TLDR: Arbitration is a private, out-of-court method of resolving a dispute. Instead of going to a public trial, the parties involved in a disagreement hire a third party, called an arbitrator, who listens to both sides of the dispute and makes a final, legally binding decision.
What is Arbitration?
An arbitration is a private dispute resolution, out-of-court way to solve a disagreement, like a “paid private trial.” Instead of going to a public courtroom with a judge, the people involved in a dispute hire a neutral third party, called an arbitrator. This arbitrator serves in the same way as a private judge, hearing the case from both sides, and issuing a final and binding decision. This method is a formal way of disputing and resolving conflicts without the time and money that a traditional lawsuit can take on.
Arbitration is a well-established technique of resolving disputes outside the court system. In India, it is largely regulated by The Arbitration and Conciliation Act, 1996, which contains the rules and procedure of this process.
How Arbitration Works?
The arbitration process typically begins when two parties, who have a disagreement, agree to use arbitration instead of taking a case to court. This agreement is often contained in a contract that they previously signed, which is known as an arbitration agreement.
Here’s a basic breakdown of the steps:
- Agreement: The parties agree that they will submit their dispute to an arbitrator
- Selection: They select an Arbitrator who is an expert in the subject matter of the dispute (for example, a construction expert on a dispute about building).
- Hearing: The arbitrator has a hearing where both sides present their case, evidence and witnesses. This is also known as conduct of arbitral proceedings.
- Decision: After listening to all the information the arbitrator makes a final decision, called an arbitral award. This decision is binding on them by law and can be enforced by a court.
A classic example of its use is as a mechanism to handle disputes between investors and brokers, in which an independent arbitrator can be used to quickly and privately settle a disagreement over a financial sale.
Arbitration vs. Mediation
While both are forms of dispute resolution, they are fundamentally different.
| Feature | Arbitration | Mediation |
| Decision Maker | Arbitrator (makes a binding decision) | Mediator (helps parties reach their own agreement) |
| Decision Outcome | Legally binding and final | Non-binding; based on mutual agreement |
| Process | Formal, like a private trial | Informal, facilitated negotiation |
Advantages and Disadvantages
Just as with any process, arbitration does have its advantages and disadvantages.
Advantages:
- Faster: It’s usually faster than going to court.
- Private: The proceedings are confidential which can be important for businesses.
- Flexible: The parties have a greater degree of control over the process such as selecting the arbitrator and the rules.
- Binding: The decision is conclusive and enforceable in a court of law.
Disadvantages:
- Limited Appeal: It’s very difficult to appeal an arbitrator’s decision, even if you think they made a mistake.
- Cost: While it can be cheaper than a full blown lawsuit, you have to pay for the arbitrator and other administrative fees.
- Lack of Precedent: Arbitrators don’t establish legal precedents the way court rulings do.
FAQs
1.What if you’re going to arbitration?
You take part in a private, legal hearing where an arbitrator listens to your side of a dispute and makes a final and legally binding decision.
2.What is the primary function of arbitration?
Its main purpose is to provide a faster, more private and flexible means of resolving disputes without resorting to court.
3.How long does arbitration take?
The time taken varies but is usually much quicker than litigation and can take a few months to a year, depending on the complexity of the case.
