Dr. B.G. Kaurani, Associate Professor, N.B.T. Law College, Nashik.

Alternate Dispute Resolution System

Module 01 Alternate Dispute Resolutions Mechanisms:

Introduction

The origin of arbitration may be traced back to the age-old system of village Panchayats prevalent in
ancient India. The decisions of Panchas while sitting collectively as Panchayat commanded great
respect.

Structure powers and functions of National and State Legal Services Authorities under the Legal
Services Authority Act.

In order to give statutory basis to legal services in India, the Parliament of India enacted a legislation in
the year 1987, to be known as the Legal Services Authorities Act, 1987. Due to certain objections by
the judiciary it could not be amended immediately and as a result of which it was amended in the year
1994 by the Legal Services Authorities (Amendment) Act. The Act came into operation on 9th
November 1995 and that day is celebrated as legal service day throughout country.

The Legal Services Authorities Act, 1987 was enacted to constitute legal services authorities to provide
free and competent legal services to the weaker sections of the society to ensure that opportunities for
securing justice are not denied to any citizen by reason of economic or other disabilities, and to
organize Lok Adalats to secure that the operation of the legal system promotes justice on a basis of
equal opportunity.

The Act strives to fulfill the aims and objectives as envisaged under Article 39A of the Constitution of
India.

Article 39A of the Constitution provides that the State shall secure that the operation of the legal
system promotes justice on the 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 disabilities.

Article 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 section of the society.

Legal Aid Scheme was first introduced by Justice P. N. Bhagwati under the Legal Aid Committee
formed in 1971. According to him, the legal aid means providing an arrangement in the society so that
the missionary of administration of justice becomes easily accessible and is not out of reach to it for
enforcement of its given to them by law, the poor and illiterate should be able to approach the courts
and their ignorance and poverty should not be an impediment in the way of their obtaining justice from
the courts. Legal aid should be available to the poor and illiterate.

In 1980, a Committee at the national level was constituted to oversee and supervise legal aid
programmes throughout the country under the Chairmanship of Hon. Mr. Justice P. N. Bhagwati then a

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Dr. B.G. Kaurani, Associate Professor, N.B.T. Law College, Nashik.

Judge of the Supreme Court of India. The Committee came to be known as CILAS (Committee for
implementing Legal Aid Schemes) and started monitoring legal aid activities throughout the country.

The 1977 report of the committee of Justices Krishna Iyer and P. N. Bhagwati, both of the Supreme
Court, drew up a detailed scheme which envisaged public interest litigation (PIL) as a major tool in
bringing about both institutional and law reform even while it enabled easy access to the judicial
system for the poor.

The introduction of Lok Adalats added a new chapter to the justice dispensation system of this country
and succeeded in providing a supplementary forum to the litigants for conciliatory settlement of their
disputes. It reduces the burden of arrears of work in regular Courts and also take justice to the door-
steps of the poor and the needy and make justice quicker and less expensive. In 1987 Legal Services
Authorities Act was enacted to give a statutory base to legal aid programmes throughout the country on
a uniform pattern. This Act was finally enforced on 9th of November, 1995 after certain amendments
were introduced therein by the Amendment Act of 1994. Hon. Mr. Justice R. N. Mishra the then Chief
Justice of India played a key role in the enforcement of the Act.

The system of Lok Adalat, which is an innovative mechanism for alternate dispute resolution, has
proved effective for resolving disputes in a spirit of conciliation outside the Court.

However, the major drawback in the existing scheme of organization of the Lok Adalats under Chapter
VI of the said Act is that the system of Lok Adalats is mainly based on compromise or settlement, the
case is either returned to the Court of law or the parties are advised to seek remedy in a Court of law.
This causes unnecessary delay in the dispensation of justice. If Lok Adalats are given power to decide
the cases on merits in case parties fails to arrive at any compromise or settlement, this problem can be
tackled to a great extent.

Further, the case which arise in relation to public utility services such as Mahanagar Telephone Nigam
Limited, Delhi Vidyut Board, etc., need to be settled urgently so that people get justice without delay
even at pre-litigation stage and thus most of the petty cases which would result in reducing the
workload of the regular Courts to a great extent. It is, therefore, proposed to amend the Legal Services
Authorities Act, 1987 to set up Permanent Lok Adalats for providing compulsory pre-litigative
mechanism for conciliation and settlement of cases relating to public utility services.

The salient features of proposed legislation are as follows:-

(i) To provide for the establishment of Permanent Lok Adalats which shall consists of a
Chairman who is or has been a District Judge or Additional District Judge or has held
judicial officer higher in rank than that of the District Judge and two other persons having
adequate experience in public utility services;
(ii) The Permanent Lok Adalat shall exercise jurisdiction in respect of one or more public utility
services such as transport services of passengers of goods by air, road and water, postal,
telegraph or telephone services, supply of power, light or water to the public by any
establishment, public conservancy or sanitation, services in hospitals or dispensaries, and
insurance services;
(iii) The pecuniary jurisdiction of the Permanent Lok Adalat shall be up to Rs. Ten Lakhs.
However, the Central Government may increase the said pecuniary jurisdiction from time to
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Dr. B.G. Kaurani, Associate Professor, N.B.T. Law College, Nashik.

time. It shall have no jurisdiction in respect of any matter relating to an offence not
compoundable under any law;
(iv) It also provides that before the dispute is brought before any Court, any party to the dispute
may make an application to the Permanent Lok Adalat for settlement of the dispute;
(v) Where it appears to the Permanent Lok Adalat that there exist elements of a settlement,
which may be acceptable to the parties, it shall formulate the terms of a possible settlement
and submit them to the parties for their observations and in case the parties reach an
agreement, the Permanent Lok Adalat shall pass an award in terms thereof. In case parties to
the dispute fail to reach an agreement, the Permanent Lok Adalat shall decide the dispute on
merits; and
(vi) Every award made by the Permanent Lok Adalat shall be final and binding on all the parties
thereto and shall be by a majority of the persons constituting the Permanent Lok Adalat.

National Legal Services Authority

Section 3 Constitution of the National Legal Services Authority

Section 3(1) provides that the Central Government shall constitute a body to be called the National
Legal Services Authority to exercise the powers and perform the functions conferred on, or assigned to,
the Central Authority under this Act.

Following members constitutes the Central Authority:

Section 3(2) provides that the Central Authority shall consists of –

(a) The Chief Justice of India who shall be the Patron-in-Chief;

(b) A serving or retired Judge of the Supreme Court to be nominated by the President, in
consultation with the Chief Justice of India, who shall be the Executive Chairman; and
(c) Such number of other members, possessing such experience and qualifications, as may be
prescribed by the Central Government, to be nominated by that Government in consultation
with the Chief Justice of India.

The number, experience and qualifications of the members of the Central Authority1

The Central Authority shall consist of not more than twelve Members. Following persons are the ex-
officio members of the Central Authority, namely;

(i) Secretary,

Department of Legal Affairs,

Ministry of Law, Justice and Company Affairs,

Government of India or any of his nominee;

(ii) Secretary,

Department of Expenditure, in the Ministry of Finance,

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Rule 3 of the National Legal Services Authority Rules, 1995.
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Dr. B.G. Kaurani, Associate Professor, N.B.T. Law College, Nashik.

Government of India or any of his nominee; and

(iii) Two Chairmen of the State Legal Services Authorities as may be nominated by the Central
Government in consultation with the Chief Justice of India.

The Central Government may nominate, in consultation with the Chief Justice of India, other Members
from amongst those possessing the experience and qualifications prescribed under rules. A person shall
not be qualified for nomination as a Member of the Central Authority unless he is –

(a) An eminent person in the field of law; or

(b) A person of repute who is specially interested in the implementation of the Legal Services
Scheme; or
(c) An eminent social worker who is engaged in the up-liftment of the weaker sections of the
people, including Scheduled Castes, Scheduled Tribes, women children, rural and urban labour.

The Members of the Central Authority nominated by the Central Government shall hold office for a
term of two years and a retiring member shall be eligible for re-nomination for not more than one term.
A Member of the Central Authority may be removed by the Central Government, it is not desirable to
continue him as a Member.

Member Secretary

Section 3(3) provides that the Central Government shall, in consultation with the Chief Justice of India,
appoint a person to be the Member-Secretary of the Central Authority, possessing such experience and
qualifications as may be prescribed by that Government, to exercise such powers and perform such
duties under the Executive Chairman of the Central Authority as may be prescribed by that
Government or as may be assigned to him by the Executive Chairman of that Authority.

Term of office

Section 3(4) provides that the terms of office and other conditions relating thereto, of members (2
years) and the Member-Secretary of the Central Authority (5 years) shall be such as may be prescribed
by the Central Government in consultation with the Chief Justice of India.

The number of officers and other employees of the Central Authority

Section 3(5) provides that the Central Authority may appoint such number of officers and other
employees as may be prescribed by the Central Government, in consultation with the Chief Justice of
India, for the efficient discharge of its functions under this Act.

Section 3(6) provides that the officers and other employees of the Central Authority shall be entitled to
such salary and allowances and shall be subject to such other conditions of service as may be
prescribed by the Central Government in consultation with the Chief Justice of India.

According to Section 3(7) the administrative expenses of the Central Authority, including the salaries,
allowances and pensions payable to the Member-Secretary, officers and other employees of the Central
Authority, shall be defrayed out of the Consolidated Fund of India.

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Dr. B.G. Kaurani, Associate Professor, N.B.T. Law College, Nashik.

Section 3(8) provides that all orders and decisions of the Central Authority shall be authenticated by the
Member-Secretary or any other officer of the Central Authority duly authorized by the Executive
Chairman of that Authority.

According to Section 3(9) no act or proceeding of the Central Authority shall be invalid merely on the
ground of the existence of any vacancy in, or any defect in the constitution of, the Central Authority.

Powers and Functions of the Member Secretary

The powers and functions of the Member-Secretary shall be as under:

(a) To work out modalities of the Legal Services Schemes and Programmes approved by the
Central Authority and ensure their effective monitoring and implementation throughout the
country;
(b) To exercise the powers in respect of administrative, finance and budget matters as that of the
Head of the Department in a Central Government;
(c) To manage the properties, records and funds of the Central Authority;
(d) To maintain true and proper accounts of the Central Authority including checking and auditing
in respect thereof periodically;
(e) To prepare Annual Income and Expenditure Accounts and Balance Sheet of the Central
Authority;
(f) To create liaison with the social action groups and the State Legal Services Authorities;
(g) To maintain up-to-date and complete statistical information, including progress made in the
implementation of various legal Services Programmes from time to time;
(h) To process project proposals for financial assistance and issue Utilization Certificates thereof;
(i) To convene Meetings/Seminars and Workshops connected with Legal Services Programmes
and preparation of Reports and follow-up action.
(j) To produce video/documentary films, publicity material, literature and publications to inform
general public about the various aspects of the Legal Services Programmes; and
(k) To perform such other functions as may be expedient for efficient functioning of the Central
Authority.

Functions of the NALSA

The Central Authority shall perform all or any of the following functions, namely:

(a) Lay down policies and principles for making legal services available under the provisions of
this Act.
(b) Frame the most effective and economical schemes for the purpose of making legal services
available under the provisions of this Act.
(c) Utilize the funds at its disposal and make appropriate allocations of funds to the State
Authorities and District Authorities.
(d) Take necessary steps by way of social justice litigation with regard to consumer protection,
environmental protection or any other matter of special concern to the weaker sections of the
society and for the this purpose give training to social workers in legal skills.

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Dr. B.G. Kaurani, Associate Professor, N.B.T. Law College, Nashik.

