The Arbitration and Conciliation Act, 1996 (the Act) is based on the
UNCITRAL Model Law on international commercial arbitration and conciliation.
While the Act was not intended to displace the judicial system, the new law
ushered in an era of private arbitration and conciliation. It was also the first
time that a comprehensive legislation was made on the subject of conciliation in
India. This bulletin will provide an overview of the conciliation proceedings in
India along with the relevant provisions under various statutes.
Conciliation under the Act:
The UNCITRAL Rules on Conciliation, 1980 recognized the value of conciliation
as a method of amicably settling disputes arising in the context of
international commercial relations and that adoption of uniform conciliation
rules by countries with different legal, social and economic systems would
significantly contribute to the development of harmonious international economic
relations.1 Accordingly, these rules were closely followed by the Indian
legislators to formulate conciliation rules under Part III of the Act.
Principles of conciliation:
The procedure laid down in Part III of the Act reflects the following broad
- non-adversary nature of conciliation proceedings – there is no claimant
or plaintiff in conciliation proceedings,
- voluntary nature of proceedings – any party can commence and discontinue
- flexible procedure – the conciliator has the discretion to adopt any
procedural law to ensure speedy and inexpensive conduct of proceedings, and
- decisions are recommendatory – disputes are settled by mutual agreement
and not by imposed decisions.
Definition of conciliation:
The term conciliation is not defined in the Act. However, simply put
conciliation is a confidential, voluntary and private dispute resolution process
in which a neutral person helps the parties to reach a negotiated settlement.
This method provides the disputing parties with an opportunity to explore
options aided by an objective third party to exhaustively determine if a
settlement is possible. Like arbitration, the Act covers both domestic and
international disputes in the context of conciliation. International
conciliation is confined only to disputes of commercial nature. As per
the Act, the definition of international commercial conciliation is exactly
similar to that of international commercial arbitration.2
Accordingly, the Act defines international commercial conciliation as
conciliation proceedings relating to a dispute between two or more parties where
at least one of them is a foreign party.3 The foreign party may be an individual
who is foreign national, a company incorporated outside India, or the government
of a foreign country.
The role of a conciliator
As per section 80 of the Act, the conciliator does not decide for the parties,
but strives to support them in generating options in order to find a solution
that is compatible for both of them, thereby fulfilling the mandate of section
67 of the Act under which the main function of the conciliator is to assist the
parties to reach an amicable settlement.4
For achieving this, a conciliator is obliged to (1) act in an independent and
impartial manner, and (2) abide by the principles of objectivity, fairness and
justice.5 Section 67(4) specifically enables the conciliator to make
proposals for settlement of the dispute … at any stage of the conciliation
The above provisions make it clear that the conciliator, apart from assisting
the parties to reach a settlement, is also permitted and empowered to make
proposals for a settlement and formulate/reformulate the terms of a possible
Conciliation vis-à-vis Arbitration:
While arbitration is considered private when compared with the court system,
conciliation is even more private than arbitration. As litigation and
arbitration are both means of adjudication, the judge and the arbitrator render
their verdicts and impose them on the parties. While the parties to an
arbitration proceeding are given considerable freedom in terms of deciding the
venue, date, arbitrator, etc., they have no control over the decision making
process except in the case of award on agreed terms.6 In contrast, parties to a
conciliation proceeding have the privilege to negotiate and arrive at an
amicable settlement with the assistance of a conciliator in a less formal
Secondly, while section 7(2) requires that an arbitration agreement be in
writing, there is no such express provision regarding conciliation in the Act.
However, this does not hold much relevance as the process of conciliation
commences with the written offer and acceptance to conciliate by the parties.7
Conversely, in arbitration, even in the absence of a prior written agreement, if
the parties appoint the arbitrator and proceed with arbitration, the requirement
of section 7(2) is taken as complied with.
Thirdly, section 30 of the Act permits the parties to engage in conciliation
process even during the course of arbitral proceedings. They may do so suo motu
or under the directions of the arbitrator. In case the conciliation concludes
successfully, the arbitrator is to record the settlement in the form of an
arbitral award. Such an award, which is prepared on agreed terms, is given
similar status to that of any other award.8
However, section 77 of the Act bars any arbitral or court proceedings in respect
of a dispute which is the subject matter of conciliation proceedings.9 This
essentially means that during arbitral or court proceedings, the parties are
encouraged to initiate conciliation proceedings, but once conciliation
proceedings commence, they are barred from initiating arbitration or approaching
the court. Clearly, the purpose of sections 30 and 77 of the Act is to encourage
parties to resort to nonformal conciliation proceedings in preference to the
formal court and arbitral proceedings.
Conciliation under the Civil Procedure Code, 1908 (CPC):
A 1999 amendment to the CPC enabled the courts to refer pending cases to
arbitration, conciliation and mediation to facilitate early and amicable
resolution of disputes.10 Prior to the amendment of the CPC, the Act did not
contain any provision for reference by courts to arbitration or conciliation in
the absence of the agreement between the parties to that effect.
However, pursuant to the insertion of section 89 in the CPC, a court can refer
the case to arbitration, conciliation, judicial settlement 11 or mediation,
where it appears to the court that there exist elements of settlement which may
be acceptable to the parties. Section 89 of the CPC empowers the court to
formulate the terms of settlement and give them to the parties for their
observation and after receiving the observations, reformulate the terms of a
possible settlement and refer the same for arbitration, conciliation, judicial
settlement or mediation.
Once a court refers a case to conciliation, the provisions shall not apply and
the parties shall be bound by the provisions of the Act. This allows the parties
to terminate the conciliation proceedings in accordance with section 76 of the
Act,12 even if the dispute has not been resolved, thereby rendering the entire
dispute resolution process futile.
Advantages of conciliation:
When compared with arbitration and litigation, following are the advantages
- It is more flexible, inexpensive and informal.
- Parties are directly engaged in negotiating a settlement.
- Conciliation enhances the likelihood of the parties continuing their
amicable business relationship during and after the proceedings. The reason
is that the parties are in a conciliatory mode, away from the hostile
environment of a court or an arbitral tribunal where exhaustive arguments
take place and reach a mutually acceptable settlement done volitionally, and
in a congenial manner. Thus, the end result of a conciliation proceeding is
that both parties are relatively pleased with the final outcome.
- In our view, the chances of an appeal after the conclusion of
conciliation proceedings are considerably lower as a mutual settlement is
arrived at between the parties. However, there is no judicial precedent
The introduction of conciliation as a means of alternate dispute resolution in
the Act is definitely a positive step towards encouraging parties to opt for it.
Taking into consideration the time effort and money involved in pursuing cases
before a court or an arbitrator in India, conciliation should act as the perfect
means for resolving disputes, especially those of commercial nature.
parties should prior to initiating arbitration or judicial proceedings, opt for
conciliation as a means for resolving disputes. In case conciliation proceedings
fail, only then should the disputants look at arbitration or litigation.