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Consent Awards: Settlement through Arbitration

The term Alternative Dispute Resolution (“hereinafter referred as ADR”) is used to describe several different modes of resolving legal disputes in a non-adversarial manner. In other words ADR means settlement of disputes outside the court through negation, mediation, conciliation and arbitration.

There is a steady growth in parties preferring Arbitration to Litigation after the enactment of Arbitration and Conciliation Act, 1996. The growth is evident as the parties entering into a contract have started including ‘Dispute Resolution Clauses' for resolution of disputes through ADR mechanisms. Conciliation was given statutory recognition as a means for settlement of the disputes in terms of this Act and statues or rules on Mediation are much awaited.

Dispute Resolution Mechanism provides for two types, the adjudicatory mechanism and the non-adjudicatory mechanism. All the alternative methods except arbitration are non-adjudicatory. Arbitration is an adjudicatory mechanism because third party i.e. presiding arbitrator(s) passes an award thus making it more formal, expensive and time consuming than other methods. The Legislature in order to facilitate settlement of disputes even after invoking arbitration, provided for Section 30 in the Arbitration Act, 1996. The courts considering the objective of the legislature, have not hesitated to give finality to the settlement agreements.

The authors of the present article have discussed about the possible settlement between the parties in the light of Section 30 of the Arbitration Act and the advantages of dispute resolution through the same.

Consent Award

Consent Awards are settlement agreements recorded between the parties after the parties have invoked arbitration to settle disputes. The consent award is different from a normal arbitration awards as the dispute is not considered on the merits, but reflects the mutually agreed settlement terms of the parties.[1] Settlement of disputes through consent awards ensures that the disputes end in amicable terms leaving each party satisfied. The consent award will have the same status and effect as arbitral award provided on merits. The consent award, including form and contents, is similar, to any other arbitral award and has same effect of any other arbitral award.

Section 30 of the Act provides for settlement after invocation of arbitration clause.[2]The arbitral tribunal may use any non-adjudicatory method at any time during the arbitral proceedings by terminating the proceedings. Termination of arbitral proceedings does not necessarily result in consent award. The parties may prefer not to obtain approval from the tribunal and can settle the dispute by entering into an agreement under Section 73.[3]

Advantages

Wider scope of settlement

Any dispute can be settled through Negotiation, Mediation and Conciliation. The scope of dispute settlement not only depends upon the dispute clause in the agreement but also the consent and willingness of the parties to resolve the disputes between themselves. As was decided in the case of Booz-Allen & Hamilton Inc vs SBI Home Finance Ltd. &Ors[4], wherein the non- arbitrable disputes were enlisted by the Hon'ble Supreme Court of India, there is no similar jurisprudence on non-adjudicatory mechanisms leaving the scope very wide for inclusion. Hence, it is assessed that the scope of dispute resolution through non-adjudicatory mechanism is wider.

Execution Proceedings

If the parties to the dispute agree to settle the dispute in an amicable manner under Section 30 of the Arbitration Act, then the dispute can be settled through non-adjudicatory ADR mechanisms and subsequently, the Arbitrator shall pass the final consent award. The reason that the award does not require an Enforcement Proceeding is that the dispute is settled and the agreement is signed by the consent of the parties; subject to which finality of the award is decided. However, it is advisable to file an Execution Petition in case either of the parties does not fulfil the obligations as per the consent award passed.

Relations between the parties

Settle don't sue, is what India is looking forward to. If the disputes between the parties are settled through any of the non-adjudicatory mechanisms, it helps preserve the bonafide relations between the parties.

It is an established principle that during the course of the adjudication of any dispute, one party has an advantageous position over the other party. While this does not necessarily mean that one party has won and the other has lost, it helps in building a situation where the parties are able to settle their disputes which lead to a peaceful mode of dispute resolution. This ensures that each party gets an opportunity to put forth their views equally and each party can reach a ‘middle ground' for the purpose of resolving their differences. This aspect even though nowhere to be seen on paper, is beneficial in the longer run especially where the dispute is not worth the struggle of an adversarial system like litigation or arbitration.