(e) Organize legal aid camps, especially in rural areas, slums or labour colonies with the dual
purpose of educating the weaker sections of the society as to their rights as well as encouraging
the settlement of disputes through Lok Adalats.
(f) Encourage the settlement of disputes by way of negotiations, arbitration and conciliation.
(g) Undertake and promote research in field of legal services with special reference to the need for
such services among the poor.
(h) To do all things necessary for the purpose of ensuring commitment to the fundamental duties of
citizens under Part IV A of the Constitution.
(i) Monitor and evaluate implementation of the legal aid programmes at periodic intervals and
provide for independent evaluation of programmes and schemes implemented in whole or in
part by funds provided under this Act.
(j) Provide grants-in-aid for specific schemes to various voluntary social service institutions and
the State and District Authorities, from out of the amounts placed at its disposal for the
implementation of legal services schemes under the provisions of this Act.
(k) Develop, in consultation with the Bar Council of India; programmes for clinical legal education
and promote guidance and supervise the establishment and working of legal services clinics in
universities, law colleges and other institutions.
(l) Take appropriate measures for spreading legal literacy and legal awareness amongst the people
and, in particular, to educate weaker sections of the society about the rights, benefits and
privileges guaranteed by social welfare legislations and other enactment as well a administrative
programmes and measures.
(m) Make special efforts to enlist the support of voluntary social welfare institutions working at the
grass-root level, particularly among the Scheduled Castes and Scheduled Tribes, women and
rural and urban labour; and
(n) Coordinate the monitor the functioning of State Authorities, District Authorities, Supreme
Court Legal Services Committee, High Court Legal Services Committees, Taluka Legal
Services Committees and voluntary social service institutions and other legal services
organizations and give general directions for the proper implementation of the legal service
programmes.

Module 02: Negotiation and Mediation

Negotiation: Meaning

Negotiation refers to a process in which individuals work together to formulate agreements about the
issues in dispute. This process assumes that the parties involved are willing to communicate and to
generate offers, counter-offers, or both. Agreement occurs if and only if the offers made are accepted
by both of the parties.

In India, Negotiation doesn‟t have any statutory recognition i.e. through way of legislation. Negotiation
is self counseling between the parties to resolve their dispute. Negotiation is a process that has no fixed
rules but follows a predictable pattern. Negotiation is the simplest means for redressal of disputes. In
this mode the parties begin their talk without interference of any third person. The aim of negotiation is
the settlement of disputes by exchange of views and issues concerning the parties. There is an ample
opportunity for presentation of case in this mode or redressal. If there is understanding and element of
patience between the parties this mode of redressal of dispute is the simplest and most economical.
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Dr. B.G. Kaurani, Associate Professor, N.B.T. Law College, Nashik.

Negotiation means a non-binding procedure in which discussions between the parties are initiated
without the intervention of any third party with the object of arriving at a negotiated settlement of
dispute.

It is the process of discussion and give and take between two or more disputants, who seek to find a
solution to a common problem.

So, negotiation is a process where two parties in a dispute reach a settlement between themselves by
their mutual agreement. Negotiations are reached through discussions made between the parties or their
representatives without an involvement of the third party.

 II. Characteristics of a negotiation

Negotiation is:

o Voluntary: No party is forced to participate in a negotiation. The parties are free to

accept or reject the outcome of negotiations and can withdraw at any point during the
process. Parties may participate directly in the negotiations or they may choose to be
represented by someone else, such as a family member, friend, a lawyer, or other
professional.

o Bilateral/Multilateral: Negotiations can involve two, three or dozens of parties. They

can range from two individuals seeking to agree on the sale of a house to negotiations
involving diplomats from dozens of States (e.g., World Trade Organization (WTO)).

o Non-adjudicative: Negotiation involves only the parties. The outcome of a negotiation

is reached by the parties together without recourse to a neutral third-party.

o Informal: There are no prescribed rules in negotiation. The parties are free to adopt
whatever rules they choose, if any. Generally they will agree on issues such as the
subject matter, timing and location of negotiations. Further matters such as
confidentiality, the number of negotiating sessions the parties commit to, and which
documents may be used, can also be addressed.

o Confidential: The parties have the option of negotiating publicly or privately. In the
government context, negotiations would be subject to the criteria governing disclosure
as specified in the Access to Information Act and the Privacy Act

o Flexible: The scope of a negotiation depends on the choice of the parties. The parties
can determine not only the topic or the topics that will be the subject of the negotiations,
but also whether they will adopt a positional-based bargaining approach or an interest-
based approach.

III. Advantages of negotiation

o In procedural terms, negotiation is probably the most flexible form of dispute resolution
as it involves only those parties with an interest in the matter and their representatives, if
any. The parties are free to shape the negotiations in accordance with their own needs,
for example, setting the agenda, selecting the forum (public or private) and identifying
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Dr. B.G. Kaurani, Associate Professor, N.B.T. Law College, Nashik.

the participants. By ensuring that all those who have an interest in the dispute have been
consulted regarding their willingness to participate and that adequate safeguards exist to
prevent inequities in the bargaining process (i.e., an imbalance in power between the
parties), the chances of reaching an agreement satisfactory to all are enhanced.

o Like any method of dispute resolution, negotiation cannot guarantee that a party will be
successful. However, many commentators feel that negotiations have a greater
possibility of a successful outcome when the parties adopt an interest-based approach as
opposed to a positional-based approach. By focusing on their mutual needs and interests
and the use of mechanisms such as objective standards, there is a greater chance of
reaching an agreement that meets the needs of the parties. This is sometimes referred to
as a “win-win” approach.

o Negotiation is a voluntary process. No one is required to participate in negotiations

should they not wish to do so.

o There is no need for recourse to a third-party neutral. This is important when none of the
parties wants to involve outside parties in the process, e.g., the matter to be discussed or
the dispute to be resolved may be highly sensitive in nature.

o Unlike the outcomes of certain adjudicative processes, e.g., the courts, the outcome of a
negotiation only binds those parties who were involved in the negotiation.

o Assuming that the parties are negotiating in good faith, negotiation will provide the
parties with the opportunity to design an agreement which reflects their interests.

o Negotiations may preserve and in some cases even enhance the relationship between the
parties once an agreement has been reached between them.

o Opting for negotiation instead of litigation may be less expensive for the parties and
may reduce delays.

 IV. Disadvantages of negotiation

o A particular negotiation may have a successful outcome. However, parties may be of

unequal power and the weaker party(ies) may be placed at a disadvantage. Where a
party with an interest in the matter in dispute is excluded or inadequately represented in
the negotiations, the agreement's value is diminished, thereby making it subject to future
challenge. In the absence of safeguards in the negotiating process, the agreement could
be viewed by a participant or others outside the process as being inequitable, even
though the substance of the agreement may be beyond reproach.

o A successful negotiation requires each party to have a clear understanding of its

negotiating mandate. If uncertainty exists regarding the limits of a party's negotiating
authority, the party will not be able to participate effectively in the bargaining process.

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Dr. B.G. Kaurani, Associate Professor, N.B.T. Law College, Nashik.

o The absence of a neutral third party can result in parties being unable to reach agreement
as they be may be incapable of defining the issues at stake, let alone making any
progress towards a solution.

o The absence of a neutral third party may encourage one party to attempt to take
advantage of the other.

o No party can be compelled to continue negotiating. Anyone who chooses to terminate

negotiations may do so at any time in the process, notwithstanding the time, effort and
money that may have been invested by the other party or parties.

o Some issues or questions are simply not amenable to negotiation. There will be virtually
no chance of an agreement where the parties are divided by opposing ideologies or
beliefs which leave little or no room for mutual concessions and there is no willingness
to make any such concessions.

o The negotiation process cannot guarantee the good faith or trustworthiness of any of the
parties.

o Negotiation may be used as a stalling tactic to prevent another party from asserting its
rights (e.g., through litigation or arbitration).

 V. How to use negotiation

A. Objective of a Negotiation

Negotiations allow the parties to agree to an outcome which is mutually satisfactory. The actual terms
of the agreement must be concluded by the parties and can be as broad or as specific as the parties
desire. A negotiated settlement can be recorded in the form of an agreement. Once signed, has the force
of a contract between the parties. If the settlement is negotiated in the context of a litigious dispute,
then the parties may wish to register the settlement with the court in conformity with the applicable
rules of practice.

B. Negotiating Styles

Generally speaking, although the labels may vary from one commentator to the next, negotiating styles
can be divided into two categories:

i. Competitive/Positional-Based Negotiation

In the competitive model, the parties try to maximize their returns at the expense of one another, will
use a variety of methods to do so and view the interests of the opposing party or parties as not being
relevant, except insofar as they advance one's own goal of maximizing returns. Competitive bargaining
has been criticized for its focus on specific positions rather than attempting to discern the true interests
of the parties. Among the criticisms which have been levelled at the competitive model are its tendency
to promote brinkmanship and to discourage the mutual trust which is necessary for joint gain.

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Dr. B.G. Kaurani, Associate Professor, N.B.T. Law College, Nashik.

ii. Cooperative/Interest-Based Negotiation

Cooperative or problem-solving negotiation starts from the premise that the negotiations need not be
seen as a “zero-sum” situation, i.e., the gains of one party in the negotiation are not necessarily at the
expense of the other party. Common interests and values are stressed, as is the use of an objective
approach, and the goal of the negotiations is a solution that is fair and mutually agreeable.

In recent years, the form of cooperative negotiating style known as principled bargaining has won
widespread acceptance. The proponents of principled bargaining believe that bargaining over fixed
positions can lead to situations where parties will either be stubborn (“hard bargaining”) or accept
unilateral losses (“soft bargaining”) in order to reach agreement. Principled bargaining, which attempts
to reconcile the interests underlying these positions, helps the parties to reach agreement and
circumvent the problems of hard and soft bargaining. It is this form of negotiation which is seeing
increasing use. See Part G “Steps of a Negotiation” for further discussion.

Negotiations : the parties to a dispute can, on their own motion, start a process of negotiations through
correspondence or through one or two mediators with a view to finding a mutually acceptable solution
of the problem. Law has been encouraging this process all along. There are provisions in the Civil
Procedure Code under which the Courts have to give to the parties all the facilities of bringing about a
compromise settlement. A compromise agreement is submitted for approval of the court. If the court
approves the compromise, a consent decree would be passed. The decree has a binding effect. It
constitutes res judicata. The counsels of the parties play in the process of compromise the role of
mediators.

Process of negotiation

Stages of negotiation

In order to achieve a desirable outcome, it may be useful to follow a structured approach to negotiation.
For example, in a work situation a meeting may need to be arranged in which all parties involved can
come together.

The process of negotiation includes the following stages:

1. Preparation

Before any negotiation take place, a decision needs to be taken as to when and where a meeting will
take place to discuss the problem and who will attend. Setting a limited time-scale can also be helpful
to prevent the disagreement continuing.

This stage involves ensuring all the pertinent facts of the situation are known in order to clarify your
own position. Your organization may well have policies to which you can refer in preparation for the
negotiation.

Undertaking preparation before discussing the disagreement will help to avoid further conflict and
unnecessarily wasting time during the meeting.

[Link]

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Dr. B.G. Kaurani, Associate Professor, N.B.T. Law College, Nashik.

During this stage, individuals or members of each side put forward the case as they see it, i.e. their
understating of the situation.

Key skills during this stage include questioning, listening and clarifying. Sometimes it is helpful to take
notes during the discussion stage to record all points put forward in case there is need for further
clarification. It is extremely important to listen, as when disagreement takes place it is easy to make the
mistake of saying too much and listening too little. Each side should have an equal opportunity to
present their case.

3. Clarifying Goals

From the discussion, the goals, interests and viewpoints of both sides of the disagreement need to be
clarified.

Clarification is an essential part of the negotiation process, without it misunderstandings are likely to
occur which may cause problems and barriers to reaching a beneficial outcome.

4. Negotiate Towards a Win-Win Outcome

This stage focuses on what is termed a „win-win‟ outcome where both sides feel they have gained
something positive through the process of negotiation and both sides feel their point of view has been
taken into consideration.

Suggestions of alternative strategies and compromises need to be considered at this point.

Compromises are often positive alternatives which can often achieve greater benefit for all concerned
compared to holding to the original positions.

5. Agreement

Agreement can be achieved once understanding of both sides viewpoints and interests have been
considered.

6. Implementing a course of action

From the agreement, a course of action has to be implemented to carry through the decision.

