Alternative
Dispute Resolution System, more particularly, in the matter of commercial
disputes. When the entire world was moving in favour of a speedy
resolution of commercial disputes, the United Nations Commission on
International Trade Law way back in 1985 adopted the UNCITRAL Model

99
(2002)2 SCC 178
100
(2002) 1 SCC 203
101
2006 (6) SCALE 71
 141

Law of International Commercial Arbitration. Since then number of

countries have given recognition to that Model in their respective legislative
system. With the said UNCITRAL Model Law in view the present
Arbitration and Conciliation Act of 1996 has been enacted in India
replacing the Indian Arbitration Act, 1940, which was the principal
legislation on Arbitration in the country that had been enacted during the
British Rule. The arbitration Act of 1996 provides not only for domestic
arbitration but spreads its sweep to International Commercial Arbitration
too. The Indian law relating to the enforcement of Foreign Arbitration
Awards provides for greater autonomy in the arbitral process and limits
judicial intervention to a narrower circumference than under the pervious
law. To attract the confidence of International Mercantile community and
the growing volume of India’s trade and commercial relationship with rest
of the world after the new liberalization policy of the government, Indian
Parliament was persuaded to enact the Arbitration and Conciliation Act of
1996 in UNCITRAL model and, therefore, in interpreting any provisions of
the 1996 Act Courts must not ignore the objects and purpose of the
enactment of 1996. A bare comparison of different provision of the
arbitration Act of 1940 with the provision of the Arbitration and
Conciliation Act 1996 would unequivocally indicate that 1996 Act limits
intervention of Court with an arbitral process to the minimum and it is
certainly not the legislative intent that each and every order passed by an
authority under the Act would be a subject matter of judicial scrutiny of a
Court of Law. Under the new law the grounds on which an award of an
Arbitrator could be challenged before the Court have been severely cut
down and such challenge is now permitted on the basis of invalidity of the
agreement, want of jurisdiction on the part of the arbitrator or want prior
notice to a party of the appointment of the arbitrator or of arbitral
proceedings. The powers of the arbitrator have been amplified by insertion
of specific provisions of several matters. Obstructive tactics adopted by the
 142

parties in arbitration proceedings are sought to be thwarted by an express

provision inasmuch as if a party knowingly keeps silent and then suddenly
raises a procedural objection will not be allowed to do so. The role of
institutions in promoting and organizing arbitration has been recognized.
The power to nominate arbitrators has been given to the chief Justice or to
an institution or person designated by him. The time limit for making
awards has been deleted. The existing provisions in 1940 Act relating to
arbitration through intervention of Court, when there is no suit pending,
have been removed. The importance of transactional commercial arbitration
has been recognized and it has been specifically provided that even where
the arbitration is held in India, the parties to the contract would be free to
designate the law applicable to the substance of the dispute. Under the new
law unless the agreement provides otherwise, the arbitrators are required to
give reasons for the award. The award itself has now been vested with
status of a decree, inasmuch as the award itself is made executable as a
decree and it will no longer be necessary to apply to the court for a decree
in terms of the award. All these aim at achieving the sole object to resolve
the dispute as expeditiously as possible with the minimum intervention of a
court of law so that the trade and commerce is not affected on account of
litigations before a court. When United Nations established the Commission
on International Trade Law it is on account of the fact that the General
Assembly recognised that disparities in national laws governing
international trade created obstacles to the flow of trade. The General
Assembly regarded the Commission on International Trade Law as a
medium which could play a more active role in reducing or removing the
obstacles. Such Commission, therefore, was given a mandate for
progressive harmonization and unification of the law of International Trade.
With that objective when UNCIRTAL Model, it would be appropriate to
bear the said objective in mind while interpreting any provision of the Act.
The statement of objects and reasons of the Act clearly enunciates that the
 143

main objective of the legislation was to minimize the supervisory role of

Courts in the arbitral process.”102

The object of the alternative dispute resolution process of arbitration

is to have expeditious and effective disposal of the disputes through a
private forum of parties’ choice103. Favoring institutional arbitration to
save arbitration from the arbitration cost, the Supreme Court has recently in
Union of India V. M/s. Singh Builders Syndicate104 observed:

“When the arbitration is by a Tribunal consisting of serving officers,

the cost of arbitration is very low. On the other hand, the cost of arbitration
can be high if the Arbitral Tribunal consists of retired Judge’s. When a
retired Judge is appointed as Arbitrator in place of serving officers, the
government is forced to bear the high cost of Arbitration by way of private
arbitrator’s fee even though it had not consented for the appointment of
such non-technical non serving person as Arbitrator/s. There is no doubt a
prevalent opinion that the cost of arbitration becomes very high in many
cases where retired judge/s is Arbitrators. The large number of sitting and
charging of very high fees per sitting, with several add-ons, without any
ceiling, have many times resulted in the cost of arbitration approaching or
even exceeding the amount involved in the dispute or the amount of the
award. When an arbitrator is appointed by a court without indicating fees,
either both parties feel constrained to agree to whatever fees is suggested by
the Arbitrator, even if it is high or beyond their capacity. Secondly, if a high
fee is claimed by the Arbitrator and one party agrees to pay such fee, the
other party, who is enable to afford such fee or reluctant to pay such high
fee, is put to an embarrassing position. He will not be in a position to

102
Law commission of India, Report No.222, April 2009, Need for justice dispensation through
ADR etc.
103
Union of India v. M/S Singh Builders Syndicate 2009(4) SCALE 491.
104
Ibid
 144

express his reservation or objection to the high fee, owing to an

apprehension that refusal by him to agree for the fee suggested by the
arbitrator, may prejudice his case or create a bias in favour of the other
party who readily agreed to pay the high fee. It is necessary to find an
urgent solution for this problem to save arbitration from the arbitration cost.

Institutional arbitration has provided a solution as the Arbitrator’s

fees is not fixed by the Arbitrators themselves on cases to case basis, but is
governed by a uniform rate prescribed by the institution under whose aegis
the Arbitration is held. Another solution is for the court to fix the fees at the
time of appointing the arbitrator with the consent of parties it necessary in
consultation with the arbitrator concerned. Third is for the retired judges
offering to serve as arbitrators to indicate their fees structure to the Registry
of the respective High Court so that the parties will have the choice of
selecting an Arbitrator whose fees are in their ‘range’ having regard to the
stakes involved. What is found to be objectionable is parties being forced to
agree for a fee fixed by such Arbitrator. It is fortunate that delays, high
cost, frequent and sometimes unwarranted judicial interruptions at different
stages a seriously hampering the growth of arbitration as an effective
dispute resolution process. Delay and high cost are two areas where the
Arbitrators by self regulation can bring about marked improvement.

Section 89 of Code of Civil Procedure provides for settlement of

dispute outside the court was inserted by Civil Procedure Code Amendment
Act 1999 and brought into force from 1/17/2002

In Salem Advocate Bar Association V. Union of India105, the

Supreme Court rejected the challenge to the constitutional validity of the
amendment made in Section 89 of Civil Procedure Code. In Salem Bar (I),
Speaking for the Bench Kirpal, CJ, observed as follows:

105
AIR 2003 SC 189
 145

“It is quite obvious that the reason why section 89, has been inserted
is to try and see that all the cases which are filed in court need not
necessarily be decided by the court itself keeping in mind the law’s delays
and the limited number of judges which are available, it has now become
imperative that resort should be had to alternative dispute resolution
mechanism with a view to bring to an end litigation between the parties at
an early date. The alternative dispute resolution mechanism as
contemplated by section 89 is arbitration or conciliation or judicial
settlement including settlement through Lok Adalat or mediations. If the
parties agree to arbitration, than the provisions of the Arbitration and
Conciliation Act, 1996 will apply and that case will go outside the stream of
the court but resorting to conciliation or judicial settlement or mediation
with a view to settle the dispute would not ipso facto take the case outside
the judicial system. All that this means is that effort has to be made to bring
about an available settlement between the parties but it conciliation or
mediation or judicial settlements not possible despite effort being made the
case will ultimately go to trial.”

In the judgment of the Supreme Court of India in Salem Bar

Association V. Union of India106 the apex court has upheld the
constitutional validity of Section 89 of the code of civil procedure. The
Court held: “Some doubt as to a possible conflict has been expressed in
view of used of the word ‘may’ in Section 89 when it stipulates that “the
court may reformulate the terms of a possible settlement and refer the same
for” and use of the word ‘shall’ in order 10 rules 1A when it states that “the
court shall direct the parties to the suit to opt either mode of the settlement
outside the court as specified in sub-section (1) of section 89”. The
intention of the legislature behind enacting Section 89 is that where it
appears to the court that then exists on element of a settlement which may

106
(2005) 6 SCC 344
 146

be acceptable to the parties, they at the instance of the court, shall be made
to apply their mind so as to opt for one or the other of the four ADR
methods mentioned in the sections and if the parties do not agree, the court
shall refer them to one or the other of the said modes. Section 89 uses both
the wards “shall” and “may” whereas order 10 rules 1A uses the word
“shall” but on harmonious reading of these provisions it becomes clear that
the use of the word “may” in section 89 only governs the aspect of
reformulation of the terms of a possible settlement and its reference to one
of ADR methods. Then is no conflict. It is evident that what is referred to
one of the ADR modes is the dispute which is summarized in the terms of
settlement formulated or reformulated in terms of section 89…..one of the
modes to which the disputes can be referred to “arbitration”. Section 89 (2)
provides that where a dispute has been referred for arbitration or
conciliation Act, 1996 shall apply as if the proceeding for arbitration or
conciliation were referred for settlement under the provisions of the 1996
Act. Section 8 of the 1996 Act deals with the power to refer parties to
arbitration where there is arbitration agreement. As held in P. Anand
Gajapathi Raju vs. V. G. Raju.107, the 1996 Act governs a case where
arbitration is agreed upon before or pending a suit by all the parties. The
1996 Act, however, does not contemplate a situation as in section 89 of the
code where the court asks the parties to choose one or other ADRs
including arbitration and the parties choose arbitration as their option, of
course, the parties have to agree for arbitration.

The Supreme Court has also requested to prepare model rules for
ADR and also draft rules of mediation under section 89 (2) (d) of code of
Civil procedure, 1908. The rule is formed as “Alternative Dispute
Resolution and Mediation Rules 2003”.

107
(2000) 4SCC 539
 147

The position was reiterated by this Court in Jagdish Chander V.

Ramesh Chander108 and observed: “It should not also be overlooked that
even though section 89 mandates courts to refer pending suits to any of the
several alternative resolution process mentioned therein, there cannot be a
reference to arbitration even under section 89 CPC unless there is a mutual
consent of all parties for such reference.”

In Afcons Infrastructure Ltd .Vs. Cherian Varkey Construction Co.

(P) ltd and other109 J. R. V. Raveendran, J., has discussed error in drafting
section89 of Code of Civil Procedure 1908 and it’s proper interpretation
for effective implementation ADR system. This is by now a landmark
judgement of the Supreme Court, explaining and clarifying the entire
scheme of Section 89 of code of civil procedure. The main points in the
Judgment which answer numbers of queries and questions about S. 89
posed by lawyers and judges are as follows :

1. Under section 89 of code of civil procedure the court is only required

to formulate a “short summary of disputes” and not “terms of settlement”.

There was a doubt amongst Judges as to how the Judges would

formulate terms of settlement much before the matter is referrd for ADR.
The SC has now clarified that before referring the parties to ADR, it is not
necessary for court to formulate or refer the terms of a possible settlement.
It is sufficient if the court merely states the nature of dispute and makes the
reference. The court can do so after receipt of pleadings of parties. Infact
the Apex court has even observed that in some cases particularly
matrimonial once the court can resort to ADR even before the written
statement is received. Many a time once written statement is drafted and
filed in the court the dispute gets flared up and the animosity between the
parties increases leading to difficulties in settlement through ADR.
108
(2007) 5 SCC 719
109
(2010) 8 SCC 24
 148

2. The civil court should invariably refer cases to ADR process except
in certain recognized excluded categories by giving reasons.

3. The proper stage to refer the parties to ADR mechanism is when the
matter is taken for preliminary examination of the parties’ under order 10 of
the code of civil procedure.

Nothing prevents the Court from resorting to section 89 even after

framing of issues, but once evidence is commenced the Court will be
reluctant to refer the matter to ADR as it becomes a tool for protracting the
trial.

4. The definition of judicial settlement and mediation in clauses (c) and

(d) of section 89(2) shall have to be interchanged to correct the draftsman’
error for mediation, the court shall refer the same to a suitable institution or
person and such institution or person shall be deemed to be a Lok Adalat
and all the provisions of the Legal Services Authority Act, 1987 (39 of
1987) shall apply as if the dispute were referred to a Lok Adalat under the
provisions of that Act (d) for judicial settlement the court shall effect a
compromise between the parties and shall follow such procedure as may be
prescribed.

Above changes made by interpretative process shall remain in force

till the legislature corrects the mistakes, so that section 89 is not rendered
meaningless and infructuous.

5. The following cases are held to be the cases not suitable for ADR
process :-

(i) Representative suits under Order 1 Rule 8 of code of civil

procedure which involve public interest or interest or
numerous persons who are not parties before the court (In fact,
even a compromise in such a suit is a difficult process
 149

requiring notice to the persons interested in the suit, before its

acceptance).

(ii) Disputes relating to election to public offices (as

contrasted from disputes between two groups trying to
get control over the management of societies, clubs,
association etc).

(iii) Cases involving grant of authority by the court after

enquiry, as for example, suits for grant of probate or
letters of administration.

(iv) Cases involving serious and specific allegations of

fraud, fabrication of documents, forgery,
impersonation, coercion etc.

(v) Cases requiring protection of courts, as for example,

claims against minors, deities and mentally challenged
and suits for declaration of title against government.

(vi) Cases involving prosecution for criminal offences.

