This article has been written by Yesha Kapadia, Diploma in Intellectual Property, Media and Entertainment Laws from LawSikho and has been edited by Oishika Banerji (Team Lawsikho). 

It has been published by Rachit Garg.

Introduction 

The hallmark of a good settlement is the decision made in a timely and consensual manner, but the litigation appears to fall short of giving judgement on the matters in a timely manner, and thus there has been an increase in demand from parties opting for alternate dispute resolution (ADR) for speedy settlement of disputes. For instance, the maximum time an arbitration matter can go on is 18 months as the Arbitration and Conciliation Act, 1996 prohibits for the matter to go  longer than that, and the arbitrator has to pass an award within the speculated time. ADR encompasses arbitration, conciliation, mediation, negotiation, and Lok Adalat, all of which share a similar goal that is to give speedy settlement to disputes in an agreeable way. The main objective of this article is to discuss Section 81 of the Part III of the Arbitration and Conciliation Act, 1996, which focuses on conciliation.  

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What is conciliation

Conciliation means settling disputes without litigation. There is no specific definition of “conciliation” mentioned in the Arbitration and Conciliation Act, 1996. However, Article 1(2) of the UNCITRAL Model Law on International Commercial Arbitration (2002) defines “conciliation” as a process, whether referred to by the expression conciliation, mediation or an expression of similar import, whereby parties request a third person or persons (“the conciliator”) to assist them in their attempt to reach an amicable settlement of their dispute arising out of or relating to a contractual or other legal relationship. The conciliator does not have the authority to impose upon the parties a solution to the dispute.

Like an arbitrator, even a conciliator is supposed to be an impartial party, this will help the parties be able to trust them and fully get involved in the process of conciliation for the resolution of their dispute. The conciliator may conduct conciliation proceedings in such a manner as they consider appropriate, taking into account the circumstances of the case and the wishes of the parties and the desirability of a speedy settlement of the dispute. The conciliator has wide procedural discretion in arriving at a settlement, for instance, the conciliator is not bound by the Code of Civil Procedure, 1908 or the Indian Evidence Act, 1872 but he or she can use them at their discretion if they deem it necessary. 

For selecting the mode of the conciliation it is not necessary to enter into a formal agreement. Because where arbitration clause is included in the agreement it is implied that the matter would be referred for conciliation first & if amicable settlement fails then only, it is referred to the arbitration. Once the parties start with the conciliation proceedings, the conciliator may invite them to communicate either orally or written. It’s the decision of the parties and if neither of the parties are able to decide then the conciliator shall decide. Parties to a dispute might agree to resolve their dispute through conciliation under Section 61 of the Act. If the parties have agreed to conciliation but are unable to achieve an agreement, they may proceed to arbitration. The proposal made during the conciliation proceedings cannot be disclosed in any other proceedings (in arbitration also). This protection has been provided by the Arbitration & Conciliation Act, 1996 itself. Therefore parties can attempt conciliation without any risk. The provision that makes sure that either of the parties cannot use any evidence of conciliation proceeding is under Section 81. 

Section 81 : admissibility of evidence in other proceedings

On plain reading of the section, one can understand that this section of admissibility of evidence is related to when the parties are not able to come up with an amicable settlement in a conciliation proceeding and wish to proceed either with arbitration or judicial proceeding, in that case the parties cannot use these evidences in the subsequent proceedings  –

  • Any views or opinions that either of the parties made in regards with the possibility of a settlement.
  • Any submissions made by the parties during the conciliation proceedings.
  • Any proposals made by the conciliator.
  • The fact that any of the party showed any willingness to accept the conciliator’s settlement proposal of settlement during the proceeding. 

It may be just a small section in the whole Part III but it’s of great importance as it not only validates the use of conciliation proceeding as an ADR but also confirms that the matters which are taken in conciliation are of utmost importance. If the parties have agreed to conciliation but are unable to reach an agreement, they may proceed to arbitration. 

Section 81 guarantees confidentiality in the conciliation process, allowing parties to freely discuss their disagreements as they explore possible solutions without danger of their remarks being used against them in any subsequent legal proceedings. The purpose of maintaining confidentiality is to encourage parties to speak freely during the conciliation process and facilitate an amicable settlement. If parties fear that their statements or offers made during conciliation may be used against them in any subsequent proceedings, they may not be willing to engage in the process fully or be forthcoming with information. Thus, confidentiality encourages parties to negotiate in good faith and reach a settlement in a timely and efficient manner. Moreover, Section 80(2) makes it clear that the conciliator cannot be presented by the parties as a witness in any of the arbitration or judicial proceedings. 

