Law
Judicial Process and Administration
Alternative Dispute Resolution Mechanisms in Indian Law:
Arbitration, Mediation and Conciliation (Landmark Case Laws: Part-II)
Module Details
SUBJECT TITLE: LAW
PAPER TITLE: JUDICIAL PROCESS AND ADMINISTRATION
MODULE TITLE: Alternative Dispute Resolution Mechanisms in Indian
Law: Arbitration, Mediation and Conciliation
(Landmark Case Laws: Part-II)
MODULE ID: JP/LAW/19/Q-I
PRE REQUISITES: To have a basic understanding of the concepts of
alternative dispute resolution mechanisms and the law
governing the subject and the ability to appreciate the
landmark judgements/case law on the subject.
OBJECTIVES: To acquaint the student with a few landmark case law
which have had a significant impact on the interpretation
of law in India and the development of alternative dispute
resolution mechanisms.
KEYWORDS: ADR, Arbitration, Arbitrator, International Commercial
Arbitration, Arbitration agreement, Arbitral Award,
Domestic Arbitration, Arbitral Award, Conciliation,
Conciliator, Mediation, Mediator, judicial settlement,
Lok Adalat, Family Court etc.
Quadrant-I (E-Text)
ALTERNATIVE DISPUTE RESOLUTION MECHANISMS IN INDIAN LAW:
ARBITRATION, MEDIATION AND CONCILIATION (LANDMARK CASE LAWS:
PART-II)
1. INTRODUCTION
The Indian judiciary has time and again emphasised the need for the settlement of dispute
outside the tradition judicial system. Indian law on the subject cast a duty upon the court to
encourage the parties at dispute for an amicable settlement. The mandate of the statute
governing the subject facilitate the amicable settlement of dispute and at the same time also
restrict the application of ADR mechanism to the specific kind of dispute. Thus all the dispute
can’t be referred to or settled through ADR. Mainly commercial dispute, family disputes related
with matrimonial subject, maintenance/ custody/guardianship/ property etc., are capable of
settlement through ADR. Recently some of the criminal matters are also settled with the active
participation of the court, victim, accused and the prosecution (state). This new concept known
as plea bargaining was introduced in Indian judicial system in the year 2006 1 by way of
introduction of a new chapter in the Code of Criminal Procedure, 1973. However, the kind of
case capable of being settled through this new concept are limited.
LEARNING OUTCOMES:
The aims of this module are as follows:
A. To understand the land mark judicial pronouncement on mediation, conciliation and
arbitration,
B. To understand the endeavour of Indian judicial system in encouraging and promoting
the alternative dispute resolution mechanism, and
C. Impact of judicial pronounce in the development of alternative dispute resolution
mechanism.
2. CASE LAWS ON THE AMENDMENT OF 1999 AND 2002, THE CODE OF
CIVIL PROCEDURE, 1908
2.1 Salem Advocates Bar Association Tamil Nadu v Union of India 2002 Supp (3)
SCR 35
1
. Chapter XXIA ins. by Act of 2 of 2006, Section 4 (w.e.f 05 July.2006).
Amendment made in Code of Civil Procedure by the Amendment Act, 46 of 1999 and
Amendment Act, 22 of 2002 which inter-alia relates to order X Rule IA, IB and IC section
89 of the CPC, 1908 was under challenged. Court constituted a committee to give suggestion
for implementation of ADR envisaged under section 89 of the CPC, 1908.
Pursuant thereto a committee headed by to Justice M Jaganaddha Rao, Chairman, Law
Commission of India was constituted to formulated the manner in which Section 89 of the
Code, and for that matter, other provisions, which have been introduced by way of
amendment have to be operated to ensure that the amendments become effective and result
in quicker dispensation of justice. The committee submitted its report to the Supreme Court
and same finds mention in the following judgment.
2.2 Salem Advocates Bar Association Tamil Nadu v Union of India AIR 2005 SC
3353
The report submitted by the committee headed by to Justice M Jaganaddha Rao,was
was summarized in this judgment and provided for “Judicial Impact Assessment”
(estimating budgetary requirements of a new bill and the estimated amount of litigation
it would give rise to). The Report also provided for Civil Procedure ADR and Mediation
rules, Model Case Flow Management Rules and Model Rules for Trial Courts and First
Appellate Subordinate Courts etc, with a view to the expeditious resolution of disputes.
