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Conciliation: The Lesser Used ADR

Udayan Tandan
10 Sep 2020 3:50 PM GMT
Conciliation: The Lesser Used ADR
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WHAT IS CONCILIATION

Conciliation is one of the Alternative Dispute Redressal (ADR) procedures/ mechanisms. Conciliation is a non-adjudicatory, negotiatory ADR process, which is also governed by the provisions of the Arbitration and Conciliation Act, 1986 (AC Act).

CONCILIATION: THE GOVERNING STATUTES/ RULES

The law relating to Conciliation has been codified for the first time in India on the pattern of UNCITRAL Conciliation Rules. One of the objects of the UNCITRAL Conciliation Rules embodied in Part III of the Act is to make "a significant contribution to the establishment of a unified legal framework for the fair and efficient settlement of disputes arising in International commercial relations."

Although provided for in Section 89 of the Code of Civil Procedure (CPC), 1908 Conciliation, as a specific mechanism for dispute resolution is provided for and specifically dealt with under Part-III titled 'Conciliation' of the Arbitration and Conciliation Act, 1996 (AC Act).

Conciliation proceedings in India are governed by:

1. Arbitration and Conciliation Act, 1996 (AC Act)

2. Section 89 of the Code of Civil Procedure, 1908 (CPC)

3. Delhi High Court Mediation & Conciliation Rules, 2004 framed under Section 89 CPC, 1908

Section 89 CPC specifically empowers the Court, with the consent of the parties, to refer the matter for settlement under sub-section 2(a) of Section 89 CPC for ADR process. It refers to five types of ADR procedures, made up of one adjudicatory process i.e. Arbitration and four negotiatory/ non-adjudicatory processes i.e. Conciliation, Mediation, Judicial settlement and Lok Adalat settlement. The object of Section 89 CPC is that settlement should be attempted by adopting an appropriate ADR process before the case proceeds to trial.

Neither Section 89 nor Rule 1-A of Order 10 CPC is intended to supersede or modify the provisions of the Arbitration and Conciliation Act, 1996 or the Legal Services Authorities Act, 1987. Rather, it clarifies that two of the ADR processes i.e. Arbitration and Conciliation, will be governed by the provisions of the AC Act and the two other ADR processes i.e. Lok Adalat settlement and Mediation, will be governed by the Legal Services Authorities Act. As for the last of the ADR processes i.e. Judicial settlement, Section 89 makes it clear that it is not governed by any enactment and the Court will follow such procedure as may be prescribed (by appropriate rules).

The Delhi High Court Mediation and Conciliation Rules cannot override the statutory Provisions.

HOW CONCILIATION CAN BE INITIATED AND WHETHER PARTIES CAN BE REFERRED TO CONCILIATION BY COURT

Conciliation as a dispute redressal mechanism can only be initiated voluntarily by the parties in the manner envisaged under Part-III of the Arbitration and Conciliation Act, 1996. There can be a valid reference to Conciliation 'only' if both parties to the dispute agree to have negotiations with the help of a third party or third parties either by an agreement or by the process of invitation and acceptance provided in Section 62 AC Act, followed by appointment of Conciliator(s) as provided in Section 64 AC Act. If both parties do not agree for Conciliation, the process of Conciliation cannot be initiated.

Even in a case before the Court, with the consent of the parties, the pending suit/proceeding can be referred to Conciliation under Section 89 CPC. If a dispute is referred for Conciliation, sub-section 2(a) of Section 89 CPC specifically mandates that the provisions of the Arbitration and Conciliation Act shall apply as if the proceedings for Conciliation were referred for settlement under it. The settlement, if any, shall be governed by Section 74 AC Act and would require to be enforced in the manner of an Arbitral Award.

The Settlement Agreement in Conciliation may not require the seal of approval of the Court for its enforcement when they are made in a direct reference by parties without the intervention of Court. When a matter is settled through Conciliation, the Settlement Agreement executed thereof within the meaning of Section 74 AC Act is to be treated as an Arbitral Award under Section 30 AC Act so as to be enforced under Section 36 AC Act.