Negotiation and Different Types of Negotiators

“Disputes are inevitable element of human interaction and society needs to develop efficient and
innovative methods of dealing with them.” To resolve disputes man has developed court system.
However there is a huge amount of cases pending in the courts. Lack of sufficient machinery retards
the process in resolving these disputes. An alternative to court, what we have is something called
Alternative Dispute Resolution (ADR). It has been described as “A halfway house between the
certainty of the adversarial system and flexibility of negotiation”. Summarizing this we can say that this
is an informal process, alternate to litigation, with the involvement of a neutral third party, given a
choice of various processes. Negotiation, Mediation, Arbitration and Conciliation are the different
methods of ADR.

The discussion of this essay is “Competitive negotiators are more effective than cooperative negotiators
and the lies they tell are ethically permissible”. The Part I of this essay defines negotiation and different
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Dr. B.G. Kaurani, Associate Professor, N.B.T. Law College, Nashik.

types of Negotiators. Part II is comparison between competitive and cooperative negotiation tactics Part
III explains why competitive negotiation is often more effective than cooperative negotiation Part IV
discusses about Lying in Negotiation and whether it is ethically permissible? And part V Conclusion.

Negotiation & different types of Negotiators

“Animals do not negotiate. They use violence or threat of violence, and various forms of „dominance‟
and „display‟ to get what they want, be it food, mates or territory. Theirs is a „red in tooth and claw‟
instinct and intentions. . Human beings negotiate, though not all of them use this method. Negotiation
has been defined by various people. “The process by which by which we search for terms to obtain
what we want from somebody who wants something from us is Negotiation.” „A joint decision made
by two or more parties is referred to as Negotiation. Reaching a consensus is the basic idea behind
negotiating. Enabling groups of agents to arrive at a natural agreement regarding a belief, plan or goal,
is the key form of interaction‟. “Negotiation is the process of two individuals or groups reaching joint
agreement about differing needs or ideas. Oliver (1996) described negotiation as “negotiators jointly
searching a multidimensional space and then agreeing to a single point in the space.” „According to
Fisher and Ury, when you and the other party have interests that are shared and some that are opposed,
an agreement is reached through back and forth communication is what negotiation stands for‟.

Before a suit is filed in the court, negotiation is done. If successful the suit may be prevented, therefore
it is a preventive ADR. By systematic dispute management, an emphasis is made on avoiding conflict
in the preventive process. In this way damage of relationship, loss of money can be avoided or saved,
as well as builds trust and confidence between the disputing parties. Rightly enough, “the interaction
between client and lawyer is a form of negotiation.” In a negotiation, “why does your opponent want is
far more important than „what does the opponent want‟. This helps the negotiator to decide the methods
of negotiation, which are Integration, Obliging, Dominating, Avoiding and Compromising. Based on
the above methods there are different type of negotiators Competitive, Cooperative, Interest based and
Avoider type negotiator. Avoider type negotiators prefer to maintain status quo and try and hide behind
various rules, legal procedures and regulations. Their limited social skills are no good. “Some people
may prefer compromising, others are fiercely competitive. And others can be outright adversarial when
negotiating”. Compared to other negotiation styles, Competitive and Cooperative negotiations styles
are more preferred by the negotiators.

Competitive Negotiators

These types are the aggressive sorts. They are also referred to an assertive, distributive and
positional. The opponent is no real concern of theirs, their interest mainly being profit maximizing for
their client. The attitude they carry clearly reads „my way or the highway‟. Their characteristics are as
follows.

These negotiators do not give much importance to the relation with opposite party.

There is suspicion and hostility in attitude towards opposite party.

They use assertive and tough language.

There may be use of tools like coercion, threat or deception.

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Dr. B.G. Kaurani, Associate Professor, N.B.T. Law College, Nashik.

They will subtract certain items from the deal to get more profit.

They will listen less of opposite party, and they talk more.

There will be use of domination over the weaker party.

The competitive negotiator will close the negotiation by giving a final offer.

They would not prefer to bargain over it.

A competitive negotiator is of the belief that they has lost if the opponent gains what they want. They
display effective communication skills and ability of faster evaluation in the client‟s interest, even in
tough conditions. Resisting the competitive negotiators, they feel they are not trying hard enough for
the opposite party to submit before their demands. “The long-term consequences of competitive
negotiation are unfavorable, yielding reduced enthusiasm and commitment as well as damaged
relationships.” They believe they know best, they may also make a display of authority, which they
may not actually have. “A quasi-strength of competitive negotiation is that the tactic often intimidates
opponents and creates a situation where competitive negotiators steamroll more cooperative negotiators
into offering concessions and more readily agreeing to the objectives of the competitive negotiator. A
major weakness of competitive negotiation, on the other hand, is that the other side will likely become
competitive as well leading to prolonged labor disputes”

Unethical techniques used by competitive negotiators are, a) Lying – fact of matter and proposed
settlement offers are lied about by hiding the traps in it. b) Bluffing – This being different from lying,
facts are exaggerated to give a bigger picture of outcome. The opponent is made to believe that the
settlement will be highly advantageous to them, which in fact is not true. In such a situation risky
decisions and preparation for consequences is taken by the negotiators. „In Garrett v. Mazda Motors of
Am., 844 S.W.2d 178, 181 (1992), the salesperson wrongly told buyer that car had been used by
salesperson, when the car was stolen and used by a car thief. It was considered as fraud and not mere
puffery.‟ c) Force – Many types of force may be used. Threat to the opposite party, coercion using
some bait, dominance over the other party to accept a settlement, unemotional and unsympathetic
attitude or a tantrum thrown during negotiation process are some example of force. d) Stealing – Data
stealing and obtaining information about client in a dishonest fashion during ground work are some
forms of stealing. e) Distracting – forcing and arguing about minor, petty issues, pulling away from the
main concern is a form of distraction. f) Blaming – attacking the opposite party by blame or other
techniques like interruption, insults, gestures or sarcasm again resulting in an attempt to distract from
the main issue.

To achieve maximum benefit for the client and also to increase their bargaining capacity the
competitive negotiator uses these techniques. They may not use these techniques as often though. The
tougher the situation the more competitive they become. “Competitive bargaining has been criticized
for its focus on specific positions rather than attempting to discern the true interests of the
parties” They will stop at nothing to impress their clients and justify the use of unethical technique
saying, the opponent was going to submit or it is necessary in the case of emergency or stating it to be
harmless. Competitive negotiators are also called as „distributive negotiators‟

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Dr. B.G. Kaurani, Associate Professor, N.B.T. Law College, Nashik.

Cooperative Negotiators

“Cooperative negotiations are particular type of negotiations where agents cooperate and collaborate to
achieve a common objective, in the best interest of system as whole. In cooperative negotiation, each
agent has a particular point of view of the problem and the results are put together via negotiations
trying to solve the conflicts posed by having only partial view.” In the interest of everyone, these
negotiators put together an optimized partial view and cooperate to reach a common object.
“Cooperative negotiation is a kind of negotiation that takes advantages of the cooperative nature of the
agents to maximize social utility” To reach a settlement various offers or concessions would be
considered through compromises. Focus is made on reaching an agreement rather than a continuous
dispute, keeping in mind some gain to the opposite party as well. Expansion of resources between both
parties is welcome. When a party does not have a strong bargaining position this method of negotiation
is adopted. “In this type of negotiation the tactics or techniques that negotiators use to reach an
agreement are adding issues, subtracting issues, substituting issues, and logrolling.”

Characteristics of cooperative negotiators are as below.

The negotiators give importance to the relationship with opposite party.

They would communicate with honesty.

They would use soft language in communication.

The attitude towards opposite party is friendly and cooperative.

They will be ready to compromise and sacrifice.

They will add certain items to the deal, even if the incur a loss.

They may talk less and listen more.

To resolve a dispute the cooperative negotiator communicates the intention of cooperative negotiation.
Other ADR methods may also be proposed, the method of negotiation may not necessarily be
communicated. Problem and plan of negotiation may be sent to the opponent negotiator. They show
concern about the opposite party. A cooling off period is proposed in case of no positive outcome. A
cooling off period allows both parties to consider the happenings and the proposed solutions. Time for
evaluation of gains and loses is proposed in the meeting. There after the negotiator can start with fresh
new ideas and solutions. In order to reach a final settlement, during the period the negotiator may give
a concession or compromise on certain terms. Benefit of this type of negotiation is they can tackle
tough environments and smoothing out the flow of negotiation. Cooperative negotiators are also called
as „integrative negotiators‟.

II. Comparison between Competitive and Cooperative negotiation tactics

In recent past, researchers have made two attempts to sort out methodically a wide range of bargaining
tactics, providing a more speculative cover to the nuts-and-bolts, tactical perspective of the negotiating
process, classified as either “cooperative” or “competitive”. For example, a competitive negotiator
makes ridiculous, extreme opening demands which they actually hopes to obtain, whereas a
cooperative negotiator makes a modest and more realistic request. Differentiation of the two helps the
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Dr. B.G. Kaurani, Associate Professor, N.B.T. Law College, Nashik.

negotiator to identify various options whenever they present themselves. Further emphasis on this
example shows that when either type is called to make an opening demand, they either result in an
aggressive or friendly option.

Now taking a look at the characteristics of negotiators, cooperatives will add and competitive will
deduct. However addition may result in failure if the opponent does not agree. The condition of the
market at that time also determines the negotiation profit. For example, if a computer is available
everywhere at a same price and is also in high demand, the salesperson may not decrease the profit
margin. Thus the buyer does not gain any profit irrespective of where he buys from. There the amount
of negotiation profit is less. In a second scenario, the computer is not available because it is outdated
and has no demand. The seller has only a few pieces and is in a hurry to clear the stock. Here the seller
is willing to sell for less as few may actually buy. The buyer may be willing to buy for more, because
the computer is not easily available. Therefore the amount of negotiation profit in this transaction is
more because any amount above the purchase price of the salesperson is a profit to him, and any
amount less than the market prices is profit for the buyer. Hence they both are at profit. Therefore when
the condition of the market is in favour of both parties and they are left with no choice, a competitive
negotiator stands to gain and when the condition of market favors one party it is always good to have
cooperative negotiation.

Attitude of competitive negotiator is hostile towards the opponent whereas cooperative negotiator is
helpful. Competitive negotiators are only interested in themselves and in a settlement that works only
in their favour. On the other hand the cooperative negotiators are outcome oriented and may even give
away some demands if it results in a settlement. The competitive negotiators make one sided demands
without offering anything in return, they only want to get but do not want to give. The cooperative
negotiator may make a demand with something in return for it. They also submit to the opposite
demands with considering their own. This form may be harmful if the opponent has adopted the
competitive approach. Cooperative negotiator gives most away in order to reach a settlement.

III. Why Competitive Negotiation is more effective than Cooperative Negotiation.

Cooperative Negotiation seems nice, but may not be as effective. There are certain reasons for that.
Since they give away, they subtract items from the deal resulting in negotiation loss instead of
negotiation profit. They offer their best deal, by adding items to an already existing list. However, this
may not be approved by the opposite party. The opposite party may consider other options before
accepting the deal. For example, someone selling a house may also provide furnishing free, but the
buyer may already have it, or the stuff may be available for less else where. Therefore negotiation may
not always give the expected result. In such a situation competitive negotiator will demand a discount
and refuse the additional. They may want to buy the furnishing later or from elsewhere. Thus adding
more items may not always have favourable results. However, demanding a discount may result in an
actual cash discount.

Successful negotiation depends on good ground work such as gathering information about the opposite
party before negotiation. The upper and lower limit of the terms of negotiation, need to be discussed
before negotiation starts. This help to arrive at a decision. The cooperative negotiator may assume
certain figures or may have a list of things to offer or might even have set a lower limit of the offer they
plan to give. Similarly they may get less than the anticipated negotiation profit. The situation will be

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Dr. B.G. Kaurani, Associate Professor, N.B.T. Law College, Nashik.

different in a competitive negotiators case, they accept only a deal favourable to them. For example, 10
employees resign due to no increment on the same day. The management negotiates and offers
promotion, free transport and health insurance but no increment. Jack is a cooperative negotiator and is
only interested in a raise of 25% and nothing else. Others take the offer, but company wants to retain
them all and accept an increase for Jack. Competitive Negotiators will never settle for less and thus
obtain the desired outcome.

