Alternate Dispute Resolution is an upcoming field that needs to be exploited as much as possible in order to FastTrack cases and reduce the burden of the judiciary. This article seeks to explain the difference between Arbitration and Conciliation. As these are the two codified methods of Alternate Dispute Resolution in India.

The article gives an introduction to ADR, explains, in brief, the origins of Arbitration and Conciliation. The article also provides a difference between Mediation and Conciliation, as both can often be confused and possess similar characteristics.

Difference Between Arbitration and Conciliation | Explained

Introduction to Alternate Dispute Resolution 

Disputes are inevitable. Having conflicting interests is a part of living together in a society.  The disputes must be resolved at a minimum possible cost both in terms of money and time. Alternative Dispute Resolution is an attempt to devise mechanisms which are ideally capable of providing an alternative to the conventional methods of resolving disputes. A resolution endorsed the moment towards ADR at a meeting of Chief Ministers, and Chief Justices held on 4.12.1993.

The two main reasons for pendency of cases in India are –

  1. Time-consuming, which results in the cases
  2. Costing money.

Hon’ble Justice S.B.Sinha, Judge Supreme Court of India stated Speedy disposal of cases and delivery of quality justice is an enduring agenda for all who are concerned with the administration of justice. With this, Justice Sinha considers the options of ADR.

In 1995 the International Centre for Alternative Dispute Resolution (ICADR) was inaugurated by Shri P.V.Narasimha Rao, the Prime Minister of India had observed: While reforms in the judicial sector should be undertaken with the necessary speed, it does not appear that courts and tribunals will be in a position to hear the entire burden of the justice system. It is incumbent on the government to provide a reasonable cost as many modes of settlements of disputes as are necessary to cover the variety of disputes that arise. Litigants should be encouraged to resort to alternative dispute resolution so that the court system proper would be left with a smaller number of important disputes that demand judicial attention.1ADR and Access to Justice: Issues and Perspectives, Justice S. B. Sinha, http://www.tnsja.tn.gov.in/article/ADR-%20SBSinha.pdf

One of the chief reasons for the development and practice of ADR is due to the pendency of cases. Table displaying the pendency of civil cases as of February 2019:2Extract from National Judicial Data Grid – https://njdg.ecourts.gov.in/njdgnew/?p=main/pend_dashboard

ADR Case Percentage

The four prominent ADR techniques are –

  1. Arbitration
  2. Conciliation
  3. Mediation
  4. Negotiation

Out of these four techniques, there is specific legislation on two of them governed by the same statute. The Arbitration and Conciliation Act, 1996 and Civil Procedure Code, 1908, section 89 of the creates provision for pre-litigation mediation.

Introduction to Arbitration and Mediation Act, 1996

The Act was enacted with the intention to consolidate and amend the law relating to domestic arbitration, international commercial arbitration and enforcement of foreign arbitral awards as also to elucidate on the law relating to Conciliation and for matters connected forthwith or incidental thereto. The Act was sanctioned in accordance with the UNCITRAL Model, the purpose of which was to create a common international code to facilitate International Commercial Arbitration. The legislative saw this Act as an opportunity to alleviate the burden on the judiciary and created provisions applicable to domestically within the country.

The Act superseded Arbitration (Protocol and Convention) Act, 1937, Arbitration Act, 1940, Foreign Awards (Recognition and Enforcement) Act, 1961. Date of Assent: 16th August 1996 Effective Date: 22nd August 1996. All provisions of the Act are in force. The Act has been amended by Arbitration and Conciliation (Amendment) Act, 2015; Jammu And Kashmir Reorganisation Act, 2019; Arbitration and Conciliation (Amendment) Act, 2019. There is no proposed amendment pending in the Parliament.

Arbitration – History and Background 

i. Meaning

Arbitration is a system where parties agree to submit their dispute to a third party. This third party holds an evidentiary hearing and issues a final and binding decision. Parties select the arbitrator and design the hearing procedures themselves. There are many types of Arbitration systems because parties can design them however, they choose. Additionally, in some cases, a single decision-maker serves as the arbitrator; in others, a panel of three or even five may arbitrate.

ii. World 

Arbitration was formulated in Ancient Rome and was resuscitated during the Middle Ages in the civil-law systems of Europe. Arbitration in case of the common law system became a part of the Dispute resolution system during the 14th century. Disputes of commercial and mercantile nature were resolved by Arbitration from the 17th century and onwards, in England by the merchant and craft guilds. Moreover, these (Arbitral) tribunals were composed of experts in the trade as they applied the usages and practices of the trade as their source of law.

In Germany, the arbitral tribunals were established by the stock exchanges of the city-states, the chambers of commerce and the local associations of dealers in coffee, colonial products, and other items during the 19th century.

