The Chartered Accountant Journal • Corporate and Allied Laws Vol. 68 | No. 12 | June 2020 | Pages 37–43 (1569–1575)

Conciliation: An Ideal Mechanism for Dispute Resolution

By Dr. Subir Bikas Mitra (Executive Director - Law & HR, GAIL India Limited) & Dr. Archana Vashishth (Assistant Professor, School of Legal Studies, K.R. Mangalam University)  |  (subirbikas@gmail.com • eboard@icai.in)

“Whether it be sluggish, complicated and atrociously expensive court litigation or a never-ending redundancy of prominent arbitration mechanism, the role being played by these modes in the delivery of justice does not seems to bring any positive change. Considering the said shortcomings of traditional system of dispute resolution, Conciliation is considered to be one such mechanism which does not actually involve adversarial method, still able to settle the dispute in a most efficient manner. Accordingly, this paper attempts to explore the veiled benefits of undervalued Conciliation mechanism so as to highlight and acknowledge its hidden worth. Read on to know more…”

Introduction

The adjudicatory mechanism ensures the victory of one party under the dispute and the opposite side is left to criticise and explore the available legal recourses to further contest. Thus, the said adversarial mechanism (arbitration and court litigation) are just adding to the woes of the litigants. Judiciary was formed to adjudicate the disputes between the parties so that justice can prevail, however, the same judicial bodies have always been blamed to be costly, sluggish and prejudiced. Accusing the Arbitration law, the Hon’ble Supreme Court in Guru Nanak Foundation vs. Rattan Singh & Sons1, once observed “the way in which the proceedings under the Act are conducted and without an exception challenged in the courts, has made lawyers laugh and legal philosophers weep.”

The need of the hour is to identify a mechanism which could cut down the cost and time of dispute resolution process and ensure finality without even compromising on the business interest of the parties. The answer is definitely the undervalued Conciliation. Despite having statutory recognition and potential to resolve commercial disputes in a most efficient way, unfortunately, Conciliation mechanism has not been given adequate recognition till date. Conciliation is still a voluntary process wherein the Conciliator has not been given authority to impose a solution on the parties to the dispute.

Accordingly, this paper attempts to analyse the worth of Conciliation mechanism, which could enable the parties to resolve their disputes and still not blamed to be corrupted with the system, with a hope that by the time we conclude, we will be definitely able to acknowledge the significance of Conciliation as an ideal mode of dispute resolution.

Meaning and Significance of Conciliation

As per the Arbitration and Conciliation Act, 1996 (the “Act”), Conciliation is a statutorily recognised mode of ADR (Alternate Dispute Resolution) and one of the best features of Conciliation is that one can resort to Conciliation even if the litigation is pending before the court or in arbitration. Conciliation involves a procedure of resolution for the dispute in question between the parties with the assistance of a neutral third person, known as Conciliator, who helps the parties to reach a settlement between them.

Conciliation proceedings begins when the other party accepts the invitation to conciliate in writing and in case any party rejects to conciliate the dispute, there will be no Conciliation proceedings.2 Thus, it is not binding on the parties to adopt Conciliation for the settlement of their disputes and even the Conciliation proceedings can be terminated by any party by simply serving a written declaration to the other party and to the Conciliator (if appointed).3 During the Conciliation proceedings, the parties may be required to submit brief written statement, documents and evidences before the Conciliator with a copy to the other party.4 Conciliator has the role to assist the parties to reach an amicable settlement so as to resolve their dispute. Such mutual settlement drawn on agreeable terms & conditions between the parties finalises as a Settlement Agreement. The Settlement Agreement once entered by the parties becomes binding and the Act acknowledges it to be equivalent to Arbitral Award.5

The genesis of Conciliation law in India is linked to the General Assembly of the United Nations, which recommended the UNCITRAL Conciliation Rules, 1980. Thereafter, the Indian Parliament realises that it is pertinent to enact legislation relating to conciliation, ultimately giving birth to Part III of the Act, which is completely dedicated to the Conciliation mechanism.

