19 Alternative Dispute Resolution Mechanisms in Indian Law:Arbitration,Mediation and Conciliation(Landmark Case Laws: Part-II)

Mr Madhav Mallya

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 20061 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:

To understand the land mark judicial pronouncement on mediation, conciliation and arbitration,

To understand the endeavour of Indian judicial system in encouraging and promoting the alternative dispute resolution mechanism, and

Impact of judicial pronounce in the development of alternative dispute resolution mechanism.

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

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.

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”.

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

–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 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.

‘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’.

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-

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 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).

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.

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.

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

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 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.

Web Resources:

• Law Commission of India, Concepts of Mediation and Conciliation and their differences’< http://lawcommissionofindia.nic.in/adr_conf/adr_index.htm>
• http://supremecourtofindia.nic.in/MEDIATION%20TRAINING%20MANUAL%20 OF%20INDIA.pdf
• http://www.arbitrationindia.org/htm/overview.htm
• http://lawcommissionofindia.nic.in/adr_conf/concepts%20med%20rao%201.pdf