Conciliation: An Effective Mode of ADR Mechanism

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“The language of young men is pull down and destroys, but the old man speaks of Conciliation”

:-Chinua Achebe

Such is the object and finality of conciliation. Gone are the days when arbitration was considered to be a cheap and efficacious remedy. Now the situation is completely reversed. Arbitration proceedings have become too technical and expensive. Therefore, Conciliation is considered a better alternative to the formal justice system. For selecting the mode of the conciliation it is not necessary to enter into a formal agreement. Because where the 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. The other advantage of choosing conciliation is that though the amicable settlement in conciliation could not be reached then the evidence leaded, 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 itself. Therefore parties can attempt conciliation without any risk.

Conciliation means the settling the disputes without litigation. It is a process in which independent person or persons are appointed by the parties with mutual consent by agreement to bring about a settlement of their dispute through consensus or by using of the similar techniques which are persuasive. In the Halsbury’s Laws of England, the terms arbitration and conciliation have been differentiated as under: “The term arbitration” is used in several senses. It may refer either to a judicial process or to a non-judicial process is concerned with the ascertainment, declaration and enforcement of rights and liabilities, as they exist, in accordance with some recognized system of law. An industrial arbitration may well have for its function to ascertain and declare, but not to enforce, what in the parties, and such a function is non- judicial. Conciliation is a process of persuading parties to reach an agreement, and is plainly not arbitration; nor is the chairman of a conciliation board an arbitrator” Confidence, trust & Faith are the essential ingredients of conciliation. This effective means of ADR is often used for domestic as well as international disputes. Some Significant difference is there while using it for domestic or international disputes.

Conciliation under the Arbitration and Conciliation Act

The Act, for the first time in India, provides for recognition of conciliation in commercial disputes[1]. Part III of the Act provides for “…conciliation of disputes arising out of legal relationships, whether contractual or not and to all proceedings relating thereto[2].” This provision similar to that relating to arbitration, is arguably, the most important issue and needs careful attention. The choice of the method of ADR is a function of the kind of relationship and the nature of the dispute between the parties[3]. The Act clearly applies only to commercial arbitration and conciliation. From the description of the scope and application in section 61 one needs to understand if only legal obligations may be the subject of conciliation. Can differences of opinions that have an impact on the relationship between the parties be the subject matter of the conciliation? If the subject matter of the dispute is the legal obligation of the parties then a choice of the ADR mechanism is clearly available: the parties may choose either arbitration or conciliation. To equate conciliation to arbitration on so simplistic an analysis is to grossly understate the relevance of conciliation. While it is no doubt true that conciliation could be used in place of arbitration and parties may be happier with a settlement than an award, it must be recognised that conciliation has one special characteristic, i.e., it can go to the root of the difference, the real problem between the parties that had led them to disagree with each other.

Illustration: In a joint venture agreement between an Indian and an American company, each holding 50% of the shares in the Indian joint venture company, certain matters are “reserved” i.e, decisions on these matters may be taken only if the directors nominated by both the parties vote in favour of the resolution in a meeting of the Board of Directors. Typically these would include expansion of the capital base, diversification of activities, the creation of subsidiaries, mergers and acquisitions, the creation of liabilities exceeding a certain amount, etc. If the American partner wishes to expand the equity base of the joint venture company so that it may undertake larger projects or expand its activities but the Indian partner is unable to match the capital contribution required to maintain the ratio of shareholding due to unavailability of free resources at that point of time, the Indian partner will instruct its nominee directors to vote against the resolution even though it agrees, in principle, that the company needs additional funds for the expansion. The Indian partner may wish to increase the debt exposure of the joint venture company, which the American partner may view as an ad-hoc response, rather than as a long-term solution.

The Indian partner may perceive this action as a threat by the American partner to suppress the Indian partner by forcing the dilution of its control in the joint venture company. This may be the first sign of insecurity of the Indian company and the beginning of the loss of trust between the partners. Once the resolution fails, the American partner may not be very interested in the joint venture as it sees that the company is unlikely to grow in a manner that it expects. It may also perceive the Indian company as lacking in vision and ambition. This may be a natural inference by the persons who make the policies and direct the activities of the American partner. If the American partner is allowed to continue to hold this view, it would sour the relationship between parties that was based on the understanding of equality.

The difference of perception of the situation could not be the subject of arbitration since there is no breach of any obligation of the parties under the joint venture agreement. There is no obligation on the parties to vote in a particular manner on issues that are in the list of reserved matters. At best the parties could allege that the other did not act in good faith and in the best interest of the joint venture company. This, however, could be a matter that could be referred to conciliation. The parties could express their concerns and feelings in the matter to the conciliator who could help them find a solution to the problem after understanding their concerns. It may be that the parties have not been able to communicate their understanding of the situation to each other adequately, have failed to understand each other’s perception of the situation, have a difference of opinion regarding the future of their relationship or differ in their vision for the joint venture company. In most of these cases, conciliation will help them communicate their views so that, at the very least, the air may be cleared for a review of the relationship.