As stated above, the Conciliation mechanism under the Act is voluntary and not binding on the parties to the dispute. Only the Settlement Agreement, once executed, is binding on the parties. Conciliation mechanism has also been recognised under the Industrial Disputes Act, 1947 for the settlement of disputes between the employer and the workmen. However, there is a striking difference in the mechanism provided under both the acts (i.e. Arbitration and Conciliation Act, 1996 and the Industrial Disputes Act, 1947), wherein the Conciliation proceedings under the Industrial Disputes Act, 1947 is mandatory under certain circumstances (Conciliation Officer to hold immediate conciliation where a notice under section 22 in case of public utility services is received).6

“Most of the progressive organisations have included Conciliation mechanism for the settlement of commercial disputes in their contracts/ tenders as a first step of dispute resolution. Upon failure of Conciliation, the parties can seek further recourse.”

Conciliation mechanism has lots of striking features which the adversarial modes fails to provide. Such features are explained below while distinguishing them with the adversarial modes:

S.No. Features Adversarial Mode Conciliation
1. Costs Effective Court fee/ Arbitrator’s fee and advocate’s fees accounts for huge expenses. No involvement of advocate and even conciliator’s fee is nominal.
2. Simple procedure Procedure turns out to be much lengthier and complex as even in arbitrations, parties generally insist on evidences, expert witnesses, etc. Simple onefold procedure without much complexity.
3. Time efficient As per the Amended Act of 2015 and 2019, it is time bound however, extensions are being granted by courts and hardly being concluded on time. No duration of time specified, still settles the matters quickly as does not require complex evidences and detailed pleadings and arguments.
4. Promotes Settlement Minimal possibilities of settlement. With the professional expertise of the conciliators and assistance of the parties there exists maximum possibilities of settlement.
5. Tailored Proceedings Not possible in courts, as courts are already overburdened with huge pendency, however, to some extent it is possible to have convenient dates in arbitration but due to dearth of professional arbitrators, the available lot is also handling large number of cases making them difficult to accommodate convenient dates. Conciliation is highly flexible and party centric mode, therefore, parties have large control over the proceedings.
6. Expert Not possible as in courts, the matters are divided amongst the available judges irrespective of their personal expertise and parties have no control over the same. In arbitration, being an adversarial mode, the preference of the parties always remains to appoint retired judges and not to appoint someone with sound technical or commercial knowledge.7 Persons with requisite technical and commercial knowledge are mostly appointed as Conciliators for better understanding of the commercial/ technical issues involved in the dispute.
7. Finality Subject to appeal/ challenge as prescribed under the law. Conciliation/ Settlement Agreement duly signed between the parties ensures finality/ conclusion of the dispute.

How Conciliation Has an Edge over Adversarial Modes

Conciliation entails a dispute resolution mechanism which is entirely dependent on the will of the parties who agree to abide by the terms of the settlement agreement drawn by the conciliator. It is a voluntary and non-binding process which provides flexibility to the conciliator in adopting the procedure of conciliation.8 Additionally, dispute resolution through conciliation can be sought by the parties at any stage of the dispute i.e. during pendency before a court or even after an arbitral award has been passed. Furthermore, in order to avoid making the conciliation mechanism complex, rules of evidence and Civil Procedure Code, 1908 is not applicable to conciliation proceedings.9 Apart from these features, conciliation also tends to be a cost effective and time-saving mode of dispute resolution which provides finality to the dispute and helps in maintaining business relations between the parties.10 These advantages have been discussed in detail below:

(i) Cost Efficient

Cost-effectiveness is one of the main concerns of disputing parties while opting for a particular mode of dispute resolution. Increasing costs have made justice costlier and seemingly inaccessible for a large majority of people. Those who are economically unsound are severely affected by it. Notably, the importance of expeditious and cheaper mode of dispute resolution has been recognised in the 240th Law Commission of India report, wherein it remarked that mounting costs and delay in dispute resolution shakes the confidence of ordinary citizens in the justice dispensation system.11

Owing to the low judge-population ratio, lack of proper infrastructure, delaying tactics used by advocates, the time spent in resolution of dispute through court litigation has been on a constant increase, thereby, also increasing the costs involved in the process. In court litigation, parties need to pay court fees and fees of advocates (sometimes senior advocates too, if required) till the time an appropriate decree is passed by the court. The costs involved also include the miscellaneous costs involved in travel expenses of the parties and witnesses involved in the particular case. Given the time taken for resolution of disputes in courts, these costs build up over time and make the dispute resolution process costlier.

