Why is Arbitration Required? Benefits and Importance of Arbitration in India
Asking Why Arbitration is Required is a very common and important question, especially for business owners and people entering into contracts. Arbitration is a method of resolving disputes outside the regular court system. While civil courts are always an option, arbitration has become a preferred and often required method of dispute resolution for very good reasons especially for corporates.
What is Arbitration?
Arbitration is a legal process where both parties to a dispute agree to present their case before a neutral third party called an arbitrator. The arbitrator listens to both sides and gives a decision called an arbitral award, which is legally binding on both parties. In India, arbitration is governed by the Arbitration and Conciliation Act, 1996.
Why is Arbitration Required?
1. Courts are Overburdened
Indian courts handle lakhs of cases every year. This leads to long delays and pendency of cases that can stretch for years or even decades. Arbitration offers a faster alternative where disputes can be resolved in a matter of months or in an year.
2. Arbitration Saves Time and Money
Going to court can be a lengthy and expensive process. Arbitration is generally quicker and more cost-effective. Since the process is streamlined and flexible, both parties save significant time and legal costs.
3. In Arbitration, Confidentiality is Maintained
Court proceedings are public. Arbitration, on the other hand, is a private process. This is especially important for businesses that do not want their disputes, financial matters, or trade secrets to become public knowledge. Furthermore, in civil courts, anyone can get the records of a particular case but in Arbitration, only the party involved and Arbitrators know the details of the matter.
4. In Arbitration, Parties Can Choose Their Arbitrator
Unlike courts where you have no say in who decides your case, in arbitration both parties can mutually agree on an arbitrator who has expertise in the relevant field. For example, in a construction dispute, you can choose an arbitrator who has technical knowledge of the construction industry.
5. Arbitration provides Flexibility in Procedure
Arbitration allows the parties to decide how the proceedings will be conducted, where they will be held, and even which law will apply. This flexibility makes the process more comfortable and convenient for both sides.
6. Arbitration is Internationally Recognized Dispute Resolution Process
For businesses dealing with international clients or cross-border contracts, arbitration is extremely important. Arbitral awards are recognized and enforceable in over 160 countries under the New York Convention, making it far more practical than going to a foreign court.
7. Arbitration Award is Final and Binding
An arbitral award is final and binding on both parties. The scope for challenging an arbitral award in court is very limited, which brings certainty and finality to the resolution process.
When is Arbitration Commonly Required?
Arbitration is commonly required in commercial contracts, construction agreements, real estate deals, employment contracts, joint venture agreements, and international trade contracts. Most modern contracts today include a mandatory arbitration clause so that any future dispute goes directly to arbitration instead of court.
Arbitration is required because it is faster, cheaper, confidential, and more flexible than traditional court litigation. Whether you are a business owner, a contractor, or an individual entering into a significant agreement, including an arbitration clause in your contract is a wise and practical decision. If you need help drafting an arbitration clause or initiating arbitration proceedings, it is advisable to consult an experienced arbitration lawyer.