ADR - Concept and Scope of ADR"

Faculty of Law – Jamia Millia Islamia
JAMIA MILLIA ISLAMIA

(A CENTRAL UNIVERSITY)
FACULTY OF LAW
PROJECT FOR THE SESSION 2022-23
(SEMESTER VII OF B.A., LL. B (Hons.) [Self-Financed]
CLINICAL COURSE -I
(ALTERNATIVE DISPUTE REDRESSAL)
Title of the Project
“Concept and Scope of ADR”

Abdul Karim
STUDENT ID: 201904923
Under the guidance of
Dr. Eqbal Hussain
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Table of Contents
ACKNOWLEDGEMENT……………………………………………………………………3
PREFACE…………………………………………………………………………………….4
RESEARCH METHODOLOGY………………………………………………………….….5
ABSTRACT………………………………………………………………………………...…6
INTRODUCTION……………………………………………………………………………..8
1. Meaning of ADR………………………………………………………………………8
2. Genesis of ADR…………………………………………………………………….…8
3. Historical Background in Indian Context………………………..…………………….9
EMERGENCE OF ALTERNATIVE METHODS OF DISPUTE RESOLUTION…………..10
VARIOUS TYPES OF ADR MECHANISM………………………..……………………….11
1. Mediation………………………..…………………………………………………...11
2. Arbitration………………………..…………………………………………………..12
3. Negotiation………………………..…………………………………………..……...12
UNDERSTANDING ARBITRATION AND MEDIATION………………………………..13
1. Adjudication and Arbitration…………………………………………………………13
2. Negotiation and Mediation…………………………………………………………...14
HYBRID PROCESSES………………………………………………………………………20
INCENTIVE EFFECTS OF ADR WITHIN DISPUTE SETTLEMENT SYSTEMS………..21
RELEVANT CASE LAWS…………………………………………………………………..22
CONCLUSION………………………………………………………………………………27
BIBLIOGRAPHY……………………………………………………………………………28
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ACKNOWLEDGEMENT
It is my imperative duty to express my gratitude for the successful completion of my
assignment on the topic of “Concept and Scope of ADR” under Arbitration and Conciliation
Act, 1996.
I take this opportunity to express my profound gratitude and deep regards to my mentor
Professor Dr. Eqbal Hussain for his exemplary guidance, monitoring and constant
encouragement throughout the course of this research paper. I thank sir for his cordial support
and valuable information which helped me in completing this task through various stages.
I am grateful to Mr. Qasim Haider Naqvi for his invaluable cooperation during the period of
my assignment. I also want to thank my family for their moral support and constant inspiration
and for providing me with all the facilities required and for sponsoring all the materials.
Last but not the least I thank my friends for constant support, cooperation, and encouragement
without which this assignment would not have been possible.
Abdul Karim
VII Semester (Self-Finance)
Roll No. 03
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PREFACE
Sir Abraham Lincoln once asserted “Discourage litigation. Persuade your neighbours to
compromise whenever you can. Point out to them how the nominal winner is often a real
loser – in fees, expenses, and waste of time. As a peacemaker the lawyer has a superior
opportunity of being a good man. There will still be business enough.” It was rightly
observed that litigation is not always the right choice to resolve an issue. There was a dire
need for an alternate mode of dispute settlement. Eventually, this resulted in an umbrella
term “Alternative Dispute Resolution” or “ADR” that discussed other methods to handle a
dispute. While the types of alternative dispute resolution (ADR) systems and their historical
significance are construed independent of each other, there still exists faint similarities
within the essence of these legal systems that can be easily identified through jurisprudential
constructions. However, the combined appreciable assistance provided by ADR systems (i.e.,
Arbitration, Mediation, Conciliation & Negotiation) to our overburdened judiciary vis-à-vis
the prolonged delay in delivering justice cannot be disputed. It is imperative to understand
the significance of different types of alternative dispute settlement systems in order to be
cognizant of which dispute settlement system is best suited to handle what kind of a dispute.
However, in this paper, we will confine our understanding of ADR till arbitration.
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RESEARCH METHODOLOGY
RESEARCH DESIGN
• Approach to research: In this project, the researcher has adopted Doctrinal type of
research. Doctrinal research is essentially a library-based study, which means that the
materials needed by a researcher may be available in libraries, archives and other data-
bases. This research is totally based on library. Various types of books were used to get
the adequate data essential for this project. The researcher also used computer
laboratory to get important data related to this topic. Help from various websites were
also taken.
• Type of research: It is clearly an exploratory type of research. In an exploratory study
the researcher works on a relatively unstudied topic or area of knowledge with purpose
of finding out unknown or partially known facts.
• Sources of data collection: Data has been collected from secondary sources like: books,
web sources etc. No primary sources like survey data or field data were collected by
the researcher.
RESEARCH OBJECTIVE
• Based on the literature review, the aim of the study is to understand nature, meaning,
scope of Arbitral Tribunal, to study the challenges of Arbitral Tribunal with respect to
its jurisdiction and competency in the Arbitration and Conciliation Act, 1996.
LITERATURE REVIEW
• The researcher undertook a thematic review of literature on the proposed topic with an
aim to understand the nature, meaning, scope of Arbitral Tribunal, to study the
challenges of Arbitral Tribunal with respect to its jurisdiction and competency. Here is
an attempt made to give a brief account of literature review.
• An Evaluation of Section 16 of the Arbitration and Conciliation Act with Special
Emphasis on Judicial Intervention (Dr. Bhavish Gupta and Ms. Shaheen Parween,
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2016) - The author provided the detailed view of the change took place after the 2015
Amendment in the Arbitration and Conciliation Act, 1996. Impact of the recent reforms
on Indian Arbitration Law (ROHIT MOONKA and SILKY MUKHERJEE, 2017) –
The authors provide the detailed critical analysis of the recent reforms in the Indian
Arbitration law.
• Impact of the Arbitration and Conciliation (Amendment) Act, 2021 on India’s Pro
Arbitration Outlook (Mishra, 2021)- The author highlighted the impact of the
amendment in the 2021 in Arbitration and Conciliation Act.
RESEARCH PROBLEM
• Does the Alternative Dispute Resolution have the competence to make a binding
decision on its own jurisdiction, including decisions ruling on any objections with
respect to the existence?
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ABSTRACT
Alternative dispute resolution (ADR) refers to a set of practices and techniques aimed at
permitting the resolution of legal disputes outside the courts. It is normally thought to encompass
mediation, arbitration, and a variety of “hybrid” processes by which a neutral facilitates the
resolution of legal disputes without formal adjudication. These alternatives to adjudication
are advocated on a variety of grounds. Potential benefits are said to include the reduction of
the transaction costs of dispute resolution because ADR processes may be cheaper and faster
than ordinary judicial proceedings; the creation of resolutions that are better suited to the
parties’ underlying interests and needs; and improved ex-post compliance with the terms of the
resolution.
The focus of this researched paper is on mediation and arbitration and not on unfacilitated
negotiation which is, of course, the most common means by which parties and their counsel
resolve legal disputes outside of court. Part I provides essential background for understanding
ADR by focusing on arbitration and mediation. By comparing these processes with
adjudication and negotiation – the two procedures conventionally used to resolve legal
disputes – the potential advantages and disadvantages of arbitration and mediation are exposed
and briefly analysed. Next, in Part II, a variety of hybrid processes often included within the
scope of ADR are briefly described. These hybrids suggest that ADR procedures are now
frequently included as processes within a dispute resolution system that includes formal
adjudication. Part III briefly summarizes the theoretical scholarship that seeks to explore the
incentive effects created by adding a layer of ADR to the litigation process, and also describes
the few empirical studies that have explored its impact.
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INTRODUCTION
India is one of the largest democratic countries in the world having its own constitution. The
rights and interests of the people have been protected in the forms of fundamental rights under
Part III and directive principles under Part IV of the constitution of India.
We know that our life is full of conflicts and to manage and resolve it there are different
techniques. Negotiation techniques are often central to resolving conflicts and these basic
techniques have been around for many thousands of years. Alternative Dispute Resolution
(ADR) refers to a variety of resolution techniques designed to resolve issues more efficiently
when the normal negotiation process fails, ADR is an alternative to the formal legal system. It
is an alternative to litigation which takes place outside of the courtroom as the courts are
overburdened with the cases.
Meaning Of ADR
ADR can be defined as a technique or mechanism of dispute resolution through the intervention
of the third party. In ADR the neutral third party may bridge the gap between the parties by
bringing them together through the process of arbitration, conciliation, mediation or
negotiation, thus the ADR aims to provide an inexpensive, speedy and less formalistic remedy
to the aggrieved party. Its purpose is to provide a remedy which is most appropriate in the
circumstances of the case.
Genesis of ADR
The Alternate Dispute Resolution System is not a new experience for the people in our country.
It has been prevalent for a long time. System of Dispute Resolution, anciently, made a
significant contribution in matters related to family, social groups, trade and property. Disputes
were also resolved at the village level where elders comprised the ‘Panchayat’ and performed
the informal ‘Mediation’. More such institutions like Kulas, Srenis and Parishads adjudicated
disputes before ‘kings’. Further with the entry of the East India Company, Modern Arbitration
Law was introduced by way of the Bengal Regulation of 1772, 1780 and 1781 In the common
law countries, ADR has its roots in the English legal development. Charters and documents
reveal that some respected male members in the community often resolved disputes as
extended legal authorities of kings, creating one of the first forms of arbitration. In modern
times, dispute resolution refers to both Alternate Dispute Resolution subsequent to which is
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Online Dispute Resolution. ADR system includes the mechanism, short of litigation, rather
with the help of a third party. This may refer to Arbitration, Mediation, and Negotiation
Conciliation, sometimes. With technology seeping into this whole arena of ADR, Online
dispute resolution is the new face of Dispute Resolution.
Historical Background In Indian Context

