Mediation or Arbitration

Author: Vishwa Desai, SVKM’s Pravin Gandhi College of Law, Mumbai University

Among the most common ADR techniques that help in solving disputes outside the courtroom are mediation and arbitration. Mediation involves a neutral mediator who assists the parties in conflict to negotiate a mutually acceptable solution through a voluntary, non-binding process that emphasizes cooperation, flexibility, and relationship preservation. Alternatively, arbitration is a more formal process whereby an agreed-upon private arbitrator will review the evidence submitted and render a decision that could be binding or may not be, based on the parties' agreement. Procedural differences, cost-effectiveness, confidentiality, and enforceability of decisions make up the bulk of the study. Mediation is very suitable for disputes when the issue is to do with anybody, such as family or business conflicts, as it is less adversarial and generally quicker in nature. On the other hand, arbitration provides a legally binding decision and is preferred in business and international disputes over litigation for its efficiency and enforceability. The study concludes that both methods have unique advantages, with their effectiveness depending on the nature of dispute. A med-arb approach, for instance, which is a combination of mediation and arbitration, can at times result in a justly resolved conclusion. By fully understanding these ADR processes, parties can select the most appropriate approach that suits their needs best.

Keywords- Alternative Dispute Resolution, Hybrid approach, Enforceability, Confidentiality, Neutral Mediator

Mediation:-

An independent, trained third party, called the mediator, facilitates communication and negotiation between disputing parties in order to enable them to agree upon a mutually acceptable resolution. The mediation process is voluntary and structured. Thanks to this kind of alternative dispute resolution (ADR), which promotes open communication, collaboration, and imaginative problem-solving, the parties may work together toward finding a mutually acceptable solution based on their interests. A process of mediation involves private and confidential mediation, with parties able to share their concerns, discuss matters, and attempt to find common ground without facing public exposure. A neutral third party helps mediate misunderstandings and identify any common ground to be found before leaving the resolution up to the parties. A lot of benefits are brought about by mediation. These include cooperation, reduced hostility, and the preservation of relationships in personal, professional, or business situations. For one, mediation is less adversarial, cheaper, and faster than litigation or arbitration, and this is what attracts people to it as a means of the efficient resolution of disputes. Voluntary mediation also means that both parties want to find an amicable resolution, resulting in a lasting agreement. It encourages understanding mediation allows all parties to share their views and listen, especially since there is flexibility for any kind of dispute.

The mediator will help the parties:• Discuss and determine what matters are in controversy;• Examine each party's actual needs and interests;• Expand settlement options and assess the most suitable solution;• Detail the drafting of the settlement agreement, noting how the parties have agreed on how to settle each of their disputes.

History of Mediation:

In ancient India, disputes were resolved locally through a Panchayat. Respected village elders, referred to as Panchas, played key roles in dispute resolution. Before British rule in the Indian subcontinent, communities fostered harmony via the Panchayat system. Traditional mediation remains prevalent in villages today. Businessmen known as Mahajans also mediated disputes, employing a combination of mediation and arbitration. Another early method involved the Panchas addressing tribal issues, focusing on tribal laws and long-term interests. All disputes were settled orally, without written records. Mediation, an ancient legal practice from the Vedic period, has been further developed in the late twentieth century.

Arbitration:-

Arbitration is a process whereby an issue or controversy, agreed upon by the parties involved, is submitted to one or more arbitrators, who make a final binding decision on the matter. Unlike court procedures, arbitration allows parties to resolve disputes through private means rather than relying on a court's verdict. Arbitration can only occur if the involved parties consent to it. Relevant contracts have arbitration clauses to provide for possible future disputes. The parties can refer existing disputes to arbitration through a submission agreement. Unlike mediation, a party cannot unilaterally withdraw from arbitration.

History of Arbitration:-

Arbitration has a long history in India. In ancient times, people resolved their disputes by taking them to a council of wise community members called a "panchayat," which provided binding decisions. The panchayati raj system has been included in various laws in India. The Bengal Regulation allowed parties to refer disputes to Arbitration with mutual agreement. Until 1996, India had three main laws regarding Arbitration: the Arbitration Act of 1937, the Indian Arbitration Act of 1940, and the Foreign Awards (Recognition and Enforcement) Act of 1961. The 1996 Act was established based on the UNCITRAL Model Law, aiming to promote Arbitration as a fast and low-cost method for resolving commercial disputes, covering both domestic and international cases.

