25 Jul 2015 18:21 IST

Let’s get into arbitration

How and why is arbitration done? Here's explaining the concept in detail

For those who have heard about splits of the biggest firms may have an idea of what ‘arbitration’ is. The word ‘may’ is used with purpose. What the word, arbitration, means is an easy answer — it is a medium to settle disputes. The ‘why’ and ‘how’ of arbitration is a grey area for most. Arbitration, as explained by the Merriam Webster dictionary, is “a process of settling an argument or disagreement in which the people or groups on both sides present their opinions and ideas to a third person or group”.

To the above, one may ask — is this not what courts seek (or at least try to) to achieve as well? That is where the need and ease of arbitration comes in. It is a technique for resolution of disputes outside courts. Remember when there was a fight for the last piece of cake and the mother would intervene and divide the piece into two equal halves, one each for each child? Arbitration is something on those lines.

Why arbitration?

For settling commercial disputes among business organisations, courts in India and all over the world suffer from many obvious and well-known drawbacks. The delay in disposition of the final judgement (by when the parties couldn’t care less); a law and precedent based judgement system; a negative trend of the cost and effort-benefit analysis for the parties seeking justice; and the result of it all, where one of the parties loses the case and the media has a field day talking about it (some things, the nation need not know, don’t you think?).

Greater control

Arbitration addresses the above glitches right in the eye of it. At the risk of sounding arrogant, arbitration provides ‘better justice’ in most cases — the crux of it having an upper hand to courts is the design of the institution of arbitration itself. Parties choosing to settle a dispute can exercise discretion on who will hear them out, a preferred private firm maybe, which basically makes available greater control in the process. Arbitrators also expound freedom in their own little way — the only ask of them, is to abide by the natural principles of justice, reasonableness and equity in the broadest sense for any ‘arbitral award’ (the glorified way of calling the verdict of the arbitrator).

Besides, whether the costs involved are high or low, the satisfaction of the parties in getting what they paid for, is achieved and the only result of solving a dispute is no more just a dent in the pocket. Also, the dirty linen is not out for public’s eyes. Arbitration offers privacy during the settlement process and big companies could do without the negative advertising that hampers their public image.

The biggest plus of it all is that the finish line isn’t far off; you can actually see the outcome in the near future, which serves the very purpose of calling out for justice. The origin of arbitration goes back to the need for settlement at the earliest, which the courts are not able to deliver due to the many pending cases at any point of time.

Not elitist

Arbitration is very similar to the situation King Solomon was in — and like him, a decision need not appear to be the most logical one — as long as you ensure that one gets his fair share and the needs of justice is met. There seems to be a very public perception that arbitration is elitist and will always apply in high profile corporate boardroom scenarios. While it is true to an extent — I mean, you wouldn’t want criminal cases being decided behind closed doors — a more broad based (and a somewhat regulated) arbitration system can help ease the mind blowing backlog of civil cases. Self-governance, as a concept, needs to be introduced within the legal system as well (hence the needs for regulations).

To conclude, I would like to end with a quote which moved me to write this article — Lawrence Durrell once said, “The richest love is that which submits to the arbitration of time.” And I raise a toast to the man who understood both love and arbitration so well.

(Vindhiya Nahar from EY contributed to the article. Views expressed are personal)