Advantages and Disadvantages of Alternative Dispute Resolution

The advantages claimed for alternative dispute resolution are speed, economy, privacy, flexibility, expertise and the preservation of relationships. The disadvantages are the absence of precedent and of appeal, the vulnerability of the weaker party, the inability to bind strangers to the agreement, and the fact that the process depends at critical points on the very courts it is meant to relieve. Neither list is true of every process. Arbitration and mediation differ from each other as much as either differs from litigation, so the balance must be struck process by process and dispute by dispute.

1. Advantages

1.1 Speed and statutory time limits

Alternative processes operate under outer time limits that do not apply to a suit. Section 29A of the Arbitration and Conciliation Act, 1996 requires an award in a domestic arbitration within twelve months of the completion of pleadings, extendable by six months with the consent of the parties and beyond that only by the court on sufficient cause. Section 29B allows the parties to adopt a fast track procedure to be completed in six months, in which the tribunal may decide on written pleadings and documents without an oral hearing. Section 18 of the Mediation Act, 2023 fixes 120 days, extendable by 60. A Lok Adalat disposes of the case on the day of its sitting.

1.2 Cost

No court fee is payable in a Lok Adalat, and where a pending case is settled the fee already paid is refunded under Section 21 of the Legal Services Authorities Act, 1987 and under Section 16 of the Court Fees Act, 1870 in the case of a settlement under Section 89 of the Code of Civil Procedure, 1908. Mediation involves the fee of one neutral over a few sittings. The saving is greatest in small and medium claims, where the cost of a trial is out of proportion to the amount in dispute.

1.3 Party autonomy

The parties control the process. They may choose the neutral, the number of arbitrators, the seat and venue, the language, the procedural rules, the institution administering the reference and the timetable. Section 19 of the Arbitration and Conciliation Act, 1996 frees the tribunal from the Code of Civil Procedure, 1908 and from the law of evidence and allows the parties to agree on the procedure to be followed. In litigation none of these is open to choice.

1.4 Expertise of the decision maker

In technical disputes the parties may appoint a tribunal that already understands the subject matter, whether it is a construction claim, a charterparty, a reinsurance treaty or a software licence. This shortens the hearing, reduces the need for expert evidence and improves the quality of the reasoning on the technical questions.

1.5 Confidentiality

Section 42A of the Arbitration and Conciliation Act, 1996 obliges the arbitrator, the arbitral institution and the parties to maintain confidentiality, except where disclosure is necessary for the enforcement or implementation of the award. Sections 22 and 23 of the Mediation Act, 2023 protect mediation communications and make them inadmissible in later proceedings. For commercial parties, confidentiality protects trade secrets, pricing and reputation; in family matters it protects privacy.

1.6 Preservation of the relationship and a wider range of outcomes

A court can grant only the reliefs claimed, and only those the law permits. A settlement may include terms that no decree could contain: a revised delivery schedule, a continuing supply arrangement, a set-off against future orders, a public apology, an arrangement for the education of children, or a variation of the contract that gave rise to the dispute. Because the outcome is constructed rather than imposed, the relationship between the parties can survive it.

1.7 Finality and enforceability

The outcomes are enforceable without a fresh adjudication. An arbitral award is enforceable under Section 36 in the same manner as a decree of the court. An award of a Lok Adalat is deemed to be a decree by Section 21 of the Legal Services Authorities Act, 1987, is final and is not appealable. A mediated settlement agreement is enforceable under Section 27 of the Mediation Act, 2023 as a judgment or decree. There is no appeal on the merits, so the dispute ends where the process ends.

1.8 Relief to the court system

Every case disposed of by settlement is a case removed from the docket without a trial, an appeal or execution proceedings. The National Lok Adalats held periodically under the direction of the National Legal Services Authority dispose of pending and pre-litigation matters in very large numbers on a single day, chiefly in categories such as cheque dishonour, bank recovery, motor accident claims, matrimonial disputes and petty offences.

2. Disadvantages

2.1 No precedent and no development of the law

Proceedings are private and the outcomes are not published. A body of commercial law administered largely through arbitration produces no reported decisions, so questions of construction that recur across an industry are decided repeatedly and inconsistently by different tribunals, and the public law from which the tribunals draw their principles ceases to develop. This is the systemic cost of privatising adjudication, and it falls on future litigants rather than on the parties who chose the process.