The huge pressure of cases pending before the Indian courts have compelled the chief ministers
of the various states to consult the chief justices of the high courts and conduct a conference
with a view to formulating appropriate strategies for dealing with this issue. In this context a
conference had been held on 4th December, 1993 to devise the appropriate strategies to solve
the pendency of cases in different courts all over the country. The delegates who participated
in the meeting recommended that the dispute should be resolved through the mechanism of an
Alternative Dispute Resolution system through arbitration, conciliation, mediation, and
negotiations because the mechanism of ADR should be an effective device for the amicable
settlement of the transactional disputes between the parties.
Further, the law minister considered the necessity to set up regional centres for Alternative
Dispute Resolution in different parts of the country. The delegates who attended the conference
suggested upgrading the judicial infrastructure in the courts for speedy trial. They expressed
satisfaction over the excellent result achieved through the extensive computerization in the
Supreme Court of India. Which resulted in a record decrease in the pendency of cases and that
is required to extend to subordinate courts all over the country. So justice can be delivered on
time.
ADR originated in the USA in a drive to find alternatives to the traditional legal system, which
was felt to be adversarial, costly, unpredictable, rigid, over-professional and limited to narrow
rights-based remedies as opposed to creative problem-solving. In the beginning of the late 19
century, creative efforts to use arbitration and mediation emerged in response to the disruptive
conflicts between labour and management.
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Emergence of Alternative Methods of Dispute Resolution
ADR methods have been developed as an alternative to the traditional methods of litigation
and it includes arbitration, conciliation, mediation, neutral evaluation and expert-
determination. These methods can be used to resolve any matter by an agreement between the
parties. It can be used to resolve various categories of disputes such as civil, commercial,
industrial and family disputes. ADR system has helped a lot in respects of international
commercial cross-border disputes. Arbitration and Conciliation Act, 1996 at present provides
for legal recognition of these methods of alternative dispute methods rather than litigation.
ADR system has various advantages over the judicial system of dispute resolution which makes
it very popular and effective.
The Advantages of ADR System over Litigation: following are the key benefits of ADRs:
1. Parties can decide rules or procedure for their case.
2. It is very fast and time saving device.
3. Cost of ADR methods is very low.
4. Arbitrator, mediator and conciliator are chosen according to the choice of parties.
5. There is no need to engage advocate by parties.
6. It helps to maintain privacy and security.
7. It is party friendly.
Therefore ADR mechanism provides consensual mode of resolution of disputes and provides
very simple informal flexible procedure to help the parties to solve their dispute. Lord Wolf in
his report has also suggested alternative dispute resolution for the civil cases to encourage the
access to justice. 1 ADR system is also helping the court system and court run ADR system has
become popular to provide the justice to general public.
1
Lord Wolf, Access to Justice: Final Report to the Lord Chancellor on the Civil Justice System In England and
Wales (July 1996) Quoted In Hazel Genn, „What Is Civil Justice For? Reform, ADR, and Access to Justice‟
Yale Journal of Law & the Humanities, Vol. 24 (2012), Issue 1, Article 18, p. 401.
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Various types of ADR Mechanism