Competitive negotiators lie to get a favourable outcome. They modify the opponents perception and
convince them of how unfruitful the outcome would be if the deal goes as per the other parties terms.
For example, let‟s say Martin has a land to sell. He doe not tell the prospect that part of the land may be
acquired shortly for road widening. Instead he points out the benefits of road touch land, making the
prospect feel like he is getting a good bargain. However, a cooperative negotiator would not hide that
fact.

There is always some extra amount which is to be distributed in the form of negotiation profit during
negotiation. Whoever can make best use of their skills gains maximum. For example, in situation of
divorce, there is a property, house, car and jewelry that needs to be distributed amongst the spouses. A
competitive negotiator will use coercion, assertive and tough language and will not listen to the other.
They will try and get maximum gain for their client, whereas the cooperative negotiator will give rather
than take. Therefore this situation only benefits a competitive negotiator and not a cooperative one.

Competitive negotiators look for weakness in the opposite party and use it in their best interest. For
example, John needs to make a shift from one place to another. He decides to sell his beautiful rugs and
chandelier because the cost of transporting them is almost the same as compare to buying a new one.
Wilma comes and would like to buy, John demands more than she expects. She doesn‟t have that much
money. Through conversation she learns that he needs to leave the place in 2 days hence in hurry to sell
the goods. She makes a final offer and puts the cash in front of him, assuring she would pick them up in
an hour. John has to accept because of the hurry he is into and dispose off the goods. In this case a
cooperative negotiator may have given John the price he requested.

„According to Russell Korobkint, cooperative negotiators failing to deal with third parties with regard
to the additional issues and the fact, Lawyers can only gain value if the deals terms are personally
skilled at using integrative bargaining tactics is often much less than what is assumed in the typical
negotiation classroom, where the acquired wisdom of industry-specific custom that informs the
baseline for transactions in the real world is rarely assumed. He also proves the point the “more
integrative potential of a negotiation, the more potential value of distributive bargaining through an
example of sale of non-liquid assets and an equal division for a divorcing couple. These three reasons
suggest that integrative tactics might be less valuable, compared to distributive tactics and demonstrates
an important limitation on the potential of integrative tactics to create value for negotiators.‟

Therefore in situations where cooperative negotiation seems beneficial, it is actually a competitive

negotiator who takes bigger share of profit, as compared to cooperative negotiator. Since competitive
negotiators gain more benefit for their clients they are more efficient and effective than cooperative
negotiators.

Conclusion

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Dr. B.G. Kaurani, Associate Professor, N.B.T. Law College, Nashik.

Competitive Negotiation is complex and deserves its own nuanced analysis. Supporters of cooperative
negotiation caricature the competitive negotiation tactics as limited to making unreasonable demands
and further then refusing to reach an agreement.

Characteristics of a good negotiator

Open minded

Experienced

Patience

Flexible

Understand the other side

Knowing what you want

Preparation and planning skill

Ability to think clearly and rapidly under pressure and uncertainty

Listening skill

Judgment and general intelligence

Ability to persuade others

Thinks and talks about possible areas of agreement

Qualities of Negotiator

1. Knowledge: A good negotiator generally has high IQ and broad based knowledge covering
various fields including the understanding of human nature and its will read.

2. Communicative: Negotiation is nothing but communication and understanding. The ability to be

able to express views and make them understood in the same way that are intended to, is the
foremost important requisite of a good negotiator. He has the abiity to understand the body
language and can read the mind.

3. Personality: It refers to the general physical appearance, which is pleasing, encouraging,

associative, open, powerful, impressive and above all very friendly.

4. Leadership: A negotiator should have the ability to lead his team and coordinate all the inputs
and outputs in a systematic manner.

5. Authoritative: A negotiator need not be a man of power especially of bureaucratic nature. His
authority stems from his knowledge and skills. He exerts authority without power. He assumes
the role of a leader, coordinator and controller and acts as a man of authority for the sole
conduct of negotiation process.

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Dr. B.G. Kaurani, Associate Professor, N.B.T. Law College, Nashik.

6. Confident: A negotiator is always calm, composed and confident under any circumstances. He
is a man of strong convictions.

7. Ability to keep secrets.

International Negotiation

In past decades, only diplomats conducted international negotiation and agreements between countries.
Negotiating today is not restricted to the diplomatic corps; it involves professional people, experts, non-
governmental organizations, local interested groups, local authorities, and international entities, all of
which have an impact on the process.

The international negotiation process is more complex, because of the various interdependencies
between countries, cultural issues, and past history, and the fact that individual people, or a group of
people negotiate on behalf of a collective. Their culture, psychology, emotional state, behavior, ethics,
values, and private agendas may affect the outcome of the negotiation.

In the past decades the world has become one global village. Distances are smaller, communication
means are easier and faster, and the economy has become a major factor in international relations. A
conflict between two or more countries may affect a whole region.

In the process of negotiation between countries, or international entities, one nation often needs to build
a coalition with others to achieve its goals. The parties to the coalition do not have necessarily the same
interests, priorities, or values, but have some similar objectives. Countries who try to form a coalition
often use power, economic or military dependencies, and other strategies to induce other countries to
join the coalition.

Ex. Bangladesh, which formed a coalition with India who helped in gaining its independence from
Pakistan, threatened to cancel the Treaty of Friendship with India because of the issues of reduced
quantities of water and increased salinity in the water, which endangers the existence of millions in
Bangladesh.

Mediation:

Mediation means the process in which a neutral third party assists the parties in conflict to reach a
solution. The third party is called the mediator who facilitates communication between the parties. The
mediator manages communication process between the parties fairly, honestly and impartially. The
mediators do not take sides, give legal advice or provide counseling. They do not act as a judge or
arbitrator. They assist by clarifying the issues in dispute and identifying the underlying concerns. They
assist in each party to understand the other party‟s interests.

Mediators sometimes have the parties meet face to face and other times may have separate sessions.
They also assist in the searching of resolution [a formal expression of opinion] to the problem but will
not impose a solution.

Mediation takes place in private and the decisions reached are private. A Memorandum of Agreement
MOA is a cooperative agreement or a document written between the parties to cooperate on the agreed
terms and conditions. The basic purpose of MOA is to have a written understanding of the agreement

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 Dr. B.G. Kaurani, Associate Professor, N.B.T. Law College, Nashik.

between the parties. It is written up by the Mediator outlining the details of the solutions reached by the
parties. The parties should have their respective legal counsel representing the party to the dispute.
Each party is encouraged to consult with their lawyers before mediation so that they know their legal
rights.

Characteristics of Mediation

The key feature of mediation is that it is controlled entirely by the parties themselves. They not only
choose to enter into mediation, but they also retain control over the process throughout and they elect
the terms of the settlement.

Mediation has a number of characteristics and benefits which distinguish it from other forms of dispute
resolution:

Voluntary – unless specifically provided in an agreement, parties enter mediation voluntarily and can
withdraw at any point during the process;
Private & Confidential – unless agreed by the parties, what is discussed during mediation remains
private and confidential. Information cannot be shared and both parties will be required to sign a
confidentiality agreement prior to the commencement of the mediation. Any information provided to
the mediator in a private meeting with one party will be kept confidential unless it is agreed that it can
be shared with the other party;
Change of focus – mediation looks forward and end encourage parties to move on from the history and
focus on the future;
User Friendly – Mediation is not and should not be treated as a quasi-judicial process. It has a number
of distinct advantages over the court process:
 It is not imposed and takes place at a time and location agreed by the parties;
 It provides remedies for resolving disputes that may not be available by pursuing legal proceedings;
 It is informal and flexible allowing for a combination of joint and individual meetings;
 All parties participate and it is not coloured by “legal speak” or involve cross examination;
 It is quick to arrange and people focused;
 It allows parties to be open, provide their views and air strong feelings in a neutral setting directly to
each other;
 Avoids unnecessary legal costs;
 Improves the channels of communication and understanding between the parties thus preserving
relationships;
 It increases the chances of a mutually beneficial outcome for all parties;
 It does not require you to disclose everything;
 It is much less stressful than going to court.

Negotiation and Mediation is less expensive and less time consuming than the Court action. An
agreement is encouraged but the parties are free to pursue other processes if they cannot reach an
agreement.

Arbitration refers to the process where the decision is made by a third party. The arbitrator hears the
case as presented by the parties in conflict or dispute (fight) and makes a decision or award in the same
way as a Judge would. Awards are generally final and binding on all parties. An award may be filed in
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Dr. B.G. Kaurani, Associate Professor, N.B.T. Law College, Nashik.

Court and enforced as if it were a Court judgment. Arbitration is commonly used in labour disputes and
commercial disputes. It is also used in oil and gas disputes, insurance claim disputes and family and
divorce disputes.
The arbitrator arranges a meeting between the parties to determine what issues need to be resolved. The
arbitrator then holds a hearing into the matter where both sides present information and evidence they
believe supports their case. The arbitrator may also request written submissions before and/or after the
hearing. Once the arbitrator has all the evidence, the arbitrator considers the matter and issues a
decision that is binding upon the parties. It can often take a significant amount of time to receive an
arbitration decision.
Module 04 Arbitration

Meaning: Arbitration is basically a method of settlement of disputes by which parties to the dispute get
the same settled through the intervention of a third person called arbitrator without having recourse to a
court of law.

Arbitration is a binding dispute settlement procedure in which the dispute is submitted to an arbitral
tribunal consisting of a sole or an odd number of arbitrators which makes a decision in the form of an
award on the dispute that is binding on the parties and thus it finally settles the dispute.

Definition

Arbitration is defined in Encylopaedia Britannica as „a means of settlement of dispute or difference by

the decision not of regular and ordinary courts of law but of a person or persons who are called
arbitrators and are appointed by the parties or with their actual or constructive consent‟.

According to Halbury‟s Laws of England, arbitration means 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.

In terms of Section 2(1) (a) of the Arbitration and Conciliation Act, 1996, means a „mechanism for the
resolution of disputes which takes place usually pursuant to an agreement between two or more parties,
under which parties agree to be bound by the decision to be given by the arbitrator according to law or,
if so agreed, other considerations, after a fair hearing, such decision called the „award‟ being
enforceable by law”.

Thus, arbitration is a process of dispute resolution between the parties through arbitral tribunal
appointed by parties to the dispute or by the Court at the request of a party. Precisely, it is an alternative
to litigation as a method of dispute resolution.

Characteristic features of Arbitration

1. Parties: Existence of parties, termed also as disputants, is the first and foremost feature of
arbitration. „Party‟ means a party to an arbitration agreement including a person claiming under or
through a party to a the arbitration agreement. There must be two or more persons who have agreed to
submit the matter in controversy between them to an independent and impartial third person called
arbitrator for decision.

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Dr. B.G. Kaurani, Associate Professor, N.B.T. Law College, Nashik.

2. Dispute: Arbitration requires dispute. A dispute implies an assertion of a right by one party and
repudiation thereof by another.

3. Arbitration Agreement: Arbitration is consensual because an arbitration can take place only if both
parties have agreed to it. In other words, arbitral procedure requires the existence of arbitration
agreement.

4. Arbitration matter: An arbitration must be confined to arbitral matters only i.e., the dispute referred
to arbitration must be of civil nature. The dispute referred must be one covered under the arbitration
agreement between the parties.

5. Arbitrator or Arbitral tribunal: An arbitration hearing may involve the use of an individual
arbitrator or a tribunal.

6. Ad hoc or institutional: Arbitration proceedings may or may not be administered by a permanent

arbitral institution. If arbitration is agreed to and arranged by the parties themselves without recourse to
permanent arbitral tribunal, it is known as ad hoc arbitration and if the same is administered by a
permanent arbitral tribunal then it is called institutional arbitration. The institution can suggest potential
arbitrators with relevant expertise or directly appoint members of the arbitral tribunal. The institution
maintains an extensive roster of arbitrators ranging from seasoned dispute-resolution generalists to
highly specialized practitioners and experts covering the entire legal and technical spectrum of various
disputes.

