Commencement and Termination of Conciliation Proceedings - Arbitration and Conciliation Act, 1996

The Arbitration and Conciliation Act, 1996

Commencement and Termination of Conciliation Proceedings

📚 Introduction to Conciliation

Conciliation is a non-adversarial method of alternative dispute resolution (ADR) where a neutral third party, called a conciliator, assists the disputing parties in reaching an amicable settlement. Part III (Sections 61-81) of the Arbitration and Conciliation Act, 1996 governs conciliation proceedings in India.

Key Features of Conciliation:

• Voluntary process requiring consent of both parties

• Less formal than arbitration or court proceedings

• Confidential in nature

• Settlement agreement has same status as arbitral award

• Based on UNCITRAL Conciliation Rules

🚀 Commencement of Conciliation Proceedings (Section 62)

Legal Provisions:

Section 62 of the Arbitration and Conciliation Act, 1996 provides the procedure for commencing conciliation proceedings.

Section 62 - Commencement of Conciliation Proceedings

(1) The party initiating conciliation shall send to the other party a written invitation to conciliate under this Part, briefly identifying the subject of the dispute.

(2) Conciliation proceedings shall commence when the other party accepts in writing the invitation to conciliate.

(3) If the other party rejects the invitation, there will be no conciliation proceedings.

Three Essential Steps for Commencement:

Step 1: Written Invitation

The initiating party must send a written invitation to the other party requesting conciliation. This invitation should briefly identify the subject matter of the dispute.

Step 2: Written Acceptance

The other party must accept the invitation in writing. The conciliation proceedings officially commence on the date when this written acceptance is received.

Step 3: Appointment of Conciliator

After acceptance, parties jointly appoint one or three conciliators. If parties cannot agree, institutional assistance may be sought (Section 64).

Important Points:

✓ Both invitation and acceptance must be in writing

✓ Proceedings commence only upon written acceptance

✓ Rejection of invitation means no conciliation proceedings

✓ The date of written acceptance is crucial for determining commencement

✓ Silence or non-response does not constitute acceptance

🛑 Termination of Conciliation Proceedings (Section 76)

Section 76 of the Arbitration and Conciliation Act, 1996 specifies four distinct ways in which conciliation proceedings can be terminated.

Section 76 - Termination of Conciliation Proceedings

The conciliation proceedings shall be terminated:

Four Modes of Termination:

Mode 1: Settlement Agreement (Successful Termination)

By the signing of the settlement agreement by the parties, on the date of the agreement.

Effect: This is the most desirable outcome. The settlement agreement has the same status and effect as an arbitral award under Section 30 and is enforceable like a decree of court.

Mode 2: Declaration by Conciliator

By a written declaration of the conciliator, after consultation with the parties, to the effect that further efforts at conciliation are no longer justified, on the date of the declaration.

Effect: The conciliator determines that continuing the process would be futile and formally terminates proceedings.

Mode 3: Joint Declaration by Parties

By a written declaration of the parties addressed to the conciliator to the effect that the conciliation proceedings are terminated, on the date of the declaration.

Effect: Both parties jointly decide to discontinue the conciliation process.

Mode 4: Unilateral Declaration by One Party

By a written declaration of a party to the other party and the conciliator, if appointed, to the effect that the conciliation proceedings are terminated, on the date of the declaration.

Effect: Any single party can unilaterally withdraw from conciliation proceedings at any time.

Related Provisions:

Section 77 - Resort to Arbitral or Judicial Proceedings

Parties shall not initiate any arbitral or judicial proceedings during conciliation, except when necessary for preserving their rights.

Section 78 - Costs

Upon termination, the conciliator shall fix the costs of conciliation and give written notice to the parties.

Section 80 - Role of Conciliator in Other Proceedings

The conciliator cannot act as an arbitrator, representative, or counsel in any subsequent arbitral or judicial proceedings related to the same dispute.

💼 Practical Example

Scenario: Construction Contract Dispute

Background:

ABC Constructions Ltd. (Contractor) has a dispute with XYZ Developers Ltd. (Client) regarding payment delays of Rs. 50 lakhs for completed work on a commercial building project. The contract contains a conciliation clause.

