This article has been written by Mudit Gupta, currently pursuing B.B.A. LL.B. (hons.) from the University of Mumbai Law Academy. This article discusses arbitration and conciliation as ways of resolving disputes, how they are different from each other, and which is suitable for different types of disputes.

This article has been published by Sneha Mahawar.​​ 

Introduction 

As per the strategy paper given by NITI Aayog in 2018, there were 29 million cases pending in Indian courts, and at that time it was said that it would take more than 324 years to clear that backlog with the number of judges that were appointed. These numbers have definitely grown by now. The figures clearly define the burden on the Indian judiciary as well as the people’s time-consuming perception of the Indian judicial system. Also, the traditional litigation procedure is very time-consuming in nature, which is not cost or time efficient in many disputes. Considering such a situation, people nowadays are considering alternative ways of dispute resolution. Arbitration and conciliation are two of those alternative mechanisms for dispute resolution.

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Arbitration and conciliation : a brief overview 

There are 3 prominent redressal mechanisms other than traditional litigation. Two of them are arbitration and conciliation. These are two alternative dispute resolution mechanisms used to resolve disputes between two or more parties. The aim of both of these methods is to find a solution that is fair and acceptable to all parties involved without the need for a lengthy and expensive court trial. However, the purpose of both these methods is to save money and time for the parties, there are several key differences between arbitration and conciliation that are important to understand. The purpose of this article is to provide an overview of the key differences between arbitration and conciliation and to help the reader determine the most appropriate course of action for different situations.

Arbitration can be explained as a legal process of dispute resolution in which a neutral group of people, collectively referred to as an arbitration tribunal, is appointed as per the provisions of the Arbitration and Conciliation Act, 1996, and their main task is to hear the arguments of both parties to the dispute and to take an account of all the relevant pieces of evidence and then make a binding decision on the parties, commonly known as an arbitral award, regarding their dispute on the basis of the arguments and evidence presented before them. The decision of the tribunal is final, binding, and enforceable on the parties, and there is no right of appeal provided unless it is proved that the award was induced by fraud or corruption against them. The mechanism of arbitration is primarily used for resolving disputes that are primarily related to contractual obligations related to employment, construction, and other commercial matters. Often, arbitration is used as an alternative redressal mechanism to traditional court litigation, as arbitration is, in most cases, faster, a bit informal, and less expensive for the parties to the dispute.

Conciliation, on the other hand, is a non-binding process in which a neutral individual, known as a conciliator, is appointed whose main task is to help the parties reach a mutually acceptable solution for their dispute by bringing them onto a common ground by facilitating communication between them. In his/her capacity, the conciliator can provide suggestions to the parties, but cannot give a binding decision that is applicable to the parties. This process is typically used to resolve disputes that involve personal or emotional issues, such as disputes related to family law or workplace disputes, where there is a  possibility that the dispute can be resolved through communication. Conciliation is often used as a pre-litigation or pre-arbitration step that saves time and money for the parties in most cases.

Both of the redressal mechanisms discussed above have their unique advantages and disadvantages, and the choice between the two completely depends on only one thing: the specific circumstances of the dispute. While choosing between these two methods, it is important for the parties to consider the nature of their dispute, the outcome they desire, and other specific needs they have. A wide and clear understanding of the distinction between both of the redressal mechanisms helps parties make an informed decision about the most appropriate mechanism for their particular dispute so that they can opt for the same. In many cases, legal counsellors also provide help to parties in choosing the best mechanism of redressal for their particular dispute.

What is arbitration

Now let us understand what the word “arbitration” actually means. The name arbitration comes into English through the Latin word “arbitrari,” meaning “to adjudicate.” In English, arbitration refers to the process of using an arbitrator to settle disputes, and the action of that arbitrator determines the type of alternative dispute resolution where the parties, instead of resorting to litigation, agree to private quasi-judicial officers who listen to the dispute between the parties and, based on that, resolve their dispute. 