7. Neutrality

8. Impartiality: Since an arbitrator acts in a quasi-judicial capacity, he must be fair and impartial to
both the parties before him. He must be free from bias and partiality.

9. Judicial Adjudication: Adjudication means act of giving a judgment or of deciding a legal problem.
In arbitration, the arbitrator adjudicates the matter brought before him by the parties. That is to say, he
resolves the dispute only after holding the proceedings in a quasi-judicial manner and giving full
opportunity to the parties of leading their evidence and rebutting the opposite parties evidence and
hearing.

10. Finality and binding nature of the award: The decision of the arbitrator known as arbitral award,
is final and binding upon the parties. The award of the arbitral tribunal is final and binding as if it were
a decree of the Court enforceable in accordance with law.

11. Freedom of parties: Parties to arbitration enjoy freedom which the litigants in an ordinary
litigation do not. For example, the parties are free to choose the venue for holding the arbitral
proceedings. They have the right to determine the procedural and substantive law to be applied. Thus,
the parties have special rights by which they virtually control the arbitration proceedings from the
beginning to the end.

12. Private forum and confidential procedure: An arbitrator is more or less a private judge of a
private court called an arbitral tribunal who gives judgment called an award. An important feature of
arbitration is that it is a private process. There are no public records and no public hearings. Even the
arbitrator‟s award is a private document. Therefore, it is possible for only the actual participants to
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Dr. B.G. Kaurani, Associate Professor, N.B.T. Law College, Nashik.

know that an arbitration is taking place. The choice of venue and the choice of designating arbitrators
also promise privacy and confidentiality of the proceedings and the award.

13. Flexible approach:

14. No unilateral withdrawal: In contrast to mediation, a party cannot unilaterally withdraw from an
arbitration. If he tries to withdraw, the aggrieved party can approach the Court. The Court shall compel
the defaulting party to undergo the arbitral procedure if there is valid arbitration agreement.

Types of Arbitration

1. Contractual Arbitration: With the increase in trade and business and growth of economy,
commercial transactions increased leaps and bounds, therefore, there were frequent occasions for
clashes and disputes between the parties which needed to be resolved. In order to seek early settlement
of disputes without approaching the court, the parties usually chose to insert an arbitration clause as an
integral part of the contract to refer their existing or future disputes to a named arbitrator or arbitrators
to be appointed by a designated authority. This has been called as contractual in-built arbitration. The
arbitration clause is incorporated in the main contract itself in contractual arbitration.

2. Statutory Arbitration: There are certain areas where arbitration is statutorily imposed on the parties
by law of the land and the parties have no option but to abide by such arbitrations. Thus statutory
arbitration differs from the other varieties of arbitration in two vital aspects. First, while ad-hoc,
contractual and institutional arbitrations are based on the consent of the parties, there is no question of
consent in case of statutory arbitration. Secondly, the other arbitrations are voluntary whereas statutory
arbitration is obligatory and binding on the parties as the law of the land.

To illustrate, Section 43(c) of the Indian Trusts Act, 1882, Sections 24, 31 and 32 of the Defence of
India Act, 197, Section 5 of the Delhi Transport Laws (Amendment) Act, 1971, are some of the
examples which contain provisions relating to statutory arbitration.

3. Ad hoc Arbitration: Ad hoc arbitration refers to an arbitration where the procedure is either agreed
upon by the parties or in the absence of an agreement the procedure is laid down by the arbitral
tribunal. Thus it is an arbitration agreed to and arranged by the parties themselves without seeking the
help of any arbitral institution. In Ad hoc arbitration, if the parties are not able to nominate
arbitrator/arbitration by consent, the appointment of arbitrator is made by the Chief justice of a High
Court (in case of Domestic Arbitration) and by the Supreme Court (in case of international arbitration)
or their designate. The fees to be paid to the arbitrator is agreed to by the parties and the arbitrator
concerned.

4. Institutional Arbitration: In an institutional arbitration it may stipulate in the arbitration agreement

that in case of dispute or differences arising between them, they will be referred to a particular
institution such as Indian Council of Arbitration (ICA) or International Chamber of Commerce (ICC),
Federation of Indian Chamber of Commerce & Industry (FICCI); World Intellectual Property
Organisation (WIPO) etc. All these institutions have framed their own rules of arbitration which would
be applicable to arbitral proceedings conducted by these institutions.

The parties have the option to seek recourse to Ad-hoc arbitration or institutional arbitration depending
on their choice and convenience.
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Dr. B.G. Kaurani, Associate Professor, N.B.T. Law College, Nashik.

5. Domestic Arbitration: Domestic arbitration takes place in India when the arbitration proceedings, the
subject matter of the contract and the merits of the dispute are all governed by the 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.

6. International Arbitration: International arbitration can take place either in India or outside India in
cases where there are ingredients of foreign origin relating to the parties or the subject-matter of the
dispute. The law applicable may be Indian law or foreign law depending on the agreement between
parties in this regard. The definition of International Arbitration is given in Section 2(1) (f) of the
Arbitration and Conciliation Act, 1996.

According to Section 2(1) (f) International commercial arbitration means an arbitration relating to
disputes arising out of legal relationships, whether contractual or not, considered as commercial under
the law in force in India and where at least one of the parties is:

(i) An individual who is a national of, or habitually resident in, any country other than India; or
(ii) A body corporate which is incorporated in any country other than India; or
(iii) A company or an association or a body of individuals whose central management and
control is exercised in any country other than India; or
(iv) The Government of a foreign country;

7. Foreign Arbitration: A foreign arbitration is an arbitration which is conducted in a place outside

India, and the resulting award is sought to be enforced as a foreign award.

Fast Track Arbitration

The establishment of Fast Track Arbitration is a recent development in the arbitration regime for
achieving timely results thereby lowering the cost and eliminating difficulties associated with
traditional arbitration. Fast Track Arbitration is a time bound device with stricter rules of procedure
which do not allow any laxity or scope for extension of time and resultant delays and the reduced span
of time makes the arbitration cost effective.

Fast Track Arbitration is particularly useful in resolving disputes relating to patents, trade-mark laws,
time-bound construction work projects, licensing contracts, franchises, etc., where urgent decisions are
required to be taken.

The provisions of Sections 11(3), 31 and 34 of the Arbitration and Conciliation Act, 1996 provide a
framework of fast track arbitration as the parties are free to agree on a procedure and have autonomy to
appoint arbitrator if the agreement so provides. Section 31 allows freedom to challenge the award and
file a petition for it being set aside under Section 34 of the Act.

As a premier Indian organisation for institutional arbitration, the Indian Council of Arbitration (ICA)
has pioneered the concept of fast track arbitration and framed rules of procedure to ensure speedy
disposal of disputes within a time-frame of three to six months. The proposed Arbitration (Amendment
Act, 2015 provides for a single member Fast Track Arbitration with fixed rules of procedure and time
bound disposal of cases.

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Dr. B.G. Kaurani, Associate Professor, N.B.T. Law College, Nashik.

Arbitrator:

The term „arbitrator‟ has not been defined in the Arbitration and Conciliation Act, 1996 nor was it
defined in the old Act of 1940 or the English Arbitration Act. However, in the light of the new
Arbitration Act of 1996 in India, an arbitrator may be defined as a person to whom the matters in
dispute are submitted by the parties and those functions are more or less judicial i.e., to decide the law
and facts involved in the matter referred to him and settle the dispute or difference thus dispensing
equal justice to all the parties. In Satyendra Kumar v. Hind Construction Ltd.2 it was held that where
the parties to dispute refer the matter to a person and such person holds a judicial inquiry in deciding
that dispute and comes to a judicial decision, such person is called an arbitrator. Thus while discharging
his quasi-judicial functions, the arbitrator is expected to act with utmost impartiality and honesty
without any bias towards any party.

Advantages of Arbitration
1. The decision (award) of arbitral tribunal is final and binding on the parties. While several
mechanisms can help parties to reach an amicable settlement, all of them depend upon goodwill and
cooperation of the parties. A final and enforceable decision by amicable settlement can generally be
obtained only by recourse to arbitration because arbitral tribunals are not subject to appeal. Arbitral
awards may be challenged on very few limited grounds.

2. Arbitral awards enjoy much greater international recognition than judgments of national Courts. The
New York Convention facilitates enforcement of awards in all contracting states.

3. Neutrality and mutuality are perhaps the most redeeming features of arbitration process. At least in
matter such as place of arbitration, language to be used, procedure or rules to be applied, nationality of
arbitrators (in case of international arbitration) and legal representation, the parties can place
themselves on equal footing.

4. Arbitration offers parties a unique opportunity to designate persons of their choice as arbitrators,
which is not possible in case of courts. This enables the parties to have their disputes resolved by
people who have specialised competence and expertise in the relevant field.

5. Cost: Arbitration is faster and less expensive than litigation in courts.

6. Privacy and confidentiality: The element of confidentiality which is wanting in judicial proceedings
is an attribute of arbitration system. Arbitration hearings are not public and only the parties receive the
copies of the arbitral award.

7. Informality [Simplified Procedure]: Arbitration proceedings are far less formal than a trial. Unlike
trials, which must be held in a courtroom, parties can agree to have arbitrations in any convenient
setting of their choosing. Also, the rules of procedure and evidence are greatly relaxed and simplified,
making the overall process much less formal than a typical trial and giving the parties more control.

8. Flexible: Unlike trials, which must be worked into overcrowded court calendars, arbitration hearings
can usually be scheduled around the needs and availabilities of those involved, including weekends and
evenings.

2
AIR 1952 Bom. 227.
24
Dr. B.G. Kaurani, Associate Professor, N.B.T. Law College, Nashik.

Disadvantages of Arbitration

1. Arbitration agreements are sometimes contained in ancillary agreements, or in small print in other
agreements, and consumers and employees sometimes do not know in advance that they have agree to
mandatory binding pre-dispute arbitration by purchasing a product or taking a job.

2. If the arbitration is mandatory and binding, the parties waive their rights to access the courts and
have a judge decide the case.

3. In most arbitration agreements, the parties are required to pay for the arbitrators, which adds an
additional layer of legal cost that can be prohibitive, especially in small consumer disputes. A
professional arbitrator may have expensive fees.

4. Inability to appeal: There are very limited avenues for appeal, which means that an erroneous
decision cannot be easily overturned. As a general and practical rule, the arbitrator‟s decision cannot be
appealed. Only in certain limited situations, such as when the arbitrator exceeded his or her authority or
upon proof of corruption, fraud or undue influence, will an arbitrator‟s decision be reviewed by a
district court. This can be especially troubling given that an arbitrator generally has more discretionary
and decision-making power than a judge or jury. Therefore, the binding nature of the decision and the
general lack of ability to seek recourse from an incorrect decision make the consequences of the
arbitration more profound.

5. Arbitrators are generally unable to enforce interlocutory measures against a party, making it easier
for a party to take steps to avoid enforcement of an award, such as the relocation of assets offshore.

6. Rule of applicable law is not necessarily binding on the arbitrators, although they cannot disregard
the law.

7. Disclosure of documents may be more limited in arbitration.

Distinction between Arbitration, Conciliation and Negotiation

1. Arbitration is a binding process where the dispute is submitted for adjudication according to the
agreement by an arbitral tribunal which makes a decision by awards.

Conciliation is a non-binding procedure in which an impartial third party, the conciliator, assists the
parties to a dispute in reaching a mutually satisfactory and agreed settlement of the dispute.

Negotiation is a non-binding procedure in which discussions between the parties are initiated without
the intervention of any third party with the object of arriving at a negotiated settlement of the dispute.

2. In case of arbitration a prior „agreement in writing” in the contract or separate agreement in writing
to submit to arbitration disputes which have arisen or which may arise in future is necessary and both
the parties are bound by the agreement.

