Difference Between Arbitration and Litigation

There are several ways to resolve a business dispute. Litigation and arbitration are two of the most popular ways. While litigation involves the courtroom, arbitration is an out-of-court process. In litigation, the judge is involved in dispute resolution. In arbitration, the dispute is resolved by one or more arbitrators who act as neutral third parties. 

Now, which dispute settlement option is better for a company depends on various factors such as the dispute’s nature, desired outcome, cost considerations, time constraints, confidentiality and the level of control the parties wish to retain over the process. If you’re willing to settle a dispute, it’s recommended that you learn about the difference between arbitration and litigation. Only then can you decide which one would be best for you.

What is Arbitration?

A lot of companies avoid going to court to settle disputes because of costs, risks and time involved. Sometimes, there’s also a fear that their public image could be damaged if the dispute becomes widely known or controversial. In such cases, arbitration is the most preferred choice to resolve a dispute. 

So, what exactly is arbitration? Well, arbitration means a way to handle a conflict without having to go to court. An arbitration hearing involves an arbitrator who oversees the legal disputes between two parties (which can be companies or individuals). They listen to both sides of the story before making a legally binding decision. 

In India, the arbitration is governed by the Arbitration and Conciliation Act 1996. The Act came into effect on August 22, 1996. It applies to domestic and international commercial arbitration. Additionally, it covers enforcement of foreign arbitral awards.

What is Litigation?

Litigation means a way to handle a conflict in the court of law. It is a traditional method of dispute resolution that involves presenting the case before a judge or jury. 

The litigation process revolves around enforcing or defending an entity’s legal rights. It involves a contested action between two opposing parties. The one whose right has been violated is legally known as the plaintiff. On the other hand, the other party who is accused of violating the plaintiff’s legal rights is known as the defendant. 

Litigation in India is governed by several acts including the Bharatiya Nagarik Suraksha Sanhita (BNSS), The Bharatiya Nyaya Sanhita (BNS), Bharatiya Sakshya Adhiniyam (BSA) and Limitation Act.

Arbitration vs Litigation: Key Differences

Let’s find out difference between arbitration and litigation:

Conclusion

In this blog post, we discussed arbitration vs litigation. In conclusion, arbitration and litigation are both dispute resolution methods. The main difference between arbitration and litigation is that the former method takes place outside the court, whereas the latter method takes place inside the court. Parties often go for arbitration over litigation because it’s faster and less expensive. Additionally, it also maintains confidentiality. However, litigation may be a better option than arbitration when a dispute involves uncooperative parties. In such a scenario, the judicial system offers a way to compel the other party to take part in and complete the legal process.

Frequently Asked Questions (FAQs)

Q1. What is the difference between arbitration and litigation?
A. Arbitration is a dispute resolution method that happens outside the court with an arbitrator, while litigation is a dispute resolution method that takes place inside the court in presence of a judge or jury.

Q2. Why do companies prefer arbitration over litigation?
A. Companies prefer to go for arbitration because it is generally faster, less expensive, and maintains confidentiality.

Q3. Who makes the decision in arbitration and litigation respectively?
A. An arbitrator makes the decision in the arbitration process, while a judge/jury makes the decision in the litigation process.

Q4. Which laws govern arbitration and litigation in India?
A. The Arbitration and Conciliation Act governs arbitration. On the other hand, the litigation is governed by various laws, such as the BNSS, BNS, BSA, and Limitation Act.

Q5. When is litigation a better option than arbitration?
A. Litigation is generally a better option when the dispute involves uncooperative parties.

Also Read: What are the Powers of NCLT

Author: Dushyant Sharma

Hey there, I'm Dushyant Sharma. With the extensive knowledge I've gained in past 8 years, I have been creating content on various subjects such as banking, insurance, telecom, and all the important registration and licensing processes for various companies. I'm here to help everyone with my expertise in these areas through my articles.