Alternative Dispute Resolution: Meaning, Nature and Scope

Alternative dispute resolution describes the body of processes by which a civil or commercial dispute is resolved otherwise than by an adjudication in the ordinary courts. The expression covers negotiation, mediation, conciliation, arbitration and the hybrid and statutory forms built upon them. In Indian law these processes are no longer informal alternatives standing outside the legal system. They are recognised by Section 89 of the Code of Civil Procedure, 1908, governed by the Arbitration and Conciliation Act, 1996, the Legal Services Authorities Act, 1987 and the Mediation Act, 2023, and their outcomes are enforceable as decrees or awards of a court.

1. The Meaning of the Expression

There is no statutory definition of alternative dispute resolution. The expression is descriptive, and it is used to group together every method of resolving a dispute which does not culminate in a judgment delivered by a court after a trial. Three readings of the first word are current in the literature, and each captures something of the working of these processes.

• Alternative, in the original sense, treats these processes as an option lying outside the court system, available to parties who prefer to keep their dispute out of court.
• Appropriate reflects the modern statutory position. Since the insertion of Section 89 of the Code of Civil Procedure, 1908, the court itself identifies the process suited to the dispute before it, so the choice is one of appropriateness rather than avoidance.
• Amicable describes the consensual processes, in which the object is a settlement acceptable to both sides rather than a determination of who is right.

The working definition may accordingly be stated as follows. Alternative dispute resolution is the resolution of a dispute by a process to which the parties consent, conducted with or without the assistance of a neutral third person, in which the outcome is either agreed between the parties or determined by the neutral under authority conferred by the parties themselves. The source of the neutral's authority is the agreement of the parties or a statute giving effect to that agreement, not the ordinary adjudicatory jurisdiction of the State.

1.1 The essential elements

1. Consent. Every form of alternative dispute resolution rests ultimately on the agreement of the parties, either to the process itself or to a clause providing for it. Even where a statute compels an attempt at settlement, as Section 12A of the Commercial Courts Act, 2015 does, what is compelled is the attempt and not the settlement.
2. A neutral third person, in most forms. Negotiation alone proceeds without a neutral. Mediation and conciliation employ a facilitator who cannot impose an outcome; arbitration employs a tribunal that can.
3. Procedural flexibility. The strict rules of pleading, of evidence and of procedure that govern a trial do not apply. Section 19 of the Arbitration and Conciliation Act, 1996 expressly frees the arbitral tribunal from the Code of Civil Procedure, 1908 and from the Indian Evidence Act, 1872, now the Bharatiya Sakshya Adhiniyam, 2023.
4. Privacy. The proceedings are not held in open court and are ordinarily confidential.
5. An enforceable outcome. A settlement or award produced by a recognised process is given the force of a decree by statute, which is what distinguishes these processes from an ordinary compromise.

2. The Statutory Anchor

Section 89 of the Code of Civil Procedure, 1908 is the provision which brings the four principal processes into the working of the civil courts. It was inserted by the Code of Civil Procedure (Amendment) Act, 1999 and brought into force on 1 July 2002, on the recommendation of the Law Commission and of the Justice Malimath Committee.

Section 89 is supported by Order X Rules 1A to 1C of the Code, which require the court, after recording admissions and denials, to direct the parties to opt for one of the modes of settlement and to fix a date of appearance before the forum chosen. The two provisions read together make the reference a normal step in the life of a civil suit rather than an exceptional order.

3. The Nature of the Processes

The processes grouped under the expression are not of a single kind. They differ in who determines the outcome, in whether the outcome binds, in the kind of reasoning applied and in the sources of the neutral's authority. Four distinctions explain almost every practical question that arises.

3.1 Consensual and adjudicatory processes

In a consensual process the neutral has no power to decide. Negotiation, mediation and conciliation belong to this class; the mediator assists the parties to arrive at terms, and if they do not agree, there is no outcome at all. In an adjudicatory process the neutral decides. Arbitration belongs to this class, and so does the Permanent Lok Adalat constituted under Section 22B of the Legal Services Authorities Act, 1987, which may decide a dispute relating to a public utility service on its merits if conciliation fails. The ordinary Lok Adalat lies on the consensual side, since it can only record a settlement.

The distinction is not merely descriptive. It determines whether principles of natural justice apply in their full form, whether the outcome can be challenged for error, and whether the process is capable of resolving the dispute without the parties' continuing agreement.

3.2 Binding and non-binding outcomes

A mediated settlement agreement under Section 19 of the Mediation Act, 2023 and a settlement agreement drawn up on conciliation bind the parties because they have agreed to its terms, and the statute then gives that agreement the status of a decree. An arbitral award binds because the tribunal has determined the dispute, and it is enforceable under Section 36 of the Arbitration and Conciliation Act, 1996 in the same manner as a decree of the court. A Lok Adalat award is deemed to be a decree of a civil court by Section 21 of the Legal Services Authorities Act, 1987, is final, and is not appealable. Negotiation, early neutral evaluation and a non-binding expert opinion produce no enforceable outcome unless the parties convert the result into a contract.