However, conciliation may be initiated without any prior agreement and relates generally to disputes
which have already arisen. In conciliation one party may invite in writing and the other party may or
may not accept the same. In negotiation, there is need of written agreement. It can be started after the
dispute arises.

25
Dr. B.G. Kaurani, Associate Professor, N.B.T. Law College, Nashik.

3. In arbitration, the arbitrator does not merely assist in resolution of a dispute but he also arbitrates and
resolves the dispute by making an award. However, in conciliation, the conciliator, generally, assists
the parties in their attempt to reach an amicable settlement of their dispute. In negotiation there will be
no negotiator, a third party and the parties themselves resolve the dispute.

4. In arbitration the parties have to submit the written statements and other evidential documents and
the information given by a party is subject to scrutiny by the other party. However, in conciliation, the
factual information shall be kept confidential and shall not disclose such information. In negotiation, as
both the parties sit together to negotiate they can openly discuss the issues and convince each other as
there is no third party to intervene.

5. In arbitration, an award is made and signed by the arbitrator and it is not merely a settlement
agreement but it is an authentication of settlement and the award should be implemented as a judgment.

In conciliation, a settlement agreement may be made by the parties themselves with the assistance of
conciliator and the conciliator shall authenticate the „settlement agreement‟ and it is implemented like
implementation of award.

In negotiation, the parties settle the issues themselves and there may be written or oral agreement and
they are implemented by the parties immediately by themselves.

6. Arbitration proceedings cannot be unilaterally terminated but the conciliation proceedings may be
unilaterally terminated by a written declaration by a party to the other party and the conciliator. In
negotiation proceedings also the proceedings may be terminated by a party permanently or temporarily.

7. In arbitration, neither the arbitrator not the parties to the arbitration are subject to disabilities of
prohibition. Whereas in conciliation, the conciliator shall not act as an arbitrator, or as a representative,
or as a counsel or a party in any arbitration or judicial proceedings in respect of dispute that is subject
of the conciliation proceedings. Nor can the parties present the conciliator as a witness in any arbitral or
judicial proceedings. In negotiation, as there is no such negotiator present in the proceedings, the
parties can seek the judicial proceedings for the settlement of dispute.

8. The arbitration proceedings or awards may be used as evidence in any judicial proceedings, but the
conciliation proceedings cannot be used as evidence in any arbitral or judicial proceedings.

9. In arbitration, an arbitrator has to decide according to natural justice and law, but a conciliator can
conciliate irrespective of law. In negotiation, as there is no third party to intervene, the parties
themselves settle the matter by „give and take‟ method.

10. An arbitrator is expected to give a hearing to the parties, but a conciliator does not engage in any
formal hearing, though he may informally consult the parties separately or together. In negotiation the
parties themselves meet together and talk together and come to settlement with mutual understanding.

Theories of Arbitration

The two main theories of arbitration may be described as judicial and political. One might even go so
far as to characterize them by saying that the first is based on how arbitration is supposed to work,
while the second is based on how it does in fact work. The judicial theory implies that a “just”

26
Dr. B.G. Kaurani, Associate Professor, N.B.T. Law College, Nashik.

solution of the dispute does in fact exist, and that it is the duty of the arbitrator to decide on the
principles and the facts involved. The arbitrator sits as a private judge, called upon to determine the
legal rights and the economic interests of the parties involved as these rights and interests are
demonstrated by the information provided by the parties themselves.

The political theory, on the other hand, regards arbitration as an extension of both collective
bargaining and, of course, collective coercion. The arbitrator functions as a sensitive instrument of
sorts, accurately recording the relative strengths of the parties and making sure that the lion gets his
share. To some extent, however, these opposing theories represent a confusion between arbitration and
conciliation, the act of appeasing both parties to a dispute without necessarily rendering a just or
pragmatic decision. The notion of compromise that dominates conciliation may also guide arbitration,
although, in the process of arbitration, the result necessarily requires the decision of an outsider rather
than an accommodation between the parties themselves.

Nevertheless, since to some the idea of arbitration necessarily involves absolute “rights,” compromise
is likely to be regarded as the solution of the timid or the unprincipled. Arbitration grounded in political
theory, while more likely to permit conciliation, is therefore less preferable to both parties in a dispute,
despite the obvious practicality of compromise.

Module 05 Arbitration Agreement

Arbitration Agreement: Section 7

According to Section 7(1) of the Act, „arbitration agreement‟ means an agreement by the parties to
submit to arbitration all or certain disputes which have arisen or which may arise between them in
respect of a defined legal relationship, whether contractual or not.

Form of Arbitration Agreement: Section 7(2)

An arbitration agreement may be in the form of an arbitration clause in a contract or in the form of a
separate agreement.

Section 7(3) provides that an arbitration agreement shall be in writing.

According to Section 7(4) an arbitration agreement is in writing if it is contained in –

(a) A document signed by the parties;

(b) An exchange of letters, telex, telegrams or other means of telecommunication which provide a
record of the agreement; or
(c) An exchange of statements of claim and defence in which the existence of the agreement is
alleged by one party and not denied by the other.

Section 7(5) further provides that the reference in a contract to a document containing an arbitration
clause constitutes an arbitration agreement if the contract is in writing and the reference is such as to
make that arbitration clause part of the contract.

Therefore, an arbitration agreement may be in the form of an arbitration clause in a contract or in the
form of a separate agreement and it shall be in writing and signed by both parties. The foundation of
arbitration is the arbitration agreement between the parties to submit to arbitration all or certain
27
Dr. B.G. Kaurani, Associate Professor, N.B.T. Law College, Nashik.

disputes which have arisen or which may arise between them. Thus, the provisions of arbitration can be
made at the time of entering the contract itself, so that if any dispute arises in future, the dispute can be
referred to arbitrator as per the agreement. It is also possible to refer a dispute to arbitration after the
dispute has arisen. The arbitration agreement can be by exchange of letters, document, telex, telegram,
etc.

Essentials of an Arbitration Agreement

In simple words, an arbitration agreement is an agreement in writing between the parties to refer their
disputes to arbitral tribunal.

The Supreme Court of India in Bihar State Mineral Development Corporation v. Encon Builders (P)
Ltd.3 held that the essential elements of an arbitration agreement are:

(1) There must be present or a future dispute or difference in connection with some contemplated
affairs;

(2) There must be the intention of the parties to settle such difference or dispute by private tribunal;

(3) The parties must agree in writing to be bound by the decision of such tribunal; and

(4) The parties must be ad idem (consensus between the parties).

Essentials:

1. There must be agreement by the parties to arbitrate: To constitute an arbitration agreement there
should be an agreement, that is, ad idem (consensus between the parties).

2. It must satisfy the essential requirements of section 10 of the Indian Contract Act, 1872:

An arbitration agreement like all other contracts must satisfy all the essential requirements of section 10
of the Indian Contract Act, 1872 i.e., the parties to the arbitration agreement must be competent to enter
into a contract and the agreement should be made by the free consent of the parties. Furthermore, the
parties should have the intention of entering into a legally binding obligation, etc. However, if the
arbitration agreement does not fulfil the requirements of Section 10 of the Indian Contract Act, the
arbitration agreement becomes void and any award given to either of the parties will not be
enforceable.

3. In writing: An arbitration agreement should be in writing.

4. Intention: There should be intention of the parties to have their disputes or differences referred and
decided through arbitration.

5. No Prescribed form of Agreement:

In Rukminibai v. Collector, Jabalpur, the Supreme Court laid down that an arbitration clause is not
required to be stated in any particular form. If the intention of the parties to refer the dispute to

3
AIR 2003 SC 3688.
28
Dr. B.G. Kaurani, Associate Professor, N.B.T. Law College, Nashik.

arbitration can be clearly ascertained from the terms of the agreement, it is immaterial whether or not
the expression arbitration or arbitrator has been used.

The Court made it clear that for the purpose of construing on arbitration agreement, it is not necessary
that the term „arbitration‟ may have been specifically mentioned therein.

6. Nature of Disputes: Disputes which can be referred to Arbitration are:[Existence of Dispute]

a) Present or future disputes which are:

b) In respect of a defined legal relationship whether contractual or not.

An arbitration agreement is an agreement to submit present or future disputes to arbitration. Dispute is

thus an essential element in the definition of arbitration agreement.

The dispute must be in respect of a „defined legal relationship‟ whether contractual or not. It follows
that the dispute must be of legal nature. Disputes which are spiritual, moral or religious are not fit
subjects for arbitration. If a contract is not enforceable for want of legal relationship, the question of
arbitration in respect of such a contract would not arise.

7. The tribunal or arbitrator must be chosen and agreed by the parties through the agreement or from
the order of the Court or from Statute.

8. The agreement must contemplate that substantive rights of the parties will be determined by the
agreed tribunal after taking into account relevant evidence before it. The arbitration agreement may
provide that arbitration shall be conducted according to the rules of an arbitral institution. In such a
case, those rules will form part of the arbitration agreement.

9. Certainty: An arbitration agreement, to be valid and binding, must be certain. An arbitration

agreement, the meaning of which is not certain, or not capable of being made certain is void. Vague
and uncertain arbitration agreement is no agreement in law. Mere understanding between the parties to
enter into an arbitration agreement is not an arbitration agreement as it lacks the essential element of
certainty. An arbitration agreement to settle disputes by arbitration is sufficiently certain though the
arbitrator is not named.

Validity of Arbitration Agreement

The law requires that arbitration agreement must not be uncertain and it should be capable of being
ascertained. However, in case there is any uncertainty in the agreement, it is curable and therefore it
does not render the agreement void ipso facto. In other words, there should be certainty as to the (1)
Dispute (2) Parties and (3) Identity of the arbitral tribunal and its composition in the arbitration
agreement.

1. Certainty of existence of a dispute or difference:

The agreement must clearly indicate as to what disputes or difference are to be referred to and resolved
through arbitration.

29
Dr. B.G. Kaurani, Associate Professor, N.B.T. Law College, Nashik.

In Tipper Chand‟s case,4 the agreement contained a clause that “except where otherwise specified in
the contract, the decision of the Superintending Engineer (SE) for the time being shall be final,
conclusive and binding on all the parties to the contract upon all questions relating to the meaning of
the specification, designs, drawing and instructions. The decision of the SE as to the quality of
workmanship or material used on the work or any other questions of claim, etc. whether arising out of
or relating to the contract, designs, drawing, classifications, estimates, introduction orders or conditions
concerning execution or progress of work would also be final and conclusive and binding on the
contractor”

The contention of the defendant in this case was that the above clause in the contract amounted to an
arbitration agreement although the specific words „arbitration agreement‟ appeared nowhere in the
contract. The trial Court and the Appellate Court agreed with the plea of the defendant and held that the
above contract clause amounted to an arbitration agreement. But the Supreme Court rejected the plea in
revision and held that the said clause only conferred power on Superintending Engineer to take
decisions on his own in matters o supervision and execution of the work and exercise administrative
control over it but it did not mention any dispute or reference thereof and therefore it did not authorize
the parties to refer the matter to arbitral forum.

But in a case where a clause in the contract stated that “for any dispute between the contractor and
Engineering Department., the decision of the Chief Engineer, P.W.D. J & K will be final and binding
upon the contractor, the Apex Court held that the said clause clearly amounted to an arbitration
agreement.5

2. Certainty as to the parties to an arbitration:

Another essential requisite of an arbitration is that the parties should intend to make a reference to
arbitration in case or any dispute of difference relating to the terms of the contract. Thus they agree to
accept whatever decision the arbitrators may pronounce on the difference or dispute referred to them
for resolution.

A reference to arbitration requires the assent of both the parties. However, where the parties have
agreed to refer the difference or dispute to arbitration, the actual reference of the dispute or difference
when it arises may be made by one party without the consent of the other party.

The arbitration clause should be so worded as to give bilateral rights of reference to the parties. That is,
either party should have right of reference to arbitration in the event of any dispute or difference arising
between them. Thus there should be mutuality about the bindingness of the award between the parties.

