Confidentiality, Termination, Costs, and What the Conciliator May Never Do Afterwards

Clause (d) is the one to notice. A single party can end a conciliation by a written declaration, and needs no reason and nobody's agreement. That is the logical end of the consensual principle that began with section 62(3): a process nobody can be forced into is a process anybody can leave.

Note the differences in form. Clause (b) requires consultation with the parties before the conciliator declares; clauses (c) and (d) require nothing but a written declaration. And note that each clause fixes its own date of termination, which matters for section 78 costs and section 77.

Section 77: no parallel proceedings, with an exception

The parties shall not initiate, during the conciliation proceedings, any arbitral or judicial proceedings in respect of a dispute that is the subject matter of the conciliation proceedings, except that a party may initiate arbitral or judicial proceedings where, in his opinion, such proceedings are necessary for preserving his rights.

The exception is broad and it is deliberately subjective: "where, in his opinion, such proceedings are necessary for preserving his rights." The obvious cases are a limitation period about to expire, or assets about to be dissipated so that an interim order is needed.

Compare section 22C(2) of the Legal Services Authorities Act, chapter 150, under which a party who has applied to a Permanent Lok Adalat shall not invoke the jurisdiction of any court in the same dispute at all. There is no "preserving his rights" exception there. The contrast is examinable: conciliation is voluntary throughout and so its bar is softer.

Sections 78 and 79: costs and deposits

Section 78(1): on termination, the conciliator shall fix the costs of the conciliation and give written notice to the parties.

Section 78(2): "costs" means reasonable costs relating to the fee and expenses of the conciliator and of witnesses requested by the conciliator with the consent of the parties, any expert advice requested by the conciliator with the parties' consent, any assistance provided under section 64(2)(b) and section 68, and any other expenses incurred in connection with the conciliation proceedings and the settlement agreement.

Section 78(3): the costs shall be borne equally by the parties unless the settlement agreement provides for a different apportionment, and all other expenses incurred by a party shall be borne by that party.

Equal sharing is the default here, which is different from the arbitration position: section 31A(2)(a), chapter 380, makes the general rule that the unsuccessful party pays. The reason is obvious once stated: in a conciliation there is no unsuccessful party.

Section 79: the conciliator may direct each party to deposit an equal amount as an advance for the costs he expects will be incurred; may direct supplementary deposits during the proceedings; if the required deposits are not paid in full by both parties within thirty days, the conciliator may suspend the proceedings or make a written declaration of termination to the parties, effective on the date of that declaration; and on termination he shall render an accounting of the deposits received and return any unexpended balance.

Compare section 38 for arbitration, chapter 430. There, if one party does not pay, the other may pay its share, because the claimant may want its claim heard whatever the respondent does. Here, non-payment simply lets the conciliator suspend or terminate, because there is no claim to be decided.

Section 80: what the conciliator may never do afterwards

Unless otherwise agreed by the parties:

• (a) the conciliator shall not act as an arbitrator or as a representative or counsel of a party in any arbitral or judicial proceeding in respect of a dispute that is the subject of the conciliation proceedings; and
• (b) the conciliator shall not be presented by the parties as a witness in any arbitral or judicial proceedings.

This is the answer to the problem chapter 560 identified. A conciliator has met each party alone, has heard what each will really accept, and may have been told things in confidence under the proviso to section 70. A person who knows all that cannot then decide the case, and must not be turned into a witness about what he was told.

Note the two limbs of clause (a): not an arbitrator, and not a representative or counsel either. And note clause (b) bars the parties from presenting him as a witness.

Note also the opening words: "unless otherwise agreed by the parties". So the parties may, if they wish, agree that their conciliator becomes the arbitrator. That is the statutory hook for what practitioners call med-arb, the practice of moving from a settlement process to an adjudicative one with the same neutral. Chapter 370 shows section 30 working in the opposite direction, from arbitration into mediation or conciliation.

Section 81: what cannot be used as evidence

The parties shall not rely on or introduce as evidence in arbitral or judicial proceedings, whether or not such proceedings relate to the dispute that is the subject of the conciliation proceedings:

• (a) views expressed or suggestions made by the other party in respect of a possible settlement;
• (b) admissions made by the other party in the course of the conciliation proceedings;
• (c) proposals made by the conciliator; and
• (d) the fact that the other party had indicated his willingness to accept a proposal for settlement made by the conciliator.

Learn the four, and notice how wide the opening words are: the bar applies whether or not the later proceedings relate to the same dispute. So an admission made in a conciliation about contract A cannot be used in a later suit about contract B either.

Clause (d) is the subtlest and the most important in practice. It is not enough to exclude what a party said; the Act also excludes the fact that it was willing to accept the conciliator's proposal. Without clause (d), a party could say in the later litigation "they were ready to settle at forty lakhs, so their claim for ninety is obviously inflated". That is precisely the inference the section forbids.

Why sections 75 and 81 appear in three other chapters of this book

Look again at Explanation 1 to section 34(2)(b)(ii), and at the identical Explanations to sections 48(2) and 57(1). Each provides that an award is in conflict with the public policy of India only if, among other things, the making of the award was induced or affected by fraud or corruption or was in violation of section 75 or section 81.

So a breach of conciliation confidentiality, or the use in an arbitration of material section 81 excludes, is put on the same footing as fraud and corruption: it makes the resulting award contrary to public policy, and the award can be set aside under section 34 or refused enforcement under section 48 or section 57.