However, if Conciliation proceedings are made on a reference by a Court in a pending suit/proceeding, the Court retains its control and jurisdiction over the case, even when the matter is before the ADR forum. As the Court continues to retain control and jurisdiction over the cases referred by it for Conciliation, the Settlement Agreement in Conciliation will have to be placed essentially placed before the Court for recording it and disposal in its terms.

PROCEDURE

Elaborate steps are prescribed for Conciliation under Part-III (Section 76 to Section 81) titled 'Conciliation' of the Arbitration and Conciliation Act, 1996 (AC Act). Where law prescribes the manner in which an act has to be performed, it has to be performed in that manner only.

In Conciliation proceedings initiated voluntarily by the parties, the proceedings shall commence and progress only in accordance with Part-III of the AC Act, 1996. Section 61 AC provides that disputes arising out of a legal relationship, whether contractual or not, may be resolved by the parties through Conciliation. Conciliation proceedings are initiated under Section 62 on a written invitation by one party to conciliate to the other. It commences when the other party, accepts such invitation, in writing. Section 63 AC Act provides that there shall be a sole Conciliator, unless the parties agree that there shall be two or three Conciliators. Where there are more than one Conciliator, they ought to act jointly.

The appointment of a Conciliator is undertaken under Section 64 AC Act. Section 66 AC Act maintains that the Conciliator is "not bound by CPC or the Indian Evidence Act, 1872". Section 65 Act prescribes that the Conciliator(s) may request each party to submit to him/ them a brief written statement describing the general nature of the dispute and the points at issue, a further statement in writing, documents and evidence in support, and/or seek additional information from either party as he deems appropriate. Section 67 AC Act defines the role of the Conciliator(s). Conciliator(s) may make proposals for settlement of the dispute, in writing or otherwise. Thus, Conciliator(s) plays a proactive role in settlement of the dispute. The Conciliator(s) may even arrange for administrative assistance by a suitable institution or person, with the consent of the parties, to facilitate the conduct of the proceedings. Communication between the parties and the Conciliator may be oral or written.

The place and time for holding of the Conciliation proceedings shall be determined by the Conciliator(s) after consultation with the parties.

A Settlement Agreement between the parties is finalized in accordance with Section 73 AC Act. The Settlement Agreement has to be in writing, signed by the parties, and also signed by the Conciliator to authenticate the same. When the parties sign the Settlement Agreement, it shall be final and binding on the parties and persons claiming under them respectively.

Section 74 AC Act sets out the status and effect of a Conciliated Settlement Agreement. By virtue of Section 74 AC Act, such Settlement Agreement shall have the same status and effect as if it is an "Arbitral Award on agreed terms on the substance of the dispute rendered by an Arbitral Tribunal under Section 30 AC Act". Section 76 AC Act prescribes the manner in which the conciliation proceedings are terminated. The Conciliator shall authenticate the Settlement Agreement and furnish a copy thereof to each of the parties.

The Conciliator is empowered to fix fees and costs of the Conciliation and direct the parties to deposit an equal amount as an advance towards the same.

During the pendency of the Conciliation proceedings, the parties cannot initiate any arbitral or judicial proceedings in respect of the dispute that is the subject-matter of the Conciliation proceedings, except where such proceedings are necessary for preserving the rights of a party.

Under Section 84 AC Act, the power to make rules is conferred on the Central Government.

WHO CAN BE A CONCILIATOR?

A Conciliator is a person who is to assist the parties to settle the disputes between them amicably unlike an Arbitrator who has an adjudicatory function. But that does not dispense with satisfying the requirements of Section 73 AC Act in bringing out a binding Settlement Agreement. The Conciliator plays a relatively direct role in the actual resolution of a dispute and even advises the parties on certain solutions by making proposals for settlement. The Conciliator has to impartial, fair and independent, and be guided by the principles of objectivity, fairness and justice.