All other suits and cases of civil nature in particular the following
categories of cases (whether pending in civil courts or other special
Tribunals/Forums) are normally suitable for ADR processes:

(i) All cases relating to trade, commerce and contracts,

including - disputes arising out of contracts (including
all money claims); - disputes relating to specific
performance;

• disputes between suppliers and customers;

• disputes between bankers and customers;

• disputes between developers/builders and

customers; - disputes between landlords and tenants/
 150

licensor and licensees; - disputes between insurer

and insured;

(ii) All cases arising from strained or soured relationships,

including - disputes relating to matrimonial causes,
maintenance, custody of children;

• disputes relating to partition/division among family

members/co- parceners/co-owners; an

• disputes relating to partnership among partners.

(iii) All cases where there is a need for continuation of the

pre-existing relationship in spite of the disputes,
including

• disputes between neighbours (relating to

easementary rights, encroachments, nuisance etc.);

• disputes between employers and employees;

• disputes among members of societies/ associations/

Apartment owners Associations;

(iv) All cases relating to tortious liability including - claims

for compensation in motor accidents/other accidents;
and

(v) All consumer disputes including

• disputes where a trader/supplier/manufacturer/

service provider is keen to maintain his business/
professional reputation and credibility or `product
popularity.

• The above enumeration of `suitable' and `unsuitable'

categorization of cases is not intended to be
exhaustive or rigid. They are illustrative, which can
 151

be subjected to just exceptions or additions by the

court/Tribunal exercising its jurisdiction/discretion
in referring a dispute/case to an ADR process.

6) Choice of ADR Mechanisms

1. Arbitration: In the event of referral by the court to

Arbitration due to arbitration agreement between the parties,
the case will go outside the stream of court permanently and
will not come back to the court.

2. Conciliation : As contrasted from arbitration, when a matter

is refereed to conciliation, the matter does not go out of the
stream of court permanently. If there is no settlement, the
matter is returned to the court for framing of issues and
proceeding with the trial.

3. Mediation : If the suit is complicated or lengthy, mediation

will be recognized choice.

4. Lok Adalat: If the suit is not complicated and disputes are

easily sortable or and be settled by applying clear legal
principles Lok Adalat will be preferred choice.

5. Judicial Settlement : If the court feels that suggestion and

guidance by a judge will be appropriate, it can refer it to
another judge for dispute resolution.

7) Settlement

1. When a matter is settled through conciliation the settlement

agreement is enforceable as it is decree of the court having
regard to section 74 read with section 30 of the Arbitration
and Conciliation Act 1996.
 152

2. When settlement takes place before Lok Adalat, the Lok

Adalat award is also deemed to be decree of the civil court and
executable as such under section 21 of Legal Services
Authorities Act, 1987.

3. Where the reference is to conciliation, mediation or Lok

Adalat through court, the settlement will have to be placed
before the court for making a decree in terms of it by
application of principles of under order 23 R. 3 of the Code, as
the Court continues to retain control and jurisdiction over the
cases which it refers.

8) The Court may summarize the procedure to be adopted by a court

under section 89 of the Code as under:

a) When the pleadings are complete, before framing issues, the

court shall fix a preliminary hearing for appearance of parties.
The court should acquaint itself with the facts of the case and
the nature of the dispute between the parties.

b) The court should first consider whether the case falls under
any of the category of the cases which are required to be tried
by courts and not fit to be referred to any ADR processes. If it
finds the case falls under any excluded category, it should
record a brief order referring to the nature of the case and why
it is not fit for reference to ADR processes. It will then
proceed with the framing of issues and trial.

c) In other cases (that is, in cases which can be referred to ADR

processes) the court should explain the choice of five ADR
processes to the parties to enable them to exercise their option.

d) The court should first ascertain whether the parties are willing
for arbitration. The court should inform the parties that
 153

arbitration is an adjudicatory process by a chosen private

forum and reference to arbitration will permanently take the
suit outside the ambit of the court. The parties should also be
informed that the cost of arbitration will have to be borne by
them. Only if both parties agree for arbitration, and also agree
upon the arbitrator, the matter should be referred to
arbitration.

e) If the parties are not agreeable for arbitration, the court should
ascertain whether the parties are agreeble for reference to
conciliation which will be governed by the provisions of the
Arbitration and Conciliation Act. If all the parties agree for
reference to conciliation and agree upon the conciliator/s, the
court can refer the matter to conciliation in accordance with
section 64 of the Arbitration and Conciliation Act.

f) If parties are not agreeable for arbitration and conciliation,

which is likely to happen in most of the cases for want of
consensus, the court should, keeping in view the
preferences/options of parties, refer the matter to any one of
the other three ADR processes: (a) Lok Adalat;
(b) mediation by a neutral third party facilitator or mediator;
and (c) a judicial settlement, where a Judge assists the parties
to arrive at a settlement.

(g) If the case is simple which may be completed in a single

sitting, or cases relating to a matter where the legal principles
are clearly settled and there is no personal animosity between
the parties (as in the case of motor accident claims), the court
may refer the matter to Lok Adalat. In case where the
questions are complicated or cases which may require several
rounds of negotiations, the court may refer the matter to
 154

mediation. Where the facility of mediation is not available or

where the parties opt for the guidance of a Judge to arrive at a
settlement, the court may refer the matter to another Judge for
attempting settlement.

(h) If the reference to the ADR process fails, on receipt of the

Report of the ADR Forum, the court shall proceed with
hearing of the suit. If there is a settlement, the court shall
examine the settlement and make a decree in terms of it,
keeping the principles of Order 23 Rule 3 of the Code in mind.

(i) If the settlement includes disputes which are not the subject
matter of the suit, the court may direct that the same will be
governed by Section 74 of the Arbitration and Conciliation
Act, 1996 (if it is a Conciliation Settlement) or Section 21 of
the Legal Services Authorities Act, 1987 (if it is a settlement
by a Lok Adalat or by mediation which is a deemed Lok
Adalat). This will be necessary as many settlement agreements
deal with not only the disputes which are the subject matter of
the suit or proceeding in which the reference is made, but also
other disputes which are not the subject matter of the suit.

(j) If any term of the settlement is ex facie illegal or unforceable,

the court should draw the attention of parties thereto to avoid
further litigations and disputes about executability.

9) The Court should also bear in mind the following consequential

aspects, while giving effect to Section 89 of the Code: (i) if the reference is
to arbitration or conciliation, the court have to record that the reference is
by mutual consent. Nothing further need be stated in the order sheet.
(ii) If the reference is to any other ADR process, the court should briefly
record that having regard to the nature of dispute, the case deserves to be
referred to Lok Adalat, or mediation or judicial settlement, as the case may
 155

be. There is no need for an elaborate order for making the reference.
(iii) The requirement in Section 89(1) that the court should formulate or
reformulate the terms of settlement would only mean that court has to
briefly refer to the nature of dispute and decide upon the appropriate ADR
process. (iv) If the Judge in charge of the case assists the parties and if
settlement negotiations fail, he should not deal with the adjudication of the
matter, to avoid apprehensions of bias and prejudice. It is therefore
advisable to refer cases proposed for Judicial Settlement to another Judge.
(v) If the court refers the matter to an ADR process (other than Arbitration),
it should keep track of the matter by fixing a hearing date for the ADR
Report. The period allotted for the ADR process can normally vary from a
week to two months (which may be extended in exceptional cases,
depending upon the availability of the alternative forum, the nature of case
etc.). Under no circumstances the court should allow the ADR process to
become a tool in the hands of an unscrupulous litigant intent upon dragging
on the proceedings. (vi) Normally the court should not send the original
record of the case when referring the matter for an ADR forum. It should
make available only copies of relevant papers to the ADR forum. (For this
purpose, when pleadings are filed the court may insist upon filing of an
extra copy). However if the case is referred to a Court annexed Mediation
Centre which is under the exclusive control and supervision of a Judicial
Officer, the original file may be made available wherever necessary.

3.3.5 COMMON MODES OF ALTERNATIVE DISPUTE

RESOLUTION USED IN INDIA

After due deliberation and several trials arbitration and mediation

emerged as the most common modes of ADR, though conciliation and
negotiation also comprise of ADR, they are however seldom used.
 156

3.3.5.1 Arbitration

A] Meaning and Definition:

According to Oxford English Dictionary: Arbitration means

“uncontrolled decision” the settlement of a question at issue by one to
whom the parties agree to refer their claims in order to obtain an equitable
decision. The object of arbitration is to obtain the fair resolution of disputes
by an impartial tribunal without unnecessary delay in expense.
Arbitration is a method of dispute resolution involving one or more
neutral third parties who are usually agreed to by the disputing parties and
whose decision is binding110.
Arbitration is a legal techniques for the resolution of disputes outside
the courts, where in the parties to a dispute refer it to one or more persons
(the “arbitrators”, ”arbiters” or “arbitral tribunal”.) by whose decision (the
award) they agree to be bound111.
In the terms of subsection (1) (a) of arbitration and conciliation act,
1996, arbitration means any arbitration whether or administered by
permanent arbitral institution.
An arbitration is the reference of a dispute or difference between not
less than two parties for determination, after hearing both sides in a judicial
manner, by a person or persons other than a court of competent jurisdiction.
The prominent feature of the system is that, instead of filling a case in
court, the parties can refer their case to an arbitral tribunal whose decision
is binding and is termed as an award.

B] Fundamental features of arbitration-

1. An alternative to formal court system.

2. A private mechanism for dispute resolution

110
Black’s law dictionary 17th edition.
111
www.wikipedia.com.
 157

3. Arbitrator & its proceeding is selected & controlled by the

parties
4. It is final and binding determination of parties eights and
obligations
5. There is easy enforceability of award passed by arbitrator
6. Neutrality is its backbone
7. Confidentiality could be maintained
8. It is expeditious method
9. It saves time, cost & energy of parties to the dispute

C] Brief ancient history of arbitration in India

During the ancient Hindu have in India, there were several arbitral
machinaries for settlement of disputes between parties. They were known
as kulani (village council), Sreni (corporation), Puga (assembly)112.
According to Colebrooke, panchayat was a different system of arbitration
subordinate to the courts of law. Arbitration tribunal in ancient period has a
status of panchayat in modern India113.

D] Historical and Legislative Background-

Arbitration in the legal sense, that is a reference of a dispute by

consent of the parties to one or more persons with or without an umpire and
an award enforceable by the sovereign power were almost unknown in
ancient India. Disputes were resolved through the decision of panchayat
consisting of elderly and influential men. The decision of the panchayats
were not conclusive and the penalty for disobedience was exclusion from
religious and social functions of the community including
ex-communication.

112
See P. V. Kane, History of Dharma Sastra, Vol.III, P. 242
113
See Justice S. Varadachariar, Hindu Judicial System, P. 98.
 158

In Chanbasappa Gurushantappa v. Baslinagayya Gokurnava

Hiremath114, Marten C. J., and State: It (arbitration) is indeed a striking
feature of ordinary Indian life and I would go further and say that it prevails
in all ranks of life to a much greater extent than is the case in England. To
refer the matter to a Panch is one of the natural ways of deciding many
disputes in India.
The technique of dispute resolution by arbitration has received legal
recognition in India about two and half centuries back.
After the advent of British in India attempts were made to regulate
judicial system in India. Thus, regulations and Acts were passed to
formulate a system of arbitration in India such as Bengal Regulation of
1772 and 1780, Sir Elijah Impeys’ Regulation of 1781, Regulation of 1787,
Regulation XVI of 1793, Regulation VI of 1813, Regulation XXVII if
1814, Bengal Regulation VII of 1822, Bengal Regulation IX of 1883,
Regulation VII of 1816 for madras, Regulation VII of 1827 for Bombay
governed arbitration.

Regulation gave recognition to Arbitration in suit only. References to

Arbitration without the intervention of the court become possible for the
first time after enactment of civil procedure code of 1859. The distinction
between arbitration in suits and arbitration not in suit is a distinctive feature
of the Indian Law of Arbitration. The code of civil procedure 1859
recognized three distinct kinds of arbitration a) Arbitration in suits
(Sections 312-327) b) Arbitration by parties to pending suits (Sections 312-
325), c) filing in court of an agreement to refer to arbitration and the
distinction is still recognized115.

114
AIR 1927 Bom. 565
115
Sirojexport Company Ltd. V. I.O.C. Ltd. (AIR 1997 Raj 120)
 159

In Pestonjee V. Manockjee116 Privy council made an interesting

decision the issue in this case was whether a party having agreed to refer
the matter in dispute to arbitration under Section 323 of Act XIV of 1882
could revoke the submission at his sweet will their lordships were of the
opinion that a proper construction of the code provided that when persons
agree to submit the matters in difference between them to the arbitration of
one or more specified persons, no party to such an agreement could revoke
the submission unless it was for a good cause. An arbitrary revocation of
the authority of an arbitrator was not permitted.”

Indian Contact Act of 1872 also recognized arbitration agreement

under section 28 of the Act. Thus, it recognized agreement to refer to
arbitration present as well as future parties. Section 21, specific Relief Act
1878 provided that though future disputes could not be referred as per code
of civil procedure but if a person entered into a contract to refer future
disputes and later tried to wriggle out of it, by going to the courts on the
same matter, he would not be allowed to do so. Section 26, of the
Arbitration Act of 1899 gave recognition to the reference of disputes likely
to arise in future to an arbitrator. This act incorporates various section of
English Act into India laws. 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 1937. This Act was enacted to give effect to protocol and
enabling convention to become operative in India. Indian Arbitration Act,
1940 repealed the Arbitration act of 1899 and sections 89 and 104(1),
clause (a) to (f) and the second schedule of the Code of Civil procedure
1908. It dealt with only domestic arbitration.

India was one of the signatories to the New York Convention of

1958. To give effect this convention, the foreign Awards (Recognition and
116
12 MIA 112
 160

Enforcement) Act 1961 was passed. In the landmark judgment in

Ranusagar Power Co. Ltd. V. General Electric117 the Supreme Court said
that the object of this legislation was to facilitate and promote international
trade by providing for speedy settlement of disputes arising in trade through
arbitration.