That is a strong protection, and it is the clearest signal in the Act of how seriously conciliation confidentiality is meant to be taken.

A worked example

A conciliation over a construction dispute runs for three months. In a private meeting the contractor's director admits that a subcontractor's bill was inflated. The conciliator proposes settlement at Rs. 1.2 crore, and the employer indicates it would accept. The contractor then walks away.

Can the contractor simply leave? Yes. Section 76(d): a written declaration by one party to the other party and the conciliator terminates the proceedings on the date of the declaration. No reason is needed.

The employer now starts an arbitration. Can it use the admission about the inflated bill? No. Section 81(b) bars the parties from relying on or introducing admissions made by the other party in the course of the conciliation, and the bar applies whether or not the later proceedings relate to the same dispute.

Can it tell the tribunal that the contractor's own conciliator proposed 1.2 crore? No. Section 81(c) bars proposals made by the conciliator.

Can it say that it, the employer, had been willing to accept that figure? Clause (d) bars a party from relying on the fact that the other party indicated willingness to accept the conciliator's proposal. Here the willing party is the employer itself, so clause (d) does not bar it saying so; but a party rarely gains by it, and section 75's confidentiality still binds both of them as to all matters relating to the proceedings.

Can the employer appoint the conciliator as the arbitrator, since she knows the case? Not unless the contractor agrees. Section 80(a): unless otherwise agreed, the conciliator shall not act as arbitrator, representative or counsel in any arbitral or judicial proceeding in respect of the dispute.

Can it call her as a witness about what the contractor admitted? No. Section 80(b): she shall not be presented by the parties as a witness.

Suppose the tribunal nonetheless admits the conciliation material and makes an award. That award is exposed under Explanation 1 to section 34(2)(b)(ii): an award whose making was in violation of section 75 or section 81 is in conflict with the public policy of India and may be set aside.

Who pays the conciliator? Under section 78(1) she fixes the costs on termination and gives written notice, and under section 78(3) they are borne equally unless the settlement agreement provides otherwise. There is no settlement here, so equally.

What beginners get wrong

One party can end a conciliation on its own. Section 76(d).

Section 77's bar on parallel proceedings has a wide exception, where in a party's own opinion proceedings are necessary to preserve its rights.

Costs are shared equally by default, unlike arbitration's loser-pays rule in section 31A(2)(a).

Section 81 applies even to unrelated later proceedings. Read the opening words.

Section 80 can be contracted out of. "Unless otherwise agreed by the parties" is how med-arb becomes possible.

Sections 75 and 81 are not confined to Part III. They are named in the public policy Explanations to sections 34, 48 and 57.

Quick revision

• 75: notwithstanding any other law, the conciliator and the parties keep confidential all matters relating to the proceedings, and the settlement agreement too, except where disclosure is necessary for implementation and enforcement.
• 76: termination by (a) signing the settlement, (b) the conciliator's written declaration after consultation that further efforts are no longer justified, (c) a written declaration of the parties, or (d) a written declaration of one party.
• 77: no arbitral or judicial proceedings during the conciliation on the same dispute, except where in a party's opinion they are necessary for preserving his rights.
• 78: the conciliator fixes costs on termination with written notice; "costs" defined; borne equally unless the settlement provides otherwise.
• 79: equal advance deposits and supplementary deposits; if not paid in full within thirty days the conciliator may suspend or terminate; accounting and refund on termination.
• 80: unless otherwise agreed, the conciliator shall not act as arbitrator, representative or counsel, and shall not be presented as a witness.
• 81: the parties shall not rely on or introduce, whether or not the later proceedings relate to the same dispute, (a) the other party's views or suggestions on settlement, (b) the other party's admissions, (c) the conciliator's proposals, or (d) the fact that the other party indicated willingness to accept a proposal.
• Breach of section 75 or section 81 makes an award contrary to public policy under the Explanations to sections 34, 48 and 57.

Test yourself

1. Can one party end a conciliation without the other's agreement? Yes. Section 76(d) terminates the proceedings by a written declaration of a party to the other party and to the conciliator, if appointed, effective on the date of the declaration. No reason is required.

2. A party admits something in a conciliation that later fails. Can the admission be used in an arbitration about a different contract? No. Section 81 bars the parties from relying on or introducing admissions made in the course of the conciliation in arbitral or judicial proceedings, whether or not those proceedings relate to the dispute that was the subject of the conciliation.

3. May the conciliator later be appointed arbitrator in the same dispute? Only if the parties otherwise agree. Section 80(a) provides that, unless otherwise agreed, the conciliator shall not act as an arbitrator or as a representative or counsel of a party in any arbitral or judicial proceeding in respect of that dispute.

4. How are the costs of a conciliation borne? Under section 78(3), equally by the parties, unless the settlement agreement provides for a different apportionment. All other expenses incurred by a party are borne by that party.

5. Why do sections 75 and 81 appear in the definition of public policy in section 34? Because Explanation 1 provides that an award is in conflict with the public policy of India only if, among other things, the making of the award was induced or affected by fraud or corruption or was in violation of section 75 or section 81. Breaching conciliation confidentiality, or using material section 81 excludes, is put on the same footing as fraud, and the award may be set aside or refused enforcement.