ESSENTIALS OF A VALID CONCILIATION

If the statute prescribes a procedure for doing a thing in a particular way, it has to be done accordingly. As such, it is imperative that the procedure as prescribed under-Part III AC Act has been followed by the Conciliator for the Settlement Agreement to be valid, binding and enforceable.

The Conciliation Settlement Agreement entered into by the parties should satisfy and comply with all of the requirements of Section 73 AC Act. The Conciliation Settlement must be drafted by the Conciliator(s) and the parties during Conciliation proceedings as provided in Section 73 (2) and bear the signature of the representatives of both parties at the end of the document as required by Section 73(3) AC Act. It should be authenticated by the Conciliator(s) at the end of the document as required by Section 73(4) AC Act. There should be a Settlement Agreement within the meaning of Section 74 AC Act, and there should be termination of Conciliation proceedings under Section 76(a) AC Act by the signing of the Settlement Agreement by the parties on the date of Agreement. Consequently, the Conciliation Settlement becomes final and binding on the parties as set out in Section 73(3) AC Act. If there was Settlement Agreement under Section 73 AC Act, Conciliation Proceedings would be terminated under Section 76(a) AC Act. A successful Conciliation proceeding comes to an end only when the Settlement Agreement signed by the parties comes into existence.

It is such an agreement which has the status and effect of legal sanctity of an arbitral award under Section 74 AC Act, and such a Settlement Agreement executed within the meaning of Section 74 AC Act is to be treated as an Arbitral Award under Section 30 AC Act so as to be enforceable under Section 36 AC Act.

ENFORCEMENT/ EXECUTION OF CONCILIATION AGREEMENT

Be it a decree or an order, it makes no difference to the method of execution as, even an order has to be executed in the same manner as a decree.

Therefore, enforcement of such settlement would have to be effected in accordance with Section 36 under Chapter-VIII of AC Act.

Section 36 specifically dealing with enforcement, stipulates that an Arbitral Award shall be enforced "under the Code of Civil Procedure, 1908 (5 of 1908) in the same manner as if it were a decree". Therefore, such Conciliation, that commences by voluntary acts as provided under Part-III of AC Act, does not envisage intervention of the Court other than for the purposes of enforcement thereof which has to be done by the civil Court as it were a decree of the Court. Conciliation proceedings do not result in passing of a decree.

DIFFERENCE BETWEEN CONCILIATION AND ARBITRATION

As contrasted from Arbitration, when a matter is referred to Conciliation, the matter does not go out of the stream of the Court process permanently. If there is no settlement, the matter is returned to the Court for framing issues and proceeding with the trial.

In Arbitration proceedings the Award is the decision of the Arbitral Tribunal while in the case of Conciliation the decision is that of parties arrived at with the assistance of the Conciliator.

DIFFERENCE BETWEEN CONCILIATION AND MEDIATION

There is a difference between the prescribed mechanisms for execution of the settlements reached in Mediation and Conciliation. Perusal of Section 89 CPC would show that sub-section (a) of Section 2 of Section 89, mandates that so far as 'Conciliation' is concerned, the procedure under the AC Act has to be followed. As against this, Clause (d) of sub-section 2 of Section 89 CPC prescribes that in Mediation, "such procedure as may be prescribed" has to be followed.

The statute lays down that a Conciliation Agreement has the "same status and effect as if it is an Arbitral Award" by virtue of Section 74 AC Act. It would thus be enforceable under Section 36 AC Act.

On the other hand, a Mediation Settlement has, under Section 89(2)(d) CPC, to receive the treatment prescribed under the Rules framed for the purpose. Upon a MEDIATION settlement being effected, "the Court shall effect a compromise between the parties and shall follow such procedures as may be prescribed", such as the Delhi High Court Mediation and Conciliation Rules, 2004 in Delhi.

RELEVANT PROVISIONS OF THE CODE OF CIVIL PROCEDURE

The relevant provisions of Code of Civil Procedure, 1908 are Sections 36, 38, 39 and 89.

