Conciliation a voluntary process, cannot be mandatory pre-condition before Arbitration: Delhi High Court

Conciliation proceedings are voluntary in nature and cannot be viewed as a mandatory precondition before the initiation of arbitration, the Delhi High Court held earlier this week [M/s Oasis Projects Ltd. v. Managing Director, National Highway and Infrastructure Development Corporation Limited].

Justice Navin Chawla observed that even if a contract contains a clause for parties to first go for a conciliation process to settle disputes, such clauses can only be directory and not mandatory.

The judge acknowledged that conciliation must generally be encouraged and it should ideally be one of the first endeavours of parties when disputes arise. However, it must be borne in mind that conciliation is voluntary and can be terminated by the parties at any time, as per their free will, the Court said.

Further, in cases of urgency, arbitral proceedings can be initiated even while conciliation proceedings are pending, the Court added while referring to Section 77 (resort to arbitral or judicial proceedings) of the Arbitration and Conciliation Act, 1996.

“To determine whether there is such an urgency or it is necessary to immediately invoke arbitration, it is the opinion of the party concerned which is the relevant and the governing factor. This is so because Conciliation, as noted hereinabove, is a voluntary process and by its very nature directory. It can be terminated at any point of time by any party,” the Court further explained.

Applying these principles, the Court found that the conciliation clause in a contractual dispute before arbitration was only directory. The said clause, “Article 26.2”, had stated that the parties to the contract should, in the first instance, attempt to resolve disputes amicably through a conciliation procedure.

When a dispute arose, one of the parties to the contract (petitioner) sought to invoke arbitration remedies, while the other (respondent) insisted that conciliation method should first be explored.

The petitioner proceeded to approach the High Court for the appointment of an arbitrator under Section 11 (6) of the Arbitration and Conciliation Act, 1996. The respondent challenged the maintainability of the plea since the petitioner had not availed the conciliation option in terms of Article 26.2.

The Court, however, ruled that the said clause is not mandatory and that the petitioner was entitled to opt directly for arbitration proceedings to preserve his rights.

“Though Article 26.2 clearly states that before resorting to arbitration, the parties agree to explore Conciliation by the Committee, in my opinion, the same cannot be held to be mandatory in nature … petitioner is justified in expressing urgency in initiating arbitration for preserving its rights,” the Court said.

Therefore, Justice Chawla proceeded to allow the petition. Further, the Court also appointed former Jammu and Kashmir High Court Chief Justice, Manmohan Sarin as the sole arbitrator to preside over the arbitration proceedings.

Advocates Bharat Chugh and Siddharth Shiva Kumar appeared for the petitioner.

Senior Advocate Debal Kumar Banerjee along with advocates Dharmender Verma and Vishal Singh appeared for the respondent.

[Read Judgment]