In Oil and Natural Gas Commission V. Western Co. of North

America118 the supreme court compelled the an Indian party which has
portion of the award, through it disallowed the plea of the western Co. of
North America for enforcement of the award.

Law Commission of India in its Ninth report of Nov. 1978 suggested

extensive amendment in Arbitration Act of 1940, taking into account
commercial realities, in order to settle the conflicting decisions on various
points.

In Guru Nanak Foundation V. Rattan Singh and Sons119, the supreme

court said that the proceedings under Arbitration Act of 1940, have become
highly technical accompanied by an unending prolixity at every stage,
providing a legal trap to the unwary. The Act nearly collapsed under the
pressure of gusty winds of change due to globalization. There was wide
divergence and disparity in the law relating to various aspects of business
contract in different countries. Such disparities create practical difficulties
and legal problems in the smooth and swift flow of international business.
With a view to promote uniformity at least on fundamental principles in
various business laws, the UNCITRAL (United Nations Commission on
International Trade Law) Model law on arbitration and model rules on
arbitration were drafted for international commercial arbitration.

117
AIR 1989 SC 1156
118
(1997) 1 SCC 496
119
AIR 1981 SC 2075-2076
 161

To consolidate and amend the laws relating to arbitration

international commercial arbitration and enforcement of foreign arbitral
award, three statutes, namely, the Arbitration Act, 1940 the arbitration
(Protocol and Convention) Act 1937 and the Foreign Awards (Recognition
and Enforcement) Act 1961, have been repealed and replaced by a
consolidated, comprehensive legislation in the Arbitration and conciliation
Act,1996. This legislation by and large adopts the UNCITRAL model law
in it’s entirely.

The Arbitration and Conciliation Act, 1996 has two significant parts
–Part I provides for any arbitration conducted in India and enforcement of
award there under. Part II provides for enforcement of foreign awards.

The 1996 Act contains two unusual features that differed from
UNCITRAL model law. First, while the UNICITRAL model law was
designed to apply only to international commercial arbitrators120. Second
the 1996 Act does beyond the UNICITRAL model law in the area of
minimizing judicial intervention121. 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 superfluous122. Unfortunately
there was no widespread debate and understanding of the changes before
such an important legislative change was enacted123. The Govt. 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 a
parliamentary committee a standard practice for important enactments124.

120
See Article 1 of UNICITRAL model law the 1996 Act apples both to international and domestic
arbitrations.
121
S.K. Dholakia, Analytical Appraisal of the Arbitration and Conciliation (Amendment) Bill, 2003,
ICA’s Arbitration Quarterly ICA, New Delhi, 2005 Vo. XXXIX/No. 4 at page 3
122
Sundaram Finance v. NEPC Ltd. (1999) 2 SCC 479
123
Ibid
124
Ibid
 162

In the absence of case laws and general understanding of the Act in the
context of international commercial arbitration several provisions of the
1996 Act were brought before the courts which interpreted the provision in
the usual manner125. The Law Commission of India prepared a report on
the experience of the 1996 Act and suggested a number of amendments126.
Based on recommendations of the commission the government of India
introduced the arbitration and conciliation (Amendment) Bill 2003. In
Parliament for amending the 1996 Act127, it has not been taken up for
consideration. In the meantime Government of India, the Ministry of law
and justice, constituted a committee popularly known as the Justice Saraf
Committee on Arbitration to study in depth the implications of the
recommendations of the law commission of India contained in its 176th
Report and the Arbitration and conciliation (Amendment) Bill, 2003. The
committee submitted its report in January 2005; change is still in the
process.

E] Working of Arbitration in India-

Arbitration in India is still evolving one of the objectives of the 1996

Act was to achieve the twin goal of cheap and quick resolution of disputes,
but current ground realities indicate that these goals are yet to be achieved.
The ground realities can be ascertained from the study and analysis of the
various aspects in conducting arbitration.

1) Types of Arbitration practice

The various forms of Arbitration, such as ad hoc arbitration,

institutional arbitration, specialized arbitration and statutory arbitration, are
all practiced in India. However, no reliable and comprehensive data about
them exist at present at the national level. There has been a gradual trend in
125
Ibid
126
176th Report of Law Commission of India, www.lawcomissionofindia.nic.in.
127
www.lawmin.nic.in
 163

favour of institutional arbitration in recent times, with the realization of its

several advantages over ad hoc arbitration128

a) Ad hoc Arbitration - An Ad hoc arbitration is arbitration agreed to

and arranged by the parties themselves without recourse to any institution.
The proceedings are conducted and the procedures are adopted by the
arbitrators as per the agreement or with the concurrence of the parties. It
can be a domestic international or foreign arbitration. In case of
disagreement on the appointment of an arbitrator under ad hoc arbitration
cases, Section 11 of the 1996 Act empowers the Chief Justice of High Court
or Chief Justice of India, as the case may be, to appoint arbitrators. The Ad
hoc arbitration is specifically establishment for a particular agreement or
dispute. When a disputes or difference arises between the parties in course
of commercial transaction and the same could not be settled friendly by
negotiation in form of conciliation or mediation in such case ad hoc
arbitration may be sought by the conflicting parties.

b) Institutional Arbitration - In this kind of arbitration there is prior

agreement between the parties that in case of future differences or disputes
arising between the parties during their commercial transactions, such
differences or disputes will be settled by arbitration as per clause provide in
the agreement.

Institutional arbitration is arbitration conducted under the rules laid

down by an established arbitration organization. Such rules are meant to
supplement provision of the Arbitration Acts in matters of procedure and
other details the Act permit. They may provide for domestic arbitration or
for international arbitration or for both and the disputes dealt with may be
general or specific in character. In India, there are a number of commercial

128
G. K. Kwatra, Arbitration and ADR How to settle international business disputes with supplement
on Indian Arbitration law, 2004, International Trade center (Publication), New Delhi.
 164

organizations which provide a formal and institutional base to commercial

arbitration and conciliation.

There are number of merchant associations which provide for in

house arbitration facilities between the members of such associations and
their customers. In all such cases, the purchase bills generally require the
purchasers and seller to refer their disputes in respects of purchase or the
mode of payment or recovery there of the sole arbitration of the association
concerned.

Stock exchanges in India also provide for in house arbitration for

resolution of disputes between the members and others.

For International arbitration cases in India there are many

organizations providing facilities for settlement of international disputes
among them, the most important are the Indian council of Arbitration
(ICA), the Federation of Indian Chamber of Commerce and Industry
(FICCI), the East India cotton Association Ltd. and the cotton Textiles
Export Promotion Council.

Advantages of institutional arbitration over ad hoc arbitration there

are a number of advantages of institutional arbitration over ad hoc
arbitration in India of them are as follows:

I. In ad hoc arbitration, the procedures have to be agreed upon by the

parties and the arbitrator. This requires co-operation between the parties
and involves a lot of time. When a dispute is in existence, it is difficult to
expect co-operation among the parties.

In Institutional arbitration, on the other hand the procedural rules are

already established by the institution. Formulating rules is therefore no
cause for concern. The fees are also fixed and regulated under the rules of
the institution.
 165

II. In ad hoc arbitration infrastructure facilities for conducting

arbitration pose a problem and parties are often compelled to resort to
hiring facilities of expensive hotels, which increase the cost of arbitration.
Other problems include getting trained staff and library facilities for ready
reference. In contrast, in institution Arbitration, the institution will have
ready facilities to conduct arbitration trained secretarial/ administrative
staff, library etc. There will be professionalism in conducting arbitration

III. In institutional arbitration, many arbitral institutions such as the

International Chamber of Commerce (ICC) have an experienced committee
to scrutinize the arbitral awards. Before the award is finalized and given to
the parties, the experienced panel scrutinizes it. As a result, the possibilities
of the court setting aside the award is minimal because the scrutiny removes
possible legal/technical flaws and defects in the award. This facility is not
there in ad hoc arbitration, where the likelihood of court interference is
higher.

In spite of numerous advantages of institutional arbitration over ad

hoc arbitration process there is currently overwhelming tendency in India to
resort to ad hoc arbitration an empirical survey will reveal that a
considerable extent of litigation in the lower courts deals with challenges to
awards given by ad hoc arbitration tribunal129.

c) Statutory Arbitration-

Statutory arbitration is arbitrations conducted in accordance with the

provision of certain special Acts which specifically provide for arbitration
in respect of disputes arising from matter covered by those Acts. There are
about 24 such central acts. Among them are the cantonment Act, 1924, the
Electricity Act, 1910, the Land Acquisition Act 1894, the Railways Act,

129
Inaugural address by Justice K.G. Balakrishnan, Chief Justice of India, on International
conference on ‘Institutional Arbitration in infrastructure and construction’, New Delhi, Oct. 16,
2008.
 166

1890, the Co-operative Societies Act, 1912, the Forward contract

Regulation Act, 1956 and the Industrial disputes Act 1947. Likewise, many
state Acts also provide for arbitration in respect of disputes covered by
those Acts. It is mandatory arbitration which is imposed on the parties by
operation of laws in such a case the parties have no option as such but to
abide by the laws of land.

d) Domestic Arbitration-

Domestic arbitration takes place in India when the arbitration

proceedings, the subject matter of the contract and the merits of all the
disputes are all governed by Indian law, or when the cause of action for the
dispute arises wholly in India, or where the parties are otherwise subject to
Indian Jurisdiction.

e) International and Foreign Arbitration-

An arbitration in which any party belongs to other than India and the
dispute is to be settled in India is termed as International Arbitration. The
Arbitration and conciliation Act 1996 defines international commercial
arbitration under clause (f) of sub-section (1) of Section 2, as arbitration
relating to dispute arising out of legal relationship, whether contractual or
not considered as commercial under the laws in force in India and where at
least one of the parties is:

• An individual who is a national of or habitually resident in or

any country other than in India, or

• A corporate body which is incorporated in any country other

them India or

• A company or an association or a body of individual whose

central management and court is exercised in any country
other than India or
 167

• The government of foreign country.

It is clear from above definition that international arbitration can take

place in India in accordance with the same procedure as domestic
arbitration. Foreign arbitration is an arbitration conducted in a place outside
India and the resulting award is sought to be enforced as foreign award; in
India.130

2) Arbitration Practice across Industries

Generally speaking, there is no marked difference in arbitration

practice from one industry to another in India; unlike in Europe where the
manner of settling disputes has substantially evolved separately across
various industry sectors, but the exception to this general rule is the
Construction and Information Technology (IT) Industry. Due to technical
complexities and long term nature of relationship between parties in these
industries, arbitration in construction and IT industry dispute is quite
different from other industries.

The construction/infrastructure is one of the fastest growing sectors

of the Indian economy, and millions of dollars are spent in construction
related disputes. According to survey, conducted in 2001 by the
construction Industry Development Council, the amount of capital blocked
in construction sector disputes was over INR-540,000 million131. Ad hoc
arbitration is still very popular in the construction industry. Over past
decades in India there has been a great deal of construction activity both in
the public and private sectors. Central and State Government; State
instrumentalities; and public and private companies have all been entering
into contracts with builders as part of their commercial activities. The right
and obligation, privies and privileges of the respective parties are formally

130
Dr. M. V. Parnajape, Arbitration and alternative dispute resolution, 3rd edition, Central law
Agency, p 16
131
The Economic Times, April 10, 2008
 168

written. The central and state governments and instrumentalities of the

states, as well as private corporations, have their own standard terms of
contract catering to their individual needs. Often these contracts provide for
remedial measures to meet various contingencies. Despite these contracts,
differences often arise between the parties. To meet the situations,
arbitration clauses are provided.

IT projects tend to be complex and characterized by a network of

responsibilities shared between parties that are dedicated to carry through a
technology related, long-term relationship. Thus, IT disputes typically
center on contractual or intellectual property law issues.

The Indian Council of Arbitration (ICA), an apex arbitral institution

in the country, has started process of identifying and training specialized
arbitration for dispute connected with IT industry.

3) Fast Track Arbitrations

Establishment of fast track arbitrations is a recent trend aimed at

achieving timely results, thereby lowering the costs and difficulties
associated with traditional arbitration. It is a time bound arbitration, with
stricter rules of procedure, and reduced span of time makes it more cost
effective. Fast track arbitration is required in a number of disputes such as
infringement of patents, trademarks, destruction of evidence marketing of
products in violation of patent/trademark laws, construction disputes in time
bound projects, licensing contracts and franchises where urgent decision are
required.

The Indian Council of Arbitration (ICA) has pioneered the concept

of fast track arbitration in India. Under the rules of ICA, before
commencement of the arbitration proceedings, parties may request the
arbitral tribunal to settle disputes within a fixed timeframe of three to six
month or any other time agreed upon by the parties. The 1996 Act has built
 169

in provisions for fast track arbitration under section 11(2) 11(6) 13(1) 13(4)
23(3), 24(1), 25 and 29 of the Act132. The Arbitration and conciliation
(Amendment) Act, 2003, proposes to introduce a single member fast track
arbitral tribunal, wherein filing of pleadings and evidence will be on fast
track basis, so as to pronounce the award within six months.

4) Disputes which can be referred to Arbitration

Almost all types of civil disputes can be settled by arbitration for

instance-Disputes related to Business, Contract, Construction, Commercial
recoveries, Family disputes, Property and insurance disputes.

5) Disputes which cannot be referred to Arbitration are as follows

Matrimonial matters like divorce or maintenance, Criminal offences,

Insolvency matters like declaring a person as insolvent, Dissolution or
winding up to a company, Disputes outside the purview of contract,
Questions as to genuineness or authenticity of a will

F] Advantages of Arbitration as a mode of ADR

There are number of advantages of arbitration than court redressal

mechanism

1. Freedom of Choice of Decision Maker

Parties to Arbitration are free to choose a technical person as

arbitrator in case of disputes involving questions of technical nature.