THE MEDIATION AND CONCILIATION RULES, 2004

The Mediation and Conciliation Rules, 2004, prescribing the procedure, were framed in exercise of the rule making power prescribed under Part X CPC and the enabling mandate under clause (d) of sub-section (2) of Section 89 CPC and were notified by the High Court of Delhi on 11th August, 2005. Procedure guiding settlement agreements is to be found in Rules 24 and 25 of the Delhi High Court Mediation and Conciliation Rules.

It is trite that rule-making power vested in an authority does not enable it to make rules which traverse beyond the scope of the enabling Act or which are inconsistent or repugnant to the Act. When legislative power is delegated the power must be exercised within the scope of the authority conferred by the enabling Act.

The reference in Rule 25 of the Delhi High Court Mediation and Conciliation Rules that, on receipt of any settlement, if the court is satisfied with regard to the settlement, it "shall" pass "a decree" in accordance with terms thereof would neither override the statutory mandate of AC Act nor the provisions of CPC. It cannot proscribe the jurisdiction of the Court to pass a decree as well.

The Mediation and Conciliation Rules, 2004 derive their existence as well as statutory authority from CPC and cannot confer such substantive rights which the enabling Act does not prescribe. The intention of the rule making authority by Rule 25 is to give sanctity to a settlement agreement reached in Mediation in accordance with law.

Such intention and purpose are achieved if the substantive proceedings are disposed of either by passing a decree in the suit in terms of the settlement or the proceeding only if the substantive law so mandates. It is also achieved by an order accepting and disposing of the proceeding in terms of the settlement in proceedings where the substantive law does not envisage passing a decree as under the AC Act.

Such an order (passed in terms of the settlement agreement) would be executable under Section 36 CPC in the same manner as a decree.

DECREE, ORDER, JUDGMENT AND SETTLEMENT

The expression "judgment" is defined under Section 2(9) CPC as: "judgment" means the statement given by the Judge on the grounds of a decree or order.

The expression 'order' used in AC Act is not defined therein, and derives its meaning from Section 2(14) of CPC as: "order" means the formal expression of any decision of a Civil Court which is not a decree.

The expression 'decree' is specifically defined under Section 2(2) CPC as: "decree" means the formal expression of an adjudication which, so far as regards the Court expressing it, conclusively determines the rights of the parties with regard to all or any of the matters in controversy in the suit and may be either preliminary or final.

An Award in Arbitral proceedings does not satisfy any of the requirements of a decree. It is not rendered in a suit nor is an arbitral proceeding commenced by the institution of a plaint. Similarly, a settlement in the Conciliation would also not result in a decree. In terms of the provisions of the CPC as well, no decree can result in proceedings under AC Act.

RELEVANT CASE LAW

The scope of Section 89 CPC and reference to the alternative dispute redressal mechanisms came up for consideration before the Hon'ble Supreme Court in Afcons Infrastructure Ltd. & Anr. v. Cherian Varkey Construction Co. Pvt. Ltd. & Ors., (2010) 8 SCC 24. So far as the Conciliation in a matter pending in Court is concerned, the Court observed thus:

"35. Conciliation is a non-adjudicatory ADR process, which is also governed by the provisions of the AC Act. There can be a valid reference to conciliation only if both parties to the dispute agree to have negotiations with the help of a third party or third parties either by an agreement or by the process of invitation and acceptance provided in Section 62 of the AC Act followed by appointment of conciliator(s) as provided in Section 64 of the AC Act. If both parties do not agree for conciliation, there can be no "conciliation". As a consequence, as in the case of arbitration, the court cannot refer the parties to conciliation under Section 89, in the absence of consent by all parties. As contrasted from arbitration, when a matter is referred to conciliation, the matter does not go out of the stream of the court process permanently. If there is no settlement, the matter is returned to the court for framing issues and proceeding with the trial." para 35

On the question of "Whether the settlement in an ADR process is binding in itself?, the Court noted that:

"37. When the court refers the matter to arbitration under Section 89 of the Act, as already noticed, the case goes out of the stream of the court and becomes an independent proceeding before the Arbitral Tribunal. Arbitration being an adjudicatory process, it always ends in a decision. There is also no question of failure of the ADR process or the matter being returned to the court with a failure report. The award of the arbitrators is binding on the parties and is executable/enforceable as if a decree of a court, having regard to Section 36 of the AC Act. If any settlement is reached in the arbitration proceedings, then the award passed by the Arbitral Tribunal on such settlement, will also be binding and executable/enforceable as if a decree of a court, under Section 30 of the AC Act." para 37

What is the nature of the ADR process? Is it adjudicatory or non-adjudicatory? More important, what happens to the case in which a reference to ADR is made? With regard to other four ADR processes, the Court explained as follows:

"38. The other four ADR processes are non- adjudicatory and the case does not go out of the stream of the court when a reference is made to such a non- adjudicatory ADR forum. The court retains its control and jurisdiction over the case, even when the matter is before the ADR forum. When a matter is settled through conciliation, the settlement agreement is enforceable as if it is a decree of the court having regard to Section 74 read with Section 30 of the AC Act. xxx xxx xxx Though the settlement agreement in a conciliation or a settlement award of a Lok Adalat may not require the seal of approval of the court for its enforcement when they are made in a direct reference by parties without the intervention of court, the position will be different if they are made on a reference by a court in a pending suit/proceedings. As the court continues to retain control and jurisdiction over the cases which it refers to conciliations, or Lok Adalats, the settlement agreement in conciliation or the Lok Adalat award will have to be placed before the court for recording it and disposal in its terms." para 38

The Court thereafter laid down the effect of the settlement reached in the non-adjudicatory forums as follows:

"40. Whenever such settlements reached before non- adjudicatory ADR fora are placed before the court, the court should apply the principles of Order 23 Rule 3 of the Code and make a decree/order in terms of the settlement, in regard to the subject-matter of the suit/proceeding. In regard to matters/disputes which are not the subject-matter of the suit/proceedings, the court will have to direct that the settlement shall be governed by Section 74 of the AC Act (in respect of conciliation settlements) or Section 21 of the Legal Services Authorities Act, 1987 (in respect of settlements by a Lok Adalat or a mediator). Only then such settlements will be effective." para 40

The Court finally summed up the procedure to be adopted by a Court as follows:

"43. We may summarise the procedure to be adopted by a court under Section 89 of the Code as under:

a) When the pleadings are complete, before framing issues, the court shall fix a preliminary hearing for appearance of parties. The court should acquaint itself with the facts of the case and the nature of dispute between the parties.

b) The court should first consider whether the case falls under any of the category of the cases which are required to be tried by courts and not fit to be referred to any ADR processes. If it finds the case falls under any excluded category, it should record a brief order referring to the nature of the case and why it is not fit for reference to ADR processes. It will then proceed with the framing of issues and trial.

xxx xxx xxx

e) If the parties are not agreeable for arbitration, the court should ascertain whether the parties are agreeble for reference to conciliation which will be governed by the provisions of the AC Act. If all the parties agree for reference to conciliation and agree upon the conciliator/s, the court can refer the matter to conciliation in accordance with section 64 of the AC Act.

f) If the parties are not agreeable for arbitration and conciliation, which is likely to happen in most of the cases for want of consensus, the court should, keeping in view the preferences/options of parties, refer the matter to any one of the other three ADR processes : (a) Lok Adalat; (b) mediation by a neutral third-party facilitator or mediator; and (c) a judicial settlement, where a Judge assists the parties to arrive at a settlement.

xxx xxx xxx

(h) If the reference to the ADR process fails, on receipt of the Report of the ADR Forum, the court shall proceed with hearing of the suit. If there is a settlement, the court shall examine the settlement and make a decree in terms of it, keeping the principles of Order 23 Rule 3 of the Code in mind.