Arbitration in the United States came through colonization by the common law. It expanded in the late 19th and early 20th centuries as a part of the growth of trade associations. Following, the trade expansion internationally, the application of Arbitration also expanded. This resulted in the UNCITRAL Arbitration Rules being adopted in 1976 and which have been used for the settlement of a broad range of disputes. Including, disputes between private commercial parties where no arbitral institution is involved, investor-State disputes, State-to-State disputes and commercial disputes administered by arbitral institutions.3UNCITRAL Arbitration Rules

iii. India 

The first direct law on the subject of arbitration was the Indian Arbitration Act, 1899, but it was only applicable to the three presidency towns at the time. This Act laid the groundwork for the current arbitration system we have, the act clearly defined the expression ‘submission’ to mean ‘a written agreement to submit present and future differences to arbitration whether an arbitrator is named therein or not’.

The Indian Supreme Court in 1989 suggested that “We should make the law of arbitration simple, less technical and more responsible to the actual realities of the situation, but must be responsive to the canons of justice and fair play and make the arbitrator adhere to such process and norms which will create confidence, not only by doing justice between the parties but by creating a sense that justice appears to have been done.”4F.C.I. v. Joginderpal Mohinderpal, (1989) 2 SCC 347

And thereafter the Arbitration and Conciliation Act, 1996 was enacted.

Conciliation – History and Background 

i.  Meaning

Conciliation is a process by which third-party attempt to induce parties to resolve a dispute, by improving communications and providing technical assistance. Furthermore, it is generally less formal than Mediation. The purpose behind Conciliation is to assuage the parties and dispute and make peace between them. The reason is to rehabilitate the affinity between the parties.

ii. World

As trade was expanding rapidly in the 20th century, much like arbitration, for smooth international trade, the UNICTRAL came up with rules for international Conciliation. UNCITRAL Conciliation Rules, 1980 Adopted by UNCITRAL on 23 July 1980, these Conciliation Rules provide a comprehensive set of procedural rules upon which parties may agree for the conduct of conciliation proceedings arising out of their commercial relationship.

iii. India

The first statue in India that created provision for third party intervention (Conciliation) was the Industrial Disputes Act, 1920, this statute provided for a Board of Conciliators. To understand the reason behind inculcating Conciliation in the Act, it is crucial to understand that during that time the British ruled India and as they conquered the world they fought for more land. After the Waziristan campaign of 1919-1920, strikes appeared in a violent form. The industries were run by the British and the workers were native Indians. There was an obvious communication gap. A board of conciliators was set up to ensure the dispute resolved peacefully, as the British didn’t want their workers on strike and the workers did not have sound know-how of the legal system.

Next, the issue was that this was not implemented and remained merely on the statute book. Then, in around 1924, there was a general mill strike coupled with industrial unrest in the mid-1920s, which led the government had to re-enact the Trade Disputes Act in 1929. This was the beginning of the practice of Conciliation in India. Unfortunately, even after being provided with the quick method of dispute resolution, it was under-utilized. Although the parties to dispute wanted to avail this method of ADR, they couldn’t due to the lax in implementation of the framework by the then government.

Conciliation in India evolved majorly through the industrial dispute statues and personal law.

Then in India the Family Court Act, 1984 was enacted to provide for the institution of Family Courts with a view to furthering conciliation and securing speedy settlement of, disputes relating to marriage and family affairs and for matter connected therewith by adopting an approach radically different from that ordinary civil proceedings.5ADR and Access to Justice: Issues and Perspectives, Justice S. B. Sinha, http://www.tnsja.tn.gov.in/article/ADR-%20SBSinha.pdf

The nature of Conciliation is also reflected in Section 23 of the Hindu Marriage Act, 1955 which states that it is the duty of the court to attempt to reconcile the parties, and for that purpose, the court is allowed an adjournment of 15 days.

In 1996 the Arbitration and Conciliation Act came into force in India.

The Supreme Court in 20066Punjab & Sind Bank v. Allahabad Bank, 2006(3) SCALE 557 directed the govt. to set up a committee to monitor disputes between government departments and public sector undertakings make it clear that the machinery contemplated is only to ensure that no litigation comes to court without the parties having had an opportunity of conciliation before an in-house committee.

The difference in Scope and application as per the Act

Section 7 of the Act defines an ‘arbitral agreement’ and section 61 of the act provides for ‘scope and application’ of conciliation. After a thorough reading of the two-section, the following differences between arbitration and conciliation can be identified.

Under arbitration, the pre-requisite is the existence of an arbitration agreement and a legal relationship, to submit to arbitration all or certain disputes which have arisen or which may arise between them in respect of a defined legal relationship. Whereas, when it comes to conciliation the only pre-requisite is that there needs to exist a legal relationship between the parties to the dispute. No agreement needs to exist for conciliation. The similarity between both is that the legal relationship that exists between the parties may or may not be contractual.