Similarly, in arbitration, huge expenditure is involved in arbitrator’s fee, venue charges, advocate’s fee etc. Furthermore, the award passed by the arbitrator can be subject to challenge under S.34 and thereafter an appeal under S.37 of the Act and Art. 136 of the Constitution of India (Special Leave Petition). Since challenge and appeal matters are taken up by the courts, the costs involved in each of these stages becomes exponentially high, due to the delay factors observed in an ordinary court litigation. Thus, the costs involved in arbitration gets increased manifold by the time the matter is finally settled between the parties. It is important to note that the Law Commission of India, in its 246th report, had also recommended for reduction of fees charged by arbitrators and suggested for a model fee structure for arbitrators.12 Though, the 2015 amendment to the Act introduced a model fee structure, it has been held to be suggestive by judicial interpretation. For instance, the Delhi High Court in Paschimanchal Vidyut Vitran Nigam Limited v. M/S IL&FS Engineering & Construction Company Limited,13 has held that the fee schedule mentioned in fourth schedule of the Act is merely suggestive in nature.14 In this case, since the parties had not approached the court for appointment of arbitrator, the court had no jurisdiction over the fee schedule agreed between the parties regarding fee to be paid to the arbitrator. Hence, circumstances may arise in certain arbitration cases (i.e. cases where parties agree to go for ad-hoc arbitration without appointing the arbitrator under S.11) where parties are not bound by fourth schedule of the Act and thereby are liable to pay more under those circumstances.15 This issue has not been rectified even through the latest amendment of 2019. This defeats the objective behind opting for arbitration, as it fails when it turns out to be no better than court litigation in term of costs.

On the contrary, it has been observed that conciliation proves to be a cheaper mode of dispute resolution when compared to arbitration and court litigation. The parties to conciliation are free to agree on the procedure to be followed during conciliation proceedings. It entails a process wherein the grievances of parties are heard by the conciliator who in turn helps the parties in reaching an amicable settlement. It has been observed that, in conciliation, the costs involved in conciliator’s fee is comparatively lower and there is no advocate fee involved. Furthermore, settlement agreement has the same status as that of an arbitral award.16 Hence, the burden of costs is lower on parties when compared with the adversarial modes of dispute resolution, thereby making conciliation a cost-effective mode of dispute resolution.

(ii) Conclusive Nature of Conciliation

Conclusive determination of dispute is an indispensable element of justice delivery system. It is essential in the interest of public good that there should be an end to litigation. The everlasting nature of dispute resolution vexes the parties to dispute and thereby defeats the main objective behind increasing litigant satisfaction and confidence in the justice delivery system. The elaborate procedure of appeals and procedural hurdles, makes it difficult for the parties to bring an end to the dispute.17 In any developed legal system, it is essential that the parties are saved from being vexed by the same issues for a longer period of time. Inconclusiveness of decisions makes the whole process of justice dispensation futile.

Appellate process has been provided by the courts so as to prevent miscarriage of justice by resolving the errors in the judgement, however, in reality, it has also led to frivolous filing of appeals. As observed in court litigation, the multiple forums of appeal available to the litigants, happens to delay the timely disposal of cases and prevents the dispute from getting settled finally. Frivolous filing of appeals has led to never ending court litigations. Frequent adjournments taken during the course of court litigation and especially during the trial stage also jeopardises the progress of the court litigation which hampers the finality of the dispute.

Arbitration is often touted as a faster mode of dispute resolution. However, when observed practically, provisions with respect of challenging an award and appeals defeats the purpose of providing finality to the dispute. The restricted grounds for challenge mentioned under S.34 (after the 2015 amendment), highlight the jurisprudence behind arbitration that aimed to make arbitration process efficient and binding in nature. Even though the parties agree to be bound by the decision of the arbitrator, rarely is it seen that the award passed by the arbitrator is not challenged by the parties and readily complied. Thus, arbitration still stays short of providing finality to the dispute.

“As opposed to arbitration, in conciliation, the decision is not imposed upon the parties and the parties themselves agree that they would not undertake any other legal recourse in the future regarding the dispute settled by the settlement agreement.”

In contrast, conciliation, by adopting a consensual mode of dispute resolution, prevents the parties from remaining unsatisfied by the decision.18 Thus, this feature As opposed to arbitration, in conciliation, the decision is not imposed upon the parties and the parties themselves agree that they would not undertake any other legal recourse in the future regarding the dispute settled by the settlement agreement of conciliation provides conclusiveness and finality to the dispute arising between the parties and thus helps them at arriving at a resolution in a timely manner.

