Advik Rijul Jha[1]
I. Introduction
Arbitration as a preferred mode of Dispute Resolution has proliferated over the years in India, with an increase in not only the number of cases being referred to arbitration, but also a rampant rise in the kinds of disputes which are being referred to arbitration, both in terms of the nature of the dispute and the quantum of amounts in dispute. However, albeit the above growth of arbitration, it is pertinent to point out that Conciliation which has statutory recognition has also been promoted at a pre-arbitral stage for the resolution of disputes due to the possibility of hastening the resolution of the disputes in a time-bound manner coupled with reducing the burden on the courts. An instance of the same can be evinced from a perusal of various contracts entered into by the Public Sector Undertaking (PSU’s) such as GAIL, NTPC etc, wherein Conciliation has been explicitly stated to be attempted prior to Arbitration being invoked and proceeded with. Even in industrial disputes, the first step is to reach an amicable settlement by resorting to Conciliation vide the appointment of Conciliation officers, post which the matter is referred to be resolved vide arbitration.
Against this backdrop, the question arises as to whether the process of Conciliation which is part and parcel of various Dispute Resolution clauses is directory or mandatory in nature prior to arbitration being commenced with. In order to answer the above question, it is imperative to refer to the relevant statutory provisions and judicial precedents in this regard. Further, with the Mediation Act, 2023 being passed recently, it would be interesting to see what changes the enactment of a dedicated statute brings to this dynamic of directory or mandatory nature of pre-arbitral modes of dispute resolution.
II. Statutory Overview
The provisions governing Conciliation are contained in Part III of the Arbitration and Conciliation Act, 1996 (“The Act”). A bare perusal of the various sections contained in the afore-mentioned chapter itself evince that Conciliation is a voluntary process which can only be proceeded with in the event of both parties agreeing to the method for resolution of their disputes. Commencement of conciliation proceedings therefore depends upon the acceptance of the invitation to conciliate.
Further, it is imperative to refer to Section 77 of the Act, as a perusal of the said section would reiterate the voluntary and directory nature of conciliation, a view which has also been endorsed vide various judgments which would be discussed hereunder subsequently. A reading of the aforesaid section evinces that while the conciliation proceedings are in process, parties are prevented from taking recourse to any arbitral or judicial proceedings but where any of the parties are of the opinion that such movement on his part is needed so as to preserve his rights, resort to arbitral or judicial proceedings may be had. Thus, the statute itself waters down the mandate of resorting to conciliation prior to resorting to arbitration.
III. Judicial Precedents
The Hon’ble Supreme Court of India as well as the High Court of Delhi have had the occasion to deal with this interesting question of law. The Supreme Court dealt with this issue in the case of Demerara Distilleries Pvt. Ltd. v/s Demarara Distilleries Ltd.[2] In the aforesaid case, the Court observed “it was opined that the relegation of the parties to the avenue of amicable resolution, when the application under Section 11(6) of A&C Act, 1996 has been filed, would be unjustified as in the case, where such relegation would be merely in the nature of an empty formality.”[3] (Para 5) A perusal of the above demonstrates that conciliation/mutual discussion has a mere directory nature when the ultimate recourse lies in arbitration. Another corollary view has been taken by the High Court of Delhi in Ravindra Kumar Verma v/s BPTP Ltd.,[4] wherein it was observed that “nothing worthwhile would be achieved by relegating the parties to explore any avenue of amicable resolution. Besides, the appointment of an Arbitrator by this Court would not act as an impediment to the parties to resolve their disputes amicably should it be possible at any point of time.” (Para 11).
