Attempts By Arbitrator To Reach Settlement Cant Be Termed As 'Conciliation Proceeding' Under Part III: Calcutta High Court

Brief Facts:

The matter pertained to an order of Commercial Court which annulled the arbitral award. The primary rationale behind this decision was that the arbitrator, Justice Amitava Lala, had engaged in a conciliation process between the disputing parties.

The arbitration award amounted to Rs. 1,54,86,728/- along with an 18% per annum interest rate from the date of the award till the payment date. The Respondent's counterclaim was dismissed. The arbitrator's efforts towards facilitating a settlement between the parties were documented in the award itself. These efforts included several sittings initiated at the behest of both parties. Despite these efforts, the attempt at conciliation ultimately failed.

The Respondent, who was the debtor under the award, argued that the arbitrator's involvement in the conciliation process rendered the subsequent arbitration and award invalid. This contention was based on Section 80 of the Arbitration and Conciliation Act, 1996, which stipulates that a conciliator cannot act as an arbitrator in the same dispute. By participating in the conciliation proceedings, the arbitrator allegedly breached this provision, making the award contrary to law and public policy, thus warranting its annulment. Feeling aggrieved, the Appellant approached the Calcutta High Court (“High Court”).

Observations by the High Court:

The High Court referred to Section 30 of the Arbitration Act, which pertains to settlements in arbitral proceedings. This section empowers arbitral tribunals to actively promote settlement discussions among disputing parties and utilize methods such as mediation or conciliation to facilitate resolution. Should the parties reach a settlement during arbitration, the tribunal is mandated to terminate the proceedings and, upon request, formalize the settlement into an arbitral award.

Upon examining Section 30, the High Court noted its striking resemblance to Section 89 of the Civil Procedure Code (CPC) along with Order 23 Rule 3. Section 89 of the CPC mandates courts to explore potential settlements and offers various methods, including arbitration, conciliation, judicial settlement, or mediation. Similarly, Order 23 Rule 3 outlines the procedure for recording and implementing lawful agreements or compromises reached during the progression of a suit.

The High Court underscored the common occurrence during litigation where judges identify opportunities for settlement and encourage parties to explore them. Judges may intervene directly, providing insights into the strengths and weaknesses of each party's case, and even suggesting provisional adjudications to facilitate settlement negotiations. If a monetary claim is involved, judges might propose settlement amounts, leaving it to the parties to accept or proceed with litigation.

It noted that once a settlement is reached, whether through court intervention or not, it is formalized in a written agreement signed by the parties and their legal representatives, culminating in a decree reflective of the settlement terms.

Furthermore, the High Court drew parallels between the conciliation process outlined in Part III of the Arbitration Act and the settlement endeavors initiated by arbitrators during proceedings. While conciliation operates as an independent formal process aimed at settlement, it held that arbitration involves a neutral arbitrator rendering decisions akin to a court. Recognizing the distinct roles, Section 80 of the Arbitration Act prohibits individuals from concurrently serving as conciliators and arbitrators.

The High Court highlighted the importance of distinguishing between formal conciliation proceedings and the settlement efforts undertaken by arbitrators. Despite being termed as conciliation in an arbitral context, it held that the efforts made by arbitrators to facilitate settlements bear closer resemblance to judicial attempts to encourage settlement during court proceedings.

Therefore, the High Court held the Commercial Court's interpretation to be erroneous. Consequently, the High Court set aside the judgment of the Commercial Court.

Case Title: MFAR Constructions Private Limited vs Bengal Shristi Infrastructure Development Limited

Case Number: FMAT (ARBAWARD) No.30 of 2022

Advocate for the Appellant: Mr. Soumabho Ghosh, Ms. T. Bhattacharya, Mr. Anujit Mookherji, and Mr. Prithish Chandra

Advocate for the Respondent: Ms. Hasnuhana Chakraborti, Ms. Aasia Hasan, Mr. Pathik Chowdhury

Click Here To Read/Download Order or Judgment