What is Arbitration?

Arbitration is the means of securing a definite judgment or award for any controversial issue by referring it to a third party. It may imply the existence of an authority set apart to adjudicate on industrial disputes under recognized conditions. Arbitration is by mutual consent of the parties. When the Government decides to refer a case to a Labor Court or Industrial Tribunal, it is called adjudication. Thus, compulsory arbitration is referred to as adjudication.


Arbitration involves the exercise of an authority to bring about an agreement or to help the process of settlement by adjudicating on industrial disputes. The arbitrator has powers to probe and in the process becomes acquainted with the facts of the industrial situation.

Arbitration in industry shares several common features with conciliation and mediation. Just like conciliation and mediation, there is also intervention of third party. It can either be voluntary or compulsory like conciliation and mediation. The note of distinction between arbitration and conciliation is that in the former the decision is finding on the parties, while in the case of later the parties may or may not accept the decision. Arbitration is characterized by a different approach than conciliation and mediation. Arbitration procedure is more of judicial nature and the award has the resemblance of a court’s judgment. The arbitrator has his own decision and does not care for the recommendations of the parties. The procedure of conciliation is not of judicial nature and the conciliator persuades the parties towards positive settlement of dispute without imposing any personal will or judgment.

Types of Arbitration

The arbitration can either be voluntary or compulsory.

  1. Voluntary Arbitration: Arbitration is voluntary, if the parties, having failed to settle their differences by negotiation agree to submit their cases to arbitrator whose decision they agree to accept. Arbitration is voluntary in the sense that the disputants are free to give their consent or to refuse to submit their differences to the decision of the arbitrator. Hence, the fundamental character of voluntary arbitration is the voluntary submission of cases to an arbitrator, and therefore, it does not necessitate the subsequent attendance, of witness, investigation and enforcement of awards may not be necessary, because there is no compulsion. Under voluntary arbitration, it is not necessary that there may be an “arbitration agreement” or “arbitration clause”. The former refers to the arrangement for submission of certain types of disputes while the latter is concerned with the disputes to occur in future.
  2. Compulsory Arbitration: Where parties fail to arrive at a settlement by the voluntary method, recourse is taken to compulsory arbitration. Arbitration is compulsory, when parties to the dispute are compelled to submit their cases to an outside person, board or court and the decision of such agencies is binding upon them. Thus, arbitration when compulsory follows statutory action and necessitates the submission of case by parties to an arbitrator. Generally, when the parties fail to arrive at a settlement by voluntary methods, the Government under statutory provision refer the case to an authority for adjudication and enforces its award on the parties. Hence, adjudication is a form of arbitration, which implies compulsory arbitration. The rules and procedures of arbitration are similar to those commonly followed in courts of law. Thus, compulsory powers of investigation and compulsory enforcement of awards, with penalties for breaches of these awards.

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