Parties obligation to maintain confidentiality

Section 75 of the Arbitration and Conciliation Act, 1996 deals with the confidentiality of the conciliation proceedings. This section imposes an obligation on the parties to maintain confidentiality of all matters relating to the conciliation proceedings. This means that any information or documents shared during the conciliation process cannot be disclosed to any third party, including courts and arbitral tribunals, unless required by law. The section also extends this obligation of confidentiality to any settlement agreement arising out of the conciliation process. This means that any settlement agreement reached by the parties during the conciliation process is also confidential and cannot be disclosed without the consent of all parties.

Section 75 corresponds with the Section 42A which was inserted during the 2019 Amendment of the Act, which says that notwithstanding anything contained in any other law for the time being in force, the arbitrator, the arbitral institution and the parties to the arbitration agreement shall maintain confidentiality of all the arbitral proceedings except award where its disclosure is necessary for the purpose of implementation and enforcement of the award. A carveout was made in respect of the arbitral award where such disclosure was necessary for the purpose of implementation and enforcement of the award.

Although Section 75 and Section 42A deal with confidentiality in different contexts but both emphasise on the importance of confidentiality in the ADR proceedings. The obligation of confidentiality ensures the opportunity for parties to speak freely and openly during the proceedings without the fear of any information being used against them incase of any subsequent proceedings. It also helps in maintaining the integrity of the process and encourages parties to reach a settlement without the fear of their disputes being made public.

Evidentiary revelation in subsequent proceedings 

There are provisions available in the Act that clearly mention that if either Sections 81 or 75 are violated or the award has been induced by fraud or corruption then the award in arbitration can be challenged to be set aside with proper evidence. And incase the setting aside of the award or the arbitral award under Section 34 has expired or has been refused, then within 3 months limitation the enforcement of the award can be suspended within Section 36 of the Act and thereafter it can be enforced under the Code of Civil Procedure (CPC), 1908 as if it were a decree of the court. However, in the case of International Aluminium Co. Ltd v. Pressteel & Fabrications (2005), the Supreme Court suggested that it is the need of time to provide for no automatic suspension/ stay of enforcement of award on filing of an application under Section 34. 

To ensure that mere filing of an application under Section 34 does not operate as an automatic stay on the enforcement of award, this amendment has been made. In a nutshell, they become petitions in the end which are pending in the court waiting to be enforced. The arduous path to the arbitral tribunal then remains only for those residual disputes that the parties were unable to resolve at the preliminary levels of the escalation sequence.

Drawback of keeping the evidence under Section 81 confidential 

The principle of confidentiality in arbitration and litigation is often considered essential to protect the interests of the parties involved. It allows for candid and open communication between the parties, promotes settlement, and ensures that sensitive information does not become public. However, this principle can also have its downsides. The strict confidentiality of evidence can sometimes lead to injustice, abuse of power, and even misconduct. This in turn can have an impact on the fairness and transparency of the proceedings.

As per Section 81, any views, suggestions, admissions, proposals made by the parties during conciliation proceedings cannot be relied upon or introduced as evidence in any arbitral or judicial proceedings. This may result in parties being unable to use important evidence to support their case in other legal proceedings.

Furthermore, the confidential nature of the evidence may also limit the ability of parties to negotiate and reach a settlement outside the conciliation proceedings. Since the evidence cannot be used in other legal proceedings, parties may feel hesitant to make admissions or propose settlement terms during conciliation, as they may not have the same protection or leverage in subsequent proceedings. 

In some cases, the confidentiality of the evidence may also give rise to concerns about fairness and transparency, particularly if the evidence relates to issues of public interest or safety. For example, if the evidence pertains to a dispute involving consumer safety or environmental protection, keeping such evidence confidential may prevent the public from being fully informed about potential risks or hazards. Therefore, while the confidentiality of evidence under Section 81 can be beneficial in promoting open and frank discussions during conciliation proceedings, it may also have some drawbacks that need to be considered by parties and legal practitioners.

Conclusion 

To summarise, the admissibility of evidence under Part III of the Arbitration and Conciliation Act of 1996 is a critical component of the dispute resolution process. Section 81 of the Act establishes the basic rule of evidentiary inadmissibility in arbitral proceedings subsequent to the conciliation process. There are, however, several exceptions to this norm that have been recognised by the courts. Section 75 of the Act strengthens the confidentiality of the conciliation process by imposing penalties for disclosing confidential information. While this encourages the parties of free expression, it may also happen that parties may admit something during those proceedings which can be strong evidence in the subsequent proceedings to prove their case, this section puts a limit on them from using those evidences.  Overall, before choosing this type of ADR proceeding, parties ought to carefully assess the complications and benefits in regards with their contract so as to not implicate the rule of inadmissibility of evidence and/or confidentiality of the conciliation process; this might help them avoid any unexpected consequences.

References

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