Mediation vs. Arbitration vs. Litigation – Business Dispute Resolution Mechanisms In IndiaJuly 20, 2023 By Dinesh Parmar
"See you in court", "I will take this matter to the court", or "I will ask for justice from the court", we all have heard such dialogues in movies and series, where business rivals fight in the court. But, in reality too, is court the only way to resolve a business dispute quickly and effectively? No, there are other business dispute resolution mechanisms in India and we are going to see each in detail today to figure out how to choose the right way as per the situation.
Business Disputes & Their Resolution Mechanisms in India
Disputes are a part and parcel of a business. It can be a minor disagreement, a breach in the contract agreement, a legal battle with the competitor over intellectual property, or a major conflict among the partners. No business is possible without the rise of disputes but its success lies in how one puts them to rest.
The Indian judicial system which is one of the oldest in the world is overflowing with cases. With a population of 1.4 billion people, lawsuits are piling up in various courts across the country and as revealed by the Union Minister of Law and Justice during the 2022 monsoon session of Rajya Sabha, about 4.7 crores of cases are still awaiting judgment.
When every single dispute began to show up in court, to lessen the load on the judicial system, Alternative Dispute Resolution (ADR) mechanisms were introduced. ADR made settlement of disputes between businesses easy with its quick and out-of-court solutions which prevented a dispute from turning ugly and thereby saving money, and time for both the parties as well as the court.
Although such mechanisms existed in India way before in the form of panchayats, they got legal authority only after the arrival of the British and today we have easier ways to settle a dispute via alternate methods such as arbitration, mediation, and litigation. So, let’s understand each in detail and learn how are they different and which one to choose and when.
Mediation is a collaborative, voluntary, non-binding process where a neutral third party, known as a mediator is appointed to settle a dispute. It is then the trained mediator who helps identify common interests, explore potential solutions, and reach a mutually agreeable resolution among disputing parties.
Mediation encourages open communication, empowers the disputing parties, and allows for a flexible resolution process. The mediator does not make decisions or impose outcomes but assists the parties in reaching a fair solution.
Benefits of Mediation in Business Dispute
Maintains relationships -
Mediation focuses on finding mutually beneficial solutions and preserving working relationships between parties involved in the dispute.
Mediation typically costs less than arbitration or litigation since it avoids lengthy court proceedings and legal fees.
Mediation is often faster than litigation, providing a quicker resolution to the dispute.
Flexible and customizable -
Mediation allows parties to tailor the process to their specific needs and interests, promoting creative problem-solving.
Arbitration is a private and legally binding process in which disputing parties agree to have a neutral third party, called an arbitrator, resolve their business dispute. Arbitrators are impartial third parties responsible for hearing the arguments and evidence presented by each side. They evaluate the case, apply relevant laws or contractual provisions, and render a final and enforceable decision called an arbitral award that resolves the dispute.
Advantages of Arbitration for Business Dispute
Neutrality and expertise -
Arbitrators are often chosen for their knowledge and experience in specific industries, ensuring expertise in the subject matter of the dispute.
Arbitration proceedings can maintain confidentiality, protecting sensitive business information from becoming public.
Arbitral awards are generally enforceable under national and international laws, providing a reliable mechanism for enforcing decisions.
Litigation is one of the oldest ways of settling disputes under which the conflicting parties seek the help of the court to put an end to a dispute. To settle a business dispute via litigation, a business lawsuit is filed first, both parties are then called for hearings and are allowed to present their arguments and proofs. The court then makes a judgment or decision based on the presented evidence and applicable laws. Litigation is a formal and adversarial process where each side represents its interests and aims to prove its case
Pros and Cons of Litigation in Business Disputes
Formality and legal precedent -
Litigation follows established legal procedures and allows for the development of legal precedents that can clarify rights and obligations.
Public record -
Court proceedings and judgments are generally public, which can affect the reputation and confidentiality of the parties involved.
Potential delays and costs -
Litigation can be time-consuming and costly due to legal fees, discovery processes, and potential appeals.
Binding decision by the court -
In litigation, the judge or jury renders a final and binding decision, which may or may not align with the desired outcome of the parties.
Comparing Mediation, Arbitration, and Litigation in Business Dispute
All three alternate dispute mechanisms are effective in their way. However, if we consider factors like cost and time, then mediation turns out to be more cost-effective and faster than arbitration or litigation due to its informal nature and the absence of formal court processes.
Whereas if a dispute requires extreme confidentiality and privacy then considering either mediation or arbitration compared to litigation, which is often a matter of public record would be a better option.
On the other hand, if one wants to settle the dispute by actively participating in the decision-making process or wishes to have some control over the outcome then mediation would prove to be useful because in arbitration and litigation, the decision-making authority is submitted to the arbitrator(s), and the judge/jury, respectively.
Considerations in Choosing a Mechanism For Business Dispute
Several factors should influence the selection of a dispute resolution mechanism. When choosing between mediation, arbitration, and litigation in India, consider the following:
Assess the importance of confidentiality in the dispute resolution process and whether public disclosure is a concern.
Cost and Time -
Evaluate the potential expenses and time commitment associated with each mechanism, considering the organization's resources and urgency for resolution.
Consider the enforceability of the final decision or settlement, both domestically and internationally.
Expertise In Resolving Business Disputes -
Determine whether the dispute requires specialized knowledge or industry-specific expertise.
Relationship Preservation - Assess the impact of the chosen mechanism on the ongoing business relationship between the parties involved.
Steps to Determine the Right Business Dispute Resolution Mechanism
It is crucial to figure out the right ADR mechanism to avoid a disagreement turning into a long dispute that not only consumes your time and money but also avoids damaging your business reputation. Therefore, here are the following steps to select the right dispute resolution method.
- Identify the nature and complexity of the dispute.
- Evaluate the willingness of the parties to collaborate or engage in formal proceedings.
- Consider the legal framework governing each mechanism and its compatibility with the Indian legal system.
- Assess the advantages and disadvantages of each mechanism based on the identified factors.
- Seek professional advice from legal experts or consultants specializing in business dispute resolution.
- Make an informed decision based on the analysis of the factors and expert recommendations.
Choosing the appropriate dispute resolution mechanism is a critical decision for businesses in India. Mediation, arbitration, and litigation each offer distinct advantages and considerations. By carefully evaluating the factors influencing the choice and following the steps outlined, businesses can navigate disputes effectively and achieve the desired outcomes while preserving important business relationships.
If you seek professional guidance to figure out which dispute mechanism will be best for our business dispute, get in touch with us at Parker and Parker Co. LLP today, for our experts have the eye of a hawk and the mind of a scholar.