(iii) Mode of Rapid Dispute Resolution

Conciliation process can be initiated at any stage of the dispute, whether it is yet to be initiated or pending before the court/ arbitration or even after pronouncement of the decision/ award. One of the reasons that this quality is attached with Conciliation is that it resolves the disputes expeditiously. Disputes that are not resolved quickly tend to fester and become more difficult to settle in the future. The expression “justice delayed is justice denied” reflects the actual reality. Interests or rights of both Parties are at stake and both Parties to the dispute suffer when conflicts could not be resolved quickly. As the time elapses, memories may get fade, witnesses may cease to exist and critical evidences may get missing. Therefore, quick result is always preferred.

In Alternate Disputes Resolution, the parties are aware of the facts at hand and therefore, resort to Arbitration. Another pitfall is the scope for collateral proceedings being raised in the courts under the provisions of the Act at the initial stages themselves under Sections 8, 9 or 11 of the Act. Section 27 of the Act also paves the way for the parties to approach the Court for assistance in taking evidence. Even after the grant or refusal of interim relief by the Arbitrator under Section 17, parties are entitled to move the judicial forum for challenge thereby enlarging the scope for further litigation. Keeping such shortcomings in the said mode of Alternative Disputes Resolution, it will have to be held that it may not be fully suitable for all types of litigations and the litigants in general.19

The Hon’ble Delhi High Court judgement in the case of Rakesh Kumar v. Cideas Investment India Pvt. Ltd.20 dealt with the issue of delay in arbitration matters. In this case, it took nearly 15 years to conclude an Arbitration proceeding. Understanding the need for a rapid dispute settlement mechanism, an effort has been made through the Arbitration & Conciliation (Amendment) Act, 2015 by incorporating Section 29A in the Act, which provides for stricter timelines for making the award in the matter. However, considering the impracticability of the imposed timelines for the conclusion of the arbitration matters, an amendment has been made by 2019 Amendment Act which made the said timeline effective from the date of completion of pleadings, thereby, increasing another six months.

It is righty stated that “Arbitration is better than litigation, Conciliation is better than arbitration, and the prevention of legal disputes better then conciliation”21. As opposed to other forms of dispute resolution (litigation/ arbitration), Conciliation process is very fast paced. The matter is settled at the threshold of the dispute, avoiding protracted litigation efforts at the courts. As conciliation can be scheduled at an early stage in the dispute, a settlement can be reached more quickly than in litigation/arbitration. Parties save time by cutting back on futile exercises such as traveling to court/ venue, getting into legal processes wherein the steps for proceedings are very strictly defined. Settlement of dispute in a peaceful manner is always welcomed by all the civilizations. An undoubted advantage of conciliation is the ability to get speedy access to a process that may produce a satisfactory outcome for the parties in a short span of time.

(iv) Maintains Cordial Relationships between Parties

At times, resorting to the adversarial mechanism for resolution of the dispute, it ruptures the relationship between the parties. Especially for commercial organizations litigation, where one Party wins the dispute at the other Party’s expense. The business relations between organizations and their stakeholders may turn sour as their important dealers, vendors, customers, agents, etc. may stop dealing with them after the outcome of the dispute. Therefore, the goal should be to create a mutually beneficial association with all its stakeholders and thus for resolution of disputes, the organization adapts a process which creates a win-win situation for both. Conciliation enhances the prospect of the disputing parties to continue their business relationship during and even after the proceedings as it fosters long term relationships.

Courtrooms have often been compared to battlefields or playing fields. The adversarial system by which legal disputes are settled promotes the idea that legal controversies are battles or contests to be fought and won using all available resources. An adjudicatory dispute resolution by means of litigation invariably leads to bitterness, hostility and enmity between the parties to the lis, as the losing Party may continue to nurture a grievance against the winning Party. The gloating by the successful party also aggravates the situation. In a civilized society, parties are expected to accept the decision of court with grace, but in reality, it seldom happens.

“Conciliation enhances the prospect of the disputing parties to continue their business relationship during and even after the proceedings as it fosters long term relationships.”