Arbitration is commonly used in civil disputes. It does not intervene in criminal matters. The parties must include a clause in their agreement. When a dispute arises, the parties must appoint an arbitral tribunal to hear their claims, and based on the disputes over those claims, the arbitral tribunal issues a verdict, which is commonly known as an award. 

Arbitration has become one of the most popular methods of dispute resolution in recent years, and there are two key reasons behind the same. The first reason is that it saves a lot of time for the parties, helping both the parties as well as the judiciary in India by saving time for both. The second reason is that in normal litigation proceedings, the parties are often discredited when the media reports the outcome of any trial. This defames the image of the parties by gathering unnecessary attention to the dispute. This unnecessary attention can be avoided till some extent in arbitration.

What is conciliation

The term conciliation is very much related to the term “conciliate” which has been derived from the Latin word “conciliare,” which basically means “to unite.” Conciliare in turn comes from the Latin word “concilium”, meaning “council.” Conciliation is one other type of alternative dispute resolution mechanism in which a neutral- third party, usually a single individual, is appointed whose main task is to resolve the dispute arising between the parties by facilitating communication and negotiation between the parties and bringing them to a common ground. The main motive of conciliation proceedings is to help the parties reach a mutually acceptable agreement, rather than impose a solution on them.

Conciliation is preferred in a variety of disputes, including those arising from employment, family, commercial, and community disputes. The process of conciliation is informal, flexible, and confidential. It is preferred because it helps resolve disputes quickly, and the whole procedure is much less expensive than traditional court proceedings. The parties are able to retain control over the outcomes and are able to customise the conciliation process to their specific needs and interests. 

If the parties reach a settlement agreement through conciliation, it is usually written down and signed by both parties, after which it becomes legally binding. The significant advantages offered by conciliation include the flexibility and informality of the process, the confidentiality of the proceedings, and the ability of the parties to reach a mutually acceptable resolution. However, it is important to carefully consider the qualifications of the conciliator and the terms of the conciliation agreement before agreeing to this form of dispute resolution.

When to choose arbitration v. when to choose conciliation 

Who should opt for arbitration 

Although there are many dispute resolution mechanisms, all of them cannot be applied to all disputes. The decision regarding this is made after thinking about the nature of the dispute and the intentions of the parties. Arbitration is one such mechanism in which the decision is made prior to the dispute. An agreement regarding the same is signed by the parties before the dispute has taken place between them. Arbitration as a means of dispute resolution can be opted for by various groups of people. Let’s discuss some groups below:

Companies

As per a survey from 2013, arbitration as a means of dispute resolution is chosen by 91% of the companies. Companies may choose arbitration to resolve commercial disputes, as it can be faster and more cost-effective than going to court. Also, it reduces media attention and helps keep the goodwill of the company intact in the market. These benefits give companies a very good reason to opt for arbitration as a dispute resolution mechanism to settle their disputes.

Consumers 

Consumers may choose arbitration to resolve disputes with companies, as it can provide a more informal and less intimidating setting than a courtroom to get their dispute settled. Also, many times in such cases, the amount of damages given to the plaintiff is much less than the expenditure on litigation, which defies the whole purpose of awarding damages to the aggrieved consumers. This expenditure is significantly reduced if the parties opt for arbitration as a way to resolve their dispute.

Employees 

Employees may choose arbitration to resolve disputes with their employers, as it can provide a quicker and more confidential resolution than going to court. For aggrieved employees, litigation may get a bit intimidating.  Also, sometimes the legal tussles can make it hard for the employees to work somewhere else. These issues are generally not faced if such disputes are resolved through arbitration.

Contractors 

Another set of potential parties who can opt for arbitration are contractors, who may choose arbitration to resolve disputes with their clients or customers, as it can provide a more neutral and specialised forum for resolving disputes. Also, it can reduce their time and money expenditure for them, which can help them create more profits and complete their projects in much less time.

Investors 

Investors may choose arbitration to resolve disputes with financial institutions, as it can provide a specialised forum with expertise in financial and investment disputes. The arbitrators who are to be chosen for the proceedings can be chosen on the basis that they have prior knowledge of the finance industry, which can help in resolving the dispute much faster and with a high level of satisfaction for the parties.