Commencement Process:

Day 1 (January 5, 2025): ABC Constructions sends a written invitation to XYZ Developers stating: "We invite you to resolve our payment dispute of Rs. 50 lakhs through conciliation under the Arbitration and Conciliation Act, 1996."

Day 8 (January 12, 2025): XYZ Developers responds in writing: "We accept your invitation to conciliate regarding the payment dispute." Conciliation proceedings officially commence on this date.

Day 15 (January 19, 2025): Both parties jointly appoint Mr. Rajesh Kumar, a retired engineer, as the conciliator.

Day 20-60 (January 24 - March 5, 2025): Multiple conciliation meetings are held. The conciliator helps parties understand each other's perspectives.

Possible Termination Scenarios:

Scenario A: Successful Settlement (Mode 1)

On March 5, 2025, parties agree: XYZ will pay Rs. 45 lakhs immediately and Rs. 5 lakhs in 30 days. ABC will waive interest claims. Both parties sign the settlement agreement on March 5, 2025. Proceedings terminate successfully on this date.

Scenario B: Conciliator's Declaration (Mode 2)

After 40 days of negotiations, positions remain unchanged. The conciliator consults both parties and issues a written declaration on March 1, 2025 stating: "Further efforts at conciliation are no longer justified." Proceedings terminate on March 1, 2025.

Scenario C: Joint Withdrawal (Mode 3)

Both parties realize they prefer arbitration. On February 15, 2025, they jointly submit a written declaration to the conciliator: "We wish to terminate conciliation proceedings." Proceedings terminate on February 15, 2025.

Scenario D: Unilateral Withdrawal (Mode 4)

On February 20, 2025, ABC Constructions sends written notice to XYZ and the conciliator: "We hereby terminate conciliation proceedings." Proceedings terminate on February 20, 2025, regardless of XYZ's consent.

⚖️ Landmark Case Law

Haresh Dayaram Thakur vs. State of Maharashtra and Ors.

Citation: AIR 2000 SC 2281 | (2000) 6 SCC 179

Court: Supreme Court of India

Date: May 5, 2000

Bench: Justice D.P. Mohapatra and Justice R.P. Sethi

Facts of the Case:

• The dispute was between two brothers (Haresh and Pitambar Thakur) regarding a flat in Mumbai (Flat No. 16/199 at Ramakrishna Nagar, Khar, Mumbai).

• The Bombay High Court, in a writ petition, appointed a retired judge (Justice H. Suresh) as a conciliator to resolve the dispute.

• Multiple conciliation meetings were held between April 1999 and August 1999.

• The conciliator submitted proposals suggesting that one party pay Rs. 4,00,000 to the other for possession of the flat.

• The parties agreed in principle but later, one party challenged the conciliator's report.

Key Legal Issues:

• Whether the conciliator's proposals constituted a binding settlement agreement?

• What is the role and power of a conciliator under the Arbitration and Conciliation Act, 1996?

• When does a settlement become final and binding?

Supreme Court's Observations (Para 19-20):

"From the statutory provisions noted above, the position is manifest that a conciliator is a person who is to assist the parties to settle the disputes between them. For this purpose, the conciliator is vested with wide powers to decide the procedure to be followed by him untrammelled by the procedural law like the Code of Civil Procedure or the Indian Evidence Act, 1872."

"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 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."

"The settlement takes shape only when the parties draw up the settlement agreement or request the conciliator to prepare the same and affix their signatures to it. Under sub-section (3) of Section 73, the settlement agreement signed by the parties is final and binding on the parties and persons claiming under them."

"A successful conciliation proceeding comes to an end only when the settlement agreement signed by the parties comes into existence."

Key Principles Established:

1. Role of Conciliator: A conciliator assists parties in settling disputes and has wide procedural discretion not bound by strict procedural laws.

2. Settlement Agreement Requirement: A settlement becomes binding only when parties sign the settlement agreement. Mere proposals or recommendations by the conciliator are not binding.

3. Finality: Under Section 73(3), a settlement agreement signed by the parties is final and binding on them and persons claiming under them.

