Difference between Arbitration and Conciliation: A Comparative Study

Arbitration V. Conciliation: A Comparative Study

Author: Livya P. Lalu from Delhi Metropolitan Education, Noida.

ADR (alternative dispute resolution) are processes used to resolve disputes, either within or outside of the formal legal system, without formal adjudication and decision by an officer of the state. The term ‘appropriate’ dispute resolution is used to express the idea that different kinds of disputes may require different kinds of processes—there is no one legal or dispute resolution process that serves for all kinds of human disputing. 

Mediation is a process in which a third party (usually neutral and unbiased) facilitates a negotiated consensual agreement among parties, without rendering a formal decision. In arbitration, which resembles formal adjudication the most, a third party or panel of arbitrators, most often chosen by the parties themselves, renders a decision, in terms less formal than a court, often without a written or reasoned opinion, and without formal rules of evidence being applied. The full panoply of processes denominated under the rubric of ADR now includes a variety of primary and hybrid processes, with elements of dyadic negotiation, facilitative, advisory and decisional action by a wide variety of third party neutrals, sometimes combined with each other to create new formats of dispute processing.

Human conflict is inevitable. Most conflicts that result in the legal action are resolved outside of the courtroom and many of the conflict that is resolved by the judges would best be resolved outside of court. Alternative Dispute Resolution (ADR) is the name given to methods of dispute resolution other than court-based litigation.

The global trend has progressed towards widespread use of Arbitration and Conciliation as the most common methods of dispute resolution. Both are fundamentally different. However, the Union of India incorporates these methods as valid alternative methods of dispute resolution, by the Arbitration and Conciliation Act, 1996.

What Is Arbitration?

In the terms of sub-section (1) (a), arbitration means “any arbitration whether or not administered by permanent arbitral institution”. Law encourages parties as far as possible, to settle their differences privately either by mutual concessions or by the mediation of a third person. When the parties agree to have their disputes decided with the mediation of a third person, but with all the formality of judicial adjudication, that maybe, speaking broadly, called arbitration. Arbitration, therefore, means the submission by two or more parties of their dispute to the judgment of a third person called the “arbitrator”, and who is to decide the controversy in a judicial manner.“Arbitration” is thus defined by Romil

The Supreme Court has passed the following observation on why arbitration should be preferred. “Arbitration is considered to be an important alternative dispute redressal process which is to be encouraged because of high pendency of cases in the courts and cost of litigation. Arbitration has to be looked up to with all earnestness so that the litigant has faith in the speedy process of resolving their disputes”.

What Is Conciliation?

Part 3 of the Arbitration & Conciliation Act deals with Conciliation. Conciliation means settling of disputes without litigation. Conciliation is the process by which discussion between parties is kept going through the participation of the conciliator. S.61 points out that the process of conciliation extends to disputes, whether contracted or not. But the disputes must arise out of the legal relationship. It means that the dispute must be such as to give one party the right to sue and the other party the liability to be sued. The Act of 1940 used the word difference but in the new Act in place of difference, the word dispute has been used. However, the word ‘Dispute’ has not been defined in the new Act of 1996. The word dispute under ordinary parameters implies an assertion of rights by one party and repudiation by another party. The word ‘difference’ has a wider meaning but the word 

‘dispute’ is more positive and the difference between the parties when assumed a definite and concrete form they became a dispute.

Arbitration V. Conciliation:

Though like arbitration, conciliation is also another means of settling disputes, the two differ in many vital aspects. The only similarity that appears between the two is that a third person is chosen or nominated by the parties to resolve their disputes. 

The main points of difference between arbitration and conciliation may be stated as follows:-

The method of conciliation is generally applicable to existing disputes, while the mode of arbitration is available for existing as well as for future disputes. While making a contract, they can input a clause wherein any dispute arising out of their contractual relationship in the future can be referred to arbitration. Such a clause is binding on the parties. An arbitration agreement is governed by the doctrine of separability i.e., it is a binding contract in itself which accords compulsory execution as and when a dispute arises. {S. 7(2) of Arbitration and Conciliation Act, 1996}

The conciliation proceedings start by sending a written invitation and a written acceptance thereof between the parties. The invitation may be accepted. {S. (62), Arbitration and Conciliation Act, 1996} or rejected by the other party as it has no binding effect, being an invitation only. The prior written agreement in arbitration commands a binding effect upon the parties and its breach by resorting to court compels the court to refer the matter to the arbitration and parties are bound by the arbitral agreement. In arbitration, the arbitration agreement itself suggests for redressal of disputes through arbitration and if any party approaches the court, the other party may request the court to refer the matter to arbitration and the court is bound to refer such matter to the Arbitral Tribunal.

