Arbitration and Conciliation – Two sides of the same coin, yet different.

Arbitration and conciliation are two methods of dispute resolution. Arbitration is a process in which a dispute is submitted, by agreement of the parties, to one or more arbitrators who make a binding decision on the dispute. In contrast, conciliation is a process in which a third party assists the disputing parties in resolving their differences. Unlike arbitration, conciliation does not result in a binding decision. Rather, it results in an agreement between the parties.

Arbitration and Conciliation have even received international recognition under The UNCITRAL Model Law and Rules on Arbitration and Conciliation, 1985.  The law of Arbitration and Conciliation is nascent and developing in India and is governed by the Arbitration and Conciliation Act, of 1996. Judicial Precedents are playing an important part in this respect. International rules, in most cases, differ from the domestic rules on Arbitration and Conciliation.

What is Arbitration?

According to Section 2 sub-section (1) (a) of the Arbitration and Conciliation Act, arbitration means “any arbitration whether or not administered by the permanent arbitral institution.” Law encourages parties to settle their disputes outside the court as far as possible either by mutual consensus or by the mediation of a third person. When the parties mutually agree to settle their differences via mediation but by appointing a neutral third party known as the arbitrator then it is called arbitration. The decision rendered by the arbitrator is known as arbitral award and it is binding on both parties to the dispute. It is less formal than litigation but more formal than mediation, wherein the decision rendered by the third party is not binding.

What is Conciliation?

Part 3 of the Arbitration and Conciliation Act, 1996 deals with conciliation. Section 61 defines conciliation as –

(1) Save as otherwise provided by any law for the time being in force and unless the parties have otherwise agreed, this Part shall apply to the conciliation of disputes arising out of the legal relationship, whether contractual or not, and to all proceedings relating thereto.

(2) This Part shall not apply where by virtue of any law for the time being in force certain disputes may not be submitted to conciliation.

The party initiating conciliation must send a written notice to the other side to conciliate a particular dispute between them. Conciliation proceedings are deemed to commence when the other party accepts in writing the notice/invitation to conciliate. Conciliation proceedings are deemed to begin when the other party accepts in writing the notice/invitation to conciliation. Where the other party rejects the invitation/notice to conciliate, there will be no conciliation proceedings.

Key Difference Between Arbitration and Conciliation

• Privacy in the Process: The process of arbitration is more privatized than litigation and conciliation are more privatized than arbitration.
• Flexibility in Decision Making: As litigation and arbitration are species of adjudication, the judge and the arbitrator render their verdicts and impose the same on the parties, with or without their consent. While the parties to the arbitration are given considerable freedom to regulate the modalities, they have no control over the decision-making process except in the case of the award on agreed terms. However, in conciliation, the parties are not bound by the decision of the conciliator since he/she is not empowered to enforce his/her decision. Thus, their more flexibility in conciliation than arbitration.
• The arbitration agreement shall be in writing: Section 7(2) of the Arbitration and Conciliation Act, 1996 requires that “an arbitration agreement shall be in writing”, but there is no such express provision in Part III regarding conciliation. However, that does not make any such practical difference like the process of conciliation starts with a written offer and written acceptance to conciliate on the part of the parties. In arbitration, even in the absence of a prior written agreement, if the parties appoint the arbitrator and continue with the submission of written claim and defense till they culminate in the award, the requirement of Section 7(2) under 4 ( c ) should be assumed to be fulfilled.
• It is possible that the parties enter into an arbitration agreement, even before the dispute has arisen under Section 7 (1) (“all or certain disputes which have arisen or which may arise”). It would appear from Section 62 that, it is not possible for the parties to enter into conciliation agreement even before the dispute has arisen. Section 62 says that the party initiating conciliation shall send to the other party a written invitation to conciliate under this part, identifying the subject of the dispute. The Conciliation proceedings shall begin when the other party accepts in writing the invitation to conciliate.
•  Section 30 of the Arbitration and Conciliation Act, 1996 allows the parties to engage in conciliation proceedings even while the arbitral proceedings are on. They may do the same on their own and settle the dispute through conciliation or authorize the arbitrator himself to use mediation or conciliation and settle the dispute. The arbitrator would record the settlement in the form of an arbitral award.  But, Section 77 of the Act bars the “initiation” of any arbitral or judicial proceedings in respect of a dispute that is the subject matter of the conciliation proceedings, except when the purpose of “preserving” the rights of the parties come into the picture.

In Haresh Dayaram Thakur v. the State of Maharashtra, the Supreme Court observed that there is a clear distinction between an arbitration proceeding and a conciliation proceeding. The position is well settled that if the statute prescribes a procedure for doing a thing, it has to be done according to that procedure.

It is important to lay focus on ADR mechanisms be it arbitration or mediation because litigation must always be the last resort to settle disputes due to a huge backlog of cases.  Informal disputes such as industrial disputes, family disputes, etc. must be settled outside the court as much as possible so that disposal of already pending cases are done much faster