2.2 Inequality of bargaining power

The premise of consensual resolution is that the parties are able to protect their own interests. Where one side is an individual, a consumer, an employee or a small supplier and the other is an institution with repeat experience of the process, the assumption may not hold. An arbitration clause in a standard form contract is not the product of negotiation; a settlement reached because a party cannot afford to litigate is not a free settlement. The exclusion of certain classes of dispute from arbitration, and the protection given to consumers by the Consumer Protection Act, 2019, exist for this reason.

2.3 The absence of a remedy for error

A court of appeal corrects errors of fact and law. Section 34 of the Arbitration and Conciliation Act, 1996 does not permit a review of the merits. An award may be set aside only on the grounds stated, principally incapacity, invalidity of the agreement, absence of notice or inability to present a case, excess of jurisdiction, irregularity in the composition of the tribunal or procedure, non-arbitrability and conflict with the public policy of India, to which patent illegality on the face of the award is added for purely domestic awards by Section 34(2A). An erroneous but otherwise unimpeachable award stands.

2.4 No power over strangers to the agreement

Arbitration and mediation bind only those who have agreed. A tribunal cannot join a third party, cannot compel the attendance of a witness who is not a party, and cannot grant relief affecting persons outside the agreement. Section 27 of the Arbitration and Conciliation Act, 1996 requires an application to the court for assistance in taking evidence, and interim orders against third parties must be sought from the court under Section 9. Where a dispute involves multiple contracts and parties who have not all agreed to the same clause, the process fragments, and part of the dispute goes to arbitration while the rest goes to court.

2.5 Cost and delay in practice

The theoretical economy of arbitration is not always realised in India. Ad hoc arbitration conducted on a per-sitting fee basis has produced proceedings that are neither quick nor cheap, and the Fourth Schedule inserted in 2015 to regulate arbitrators' fees applies in terms to ad hoc references where the High Court has framed rules. Challenges under Section 34, appeals under Section 37 and proceedings for enforcement mean that an arbitration may be followed by several years of litigation, which reproduces the delay it was meant to avoid.

2.6 Dependence on the courts

Alternative processes are not self-executing. The court appoints the tribunal where the parties fail to do so under Section 11, grants interim protection under Section 9, refers parties to arbitration under Section 8, assists in taking evidence under Section 27, decides challenges under Sections 34 and 37, and executes the award under Section 36. A mediated settlement that is not honoured must be enforced through the court under Section 27 of the Mediation Act, 2023. The relief afforded to the judicial system is therefore partial.

2.7 Limits of subject matter

Disputes involving rights in rem, criminal prosecution for serious offences, matters affecting the status of persons, insolvency, testamentary matters and questions of constitutional or public law cannot be resolved privately. The First Schedule to the Mediation Act, 2023 lists disputes not fit for mediation, including those involving allegations of serious and specific fraud, proceedings before regulators and disputes about the levy of taxes. Where the object of the litigation is a declaration of law or the correction of administrative action, settlement is not an alternative at all.

2.8 Quality and regulation of neutrals

The value of the process depends on the competence and impartiality of the neutral. The Fifth and Seventh Schedules to the Arbitration and Conciliation Act, 1996 address impartiality by listing the relationships giving rise to justifiable doubts and those which make a person ineligible, and the courts have applied them strictly. Competence and training are harder to regulate, and the framework for the registration and grading of mediators under Chapter VIII of the Mediation Act, 2023, with the Mediation Council of India established by notification dated 27 August 2026, is still being built.

3. The Balance by Process

Because the advantages and disadvantages are unevenly distributed, the practical question is always which process suits the dispute. The table below states the balance for the four principal mechanisms.

4. Evaluation

Each claimed advantage and the limitation that is its other side

The soundest evaluation is that these processes are complementary to adjudication rather than a substitute for it. They work well where the dispute is essentially about money or performance between parties of comparable strength, where speed matters more than precedent, and where a continuing relationship is at stake. They work badly where one party is much weaker, where the point of the litigation is to establish a proposition of law, where third parties are affected, and where the conduct complained of is criminal or fraudulent. The statutory design reflects this division: the legislature has made settlement compulsory to attempt in commercial suits, voluntary in ordinary civil disputes, and unavailable in the categories reserved to the courts.

5. Related Topics and Provisions