2. Procedural Flexibility

Arbitration proceedings can be segmented, streamlined or simplified

according to change of circumstances.

132
Indu Malhotra, ‘Fast Track Arbitration’, ICA’s Arbitration Quarterly, ICA, 2006 Vol. XLI /No. 1
at p.8
 170

3. Efficiency
Hearings of an arbitration proceeding are finished sooner than court
proceedings. In addition Arbitration proceedings are of a shorter length and
preparation work is less demanding.
4. Confidentiality
Arbitration being a private process offers confidentiality which
generally not available in court proceedings. Arbitration hearings are
confidential private meeting in which attendance of media a member of
public are not allowed and even decision of such proceedings is not
published.
5. Convenience
In arbitration, the parties have the freedom to choose the applicable
law, a neutral party to act as arbitrator in their dispute on such days and
places convenient to parties, arbitrators and witnesses.
6. Expert in the Subject
In arbitration, the parties can choose an arbitrator, who is
knowledgeable about the subject matter or expert in it. For example in a
construction dispute, parties may appoint a person as an arbitration having
vast knowledge in construction.
7. Finality
There is no right of appeal in arbitration even though the court has
power to remit or set aside the arbitration, more or less the award of an
arbitrator in final133.
G] Extent of Judicial Intervention under the 1996 Act
One of the main objectives of the 1996 Act was to give more powers
to the arbitrators and reduce the supervisory role of the court in the arbitral

133
Madhusudan Sharay, Arbitration and Conciliation Act, with Alternative Dispute Resolution, 2nd
edition., 2008, Allahabad agency, p. 58
 171

process134. In effect, judicial intervention is common under the 1996 Act.

Such intervention takes the form of determination in case of challenge of
awards. Such a propensity to exercise their authority to intervene may be
attributable to their skepticism that arbitration is not effective at resolving
disputes or the judges’ vested concern that their jurisdiction will be
adversely eroded135. The decision of the Supreme Court in the Saw Pipes
case136 exemplifies this inclination, and threatens to hamper arbitration’s
progress toward speed and efficiency. In this case, the Supreme Court
expanded the scope of ‘public policy’ from the earlier ratio laid down by a
three bench judgment in the Renusagar case137 and that one of the grounds
for challenge of an award under the 1996 Act is violation of ‘public policy’.
The Renusagar case, while respecting the opinion that the definition of
‘public policy’ ought not to be widened in the interest of society, has laid
down three conditions for setting aside an award which are a violation of
(a) the fundamental policy of Indian law; (b) the interest of India; and
(c) justice of morality.

In the Saw Pipes case, the scope of public policy was widened to
include challenge of award when such an award is patently illegal. Some
arbitrators have viewed the judgment in the Saw Pipes case with concern.
The main attack on the judgment is that it sets the clock back to the same
position that existed before the 1996 Act, and it increases the scope of
judicial intervention in challenging arbitral awards138. It was also criticized
on the grounds that giving a wider meaning to the term ‘public policy’ was

134
Arbitration and Conciliation Act, 1996, Statement of Objects and Reasons.
135
Pramod Nair, ‘Quo vadis arbitration in India?’ Business Line, October 19, 2006. Pramod Nair is a
Visiting Fellow at the Lauterpatch Research Centre for International Law, University of
Cambridge.
136
2003 (5) SCC 705 and 2005 (8) SCC 618.
137
1969 (2) SCC 554.
138
Ashok H Desai, ‘Challenges to an award – use and abuse’, ICA’s Arbitration Quarterly, ICA,
2006, vol. XLI/No.2, p 4.
 172

wrong, when the trend in international arbitrations is to reduce the scope

and extent of ‘public policy’139. Jurists and experts have opined that unless
the courts themselves decide not to interfere, the Arbitration and
Conciliation Act, 1996, would meet the same fate as the 1940 Act140. The,
when enacting the 1996 Act and following the UNICITRAL Model Law,
did not introduce ‘patent illegality’ as a ground for setting aside an award.
The Supreme Court cannot introduce the same through the concept of
‘public policy of India.’141 After the Saw Pipes case, some judicial
decisions have tried to reign the effect of Saw Pipes142. One instance of this
is the Supreme Court decision in the case of McDermott International
Inc.vs. Burn Standard Co. Ltd,143 where the court somewhat read down Saw
Pipes. In respect of the Saw Pipes case, the Supreme Court held:

“We are not unmindful that the decision of this Court in ONGC case
had visited considerable adverse comments but the correctness or otherwise
of the said decision is not in question before us. It is only for a larger Bench
to consider the correctness or otherwise of the said decision. The said
decision is binding on us. The said decision has been followed in a large
number of cases.”

A few High Court decisions have also sought to give a narrow

reading of the Saw Pipes case on the ground that a literal construction of the
judgment would expand judicial review beyond all limitations contained

139
Pravin H Parekh, ‘Public Policy as a ground for setting aside the award’, ICA’s Arbitration
Quarterly, ICA, 2005, vol. XL/No.2, p. 19.
140
Address by Justice Santosh N Hedge, Judge, Supreme Court of India, on Indian Council of
Arbitration’s National Conference on ‘Arbitrating Commercial and Construction Contracts’ held
at Hotel Inter Continental, New Delhi, December 6, 2003.
141
Ibid.
142
Sumeet Kachwaha,‘Enforcement of Arbitration Awards in India’, Asian International Arbitration
Journal, 2008, vol. 4, number 1, p. 68.
143
2006(11) SCC 181 at p. 208.
 173

not only under the 1996 Act, but even under the 1940 Act144. In the case of
Indian Oil Corporation Ltd. and Langkawi Shipping Ltd.145, the court held
that to accept a literal construction on Saw Pipes would be to radically alter
the statutorily and judicially circumscribed limits to the court’s jurisdiction
to interfere with arbitration awards. Following the aforesaid Bombay High
Court decision, the High Court of Gauhati held in Dealim Industrial Co. vs.
Numaligarh Refinery Ltd.146 held that the ONGC vs. Saw Pipes,147 does not
intend to efface the time-tested legal propositions and judicial tenets on
arbitration and thus ought not to be construed away from the well-
established trend set by a string of decisions preceding the same.

Section 34 of the 1996 Act makes a mere challenge to an award

operate as an automatic stay even without an order of the court, thereby
encouraging many parties to file petitions under that provision to delay the
execution proceedings. However, under the 1940 Act, there was no such
automatic stay. There is an amendment proposed by the Law Ministry in
the Arbitration and Conciliation (Amendment) Bill, 2003, which has not
been taken up for consideration by the Parliament.

The 1996 Act narrows down the scope of grounds available for
challenging awards as compared to the earlier 1940 Act. However, with
gradual judicial interpretation, the scope of appeal against an award under
the 1996 Act has become broader particularly after the decision of the
ONGC case148, which has widened the ambit of ‘public policy.’ Violation
of public policy of India is one of the grounds for challenge of an award

144
supra, note 140
145
2004 (3) Arb LR 568.
146
Arbitration Appeal No. 1 of 2002 (August 24, 2006).
147
Supra, note 135
148
(2003) 5 SCC 705.
 174

under the 1996 Act149. The ONGC case, undoubtedly, invited substantial
criticism from the legal circles and fraternity. While some large
corporations and bodies welcomed the decision, most of the members of the
legal profession disagreed and stated that the 1996.

Act will in effect become ‘old wine in new bottle’, because under the
1940 Act, it was easy to set aside awards only on the basis of public policy.

H] Enforcement of Awards

One of the factors for determining arbitration as an effective legal

institution is the efficiency and efficacy of its award enforcement regime.
Under Section 36 of the 1996 Act, an arbitral award is enforceable as a
decree of the court, and could be executed like a decree in a suit under the
provisions of the Civil Procedure Code, 1908150.

An award resulting from an international commercial arbitration is

enforced according to the international treaties and conventions, which
stipulate the recognition and enforcement of arbitral awards151.

Enforcement of foreign awards in India is governed by the New

York Convention 1958 and the Geneva Convention 1927, which are
incorporated in Chapter II, Part I and Part II, respectively, in the 1996
Act152. The provisions of enforcement are the same under the 1940 Act and
the 1996 Act. Any party interested in foreign awards must apply in writing
to a court having jurisdiction over the subject matter of the award. The

149
Section 34(2) (b) (ii) of the Arbitration and Conciliation Act, 1996.
150
Section 36 of the Arbitration and Conciliation Act, 1996 – Enforcement - Where the time for
making an application to set aside the award under Section 34 has expired, or such application
having been made, it has been refused, the award shall be enforced under the Code of Civil
Procedure, 1908 (5 of 1908) in the same manner as if it were a decree of the court.
151
Sunil Malhotra, ‘Enforcement of Arbitral Awards’, ICA’s Arbitration Quarterly, ICA, 2006, vol.
XL/No.4 at p 20.
152
Chapter I, Part II of the Arbitration and Conciliation Act, 1996, deals with enforcement of foreign
awards pursuant to New York Convention, while Chapter II, Part II of the said Act deals with
foreign awards pursuant to the Geneva Convention.
 175

decree holder must file the award, the agreement on which it is based and
evidence to establish that the award comes under the category of foreign
award under the 1996 Act153.

The rate of enforcement of arbitral awards is high. Under the 1996

Act, the Supreme Court of India declined to enforce or recognize awards in
only two out of twentyfour cases relating to enforcement of arbitral awards
(Section 36 of the 1996 Act) that came before it. Both cases involved Indian
parties and Indian law154.

I] A Critical Analysis of the Success of Arbitration in India

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 particular155. Even though the 1996 Act
was enacted to plug the loopholes of 1940 Act, the arbitral system that
evolved under it led to its failure. The main purpose of the Act was to
provide a speedy and efficacious dispute resolution mechanism to the
existing judicial system, marred with inordinate delays and backlog of
cases. But an analysis of the arbitration system, as practiced under the 1996
Act, reveals that it failed to achieve its desired objectives.

A. Lot of international pressure to enact act of 1996:

There was lot of international pressure upon the Indian economy due
to gobalisation, liberalization and privatization in the 21st century. As a
result of this many multinational companies has entered into Indian market.
They do not want to be part of Indian judicial system. Theydo not want

153
Sections 37 and 56 of the Arbitration and Conciliation Act, 1996, contain provisions relating to
the documents to be produced before a Court executing a foreign award.
154
S. K. Dholakia, ‘Analytical Appraisal of the Arbitration and Conciliation (Amendment) Bill,
2003’, ICA’s Arbitration Quarterly, ICA, 2005, vol. XXXIX/No.4 at p 23.
155
Professor Anurag Agarwal, ‘Resolving Business Disputes in India by Arbitration: Problems due
to the Definition of ‘Court’, Indian Institute of Management, Ahmedabad, 2008 at p10.
 176

controls or laws which which would control their contracts and activities.
They do not want any interference from the state. They think that there are
inordinate delays if litigation is taken to the Indian courts. They want to
settle their dispute by private arbitrators. As a result of all this there was a
lot of pressure on government of India to pass laws facilitating quick
dispute resolutions as a result the Arbitration and conciliation Act, 1996
was enacted.

B. No need to take separate proceeding for enforcement of foreign

award:

In M/s Furest Day Lawson Ltd. V. Jindal Exports Ltd.,156 Shivaraj V.

Patil, Judge supreme court of India, has observed that there is no need to
take separate proceeding for enfocment of foreign award. Once the award is
declared by the arbitrator the court is only the executor and nothing else it
no jurisdiction to look into the award. Under the old act after making award
and prior to execution, there was a procedure for filing and making an
award rule of court i.e. decree under the new act of 1996, the foreign award
is already stamped as the decree. Practically speaking a decision taken by
foreign arbitrator will be binding upon the Indian party and an Indian has
no right to raise voice against it due to fear of future trade and commerce.

c. Delay :

Arbitration in India is rampant with delays that hamper the efficient

dispensation of dispute resolution. Though the 1996 Act confers greater
autonomy on arbitrators and insulates them from judicial interference, it
does not fix any time period for completion of proceedings. This is a
departure from the 1940 Act, which fixed the time period for completion of
arbitration proceedings. The time frame for completion of the arbitration
proceedings was done away with, on the presumption that the root cause of

156
AIR 2001 SC 2293 at 2294, 2302 and 2303
 177

delays in arbitration is judicial interference, and that granting greater

autonomy to the arbitrators would solve the problem.

However, the reality is quite different. Arbitrators, who are mostly

retired judges, usually treat the arbitration proceedings in the same manner
as traditional litigations, and are willing to give long and frequent
adjournments, as and when sought by the parties157.

Although the scope of judicial intervention under the 1996 Act has
been curtailed to a great extent, courts through judicial interpretation have
widened the scope of judicial review, resulting in the admission of large
number of cases that ought to be dismissed at the first instance. Moreover,
the parties usually approach arbitration with a similar mindset as for
litigation, with the result that awards invariably end up in courts, increasing
the timeframe for resolution of the disputes. Parties also abuse the existing
provision that allows ‘automatic stay’ of the execution of the awards on
mere filing of an application for challenge of the awards. So, the objective
of arbitration as a mechanism for speedy resolution of disputes gets
obstructed due to obtrusive delays.

D. Expensive :

Arbitration is generally considered cheaper over traditional litigation,

and is one of the reasons for parties to resort to it. However, the ground
realities show that arbitration in India, particularly ad hoc arbitration, is
becoming quite expensive vis-à-vis traditional litigation. A cost analysis on
arbitration vis-à-vis litigation will throw light on the higher cost of
arbitration over litigation. This is a crucial factor which weighs against
developing a cost effective quality arbitration practice in India. The
following paragraphs analyze the cost of arbitration and litigation.