Before we talk about the various types of ADR mechanisms it is important to differentiate
between the Binding and Non-Binding forms of ADR. Negotiation, Mediation, and
conciliation are the Non-Binding forms it depends upon the willingness of the parties to reach
a voluntary agreement. Arbitration programs may be binding or non-binding. Binding
Arbitration produces a third-party decision that the party to the dispute must have to follow
even if they disagree with the result like a judicial decision whereas Non-binding arbitration
produces a third-party decision that the parties may reject.
Mediation
Mediation in eased negotiation, the decision of the mediator is not binding. There are basically
three parties in a mediation, a mediator, who practices neutral interest in the subject matter of
the dispute or party and the two parties in dispute. The mediator holds no judicial authority and
decision-making power; his mere role is to show a broad view and come up with a favourable
solution to help the party come to a mutually acceptable approach. It is a process that comes
into place when both parties consent to such a resolution mechanism and are committed to the
decision or agreement settled upon.
The process involves coming together of the parties for a joint session, where the guidelines of
the mediation which include a confidentiality clause are explained to the parties. The guidelines
and rules are not rigid and can be changed on the consent of both parties. In the next step, the
parties explain their position and dispute, and later the mediator holds a confidential and one-
to-one conversation. This helps the mediator to come up with a more mutually agreeable
settlement. Mediations hold a good success ratio because first, they are very cost-effective,
though the agreement done here is not binding in nature but can the contract be legal and can
be enforced like any other contract. Second mediation is not a lose-win situation, even if the
parties till the end of the mediation do not come in agreeable terms the doors of traditional
litigation are always open.
Negotiation
Any assembly of two or more parties aimed to reach a mutually intended beneficial settlement
is negotiation. It can be held either between the parties or the parties and counsel. Negotiation
is a part of Additional Dispute Resolution as well as a part of litigation. In negotiation the third-
party roles do not involve much communication with the parties nor do they have any authority
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to impose a resolution. Negotiation is the first informal stage to resolve a conflict, it involves
identifying the problem and interests. A negotiation is only successful when the solution is a
win-win for both parties and both parties feel they are having an upper hand. In negotiation, if
there is a third party it is very important for the negotiator to be well-collected with all the facts
and fixes of both the parties. A Negotiation won’t be successful if either of the parties feels
like they are not in their intractable position.
Arbitration
Arbitration is a dispute resolution mechanism in which the disputed parties choose and a neutral
and independent arbitrator, the arbitrator can be a person or an institution. The dispute may be
an ongoing one or which may arise in the future course of time. It is agreed upon prior to the
arbitration that any decision given by the arbitrator shall be binding in nature and shall be
abided upon but also will not be mandatory. Here the parties can either submit their resolutions
or dispute before the dispute arises, to prevent future complications or also after the dispute
has arisen. Arbitration is in many ways similar to that of the judicial courts. Rules and
provisions to be followed upon are decided beforehand. The Arbitration Law is a recognized
approach and the procedural system is not less than that of the traditional courts.
Arbitration is also of two forms private and judicial arbitration. Amongst which in ADR,
private arbitration is the most widely used. Prior agreements are made in private arbitration
where future disputes that may arise will be governed under the said agreement and the parties
decide to keep matters falling under the decision criteria to be treated outside the court via
private arbitration. The most use of this arbitration is done for company and labour regarding
issues. Judicial arbitration is the one followed by our traditional courts which are mandated
and given power under the respective regulations and rules. It follows state and federal law.
Arbitration is a flexible means of dispute resolution that allows the parties to impose and create
a formulated structure to address issues and disputes. The arbitrator practices wide powers to
come to a mutually beneficial relief. The awards that may be granted by the arbitrator is an
award which is procured by misconduct or corruption or one owned by fraud.
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I. Understanding Arbitration and Mediation

Proponents of ADR regularly argue that arbitration and mediation – the two primary ADR
processes – reduce the transaction cost of resolution and otherwise lead to better outcomes. In
assessing the benefits and costs of these procedures it is, of course, necessary to ask:
Compared to what? Normally, arbitration is compared with conventional litigation
(“adjudication”); mediation with unfacilitated negotiation. The proponents’ claims are best
understood by comparing adjudication, arbitration, negotiation and mediation along a number
of common dimensions: whether participation is voluntary or involuntary; the nature of the
proceeding and the degree of its procedural formality; the role, if any, of a third party or
neutral; the extent to which the outcome is binding; whether the outcome must be reached by
application of legal norms; and whether the process is public or private (Goldberg et al. 1992)
(pp. 4-6).
Adjudication and Arbitration

