The curious case of Arbitration v. Mediation

To err is human but it is also inherent human nature to engage in disputes. It could be for a variety of reasons but disputes and disagreements of varying degrees have been an integral part of our history.

Since time immemorial, disputes have arisen in every corner of the world and one way or another these disputes have been handled and, in some instances, even settled or adjudicated. Then came early justice delivery mechanisms as societies grew increasingly into civilizations and these mechanisms were generally local and community/religion-based. This paved the way for communities and their members to have their disputes adjudicated before these bodies which traditionally consisted of the elder members of that community.

We also find examples of this in the Indian historical context, adjudication of local disputes before village panchayats has been a common practice and in some places it exists even today. There are some religious communities, such as the Ismailis for example, that follow this practice of adjudication of disputes by a community elder or a group of elders and a variety of inter-personal disputes are adjudicated by these elders.

Eventually, most countries faced a common problem: a serious backlog of cases and massive pile-ups before the judiciary due to the ever-growing populace and expanding landscape. The growth of businesses and commercial disputes alongside inter-personal disputes and criminal justice also added to this problem. It became apparent that a single dispute resolution mechanism would never be enough and nor was this sustainable or practical given how quickly everything was evolving. This led to the emergence of concepts and methods of Alternative Dispute Resolution (‘ADR’) and some of these concepts took inspiration from the certain historical practices of which mediation is a prime example.

There was also an inherent need for a courtroom-like dispute resolution mechanism with much less procedural interference and a lot more party autonomy and this led to the birth of arbitration. These are the two primary methods of dispute resolution that we will be examining in detail in this article.

The concept of resolving disputes through ADR more specifically arbitration very quickly became popular. Especially in the context of commercial and cross-border disputes, this concept brought about a certain independence to the process of dispute resolution and more importantly, it circumvented the issues pertaining to jurisdiction and procedure that normally crop up when such disputes are presented in a particular country. The challenges of enforcement, appeal and even approaching competent courts for interim relief all change depending on the country/jurisdiction in question.

All hope is not lost, though. The Arbitration Act has gone through several amendments as well, which ensured that India’s governing law on arbitration is up to date and evolving with the times. The recent amendments to the Arbitration Act have introduced several key changes that have definitely addressed some of the issues that persisted previously. The wave of change, as far as the Arbitration Act is concerned, was not limited to the legislature, there are several landmark judgements when it comes to arbitration in India and some of these case laws have also paved the way for several best practices being incorporated in as far as arbitration is concerned.

The concept of mediation, as the name suggests, is derived from the act of a neutral third party helping two people resolve their dispute. Compared to arbitration, it is a mode of ADR which is not as formal or procedure-driven and the distinguishing factor is that the outcome of mediation is not binding on either party. There have even been instances of multiple mediations within the same dispute or connected disputes. Much like the ancient practice of adjudication of local disputes before village panchayats, mediation draws on the idea of a neutral third party facilitating resolution between disputing parties, a concept deeply embedded in human history.

Mediation in India has now been given a formal statutory footing through the Mediation Act, 2023 (‘Mediation Act’). Key features of this framework include defining mediation as a formal process in a bit to assist parties in resolving their disputes in the presence of a neutral third party in cost effective and timely manner with legal recognition in order to reach an amicable settlement.

While arbitration and mediation are alternative dispute resolution mechanisms, they are not alternatives to each other. We see more often than not that the concept of arbitration was introduced and sold to people while pitting it against traditional litigation, while making it seem more time efficient and a process that does not pinch one’s pocket. However, realistically, we see now that it is not very different from traditional litigation, except for the fact that it doesn’t just pinch one’s pocket, but burns a hole right through.

Similarly, post the recent enforcement of the Mediation Act, there has been an increase in a trend where mediation is now being pitted against arbitration. What we fail to appreciate is that both mechanisms are independent of each other, and one doesn’t need to fail for the other to do well. One mechanism does well because the other has certain limitations is an amateur way of looking at or rather judging two independent yet complementary modules. While it is a newer statute, mediation does not need to be made to piggy-back arbitration to come into the mainstream as a dispute resolution mechanism. Instead, we must look at both these mechanisms as independent while also being complementary in nature. The debate shouldn’t be about which mechanism is better, instead it should be about which mechanism suits the nature of the dispute/subject matter, and which of the two will offer a more effective and efficient resolution.

The collaboration aspect brings us to the concept of Med-Arb and Arb-Med-Arb. Both these formats are to cater to the issue and see what fits the requirement best, while also giving the most effective outcome, instead of making it about which of the resolution mechanisms is better than the other. Combining these two mechanisms often results in a more efficient resolution since parties have the option to choose between both mechanisms and even opt for both one after the other. This creates a unique offering where parties can opt for mediation and proceed to arbitration if that fails or the other way around depending on what the situation demands.

The fact still remains that as long as we continue to pit arbitration and mediation against each other, we will continue to be stuck in the debate instead of focusing on the fact that it isn’t about the mechanism itself as much as the nature of the dispute which chooses its mechanism. We noticed the same trend when the Arbitration and Conciliation Act was enforced, where we noticed debates over Litigation vs. Arbitration. This debate took away the essence with which this statute was enforced, instead it became about which format is better. Eventually, we observed that somewhere along the way, we focused so much on this debate itself, that we have forgotten why the Arbitration and Conciliation Act was brought into effect at all.

The dispute resolution landscape in India is an ever evolving one and has undergone significant changes especially in recent years. Both arbitration and mediation have become mainstays in the Indian dispute resolution landscape, with individual legislations governing both and with both finding their place in special legislations such as the MSMED Act, 2005, the Commercial Courts Act, 2015, Companies Act, 2013 etc., only shows that dispute resolution is on the up and up insofar as India is concerned. The timelines and legislative backing have significantly improved the reliability factor of these dispute resolution mechanisms and this led to the improvement of India’s position on the ease of doing business index. Foreign and Indian businesses alike have started extensively using arbitration and mediation (sometimes both) for resolution of their disputes inter se.

While we have focused on arbitration and mediation independently, the authors are of the view that despite being independent dispute resolution mechanisms in their own right, the two tools of mediation often go hand in hand as well in a concept known as Arb-Med-Arb or Med-Arb, as the case may be. This is nothing but blending both options to an agreement at hand as the preferred choice for the resolution of disputes. The procedure could be arbitration first, followed by mediation or the other way around as well depending on the comfort of the parties. This has been a global trend and best practice in terms of commercial agreements and this being adopted more actively with every passing day.

The right question to ask isn’t whether to prefer mediation or arbitration but it is which one would be more effective for your situation. More often than not, two concepts that seem improbable together sometimes become complementary in such a way that it seems poetic. Such is the relationship between arbitration and mediation, just like violence and non-violence, one needs to make the right choice depending on what they believe suits them better and in even rarer occasions, they shine together basking in their unassuming ability to complement each other perfectly.

About the authors: Rajeev Rambhatla is a Partner and Aditi Shree Karra is an Associate at Luthra and Luthra Law Offices India.

Disclaimer: The opinions expressed in this article are those of the author(s). The opinions presented do not necessarily reflect the views of Bar & Bench.

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