Is arbitration a good fit for your company?

When is arbitration used?

Arbitration is just another form of Alternative Dispute Resolution mechanism, which has been in existence since the 1980s. Based on the 1985 UNCITRAL, the Arbitration and Conciliation Act, 1996 governs arbitration in India. It aims to modernize the arbitration law in India and bring it to par with international practices. In the simplest sense, it is a legal process to resolve disputes privately without going to court formally. Section 2(20) of the Companies Act, 2013 states that a company means any association of person registered under the present or the previous Companies Act.

Today companies use arbitration in commercial disputes, with a specific focus on transaction disputes. Additionally, arbitration often handles disputes between labor and consumers.

On August 20, Chief Justice of India N V Ramana said that dispute resolution through negotiations and arbitration is part of Indian culture. And even mentioned encouraging companies to settle their disputes through arbitration and mediation. The Vodafone arbitration award story, Cairn dispute, the case of Reliance and Future Group all stand as live examples where big companies resorted to arbitration as a mode to resolve their respective issues.

Use of arbitration by companies

We will examine three aspects of “use of arbitration by companies” or “company arbitration.” First, arbitration is a means to judge the overall relationships of companies and dispute resolution policy of companies. Second, the arbitration clause, which is much talked about nowadays. Third, types of company arbitration- institutional and ad-hoc arbitration.

Dispute resolution policy of companies

To begin with, a sound mechanism such as arbitration is considered over litigation to support a dispute resolution policy because of the many advantages it offers. The speedy resolution, flexible processes, proceedings retaining their confidentiality while surpassing the obstacles of undue delay in proceedings. It brings down the costs of legal dispute settlement drastically. The informal settings of arbitration over formalities followed in a courtroom are preferable at any time. Moreover, arbitrators tend to settle and satisfy both parties in the best possible way. The intimacy in an arbitration process which what makes it better than litigation. At least for companies with commercial and corporate disputes.

The majority of the companies indulged in commercial transactions maintain some dispute resolution policy. There are many benefits of maintaining a dispute resolution policy; our case of focus, “company arbitration”–

~Promotes a timely analysis to discuss clauses and mitigate the potential risks.

~Provides an advanced strategy in any unforeseen wheeling and dealing of contracts.

~Consistent guidance to avoid any dispute escalation.

~It tends to unite the legal, business, and administrative units leading to an aligned working of the company.

There is no speck of doubt that despite putting in the best efforts, disputes arise during the common course of any company. The foremost choice is company arbitration for an urge to carry out business transactions and corporate deals smoothly.

Arbitration clause

Secondly, “An arbitration clause may be inserted in the contract itself, clearly providing for the settlement of any dispute arising under the contract in future, by arbitration, or if no arbitration clause could be included in the contract for any reason, an arbitration agreement may be entered into later at any stage before or after a dispute has arisen under the contract.” (arbitration clause/ agreement explanation by Indian Council of Arbitration)

The use of arbitration clauses in contracts provides a time-bound and cost-effective model to resolve disputes via arbitrators for companies big or small. Favors liberty to the companies part of the contract. There is much clarity on laws applicable to the contract, the company arbitration process, and the jurisdiction of the concerned court in case of cross-border company disputes. The presence of an arbitration clause brings out the effectiveness and supports the activities of the company.

The arbitration clause proves to be considered as it doesn’t have any demerits at present. According to Section 17 of the Arbitration and Conciliation Act, the interim arbitration panel can pass an order that is legitimate and enforceable as any other court order. The award passed by the panel is enforceable. Yet, if unsatisfied, a company can make an appeal under Section 34 of the Arbitration and Conciliation Act for the same. The size of a company does not matter, and anyone can use the mechanism of company arbitration.

Instituional and ad-hoc arbitration

Lastly, company arbitration is an opted mechanism due to the bending nature of the procedure. The company has the choice to choose either an institutional or ad-hoc mode of arbitration. In ad-hoc, the parties arrange arbitration themselves, while in institutional, the process is conducted concerning the institution’s rules. Indian Council of Arbitration, for example, is a functional arbitration institution that dispenses services for all kinds of domestic and international commercial company disputes. The majority of companies prefer ad-hoc over institutional arbitration as it offers greater flexibility and a more company-friendly atmosphere in addition to significant confidentiality. The formalism of institutional arbitration might add to the cost of the process.

Like anything else, even company arbitration comes with cons. This includes a biased arbitrator in ad-hoc arbitration. Choosing arbitrators from a specific pool who might have disguised interests in a particular party. The absence of a jury prompts questions of unfairness and lack of transparency. Away from the traditional procedures, arbitration results might be unpredictable.

Arbitration as a preference

Arbitration remains a preferred mechanism of dispute resolution, despite its shortcomings. Furthermore, companies would definitely continue using arbitration to resolve their disputes through arbitral means. And why not? Everyone values time and cost and is looking for alternatives with efficiency. Moreover, there is an urge to minimize the dependency on courts. We need to focus on strengthening the formal arbitration infrastructure. Institutional arbitration is yet widely used by companies in India, and the scope of ad-hoc arbitration prevails. Where privacy is most demanded by the company’s organizational design, arbitration is the best mechanism to seek for. Most importantly, the structural motive of arbitration involves integrating different points of view to draw a definite conclusion.

Arbitration fits your company perfectly!