Adjudication is an involuntary process, in the sense that a court has the power (once its
jurisdiction is properly invoked by a plaintiff) to coerce a defendant into either participating in
the process or suffering the consequences of a default judgment. The judge, a neutral third-
party appointed by the state, has the power and responsibility to run the proceedings and to
resolve the dispute. The judicial proceedings are highly structured, with formal rules
governing pre-trial discovery and the trial itself – i.e. what counts as evidence, the order in
which evidence is presented and how arguments are made. In reaching its decision, the
adjudicator is responsible for making a principled and reasoned decision based on legal
norms. The trial judge’s decisions are binding on the parties, subject to appeal to a higher
court. Finally, adjudication is a public process – the judge is a public official, and the
proceedings themselves are ordinarily open to the public and not confidential.
Like adjudication, arbitration also involves a neutral third party (the arbitrator) who is
responsible for running the process and making the decisions necessary to resolve the dispute.
Unlike a judge (a public official) the arbitrator is typically a private person chosen by the
parties. The person chosen to arbitrate the dispute often has specialized expertise in the subject
matter of the dispute; legal training is required only if the parties so specify. A dispute that
might otherwise go to court becomes subject to binding arbitration only by the agreement of
the parties. In this sense, arbitration is a creature of contract, and the terms of the parties’
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particular arbitration agreement are generally controlling. Before any dispute has arisen,
parties often contract to arbitrate future disputes; arbitration provisions are frequently included
in commercial contracts for the sale of goods and services, in labor agreements (Ashenfelter
and Bloom 1984) and in joint ventures agreements. An agreement to arbitrate can also be
made after a dispute has arisen, as the result of a negotiation between parties already in conflict.
Binding arbitration in lieu of judicial adjudication is voluntary in the sense that it is only by
agreement that one is required to arbitrate; but once there is an agreement it is involuntary in
the sense that courts will enforce it against a reluctant party by refusing to adjudicate disputes
which are within the scope of the arbitration agreement and thus require arbitration.
In an arbitration proceeding, the procedural rules may be set by the parties in their arbitration
agreement. Pretrial discovery is typically limited or eliminated, and each party is given an
opportunity to present proofs and arguments at a hearing where the procedures are typically
much less formal than those found in court. Depending upon the parties’ agreement, the
arbitrator may or may not be asked to render a principled decision supported by a reasoned
opinion. Often the arbitrator is free simply to announce the award without any explanation.
In “final-offer” arbitration, by agreement of the parties the arbitrator is required to resolve the
dispute by choosing one or the other of the “final-offers” submitted by the disputants– the
arbitrator lacks all power to impose any other result (Farber 1980). (This is sometimes called
“baseball arbitration” in the United States because it is used to resolve salary disputes in major
league baseball.) In all of these examples, however, the decision of the arbitrator is
characteristically binding and final, and subject to judicial review only if a party can show
that the arbitrator was corrupt or acting outside the scope of the jurisdiction conferred by the
parties’ agreement.
Compared to court-based adjudication, the potential advantages and disadvantages of

arbitration flow from three fundamental differences. The first has to do with the fact that
parties can choose the arbitrator, whereas a judge is typically assigned. An arbitrator can be
chosen with expertise in the subject matter of the dispute, whereas a judge is typically a
generalist who is knowledgeable about legal procedures but may have no relevant experience
and background relevant to the dispute. This can mean, for example, that a maritime dispute
over damaged goods can be arbitrated by a person who is knowledgeable about the
conventional practices in that industry; or that a software dispute concerning the adequacy of
custom-developed software can be resolved by someone who is familiar with the technology.
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As a consequence less hearing time may be required to “educate” an expert arbitrator than a
generalist judge. In comparison to a judge, an arbitrator’s decision may also be better
informed and more predictable. As a result, arbitration may have both lower transaction costs
and higher quality results than conventional adjudication.
A second set of potential advantages relates to the fact that an arbitration may proceed more
quickly because of its comparative procedural informality. In conventional litigation, the
costs of pre-trial discovery – taking pretrial depositions and answering interrogatories – can
be very time-consuming and make up a very high proportion of the total transaction costs.
Because arbitration typically either severely limits or eliminates pre-trial discovery, these costs
can be eliminated. This is not, of course, an unmitigated advantage, for it may imply that a
disputant will never discover favorable factual information in the hands of the other party,
and may be surprised by unfavorable information that is first disclosed at the hearing.
The third critical difference relates to the scope of judicial review. Unlike rulings of a trial
court which are subject to appellate review for mistakes of law or findings of fact that are
unsupported by the evidence, an arbitrator’s award cannot be overturned by an appellate court
for these sorts of errors. The binding nature and comparative finality of an arbitrator’s award
is, of course, a mixed blessing. On the one hand, a final resolution may be more prompt and
appeals infrequent because the scope of review is so narrow. On the other hand, a losing party
lacks the safeguard of ordinary judicial review, which may improve the “accuracy” of the
resolution.
Negotiation and Mediation

Unlike adjudication or arbitration, negotiation does not require the participation of a neutral
third-party with decisional authority. Instead, the parties themselves have the responsibility
for deciding the terms of any resolution. Negotiation is voluntary, in the sense that disputing
parties are not ordinarily forced to negotiate with each other. The process of negotiation is
informal and without defined procedures or rules governing the presentation of evidence or
arguments. Because the goal of negotiation is a mutually acceptable resolution, the parties to
a negotiation can shape that resolution to suit their own needs and interests, and are under no
obligation to reach a principled outcome, much less one justified by a reasoned opinion
applying formal legal norms. If the resolution is reached, the settlement is not ordinarily
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subject to judicial review. The settlement agreement can subsequently be enforced as a