In the present illustration, a possible solution that may be acceptable to both parties could be an expansion of the capital base of the company by a fresh issue of shares to the American partner with a right to the Indian partner to purchase half the shares at an agreed price(or formula) within a fixed period of time in the future. Thus, though the Indian partner may hold fewer shares for a short while, the American partner may continue to treat the Indian partner as a full and equal partner thereby putting to rest the fear of the Indian partner that the increase in the share capital is a ploy to dilute its control in the joint venture. Whether the ‘difference of opinion’ in the above illustration qualifies for the benefits under section 61[4] Part III of the Act is, therefore, an issue. It would if one takes a view that it is a proceeding relating to disputes arising out of a legal relationship. The Supreme Court of India has held that the phrase “arising out of” is of the widest amplitude and should not be read restrictively[5].

Whether the fact situation in the illustration would qualify as a ‘dispute’ would be the next level of enquiry. While dealing with the issue of the date from which limitation runs in a matter to be referred to arbitration, the Supreme Court was required to determine the date when the dispute or difference arose. It held that the “…dispute or difference arises on unequivocal denial of a claim of one party by the other party as a result of which the claimant acquires the right to refer the dispute to arbitration[6].” If one were to expect that the courts would interpret the word “dispute” in the context of conciliation in a similar manner, it may be necessary for the agreement containing the conciliation agreement to confer a right on the parties to resort to conciliation in situation where the difference of opinion, which may not be a breach of any legal obligation, is likely to affect their relationship. This would ensure that the parties have always a course of action to resolve their differences and are not left without a chance to resolve such differences that could be fatal to the joint venture company (in the illustration above).

Need for the increase in Conciliation Mechanism in India

The importance of conciliation in the present Indian court system is increased as courts are facing with the problem of mounting arrears of pending cases & there is a serious need of disposing of them & for that amicable settlement, conciliation is the best alternative. The Himachal Pradesh High court undertook the project of disposing of the pending cases by conciliation & insisting on pretrial conciliation in fresh cases. This idea was based upon the mediation in Canada & Michigan. The said project had great success in Himachal Pradesh. The Law Commission of India in its various reports (77th & 13th) has appreciated the project in Himachal Pradesh and recommended the other States to follow the same path.

The other important point to uplift the Conciliation is that it has got statutory recognition as included in Arbitration & Conciliation act 1996 which is based on UNCITRAL Model & because of that it has Universal familiarity & can be used for the settlement of domestic disputes as well as international commercial disputes. The Concept of conciliation has received a new dimension because of the successful Himachal experiment.The movement of conciliation of awareness of conciliation has started long before, the only difference is, previously parties were willingly coming together & opting for conciliation but now, the conciliation on Himachal pattern is a court-induced conciliation, making it mandatory for the parties to attempt a conciliation for settlement of their dispute & approach the court if conciliation fails. In Maharashtra also Mumbai High court is taking initiative for Himachal pattern i.e. pre-trial conciliation Therefore it is necessary to study conciliation as an organized procedure for settlement of the dispute through formal proceedings.

Impediments in opting Conciliation in India:

Although conciliation services are available to civil litigants through the innovation of Lok Adalats (panels of conciliators) and Conciliation Committees, several problems remain unsolved.

1. India generally lacks obligatory mediation such as early neutral evaluation utilized in the United States which is especially useful when imposed shortly after litigation is filed. Conciliation processes in India require the consent of both parties or the request of one party and the decision by the court that the matter is suitable for conciliation.

2. The subject matter of disputes that may be sent to Lok Adalats is limited to auto accidents and family matters.

3. The conciliation process normally involves the lawyers, not the disputing parties themselves. This problem is particularly acute in writ proceedings in which the government is the responding party since counsel frequently claims to lack authority to make decisions about terms of the settlement.

4. Current conciliation processes do not require the parties to meet and confer prior to entering either traditional litigation venues or their alternatives. No joint statement of the specific points of disagreement is required. The absence of meeting, conference and/or joint statements requirement is required. The absence of a meeting, conference or joint statement requirements allows competing sides to remain insulated from one another.

5. The Lok Adalats themselves have experienced backlog, and some defendants agree to conciliation as a way of further delaying the litigation process.

6. Finally, there is no set time or point within the litigation process at which a decision is made, by the courts, the parties or otherwise regarding referral of the case to some form of alternative dispute resolution.

