Arbitration and Litigation Compared

Both processes end in a binding determination of rights, and both are enforced through the same machinery of execution. They differ in where the decision maker gets his authority. A judge exercises jurisdiction conferred by the State on a court open to everyone; an arbitral tribunal exercises authority conferred by the parties and confined to them. From that single difference come the advantages usually claimed for arbitration, namely choice of decision maker, procedure and privacy, and the costs that go with them, namely no appeal on the merits, no precedent and no power over strangers.

What the choice of arbitration gains and what it surrenders, and what the courts keep

1. The Source of Authority

A civil court derives its jurisdiction from statute and exercises it over every person within its territorial limits. It may join parties, consolidate suits, issue process against witnesses, and bind persons claiming through the parties. An arbitral tribunal derives its authority from the arbitration agreement and can act only between those who agreed. It cannot join a stranger, cannot compel a witness who is not a party, and must apply to the court under Section 27 for assistance in taking evidence. This is the limitation that most often decides whether a dispute is suited to arbitration at all.

2. The Comparison

Basis	Litigation	Arbitration
Source of jurisdiction	Conferred by statute on the court	Conferred by the parties through an agreement in writing, Section 7
Choice of decision maker	None; the case goes to whichever judge has the roster	The parties choose the tribunal, its number and, in international matters, its nationality
Procedure	The Code of Civil Procedure, 1908 and the law of evidence	Settled by the parties; Section 19 frees the tribunal from both
Publicity	Open court; judgments reported and available as precedent	Private, with a statutory duty of confidentiality under Section 42A
Time	Governed by the court's docket; no outer limit	Twelve months from completion of pleadings under Section 29A, with a fast track of six months under Section 29B
Cost	Court fee, counsel and the cost of delay	No court fee, but the fees of the tribunal, the institution and counsel
Appeal	First appeal on fact and law, and second appeal or letters patent appeal where available	No appeal on the merits; recourse only under Sections 34 and 37
Third parties	Joinder, impleadment and consolidation are available	Only those bound by the agreement; no joinder without consent
Interim relief	From the court trying the suit	From the court under Section 9 and from the tribunal under Section 17
Enforcement	Decree executed under Order XXI	Award enforced as a decree under Section 36, and abroad under the New York Convention
Suitable subject matter	Rights in rem, status, insolvency, criminal matters and questions of public law	Rights in personam arising from a defined legal relationship

3. The Limits of Choice

📖 Booz Allen and Hamilton Inc. v. SBI Home Finance Ltd., (2011) 5 SCC 532

Held: Disputes relating to rights in personam are amenable to arbitration; those relating to rights in rem are required to be adjudicated by courts and public tribunals. Criminal offences, matrimonial disputes, guardianship, insolvency and winding up, testamentary matters and tenancy governed by special statutes were listed as reserved to the courts.

Application to this topic: The parties may choose arbitration only where the subject matter is within their disposition. Where it is not, the choice is ineffective however clearly expressed, and the award is liable to be set aside under Section 34(2)(b)(i) or refused enforcement under Section 48(2)(a).

The courts also retain a role in every arbitration. Section 5 confines intervention to the occasions Part I provides, but those occasions are substantial: reference under Section 8, interim measures under Section 9, appointment under Section 11, termination of a mandate under Section 14, assistance in taking evidence under Section 27, setting aside under Section 34, appeals under Section 37 and enforcement under Section 36. The relationship is best described as partnership rather than substitution: the private process resolves the dispute, and the public court lends its coercive power to the result.

4. The Systemic View

Two consequences of the choice fall outside the parties' own interests. The first is the loss of precedent. A body of commercial law administered largely through arbitration produces no reported decisions, so recurring questions of construction are decided repeatedly and inconsistently, and the public law from which tribunals draw their principles ceases to develop. The second is relief to the courts: every dispute referred to arbitration is a case removed from a docket already carrying a pendency measured in crores. Neither consideration affects the parties choosing the forum, and both bear on the design of the system.

⚠ Arbitration does not escape the courts, only the trial

A party that chooses arbitration to avoid the courts often finds itself in them anyway: for appointment under Section 11, for interim protection under Section 9, for a challenge under Section 34, for an appeal under Section 37 and finally for execution under Section 36. What arbitration removes is the trial and the appeal on the merits; it does not remove judicial involvement. The practical saving comes from a well-drafted clause that names an institution and a seat, which avoids the applications under Section 11 that consume the early months of many ad hoc references.

5. Related Topics and Provisions

Topic or provision	Connection
Advantages and Disadvantages of ADR	The balance sheet in general terms
Judicial Settlement and ADR	Court-annexed settlement, which sits between the two
Arbitrability of Disputes	What may not be taken out of the courts
Section 34 and an Appeal Compared	Why there is no appeal on the merits from an award
Sections 5, 8, 9, 11, 27, 34, 36 and 37, A&C Act, 1996	The occasions on which the court acts
Section 89, Code of Civil Procedure, 1908	Reference from a pending suit to arbitration or settlement