2.3 Afcons Infrastructure Ltd and Anr v Cherian Varkey Construction Co (P) Ltd &
Ors (2010) 8 SCC 24
The Court laid down that the stage at which the court should explore whether the matter
should be referred to ADR processes , comes after the pleadings are complete and
before farming the issues when the matter is taken up for preliminary hearings for
examination of parties under Order 10 of the Code. However, if for any reason, the
court had missed the opportunity to consider and refer to ADR processes under section
89 before farming issues, nothing prevents the court from resorting to Section 89 even
after framing issues. But once evidence is commenced, the court will be reluctant to
refer the matter to ADR processes lest it becomes a tool for protracting a trial.
In this case court further held as under:
“Section 89 starts with the words "where it appears to the court that there exist elements of a
settlement". This clearly shows that cases which are not suited for ADR process should not be
referred under section 89 of the Code. The court has to form an opinion that a case is one that
is capable of being referred to and settled through ADR process. Having regard to the tenor of
the provisions of Rule 1A of Order 10 of the Code, the civil court should invariably refer cases
to ADR process. Only in certain recognized excluded categories of cases, it may choose not to
refer to an ADR process. Where the case is unsuited for reference to any of the ADR process,
the court will have to briefly record the reasons for not resorting to any of the settlement
procedures prescribed under section 89 of the Code. Therefore, having a hearing after
completion of pleadings, to consider recourse to ADR process under section 89 of the Code, is
mandatory. But actual reference to an ADR process in all cases is not mandatory. Where the
case falls under an excluded category there need not be reference to ADR process. In all other
case reference to ADR process is a must.
The following categories of cases are normally considered to be not suitable for ADR process
having regard to their nature:
(i) Representative suits under Order 1 Rule 8 CPC which involve public interest or
interest of numerous persons who are not parties before the court. (In fact, even a
compromise in such a suit is a difficult process requiring notice to the persons
interested in the suit, before its acceptance).
(ii) Disputes relating to election to public offices (as contrasted from disputes between
two groups trying to get control over the management of societies, clubs, association
etc.).
(iii) Cases involving grant of authority by the court after enquiry, as for example, suits
for grant of probate or letters of administration.
(iv) Cases involving serious and specific allegations of fraud, fabrication of
documents, forgery, impersonation, coercion etc.
(v) Cases requiring protection of courts, as for example, claims against minors, deities
and mentally challenged and suits for declaration of title against government.
(vi) Cases involving prosecution for criminal offences.
All other suits and cases of civil nature in particular the following categories of cases (whether
pending in civil courts or other special Tribunals/Forums) are normally suitable for ADR
processes:
(i) All cases relating to trade, commerce and contracts, including
- disputes arising out of contracts (including all money claims);
- disputes relating to specific performance;
- disputes between suppliers and customers;
- disputes between bankers and customers;
- disputes between developers/builders and customers;
- disputes between landlords and tenants/licensor and licensees;
- disputes between insurer and insured;
(ii) All cases arising from strained or soured relationships, including
- disputes relating to matrimonial causes, maintenance, custody of
children;
- disputes relating to partition/division among family members/co-
parceners/co-owners; and
- disputes relating to partnership among partners.
(iii) All cases where there is a need for continuation of the pre-existing relationship
in spite of the disputes, including
- Disputes between neighbours (relating to easementary rights,
encroachments, nuisance etc.);
- disputes between employers and employees;
- disputes among members of societies/associations/Apartment
owners Associations;
(iv) All cases relating to tortious liability including
- claims for compensation in motor accidents/other accidents; and
(v) All consumer disputes including
- disputes where a trader/supplier/manufacturer/service provider is keen to
maintain his business/professional reputation and credibility or `product popularity.
The above enumeration of `suitable' and `unsuitable' categorization of cases is not intended to
be exhaustive or rigid. They are illustrative, which can be subjected to just exceptions or
additions by the court/tribunal exercising its jurisdiction/discretion in referring a dispute/case
to an ADR process.