Conciliation better than other modes of ADR:

Gone are the days when arbitration was considered to be a cheap and efficacious remedy. Now the situation is completely reversed. Arbitration proceedings have become too technical and expensive. In this context, reference may be made to the judgment of the Supreme Court of India. In Guru Nanak Foundation v. Rattan Singh & Sons, it was observed:

“Interminable, time consuming, complex and expensive court procedures impelled jurists to search for an alternative forum, less formal more effective and speedy for resolution of disputes avoiding procedural claptrap and this led to Arbitration Act, 1940. However, the way in which the proceedings under the Act are conducted and without an exception challenged in the courts has made lawyers laugh and legal philosophers weep. Experience shows and law reports bear ample testimony that the proceedings under the Act have become highly technical accompanied by unending prolixity at every stage providing a legal trap to the unwary. Informal forum chosen by the parties for expeditious disposal of their disputes has by the decisions of the court been clothed with “legalese” of unforeseeable complexity. Broadly speaking, there are at least three advantages if the parties are able to a reasonable settlement of their disputes through conciliation, viz.

1) Quickness:-  The parties can devote their time and energy for better and useful work.

2) Economic:- Instead of spending hard earned money on litigation, one can invest it for better dividends.

3) Social:- The parties go happily to their respective places and stand relieved from bickering, enmity, which in certain cases might have lingered on for generations.

There is a growing feeling amongst the litigants that they would have been better off if there had been no arbitration clause so that they could file a civil suit, which entails only three steps, viz. (i) Filing of the pleadings; (2) Conduct of the proceedings; and, (3) Judgment.

As against three stages involved in a civil suit, there are as many as six in an arbitration matter, viz.

(1) appointment of the arbitrator either by the parties or by the court;

(2) pleadings before the arbitrator;

(3) proceedings before the arbitrator;

(4) award;

(5) filing of the award in the court; and,

(6) recourse to a court against an arbitral award.

To overcome the ordeals involved, the best course available to the parties is to look to reasons, appreciate the viewpoint of the opposite party, not to stand on false prestige and resolve the controversy in an amicable manner. It does not help either party to pursue litigation – whether in courts or before an arbitral tribunal. Both parties are losers, at least in terms of time, at the time of final outcome of litigation. It is at this stage the parties appreciate that they would have been better off had they taken the path of conciliation. It is not only the fees of lawyers but also of the arbitrators, which have started pinching the parties. Though presently the number is small but nevertheless a serious beginning has been made in some cases to settle the matter outside arbitration to avoid unnecessary expense. The resort to conciliation, directly or through a trusted common person/ institution, is the only remedy to achieve early success.

Conciliation is a better alternative to the formal justice system. For selecting the mode of the conciliation it is not necessary to enter into a formal agreement. Because where the 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. The other advantage of choosing conciliation is that though the amicable settlement in conciliation could not be reached then the evidence leaded, 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 itself. Therefore parties can attempt Conciliation without any risk. It is a non-binding procedure in which an impartial third party assists the parties to a dispute in reaching a mutually agreed settlement of the dispute. For effective conciliation, it is necessary that the parties to the dispute should be brought together face to face at a common place where they can interact with each other & with the conciliator to arrive at a settlement of the dispute. The importance of conciliation is that in other proceeding decision is given by the presiding authority & it is binding accordingly. But in conciliation, there is an amicable settlement where parties themselves have reached to the decision i.e. settlement & which is binding as per their decision. Third party i.e. conciliator is just helping to arrive at settlement & not dictating the term or decision.

Conclusion:

However, the success of conciliation depends on the mental attitude of the parties, the skill of the conciliator and the proper environment, backed by infrastructure facilities for servicing the conciliation procedure. The mental attitude required for conciliation ranges, on the one end from the inclination of all the parties to arrive at a mutually agreed settlement, though there may be mental reservation in making the first move, to the absence of any objection to such settlement, so that the conciliator may have scope to induce the parties to attempt conciliation.

On ultimate analytical observation, reciprocity is the hallmark of the conciliation process. For healthy business relationship mutual understanding & to solve the dispute through settlement are the eventual qualities or eventual base. When the party is having a healthy business relationship, he is bound to succeed in conciliation. The need is therefore to develop a will to accommodate other party’s genuine interest, a faith in the others objects & capacity to reason to evolve cultivates the wish to sit together & reciprocate & to solve out the difference amicably. Therefore it is always preferable to resolve the dispute by conciliation.

Frequently Asked Questions

1. Difference between Arbitration and Conciliation?

For arbitration, the parties shall select arbitrators. The selected arbitrators then shall resolve the dispute and render an arbitration award which is final and binding. For conciliation, a third party shall play the role of a conciliator helping the parties to resolve the dispute through negotiation.

2. What is the role of conciliator?

The conciliator will be guided by principles of objectivity, fairness and justice, giving consideration to, among other things, the rights and obligations of the parties, the usages of the trade concerned and the circumstances surrounding the dispute, including any previous business practices between the parties.