157
Supra, note 153
 178

Arbitration costs incurred by the parties may include the arbitrator’s

fees, rent for arbitration venues, administrative/clerical expenses, and
professional fees for the representatives of the parties (which may include
lawyers and expert witnesses). The sum of these fees may differ
significantly between ad hoc and institutional arbitrations. There is no
regulated fee structure for arbitrators in an ad hoc arbitration. The
arbitrator’s fees are decided by the arbitrator with the consent of the parties.
The fee varies approximately from INR 1000.00 to INR 50,000.00 per
hearing for an arbitrator, depending upon the professional standing of the
arbitrator and the size of the claim. The number of hearings required and
the cost of the arbitral venue vary widely. In contrast, most institutional
arbitration bodies in India, such as the Indian Council of Arbitration (ICA)
or the onstruction Industry Arbitration Council (CIAC), have their own
schedules for arbitrators’ fees and administrative fees, based on claim
amounts. They also charge a nominal non-refundable registration fee on the
basis of the claim amount. For example, the ICA’s arbitrators’ fees vary
from INR 30,000.00 to INR 315,000.00 for claim amounts up to INR
10,000,000.00, while administrative fees vary from INR 15,000.00 to INR
160,000.00 for claim amounts up to INR 10,000,000.00. For the CIAC, the
arbitrators’ fees varies from INR 5,000.00 to INR 260,000.00 per arbitrator
for claim amounts up to INR 100,000,000.00, and administrative fees varies
from INR 2,750.00 to INR 62,000.00 for claim amounts up to INR
100,000,000.00.158

The cost involved in court proceedings is limited to lawyers’ fees

and court fees, which are calculated on the basis of claim amount or the
value of the suit. In case of writ petitions or first appeals, court fees are
fixed and are very nominal. High Courts across India have their own
schedule, which fixes the rates for court fees. The only recurring

158
Source – www.ficci.in
 179

expenditure involved is the professional fees paid to the lawyers. It may

vary from a meager INR 500.00 per appearance before a district court in a
small town to INR 200000.00 per appearance by senior advocates in the
Supreme Court of India.

Although arbitration is considered to be a cheaper mechanism for the

settlement of disputes, there is a growing concern in India that arbitration
has become a costly affair due to the high fee of the arbitrators and liberal
adjournments159. This is particularly true for ad hoc arbitrations. Arbitration
is more cost-effective than litigation only if the number of arbitration
proceedings is limited. The prevalent procedure before the arbitrators is as
follows - at the first hearing, the claimant is directed to file his claim
statement and documents in support thereof; at the second hearing, the
opposing parties are directed to file their reply and documents; at the third
hearing, the claimant files his rejoinder. At each of these stages, there are
usually at least two or three adjournments. Sometimes, applications for
interim directions are also filed by either party, which increases the number
of arbitration sittings for deciding such interim applications. The first
occasion for considering any question of jurisdiction does not normally
arise until the arbitral tribunal has issued at least six adjournments160. If the
respondent is the State or a public sector undertaking, the number of
adjournments is higher as it takes more time for these parties in internally
finalizing pleadings and documents that are to be filed before the arbitral
tribunal. Parties pay a fee to the arbitrators for each hearing and thus spend
a substantial amount of money161. This is in addition to the other costs
involved. In contrast, law suits, if admitted, are certainly cheaper, even

159
Samar Bhoite, ‘Mediation, a process less practiced in India in Business Disputes Resolution’
published in the website www.manupatra.com.
160
Law Commission of India, 176th Report on Arbitration and Conciliation (Amendment) Bill, 2001
at p 68.
161
Ibid
 180

though they take substantial amounts of time to resolve. This is because

lawyers’ fees are the only major expenditure in litigation, and lawyers
usually charge the same, if not more, as per litigation hearing.

Due to these reasons, arbitration is not progressing in the manner it

should in order to keep pace with the increase in commercial disputes due
to the inflow of international as well as commercial transactions.

3.3.5.2 Conciliation

Though arbitration is preferred to court system generally in

contractual disputes of commercial nature, it is useful to induce the litigants
to conciliation in civil matters brought before a court and in industrial
disputes before they are referred for adjudication.

Conciliation is an alternative dispute resolution (ADR) process

whereby the parties to a dispute including future interest dispute agree to
utilize the service of conciliator, who then meets with the parties separately
in an attempt to resolve their differences.162

Conciliation received statutory recognition in the code of civil

procedure, 1908 (order XXXIIA rule 3), the Industrial Disputes Acts, 1947,
(Section 12), and the Hindu Marriage Act, 1955. Arbitration and
conciliation Act, 1996, which in essence is similar to the American concept
of court annexed mediation.

A] Meaning and Definitions

Conciliation as defined in Halsbury’s Law of England, “is a process

of persuading parties to reach an agreement, and is plainly not arbitration
nor is the chairman of conciliation Board an arbitrator”.163

162
www.wikipedia.com
163
Wharton’s Law Lexicon,14th edition,1937,p. 227
 181

Conciliation is a non-binding procedure in which an impartial third

party, the conciliator, assists the parties to a dispute in reaching a mutually
agreed settlement of the disputes.

Conciliation as a method of alternative disputes resolution has been

quite instrumental in relieving congestion, particularly at trial court level; in
addition it has been quite successful in reducing the inflow of cases in
various courts.

B] Historical and Legislative Recognition:-

The system of conciliation was for the first time tried in Japan,
France and Norway. In India, the idea of conciliation was evolved on an
experimental basis by the High Court of Himachal Pradesh. In 1984, faced
with the problem of mounting arrears in subordinate courts, the Himachal
Pradesh High Court evolved a project for disposal of pending cases by
conciliation, insisting on pre-trial conciliation in fresh cases. The success of
the Himachal experiments was widely welcomed.

The Law Commission of India in their 77th and 131st Reports, the
conference of Chief Ministers and Chief Justice in their resolution of
December, 1993 and the Calcutta Resolution of the Law Ministers and Law
Secretaries Meeting in 1994 commended other states to follow the
Himachal Project in their subordinate courts.

The success of Himachal, experiment of disputes resolution by

conciliation has given a new dimension to the concept of conciliation
instead of the disputing parties willing coming together with the aims of
arriving at a mutually agreeable settlement of their disputes with the
assistance of a neutral third party mutually chosen, the conciliation on
Himachal pattern is a court induced conciliation, making it mandatory for
 182

the parties to attempt a conciliation for settlement of their disputes and

approach the court if conciliation fails164.

Conciliation is recognized by law as one of the best methods of

dispute resolution and provides for it under various statutes. The Code of
Civil Procedure, 1908 under O.32 A provides for conciliation between the
parties. Order XXXII A of the code provides for a judge in certain matters
relating to the family, to make efforts to settle the dispute amicably and
adjourn the proceedings to enable the parties to reach a settlement. Now,
Section 89 of the Code of Civil procedure provides a strong base for
sponsoring the conciliation process with the support of a pro-active judge,
who finds the conciliators and direct the parties to them, as a matter of
statutory obligation.

Section 4(1), 4(2) of the Industrial Disputes Act, 1947 deals with
appointment of conciliation officer and his geographical area of
jurisdiction. Section 2 (d) and (c) refers to the conciliation officer and
proceedings, Section 2 (p) talks about settlement. Section 11 deals with
procedure and power of conciliation officers, boards, courts and tribunals.
Section 23, prohibits strikes and lockouts during the pendency of the
conciliation proceedings before the board and seven days after the
conclusion of such proceedings. Strikes commenced during such pendency
and without notice is treated as illegal strike165.

Under Hindu Marriage Act, 1955, the approach towards family

disputes is different from ordinary civil cases. Conciliation is preferred as
the first resort by the courts. Under section 23(2) of the act, provides that
before proceeding to grant any relief under this Act, it shall be the duty of
the court in the first instance, in every case where it is possible so to do

164
Madhabhushi Sridhar, Alernative Dispute resolution, negotiation and mediation, First edition,
Lexis Nexis Butterworths, Wadhava Publication, Nagpur, page. 187
165
S. P. Jain, Industrial and Labour Laws, Fourteenth edition, 2010, Dhanpat rai and co., p.3, 45.
 183

consistently with the nature and circumstances of the case, to make every
endeavor to bring about a reconciliation between the parties. However
reconciliation cannot be resolved to when the relief of divorce is claimed
based on grounds of conversion, unsound mind, virulent disease, venereal
disease, renouncing the world by entering religious order, missing for seven
years. These grounds are irreconcilable as per provise under section 23(2)
of the Act166. Also section 23(3) provides that for the purpose of aiding the
court in bringing about such reconciliation, the court may, it the parties so
desire or if the court thinks it just and proper to do so, adjourn the
proceedings for a reasonable period not exceeding fifteen days and after the
matter to any person named by the parties in this behalf or to any person
nominated by the court if the parties fail to name any person with directions
to report to the court as to whether reconciliation can be and has been
effected and the court shall in disposing of the proceeding have due regard
to the report.

The fine fillip came from the statutory recognition accorded to

conciliation in the recent Arbitration and Conciliation Act, 1996 which lays
down for the first time a well structured law of conciliation. Based on
UNCITRAL conciliation Rules the new law has the advantage of universal
familiarity and can be used for settlement of domestic disputes as well as
international commercial disputes. Part III of the Act deals with conciliation
which includes section 61 to 81 which deals with commencement of
conciliation proceeding appointment between conciliation and parties,
confidentiality, termination of conciliation proceedings, settlement
agreement etc.

166
Prof. G.C.V. Subba Rao, Family law in India, revised by T.V. Subba rao, Dr. Vijendar Kumar, 9th
edition., S. Gogia and Co., p.217
 184

C] Conciliation Rules - (Pl. See Appendix- F)

a. Conciliation Process - As already stated, conciliation is a

nonbinding procedure in which an impartial third party, the conciliator,
assists the parties to a dispute in reaching a mutually agreed settlement of
the dispute; this is in essence similar to the American concept of court
annexed mediation. However, there is no well structured process backed by
statutory sanction. Thus, conciliation under CPC (O.XXXIIA r.3), In
Industrial disputes Act. (S.12), Hindu Marriage Act 1955 (S.23) and
Arbitration and Conciliation Act 1996 (Part III) etc. Statutes could not
achieve same degree of popularity as that in USA.

b. Disputes which can be settled by conciliation - Any disputes which

has arisen or may arise between the parties in respect of the defined legal
relationship, whether contractual or not can be settled by conciliation.
Where the parties agree to seek an amicable settlement of that dispute by
conciliation except where a particular mode of settlement is prescribed by
or under the law.

c. Recourse to Conciliation - Conciliation is a procedure mutually

agreed to by the parties. Recourse to this procedure can be made by
entering into an agreement for seeking an amicable settlement of the
dispute by conciliation, even where there is no agreement between the
parties, a party desiring conciliation may send to the other party a written
invitation to conciliate and the other party accepts the invitation to
conciliate.

d. Number of Conciliator - There is one conciliation, but the parties

have freedom to agree that there should be two or three conciliators.

e. Appointment of Conciliators - The Conciliators may be appointed

by the parties themselves or each party may appoint one conciliator and
may mutually agree on the third conciliator or the parties may enlist the
 185

assistance of a suitable institution or person in connection with the

appointment of conciliators.

f. Role of Conciliator - The Conciliator assists the parties in an

independent and impartial manner in their attempt to reach an amicable
settlement of their disputes. He is guided by the principle of objectivity
fairness and justice.

The conciliator after the appointment calls both the parties to give a
written summary of their respective cases with relevant documents. After
that he holds a joint meeting with the both parties. Thereafter, he holds
private meetings with each party separately to further clarify its case and to
discuss the merits of case guiding the party in respect of legal position and
the requirement of his claims. In every meeting he tries to bring the parties
closer to an agreement. Any information he received in proceeding is
required to be kept confidential. Sometimes he transmits the crux of the
matter to the opposite party for an explanation but if the party chosen, they
can instruct him to not to disclose the information. After several rounds of
such separate meeting if the conciliator is of the view that there is no scope
for settlement, the conciliator terminates the proceeding. When the parties
agree to settle their disputes, conciliator holds a final joint sitting for
drawing up and signing a settlement by parties once the settlement
agreement is singed it is final and binding on the parties.

D] Conciliation V. Arbitration

A comparison of conciliation and arbitration sought to be made to

highlight the situations in which conciliation would be preferred to
arbitration. Conciliation is differed from arbitration and hence is better
suited in certain situations167.

167
Dr. Sant Prasad Gupta and Satya Prakash Gupta, The Arbitration and ADR, New Edition, 2002,
Asia House, p. 157.
 186

1) Arbitration works as a corollary to the judicial process. In

brief, two parties submit their disputes to arbitration;
arbitration decides the case on the basis of facts, issues and
evidence presented. Decision of arbitrator is binding upon the
parties as if it is decree of any court. On the other hand in
conciliation the disputants prepare statement containing the
issue to be addressed conciliator works towards settlement
agreement by negotiating between them.

2) Arbitration necessitates attorneys, a tribunal, presentation of

facts, appraisal of evidence and a trial which is bound by code
of civil procedure conciliator is not bound by any legal
formality. The conciliator is expected to conduct the
proceedings keeping in mind the principles of objectivity,
fairness, justice and the circumstances of the case, wishes
expressed by the parties and need for speedy settlement
arbitration is more of a power play which resulted in win-lose
situation. Conciliation tries to provide a win-win situation to
both the parties.

3) In arbitration when both the parties are facing each other a lot
of confidential information tends to get disclosed. Some of the
trade secrets of a company may get disclosed. However, in
conciliation the parties do not interact during the proceeding
which minimizes the risk of any undisclosed information
getting revealed. A section 70 provides right of the parties
against disclosure of information.

4) Decisions of parties in a relationship arising out of non legal

obligation, certain decisions based on unrestricted rights of the
parties affecting relationship between them, Minor breaches of
legal obligations that would cause a loss of faith between the
 187

contracting parties which affect continuing relationship

between the are better dealt with by conciliation rather than
arbitration.

