Is Arbitration Still Really an Alternative to Traditional litigation?

In order for arbitration and other alternative dispute resolution (ADR) mechanisms to become true ‘alternatives’ to the court system, State policy must work towards improving the courts system rather than pushing ADR at the cost of courts, writes AJAY KUMAR.

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“To no one will we sell, to no one deny or delay right or justice” is a commitment that comes from the Magna Carta in England, and today is reflected in various constitutional provisions guaranteeing access to free, fair and independent courts. However, whether the courts are able to live up to these promises is something that is a subject matter of study and debate. Without the real ability to recover costs in India’s court system, going to court is invariably expensive for ordinary people.

This means that there is a large middle section for whom justice becomes inaccessible due to legal fees that they will have to incur. Further, the quantum of these fees gets compounded by the delays faced by litigants when they are in the court system.

To the ordinary litigant in India’s courts, reading the phrase “To no one will we sell, to no one deny or delay right or justice” will seem sarcastic at best and taunting at worse.

A while ago, the present Chief Justice of India openly encouraged the adoption of alternative dispute resolution (ADR) as a means of settling disputes. This has become common now with ADR becoming firmly entrenched with judicial institutional support. Commercial Disputes now have to mandatorily go through a pre-dispute mediation stage, and Section 89 of the Code of Civil Procedure, 1908 (CPC) has entrenched ADR as a legally sanctioned means of justice delivery.

This has been done with an overall objective of reducing the pendency of cases in the court system. While on a first glance this may seem to be an ideal situation, does the push towards ADR hold up to closer introspection?

The costs of arbitration incurred by the court system

In the court system, a dispute is born with a plaint on which there is a court fee that is stamped. The fee is taken bearing in mind the cost that the court will incur in the dispute, and in most states is contingent on the claim amount. To secure relief, in the court system, you need to file a plaint, pay the court fee, take out an application in the plaint, and pay a separate fee for that.

Except if you go for arbitration. In which case, in most states, to get interim relief from a court, in order to challenge your award or appeal an order in court, you pay a small, fixed nominal fee. The same is the case with a challenge or appeal under the Arbitration and Conciliation Act, 1996, irrespective of the quantum of your dispute.

In the case of arbitration, parties may gain most of the benefits of the court system without ever having to actually pay into it.

This gets compounded by the social cost that is incurred. If big disputes don’t go to court, the development of the law suffers. It is safe to say that a majority of commercial jurisprudence that now arises in this country arises from ad-interim orders or final hearings on interim reliefs. With the amendment to the Act excluding a review on merits of a challenge to an award, arbitral award challenges, which were one of the last avenues for the further development of commercial law, are now producing very little in the way of jurisprudence.

In a common law country, if issues of law don’t come before courts, precedent can seldom find space to develop. In India, the courts have a role in actively advancing the development of the law. If parties, who have large disputes and thereby the financial capacity to appeal, go for private dispute resolution, then the development of jurisprudence will be consequently stalled, harming everyone in the long run.

But does arbitration in India actually even help the parties? As described above, arbitration, while taking the meat out of the court system, still leaves a whole bunch of sides for the judiciary to munch on. As a result, arbitral tribunals outside an institutional framework increasingly adopt the CPC with modifications while conducting proceedings.

Arbitration is supposed to be an alternative to CPC-style litigation, but it appears that the only purpose arbitration serves today is to act as a private court, where parties are able to control timelines to some extent. It is just like a court, but instead of sweating and standing on your legs, you end up in nice conference rooms, some equipped with high quality biscuits.

Also read: Enforcement of arbitration agreements: Is adjudication and payment of stamp duty mandatory for referring disputes to arbitration?

How push towards ADR weakens courts system

But then there is the other objection: why be encouraged to go for an alternative anyway? For something to really be an alternative to a status quo, the status quo must be working. But right now, our courts are notoriously understaffed and heavily over-worked. However, instead of increasing judicial capacity, reforming the costs regime, making legal aid meaningful and improving the infrastructure of courts, the policy seems to be to make courts irrelevant via ADR. It can be seen in the standard form arbitration clause that has now emerged in contracts that cover a range of issues from consumer services to expensive outer space projects.

In India, a person has a constitutional right to seek justice from a court. This is a fundamental norm in how India operates as a State, as the ability to dispense justice is a core feature in the State retaining its legitimacy. Free, fair, and transparent justice allow for people and businesses to go about their affairs with an element of certainty.

The push towards ADR in some semblance weakens this right, and this is reflected in CPC style arbitration. In such arbitration, parties effectively are guided by the CPC and therefore the expectation of justice from a public court is transferred onto a private body. If justice is the basic feature of the Constitution, then parties preferring arbitral tribunal to courts is the antithesis of the same.

For example, my maid and her family are fighting over a property. Her lawyer has advised her to settle with the family so that they can get something quickly instead of spending years in litigation. My maid asked me if she should settle, and I was quick to agree with her lawyer. But then she asked me, if she was in the right, why should she settle? And I wasn’t in a position to give her a proper answer. Ideally, I should have been able to tell her to pursue her rights in court, but you can’t as in most cases, for ordinary people that is not the logical course of action.

Courts should be accessible, quick, speedily and efficient. It is only then ADR will truly develop into an alternative, rather than a privatised means of dispute resolution.

While courts can, should, and do often encourage parties to settle, for settlements to be truly free, the court system ought not to be hung like a sword of Damocles on the heads of average people like my maid. But the fact is that it does and what has happened as part of the push to promote ADR is a general semblance of giving up on the court system. This is a dangerous trend for our legal system.

Parties now generally put in conciliation and arbitration clauses in contracts by default. There is a lack of confidence in the ability of the judicial system to deliver justice. Instead of devoting time trying to make ADR work, maybe it is time that the powers that be reorient their priorities and make the court system work instead. Maybe then, ADR will actually be an alternative.

(Ajay Kumar is an Advocate practising at the Bombay High Court. The views expressed are personal.)