The adversarial dispute settlement between the parties if analysed in the light of ‘butterfly effect', can lead to jeopardizing relations in the future and subsequently lead to a ‘domino' of contracts failing or falling.)

Time and Cost saving- Indian commercial sector is witnessing a steady growth in parties preferring arbitration for dispute settlement, which makes invoking arbitration costlier. Research shows that invoking arbitration through Singapore International Arbitration Centre (SIAC), London Court of International Arbitration (LCIA) to name a few has become costlier, as it involves arbitrator fees, institution fees etc.

Even though it is evident that arbitration resolves disputes faster than the courts because of the time limit prescribed by the Act, but why not resolve even faster? One of the perks of settling disputes through Mediation, Negotiation or Conciliation is faster dispute settlement (or resolution) compared to arbitration, owing to the consensus between the parties. Conclusively, it saves time and cost which is a win-win even before initiation of the settlement process.

Settlement

In furtherance to the above-mentioned advantages, it is evident that the parties ‘Settle' the dispute and settlement is a much better resolution than litigation. When you can settle, why sue? When you can mediate or negotiate, why arbitrate?

Laws on Mediation

India recently became a signatory to the Singapore Convention on Mediation and the Legislature is also working on enacting laws on Mediation for enhancing the procedural aspects. There are developments which indicate a proactive approach towards mediation such as an amendment in the Commercial Courts Act, introduction of Mediation Schemes by the High Courts and most importantly the reference of the Ayodhya Dispute to mediation.

Conclusion
Consent awards are nothing but settlement agreements awards passed by arbitral tribunals. The consensual nature of the consent award sustains amicable relations between the parties. The award is normally considered final, as it ends the dispute entirety and brings the proceeding to an end. The authors recommend that although consent awards raise issues of enforcement of award, it is favourable to terminate the proceeding and resolve the dispute consensually.

End-Notes:
  1. Consent Awards in International Arbitration written by Yaraslau Kryvoi & Dmitry Davydenko available at https://brooklynworks.brooklaw.edu/cgi/viewcontent.cgi?article=1108&context=bjil
  2. Section 30 Settlement -
    (1) It is not incompatible with an arbitration agreement for an arbitral tribunal to encourage settlement of the dispute and, with the agreement of the parties; the arbitral tribunal may use mediation, conciliation or other procedures at any time during the arbitral proceedings to encourage settlement.
    (2) If, during arbitral proceedings, the parties settle the dispute, the arbitral tribunal shall terminate the proceedings and, if requested by the parties and not objected to by the arbitral tribunal, record the settlement in the form of an arbitral award on agreed terms.
    (3) An arbitral award on agreed terms shall be made in accordance with section 31 and shall state that it is an arbitral award.
    (4) An arbitral award on agreed terms shall have the same status and effect as any other arbitral award on the substance of the dispute.
  3. Section 73 Settlement agreement.-
    (1) When it appears to the conciliator that there exist elements of a settlement which may be acceptable to the parties, he shall formulate the terms of a possible settlement and submit them to the parties for their observations. After receiving the observations of the parties, the conciliator may reformulate the terms of a possible settlement in the light of such observations.
    (2) If the parties reach agreement on a settlement of the dispute, they may draw up and sign a written settlement agreement. If requested by the parties, the conciliator may draw up, or assist the parties in drawing up, the settlement agreement.
    (3) When the parties sign the settlement agreement, it shall be final and binding on the parties and persons claiming under them respectively.
    (4) The conciliator shall authenticate the settlement agreement and furnish a copy thereof to each of the parties.
  4. Booz-Allen & Hamilton Inc vs Sbi Home Finance Ltd. &Ors (2011) 5 SCC 532

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