5) Conciliation brings a finality that arbitration sometimes does

not.

E] Conciliation in Lok Adalat:-

Conciliation has been successful in India through a system that has

become popular as Lok Adalat. There were initially ad hoc bodies
composed of eminent persons, lawyers, judges, social activists, government
officials who would endeavor to help the parties in process to reach a
settlement168.

F] Advantages of Conciliation Process:-

Conciliation is becoming popular as an alternative dispute resolution

mechanism due to its obvious advantages-

1) Settlement of dispute by mutual compromise envisaged by

conciliation which relives parties from heavy financial
expenditure from years to year along with tension and
bitterness.

2) It offers flexible alternative for a wide variety of disputes,

small as well as large.

3) It reserves the right of the parties to withdraw from

conciliation without prejudice to their legal position inter se at
any stage of proceedings.

4) It is committed to maintenance of confidentiality throughout

the proceedings and thereafter, of the dispute, the information

168
Dr. Tahali Charan Mohanty, Lok Adalat Vs. Conciliation, Indian Bar Review, Vol. 28 (2 and 8)
2001, page 131.
 188

exchanges, the offer and counter offers of solution made and

settlement arrived at.

5) It preserves the continued relationship between the parties

even after the settlement. For instance, disputes arising out of
construction contracts, family property, family relations or
disputes among members of any business or other
organization is best resolved through conciliation169.

G] Limitations of conciliation

Though conciliation has been proved to be beneficial mode of

alternative dispute resolution system, yet certain aspects of the system
demand an overhaul.

1) Once litigation starts there will rarely be negotiations, as

litigants have already invested some money, time and not
willing to give up their chance of winning.

2) Lawyer’s of both the parties who charge their fees on the basis
of their appearance and intelligence, would have no incentive
for considering any possible compromise.

3) Mental attitude of the parties i.e. to start the conciliation there

is first requirement of the parties assent to enter into
conciliation process.

3.3.5.3 Mediation

Mediation is basically negotiations carried out with the assistance of

a neutral third party; however recommendations of a mediator are not
binding. In ultimate analysis the concept of mediation is based on all innate
sense of decency and an acceptance of shared values in the community,

169
Dr. Sr Myneni, Arbitration, Conciliation and alternative dispute resolution system, New edition,
2004, Asia Law House, p 237.
 189

even as they are imperiled as a result of the conflict170. The basic

underlying motive of mediation is to provide the parties with an opportunity
to negotiate, converse and explore options aided by a neutral third party, the
mediator, to exhaustively determine if settlement is possible. It is an
informal process in which a trained mediator assists the parties to reach a
negotiated settlement. He does not decide who is right or wrong and has not
authority to impose a settlement on the parties.

A] Meaning and Definition

1) According to the Oxford English Dictionary171 mediation, the

action of mediating between parties at variance, intercession
on behalf of another.

2) According to Black’s Law Dictionary172mediation a private

informal dispute resolution process in which a neutral third
party, the mediator helps disputing parties to reach an
agreement the mediator has no power to impose a decision on
the parties.

3) Christopher Moore defines mediation as under173 “The

intervention into a dispute of negotiation by an acceptable
impartial and neutral third party who has no authoritative
decision making power to assist disputing parties in
voluntarily reaching their own mutually acceptable settlement
of issues in dispute.”

4) Mediation is a facilitative process in which disputing parties

engage the assistance of an impartial third party, the mediator,

170
D.K.Sampath, Mediation NLSUI, 1991, PP 1-2.
171
Oxford English Dictionary , 2nd ed., 1989
172
Black’s Law Dictionary, 6th ed., 1990
173
Christopher Moore; The Mediation Process Practical Strategies for Resolving Conflict,1987
 190

who helps them to try to arrive at an agreed resolution of their

dispute. The mediator has no authority to make any decisions
that are binding on and skills to help than to negotiate an
agreed resolution of their dispute without adjudication174.

5) Mediation is negotiation carried out with the assistance of a

third party. The mediator, in contract to the arbitrator or
Judge, has no power to impose an outcome on disputing
parties175.

From above definitions it could be stated that mediation is a

facilitative process in which “dispute parties engage the assistance of an
impartial third party, the mediator, who helps them to try to arrive at an
agreed resolution of their dispute. Mediation is a process in which a trained
facilitator assists disputing parties in communicating their positions on
issues and explore possible solutions. The mediator does not render any
decision and cannot require the parties to agree to any issue. Instead, he or
she facilitates the exchange of information and settlement alternatives
between the parties. Mediation is characterized by a business-like but
cooperative climate that sets the stage for constructive communication in
the future.

The mediator contributes to the settlement process in a variety of

ways. Perhaps most important, the mediator establishes and enforces
procedures that are fair and even-handed, and that allow all sides the
opportunity to be heard. Mediation also provides an opportunity to express
emotions or frustrations that may be thwarting negotiations and to address
these underlying concerns in a controlled but relaxed environment.

174
Henry J. Brown and Arthur L. Mariot ADR principle and practice, 1997 , 2nd ed., Sweet and
Maxwell, Lord on Chapter 7 page, 127
175
Stephen B. Goldberg, Frank E.A Sander and Nancy H. Rogers, Disputing Resolution
(Negotiation, Mediation and other process), 1999, 3rd ed., Aspine Law and Business Gaithesburg
and New York, chapter 3, page, 123.
 191

Throughout the proceeding the mediator acts as an agent of reality, helping

parties think through their positions end ensuring that all parties fully
participate in fashioning any settlement agreement. Accordingly, mediation
is used extensively in family disputes, particularly in those involving child
custody issues. It is also used in business disputes and other cases involving
ongoing relationships.

Dispute resolution can be attempted through persuasion, consensus

building, voting, negotiation, litigation etc. Thus, mediation is only one of
many forms of dispute resolution176.

B] History of Mediation in India

Mediation is not something new to India. Centuries before Britishers

arrived, India had utilized a system called the Panchayat system, whereby
respected village elders assisted in resolving community disputes. Such
traditional mediation continues to be utilized even today in villages. In Pre-
British period mediation was popular among businessman. Impartial and
respected businessmen called Mahajans were requested by business
association members to resolve disputes using an informal procedure which
combined mediation and arbitration.

C] Legislative Recognition to mediation

Selection 89 of code of Civil Procedure 1908 provides that as a

process for the settlement of disputes outside the court. Court way refer the
dispute to mediation (section 89 (1) (d)) and for mediation, the court shall
effect a compromise between the parties and shall follow such procedure as
may be prescribed. (Section 89 (2) (d)).

According to Justice R.V. Raveendran, Judge, Supreme court of

India, Mediation is erroneously defined in section 89 of the code as the

176
D. K. Sampath, Mediation: Concept and Techniques, Clinical Legal Education, EBC, Lucknow,
1998, p. 152-159.
 192

process where the court effects a compromise between the parties by

following the prescribed procedure. “Judicial Settlement is erroneously
defined in sec. 89 of the code as reference to third party who will assist or
facilitate the parties in arriving at a settlement but the courts, lawyers or
litigants have all recognized that mediation is the process where the court
refers to a third party or institution, for facilitation the parties to the
proceeding to arrive at a settlement. Amendment to section 89 is an urgent
necessity, as otherwise “mediation” as defined would be completely
different177.

D] Civil Procedure Alternative Dispute Resolution And Mediation

Rules

In Salem Bar Association Case178 the Apex court has drafted a

guideline rules to be drafted by each High court for effective
implementation of Alternative dispute resolution and mediation in Section
89 of the code of civil procedure, 1908 and approximately all the High
Court has drafted the same. Summary of draft is as follows:

The Apex Court in its Judgment of Salem Advocates Bar Association

mentioned above, directed the High Courts to take appropriate steps for
making rules. The Apex Court accepted the draft rules suggested by the law
commission in this behalf. Accordingly various State High Courts started
taking steps for framing of rules for ADR. Most of the High Court’s
accepted the Rules suggested by Law Commission. (See annexure- G) In
Maharashtra also Bombay High Court accepted the draft rules suggested by
the law commission with some modifications and framed the rules titled as
“Civil Procedure ADR and Mediation Rules, 2006”, for Bombay High court
and other subordinate court in Maharashtra State. (See annexure- H).

177
(2010) PL October 10
178
(2005) 6 SCC 344
 193

Models of mediation

There are two distinct forms of mediation i) right based and

ii) interest based mediation.179 In right based, the mediator looks to the
rights that the disputants to resolve the dispute within those parameters. For
example, in accident claims, right the court process and then use that
information to help the parties to reach to an acceptable settlement. Hence,
rights based approach would look to the outcome if this case were to go to
court and seeks to use that ‘shadow’ to facilitate a settlement.180 An interest
based approach would look to the needs of the parties, regardless of what a
court might decide in the particular dispute for instance if there is a dispute
between two partners of a small manufacturing business, one of whom has
contributed the capital and other all invention.

E] Steps Process of Mediation and Conciliation

The basis of Mediation and Conciliation is negotiation. Negotiation

as defined in oxford dictionary means to confer with another for an
agreement. Mediation and Conciliation aims at reaching a settlement and a
win win situation as against a judgment which creates a win lose situation
in litigation. The steps and process of Mediation are generally as under –

1. Introduction

2. Joint Session with parties

3. Private Session with parties separately

4. Joint Session with parties

179
Stephen R. Marsh, Models of Mediation, http://adrr.com/adr4/mediation.htm.
180
Cf. R. Mnookin and L. Kornhauser, “Bargaining in the shadow of the Law: The case of Divorce,
88 Yale L.J. 950 (1979).
 194

Today with the advent of information technology online mediation

has also been practiced181. The next vital point is as to what ADR would
offer to the Lawyers, the Judges and the litigant public.

5. Mediation Agreement

At the end of successful mediation, there may be a need for

writing an agreement on the issues that were mediated upon. It is
impossible to have standard format for agreement, in a mediation process,
which is dynamic by nature

Referring to the need of inclusion of interest of the parties in a

mediation agreement Michael Tsur, states: “An agreement, reflects the joint
effort of all parties…the h agreement will faithfully reflect the process that
the parties themselves entered into.”182

BATANA, WATANA, MLATNA

These words are most commonly used and are very effective
techniques of Mediation and conciliation. They signify the following :-

BATANA : Best Alternative To A Negotiated Agreement

WATNA : Worst Alternative To A Negotiated Agreement

MLATNA : Most I likely Alternative To A Negotiated Agreement.

A Mediator and Conciliator tries to tell the parties the best and the
worst possible outcomes of their case and therefore takes them to a most
likely alternative to a negotiated / settlement or agreement.

F] Cases Which Cannot Be Decided By Mediation:-

Criminal cases, cases involving public interest, cases affecting a

large number of persons matters relating to taxation (direct an indirect) and
181
C.P. Nandini and G.B. Reddy, “Resolution of Domain Name Disputes Through ADR – Impact of
WIPO’s Initiative Towards EUDRP”, 52 JILI (2010), at page 80.
182
Michael Tsur, ‘The Art of Writing A Mediation Agreement’, from articles listed on website
www.mediate.com.
 195

administrative law have to be decided by court by adjudicatory process.

Even among civil litigations cases involving fraud, forgery, coercion, undue
influence, cases where a judicial declaration is necessary as, for instance-
Grant of probate letters of administration, representative suits which require
declaration against the world at large and election disputes have to be
necessarily decided through adjudicatory process by courts only.

G] Cases Which Can Be Decided Through Mediation183

I) Cases relating to commerce and contracts, which include:

a) disputes between suppler and customers,

b) disputes arising out of contracts,

c) disputes relating to specific performance,

d) disputes between bankers and customers,

e) disputes between developers/builders and customers,

f) disputes between landlords and tenants, and licensors

and licencees,

g) disputes between insure and insured.

II) All cases arising from strained or sourced personal

relationships, including:

a. disputes relating to partition, division among family

members, coparceners, co-owners,

b. disputes of matrimonial causes, maintenance, custody

of children,

c. disputes relating to partnership among partners.

183
Justice R. V. Raveendran, MEDIATION: Its importance and relevance, (2010) P.L.October 10 at 16
 196

III) Cases where there to partnership among partners exiting

relationship in spite for the parties:

a. disputes between employers and employees,

b. disputes between neighbours (easementory)

c. disputes among members of societies, associations,

apartment owners, association.

IV) Consumer disputes and

V) Cases arising out of tortuous liability (negligence) claims

for compensation in motor accidents/other accidents.

H] Conciliation V. Mediation

Though mediation and conciliation are the same in principle, in

practice, conciliation and mediation are understood to be different
processes. Conciliation is used as synonym for mediation, though there is a
slight difference between them.

According to one view where the person facilitation the settlement

merely facilitated the disputing parties to arrive at a settlement without
suggesting any terms, so that the parties themselves find a solution and
reconcile their differences, the process is a mediation and where the person
facilitation the settlement also suggest the terms of settlement, the process
becomes conciliation. Outcome of both the processes is a mutually agreed
settlement, so conciliation and mediation are interchangeable expressions in
other jurisdiction.

In India, however as per the provisions of Arbitration and

conciliation Act, 1996 and the provisions of section 89 of the code of civil
procedure the terms conciliation and mediation have different connotations.
If both parties to a dispute agree to negotiate with the help of neutral third
party to arrive at a settlement and appoint conciliators for that purpose, the
 197

process is a conciliation governed by the provision of the Arbitration and

Conciliation Act, 1996. Thus our parliament has made a clear distinction
between conciliation and mediation In Part III of the 1996 Act (sections 61
to 81) which deals with ‘conciliation’ there is no definition of
‘conciliation’. Nor is there any definition of ‘conciliation’ or ‘mediation’ in
section 89 of the code of civil procedure 1908 (as amended by Amendment
Act of 1999).