The Supreme Court in M. Dayanand Reddy v. A.P. Industrial Infrastructure Corporation Ltd. and
others, 6 has observed that the Arbitration Act recognises only that arbitration agreement which is
reduced in writing and the agreement between the parties on such written terms is clearly established.
However, no particular form of arbitration clause is prescribed under the law.7 It is also not necessary
that all terms of the agreement should be set out in one single document. They may be communicated

4
State of Uttar Pradesh v. Tipper Chand, AIR 198 SC 1522.
5
Diwan Chand v. State of J & K., AIR 1961 J & K 58.
6
Air 1993 SC 2268.
7
Smt. Rukkmani Bai Gupta v. Collector, Jabalpur, AIR 1989 SC 479.
30
Dr. B.G. Kaurani, Associate Professor, N.B.T. Law College, Nashik.

through exchange of different letters. What the law requires is that the intention of the parties to refer
the dispute should be clearly ascertainable from the terms of the agreement. It is immaterial whether the
expression arbitrator or arbitrators etc. has been used in the arbitration agreement clause or not.

3. Certainty about Arbitral Tribunal and its Composition:

The arbitration agreement to be valid must spell out the arbitral forum to which disputes, differences,
questions or claims relating to the agreement will be submitted for redressal. Thus „forum selection
clause‟ constitutes one of the essential elements of the arbitration agreement. The parties may either
name the arbitrator in the arbitration agreement itself or may empower a designated officer as an
appointing authority.

For example, the agreement may say that „dispute or difference shall be referred to Superintending
Engineer of the Circle of the time being‟. This means that the person who is SE at the time when
dispute arises shall be arbitrator. The official of the lower rank who is holding the charge of SE
consequent to the transfer or retirement of SE shall be deemed to be of the same rank and therefore can
act as arbitrator according to the terms of the agreement.

Where the parties agree to „administration‟ of arbitration by a permanent arbitral Institution such as the
Indian Council of Arbitration, they agree not to appoint arbitrator themselves but surrender this right to
the Arbitral Institution. The arbitrator, in this case shall be appointed by the Institution and the parties
have no direct relationship with the arbitrator so appointed. In other words, the arbitral institution acts
an intermediary between the party and the arbitrator. It may be reiterated that an arbitral institution like
the I.C.A/ only administers arbitration but does not itself arbitrate.

If there is any ambiguity or uncertainty in the agreement regarding arbitrator, such an arbitration
agreement shall be void. Thus, where the arbitration agreement stated that the disputes will be referred
to either A or B, such an agreement was held void for uncertainty.

From what has been stated above, it may be inferred that any one of the following modes may be
adopted for the appointment of arbitrator:

(1) An arbitrator may be named in the arbitration agreement,

(2) He may be a person who would hold, at the relevant time, a certain office or appointment (i.e.,
by designation).
(3) The parties may agree that the reference for appointment of as arbitrator shall be made to a
person designated in the agreement,
(4) The parties may agree for an Institutional Arbitration under which arbitrators are appointed by a
permanent Institution.

Rule of Severability:

The Supreme court in Shin Satellite Public Co. Ltd. v. M/s. Jain Studios Ltd., 8 observed that the
doctrine of severability would apply in interpreting an arbitrator agreement when there is a reference to
arbitration. The Court in this case held that applying the doctrine of severability, the clause in
agreement making arbitrator‟s determination „final and binding between the parties‟ was objectionable

8
AIR 2006 SC 963.
31
Dr. B.G. Kaurani, Associate Professor, N.B.T. Law College, Nashik.

as it amounted to waiver of right to appeal or challenge the jurisdiction which could not be take away
from the parties. Therefore, this objectionable part as to waiver was clearly severable from other part as
to referring dispute to arbitrator which could be given effect to and enforced.

In the instant case, Clause23 in the arbitration agreement mandated that if there is a dispute between
parties, it shall be referred to and resolved by arbitration. It also contained that rules of UNCITRAL
would apply to such arbitration and it shall be held in Delhi and will be in English language. The
offending and objectionable part expressly made arbitrator‟s determination final and binding between
the parties meaning thereby that the parties had waived the right of appeal or objections „in any
jurisdiction.‟ This part could easily be severable from the rest of the part as to referring the dispute to
arbitrator which could be enforced and given effect to. The intention of the parties being explicitly clear
that they agreed to refer the dispute to arbitrator and it being lawful, could be severed from the
objectionable offending „waiver clause‟ which was not enforceable being a restraint on parties to
approach a Court of law in appeal or raise objection as to arbitrator‟s jurisdiction.

Parties to Arbitration agreement: Section 2(1) (h)

The term „party‟ has been defined for the first time in the new Arbitration Act o 1996. The parties to an
arbitration dispute are called „Claimant‟ or „respondent‟ instead of plaintiff and defendant as is done in
a civil suit. Section 40 of the Act envisages that legal representatives of the claimant or the respondent
as the case may be, are to be brought on record as „party‟ in an arbitration proceeding. Likewise,
persons who represent the estate even without title either as executors or administrators in possession of
the estate of the deceased claimant or respondent are also be included as „party‟ to an arbitration
agreement.

Thus, the party to an arbitration agreement, may be between two or more persons, it may also be
between body of persons or incorporated bodies. But, certainly they are disputed parties who submit
their dispute for settlement under the arbitration agreement.

Legal Representative: Section 2(1) (g):

The term „legal Representative‟ as defined in the Act means and includes a persons who represents the
estate of the deceased person or a person who intermeddles with the estate of the deceased or the
person in whom the estate devolves on the death of the person who is a party to an arbitration
proceeding.9

An arbitration agreement is enforceable by or against the legal representatives by compelling them to

step into the shoes of the deceased person (party). So also an arbitration award can be enforced by or
against the legal representative provided the legal representative who has been allowed to participate in
the arbitration proceedings has represented the case on behalf of the deceased party.10

A legal „heir‟ who succeeds the deceased person so as to acquire title to the property of the decease is
the legal representative of the deceased by the operation of law.

Effect of Death of party:

9
Section 35 of the Act.
10
Section 40 of the Act.
32
Dr. B.G. Kaurani, Associate Professor, N.B.T. Law College, Nashik.

It must be stated that an arbitration agreement is not terminated due to death of a party thereto either as
respects the deceased or as respects any other party, but shall be enforceable by or against the legal
representatives of the deceased. Thus while disposing of an arbitration appeal the Federal Court of
India (as it then was) ruled in Tirath Lal v. Bhuwanmoyee,11 that it is obligatory for the arbitrator to
serve notice upon the legal representatives calling upon them to appear before him and continue with
the reference. If it is not done, those legal representative shall not be bound by the award made by the
arbitrator. The term legal representative also includes executor of the Will of the deceased, or
Administrator of the estate of the deceased person.

The Supreme Court in Ravi Prakash Goel v. Chandra Prakash Goel, 12 held that legal representatives of
the deceased party being persons claiming under the rights of a deceased person have a right to enforce
the award and are also bound by the award.

Where there is dispute between the rival legal representatives of the deceased party, the matter has to
be independently tried and decided in separate proceedings and arbitrator is not empowered to settle the
issue.

Section 40 Arbitration agreement not to be discharged by death of party thereto:

(1) An arbitration agreement shall not be discharged by the death of any party thereto either as
respects the deceased or as respects any other party, but shall in such event be enforceable by or
against the legal representative of the deceased.
(2) The mandate of an arbitrator shall not be terminated by the death of any party by whom he was
appointed.
(3) Nothing in this section shall affect the operation of any law by virtue of which any right of
action is extinguished by the death of a person.

This section makes it clear that the arbitration agreement shall not be extinguished on the death of the
parties and the mandate of an arbitrator shall not be terminated on the death of any party by whom he
was appointed. But sub-section (3) states that if under any law any right of action is extinguished by the
death of a person, the operation of that law will remain unaffected by the provision of this section. In
other words, the legal representatives have the right to enforce the arbitration agreement if the right
dealt with in the agreement survives the legal representatives of the deceased party.

Time limit for substitution of Legal Representatives

There is no provision in the Arbitration and Conciliation Act, 1996 as to the time-limit for bringing the
legal representatives on record. Order XXII of Civil Procedure Code, 1908, prescribes a time limit of
90 days from the date of death but the rules of CPC do not apply to arbitration proceedings. All that
Section 40 requires is that the legal representatives of a deceased party should be brought on record so
as to ensure that arbitration agreement is not discharged by the death of a party. Therefore, the law
deems it necessary that legal representative should be informed of arbitral proceedings through the

11
AIR 1949 FC 195.
12
AIR 2007 SC 1517.
33
Dr. B.G. Kaurani, Associate Professor, N.B.T. Law College, Nashik.

issue of notice. 13 It is for them to come and arrange their representation. The arbitrators should give
reasonable time to enable the legal representatives to take part in the proceedings.

Effect of Insolvency on arbitration agreement Section 41

(1) Where it is provided by a term in a contract to which an insolvent is a party that nay dispute
arising there out or in connection therewith shall be submitted to arbitration, the said term shall,
if the receiver adopts the contract, be enforceable by or against him so far as it relates to any
such dispute.
(2) Where a person who has been adjudged an insolvent had, before the commencement of the
insolvency proceedings, become a party too an arbitration agreement, and any matter to which
the agreement applies is required to be determined in connection with, or for the purposes of,
the insolvency proceedings, then, if the case is one to which sub-section(1) does not apply, any
other party or the receiver may apply to the judicial authority having jurisdiction in the solvency
proceedings for an order directing that the matter in question shall be submitted to arbitration in
accordance with the arbitration agreement, and the judicial authority may, if it is of opinion that,
having regard to all the circumstances of the case, the matter ought to be determined by
arbitration, make an order accordingly.
(3) In this section the expression “receiver” includes an Official Assignee.

Where a party to the arbitration agreement later becomes insolvent and a Receiver is appointed to
administer his estate, the right to represent the party in arbitration proceedings vests with the Receiver
or the official Assignee.

The Insolvency Act permits the Receiver either to adopt a contract executed by the insolvent or to
disclaim it. In case the Receiver chooses not to adopt the contract, sub-section (2) enables him or any
other party to apply to the Insolvency Court and make a request for an order that the matters pertaining
to the arbitration agreement may be referred to the arbitral tribunal instead of being taken up by the
Insolvency Court itself for determination. It is left to the discretion of the Insolvency Court to refer
such matters to the arbitral tribunal or to determine them in the Insolvency Court itself.

It is thus evident that arbitration agreement does not ipso facto become invalid with the insolvency of a
party but it will depend whether the Receiver adopts the agreement or not. And where the Receiver
adopts the agreement and requests the Insolvency Court to refer the matter to arbitral tribunal, the
Insolvency Court will decide whether the matter be referred to the arbitral tribunal or be tried by itself.
However, where the arbitral proceedings have already commenced before the party becomes insolvent,
the arbitral tribunal should serve a notice on the Receiver to present the case on behalf of the insolvent
party in the same way as a legal representative represents a deceased party in the event of death of the
party.

Power of Court to refer parties to arbitration

Section 8 Power to refer parties to arbitration where there is an arbitration agreement:

13
Ram Niwas v. Benarsi Lal, AIR 1968 Cal. 314.
34
Dr. B.G. Kaurani, Associate Professor, N.B.T. Law College, Nashik.

(1) A judicial authority before which an action is brought in a matter which is the subject of an
arbitration agreement shall, if a party so applies not later than when submitting his first
statement on the substance of the dispute, refer the parties to arbitration.
(2) The application referred to in sub-section (1) shall not be entertained unless it is accompanied
by the original arbitration agreement or a duly certified copy thereof.
(3) Notwithstanding that an application has been made under sub-section (1) and the issue is
pending before the judicial authority, an arbitration may be commenced or continued and an
arbitral award made.

Section 8(1) provides discretionary power to the judicial authority, and the parties to an arbitration
agreement make such request before a judicial authority but not later than submitting his first
statement, the judicial authority should refer the parties to arbitration. It is necessary for application of
this sub-section that a judicial authority can refer only the subject-matter of an arbitration agreement
but not otherwise.