(i) If the settlement includes disputes which are not the subject matter of the suit, the court may direct that the same will be governed by Section 74 of the AC Act (if it is a Conciliation Settlement) or Section 21 of the Legal Services Authorities Act, 1987 (if it is a settlement by a Lok Adalat or by mediation which is a deemed Lok Adalat). This will be necessary as many settlement agreements deal with not only the disputes which are the subject matter of the suit or proceeding in which the reference is made, but also other disputes which are not the subject matter of the suit. xxx xxx" para 43

In Mysore Cements Ltd. v Svedala Barmac Ltd, AIR 2003 SC 3493, the question before the Court for consideration was: "Whether a Letter of Comfort furnished on the same day of a Settlement arrived at during conciliation signed by both the parties and authenticated by the Conciliators is enforceable in the same manner as an arbitration award under Section 74 read with Sections 30 and 36 of the Arbitration and Conciliation Act, 1996?"

The Court held that: "It is not every agreement or arrangement between parties to the disputes, arrived at in whatever manner or form, during the pendency of conciliation proceedings that automatically acquires the status of a settlement agreement within the meaning of Section 73 of the Act so as to have the same status and effect as if it is an arbitral award, for being enforced as if it were a decree of the court. It is only that agreement which has been arrived at in conformity with the manner stipulated and form envisaged and got duly authenticated in accordance with Section 73 of the Act, alone can be assigned the status of a settlement agreement, within the meaning of and for effective purposes of the Act, and not otherwise. It should have fulfilled the essential legal pre requisites to be satisfied for being assigned any such status…. If the Settlement Agreement comes into existence under Section 73 satisfying the requirements stated therein, it gets the status and effect of an arbitral award on agreed terms on the substance of the dispute rendered by an arbitral tribunal under Section 30 of the Act."

In Haresh Dayaram Thakur v. State of Maharashtra and Ors., [2000] 6 SCC 179 while dealing with the provisions of Sections 73 and 74 AC Act, the Court expressed thus:-

"19. From the statutory provisions noted above the position is manifest that a conciliator is a person who is to assist the parties to settle the disputes between them amicably. For this purpose the conciliator is vested with wide powers to decide the procedure to be followed by him untrammelled by the procedural law like the Code of Civil Procedure or the Indian Evidence Act, 1872. When the parties are able to resolve the dispute between them by mutual agreement and it appears to the conciliator that there exists an element of settlement which may be acceptable to the parties he is to proceed in accordance with the procedure laid down in Section 73, formulate the terms of a settlement and make it over to the parties for their observations; and the ultimate step to be taken by a conciliator is to draw up a settlement in the light of the observations made by the parties to the terms formulated by him. The settlement takes shape only when the parties draw up the settlement agreement or request the conciliator to prepare the same and affix their signatures to it. Under sub-section (3) of Section 73 the settlements agreement signed by the parties is final and binding on the parties and persons claiming under them. It follows therefore that a successful conciliation proceeding comes to an end only when the settlement agreement signed by the parties comes into existence. It is such an agreement which has the status and effect of legal sanctity of an arbitral award under Section 74….. 20…. The position is well settled and if the statute prescribes a procedure for doing a thing, a thing has to be done according to that procedure. "

STAMP DUTY FOR SETTLEMENT AGREEMENT IN CONCILIATION

The Award, under Article 12 of the Schedule 1A as applicable to Delhi, of the Stamp Act, attracts stamp duty of 0.1% of the value of the property to which the Award relates. Similar duty is payable on a Settlement Agreement under the Conciliation.

BENEFITS OF CONCILIATION

Conciliation is a fundamentally different alternative dispute. Apart from consensual selection of the forum, even the dispute is settled by agreement and not by adjudication. A Conciliation Settlement is analogous to a compromise agreement or consent order which is enforced by using the machinery of the Court.

In view of the above discussion, it can be said that, Conciliation is a simple, cost effective, fast procedure to settle any dispute. Conciliation tries to individualize the optimal solution and direct parties towards a satisfactory common agreement. The Settlement Agreement arrived at in Conciliation proceedings is final and binding, and enforceable.

Views are personal only.

(Author is an Advocate and Ex-Legal Consultant, Directorate Of Enforcement)

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