The Courts have also harped upon the voluntary nature of conciliation proceedings from time to time. One such judgment is of Abhi Engg. Corporation Pvt. Ltd. v/s NTPC Ltd.,[5] wherein it has been held that “[I]t has been rightly argued on behalf of the learned counsel for the 'petitioner that the process of "conciliation" could be resorted to only if both the parties agreed. Since the petitioner was not agreeable to resolution through conciliation, the Invocation of Arbitration cannot be held to be in noncompliance of mechanism agreed between the parties.” (Para 11) Another notable ruling following the same line of reasoning is that of M/s Oasis Projects Ltd. v/s Managing Director, National Highway and Infrastructure Development Corporation Ltd.,[6] wherein a Coordinate Bench of the Delhi High Court, has held that “[i]t needs no emphasis that Conciliation as a Dispute Resolution Mechanism must be encouraged and should be one of the first endeavours of the parties when a dispute arises between them. However, having said that, Conciliation expresses a broad notion of a voluntary process, controlled by the parties and conducted with the assistance of a neutral third person or persons. It can be terminated by the parties at any time as per their free will.” (Para 12) The afore-said rationale has also been reiterated in the case of Subhash Infraengineers Pvt. Ltd. v. NTPC Ltd.,[7] wherein it has been stated “conciliation is a voluntary process and once a party has opted out of conciliation, it cannot be said that the said party cannot take recourse to dispute resolution through arbitration.” (Para 28)
From the conspectus of cases discussed hereinabove, it is evident that the Hon’ble Supreme Court and the Delhi High Court are consensus ad idem with regard to the voluntary and directory nature of conciliation as opposed to it being mandatory. The same also seems to be steeped in logic since if an arbitration clause is read in a mandatory manner with respect to any prior requirement to be complied with albeit conciliation/mutual discussion before invoking arbitration, the same can result in serious and grave prejudice to a party who is seeking to invoke arbitration because the time consumed in conciliation proceedings before seeking the invocation of arbitration is not exempted from limitation under any of the provisions of the Limitation Act, 1963 including its Section 14. Once there is no provision to exclude the period spent in conciliation proceedings, it is perfectly possible that if conciliation proceedings continue when the limitation period expires the same will result in nullifying the arbitration clause on account of the same not capable of being invoked on account of the bar of limitation i.e when proceedings for reference to arbitration are filed in court, the right to seek arbitration may end up being beyond three years of arising of the disputes and hence the petition for reference may be barred by limitation. Such an interpretation would lead to valuable rights of parties of getting disputes decided by arbitration getting extinguished, which is definitely not the intent of the Legislature nor the Judiciary. Therefore, it is imperative to have a look at the recently passed Mediation Act, 2023 to see if any progress has been made in this regard.
IV. The Mediation Act, 2023:
The Mediation Act, 2023 has been passed recently which provides statutory recognition to amicable resolution of disputes in civil, commercial, family and matrimonial matters and fosters a collaborative approach, reduces the burden on the courts by facilitating settlement of disputes outside courts, and preserves relationships of amongst disputants. However, there are certain provisions in the Act which may act as a deterrent rather than as a catalyst for meeting these objectives.
The first of such provisions which is imperative to be pointed out is that on a plain reading of the relevant provisions of Section 5 of the Act, it is discernible that even pre-litigation mediation although being given statutory recognition, has been given a voluntary nature i.e. the provision reads “may voluntarily and with mutual consent”, which may render it similar to conciliation as discussed above. Due to the above wording, there is a high possibility that the courts while interpreting these provisions follow the interpretation as currently employed with regard to conciliation, as discussed in various cases hereinabove. The voluntary nature of Mediation is also discernible from a reading of Section 16 of the Act. This in effect can lead to a situation wherein parties entirely skip the mediation process, prior to resorting to arbitration or litigation, thereby defeating the objective of the Act at the initial stages itself. Another potential drawback of the Act is with respect to Court referred Mediation in accordance with Section 7, wherein the Court has been empowered to pass interim orders which may eventually lead to litigation before the Courts in this regard. Therefore, the legislature may have missed an opportunity here by not making mediation compulsory in the first place prior to the parties approaching the courts, which would have helped in reducing cases before the courts, which is the objective of the Act.
However, there is also light at the end of the tunnel with this new Act. The Act under Section 18 has proposed a time-limit for the completion of mediation proceedings which has been given a mandatory nature. This is corroborated by the fact that unlike Conciliation proceedings which have the tendency to eat into the period of limitation prescribed for arbitration as discussed earlier, the time spent in Mediation proceedings has been excluded from the calculation of the limitation period. This would ensure that the rights of the parties to approach the Court are not negatively impacted. Therefore, while the Mediation Act, 2023 is a mixed bag with its own hits and misses, there is scope for this Act to reduce some of the panacea that the current Arbitration Act had.
[1] About the author:
Advik Rijul Jha is an Advocate who has been practising at the Supreme Court of India, High Court of Delhi and various Tribunals for the past couple of years. The author graduated from Jindal Global Law School. He is currently a Law Researcher with the Delhi International Arbitration Centre (DIAC), High Court of Delhi. Views are personal.
[2] MANU/SC/1121/2014.
[3] MANU/SC/1121/2014.
[4] MANU/DE/3028/2014.
[5] MANU/DEOR/85493/2022.
[6] MANU/DE/0638/2023.
[7] MANU/DE/2476/2023.