3.3 Rights-based and interest-based reasoning

Litigation and arbitration are rights-based. The question asked is what the parties are entitled to under the contract and the law, and the answer is a determination that one party is right. Mediation and conciliation are interest-based. The question asked is what arrangement would serve the commercial or personal interests of both sides, which may include terms that no court could have granted, such as a continuing supply arrangement, an apology, a staggered payment or a variation of the underlying contract. This is why mediation is particularly suited to disputes between parties who must continue to deal with each other, such as family members, partners, employers and long-term commercial counterparties.

3.4 Privacy, confidentiality and the absence of precedent

Judicial proceedings are held in open court and judgments are published; the resulting body of precedent is a public good. Alternative processes are private. Section 22 of the Mediation Act, 2023 protects the confidentiality of mediation communications and Section 23 makes them inadmissible in subsequent proceedings, subject to stated exceptions. Section 42A of the Arbitration and Conciliation Act, 1996, inserted in 2019, imposes a duty of confidentiality on the arbitrator, the institution and the parties, except where disclosure is necessary to enforce or challenge the award. Privacy is an advantage to the parties and a cost to the legal system, which develops no precedent from disputes resolved this way.

3.5 Party autonomy and the supportive role of the court

Party autonomy is the organising principle of the entire field. The parties choose the process, the neutral, the seat, the language, the procedure and, within limits, the law to be applied. The function of the court is correspondingly limited to supporting the process and supervising it at defined points: appointment of an arbitrator under Section 11, interim measures under Section 9, assistance in taking evidence under Section 27, setting aside an award under Section 34 and enforcement under Section 36 of the Arbitration and Conciliation Act, 1996.

4. The Scope of Alternative Dispute Resolution

Scope is a question of what kinds of dispute may lawfully be sent to these processes. The general position is that disputes concerning rights in personam, that is rights available against a determinate person, are capable of private resolution, while disputes concerning rights in rem, which are rights against the world at large, are reserved to the courts and tribunals on whom the legislature has conferred jurisdiction.

The dividing line of scope, with the fourfold test of arbitrability

4.1 Arbitrability

4.2 Matters unfit for mediation

The Mediation Act, 2023 approaches the same question by listing, in its First Schedule, disputes not fit for mediation. The list includes disputes involving allegations of serious and specific fraud, fabrication of documents, forgery, impersonation or coercion; claims against minors, persons of unsound mind and persons with disabilities covered by the relevant statutes; disputes involving prosecution for criminal offences; proceedings before regulators such as the Securities and Exchange Board of India, the Competition Commission of India, the Telecom Regulatory Authority of India and the electricity regulators; disputes relating to the levy or collection of taxes; and matters affecting the rights of third parties who are not party to the mediation. Section 6 of the Act gives the list statutory force, subject to the power of the court to refer a matter in the list to mediation in a suitable case.

4.3 The criminal side

The criminal law does not permit private settlement of an offence as such, since the prosecution is conducted in the name of the State. Two statutory channels nevertheless allow a consensual outcome. Compounding of specified offences is permitted under Section 359 of the Bharatiya Nagarik Suraksha Sanhita, 2023, which corresponds to Section 320 of the Code of Criminal Procedure, 1973; the composition, where permitted, has the effect of an acquittal. Plea bargaining is governed by Chapter XXIII, Sections 289 to 300 of the Sanhita, corresponding to Chapter XXIA of the Code, and is confined to offences not punishable with death, imprisonment for life or imprisonment exceeding seven years, excluding offences affecting the socio-economic condition of the country and offences against a woman or a child below the age of fourteen years.

5. Constitutional and Policy Foundations

The movement towards alternative dispute resolution in India is not merely administrative. It draws on the Preamble, which promises justice in social, economic and political terms, and on Article 39A, inserted by the Constitution (Forty-second Amendment) Act, 1976, which directs the State to secure that the operation of the legal system promotes justice on a basis of equal opportunity and to ensure that opportunities for securing justice are not denied by reason of economic or other disabilities. The right to a speedy trial and to reasonably swift civil justice has been read into the protection of life and personal liberty under Article 21. Article 51(d) directs the State to encourage settlement of international disputes by arbitration, and it supplies the constitutional background to India's participation in the New York Convention and to the enactment of the Arbitration and Conciliation Act, 1996.

6. Relationship with the Courts

These processes supplement the judicial system; they do not displace it. The courts retain jurisdiction to test the validity of the agreement to arbitrate, to appoint the tribunal where the parties fail to do so, to grant interim protection, to set aside an award on the limited grounds permitted by statute and to enforce the outcome. The relationship is best expressed as one of partnership: the private process resolves the dispute, and the public court lends its coercive power to the result.

7. Related Topics and Provisions