Ultimately, whether or not to opt for arbitration will depend on a number of factors, including the specific nature of the dispute, the choices of the parties involved, and the terms of any agreement to arbitrate. However, for many individuals and organizations, arbitration can provide a fast, effective, and efficient means of resolving disputes.

Who should opt for conciliation

Conciliation is a process of dispute resolution that is used by many groups of people who have a disagreement over some issue and feel that the same can be solved by opting for conciliation. Some of these are discussed below:

Companies

Conciliation, as a way of dispute resolution mechanism, is used by companies usually in cases related to labour law disputes, discrimination disputes, harassment-related disputes, etc. Companies prefer to opt for conciliation for these types of disputes because if they are taken to court, they may cost much more to the company in all aspects, i.e., cost, time, and reputation. Opting for conciliation solves disputes with much less time and effort, which is good for both- the company and the employee.

Individuals 

Conciliation can be a suitable option for individuals who are in conflict with one another, as it can provide a more informal and less intimidating setting for resolving disputes. Many times, parties involved in a family law dispute make use of this form of dispute resolution. Most of these matters can be easily resolved by talking to the parties involved and bringing them to a common understanding. Hence, conciliation can be a very effective way of resolving disputes in such matters.

Consumers 

Consumers may choose conciliation to resolve disputes with companies, as it can provide a more accessible and less intimidating forum for resolving disputes. Investment of money, as well as time, can be significantly reduced by opting for conciliation. The setting of a conciliation proceeding is much less intimidating, which helps the consumers express their problems openly and get relief regarding the same.

Employees 

Employees may choose conciliation to resolve disputes with their employers, as it can provide a quicker and more confidential resolution than going to court. This can help them solve the disputes in a cost and time-effective manner, which will further help them explore the options that are best for them.

Communities

Community organisations may choose conciliation to resolve disputes between neighbours, as it can provide a more personal and community-based resolution to disputes. The parties can address their problems and get solutions regarding them. In these kinds of disputes, misunderstanding between the parties is a major issue that can be very effectively addressed by facilitating communication between the parties. The process of conciliation can do that very effectively.

The choice of whether to opt for conciliation or not depends on a number of factors. The scenario of the case and the intention and willingness of the parties are some of the factors that play a key role in deciding whether to opt for conciliation or not. If the dispute can be resolved by facilitating the communication and by bringing them on a common ground, then in that case, conciliation should be a preferred method of dispute resolution for the parties.

Process of arbitration and conciliation 

Process of arbitration

Arbitration in India is governed by the Arbitration and Conciliation Act, 1996. As per the procedure given in this legislation, the following is the process that needs to be adhered to by the parties opting for arbitration:

Agreement to arbitrate

 As per Section 7 of the Arbitration and Conciliation Act, 1996, the parties involved in a dispute must agree in writing to resolve their dispute through arbitration. This agreement is, in most cases, provided as a clause in the agreement in which the parties contract with each other. The clause of arbitration is valid even if the agreement is declared invalid, except in cases of fraud or corruption.

Notice of arbitration

Now that the agreement is made, the claimant must serve a notice of arbitration to the respondent, informing them of the intention to initiate arbitration proceedings. This notice is served whenever a dispute arises between the parties. After this step, the arbitrators are to be appointed, and after that, the arbitration proceedings are started. Although, as per Section 21 of the Arbitration and Conciliation Act, 1996, the arbitration proceedings in respect of a particular dispute are said to commence on the date on which a request for that dispute to be referred to arbitration is received by the respondent from the claimant.

Appointment of arbitrators

Whenever a dispute arises, the parties have to appoint arbitrators as per the terms of their agreement. In cases where the tribunal has to be composed of 3 arbitrators, with two already appointed and the third yet to be appointed, and if the parties or the two arbitrators are not able to appoint the required arbitrator, then the Supreme Court and high courts have the responsibility to designate arbitral institutions as per their respective jurisdictions. Parties to the dispute approach the courts for the appointment of arbitrators to decide upon the dispute at hand. Appointments for international commercial arbitration are made by the institution designated by the Supreme Court. For domestic arbitration, appointments are made by the institution designated by the concerned high court. Chapter III of the Act deals with the composition of an arbitral tribunal.