• While conciliation proceedings are in progress, there is a bar on parties from initiating arbitral or judicial proceedings as per section 77 of the new act 1996.
• Where parties fail to determine the number of arbitrators which should always be even, the act provides on such failure for a sole arbitrator. However, in the case of conciliation, by default, only one arbitrator is enough. The parties, however, can appoint one conciliator each, these two need not appoint the third one. Parties may agree for two or three conciliators and a maximum number of conciliators cannot exceed three. Where the number of conciliators is more than one, they as a matter of general rule should act jointly. In the case of arbitrators, there is no bar on their maximum number but the total should not be even number. When parties agree for three arbitrators, each party shall appoint one and these two shall appoint the third arbitrator who shall be the presiding arbitrator. {S.10 and S.63, Arbitration and Conciliation Act, 1996.} In Ethiopian Airlines v. Stic Travels (P.) Ltd., the Apex Court explained the scope of this provision, Two arbitrators shall appoint the third arbitrator who acts as chairman. He cannot be deemed to be an umpire even if one of the nominated arbitrators of the party dies, no fresh right accrues to appoint the fresh chairman. In Narayan Prasad Lohia v. Nikunj Kumar Lohia, the court again explained that the section 11 will apply mutatis mutandis if the parties fail to specify the number of arbitrators. Also, in a landmark ruling in the same case, the court said that it is not necessary to appoint a 3rd arbitrator, if the two arbitrators are in consensus of giving the same award or if under section 16, the parties to the dispute fail to raise objections in the beginning regarding a two-member panel or tribunal, they are deemed to have waived their right.

• While the role of conciliator is to help and assist the parties to reach an amicable settlement of their dispute {Section 72}, the arbitrator does not merely assist the parties but he also actively arbitrates and resolves the dispute by making an arbitral award.
• Section 62 again says that a party sending application for conciliation must briefly identify the subject of the dispute. However, in an arbitration agreement, the substance of dispute must be clearly mentioned. Usually, the parties incorporate a clause saying that any dispute arising out of the contract must be referred to arbitration and damages will be awarded for the purposes of the same only. This clause is of utmost importance. However, such a clause’s existence is not needed in case of conciliation. 

Can A Conciliator Act As An Arbitrator In The Subsequent Arbitration Proceedings?

The UNCITRAL Model Law and Rules on Arbitration and Conciliation is a cornerstone for arbitration tribunals worldwide. Almost 145 countries have till date ratified this convention and adopted it in their domestic arbitration law. Article 19 of the act clearly specifies that a conciliator shall not be an arbitrator in the same dispute for which he/she conciliated. Section 80 of Arbitration and Conciliation Act, 1996 is similar to this provision and based on it. It reads as under,

Role of conciliator in other proceedings: – Unless otherwise agreed by the parties: —-

(a) The conciliator shall not act as an arbitrator or as a representative or counsel of a party in any arbitral or judicial proceeding in respect of a dispute that is the subject of the conciliation proceedings; 

(b) The conciliator shall not be presented by the parties as a witness in any arbitral or judicial proceedings. Thus, a conciliator as a general rule of international practice cannot act as an arbitrator. However, if the parties are willing and have agreed in writing that their conciliator can also be their arbitrator in the same dispute resolution, then this privilege cannot be denied. Now, the conciliator will be bound to follow the substantive and procedural law and give his award in accordance with the law. The Permanent Court of Arbitration in their annual law journal in 1994 (written by Fuller and Fuller) expressed the advantages of enabling a conciliator of the same dispute to act as an “Amicus Curiae” in the arbitration proceedings or appoint him/her as one of the arbitrators in the panel. This was said in view of the new ADR and more refined techniques being adopted such as “med-arb” or “negotiation award” to gain maximum out of these alternate processes. Professor Kirti Kannan terms this opinion as undue stretching of the teenage processes of ADR. However, no such provision has been so far made as the risk factor of losing neutrality in the proceedings cannot be ruled out. 

In the case of Alcove Industries Ltd. V. Oriental Structures Engineers Ltd. the court explained that under section 12 the arbitrator must submit in writing at the outset, such facts which may give rise to justifiable doubts to his independence or impartiality. An arbitrator who has conciliated for Respondent 1 before cannot arbitrate, even in a separate dispute resolution where the same party is involved.

In the case of Welspun Corp. Ltd v. Micro and Small, Medium Enterprises Facilitation council, Punjab and Ors, Justice Kannan held that the council appointed by the state to conciliate in the dispute, on the termination of the conciliation proceedings, shall have the power to act as an arbitrator if there is an arbitration clause, agreement or contract between the parties. Thus the council can arbitrate in the given dispute.

Therefore, the conciliator can act as an arbitrator in certain cases if the Arbitration clause doesn’t lay any bar. However, this is not be followed as a general rule and it must be ensured that neutrality of presiding conciliator and arbitrator is ensured.