contract. Negotiation is typically private; the process itself is not open to the public.
Like adjudication and arbitration, mediation also involves the use of a third-party, but a
mediator unlike an arbitrator or judge has no authority to impose a resolution on the parties.
Instead, the mediator’s goal is to facilitate negotiation and help the parties themselves to reach
a mutually acceptable settlement of their own dispute. Mediation is typically a voluntary
process where the parties themselves may choose the person who will act as the outside
facilitator. It is private and confidential, and not open to the public.
Although the mediator is typically responsible for managing the mediation process, there are no
standard procedures or fixed rules. The process by which the mediator facilitates negotiation
is often informal and unstructured. The actual practices of individual mediators vary greatly.
While most mediators spend at least some time working with the parties together, practices
vary concerning the use of “caucuses”. Many but not all mediators also meet privately and
separately with each side in a “caucus”, often with an explicit ground-rule that the mediator
will not share what is learned with the other side. Among other things, this is thought to
encourage each party to share confidential information with the mediator. Although such ex
parte contact would ordinarily be considered improper for a judge or arbitrator, mediators
commonly use such caucuses to explore various settlement possibilities.
The practices of mediators vary along other dimension as well. For example, some mediators
encourage the participation of lawyers, while others aim to minimize their participation to
keep the spotlight on the parties themselves. Some mediators focus the process primarily on
the strengths and weaknesses of each party’s legal positions; others, primarily on the
underlying interests and needs of the parties, trying to avoid discussion of the legal merits.
Some mediators evaluate the legal merits of each party’s positions, and willingly express a
view of the probable outcome in court. Other mediators avoid evaluation, and instead see their
role as facilitation, trying to help the parties generate creative options that serve underlying
interests. Many mediators are eclectic, and engage in activities that both help the parties to
understand the opportunities and risks of pursuing their litigation and also probe their
underlying interests to see if there are value-creating options that may be quite unrelated to
what a court might do.
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A mediated resolution may on the one hand simply reflect the net expected value of what is
likely to happen in court or, on the other, can be shaped to meet the needs and interests of the
parties by making trades that are unrelated to the legal disputes. So long as the resulting
resolution is mutually acceptable to the parties, there is no need that it involve the application
of formal legal norms or mimic the outcome which a court might impose. There is typically
no process of review. If parties are able to resolve their dispute by reaching a mediated
agreement, that agreement is subsequently enforceable as a contract.
What are the advantages of mediation? Proponents argue that a skilled mediator can often
help parties reach a negotiated outcome when they would be unable to do so on their own. They
also suggest that even if the parties might be able eventually to settle on their own, a mediator
may help parties reach better agreements with lower transaction costs – in other words, the
mediated agreement may often be Pareto-superior to the one the parties might have reached
on their own.
In considering the potential benefits of mediation, it is helpful to consider critical underlying

theoretical questions: What are the reasons that negotiations fail? What are the barriers to
the efficient resolution of conflict by negotiation? In this regard, scholars employing a variety
of disciplinary perspectives have identified various barriers to Pareto-efficient negotiations
(Arrow et al. 1995). By identifying these barriers, one can than explore how a neutral third-
party mediator might help parties to overcome them (Mnookin 1993).
The conventional law and economics theory of settlement suggest that parties may fail to settle
because they have divergent expectations about what will happen at trial (Landes 1971, Gould
1973). With sufficiently convergent expectations about the outcome in court, the theory suggests
that disputants will settle the case in a way that divides the transaction cost savings that flow
from avoiding further litigation. The obvious question is whether mediators can eliminate or
reduce divergent expectations in circumstances where the parties themselves are either unable
to do so themselves or can only do so with much greater transaction costs. If a mediator is
able to produce more convergent expectations faster or at a lower cost, the neutral can thereby
help overcome a barrier to dispute resolution (Arrow et al. 1995). As a theoretical
proposition, this might be possible for a variety of reasons. A neutral may facilitate the
exchange of essential information and improve communications between the parties, thus
improving the parties understanding of each other’s claims and defenses. Moreover, to the
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extent that partisan perceptions are leading one or both parties to assessments which are
overly optimistic (Arrow et al. 1995), a respected neutral may be able to overcome this bias.
Shavell (1995) has questioned why two rational disputants would not do this on their own,
especially in anticipation of a pretrial discovery process in which most everything may come
out anyway. While this may be true with strong rationality assumptions and particular
types of theoretical bargaining models, this argument does not take into account either
irrational behavior or the ways that strategic interaction might sometimes inhibit the exchange
of information essential for expectations to converge.
Adverse selection and moral hazard represent such strategic barriers. Brown and Ayres
(1994) have argued that mediators can mitigate these problems and create value in negotiations
between rational actors through sequential caucusing, by controlling and manipulating the
information flows between the parties. They identify three ways a mediator can accomplish
this:
(1) by ending negotiations where there are no gains to be made from trade;
(2) by committing parties to dividing the gains from trade equally; and
(3) by committing to send noisy translations of information disclosed during private
caucuses.
Ayres and Nalebuff (1997) argue that common knowledge can also act as a barrier to efficient
negotiation. They suggest circumstances where the parties wish to communicate first order
information (both parties know Fact X) but avoid communicating higher-order information (A
knows that B knows X; A knows that B knows that A knows that B knows X) or creating common
knowledge. They give examples where first order information would in fact facilitate dispute
resolution but where higher order knowledge would cause negotiations to unravel. Mediators,
according to Ayres and Nalebuff, can break the link between communicating first order
information and higher-order information, thus promoting efficiency.
In addition to these game-theoretically based possibilities, there may be other ways in which
mediators can dampen the risk posed by strategic interaction. With respect to the distributive
aspects of bargaining, one or both parties may employ a variety of “hard bargaining tactics”,
in the hope of forcing the other side to pay more or accept less. And yet such negotiation
tactics may drive out the possibility of exchanging information that would permit value to be
created and the pie expanded (Lax and Sebenius 1986). To the extent that a mediator is able
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to encourage the parties to engage in collaborative problem solving and to dampen strategic
interaction, transaction costs may be reduced and the parties may also be able to discover ways
to create value and expand the pie.
Principal-agent problems can also act as a barrier to settlement that a mediator may help
overcome. A lawyer may want to continue a dispute in order to increase his fees; or a manager,
whose conduct gave rise to a dispute, may seek vindication in circumstances where it would
serve the interest of the corporation to settle. A neutral may be able to facilitate settlement by
getting the right people to the table and helping them understand their underlying interests
(Mnookin 1993).
That there are a variety of ways that mediators might efficiently promote more Pareto-
effective negotiation outcomes does not, of course, prove that they in fact do so with sufficient
frequency to justify the involuntary imposition of mediation (Shavell 1995). But it does
suggest how theoretical insights related to negotiation can inform the exploration of mediation.
19
II. Hybrid Processes.