After the appointment of the arbitrators, the arbitration proceedings for the dispute at hand are started.

Submission of claims

The claimant submits a statement of claim to the arbitrator, outlining the nature of the dispute and the relief sought. These are submitted as per the provisions of Section 23 of the Arbitration and Conciliation Act, 1996. Although, the party can amend or supplement their submission during the period of arbitral proceedings, the same can be denied if the arbitral tribunal considers it to be inappropriate.

Response to claims

The respondent must submit a response to the claimant’s statement of claim, setting out their defence to the claims. These are submitted as per the provisions of Section 23 of the Arbitration and Conciliation Act, 1996. Although, the party can amend or supplement their defence during the period of arbitral proceedings, the same can be denied if the arbitral tribunal considers it to be inappropriate.

Hearings

When the submissions are made by both parties, the arbitrators conduct hearings to gather evidence and listen to arguments from both parties. Chapter V of the Act deals with the conduct of arbitral proceedings. They have to gather all the information and evidence because they are acting as quasi-judicial officers. This is the most crucial stage of arbitration proceedings because the evidence and arguments that are presented to the tribunal play a very important role in the award that is given by the tribunal.

Award

The arbitrators, on the basis of all the information and evidence, deliver an award, which is a binding decision on the dispute. Chapter VI of the Act deals with provisions related to the award. As per Section 29A of the Arbitration and Conciliation Act, 1996, the award shall be made by the arbitral tribunal within a period of twelve months from the date of completion of pleadings.

Enforcement 

After the award is made by the arbitral tribunal, the main task left is to enforce it. If either party is dissatisfied with the award, they can apply to the Indian Court for enforcement or to set aside the award. Chapter VIII of the Act deals with the finality and enforcement of arbitral awards. Enforcement of the award is done as per the provisions of Section 36 of the Arbitration and Conciliation Act, 1996.

In India, the process of arbitration is quicker and more cost-effective than resolving disputes through the courts, and the decisions of the arbitrators are enforceable under Indian law. The process is similar to traditional litigation proceedings, but the advantages it provides to the parties in dispute make it a much more efficient choice to opt for.

Process of conciliation

Conciliation proceedings in India are governed by the Arbitration and Conciliation Act, 1996. The process of conciliation in India requires the following steps to be adhered to:

Request for conciliation

For initiating the conciliation proceedings, either party may request the initiation of conciliation proceedings by giving notice to the other party. Sometimes, the judge might also ask the parties if they want to opt for conciliation if he/she feels that the dispute between the parties can be effectively resolved by facilitating communication between them. If the parties agree, further steps in conciliation proceedings are initiated.

Appointment of conciliator

Once the parties have requested conciliation, they have to get a conciliator appointed. The parties can themselves appoint a conciliator, or if they fail to do so, the Indian court can appoint one. The primary job of the conciliator is to clear up the misunderstandings between the parties, try to get them on common ground, and then explore settlement options for them, which are dependent on the outcome of the conciliation proceedings.

Opening of conciliation proceedings 

The conciliator opens the conciliation proceedings by holding a preliminary meeting with the parties to understand the nature of the dispute and the parties’ positions.  The conciliator may request that each of the parties provide a written statement about the facts relating to the case at hand. It is necessary for both parties to submit a written statement to the conciliator. Along with the conciliator, the parties are also requested to send written statements to each other.

Facilitation of communication 

The conciliator facilitates communication between the parties and helps them identify areas of agreement and disagreement. The conciliator hears the facts from both parties and then tries to bring them to a common understanding. This helps the conciliator clear the misunderstandings between the parties and bring them to a common ground.