4. Successful Termination: Conciliation proceedings successfully terminate only when a signed settlement agreement comes into existence.

5. No Binding Effect Without Signatures: Until parties sign the settlement agreement, they are not bound by the conciliator's proposals, and they can withdraw from the process.

Relevance to Commencement and Termination:

This case clarifies that successful termination under Section 76(a) requires actual signing of the settlement agreement by the parties. The conciliator's role is facilitative, not adjudicatory. The case emphasizes that parties retain control over whether to accept a settlement until they formally sign the agreement.

📊 Comparison Table: Commencement vs. Termination

Aspect	Commencement (Section 62)	Termination (Section 76)
Legal Provision	Section 62 of the Act	Section 76 of the Act
Number of Methods	One method (written invitation and acceptance)	Four methods
Requirement of Consent	Both parties must consent (initiating party sends invitation; other party must accept)	Varies by method - can be unilateral (Mode 4) or bilateral (Modes 1 & 3)
Written Formality	Mandatory - both invitation and acceptance must be in writing	Mandatory - all four modes require written declaration/agreement
Role of Conciliator	Conciliator appointed after acceptance	Conciliator may initiate termination (Mode 2) or receive termination notice
Effective Date	Date of written acceptance by the other party	Date of signing settlement agreement (Mode 1) or date of declaration (Modes 2, 3, 4)
Voluntariness	Completely voluntary - rejection prevents commencement	Mode 4 allows unilateral withdrawal at any time
Nature of Process	Sequential (invitation → acceptance → commencement)	Can occur at any stage after commencement
Outcome	Begins conciliation process	Ends conciliation process (may or may not result in settlement)
Silence/Inaction	Silence means no proceedings commence	Not applicable - active termination required
Legal Effect	Creates a procedural framework for dispute resolution	If Mode 1: Settlement agreement enforceable as arbitral award. If Modes 2-4: Parties free to pursue other remedies
Time Limit	No statutory time limit for acceptance	No statutory time limit - can occur at any stage

Comparison of Four Termination Modes

Mode	Initiated By	Consent Required	Result	Success Rate
Mode 1: Settlement Agreement	Both Parties	Yes - Mutual	Binding settlement enforceable as award	Successful Resolution
Mode 2: Conciliator's Declaration	Conciliator	Consultation required	Process ends without settlement	Unsuccessful - Deadlock
Mode 3: Joint Declaration	Both Parties	Yes - Mutual	Process ends without settlement	Unsuccessful - Parties choose alternative
Mode 4: Unilateral Declaration	Either Party	No - Unilateral	Process ends immediately without settlement	Unsuccessful - One party withdraws

📈 Flowcharts

Flowchart 1: Commencement of Conciliation Proceedings

START: Dispute Arises Between Parties

↓

Party A Sends Written Invitation to Conciliate
(Section 62(1))
Briefly identifies the dispute

↓

DECISION POINT:
Does Party B Accept?

← NO

NO CONCILIATION
PROCEEDINGS
(Section 62(3))
Parties may pursue other remedies

YES →

Party B Sends Written Acceptance
(Section 62(2))

↓

                                ✓ CONCILIATION PROCEEDINGS COMMENCE

                                Date: Date of Written Acceptance

↓

Appointment of Conciliator(s)
One or Three Conciliators
(Sections 64-65)

↓

Conciliation Proceedings Begin
Meetings, Negotiations, Submissions
(Sections 67-75)

Flowchart 2: Termination of Conciliation Proceedings

Conciliation Proceedings Ongoing

↓

Which Termination Event Occurs?