Arbitration an alternate to litigation  

In recent times we notice a shift in dispute resolution mechanism being opted. After litigation, the next binding and formal process of dispute resolution are Arbitration. It can be said that the binding quality of Arbitration makes it most effective. It is but obvious, that resolving a dispute takes time and effort. What happens when all the time and effort is thrown away? The parties will be unhappy. Arbitration makes it stick.

That is one quality Arbitration has, the next reason can be understood by examining a few sections of the Arbitration and Conciliation Act. The process of Arbitration is a lot like litigation. One of the most interesting is Section 9 which creates provision for Interim measures, to be applied for after the arbitral award is made but before it is enforced for the conditions mentions thereunder. In L&T Finance Ltd. v. Manoj Pathak and Ors7Commercial Arbitration Petition No. 1315 of 2019, Decided On, 31 January 2020

A petition was filed under Section 9 of the Act for interim relief. To further this, there is Section 17 which creates provision for Interim measures ordered by an arbitral tribunal. For example, if the dispute is between companies who trade in vegetables, it’s a perishable item. In such a case the parties cannot wait for the process to be completed. That is why this power is conferred.

Another, feature which makes arbitration useful in India is section 34 which creates provision for Application for setting aside an arbitral award. The criterion for this that an arbitral award can be set aside for a procedural irregular or a factual irregularity. An application Under Section 34 of the Arbitration Act, 1996 is a summary proceeding not like a regular suit.C8anara Nidhi Ltd. v. M. Shashikala, CIVIL APPEAL NO. 7544-7545 OF 2019 (Arising out of SLP(C) Nos.35673-74 of 2014)

As a result, a court reviewing an arbitral award Under Section 34 does not sit in appeal over the award, and if the view taken by the arbitrator is possible, no interference is called for.9Associated Construction v. Pawanhans Helicopters Ltd. (2008) 16 SCC 128

Is Conciliation a better option? 

Many would contend that Conciliation is a better option than arbitration. Conciliation is very distinct from arbitration. For one the amount of formality and legal procedure involved is much less. Conciliation, as the nomenclature suggests, is to conciliate the differences between the two parties. One major difference between Arbitration and Conciliation is that in the case of Arbitration there is a win-lose situation. The arbitral award is the element of win-lose; this is a similarity it derives from litigation.

Along with that in Conciliation, there is no award, instead, there is a settlement, the parties to a dispute settle their claims with each other. This can be considered as a win-win situation, as both the parties may not get exactly what they want, but they get something. Section 30 of the Act creates provision for settlement of a dispute under arbitration, the method for settlement is recommended as Mediation, Conciliation or other procedures.

The most important role in the process of Conciliation is of the conciliator. Section 67 of the Act creates provision for the role of conciliator. A conciliator has to assist the parties in an independent and impartial capacity. While discharging his/her role the conciliator has to uphold the common law principles of justice, equity and good conscience.

Section 73 creates provision for a settlement agreement, the Supreme Court in that respect stated that – When the parties are able to resolve the dispute between them by mutual agreement and it appears to the conciliator that there exists an element of settlement which may be acceptable to the parties he/she is to proceed in accordance with the procedure laid down in Section 73, formulate the terms of a settlement and make it over to the parties for their observations; and the ultimate step to be taken by a conciliator is to draw up a settlement in the light of the observations made by the parties to the terms formulated by him/her.10Haresh Dayaram Thakur v. State of Maharashtra and Ors. AIR 2000 SC 2281

Is there a difference between mediation and conciliation?

As above mentioned, Section 30 of the Act creates provision for settlement of a dispute under arbitration – the method for settlement is recommended as mediation, conciliation or other procedures.

Mediation and conciliation are mentioned as two distinct and separate options. Let’s explore the difference between these options.

Difference between Mediation and Conciliation

Conclusion

ADR in civil cases is considered to be a better option than litigation. To sum up everything, Abirritation and Conciliation are the two methods of ADR, that are governed solely by statues. Arbitration is a time-consuming process and involves a lot of formal procedures, the result of arbitration is binding. Conciliation is a much simpler process, with more informality, it is time and cost-efficient, although the result of conciliation isn’t binding without a decree of the court. The application of Arbitration and conciliation differ. Arbitration, due to its characteristics is highly effective in commercial, industrial and international disputes, whereas conciliation mainly.

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Comments to: Difference Between Arbitration and Conciliation | Explained
  • April 24, 2020

    This is extremely informative!
    Really helpful considering how arbitration is one of the most sought after ADR process these day and I must appreciate how articulately the writer has put together the information.
    Good job!

    Reply
    • April 24, 2020

      Palak Singh, thanks for your wonderful words.
      Hope, we bring out more content that you appreciate.

      Reply
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