With evolving times, A modern man has everything except time. To adapt to these dynamic changes, every sector has evolved. For instance, the invention of smart mobile phones has facilitated quick and easy communication and access to the internet, while the development of frozen food has made homemade meals convenient for working professionals, especially women.

A similar evolution also occurred in the legal field with the introduction of the concept of alternative dispute resolution (ADR). Alternative Dispute Resolution in simpler words refers to the resolution of disputes outside of any governmental authority. The most famous form of ADR being Arbitration, Negotiation, Mediation and Conciliation. These ADR mechanisms offer better and timely solution as compared to the traditional mode of dispute resolution that is litigation.

With the entry of foreign investment due to the globalization and liberalization of the Indian economy, there emerged a need to update the domestic laws as the provisions of the Arbitration Act of 1940 were inadequate to meet the expectations of investors, who sought a more efficient and dynamic alternative dispute resolution. Thus, the Arbitration and Conciliation Act of 1996 came into force on 22nd August 1996, based on the UNCITRAL Model Law on International Commercial Arbitration of 1985.[1]

The primary objectives of the act were to reduce the court intervention and to provide an amicable, swift and cost-efficient settlement of disputes.[2] This article deals into the insights of various types of arbitration and their positive and negative aspects and compares the same.

In India there are majorly two types of arbitration: Ad Hoc arbitration and Institutional arbitration. The parties have the option to recourse to any kind of arbitration for resolution of disputes.

In Ad Hoc Arbitration the parties decide all aspects of arbitration themselves like the number of arbitrators, the applicable law and the procedure of arbitration and it is not administered by an institution like ICC or DIAC. According to section 11 (6) of the Arbitration and Conciliation Act, 1996 if the parties fail to act according to the procedure, then a party can request the Supreme court or High court as the case may be to take the necessary measures.[3] Ad hoc arbitrations tend to be more flexible, allowing the parties to have greater control over the process.

This flexibility enables the parties to set convenient timelines and establish their own rules. However, it requires significant effort and cooperation from the parties to ensure they are aligned and on the same page. In certain cases where the parties belong to different nationalities or jurisdictions, they may find it difficult to collaborate and which could result in the arbitration to be delayed unnecessarily. Ad hoc arbitrations are generally less expensive as compared to the institutional arbitration as the parties are only required to pay arbitrator's fee, lawyers or representatives and the cost of the conducting the arbitration.

But the parties will not have to pay any kind of administrative fee like in the case of Institutional arbitration. In this the arbitrator's fee will be negotiated directly between the parties and the arbitrator allowing them to save some cost.[4] An Ad hoc arbitration is suitable for all types of claims, no matter how big or small. As the Ad hoc arbitration can be tailored to the parties' specific needs it is well suited for both large and small cooperations.

However, the effectiveness of Ad hoc arbitration is entirely dependent on the party's willingness to settle the dispute at the time of misunderstanding. Parties in ad hoc arbitrations, typically depend on their own discretion regarding the selection and calibre of the arbitrator. This can be particularly difficult in international arbitration, as a party might not be able to choose a prominent arbitrator from their own country due to concerns about national bias and may have limited knowledge about arbitrators from other nations.

The major disadvantage of this type of arbitration is that the effectiveness of the arbitration process is directly related with the willingness of the parties to cooperate with each other's terms and also the counsel. The parties will always have to plan ahead for all the possible scenarios to match with the timeframe of everyone.This will essentially act as a disadvantage in the case of international arbitrations due to the difference of time zones, locations and cultures. Non-Corporation will only result in additional expenses and delays.

In institutional arbitration, the arbitration process is administered by a specialized institution in the event of a dispute among the parties. Each institution has its own set of rules which would be applicable during the arbitrational process.[5] These rules are in accordance with the legal provisions of a country. They may provide for a domestic arbitration or an international arbitration or for both.

Some of the prominent institutions which conduct institutional arbitration in India are:

• Delhi International Arbitration Centre (DIAC) – New Delhi
• Indian Council of Arbitration (ICA) – New Delhi
• Construction Industry Arbitration Council (CIAC) – New Delhi
• LCIA India – New Delhi
• International Centre for Alternative Dispute Resolution (ICDAR) – New Delhi
• ICC Council of Arbitration – Kolkata

The major advantage of Institutional arbitration is that it provides efficient administration for the entire arbitration process. These institutes have well trained professionals who ensure that all the time limits are complied with and the process is going smoothly. Another advantage of institutional arbitration is that these institutions have a clear set of rules that governs the arbitration process. These rules are made in accordance with the law hence the chances of disputes arising out of misunderstanding or difference of opinion is diminished.

These rules ensure that there are no unnecessary delays or expenses.[6] Institutional arbitration brings the benefit of quality arbitral panel that is these institutions have an extensive panel of experts who act as the arbitrator. These panel comprise of arbitrators who specialise in different area so that any type of dispute can be resolved. Unlike Ad hoc arbitration where the proceedings can be delayed due to non-cooperation among the disputed partied here the deadlines are fixed for such decisions and the arbitral body may intervene to resolve such issues. Like every coin, institutional arbitration also has a flip side.

A major disadvantage of this type of arbitration is that the parties to the arbitration have less control over the arbitration process and hence are subjected to comply with unrealistic timelines. Another issue with institutional arbitration is that the parties to the arbitration are subjected to pay an additional administration cost charged by the institutions which can be considerable if the disputed amount is huge. But in cases where the disputed amount is low and the parties do not have a high budget then it can act as a major drawback.

Both Ad hoc arbitration and Institutional arbitration have their own pros and cons but, in my opinion, Institutional arbitration has an edge over Ad hoc arbitration. The major drawback that people have in mind regarding institutional arbitration is that it is expensive but in reality, this is not the case. After the amendment of 2015 in Arbitration and Conciliation Act 1996 the fourth schedule was introduced in the act which mentions about the ideal fee structure for the arbitrators that is to be charged per arbitration.[7]

Further in my opinion, Ad-Hoc Arbitration is not effectively fulfilling its intended purpose; therefore, greater emphasis should be placed on Institutional Arbitration. However, Institutional Arbitration also faces certain practical challenges that require attention. These include procedural rigidity, which can lead to delays, and high administrative costs, which may discourage parties from choosing this method.s

Thus, we can say that the institutional arbitration is better than Ad Hoc arbitration as it is time as well as cost efficient.

End Notes:

1. The Arbitration and Conciliation Act, 1996, Preamble, No.26, Acts of Parliament, 1996 (India).
2. Department of Legal Affairs, Alternative Dispute Resolution in India, https://legalaffairs.gov.in/sites/default/files/Arbitration_Mediation.pdf.
3. The Arbitration and Conciliation Act, 1996, § 11, No. 26, Acts of Parliament, 1996 (India).
4. Christopher Wenn, Gregor Hayworth and Zhuan Faraj, Burges Salmon Arbitration Basics: ad hoc vs institutional arbitration, BURGERS SALMON (Oct. 20, 2024, 10:30 AM), https://www.burges-salmon.com/news-and-insight/legal-updates/disputes/burges-salmon-arbitration-basics-ad-hoc-vs-institutional-arbitration.
5. Columbia Law School, https://guides.law.columbia.edu/c.php?g=1143492&p=8440953 (last visited Oct. 26, 2024).
6. Pinsent Masons, https://www.pinsentmasons.com/out-law/guides/institutional-vs-ad-hoc-arbitration (last visited Oct. 26, 2024).
7. The Arbitration and Conciliation Act, 1996, Schedule No. 4, No.26, Acts of Parliament, 1996 (India).