MEDIATION:- 

Advantages:- 

• Since mediation is a confidential process, any information exchanged during it is considered "without prejudice" and cannot be presented as evidence in a future tribunal.• The parties have to enter into an agreement for the final recommendation before it can become enforceable.• Mediation enables each party to listen to the opposing viewpoint in a peaceful setting.• The process will attempt to preserve the relationship between the parties.•It is an accommodative process which permits parties to receive a spectrum of outcomes which can't be had through litigation. For instance, in mediation, the parties will agree amongst themselves, thereby taking into consideration further aspects that wouldn’t have been possible through a court procedure.

Disadvantages:- 

•  It might not be mediation-friendly if a party requires public disclosure.• If the disagreement is not solved in mediation, then all those expenses will have gone waste.• It is possible that during the mediation process, information that could help the other party may be disclosed to them.• Either party may, at any point during the mediation process, choose to stop.• A lack of cooperation from either party can render the entire process a waste of time, effort, and resources.

ARBITRATION:- 

Advantages:- 

• Arbitration is less adversarial than traditional disputes, helping maintain professional relationships.

• Arbitration keeps disputes private, unlike public court trials, aiding business matters.

• It avoids lengthy bureaucratic procedures, leading to quicker decisions.

• The parties can agree on procedural rules, location, and even the arbitrator.

• Parties can appoint arbitrators with relevant expertise, ensuring a more informed resolution.

Disadvantages:- 

• Although arbitration is faster, arbitrator fees and administrative expenses can make it quite expensive.

• If an arbitrator is repeatedly appointed by one party (e.g., in employment disputes), there may be concerns about neutrality.

• While generally binding, enforcing an arbitration award may be challenging if a party refuses to comply.

• The finality of arbitration can be a disadvantage if an incorrect or unfair decision is made.

CHALLENGES FACED BY MEDIATORS:- 

• Understanding the Complexity of Modern Conflicts:

In a world with nearly 70 million displaced individuals due to conflict, comprehending modern conflicts is crucial. The Syrian civil war, for instance, has resulted in more than 5. 6 million refugees. Conflicts stem from political, religious, ethnic, and economic issues, leading to human suffering. In Yemen, over 24 million people require aid, yet ongoing violence hampers assistance. Social media plays a role in conflicts, with 90% of terrorist groups utilizing it for recruitment. Organizations like the International Crisis Group emphasize socio-economic factors, indicating that most violent protests arise in regions marked by inequality and youth unemployment.

• The Role of Cultural Differences in Mediation:

An American company entering the Japanese market demonstrates how cultural differences have a significant impact on mediation. A study finds that 70% of mediators struggle due to cultural differences in communication styles. Understanding cultural quirks is necessary for effective mediation in order to close gaps.

• Navigating Power Imbalances Among Parties:

Power disparities have a big impact on relationships and results in business negotiations. According to a Harvard study, 60% of negotiators feel they lost out on value, and 71% think the stronger party frequently sets the terms. For example, the resources of a tech giant may be too much for a small startup, which would stifle innovation. It is necessary to understand this dynamic in order to maintain equilibrium. Serious problems may arise if these imbalances are ignored. According to research, 82% of employees in poorly managed operations get frustrated, which may lead to their productivity dropping by as much as 20%. Resentment is born and mutual cooperation is undermined when there is a sense of one not being valued. Overcoming power imbalances requires recognizing differences and applying empowerment methods, which encourages open communication and sustainable partnerships.

• Establishing Trust and Credibility as a Mediator:

Credibility and trust are what make mediation work. A study found that 78% of participants said that their trust in the process was affected by the mediator's objectivity. This shows how a mediator's ability to build trust can affect the outcome. For instance, in a corporate negotiation, mediation by someone who had taken enough time to be familiar with each party led the parties to negotiate to a very satisfactory resolution in improving the business relationship. At 87%, participants said the industry knowledge enhanced their confidence levels, and since credibility is only as important, it is in this case. A retired lawyer applied his knowledge of technology to assist competing ventures find a common ground  and a result of a fruitful collaboration was increased market share by 35%. The examples illustrate how credibility and trust complement the mediation outcomes.

SOLUTIONS:

• Employ communication strategies: To assist parties in reaching a settlement, mediators can employ specific communication strategies. 

• Establish trust: Mediators can establish trust and credibility with the parties involved. 

• Ensure accessibility: Mediators can ensure that all parties have the opportunity to express their concerns. 

• Manage expectations: Mediators can help parties manage their expectations and emotions. 

• Record agreements: Mediators can record areas of agreement between the parties. 

CHALLENGES FACED BY ARBITRATORS: 

• Conventional Thinking: 

Many individuals remain unaware of arbitration and tend to have greater trust in courts than in alternative dispute resolution. While having faith in one’s judicial system is not inherently negative, widespread ignorance and resistance to change among citizens can ultimately cause more harm than good.

