What is arbitration?

Difference between arbitration and conciliation

Law encourages parties to settle their disputes outside the court as far as possible either by
mutual consensus or by the mediation of a third person.

Alternate Dispute Redressal mechanisms such as Arbitration, Conciliation, negotiation, and

mediation are growing rapidly in India as the preferred choice of methods instead of
conventional court-room hassles known as litigation. Arbitration and Conciliation have even
received international recognition under The UNCITRAL Model Law and Rules on
Arbitration and Conciliation, 1985. The law of Arbitration and Conciliation is nascent and
developing in India and is governed by the Arbitration and Conciliation Act, 1996.

According to Section 2 sub-section (1) (a) of the Arbitration and Conciliation Act, arbitration
means “any arbitration whether or not administered by the permanent arbitral institution.” This
definition is merely a clarification that the act covers institutional and ad hoc arbitration.

According to Article 2(a) of UNCITRAL Model Law and Rules, Arbitration is the means by
which the parties to a dispute get the matter settled through the intervention of an agreed third
person.

In view of the above definitions, the following ingredients are necessary to constitute
arbitration –
1. There is an arbitration clause in the agreement to resolve the dispute by means of
arbitration
2. There is dispute between two or more parties
3. There is arbitrable dispute in terms of agreement between the parties
4. Dispute is referred to third person(s) other than a court of Competent jurisdiction.
(known as arbitrator)
5. Person(s) constituting arbitration are under obligation to resolve the dispute/differences
in a judicial manner.
6. The decision rendered by the arbitrator is known as arbitral award and it is binding on
both the parties to the dispute.
7. The decision rendered by the third party is not binding.

Kinds of arbitration –
1. Ad-hoc Arbitration
 When a dispute or difference arose between the parties in course of commercial
transaction and the same could not be settled friendly by negotiation in form of
conciliation or meditation, in such case ad-hoc arbitration arose.
2. Institutional
 Applicable when there is prior agreement between the parties that in case of
future differences or disputes arising during their COMMERCIAL
TRANSACTION
 Such difference and disputes will be referred to the already named institutions
of which one of more of them are members
3. Contractual
 Applicable when differences and dispute arise out of COMMERCIAL
ACTIVITIES.

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  Seek settlement without taking recourse to law, they choose to incorporate an
arbitration clause in the agreement to refer their existing or future D&D to a
named arbitrator to be appointed by a designated authority
4. Statutory
 Mandatory arbitration which is imposed on the parties by operation of law.
 Parties have no option but to abide by the law.
5. Domestic
 Whenever arbitration occurs within India –
i. Subject matter of the agreement
ii. Merits of the dispute
iii. Procedure for arbitration
iv. Cause of action arose wholly in India
v. Parties to commercial transaction are subject to Indian jurisdiction
6. International
 Where foreign ingredient is present/ legal relationship dispute arises in
commercial transaction due to the following causes –
i. Parties is domiciled or resident outside India
ii. D&D related to place outside India
iii. Arbitration proceedings come under the scope of foreign law.
iv. Body corporate incorporated in any country other than India
v. Company/association/bodies of individuals whose central managements
and control exercised in any country other than India
vi. Govt. of a foreign country
7. Foreign
 Arbitration proceeding in a place outside India.
 Foreign award may be enforced.

Key Difference Between Arbitration and Conciliation

BASIS ARBITRATION CONCILIATION

Meaning Arbitration is a dispute Conciliation is a method of resolving

settlement process in which a dispute, wherein an independent person
impartial third party is helps the parties to arrive at negotiated
appointed to study the dispute settlement.
and hear both the party to
arrive at a decision binding on
both the parties.

Enforcement An arbitrator has the power to A conciliator do not have the power to
enforce his decision. enforce his decision.

Prior Required Not Required

Agreement

Available for Existing and future disputes. s- Existing disputes. Not possible for future
7(1) disputes. Process begins only after the party
invites the other to resolve the difference

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 through conciliation and the other party
accepts the invitation.

Legal Yes, requires witnesses, No, between management and labour

proceeding evidence, cross-examination,
transcripts and legal counsel

Privacy in the More privatised than litigation More privatized than arbitration
process

Flexibility in Arbitrator’s decision is binding Concilator’s decision not binding as not

decision though the parties have some empowered to enforce the decision
making freedom to regulate the
modalities

Agreement in s-7(2) of A&C, 1996 – should Not mandatory.

writing be in writing

Simultaneous But, Section 77 of the Act bars
proceedings the “initiation” of any arbitral
or judicial proceedings in
respect of a dispute that is the
subject matter of the
conciliation proceedings
Section 30 of the Arbitration and
Conciliation Act, 1996 allows the parties to
engage in conciliation proceedings even
while the arbitral proceedings are on. They
may do the same on their own and settle the
dispute through conciliation or authorize the
arbitrator himself to use mediation or
conciliation and settle the dispute. The
arbitrator would record the settlement in the
form of an arbitral award.

In Haresh Dayaram Thakur v. the State of Maharashtra, the Supreme Court observed that there
is a clear distinction between an arbitration proceeding and a conciliation proceeding. The
position is well settled that if the statute prescribes a procedure for doing a thing, it has to be
done according to that procedure.