While the arbitration and mediation procedures described above provide basic alternatives to
formal adjudication, ADR also encompasses a variety of “hybrid” dispute resolution processes
that use neutrals in ways that represent variations on the basic alternatives. Some of these
hybrid processes are binding. For example, some states have statutes authorizing “private
judging”, which is a form of binding arbitration but one where the decision-maker is often a
retired judge or private lawyer who is required to make a principled decision, sometimes
supported by findings of fact and conclusions of law, which are binding on the parties but
subject to appeal. Other hybrid procedures are mandated by state law but are non-binding.
In some jurisdictions, for example, before a party can have a judge resolve a dispute the case
is first subject to “court-annexed mediation”, an involuntary, confidential process where a
mediator attempts to facilitate a negotiated resolution. Other states, require litigants to
participate in “early neutral evaluation”, a form of court-annexed mediation where a neutral
helps the parties to arrange for efficient discovery and also provides an early, impartial report
evaluating the strengths and weaknesses of each disputant’s claims and defences. In other
jurisdictions, disputes involving comparatively small amounts are subject to “court-annexed
arbitration”, which is typically involuntary, non-binding, and public. The arbitrator’s decision
is made public, and often serves as the basis of settlement, but is not binding upon the parties
– either party has a right to a de novo trial before a judge.
A “MiniTrial” is a form of mediation in which the parties select a neutral “advisor”, who
orchestrates for the benefit of an executive from each disputant an abbreviated formal hearing
where the lawyers from each side present the core legal arguments and evidence that will be
presented in court. Thereafter, the advisor works with these executives to see if a resolution
can be negotiated. A “Summary Jury Trial” involves a non-binding process in which a mock-
jury is impanelled by the court, and each party has an opportunity to present its case in
abbreviated form. After the mock-jury renders its advisory verdict, the neutral attempts to
facilitate (as a mediator) a negotiated resolution (Posner 1986). A “Neutral Expert”
is typically a third party with special subject matter expertise who may either be selected by
the parties voluntarily or by a Court under the Federal Rules of Evidence. Typically, the expert
is asked to conduct an investigation and then write a report that may contain findings of fact.
While usually not binding on the parties, the report may sometimes be the focal point for a
negotiated settlement, and if not, is sometimes admissible in court.
20
III. Incentive Effects of ADR Within Dispute Settlement Systems

Several of the hybrid examples suggest that a dispute resolution system often involves the
possibility of linking several different procedures. When parties negotiate concerning the
resolution of a legal dispute (whether or not assisted by a mediator) they typically do so “in
the shadow” of some other process – such as adjudication or arbitration – that can ultimately
impose a resolution (Mnookin and Kornauser 1979). Various forms of mediation and
arbitration are now sometimes embedded into the formal system of adjudication. Whether by
agreement of the parties or by the imposition of law, procedures are often sequenced – parties
may first negotiate on their own; and then be obligated to mediate before having a case
adjudicated or arbitrated. In other words, various procedures can be used in conjunction with
each other.
This suggests an important question for law and economics: What incentive effects are created
when some form of ADR is added to the litigation process? In considering the desirability of
ADR these effects must be considered, both theoretically and empirically, for adding a layer
of ADR can have important and complex effects both on the frequency with which suits are
brought and on the settlement process. Posner considers these issues in his examination of the
Summary Jury Trial (Posner 1986) and Shavell provides a more comprehensive economic
model for their consideration (Shavell 1995).
Using the standard model of litigation, Shavell explores the incentive effects of adding ADR
to the litigation process. He contrasts ex ante ADR, where parties voluntarily agree to ADR
before a dispute has arisen, with ex post resort to ADR after a dispute has arisen. For Shavell,
the key question is whether or not ADR leads to changes in pre-dispute behavior that raises
joint value for the parties. Shavell suggests that exante agreements made by knowledgeable
parties increase the expected utility of the parties and raise social welfare. He argues that ex
ante agreements should ordinarily be enforced because of the potential advantages of ADR,
and the “frequent inability” to negotiate them after the dispute arises. Because ex post ADR
does not have incentive effects on the parties’ pre-trial behavior, after analyzing the effects
on the litigation process using the “standard model” of litigation Shavell suggests that there is
“no apparent basis” for the state to impose involuntary ex post “non-binding” ADR. While it
is possible that ex post ADR may be a cheap substitute for a trial, Shavell correctly points out
21
that ADR may increase the frequency of suits and encourage people to engage in ADR who
otherwise would have settled. And in the worst case, ADR might perversely simply add
another layer to the litigation process without promoting settlement. As Shavell acknowledges,
his analysis omits the possibility that ADR may promote efficient resolution of disputes by (a)
altering the parties’ opinions of trial outcomes through the exchange of information or
consultation with the neutral; or (b) dampening client-lawyer agency problems.
Some empirical work has been done relevant to policy debates concerning the wisdom of
mandating ADR within the civil justice system. A history of the development of court-
administered arbitration programs, and an evaluation of the research concerning its effects
may be found in (Hensler 1986; 1992). For Federal Courts in the United States, the Civil
Justice Reform Act of 1990 established pilot programs in six districts that used various modes
of ADR, including court-annexed mediation and early neutral evaluation, in order to reduce costs
and delay. The institute of Civil Justice of the RAND Corporation has evaluated these
programs, and found that neither time to disposition nor costs were changed in a statistically
significant way (Kakalik et al. 1996).
22
Relevant Case laws
Bharat Aluminium Co. v. Kaiser Aluminium Technical Services Inc.,2

In the landmark cases of Bhatia International and Venture Global Engineering, the Supreme
Court had held that Part I of the Arbitration and Conciliation Act, 1996 set out the procedures,
award, interim relief and appeal provisions with respect to an arbitration award and held that it
would apply to all arbitrations held out of India, unless the parties by agreement, express or
implied, exclude all or any of its provisions. The Supreme Court held that there is a clear
distinction between Part I and Part II which applies to completely different fields and with no
overlapping provisions.
The Court in this case also drew a distinction between a ‘seat’ and ‘venue’. The arbitration
agreement designates a foreign country as the seat/place of the arbitration and also selects the
Act as the law governing the arbitration proceedings. The Court also clarified that the choice
of another country as the seat of arbitration inevitably imports an acceptance that the law of
that country relating to the conduct and supervision of arbitrations will apply to
the proceedings. Therefore, it can be understood that Part I applies only to arbitrations having
their seat/place in India.
The Court disagreed with the observations made in Bhatia International case and further
observed on a logical construction of the Act, that the Indian Courts do not have the power to
grant interim measures when the seat of arbitration is outside India. Therefore, the arbitral
proceedings prior to the award contemplated under Section 36 can only relate to arbitrations
which take place in India. The Court further held that in foreign-related international
commercial arbitration, no application for interim relief will be maintainable in India, either by
arbitration or by filing a suit.
K.K Modi v K.N Modi3