Cases relating to tortious liability All cases arising from strained or soured
including claims for compensation in motor relationships, including disputes relating to
accidents/other accidents; and all matrimonial causes, maintenance, custody
consumer disputes including disputes of children, disputes relating to
where a partition/division among family
trader/supplier/manufacturer/service members/coparceners/co-owners; and
provider /professional reputation and disputes relating to partnership among
credibility or `product popularity. partners.
Cases suitable for ADR as per
the ratio of Afcons
Infrastructure Ltd and Anr v.
Cherian Varkey Construction
Co. (P) Ltd.&Ors, (2010) 8 SCC
24
Cases where there is a need for
continuation of the pre-existing Cases relating to trade, commerce and
relationship, including disputes between contracts, including disputes arising out of
neighbors (relating to easementary rights, contracts, relating to specific performance,
encroachments, nuisance etc.), disputes suppliers and customers, bankers and
between employers and employees and customers, developers/builders and
disputes among members of customers, landlords and tenants/licensor
societies/associations/Apartment owners and licensees, insurer and insured;
Associations;
How to decide the appropriate ADR process under section 89.
Section 89 refers to five types of ADR procedures, made up of one adjudicatory process
(arbitration) and four negotiatory (non-adjudicatory) processes - conciliation, mediation,
judicial settlement and Lok Adalat settlement. The object of section 89 of the Code is that
settlement should be attempted by adopting an appropriate ADR process before the case
proceeds to trial. Neither section 89 nor Rule 1A of Order 10 of the Code is intended to
supersede or modify the provisions of the Arbitration and Conciliation Act, 1996 or the Legal
Services Authorities Act, 1987. On the other hand, section 89 of the Code makes it clear that
two of the ADR processes - Arbitration and Conciliation, will be governed by the provisions of
the Arbitration and Conciliation Act and two other ADR Processes - Lok Adalat Settlement
and Mediation (See : amended definition above), will be governed by the Legal Services
Authorities Act. Section 89 makes it clear that it is not governed by any enactment and the court
will follow such procedure as may be prescribed (by appropriate rules).
Rule 1A of Order 10 requires the court to give the option to the parties, to choose any of the
ADR processes. This does not mean an individual option, but a joint option or consensus about
the choice of the ADR process. On the other hand, section 89 vests the choice of reference to
the court. There is of course no inconsistency. Section 89 of the Code gives the jurisdiction to
refer to ADR process and Rules 1A to IC of Order 10 laydown the manner in which the said
jurisdiction is to be exercised. The scheme is that the court explains the choices available
regarding ADR process to the parties, permits them to opt for a process by consensus, and if
there is no consensus, proceeds to choose the process”.
3. CASE LAWS ON THE ARBITRATION AND CONCILIATION ACT, 1996
3.1 Bhatia International v Bulk Trading S A and Anr AIR 2002 SC 1432(61)
The matter involved an application under section 9 of the Act to a court for interim
relief. The arbitration in this case was under the rules of the International Chamber of
Commerce to be conducted in Paris. Since Part II of the 1996 Act, which deals with the
enforcement of foreign awards does not provide for interim relief, the Supreme Court
held, applying judicial creativity and interpreting the Act in a highly questionable
manner, that Part I of the Act applied to arbitrations held outside India. This judgment
led to a situation where there could have been unnecessary judicial intervention with a
foreign award and where more stringent domestic standards of public policy as
introduced in ONGC v Saw Pipes2 could be applied to foreign awards, thus creating a
scenario where India would be viewed as an unfriendly destination for foreign awards
which would have adverse economic effects. However the decision has been overruled
by the BALCO judgment.
3.2 Narayan Prasad Lohia v Nikunj Prasad Lohia AIR 2002 SC 1139
This judgment held that Section 10 of the 1996 Act , which provides for an even number
of arbitrators can be derogated from and that if the parties in their arbitral agreement
have agreed to an even number of arbitrators then the challenge procedure under
Section 34(2)(a)(V) will not apply, since it applies only if “the composition of the
arbitral tribunal or the arbitral procedure was not in accordance with the agreement of
the parties.”
3.3 S.B.P and Co v. Patel Engineering, AIR 2006 SC 450
The Court in its decision stated that the power of the Chief Justice under Section 11 is
judicial, not administrative in nature and an order passed by the Chief Justice under
Section 11 cannot be reexamined under Section 16 under the principle of “Kompetenz
2
AIR 2003 SC 2629.