Section 8 (2) provides mandatory provision for application of Section 8 (1) which specifies that, “The
application referred to in sub-section (1) shall not be entertained unless it is accompanied by the
original arbitration agreement or a duly certified copy thereof”.

Section 8(3) empowered the arbitral tribunal to start arbitration and if already commenced can continue
arbitration and also can make award, it is not the point that an application under Section 8 (1) is
pending before the court. Thus, the parties are not deprived to initiate arbitral proceeding even if
proceeding before a judicial authority have already commenced. The main object of this sub-section is
to discourage deserters instead push them to their agreement to arbitration.

Jurisdiction of Courts Section 42

Notwithstanding anything contained elsewhere in this Part or in any other law for the time being in
force, where with respect to an arbitration agreement any application under this Part has been made in a
Court, that Court alone shall have jurisdiction over the arbitral proceedings and all subsequent
applications arising out of the agreement and the arbitral proceedings shall be made in that Court and in
no other Court.

Module 06 Structure, Powers and Functions of Arbitral Tribunal

Section 10: Number of Arbitrators:

(1) The parties are free to determine the number of arbitrators, provided that such number shall not
be an even number.
(2) Failing the determination referred to in sub-section (1), the arbitral tribunal shall consist of a
sole arbitrator.

This section provides for the appointment of a sole arbitrator or more than one arbitrator but such
arbitrators shall not be even in number. The provision relating to appointment of Umpire as existed in
the old Arbitration Act, 1940 has been dropped in the new Act of 1996. But where the number of
arbitrator is three, the third arbitrator will be appointed by the two arbitrators nominated by one each of

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Dr. B.G. Kaurani, Associate Professor, N.B.T. Law College, Nashik.

the two parties. The „third arbitrator‟ shall act, not as an umpire but as „Presiding Arbitrator‟. 14 The
two arbitrators will appoint the third arbitrator called the Presiding Arbitrator within a period of thirty
days from the date of their appointment. The three arbitrators will participate in the decision making
process of the tribunal and the award of majority shall prevail. The Supreme Court has held that an
arbitration agreement specifying even number of arbitrators cannot be a sole ground to render
arbitration agreement invalid.

The Supreme Court in Sime Darby Engineering S.D.N. v. Engineering India Ltd.,15 clarified that where
arbitration clause in the agreement is silent as to the number of arbitrators to be appointed, the
provision of sub-clause (2) of Section 10 would apply and only one arbitrator should be appointed and
reference to expression „arbitrators‟ in some other clause in the agreement would not affect the
intention of parties as expressed by them in the arbitration clause.

Where the dispute to be decided by the arbitral tribunal is of an international nature, the International
Law Commission has propounded in Article 10 (2) of its Ideal Law, that the number of arbitrators will
be three and the nationality of such arbitrators should be different from the nationality of disputant
parties as a matter of policy so as to eliminate any possibility of favouritism or bias and ensure
impartiality.

The various commentaries about the nature of arbitration have been collected into four different
theories: the jurisdictional theory, the contractual theory, the hybrid theory (or the mixed theory) and
the autonomous theory. Among them, the jurisdictional theory is based on the complete supervisory
powers of states to regulate any international commercial arbitration within their jurisdiction, whereas
the contractual theory argues that international commercial arbitration originates from a valid
arbitration agreement between the parties and that, therefore, arbitration should be conducted according
to the parties‟ wishes. The hybrid theory stands as a compromise between the jurisdictional and
contractual theories. It maintains that international commercial arbitration has both a contractual and a
jurisdictional character. The autonomous theory, which has been developed more recently, dismisses
the traditional approach and places emphasis on the purpose of international commercial arbitration.
Instead of fitting arbitration into the existing legal framework, the autonomous theory defines
arbitration as an autonomous institution, which should not be restrained by the law of the place of
arbitration.

THE JURISDICTIONAL THEORY

The jurisdictional theory invokes the significance of the supervisory powers of states, especially those
of the place of arbitration. Although the jurisdictional theory does not dispute the idea that an
arbitration has its origin in the parties‟ arbitration agreement, it maintains that the validity of arbitration
agreements and arbitration procedures needs to be regulated by national laws and the validity of an
arbitral award is decided by the laws of the country where the recognition or enforcement is sought.
Proponents of the jurisdictional theory maintain that all arbitration procedures have to be regulated by
the rules by law chosen by the parties if there are any and those rules of law in force on the place of
arbitration. They also believe that arbitrators resemble judges of national courts because the arbitrator's
powers are drawn from the states by means of the rules of law. As with judges, arbitrators are required

14
Section 11(3) Arbitration & Conciliation Act, 1996.
15
AIR 2009 SC 3158.
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Dr. B.G. Kaurani, Associate Professor, N.B.T. Law College, Nashik.

to apply the rules of law of a specific State to settle the disputes submitted to them. Moreover, the
awards made by the arbitrators are regarded as having the same status and effect as a judgment handed
down by judges sitting in a national court. As a result, they maintain that the awards will be enforced
by the court where the recognition or enforcement is sought in the same way as judgments made by the
courts.

Dr. Mann' emphasized the significance of the laws of relevant states to arbitration, especially the law of
the place where the arbitration takes place, that is, the lex fori. The premise of Dr. Mann‟s argument is
that every sovereign state is entitled to approve or disapprove the activities carried out within its
territory. Following this premise, consequently, every arbitration is subject to the law where it takes
place. Moreover, an arbitrator is required to carry out the arbitration proceedings in accordance with the
will of the parties‟ to the extent that the lex fori allows. Any acts of arbitrators that contradict the
mandatory rules and public policy of the place of arbitration are regarded as judicially unjustified. In
other words, the various issues arising from international commercial arbitration, such as the validity of
the arbitration agreement, the arbitral procedures, the arbitrator‟s power, the scope of submission and
the enforceability of arbitral awards, have to be decided within the mandatory rules and public policy of
the lex fori. Failing to do so, the awards may be set aside by the court of the place of arbitration;
furthermore, recognition or enforcement of the awards may be refused by the courts of the enforcing
states.

THE CONTRACTUAL THEORY:

Rejecting the significance of the lex fori, proponents of the contractual theory argue that arbitration is
based on the agreement between the parties. They deny that any strong links exist between the
arbitration proceedings and the law of the place in which the arbitration takes place. They maintain that
parties have the freedom to decide the relevant issues concerning the arbitration procedures and this
freedom should generally not be interfered with by the powers of any states. The contractual theory,
different from the jurisdictional theory, explores the nature of arbitration from a contractual viewpoint.
Although the contractualists admit the fact that arbitration proceedings and arbitration agreements can
be influenced by the relevant national laws, they argue that arbitration has a contractual character that
originates in the parties‟ arbitration agreement. Accordingly, an arbitration agreement between the
parties is regarded as a contract which expressly states the parties‟ wish to have their disputes resolved
by means of international commercial arbitration. This kind of contract is voluntarily made between the
parties, and allows them to determine the time and place of arbitration, select the arbitrators to hear
their case and choose the laws governing both procedural and substantive matters. The proponents of
the contractual theory believe that the settlement of the dispute in arbitration should not be influenced
by the power of any states and that the concept of pacta sunt servanda16 should prevail, binding the
parties to perform the arbitration agreement made between them without state‟s pressure.

The Hybrid Theory

The jurisdictional theory and the contractual theory both have considerable support at opposite ends of
the arbitration spectrum. However, to some jurists, neither the jurisdictional theory nor the contractual
theory provides a satisfactory and logical explanation of the modern framework of international
commercial arbitration. Under these circumstances, as Dr. Lew pointed out, it is not surprising that a
16
pacta sunt servanda represents the idea that agreements should be observed.
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Dr. B.G. Kaurani, Associate Professor, N.B.T. Law College, Nashik.

compromise theory with a mixed or hybrid character has developed. The group of jurists which has
developed the hybrid theory is convinced that the perfect operation of international commercial
arbitration relies on both jurisdictional and contractual elements. The hybrid theory, in fact, is a
compromise theory which is mixed between the contractual theory and jurisdictional theory. The
hybrid theory was created by Professor Surville, and developed by Professor Sauser-Hall. Suggesting
that international commercial arbitration is a mechanism with a dual character. Professor Sauser-Hall
maintained, on the one hand that a contractual element in arbitration is reflected in the argument that
arbitration has its origins in a private contract, where the parties have the power to choose the
arbitrators and the rules to govern the arbitration procedures and substantive matters. On the other
hand, he agreed with the jurisdictional theory that arbitration has to be conducted within national legal
regimes in order to determine powers of the parties, the validity of the arbitration agreement and the
enforceability of the awards. Accordingly, arbitration has been defined as “a mixed juridical institution,
sui generis, which has its origin in the parties‟ agreement and draws its jurisdictional effects from the
civil law.” In short, arbitration has a jurisdictional nature involving the application of the rules of
procedure while it derives its effectiveness from the arbitration agreement between the parties.
Professor Sauser-Halls argument is accepted by some practitioners, such as Messrs Redfem and Hunter,
who expressly state:

International commercial arbitration is a hybrid. It begins as a private agreement between the parties. It
continues by way of private proceedings, in which the wishes of the parties are of great importance. Yet
it ends with an award which has binding legal force and effect and which, on appropriate conditions
being met, the courts of most countries of the world will be prepared to recognise and enforce. The
private process has a public effect, implemented by the support of the public authorities of each state
expressed through its national law.

In accordance with the hybrid theory, on the one hand the parties‟ freedom to contract an arbitration
agreement, select arbitrators and choose the governing laws is based on the contractual nature of
arbitration. On the other hand, the jurisdictional character of arbitration requires the issues relating to
arbitral proceedings and the validity of arbitration agreements to be subject to the mandatory rules and
public policy of the lex fori. Also, in relation to the recognition or enforcement of arbitral awards, the
validity of arbitral awards will be scrutinised according to the mandatory rules and public policy of the
country in which the recognition or enforcement is sought.

Robert Hunter also suggests that it is inappropriate to deny the dual character of arbitration:

[T]he arbiter is required to decide the whole matters submitted to him or her by means o f a “decree
arbitral” or ‟‟award”, and in so doing must not merely adhere to some ride, principle, criterion or
standard; he or she must not contravene the law. Though the power of the arbiters over the submitters is
based on contract, there is thus a jurisdictional as well as a contractual element in arbitration.^^ The
fundamental dual character of arbitration is also stressed by Ancel, who believes that the dual nature of
arbitration is a concept “at the same time both contractual, because o f its origin (the agreement binding
the parties) and jurisdictional, because of the way in which it is expressed (arbitral award, decision on
jurisdictional issues and decision by private judicial authority). Professor Sanders also believes that the
hybrid theory appears to be more complete than the contractual or jurisdictional theories to explain the
issues arising from arbitration. He maintains that it would be inadequate if the emphasis was only based
on one element of arbitration, either contractual or jurisdictional, because: “French Judicial Attitudes
38
Dr. B.G. Kaurani, Associate Professor, N.B.T. Law College, Nashik.

towards International Arbitration", On the one hand arbitration must be based on an agreement of the
parties to arbitrate; no arbitration can take place when there is not valid agreement o f the parties to
submit their difference to arbitration. If emphasis is laid upon this starting point and the line is drawn
further, covering as well arbitral procedure and the award, it leads to the contractual theory on the
nature o f arbitration. On the other hand emphasis may be put upon the quasi-judicial character of
arbitration. Arbitration is a judicial process. The arbitrators, once appointed, act as judges. Their
function is to give a final decision on the differences submitted to them. Their decision has, in
principle, the same effects as a judgement of a court. The dualistic character of arbitration has lead to
the intermediary view taken by those who adhere to what may be called the mixed arbitration theory:
the character of arbitrator is influenced both by its contractual origin and by the judicial process it
involves. Supporting the dual character of arbitration, Jean Robert points out a close link between the
arbitration procedures and the forum of arbitration. He explains that the constitution of arbitration and
the powers of the arbitrator are based on the parties‟ agreement while the validity o f the agreement and
enforcement o f awards have to be decided in conformity with public policy or mandatory rules o f the
relevant laws, for example, the lex fori and the law of the country where the enforcement is sought.

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