• Lack of Proper Laws: 

The Arbitration and Conciliation Act was introduced in 1996 and last updated in 2015. India needs a more thorough law for arbitration processes. Lawmakers should examine the issues faced by businesses involved in arbitration. The laws should be stricter and better explained to encourage more people to trust arbitration over the judicial system.

• Lack of Awareness: 

Lack of awareness among the population is a major reason why arbitration is not growing in India. Many businesspersons, advocates, or legal counsel just know about arbitration proceedings; small businessmen or newcomers are not aware of these options and are excluded from such options.All these factors are primarily responsible for arbitration's slow growth in India. We must address these issues and discuss the way forward to make India a great business and arbitral destination.

SOLUTIONS: 

• To create awareness: Let people know about arbitration and what benefits it holds over other modes of dispute resolution.•Establish proper laws: The arbitration law should be clearly defined and up-to-date.•Less judicial intervention: Reduce the courts' involvement in arbitration cases.• Issue clear rulings: Arbitrators should issue final rulings that are clear, reasoned, and supported by relevant law.

CASE LAWS:

1.  K. Srinivas Rao v. D.A. Deepa(2013)  5 SCC 226 

   Court: Supreme Court of India

   Bench: Justice P. Sathasivam and Justice J.S. Khehar

   Citation: (2013) 5 SCC 226

Background & Facts:

• This is a matrimonial dispute between a husband named K. Srinivas Rao and wife D. A Deepa.

• She lodged a criminal complaint against the husband and his family under Section 498A of the Indian Penal Code (IPC) for cruelty by husband or relatives.

• The case filed for false criminal charges vitiated his mind, and he sought divorce on the ground of mental cruelty.

Judgement: 

• The Supreme Court considered the filing of false criminal cases against a spouse an act amounting to mental cruelty under Section 13(1)(ia) of the Hindu Marriage Act, 1955.• It held that the false allegations of dowry harassment under Section 498A IPC can cause immense damage to the dignity, reputation, and mental health of the accused spouse.• The Court awarded divorce to the husband on the grounds of mental cruelty suffered at the hands of the wife's false criminal complaint.•The Supreme Court also indicated the importance of mediation prior to litigation as a process for resolving matrimonial disputes.

2. Amazon.com NV Investment Holdings LLC v. Future Retail Ltd. (2021) SCC Online SC 557

   Court: Supreme Court of India

   Bench: Justice R.F. Nariman and Justice B.R. Gavai

   Citation: (2021) SCC Online SC 557

Background & Facts:

 Amazon had invested in Future Coupons Pvt. Ltd. (FCPL), a promoter entity of Future Retail Ltd. (FRL), under an agreement that prohibited FRL from selling its assets to certain entities, including Reliance Industries Ltd.•Despite this, FRL entered a merger deal with Reliance, which led to Amazon saying that it would go through arbitration under the SIAC.•SIAC's Emergency Arbitrator passed an interim order to restrain Future Group from proceeding with the deal.•FRL and Reliance ignored the emergency award, for which Amazon approached the Delhi High Court for enforcement.• The matter was then escalated to the Supreme Court.

Judgement: 

• The Supreme Court approved the validity and enforceability of an Emergency Arbitrator's award in India under Section 17(1) of the Arbitration and Conciliation Act, 1996.• The court held that parties who accede to institutional arbitration rules such as SIAC are bound by the Emergency Arbitrator's decision.• The Court restrains Future Retail to proceed with its deal with Reliance and upheld the Emergency Award in favour of Amazon.• The judgment consolidated India's pro-arbitration stance, reassured foreign investors, and curbed judicial intervention in arbitration proceedings.

Both mediation and arbitration are very effective in the resolution of disputes, but they serve different purposes and are suited for different situations. Mediation is a process in which a neutral third party assists people to come to a mutually acceptable solution.

It is flexible, cost-effective, and preserves relationships, which is why it works best for interactions that are constantly recurring, like family or workplace matters. Its effectiveness depends on the cooperation of both parties involved, and it does not provide any legally binding results unless finalized in an agreement. On the other hand, arbitration is a more  formal procedure where an independent arbitrator listens to the argument and evidence of both parties and gives a final binding judgment. It is quicker and private than court procedure but can be expensive, and appeal options are not as flexible. Arbitration is often used in commercial and international disputes that demand a conclusive judgment. In summary, mediation is preferable for collaborative resolutions, while arbitration is ideal when a binding decision is necessary. The choice between the two should consider factors such as cost, speed, enforceability, and the nature of the dispute.