3. What is a conciliation Agreement?

conciliation agreement. A settlement or compromise agreement between a regulatory agency and an individual or entity charged with violating rules, regulations, or laws.

4. What is Administrative Assistance?

Section 68 of the Arbitration and Conciliation Act, facilitates administrative assistance for the conduct of conciliation proceedings. Accordingly, the parties and the conciliator may seek administrative assistance by a suitable institution or the person with the consent of the parties.

5. How does Submission of Statement to Conciliator?

The conciliator may request each party to submit to him a brief written statement. The statement should describe the general nature of the dispute and the points at issue. Each party should send a copy of such statement to the other party. The conciliator may require each party to submit to him a further written statement of his position and the facts and grounds in its support. It may be supplemented by appropriate documents and evidence. The party should send the copy of such statements, documents and evidence to the other party. At any stage of the conciliation proceedings, the conciliator may request a party to submit to him any additional information which he may deem appropriate

 Edited by – Sakshi Agarwal

Quality Check – Ankita Jha

Approved & Published by –  Sakshi Raje

References:

1. Wharton’s LAW LEXICON 227( 14th end,1937, Indian reprint-1993).

2. Halsbury’s Laws of England 4 the Ed, Vol. 2, paragraph 502.

3. Guru Nanak Foundation v. Rattan Singh & Sons, AIR 1981 SC 2075.

4. Haresh Dayaram Thakur v. the State of Maharashtra, AIR 2000 SC 2281: 2000 AIR SCW 2058

5. Mysore Cements Ltd.v. Svedala Barmac Ltd., 2003 (1) Arb LR 651 (SC).

6. Haresh Dayaram Thakur v. the State of Maharashtra, AIR 2000 SC 2281: 2000 AIR SCW 2058

7. Fakirchand v. Bancilal AIR 1955 Hyd 28FB

8. Lachoomal v. Radhey Shyam. AIR1971 SC 2213

9. Union of India v. G.S. Atwal & Co., (1996) 3 SCC 568.

10. Tarapore & Co. v. Cochin Shipyard, (1984) 2 SCC 680, 715;

11. Renusagar Power Co. Ltd. v. General Electric Company, (1984) 4 SCC 679.

12. State of Orissa v. Damodar Das, (1996) 2 SCC 216.

13. Early neutral evaluation, as currently employed in the Federal District Court, Northern District of California, has achieved notable success in helping civil litigants to reach consensual settlements.

14. Stephen A. Mayo & Hiram E. Chodosh, Indian Civil Justice Process Modernization (Bombay, Madras), in Inst. Study &

15. Legal Sys. (Sept. 1996), Law Review Articles NYU Journal of International Law and Politics, 1998

16. Tania Sourdin, “Matching Disputes to Dispute Resolution Processes – The Australian Context”, and Frank E.A.Sander, “Dispute Resolution within and Outside the Courts – An overview of the US Experience” in P.C. Rao and William Sheffield (eds.) Alternative Dispute Resolution: What it is and How it Works”, ICADR, New Delhi, 1996.

[1] Order XXXII-A of the Code of Civil Procedure, 1908 provides for a judge, in certain matters relating to the family, to make efforts to settle the dispute amicably and adjourn the proceedings to enable the parties to reach a settlement.

[2] Section 61

[3] See further, Tania Sourdin, “Matching Disputes to Dispute Resolution Processes – The Australian Context”, and Frank E.A.Sander, “Dispute Resolution within and Outside the Courts – An overview of the US Experience” in P.C. Rao and William Sheffield (eds.) Alternative Dispute Resolution: What it is and How it Works”, ICADR, New Delhi, 1996.

[4] See, Union of India v. G.S. Atwal & Co., (1996) 3 SCC 568.

[5] Tarapore & Co. v. Cochin Shipyard, (1984) 2 SCC 680, 715; Renusagar Power Co. Ltd. v. General Electric Company, (1984) 4 SCC 679.

[6] State of Orissa v. Damodar Das, (1996) 2 SCC 216.

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Madonna Jephi
I am Madonna Jephi from Tamil Nadu National Law University pursuing B.Com LLB. (Hons.). Legal research and writing has always been my good companion. Intellectual property law, labour laws, Legal drafting are my fondest. I have always believed in “no matter how good you are you can always be replaced” and this has made me conscious to be the best of myself in what I do. I actively participate in conferences and other elocutions that invite presentations on any contemporary legal issues. I am a good listener as well a good leader capable to be a part of any team. Moreover, I spend my time writing motivational quotes and sayings and enjoy sending it across to my friends and families. I take part in various legal aid and self awareness camps and have also involved in conducting a few of them. I also enjoy cooking and driving.