Conclusion

It can be affirmably concluded that the inclusion of Conciliation as the mode of Alternate Dispute Resolution in the Act is certainly a significant step for encouraging parties to opt for it and with no ambiguity it can be stated that Conciliation holds great potential providing a lasting resolution to the dispute in question.

Further, for benefitting and safeguarding the commercial relationships of the parties in dispute and considering the efforts, time and money involved, Conciliation draws out to be the most efficient form of dispute resolution with various reasons, starting from the status of the Settlement Agreement signed between the parties and its acknowledgement equivalent to an Arbitral Award.

It is also noticeable that the tailored Conciliation process in no manner embolden the participation of legal counsel during the proceedings, making it completely flexible. Conciliation, if used to its core best, holds significantly large advantages as an ADR mechanism. However, unfortunately in reality, Conciliation is not being utilized to its full potential and possibilities by the parties in dispute.

Agreeably, it can be concluded by saying that it is time to appreciate the utility and usefulness of Conciliation and henceforth take necessary measures to disseminate, advocate, encourage, popularise and optimally utilise Conciliation as an effective ADR mechanism.

“Agreeably, it can be concluded by saying that it is time to appreciate the utility and usefulness of Conciliation and henceforth take necessary measures to disseminate, advocate, encourage, popularise and optimally utilise Conciliation as an effective ADR mechanism.”

Conciliation transcends adversarial legal combat by creating mutually empowering win-win settlements — preserving commercial harmony, slashing litigation costs, and delivering binding finality equivalent to an arbitral award.

References & Footnotes:

  1. AIR 1981 SC 2075
  2. S. 62(2) and (3), Arbitration and Conciliation Act, 1996
  3. S. 76, Arbitration and Conciliation Act, 1996
  4. S. 65, Arbitration and Conciliation Act, 1996
  5. S. 74, Arbitration and Conciliation Act, 1996
  6. Rule 9, Industrial Disputes (Central) Rules, 1957
  7. Corporate Attitudes & Practices towards Arbitration in India. (2013, May). Retrieved April 25, 2020, from https://www.pwc.in/assets/pdfs/publications/2013/corporate-attributes-and-practices-towards-arbitration-in-india.pdf
  8. Conciliation, Retrieved April 24, 2020, from https://www.dispute-resolution-hamburg.com/conciliation/what-is-conciliation/
  9. S. 66, Arbitration and Conciliation Act, 1996.
  10. Conciliation in India: An Overview, Retrieved April 24, 2020, from http://psalegal.com/wp-content/uploads/2017/01/DisputeResolutionBulletin-IssueVII08092010070309PM.pdf
  11. Law Commission of India, Report No. 240, Costs in Civil Litigation, May 2012, Retrieved April 24, 2020, from http://lawcommissionofindia.nic.in/reports/report240.pdf
  12. Law Commission of India, Report No. 246, Amendment to Arbitration and Conciliation Act, 1996, August 2014, Retrieved April 25, 2020, from http://lawcommissionofindia.nic.in/reports/Report246.pdf
  13. 2018 SCC OnLine Del 10831.
  14. Paschimanchal Vidyut Vitran Nigam Limited v. M/S IL&FS Engineering & Construction Company Limited, 2018 SCC OnLine Del 10831
  15. Deshmukh, Indranil, Arbitrator fees in India-In a fix, Retrieved April 25, 2020, from https://www.mondaq.com/india/arbitration-dispute-resolution/852318/arbitrator-fees-in-india-in-a-fix
  16. S. 74, Arbitration and Conciliation Act, 1996.
  17. Jephi, Madonna, Conciliation: An Effective Mode of ADR Mechanism, Retrieved April 25, 2020, from https://lawtimesjournal.in/conciliation-an-effective-mode-of-adr-mechanism/
  18. Chatterjee, Raka, Settlement Agreements Qua Arbitral Awards, Retrieved April 25, 2020, from https://www.mondaq.com/india/arbitration-dispute-resolution/629242/settlement-agreements-qua-arbitral-awards
  19. Remembrance. (n.d.). Retrieved April 24, 2020 at 15:30 hrs. from https://www.indialawjournal.org/article-6.php
  20. MANU/DE/4280/2015
  21. Roy Chawdhary and Saharay, Arbitration 36 (Eastern Law House, Calcutta, 1979)