Arbitration - Meaning & Definition

Published by MBA Skool Team, Last Updated: January 21, 2016

What is Arbitration?

Arbitration is a dispute resolution mechanism in which the dispute is submitted to the impartial third party .under this process third party determines the cause of controversy between the parties to conflict and submit their recommendations on it. The decision of third party is binding on the parties involved in conflict.

Disputes are the inevitable part of the business such that even tremendous technological advancement has failed to stop it. Disputes are inherent in all kinds of business organization whether between employer and trade union or between supplier and buyer of goods. So we have various systematic processes and laws for dispute resolution and arbitration is one amongst them.

The third party arbitrator is chosen with the consent of both the parties wherein possibility of dispute resolution is increased. Furthermore Arbitration is a judicial process having no place for compromise in it.

The process of arbitration can be voluntary or mandatory, in the former one the concerned parties willingly approach the arbitrator while in the latter case the parties do the same as a compliance to order of state.

How arbitration is different from conciliation?

Arbitration is different from conciliation in two ways-

• Decision of this process is binding on parties

• The arbitrator or the third party gives judgment on the basis of evidence submitted to him by the concerned parties.


The advantages of using arbitration are as follows-

• It is an informal and cost effective process of dispute resolution.

• It cut downs the scope for delays and results in prompt settlement of disputes.

• Appointment of an arbitrator is based on the consent of parties to the conflict which promotes co-operation and strengthens relations among them.

Also there are certain drawbacks of following the attrition process-

• Involvement of bias in the recommendation of third party outsider

• Delay in the decision making due to unavailability of third party outsider.

• Involvement of the third party hampers the secrecy required to be maintained by an organization.


Hence, this concludes the definition of Arbitration along with its overview.

This article has been researched & authored by the Business Concepts Team. It has been reviewed & published by the MBA Skool Team. The content on MBA Skool has been created for educational & academic purpose only.

Browse the definition and meaning of more similar terms. The Management Dictionary covers over 2000 business concepts from 5 categories.

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