This case talks about the attributes that make an agreement, an arbitration agreement.
According to the Court, a clause will amount to an arbitration clause only if it contemplates
that the decision of the tribunal will be binding on the parties to the agreement. The Court
further went on to say that only if the parties consent to go with the procedure of arbitration for
2
(2012) 9 SCC 552
3
1998 SC 1297.
23
dispute resolution or if the Court or a statute enables the tribunal to conduct the arbitration
process, only then must the jurisdiction of the arbitration tribunal may be exercised.
The agreement must also agree to it that the substantive rights of the parties will be determined
by the agreed tribunal. To be enforceable in law, the agreement of the parties to refer their
disputes to the decision of the tribunal must be intended. The agreement must also contemplate
that the tribunal will make a decision upon a dispute which is already formulated at the time
when a reference is made to the tribunal.
Other important factors include whether the agreement contemplates that that tribunal will
receive evidence from both sides and give the parties opportunity to put forth their issues and
hear their contentions; whether the wording of the agreement is consistent with the view that
the process was intended to be an arbitration; and whether the agreement requires the tribunal
to decide the dispute according to law.
J&K State Forest Conservation vs. Abdul Karim Wani,4

The issues, in this case, were that how should an arbitration clause construed in a Contract and
whether a dispute between parties can be referred to arbitration or not? The Supreme Court, in
this case, held that the Court should refrain from expressing an opinion on the merits of the
dispute. The Court should find out the intention of the parties, and that intention has to be found
out by reading the terms broadly, clearly, without being circumscribed.
The Supreme Court held that the interim measures can be granted to aid the arbitration
proceedings and not to frustrate them. The court further held that in the guise of granting an
interim measure, the Court cannot resolve the substance of the dispute – that task belongs to
the arbitral tribunal and not the Court.
It was further held in this case that the jurisdiction of Court to make interim order is only ‘for
the purpose’ of arbitration proceedings and a court should not to frustrate the same.
Puri Construction Company v Union Of India,5

It was held by the SC that when the court is called upon to decide the objections raised by a
party against an award, the jurisdiction of the court is limited, as expressly indicated in the act
and it has no jurisdiction to sit in appeal and examine the correctness of the award on merits.
4
AIR 1989 SC 1498.
5
AIR 1986 SC 777
24
The Court also held that if there is no legal proposition either in the award or in any document
annexed with the award which is erroneous and the alleged mistakes or alleged errors, are only
mistakes of fact and if the award is made fairly, after giving adequate opportunity to the parties
to place their grievances in the manner provided by the arbitration agreement, the award is not
amenable to corrections of the Court.
Datar Switchgears Ltd vs. Tata Finance Ltd.,6

What is the role of the Chief Justice if a party does not act as per the arbitration clause? The
issue, in this case, was about the appointment of an arbitrator under Section 11(6). It was held
that Section 11(5) can be invoked by a party who has requested the other party to appoint an
arbitrator and the latter fails to make an appointment within 30 days from the receipt of the
notice. An application u/s 11 (6) can be filed when there is a failure of the procedure for the
appointment of the arbitrator. This failure can arise under different circumstances.
It can be a case where a party who is bound to appoint an arbitrator refuses to do so or where
the 2 appointed arbitrators fail to appoint the 3rd arbitrator. If the appointment of an arbitrator
is entrusted to any person or institution and such person or institution fails to discharge such
function, the aggrieved party can approach the Chief Justice for the appointment of the
arbitrator. In this case, it cannot be said that there was a failure of the procedure as prescribed
by the Act.
Narayan Prasad Lohia vs. Nikunj Kumar Lohia,7

The Court in this case discussed whether an arbitration agreement becomes invalid on the
ground that it provided for the appointment of only two arbitrators, considering that the act
requires an odd number of arbitrators. It was held that even if the parties provided for the
appointment of 2 arbitrators, the agreement does not become invalid. Under Section 11(3) the
two arbitrators should then appoint a third arbitrator who shall act as the presiding arbitrator.
However, such an appointment should preferably be made in the beginning, even though the
two arbitrators may also appoint a third arbitrator at a later stage if such a situation arises when
the two arbitrators differ in opinion. This ensures that on a difference of opinion the arbitration
proceedings do not reach a stalemate. However, there would be no need for a third arbitrator
when both the arbitrator so appointed agree and give a common award.
6
2000 (3) RAJ 181 (SC)
7
2002(1) RAJ 381 (SC)
25
In Mohd. Mushtaq Ahmad v. State8

