Arbitration, a form of alternative dispute resolution (ADR), is a way to resolve disputes outside the courts. The parties to a dispute refer it to arbitration, which means that the dispute will be decided by one or more persons (the “arbitrators”, “arbiters” or “arbitral tribunal”), and the parties agree to be bound by the arbitral decision (the “award”). An arbitrator is a third party who reviews the evidence in the case and imposes a decision that is legally binding on both sides and enforceable in the courts.
Arbitration is often used for the resolution of commercial disputes, particularly in the context of international commercial transactions. In India, arbitration is also frequently employed in consumer and employment matters, where arbitration may be mandated by the terms of employment or commercial contracts.
Arbitration can be either voluntary or mandatory (although mandatory arbitration can only come from a statute or from a contract that is voluntarily entered into, in which the parties agree to hold all existing or future disputes to arbitration, without necessarily knowing, specifically, what disputes will ever occur) and can be either binding or non-binding. Non binding arbitration is similar to mediation in that a decision cannot be imposed on the parties. However, the principal distinction is that whereas a mediator will try to help the parties find a middle ground on which to compromise, the (non-binding) arbitrator remains totally removed from the settlement process and will only give a determination of liability and, if appropriate, an indication of the quantum of damages payable. By one definition arbitration is binding and non-binding arbitration is therefore technically not arbitration.