Let suppose there are two companies namely ‘X’ Private Limited and ‘Y’ Corporation. X is engaged in the business of production of Wooden Plies while Y is in the manufacturing and selling of Wooden Doors. On a certain day, they signed an agreement wherein X had to supply 25000 Wooden Plies to Y for Rs 5 Crores within 2 months from the date of the signing of the Agreement.
X delivered the ordered good within the decided time and Y accepted the delivery and even signed on the delivery receipt. However, when Y inspected the delivered goods after two days, they found out that 50 of the wooden plies delivered are broken. To point out the same, Y wrote a complaint letter to X stating the same and asked them to replace the damaged goods with the good ones. With this, they also asked X to compensate Y by giving them the discount of 10 Lakhs on the principal which has to be paid by Y as Y suffered a huge loss due to the delivery of the damaged goods.
When X received the complaint letter, they accepted their mistake and sent a reply stating that they will send the re-made wooden plies to Y as soon as possible and replace them with the damaged ones. However, X denied to compensate Y stating that X had already accepted the delivery and did not inspect them on the same day. For the same reason the damaged wooden plies could not be replaced on time and therefore Y has suffered from the loss.
Now there is a dispute between X and Y wherein it has to be decided whether X is liable to compensate Y or not? and Before this, the most important question is,
What is the best way to resolve this dispute? Y should file a Civil Suit against X in the Court?
No! Nah! Not at all!
This is the point where our best bet should be on an Alternative Dispute Resolution. So, when X and Y included the “Arbitration Clause” in their agreement, there is never a best time than this to use that clause.
Now your question must be, why do we choose Arbitration over a Civil Suit? Keep reading guys!!!
WHAT IS ARBITRATION?
Arbitration is a private dispute resolution process. That means, instead of filing a civil suit in a court for a commercial dispute, the parties submit their dispute to an Arbitrator or any number of Arbitrators. After considering the statement of claim and respondent’s statement, and other documents and hearing the parties fairly, the Arbitrator or Arbitrators come to a conclusion and give an award which will be binding on the parties. Simple?
But the civil suit also sounds like this. Is Arbitration any different?
Yes! Definitely! Totally!
AND, HOW IS IT BETTER?
Reason Number 1: Arbitration is consensual
This means that Arbitration happens only when both the parties agree to such dispute resolution process. Unlike this, civil suit can be started by any one of the parties and the other party, then, has no other option than to be a part of the court proceedings whether they like it or not.
Reason Number 2: Parties chose their own arbitrator or arbitrators.
Ever heard that the parties chose their own judges in the court? But this happens in the process of Arbitration. In fact, the parties can decide the number of Arbitrators with whatsoever required qualifications to resolve their dispute. No Questions Asked!
Now, the most important benefit of getting your own arbitrators is – that the qualifications of the Arbitrators can be according to the subject matter of dispute. That means, the complete dispute resolution would be much smoother and reasonable than normal court proceeding.
Reason Number 3: Arbitration is a neutral process.
Its an International Commercial Dispute, that means two different countries are involved in the transaction. Can the parties go for a civil suit? Wouldn’t it become complicated and unfair?
Of course!
Because, then in a normal court proceeding, one of the parties can be said to be in an advantageous position because any one of the Country’s laws and process would be followed.
But, in Arbitration, both the parties get to decide the applicable legislation, venue of the arbitration, seat of the arbitration and even the language used in the complete process. Isn’t it great?
Reason Number 4: Arbitration is a confidential process. (Sshh)
For example, the subject matter of the dispute is related to the ownership of any IP right or any trade secret.
Then, Arbitration gives complete right to the parties to keep the process completely confidential.
Reason Number 5: Decision is final and easy to enforce.
Since the complete process is agreed upon by the parties themselves according to their comfortability and chosen options, the decision is much more acceptable by the parties than the judgement given by the Civil Court. Therefore, the execution of the award also goes very smoothly.
And the most important aspect of all is: THE RELATIONSHIP BETWEEN BOTH THE PARTIES REMAINS MUCH STRONGER AFTER THE ARBITRATION THAN AFTER THE COURT PROCEEDINGS.
This is what we call Arbitration and This is why we choose Arbitration.
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