↓

MODE 1
Settlement Reached

↓

Parties Sign Settlement Agreement

↓

✓ SUCCESSFUL TERMINATION
Date: Date of Signing
Effect: Enforceable as Arbitral Award

↓

MODE 2
Deadlock Reached

↓

Conciliator Consults Parties

↓

Conciliator Issues Written Declaration
"Further efforts no longer justified"

↓

TERMINATION
Date: Date of Declaration
No Settlement

↓

MODE 3
Mutual Decision to Withdraw

↓

Both Parties Issue Joint Written Declaration
Addressed to Conciliator

↓

TERMINATION
Date: Date of Declaration
No Settlement

↓

MODE 4
One Party Decides to Withdraw

↓

Party Issues Written Declaration
To other party and conciliator

↓

IMMEDIATE TERMINATION
Date: Date of Declaration
No Consent Required

↓

POST-TERMINATION
• Conciliator fixes costs (Section 78)
• Parties free to pursue arbitration/litigation
• Conciliator cannot act in subsequent proceedings (Section 80)

❓ Questions & Answers

Answer: No, conciliation is always voluntary. Even if there is a conciliation clause, a party can reject the invitation to conciliate (Section 62(3)). Without acceptance, no conciliation proceedings can commence. However, some contracts may make it a pre-condition to arbitration or litigation.

Answer: No. Section 62 mandates that both the invitation to conciliate and the acceptance must be in writing. Oral agreements to conciliate are not sufficient to commence conciliation proceedings under the Act.

Answer: Yes. Under Section 76(d), any party can unilaterally terminate conciliation proceedings by issuing a written declaration to the other party and the conciliator. The consent of the other party is not required. This ensures the voluntary nature of conciliation is maintained throughout.

Answer: Under Section 73(3), a settlement agreement signed by the parties has the same status and effect as an arbitral award on agreed terms under Section 30. This means it is final, binding, and enforceable like a court decree. It can be executed under Section 36 of the Act.

Answer: Generally, no. Section 77 prohibits parties from initiating arbitral or judicial proceedings during conciliation regarding the same dispute. However, there is an exception: a party may initiate proceedings if necessary for preserving their rights (e.g., to prevent limitation from expiring or to obtain urgent interim relief).

Answer: Under Section 76(b), the conciliator can terminate the proceedings by issuing a written declaration after consulting with the parties. The declaration must state that "further efforts at conciliation are no longer justified." The proceedings terminate on the date of this declaration.

Answer: No. As held in Haresh Dayaram Thakur vs. State of Maharashtra (2000), the conciliator's proposals or recommendations are not binding. Only when the parties sign the settlement agreement does it become final and binding. Until then, parties are free to accept, reject, or modify the proposals.

Answer: No. Section 80(a) clearly prohibits a conciliator from acting as an arbitrator, representative, or counsel in any arbitral or judicial proceedings related to the dispute that was the subject of conciliation. This ensures neutrality and protects confidentiality.

Answer: Yes. Section 75 mandates that the conciliator and parties shall keep all matters relating to conciliation proceedings confidential. This confidentiality extends to the settlement agreement, except where disclosure is necessary for implementation and enforcement. Section 81 further provides that evidence from conciliation cannot be used in subsequent proceedings.

Answer: Under Section 78, upon termination, the conciliator fixes reasonable costs including: (a) conciliator's fees and expenses, (b) expert advice costs, (c) administrative assistance costs, and (d) witness expenses. Unless the settlement agreement provides otherwise, these costs are typically borne equally by the parties. The conciliator may require deposits and can suspend proceedings if deposits are not paid within 30 days (Section 79).

Answer: The Act does not prescribe any specific time limit for accepting an invitation to conciliate. However, the invitation may specify a reasonable time for acceptance. If no acceptance is received within a reasonable time or if the invitation is rejected, the initiating party may pursue other dispute resolution methods.

Answer: Yes, parties can resume conciliation if they mutually agree to do so. However, this would require a fresh invitation and acceptance under Section 62, effectively starting new conciliation proceedings. The Act does not prohibit parties from making multiple attempts at conciliation.

📝 Summary

Conciliation under the Arbitration and Conciliation Act, 1996 is a flexible, voluntary, and confidential process for dispute resolution. It commences with a written invitation and acceptance, and can terminate in four distinct ways - through settlement, conciliator's declaration, joint withdrawal, or unilateral withdrawal. The process respects party autonomy while providing a structured framework for amicable resolution. Successful conciliation results in a binding settlement agreement with the same status as an arbitral award.

The landmark case of Haresh Dayaram Thakur vs. State of Maharashtra (2000) clarifies that the conciliator's role is facilitative, not adjudicatory, and that a settlement becomes binding only upon signing by the parties.