What does Arbitration mean in business?

What does Arbitration mean in business?

11-Aug-2021 | Article by Legal White Official

Courts and judicial processes are extremely expensive, complex and time consuming across the world. When it comes to business disputes the entire process becomes even more complex and lengthy which can hurt even the most established businesses.

There is an alternate way to resolve the dispute which is commonly called as arbitration which is an arm of alternate dispute resolution (ADR). This method gives the disputing business parties to settle the dispute without going through the complicated court proceedings. It should be noted that, arbitration is a technique which is not like mediation etc. because the decisions of the arbitration are final and binding on all the concerned parties with a minimal scope of appeal. It is also ensured that the decisions are enforced be it nationally or internationally. Arbitration is regulated by Arbitration and Conciliation Act 1996, amended in 2015. This act is based on the United Nations Commission on International trade law (UNCITRAL).

Arbitration is one tool which is effective for tricky and tangled business disputes because of the fact that the arbitrator possesses some level of expertise in subject being disputed. This in turn reduces the time as well as the expense. There are business secrets with any and all businesses, the process of arbitration also ensures that all the proceedings are held privately to eliminate the possibility of leaking sensitive business information.

Arbitration law encourages the parties to incorporate the arbitration clause in their business or commercial contracts. It also provides a set of best practices to be mentioned under the arbitration clause such at what point the arbitration process should be started, how will the arbitrators appointed, what will be the procedure for the process etc.

As mentioned above, arbitration gives quite a lot of options to the parties, one can choose institutional arbitration wherein the disputing parties can appeal to the court or recognised institution to appoint the arbitrators and to set its rules. They can also opt for ad hoc arbitration which gives the freedom to set the rules by both the parties along with the appointment of the arbitrator, however it is worth mentioning that it is not a very attractive option because it lacks the expertise and restricts institutional support. The entire procedure becomes simpler and swifter if the option is also categorically mentioned in the clause of the contract.

As for the process, as soon as the dispute arises, the sufferer party has to send the arbitration notice to other party and then the arbitrators gets appointed in a way which may be mentioned in the contract. After a careful study of the evidences the award is passed which is then enforced. As raised above, this complete process happens outside of the regular court proceeding.

The awards passed by the arbitral tribunal has limited room to be challenged, however there are few grounds on which it can be appealed such as flouting the rules of the arbitration etc. Some of the major reasons are listed below.

  • The award is passed without understanding the entire issue.
  • Mistaken award
  • Issues with the conduct of the arbitrator.

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