Introduction of arbitration and its importance

Concept
Arbitration is a means of securing an award on a
conflict issue by reference to a third party. It is a
process in which a dispute is submitted to an
impartial outsider who makes a decision which is
usually binding on both the parties.
It is a process where there is a hearing and a
determination of a cause between parties in
controversy by a person or persons chosen by
them, or appointed under a statutory provision.
The parties submit their disputes/issues and are
bound by the award of an arbitrator in relation to
the matter which is in dispute between them.

Basics
The arbitrator enforces his own point of view on
the contending parties and the opinions of the
participants are not given any predominance.
Arbitration is a judicial process
The award of the arbitrator is binding and rests
on equity and justice, i.e., there is no scope for
compromise
Arbitration is best suited for the settlement of
contractual rights, whereas mediation is suited to
the adjustment of disputes over interests.

Advantages of Arbitration
i. Since it is established by the parties
themselves, arbitration has the particular
advantage of bringing the dispute settlement
procedure down to the level of the parties to
the dispute. Workers and management tend to
have greater faith and confidence in a
settlement machinery which is in effect their
own.
ii. Since arbitration is established by agreement,
it is more flexible than other procedures and
can be adjusted to the views, desires and
experience of the parties and to the
circumstances obtaining in the undertaking or
industry.

Contd.
III. This procedure, operating at the level closest
to the parties to the disputes, has the
advantage of enabling the arbitrators to
acquire a much greater familiarity with the
characteristics of the particular industry or
undertaking than most courts or tribunals.
IV. The procedure is relatively expeditious when
compared to that in ordinary courts or labour
tribunals. It cuts down delays and results in a
prompt settlement of differences.
V. It is informal in character because the disputes
are handled by the parties themselves, often
without recourse to lawyers. Arbitration,
therefore, is a less expensive than other
procedures.

Contd.
VI. Awards are capable of implementation without
any grudge on the part of both the parties of
the dispute and do not lead to further chances
of litigation.
VII. Since arbitration is based on the consent of
both the parties, it helps building up a sound
base for healthy industrial relations, mutual
understanding and co-operation.'
VIII. "It is popular because it is suitable and
compelling. It is far better than a costly work-
stoppage, even though not wholly satisfactory
from either parties' point of views."

Types of Arbitration
Voluntary arbitration : implies that the two
contending parties, unable to compose their
differences by themselves or with the help of the
mediator or conciliator, agree to submit the
conflict/dispute to an impartial authority, whose
decision they are ready to accept.
In other words, under voluntary arbitration, the
parties to the dispute can, and do, themselves
refer voluntarily any dispute to arbitration before
it is referred for adjudication.

Essentials of voluntary arbitration
The voluntary submission of dispute to an
arbitrator
The subsequent attendance of witnesses and
investigations
The enforcement of an award may not be
necessary and binding because there is no
compulsion. But, generally, the acceptance of
arbitration implies the acceptance of its award-
be it favorable or unfavorable; and
Voluntary arbitration may be specially needed
for disputes arising under agreements /contracts

Compulsory Arbitration
Compulsory arbitration, is one where the parties
are required to accept arbitration without any
willingness on their part. When one of the parties
to an industrial dispute feels aggrieved by an act
of the other, it may apply to the appropriate
government to refer the dispute to an
adjudication machinery.
Such reference of a dispute is known as
'compulsory' or 'involuntary' reference, because
reference in such circumstances does not
depend on the sweet will of both the contending
parties or any party to the dispute. It is entirely
the discretion of the appropriate government
based on the question of existing dispute, or on
the apprehension that an industrial dispute will
emerge in a particular establishment.

Essentials of Compulsory Arbitration
I. the parties fail to arrive at a settlement by a
voluntary method; or
II. when there 'is a national emergency which
requires that the wheels of production should
not be obstructed by frequent work-
stoppages; or
III. the country is passing through grave
economic crisis; or
IV. there is a grave public dissatisfaction with the
existing industrial relations; or (v) industries of
strategic importance are involved; or

Contd.
V. industries of strategic importance are
involved; or
VI. parties are ill balanced, i.e., where the unions
are weak, ill- organized, and powerless and
the means of production are in the hands of
the capitalists who are well-organized and
powerful; or
VII. public interest and the working conditions
have to be safeguarded and regulated by the
state.
Compulsory arbitration leaves no scope for strikes
and lockouts; it deprives both the parties of
their very important and fundamental rights.