Under our laws and the UNICITRAL model the role of the mediator
is not proactive and is somewhat less than the role of a conciliator, we have
seen that under part III of the Arbitration and Conciliation Act, the
conciliator’s powers are larger than those of a mediator as he can suggest
proposals for settlement. Hence, the above meaning of the role of mediator
in India is quite clear and can be accepted in relation to section 89 of the
code of civil procedure also. The difference lies in the fact that the
conciliator can make proposals for settlement ‘formulate’ or ‘reformulate’
the terms of a possible settlement while a ‘mediator’ would not do so but
would merely facilitate a settlement between the parties.

The meanings of these words as understood in India appear to be

similar to the way they are understood in U. K. While defining ‘mediation’
and ‘conciliation’ it is stated that ‘mediation’ is a way of setting disputes by
a third party who helps both sides to come to an agreement, which each
considers acceptable. Conciliation, it is said is a procedure like mediation
but the third party, the conciliator, takes a more interventionist role in
bringing the two parties together and in suggesting possible solution to help
achieve a settlement but it is also stated that the term ‘conciliation’ is
gradually falling into disuse and process which is proactive is also being
 198

regarded as a form of mediation. This has already happened in USA and

mediation is differently understood in USA.184

I] Advantages of Mediation :

1. Mediation gives the parties ultimate control over the outcome of

their dispute, which in turn lets them decide their own futures.

By choosing litigation over mediation, parties to a dispute relinquish

any decision-making rights they have regarding its outcome. In the context
of a divorce, this loss of control includes the parties' very futures and the
manner in which they will co-parent their children after the divorce is
"final". I say "final" because, given litigation's inherently hostile nature, all
too often the emotional part of the divorce can and does linger for many
years after a judge has signed the final decree. Litigation is frustrating. It's
costly and time consuming. To make matters worse, attorneys speak a
language that is unfamiliar to those outside the legal community. As vexing
as all of this can be, it pales in comparison to the parties' loss of control
over the ultimate outcome of their dispute. Our community is probably no
different from any other . . . we have many fine judges who do their best to
render fair decisions. Unfortunately, a judge or jury is going to hear only a
small fraction of the "whole story" that comprises any dispute. Given the
time constraints placed upon our courts, it is difficult if not impossible for
any judge or jury to arrive at a decision that seems fair to the litigants.
Mediation empowers the parties with the resources to make their own
decisions and control their own destinies . . . instead of having it done for
them by total strangers. 185

184
Supra note, 100 at 187
185
ADR practitioners guide, march 1998, Centre for democracy and governance, bearau for global
progress , field support and research, US Agency for international devlopment, Washington, D.C.
20523-3100.
 199

2. Mediation costs significantly less than litigation.

Litigation is expensive. Although the nature and complexity of the

dispute controls the legal cost, it is not unusual to see five and even six
figure advocate’s fees in just about any type of contested case, travelling
expenses for years until final decision of court, etc. Hence, by referring the
dispute to mediator may reduce the expenses of sorting out the matter.

3. Through the use of a skilled third party neutral, the mediator,

the parties have the opportunity to fully explain their positions
and explore alternatives for mutual benefit.

Litigation constrains the parties' ability to communicate on a

meaningful basis. Mediation on the other hand provides the parties with an
opportunity to discuss and explore all facets of their dispute in the hope that
a "win-win" result can be achieved. Although the mediation session will
focus on resolving issues to the benefit of all parties concerned, the
mediator only controls the process of the discussions, not the subject matter
in dispute.

4. Mediation provides an opportunity to resolve disputes in much

less time than required if the courts are used.

It takes a long time to get to court. It is not unusual for a contested

case to remain on the court's docket for many months . . . sometimes years.
The mediation process is much quicker than litigation. Sessions can be
scheduled on much shorter notice. The mediation process itself takes less
time than litigation. Finally, the chances of a postponement are far less with
mediation than with litigation.

5. Mediation reduces the risk of future discord and endless

litigation.

Mediation on the other hand, provides the parties with a vehicle to

work together to arrive at mutually agreeable decisions . . . decisions that
 200

will define their relationship for many years to come. In the final analysis,
isn't it better to work together towards a "win-win" scenario than to
abrogate your decision-making rights to a total stranger?

J] Limitation of Mediation:-

Mediation has its limitations. It is effective and useful only in certain

types of civil litigation. It can be resorted only when the parties mutually
agree.

1) Parties to the litigation have set their mind that settlement

means a giving up a part of his rights or claim and showing a
concession to the other side. So they are not ready for
mediation.

2) The major part of the expenditure for a litigant would have

been incurred when he commences the litigation by ways of
court fee and lawyer’s fee and litigation does not seek any
incentive for mediation. So they are man reluctant to go for
mediation.

3) Some lawyers have fear in their mind that if the case is settled
through mediation, they will lose the fee.

4) Lack of trained mediators in mediation process.

5) No certain procedure is prescribed by the statute for

mediation.

The development of mediation in India holds enormous promise. In

particular, the neutralizing communication skills and powerful bargaining
strategies of facilitated negotiation can strengthen the systems capacity to
bring justice to the society. Despite the demonstrable value of these
techniques, however, several large obstacles block the path to mediation in
India. Exposure to these facilitated negotiation processes, though spreading
rapidly remains limited.
 201

3.3.5.4 Lok Adalat

Peace is sine qua non for development. Disputes and conflicts

dissipate valuable time, money and energy of the society. The courts are
flooded with huge number of cases. To get out of this maze of litigation,
courts and lawyer’s chambers, most of the countries encourage alternative
methods of dispute resolution. India has a long tradition and history of such
methods being practiced in the society at grass roots level. These are called
Panchayat. There are widely used in India both for solving commercial as
well as non commercial disputes.

To implement the mandate of Article 39 A of the constitution and to

secure cheap and expeditious justice to all and particularly to the poor and
disadvantage, the central government adopted a resolution on
26th September, 1980 to appoint a committee under the chairmanship of
Justice P. N. Bhagwati of the supreme court to monitor and implement legal
aid program on a uniform basis. Pursuant to this policy, the Legal Aid and
Advice Boards are appointed by central government. Law commission and
the Malimath committee also made recommendation in that regard. This
policy was given statutory status by enactment of Legal Services Authority
Act, 1987 (Act 30 of 1987). This Act inter alia introduced Lok Adalat as an
alternative method of resolving disputes. However, that was purely
voluntary in course of time Lok Adalat proved very successful, particularly
in resolving disputes relating to motor accidents, consumer complaints,
telephone bills, insurance claims, supply of power light and water etc.186

With a view to remove some defects and to constitute statutory legal

service authorities to monitor legal aid program this act was amended in
1995 and 2002. Now, Lok Adalat is no more voluntary. There are central

186
Anurag Agarwal, “Role of Alternative dispute resolution methods in development of society: Lok
Adalat in India”, Indian Institute of Management Ahmadabad, India, WP NO. 2005-11-01,
Nov.2005, page 7.
 202

state and District Legal Services Authority to help poor disputants to seek
legal aid and to encourage disputants to have their disputes resolved by Lok
Adalat, which are now permanent institutions having a presiding officer of
the status of a District Judge and two members experienced in public
service to give binding awards. In its endeavourer to provide adequate
means of dispute resolution the central government has recently amended
the code of civil procedure with effect from 1-7-2002, empowering the civil
courts to refer disputes either to an arbitrator, conciliator judicial settlement
including Lok Adalat or mediation in case where there is more likelihood of
it being settled out of court.

A] Lok Adalat:- Meaning and Concept

The Lok Adalat is an old form of adjudicating system that prevailed

in ancient India and its validity has not been taken away even in modern
India. The word Lok Adalat means peoples court, this system is based upon
the Gandhian principles. It is one of the components of Alternative Disputes
Resolution Mechanism. As Indian courts are over burdened with backing of
cases and regular court decided cases involving lengthy, expensive and
complex procedure, courts take years together to settle even petty cases.
Lok Adalat therefore provides alternative resolution or devices for
expeditious and inexpensive justice. The Lok Adalat System was
introduced in India at the beginning of the 1980’s starting from state of
Gujarat the Lok Adalat evolved as a means of alternative dispute resolution
system.187

B] History and Evolution and Development of Lok Adalat in India

The ancient concept of settlement of dispute through mediation,

negotiation or through arbitral process known as “Peoples Court Verdict” or
187
J. S. Bisht, Lok Adalats: A mechanism of alternative dispute resolution, Indian Bar Review, Vol.
XXXI (182) 2004. Page 166.
 203

decision of “Nyaya-Panch” is conceptualized and in Sitanna V. Viranna,188

the Privy Council affirmed the decision of Panchayat and Sir John Wallis
observed that the reference to a village Panchayat of the institutionalized in
the philosophy of Lok Adalat. Some People equate Lok Adalat to
conciliation or mediation but it called, “Peoples Court”. It involves people
who are directly or indirectly affected by dispute outs resolution. The
concept of Lok Adalat was pushed back into oblivion in last few centuries
before independence and particularly during the British Regime how this
concept has once again, rejuvenated. This system has been deeply rooted in
Indian ethos. Time honored method of deciding disputes. It avoid
protracted litigation and is based on the ground realities verified in person
by adjudicators and the award is fair and honest settlement of doubtful
claims based on legal and moral grounds.

It is time honored method of deciding disputes. It avoids protected

litigation and is based on the ground realties verified in person by
adjudicators and the award is fair, hence, settlement of doubtful claims
based on legal and moral grounds. The evolution of this concept was a part
of the strategy to relieve heavy burden on the court with pending cases and
to give relief to the litigants however in queue to get justice. Camps of Lok
Adalat were started initially in Gujarat in March, 1982 at Junagarh in
Gujarat the land of Mahatma Gandhi. Lok Adalats have been very
successful in settlement of motor accident claim cases, matrimonial or
family disputes, labour disputes relating to public service such as
electricity, telephone bank recovery cases, commercial property and
tenancy disputes etc.189

Some statistics may give as a feeding of tremendous satisfaction and

encouragement. Up to the middle of year 2004 more than 200000 Lok

188
AIR 1934 SC 105
189
Supra foot note - 100
 204

Adalat have been held and therein more then 1, 63, 31, 357 cases have been
settled half of which were motor accident claim cases. More than 4751
cores of rupees were distributed by way of compensation to those who had
suffered accidents 66, 73, 240 person have benefited through legal aid and
advice190.

The concept of Lok Adalat is no longer an experiment in India, but it

is an effective and efficient, pioneering and palliative alternative mode of
dispute resolution which is accepted as a simple, efficient, economic,
informal, expeditious form of resolution of disputes. It is a hybrid or
admixture of mediation, negotiation, arbitration and participation. The true
basis of settlement of disputes by the Lok Adalat is the principle of mutual
consent, voluntary acceptance of conciliation with the help of counselors
and conciliators. It is a participative promising and potential mechanism. It
alarms the society that their welfare and interest really lies arriving at
amicable, immediate, consensual and peaceful settlement of the disputes.

C] Legislative Recognition to Lok Adalat

The enactment of legal Services Authorities Act, 1987 gave a

statutory status to Lok Adalat, as per the constitutional mandate in Article
39 A, of the constitution of India, this act constitutes legal services
authorities to provide free and competent legal services to the weaker
section of the society to ensure them opportunities for securing justice and
it shall not denied to any citizen by reason of economic or other disabilities.

The Legal Services Authorities Act,1987 (as amended vide Act

No.37 of 2002) provides for setting up of a “Permanent Lok Adalat” which
can be approached by any party to disputing involving “Public Utility
Services” which have been defined in the act to include transport services

190
ADR workshop for court of small causes, Mumbai, on 22nd September 2007, paper presented by
justice B>H> Marlapalle, Judge Bombay High Court Assimilation of ADR in the activities of
legal service authority page 47.
 205

for the carriage of passengers or good by air, road or water, postal,

telegraph or telephone services, insurance service as also services in
hospital or dispensary supply of power, light or water to the public, besides
systems of public conservancy or sanitation. Any civil dispute with a public
utility service and where the value of the property in disputes does not
exceed Rupees one million, or any criminal not compoundable under any
laws, can be taken up in the “Permanent Lok Adalat, no party to that
application can invoke jurisdiction of any court in the same dispute. Such
disputes involving public utility services shall be attempted to be settled by
the Permanent Lok Adalat by way of conciliation and failing that, on merit,
and in doing so the Permanent Lok Adalat shall be guided by the principles
of natural justice, objectivity, fair play equity and other principles of justice
without being bound by the code of civil procedure and the Indian Evidence
Act191. Lok Adalat to secure that the operation of the legal system promotes
justice on a basis of equal opportunity. Due to the statutory recognition
given to Lok Adalat, it was specifically provided that the award passed by
the Lok Adalat formulating the terms of compromise will have the force of
decree of a court which can be executed as a civil court decree.

D] Types of Lok Adalat and its Procedure

There are following types of Lok Adalat viz.,

a) Fixed date

b) Permanent Lok adalat

The procedure followed at Lok Adalat is informal one. The Lok

Adalat is presided over by a sitting or retired judicial officer as the
chairman, with two other members, usually a lawyer or a social worker.
Both the parties in dispute shall agree for settlement through Lok Adalat
and abide by its decision.
191
DR. P. B. Shankar Rao, Establishment of Permanent Lok Adalats: A Bane or Boon? Indian Bar
Review, Vol. XXX (1), 2003, page 51
 206

Lok Adalat has the jurisdiction to settle by way of effecting

compromise between the parties, any matter which may be pending before
any court, as well as matters at prelitigative stage i.e. disputes which have
not yet been formally instituted in any court of law. Such matters may be
civil or criminal in nature, but any matter relating to an offence not
compoundable under any laws cannot be decided by the Lok Adalat even if
the parties involved therein agree to settle the same.

Lok Adalat can take cognizance of matter involving not only those
persons who are entitled to avail free legal services but of all other persons
also be they women, men or children and even institutions.