–Kompetenz”. The Court held that a “persona- designata” cannot delegate his power to
another, which is a power the Chief Justice has under section 11. If the power is a
judicial power, it is obvious that the power could be conferred only on a judicial
authority, logically on another judge of the High Court or Supreme Court. If the power,
were an administrative power, it could be challenged further, which was not the
intention of the Act.
3.4 Oil and Natural Gas Corporation v Saw Pipes Ltd AIR 2003 SC 2629
The main question which arose before the court in this case was whether the Court
would have jurisdiction under Section 34 of the Act to set aside an award passed by the
Arbitral Tribunal which is patently illegal or in contravention of the provisions of the
Act or any other substantive law governing the parties or is against the terms of the
contract? It was held that if the arbitral tribunal has not followed the mandatory
procedure prescribed under the Act, it would mean that it has acted beyond its
jurisdiction and therefore the award would be ‘patently illegal’ which means it could
be set aside under section 34. An award would also be patently illegal if it was in
contravention of any substantive law for the time being in force. The judgment also
interpreted the phrase, “Public Policy of India”, which the Court said was fluid and may
vary from generation to generation. Nevertheless, the Court interpreted the grounds of
public policy to set aside an award to include the contravention of the fundamental
policy of Indian law, the interest of India, justice or morality and if an award was
patently illegal. The court stated that illegality must go to the root of the matter and if
the illegality is of a trivial nature it cannot be held that the award is against public
policy. An award could also be set aside if it is so unfair and unreasonable that it shocks
the conscience of the Court. Such an award is opposed to public policy and is required
to be judged void.
An earlier Supreme Court decision, with a larger bench, Renusagar Power Co v.
General Electric Company3 had construed the ground of public policy narrowly to
include “Fundamental Policy of Indian Law or the Interest of India or Justice and
Morality”. The Supreme Court of India in the ONGC case, distinguished it from
the Renusagar judgment on the ground that Renusagar involved the enforcement
of a foreign award in India and therefore there would be a greater number of checks
and balances on the award as it would also have been under scrutiny in the country
3
(1994) Supp 1 SCC 644.
of primary jurisdiction (the country where the award was passed), whereas the
ONGC award was passed in a purely domestic context and hence the need for
greater levels of scrutiny.
3.5 BALCO v Kaiser Aluminium 2012 (9) SCC 249-
The Court overruled the Bhatia International Judgment. The Supreme Court held that
the 1996 Act is based on the principle of territoriality and Indian Courts have
jurisdiction only in relation to arbitrations, where the seat of arbitration is in India and
not arbitrations, where the seat of arbitration is outside India. Therefore Indian Courts
do not have the jurisdiction to entertain interim measures in relation to arbitrations
where the seat is outside India as held in Bhatia. Therefore a foreign award (where the
seat of arbitration is outside India) cannot be challenged under section 34.
3.6 Phoolchand Exports Ltd v Patriot (2011) 10 SCC 300
The Supreme Court in Phoolchand held that there is no distinction between the interpretation
of the term 'public policy' across setting aside and enforcement proceedings. This paved the
way for an expansive interpretation of the term, and the extension of the Saw Pipes ruling to
cases dealing with enforcement of foreign arbitral awards. The result was that the court, on
Phulchand's challenge, engaged in an extensive review of the merits of the foreign award to
ascertain whether it was 'patently illegal' and therefore violative of public policy. This decision
raised significant concern for foreign parties seeking to enforce arbitral awards in India. The
ability of the courts to re-open the case on merits at the stage of enforcement not only results
in uncertainty, but also opens the door for potentially drawn-out litigation before the Indian
courts.4
3.7 Shri Lal Mahal v Progetto Grano Spa, (Civil Appeal No. 5085 of 2013)
This case assumes importance because the Supreme Court drew a clear distinction
between the setting aside of an award under section 34 of the Act and the enforcement
of a foreign award under section 48 of the Act and thus overruled the Phoolchand case.
The Court adopted the definition of public policy as laid down in the Renusagar and
did not follow the definition laid down in ONGC, i.e. the additional ground of Patent
Illegality. The Court also refused to go into the merits of the case and re looking at the
facts.