Reference of Dispute to Arbitration
Under Industrial Disputes Act, 1947
Under the Industrial Disputes Act, 1947, a dispute may
be referred to arbitration under the following
conditions:
a) An industrial dispute exists or is apprehended in
an establishment;
b) The employer and the workers agree, in writing,
to refer the dispute to arbitration;
c) The arbitration agreement is in the prescribed
form and signed by the parties to it in the
prescribed manner;
d) The agreement must be accompanied by the
consent, in writing, of the arbitrator or arbitrators;

Contd.
e) The dispute must be referred to arbitration at
any time before it has been referred to a labour
court or tribunal or a national tribunal;
f) The reference must be to the person or
persons specified in the arbitration agreement
to act as arbitrator/arbitrators;
g) The arbitration agreement must set forth the
issue/issues to be decided by the arbitration
procedure and a copy of the agreement is
forwarded to the government and the
conciliation officer.

Procedure for Investigation
After the dispute has been referred to the
arbitrator, he will hear both the parties.
Hearing involves mastery of the facts of a
particular dispute as well as the relevant
provisions of the collective agreement and of the
past practices of the parties in relation to matters
relevant to the dispute.
An investigation of the facts and circumstances
of the dispute is of great importance. The
arbitrator may call witnesses, get evidence and
relevant records and documents, (bearing on the
case) and arbitration decisions by other
arbitrators in similar cases, that may suggest a
line of reasoning.
When an important witness is unable to attend,
sworn affidavit is often used.

After the collection of facts and supporting
materials, arguments take place.
Certain principles are followed by an arbitrator
while dealing with a particular dispute,
namely:
I. Fair hearing, which demands that an
opportunity should be given to both the parties
to be heard and cross-examined.
II. Principle of natural justice requires that a
party should have due notice of proceedings,
and it must know what are the issues involved
and what part it has to play.

III. The party should be free to give any evidence
which is relevant to the enquiry and on which it
relies for its arguments. The evidence given by
one party should be taken in the presence of the
other party so that the other party may rebut and
place counter evidence, if necessary.
IV. The arbitrator should not rely on any document
which is not shown and explained to the other
party and to which a reply has not been received.
He has to be completely impartial without any
bias or prejudice against anybody.

Submission of Award
The arbitrator, after investigating the
dispute, has to submit his award to the
government.
The award will have the same legal force
as the judgment of a labour court or
tribunal.
The award must be signed by the
arbitrator.

While writing his award, the arbitrator has to
ensure that:
i. The award is in line with the terms of reference
and that it does not go beyond its jurisdiction;
ii. It must be precise and definite, that is, it must
be clear, unambiguous and without any,
vagueness, and that it is not in any way
capable of being misunderstood or
misinterpreted;
iii. It should be capable of being enforced or
implemented; in other words, it should not
contain directives or provision which apparently
seem impossible of enforcement;

iv. The award should contain a date or a
specific period for its implementation;
v. The award should not violate any
provision of any existing law or
settlement legally arrived at, or one
which is binding on parties
vi. The award should contain sufficient
justification or reasons for the settlement
arrived at by the arbitrator.

Evils of Compulsory Arbitration
I. Compulsory arbitration promotes and
prolongs industrial disputes;
II. Compulsory arbitration undermines self-
government in industry, i.e., it hampers
the development of industrial democracy;
III. It takes away from the employers and
unions the responsibility of working out
their mutual problems and transfers it to
government-created tribunals;

IV. It kills collective bargaining and replaces it
with litigation; it allows the parties to avoid
unpleasant confrontation of their difficulties,
creating a dependency upon public authority;
V. By requiring even an air of compulsory
labour, it subjects workers to involuntary
servitude;
VI. It exposes workers to arbitrary restraints and
penalties before trial and correction;

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