What is Arbitration used for?

It is not important to understand the reason of dispute among people or party, however it is essential to make provisions so that a smooth and quick fix for the dispute is provided. We are all aware of the complicated, time consuming and expensive court proceedings. In order to provide an alternating to this, the government of India passed a law by the name Arbitration and Conciliation Act in 1996 which are amended in 2015.

Due to the said problems with the court system, people and parties are moving towards the alternate method of dispute resolution which is arbitration. Though arbitration can be and is being used for any kind of dispute, it is more commonly used for commercial dispute especially when the dispute involves international parties or there is any transaction performed for business purpose internationally. The reason is that the companies generally include the clause of arbitration in their commercial contracts which is also being encouraged by governments all over the world.

Let’s take an example of a foreign company which has its offices and factories in other country by collaborating with a local company. In case there is any dispute between the two companies or we should say parties now, instead of going to local court which might be painful for both of them, they can choose for an adjudicator who can become an arbitrator for their dispute. The process in mutually accepted, binding, unbiased and the whole proceeding takes place in private. All the arbitration proceedings are held privately because a business dispute might involve some trade secrets and can harm the business of either parties. Also, the award or the decision of the arbitrator is enforced and all this happens quickly and weighs less on the pocket as compared to the court process.

In today’s fast paced world, the business is growing everywhere, there are a new breed of foreign investor who would like invest in government or state projects so that they could reap the benefit out of it, however it hasn’t been very easy for an individual to collaborate with the state in the past as one might assume that the state could have the upper hand in it. To save the investor from this, there is another form of arbitration which is gaining strength these days which is commonly referred to as “Investment Arbitration”. This type of arbitration can be used by the investor to file a complaint against the government or the state and give him or her the accessibility of a neutral and knowledgeable arbitrator for the quick resolution and enforcement.

Under the law, investment arbitration can be invoked only after the state has given consent to it. The consent is generally mentioned under a clause in the contract between the investor and state. In case of a dispute, there are several rounds of talks between the investor and state, if the talks fail to yield anything constructive then the investor has to file for arbitration.

To conclude, it must be noted that, arbitration can be used of a variety of disputes, however commercial and business disputes leads the chart.