4
‘Indian Supreme Court Expands Public Policy Definition for Foreign Awards’ (7th March 2012)
<http://www.lexology.com/library/detail.aspx> accessed 19July 2014.
‘The court held that during setting aside proceedings, the arbitral award is not yet
final and executable and this is in contradistinction to a challenge during
enforcement where the award is final and binding. On this basis the court refused
to apply the definition of the term ‘public policy’ as applied in the context of setting
aside proceedings and as laid down in ONGC v Saw Pipes. The court followed the
decision in Renusagar and held that enforcement can only be opposed on grounds
of public policy where it is contrary to:
Fundamental policy of Indian law;
The interests of India;
Justice and morality.
In particular, the court expressly declined to allow a challenge on the grounds of
‘patent illegality’.5
4. MEDIATION
Mediation involves an unbiased and impartial third party mediator (conciliator). The
mediator tries to help the parties to reach a mutually agreeable settlement to the conflict.
The agreement will not be imposed by the mediator, but will be determined by the
disputing parties themselves. The mediator may assist the parties to prioritize their
objectives and thus help them reach a win- win situation.6 Mediation has also been
defined as – “Mediation is negotiation carried out with the assistance of a third party.
The mediator, in contrast to an arbitrator or a judge, has no power to impose an outcome
on disputing parties. 7 Another interesting definition of mediation states that
“mediation” is a facilitative process in which “disputing parties engage the assistance
of an impartial third party, the mediator, who helps them to try to arrive at an agreed
resolution of their disputes. The mediator has no authority to make any decisions that
are binding on them, but uses certain procedures, techniques and skills to help them to
negotiate an agreed resolution of their dispute without adjudication.”8
From the three definitions above, we can glean the following basic features of
mediation which are listed below-
1. The mediator is supposed to be an impartial and unbiased person, who has no
personal interest in the conflict between the parties. This obviously implies that he
does not know any one particular party too well. (There might be certain situations
5
Shri Lal Mahal Ltd. V. Progetto Grano Spa; Supreme Court of India overruled Phoolchand and
reduces court interference in the enforcement of foreign awards (22nd July 2013)
<http://hsfnotes.com/arbitration> accessed 19th July 2014.
6
G. Jegadeesan, Mediation An Effective Dispute Settlement Machinery ( 1st edn, ICFAI University Press
2008).
7
Stephen Goldberg, Frank E.A. Sander& Nancy H. Rogers Dispute Resolution: Negotiation,
Mediation and other processes (3rd edn, Aspine Law and Business, Gaithesburg and New York 2009).
8
Henry J. Brown and Arthur L. Mariot, ADR Principles and Practice (2nd edn, Sweet and Maxwell
2009).
where the mediator is a person who knows both parties well, especially in
mediations involving the settlement of family business disputes or attempting to
resolve the conflicts between a separated husband and wife).
2. The mediator attempts to help the parties reach a mutually agreed solution to the
dispute using skills of negotiation. It is necessary that the mediator be calm and be
able to keep an open mind , especially since he would have to deal with a number
of emotions such as anger, frustration and despair as he helps the parties arrive at
a mutually accepted solution. He should assist parties in identifying the issues at
the heart of the dispute and their causes as well as try to help the parties bring as
much information as possible to the table.
3. The Mediator has no authority to impose an outcome upon the parties- The
mediator cannot impose his own views, opinion or judgment upon the parties,
except in a passive way perhaps by way of suggestion, but has instead to help the
parties discuss their issues, prioritize issues and guide them in a direction that might
just lead to a possible harmonious resolution of the disputes.
G. Jegadeesan9 lists the following advantages of mediation over litigation:
Active participation of parties.
Prompt resolution of disputes, preventing further conflict and ensuring flexible
resolution.
Cost effective method.
Helps maintain and conserve human relationships.
Smaller but important issues can be settled through mediation, even though
there is pending litigation.
Bargaining of parties is based on their needs and the formulation of a solution
is easier.
The procedure of mediation is informal and therefore flexible.
It is private and confidential
However, he also lists certain disadvantages of mediation:
If one of the parties is aggressive, the settlement of conflict becomes difficult.