it was contended that marriage between a couple was solemnized after the commutation of
their marriage the couple gave birth to a girl child further the dispute arose between husband
and wife, the marriage between them was irretrievably broken down, which leads to the filing
of the divorce petition by wife alongside an FIR against the husband under Section 498A of
IPC. The Karnataka High Court directed the parties to mediation under Section 89 CPC. The
matter was settled amicably through mediation after which the wife decided to quash the FIR.
The Court allowed this stating, “The court in the exercise of its inherent powers can quash the
criminal proceedings or FIR or complaint in appropriate cases in order to meet the ends of
justice.”
In Gurudath K. v. State of Karnataka (Criminal Petition No. 7258 of 2014, order dated 20-
11-2014) the facts are identical to the case above. Here the court stated, “Even if the offences
are non-compoundable if they relate to matrimonial disputes and the Court is satisfied that the
parties have settled the same amicably … Section 320 CrPC would not be a bar to the exercise
of the power of quashing of FIR or criminal complaint in respect of such offences.” Thus, the
court allowed for the offences to be compounded on coming to the conclusion that the wife
was under no threat or coercion for the same.
The court’s intention to settle matters as amicably as possible is clear. The intention of the
court matches the ideology of the advocates of mediation, which is to safeguard family
relationships and provide speedy justice.
8
(2015) 3 AIR Kant R 363.
26
CONCLUSION
The Nature and Concept of ADR system is simple, free from procedural technicalities and
result oriented. The techniques are extra judicial in character. The resolution system covers the
civil and commercial nature of disputes. The mechanism of ADR with the help of various
alternative techniques given very encouraging results in several categories of disputes. The role
of the third person is a basic concept in ADR and disputes are settled with the assistance of a
neutral third person. The neutral third person is selected or appointed by the parties of their
own choice and without fear or favour in order to avoid any sort of bias. The basic concept of
the ADR system is to resolve disputes. Whatever the case may be, the basic concept is to
manage and resolve the disagreements between the parties at the lowest cost and with little
adverse impact on business activities. The mechanisms of the ADR system are economical,
Common and voluntary, this system results in huge savings to the litigant parties.
It is a well-known fact that there are plenty of cases which are pending before the Indian courts
due to lack of resources including human resources and proper infrastructure. Although various
steps have been taken towards the improvement of the system, the problem still continues.
India is a relatively under-developed country and majority of litigants are from below middle
class and rural backgrounds. The mechanism of the ADR system is a viable substitute and
effective in providing speedy, cheap and timely justice to litigants. The litigants can opt for
any of various forums. It does not mean to replace the existing judicial system. But to aid and
assist the existing judicial and justice delivery system in providing timely relief.
27
BIBLIOGRAPHY
References
Books and Articles
• Arrow, K.; Mnookin, Robert ;Ross, Lee; Tversky, Amos & Wilson, Robert, Ed.
(1994). Barriers to Conflict Resolution.
• Lord Wolf, Access to Justice: Final Report to the Lord Chancellor on the Civil Justice
System In England and Wales (July 1996) Quoted In Hazel Genn, „What Is Civil
Justice For? Reform, ADR, and Access to Justice‟ Yale Journal of Law & the
Humanities, Vol. 24 (2012), Issue 1
• Ashenfelter, O., Bloom, David E. (1984). “Models of Arbitrator Behavior: Theory
and Evidence.”American Economic Review 74: 111-124.
• Ayres, I. Nalebuff, Barry J. (1997). “Common Knowledge as a Barrier to
Negotiation.” UCLA Law Review.
• Brown, J. , Ayres Ian (1994). “Economic Rationales for Mediation.” Virginia Law
Review 80:323-401.
• Farber, H. S. (1980). “An Analysis of Final-Offer Arbitration.” Journal of Conflict

Resolution 24:683-705.
• Goldberg, S. B., Sander, Frank E.A. & Rogers, Nancy (1992). Dispute Resolution:
Negotiation, Mediation and Other Processes (2nd edition).
• Gould, J. P. (1973). “The Economics of Legal Conflict.” Journal of Legal Studies 2:
279-xx.
• Hensler, D. R. (1986). “What We Know and Don't Know About Court-Administered
Arbitration.”
• Hensler, D. R. (1992). Court-Ordered Arbitration: An Alternate View. Santa Monica,
CA.,Institute of Civil Justice.
• Kakalik, J. S. et. al (1996). An Evaluation of Mediation and Early Neutral Evaluation
under the
• Civil Justice Reform Act. Santa Monica CA, Institute of Civil Justice, The RAND
Corporation.
• Landes, W. M. (1971). “An Economic Analysis of the Courts.” Journal of Law and
Economics 14:61-xx.
28
• Lax, D. A., Sebenius James K. (1986). The Manager As Negotiator.

• Mnookin, R. H. (1993). “Why Negotiations Fail: An Exploration of Barriers to the
Resolution of Conflict.” Ohio State Journal on Dispute Resolution 8(2): 235-249.
• Mnookin, R. H., Kornhauser, Lewis (1979). “Bargaining in the Shadow of the Law:
The Case of Divorce.” Yale Law Journal
• Md. Aktaruzzaman, Concept and Law on ADR and Legal Aid, 2nd ed., (Dhaka,
Shabdakoli Printers, 2008), p.9.
WEBSITE
• https://www.drishtiias.com/to-the-points/Paper2/alternative-dispute-resolution-adr-
mechanisms-paper-2
• https://ww2.nycourts.gov/ip/adr/What_Is_ADR.shtml
• https://www.legalserviceindia.com/legal/article-2308-introduction-to-the-concept-of-
alternative-dispute-resolution.html
• https://lexpeeps.in/alternative-dispute-resolution-meaning-nature-and-origin/
• https://indianlegalsolution.com/scope-of-adr/
• https://www.hindlawedu.com/alternative-dispute-resolution-adr/meaning-history-
types-nature-and-scope-of-adr/
• https://blog.ipleaders.in/introduction-to-the-concepts-of-additional-dispute-resolution/
• https://lexresolv.com/importance-and-scope-of-alternate-dispute-resolution/
• https://www.usaid.gov/sites/default/files/documents/1868/200sbe.pdf
• https://viamediationcentre.org/readnews/NA==/Scope-of-Alternate-Dispute-
Resolution-ADR-in-India
29

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Faculty of Law – Jamia Millia Islamia

JAMIA MILLIA ISLAMIA

(ALTERNATIVE DISPUTE REDRESSAL)

Title of the Project

“Concept and Scope of ADR”

STUDENT ID: 201904923

Under the guidance of

Dr. Eqbal Hussain

Historical Background In Indian Context

Emergence of Alternative Methods of Dispute Resolution

Various types of ADR Mechanism

I. Understanding Arbitration and Mediation

Adjudication and Arbitration

Compared to court-based adjudication, the potential advantages and disadvantages of

Negotiation and Mediation

subject to judicial review. The settlement agreement can subsequently be enforced as a

In considering the potential benefits of mediation, it is helpful to consider critical underlying

II. Hybrid Processes.

III. Incentive Effects of ADR Within Dispute Settlement Systems

Relevant Case laws

Bharat Aluminium Co. v. Kaiser Aluminium Technical Services Inc.,2

K.K Modi v K.N Modi3

J&K State Forest Conservation vs. Abdul Karim Wani,4

Puri Construction Company v Union Of India,5

Datar Switchgears Ltd vs. Tata Finance Ltd.,6

Narayan Prasad Lohia vs. Nikunj Kumar Lohia,7

In Mohd. Mushtaq Ahmad v. State8

• Farber, H. S. (1980). “An Analysis of Final-Offer Arbitration.” Journal of Conflict

• Lax, D. A., Sebenius James K. (1986). The Manager As Negotiator.

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