Any one or more of the parties to a dispute can mere by application

the court where their matter may be pending or even at pre-litigative stage
for such matter being taken up in the Lok Adalat, where upon the Lok
Adalat Bench constituted for the purpose, shall attempt to resolve the
dispute by helping the parties to arrive at an amicable solution and once it is
successful in doing so, the award passed by it shall be final which has as
much force as a decree of a civil court obtained after full trial.

E] Advantages of Lok Adalat-

1) Lok Adalat ensure procedural flexibility and speedy trial of

dispute and there is no strict application of procedural laws
like civil procedure code and evidence Act, while assessment
of claims by Lok Adalat.

2) Parties to dispute can directly, through their counsel interact

with the judges, which is in fact not quite possible in regular
court of laws.

3) There is no court fee and even if the case is already failed in

the regular court the fee paid will be refunded if the dispute is
settled at the Lok Adalat.
 207

4) Lok Adalat is judicial body, set up for facilitating a peaceful

resolution of disputes between the litigation parties.
Settlements in Lok Adalats are guided by the principles of
equity, justice and good conscience.

5) Where no settlement or compromise has been arrived through

conciliatory methods of Lok Adalat, then the matter shall be
returned to that very court which had refunded such matter to
a Lok Adalat, and on such an occasion that court shall proceed
to deal with such a case from the very stage which had been
reached before such reference was made.

6) The Legal Services Authorities Act, 1987 has laid down that
every award of the Lok Adalat shall be deemed to be
equivalent to a decree of a civil court and is capable of
execution through legal process. No appeal lies against the
order of the Lok Adalat where as in the regular law court there
is always a scope to appeal to the higher forum on the decision
of the trial court which causes delay in the settlement of the
dispute finally. The reason being that in a regular court,
decision is that of the court but in Lok Adalat there is mutual
settlement and hence no case for appeal will arise. In every
respect the scheme of Lok Adalat is a boon to the litigant
public where they can get their disputes settled fast and free of
cost.

7) Disputes can be brought before the Lok Adalat directly instead

of going to a regular court first and then to the Lok Adalat.

F] Limitation-

1) Lawyers are more reluctant to compromise the matter, for the

sake of their fees which will get them final judgment of case.
 208

2) Mental attitude of the party is that lot of time, money and

energy invested in the litigation so they are not ready to give
up some then rights by compromising the matter in Lok
Adalat.

G] Judicial View-

The objective of the Lok Adalat is to put an end to the disputes

summarily and reduce the burden of the courts. Therefore, the Lok Adalat
decide the matter on consensual basis and passes order after parties have
agreed on the settlement and have given consent over it. So, the award
passed by Lok Adalat shall be final and no appeal shall lie from the award
as per section 96 of civil procedure code, 1908.

In Panjab National Bank V. Lakshmi chand Rai, High Court held

that the code of civil procedure does not provide for an appeal under section
96 against a consent decree and no appeal can be filed against award of Lok
Adalat under section 96 of code of civil procedure.

In P. T. Thomas V. Thomas Job192 the Supreme Court held that the

experiment of Lok Adalat as an alternate mode of dispute settlement has
come to be accepted in India as a viable, economic, efficient and informal
one.

In Jagtar Singh and another V. State of Punjab193 the Supreme Court

has held that if there was no consent the award of the Lok Adalat is not
executable and also if the parties fail to agree to get the dispute resolved
through Lok Adalat the regular litigation process remains open for the
contesting parties.

192
AIR 2005 SC 3575
193
Decided on sept., 17, 2004, criminal Appeal No.s 1030-1031 of 2004, 2004(6) Supreme 642
 209

The Supreme Court has also held in State of Punjab and others V.
Mohinderjit Kaur194, that “Compromise” implies some element of
accommodation on each side. It is not opt, to describe it as “total
surrender”. A Compromise is always bilateral and means mutual
adjustment. “Settlement” is termination of legal proceeding by mutual
consent. If no compromise or settlement is or could be arrived at, no order
can be passed by the Lok Adalat195

3.3.6 INTERNATIONAL CENTRE FOR ALTERNATIVE DISPUTE

RESOLUTION (ICADR)

The ICADR was established as a Society, registered under the

Societies Registration Act, 1860, for the promotion and development of
Alternative Dispute Resolution (ADR) facilities and techniques. The
ICADR was set up when the Arbitration and Conciliation Act, 1996 was
enacted. The main objectives of the ICADR are to propagate, promote and
popularise the settlement of domestic and international disputes by different
modes of ADR and to establish facilities and provide administrative and
other support services for holding conciliation, mediation and arbitration
proceedings. It is also undertaking training/teaching in ADR and related
matters and is running P.G. Diploma Courses in ADR and Family Dispute
Resolution. The Government of India has been giving grants to ICADR so
that a form of international standards is available for settlement of domestic
and international commercial disputes. Its regional office is at Bangalore
and there are number of braches of ICADR in India196.

194
AIR SCW 552, 2005 Lab IC 852
195
State of Punjab and other v. Phulan Rani and another (AIR 2004 SC 4105)
196
www.icadr.com
 210

OBJECTIVES OF ICADR

1. to promote studies in the field of alternative dispute resolution

(ADR) and allied matters, and to promote reform in the
system of settlement of disputes.

2. to undertake teaching and to provide for diffusion of

knowledge of law and procedures on ADR and related matters
and to award diplomas, certificates and other academic or
professional distinction.

3. to impart training in ADR and related matters to those who are

handling arbitration, conciliation and mediation;

4. to promote research and documentation in the field of ADR

and publish books, periodicals, reports and other literature
covering ADR;

5. to organize conferences, seminars and study groups on issues

concerning ADR;

6. to provide facilities and administrative and other support

services for holding conciliation, mediation, mini-trial and
arbitration proceedings;

7. to maintain panels of appropriate persons competent and

qualified to serve as arbitrators, conciliators and mediators, or
willing to serve in any other specialist capacity such as
experts, surveyors and investigators;

8. to cooperate with other societies, institutions and

organizations, national or international, in the pursuit of all or
any of the above objectives;

9. to constitute Regional Centres at convenient places in India

and abroad to promote the activities of the Society;
 211

10. to draw up and prescribe rules of the Society for different

modes of ADR

3.3.7 ONLINE DISPUTE RESOLUTION

The swift growth of e-commerce and web site contracts has

increased the potential for conflicts over contracts which have been entered
into online. This has necessitated a solution that is compatible with online
matters and is netizens centric. This challenging task can be achieved by the
use of ODRM in India. The use of ODRM to resolve such e-commerce and
web site contracts disputes are crucial for building consumer confidence
and permitting access to justice in an online business environment. These
ODRM are not part and parcel of the traditional dispute resolution
machinery popularly known as “judiciary” but is an alternative and
efficacious institution known as ADRM. Thus, ADR techniques are extra-
judicial in character197.

The ADR mechanism can be effectively used to settle online disputes

by modifying it as per the need. It is time effective and cost efficient. It can
also overcome the geographical hurdles. However, there are certain issues
revolving around ADR mechanism like need for personnel with knowledge
of IT, ADR and law; technical concerns; legal sanctity of proceedings;
industry support etc. But these hurdles are just a passing phase. The use of
ADR mechanisms for resolving online disputes is increasing day by day. A
number of web-sites provide for some type of online dispute resolution
method like arbitration, negotiation, mediation etc. and also certain conflict
management services. These services fall into the general categories of
complaint handling, negotiation, mediation and arbitration. These services
will be in great demand in the future since the 1996 Act has given
paramount importance to “party autonomy” by accepting the intention of

197
Praveen Dalal, “Justice through electronic governance”,http://legalsolutionsindia. blogspot.com/
2005/11/justice-through-electronic-governance.html
 212

parties as a platform for dispute resolution.198 Thus, what law will be

applicable will depend on the intention of parties. If the parties have
adopted the mechanism of ODRM then it will definitely apply with
necessary minor modifications. The language used in various sections of
the Arbitration Act give options to the parties to opt for the procedure as per
their agreement during the arbitral proceedings before the arbitrator. So if
there is an agreement between the parties with regard to the procedure to be
followed by the arbitrator, the arbitrator is required to follow the said
procedure. However, this would not mean that in appeal parties can contend
that the appellate procedure should be as per their agreement. The appellate
procedure would be governed as per the statutory provisions and parties
have no right to change the same199. It must be noted that party autonomy
presupposes the existence of an arbitration agreement. There may be a
situation where the parties had not entered into an arbitration agreement. To
meet such situations Sec.89 of CPC can be invoked. The reason for
inserting Sec.89 has been to try and see that all the cases which are filed in
the court need not necessarily be decided by the court itself. Keeping in
mind the law delays and the limited number of judges, which are available,
it has now become imperative to resort to ADR Mechanism as
contemplated by Sec.89. There is a requirement that the parties to the suit
must indicate the form of ADR, which they would like to resort to during
the pendency of the trial of the suit. If the parties agree to arbitration, then
the provisions of the Arbitration and Conciliation Act 1996 will apply and
that will go outside the stream of the court200.

198
Prathamesh D. Popat, online dispute resolution in India (2003) at http://odr.info/unnece2003 (Last
visited July 13, 2009).
199
N. S. Nayak v State of Goa, 2003 (6) SCC 56.
200
Salem Advocate Bar Association v U.O.I, Writ Petition No.496 of 2002 decided on 25.10.2002.
 213

3.4 CONCLUSION

ADR processes can serve as useful vehicles for promoting many

rules of law and other development objectives. Properly designed ADR
programs, undertaken under appropriate conditions, can support court
reform, improve access to justice, increase disputant’s satisfaction with
outcomes, reduce delay, and reduce the cost of resolving disputes. In
addition, ADR programs can help to prepare community leaders,
increase civic engagement, reduce the level of community tension and
resolve conflicts which will promote peace and harmony in the society.
Therefore, alternative dispute resolution is a need, both at national and
international front. Quality of justice suffers when there is a
disproportionate delay in deciding piles of cases. When easier way has
been resorted and found then holding on to traditional concepts is not a
wiser show. This technique is useful in dispensing justice effectively,
which is the basic pillar of every judicial system. Alternative dispute
resolution is an appreciable step if taken, with serious concern and
proper management. A common man can enjoy the real justice.

All countries, following the common law system, have faced this
problem of delay and excessive expenses in the disposal of civil cases at
some point or the other in their respective legal history, as also the
problem of apathy of judges and lawyers. Developed countries like the
U.S.A., Australia and Canada have witnessed a few decades back huge
backlog of cases, excessive legal costs and expenses and litigants'
misery, as we are witnessing now in our country.

Lawyers and judges of developed countries did not look upon the
Government to solve what was essentially a problem of administration of
justice that concerned lawyers and judges themselves. In many areas of
these countries, some thirty plus years back, public-spirited judges and
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lawyers put their heads together and devised a common strategy to solve
the problem of huge backlog of cases, delay in the disposal of cases and
excessive expenses in litigation. What they found was that the
adversarial system prevalent in common law countries were no longer
adequate to address the growingly complicated technical legal problems
of modern day litigation. The adversarial system creates two mutually
contending, exclusive, hostile, competitive, confrontational and
uncompromising parties to litigation. This system does not generate a
climate of consensus, compromise and co-operation. As litigation
progresses it generates conflict after conflict. At the end of litigation one
party emerges as the winner and the other party is put to the position of
the looser. Adversarial litigation does not end in a harmony. It creates
more bitterness between the parties that manifests itself in more litigation
between them or even their successors. However, judges and lawyers of
developed countries found that the alternative is not to do away
altogether with the adversarial system. The adversarial system plays a
positive role too. It settles through adversarial hearing complicated and
disputed questions of fact and law. The law that superior courts lay down
to be followed by subordinate courts and tribunals can never be arrived
at without following the adversarial procedure. Any court cannot lay
down any law by way of compromise, consent or consensus of parties to
litigation.

Beyond the territory of complicated questions of fact and law there

lies a vast area of litigation where the adversarial system must yield to a
consensual type of dispute resolution, even though there are complicated
technical legal problems in this vast area as well. The consensual type is
essentially a type and a process of dispute resolution that requires judges,
lawyers and the litigant public to change their century’s old mind-set and
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to adjust gradually to play a combined and co-operative role in the

resolution of disputes. In an adversarial system a judge has a passive role
to play. He/she will take the evidence as it comes, hear the parties and
deliver his/her judgment without getting involved in the entire dispute
resolution process. In a consensual system the judge, the lawyers,
litigants and outside mediator or evaluator are all active parties to the
resolution of dispute. It is informal, confidential, speedy and less
expensive. It preserves the jurisdiction of the trial court to try the case on
merit, if A.D.R. fails.

To develop ADR system in India, the Central as well as the State

governments are taking necessary steps at their level. In recent years by
the Code of Civil Procedure (Amendment) Act, 1999 w.e.f. 2002 section
89 relating to settlement of dispute outside the court, is inserted, to give
legislative recognition to ADR process. The concept of arbitration and
lok Adalat is seen to be well rooted in the soil of Indian judiciary but the
conciliation and mediation are still in its initial stage of base building.
The legislature had enacted the arbitration and conciliation Act, 1996 for
the reference of dispute to arbitration in commercial, domestic etc.
disputes solving mechanism by inclusion of a clause in the agreement
that if a dispute arises the refer the matter to arbitration to solve the
dispute between the parties and Legal Services Authorities Act, 1987 for
conducting Lok Adalat at Supreme court, High court, District court and
other Subordinate courts. The alternative dispute resolution mechanism
had become a sine quo non for the present judicial system to deal with
pendency of the cases in all courts in India as well as by preserving
future relations there will be peace, order in the society.

In the words of Peter Durker, the best way to predict the future
is to create it. So, instead of blaming darkness light a candle where ever
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you can and that a journey of 1000 miles always starts with the first step.
So, this research work will definitely light a candle in the darkness of
arrears of litigations and serves as first step to bring a ‘win win’
situation in dispute resolution at international and national level.