Cultural differences and communication gaps may make settlement of the
dispute difficult.
Since the decision of the mediator is not binding, the parties can yet resort to
litigation.
5. CONCILIATION UNDER THE ARBITRATION AND CONCILIATION ACT,
1996.
Though the Act does not define the term “Conciliation”, Section 30 of the Act, provides that
an arbitral tribunal may try to have the dispute settled by “mediation” or “conciliation”, for
reaching a settlement. Sections 61 to 81 of the 1996 Act deal with conciliation.
To understand what exactly is meant by “Conciliation” it would be relevant to refer to a paper
titled “Concepts of Conciliation and Mediation and their Differences” by Justice M. Jagannadha
9
G. Jegadeesan, Mediation An Effective Dispute Settlement Machinery ( 1st edn, ICFAI University Press
2008).
Rao, who states that it is necessary to refer to the functions of a conciliator, as visualized by the
1996 Act.10 A brief summary, below, of the role of the conciliator gives us a clear indicator
about the exact role of conciliation.
Under Section 65 the conciliator may request each party to submit to him a brief written
statement describing the “general nature of the dispute and the points at issue”. Section 67 states
that the conciliator shall assist parties in an independent and impartial manner; he shall be
guided by principles of objectivity, fairness and justice, taking into accounts the circumstances
of the case, including the usages of the trade concerned and previous business practices
between the parties. Section 67 (4) states that the conciliator may at any stage of the conciliation
proceedings make proposals for the settlement of the dispute, which need not be in writing or
be accompanied by statement of reasons therefor. Section 73 states that the conciliator can
formulate the terms of a possible settlement, if he feels there exist elements of a settlement. He
is also entitled to reformulate the terms of settlement after receiving the observations of the
parties.
According to the Justice Jagannadha Rao, the provisions of the 1996 Act make it clear that
apart from assisting the parties to reach a settlement, a conciliator is also permitted to make
proposals for a settlement and formulate or reformulate terms of a possible settlement, which
therefore shows that if the role of the conciliator is proactive and interventionist, the role of the
mediator must necessarily be that of a facilitator. In India, the terms mediation and conciliation
tend to be used interchangeably, both terms implying a process which, in contrast to arbitration,
involve parties coming together to try and mutually sort out differences in an amicable manner,
with gain to each side. The mediator or the conciliator plays a role in getting the parties to
discuss their problems and attempts to create a balance which leads to a win-win situation.
There are subtle and minute differences between the two concepts and a mediator may also be
called upon to play the role of a conciliator i.e. play more proactive role. Various High Courts
and District Courts across the country have set up mediation centers which function according
to the mediation rules established by the particular high court. Students are advised to refer to
the Delhi High Court Mediation and Conciliation Rules, 2004 in order to get a better idea as to
the functioning of such centers.
6. CONCLUSION
The rationale behind the adoption of a system of ADR is undoubtedly the need to find a method
of circumventing and eventually effacing the tremendous problems which beset the traditional
litigation system. Thus the above modes of conflict resolution benefit of the common man and
all those who strive to achieve peace through mediation, conciliation or through any kind of
other cost effective and non-cumbersome adjudication method, i.e. arbitration.
Mediation Training Manual of India drafted by Mediation and Conciliation Project Committee
of Supreme Court of India has come up with the detailed mechanism of ADR. Mandatory
mediation through courts has now a legal sanction. Court-Annexed Mediation and Conciliation
Centre are now functioning in various courts in India and the courts have started referring cases
to such centers. ADR services, under the control, guidance and supervision of the court have
more authenticity and smooth acceptance. It would ensure the feeling that mediation is
10
Law Commission of India, Concepts of Mediation and Conciliation and their differences’<
http://lawcommissionofindia.nic.in/adr_conf/adr_index.htm> accessed 30 November 2014.
complementary and not competitive with the court system. Similarly Lok Adalats are being
organized at regular interval and the past has been a witness to the facts that the litigating parties
have settle their dispute on the same day in such Adalts. Supreme Court of India through its
judicial pronouncement has paved the wave of ADR mechanism and at the same time
interpreted the legislative provisions in the manner that are conducive to the object of the
legislations relating to the ADR mechanism.
