Arbitration is a dispute resolution process which acts as a means for disagreeing parties to come to an agreement short of litigation. This process involves settlement of disputes by involving third parties. It’s a dispute settlement mechanism which involves private entities such as ‘arbitral tribunals’. The primary objective or aim of it is to obtain a fair resolution of disputes by an impartial third party without any unnecessary expense or delay. Also the decision taken through the arbitration process is binding upon the parties to it.

Though one cannot opt for arbitration for any dispute, in this method the disputes that can be resolved are commodity trade disputes, commercial property disputes, rental disputes, consumer disputes or family matters. Criminal disputes or any other disputes involving public laws cannot be solved here.


Certain Elements

  • Arbitration Agreement- According to section 7 of Arbitration & Conciliation Act 1996 arbitration agreement is an agreement between two or more parties submitted to arbitration, which describes the dispute or disputes that arose or are likely to arise in future within their legal relationship. This document must be in writing. Mother Boon Foods Pvt Ltd v. Mindscape One Marketing Pvt Ltd O.M.P. (COMM) 136/2017- The Court held that an arbitration agreement, as per the 1996 Act, has to be in writing. Since the arbitration clause -which is a part of the contract – was in writing, the same could not have been superseded by any oral demand or agreement.
  • Arbitral award- An arbitral award is a decision made by arbitral tribunal in an arbitral proceeding which is considered to be comparable/analogous to a decree of court
  • Arbitral tribunal- It is a panel where one or more adjudicators sit to resolve any dispute between parties through this method of dispute resolution.

Advantages of Arbitration over Litigation

  1. Arbitration typically provides a much speedier resolution than proceedings in court. Limited right to appeal arbitral awards typically eliminates an appeal process that can delay finality of the adjudication.
  2. Litigation is largely controlled by procedural and statutory rules but in arbitration parties have the option to establish rules and limits for proceedings and the level of detail included in the arbitral award.
  3. Arbitration often is less costly than court litigation, primarily due to the compressed schedule for the completion of discovery and trial. In litigation certain expenses are there such as written interrogatories etc.
  4. It allows parties to decide their adjudicator or arbitrator whereas in Litigation there is no such thing the judges are appointed by the court without any input from the parties.

The malaise of the Indian Courts articulated in Guru Nanak Foundation v. Rattan Singh and Sons, is as true today as it was so many years ago. In that case, Justice DA Desai succinctly stated:

“Interminable, time consuming, complex and expensive Court procedures impelled jurists to search for an alternative Forum, less formal, more effective and speedy for resolution of disputes, avoiding procedural claptrap and this led them to Arbitration Act, 1940.

SC on whether arbitration agreement can be binding on a third or non-signatory party to the agreement

Cheran Properties Limited v. Kasturi and Sons Limited and Ors. (April 2018)- whether a non-signatory to an arbitration agreement is bound by the same or not, the Apex Court has held that in certain situations, an arbitration agreement between two or more parties may operate to bind other parties as well. The Court’s observation was that the fact that the appellant was not a party to the arbitral proceedings will not conclude the question as to whether the award can be enforced against it on the ground that it claims under a party.