Exploration of settlements

After the communication is facilitated, the conciliator then explores potential settlements with the parties and helps them to reach an agreement on the terms of a settlement. If they cannot come to a common ground for settlement, then in that case, the parties continue with litigation or arbitration for their dispute resolution.

Settlement agreement

If the parties reach a common ground and agree on the terms of a settlement that are decided upon by them, the conciliator drafts a settlement agreement, that is signed by both parties and becomes binding on them. The terms of the settlement agreement are then enforced to finally put the dispute to an end.

The process of conciliation in India is a flexible and informal method of resolving disputes that seeks to promote mutual understanding and cooperation between the parties and can be a quicker and less costly alternative to court proceedings. The matters can be easily resolved by bringing the parties to a common ground, which is very much possible in many cases.

Key differences between arbitration and conciliation

ArbitrationConciliation
Arbitration is a quasi-judicial proceeding, where the parties to the  dispute appoint an arbitrator or arbitrators by agreement to adjudicate the said dispute Conciliation is a method of dispute resolution in which a conciliator is appointed to bring the parties to a common ground and then settle the dispute between them.
Arbitration proceedings are carried on by the arbitrators, who are appointed as per the provisions of Section 11 of the Arbitration and Conciliation Act, 1996.Conciliation proceedings are carried on by the conciliator, who is appointed as per the provisions of Section 64 of the Arbitration and Conciliation Act, 1996.
The decision of the arbitrators, which is known as an award, is enforceable against the parties to the dispute.The conciliator cannot enforce his/her decision.
Arbitrators are not permitted to discuss the issues directly with the parties or generate options for terms of settlement or negotiation. Conciliators are permitted to discuss the issues directly with the parties or generate options for terms of settlement or negotiation. 
Arbitration can be chosen as a dispute resolution mechanism for both, present as well as future disputes.  Conciliation as a dispute resolution mechanism can only be chosen for the dispute at hand. It cannot be chosen for future disputes.
Arbitration can only be opted for dispute resolution if the parties opting for it have a prior agreement regarding it.Conciliation can be opted for in dispute resolution without any prior agreement between the disputing parties.

Conclusion 

Nowadays, we all want quick solutions to all our problems, and court proceedings have always been infamous for being lengthy and tedious. Owing to the time-consuming nature of the litigation proceedings, arbitration and conciliation are proving to be handy alternatives for dispute resolution as they reduce the time and money investments for the parties and help them solve their legal disputes in a much easier way as compared to the litigation procedure. These methods also keep the parties away from unnecessary media attention, which in some cases can be very difficult to handle. Both of the mechanisms are quite different from each other and can be chosen according to the severity of the dispute and the intentions of the parties. But the advantages which they provide are quite similar to each other. They both save time and money for the parties in dispute and help them to resolve their dispute in a much less intimidating setting. Hence, arbitration and conciliation are very efficient modes of dispute resolution, and the parties should opt for these methods depending on the facts and circumstances of the case.

Frequently Asked Questions

Can a Conciliator act as an Arbitrator in the subsequent arbitration proceedings?

No, as per the provisions given in Section 80(a) of the Arbitration and Conciliation Act, 1996, unless it is agreed upon by the parties, the conciliator shall not act as an arbitrator or as a legal representative of any of the parties in any arbitral or judicial proceeding for the same dispute.

Can a conciliator act as a witness in the subsequent proceedings after conciliation?

No. As per Section 80(b) of the Arbitration and Conciliation Act, 1996, unless it is agreed upon by the parties, the conciliator shall not act as a witness for either of the parties in any of the further proceedings.

Can conciliation be opted for during the arbitration proceedings?

Yes. As per Section 30 of the Arbitration and Conciliation Act, 1996, the arbitral tribunal may use mediation, conciliation, or other procedures at any time during the arbitral proceedings to encourage settlement with the consent of the parties to the dispute.

Can the arbitral tribunal order for interim measures?

Yes, as per Section 17 of the Arbitration and Conciliation Act, 1996, the arbitral tribunal may order for interim measures for some of the issues prescribed in the Act.

References

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