Section 30: Settling During an Arbitration, and the Award on Agreed Terms
Chapter Thirty-Six
Syllabus topic 2.1, "The Arbitration and Conciliation Act, 1996"
Pages 180 to 184 of 377
In one line
An arbitrator is allowed to try to get the parties to settle, and if they do, the settlement can be turned into an award that is enforced like any other.
In exam wording: section 30 of the Arbitration and Conciliation Act 1996 provides that it is not incompatible with an arbitration agreement for an arbitral tribunal to encourage settlement of the dispute, permits the tribunal with the agreement of the parties to use mediation, conciliation or other procedures for that purpose, and provides for an arbitral award on agreed terms.
Why the section had to be written at all
The problem section 30 solves is a real one and it is worth seeing before reading the text.
An arbitrator is an adjudicator. If he starts urging the parties to settle, and hears from each of them what they might accept, he has learned things about their positions that a judge would never hear. If the settlement then fails and he goes on to decide the case, the losing party will say he was influenced by what he was told in the settlement discussions, and will attack the award for want of independence under section 12 and for breach of section 18.
So without a provision like section 30, a cautious arbitrator would never encourage settlement at all, and the parties would lose the cheapest outcome available to them.
Section 30(1): permission, and the words that matter
It is not incompatible with an arbitration agreement for an arbitral tribunal to encourage settlement of the dispute and, with the agreement of the parties, the arbitral tribunal may use mediation, conciliation or other procedures at any time during the arbitral proceedings to encourage settlement.
Take it apart.
"It is not incompatible with an arbitration agreement." This is the answer to the objection above. Encouraging settlement is not a departure from the arbitrator's role; the Act says so.
"To encourage settlement of the dispute." The tribunal may encourage. It cannot compel, and section 18 stops it pressing a party into terms.
"With the agreement of the parties." This condition attaches to the second half, the use of mediation, conciliation or other procedures. Encouraging settlement is permitted generally; actually conducting a mediation or conciliation requires the parties' agreement.
"May use mediation, conciliation or other procedures." The Act names both, and by "other procedures" leaves room for anything else that works.
"At any time during the arbitral proceedings." Early, late, or after the evidence.
This is the clearest statutory recognition in Indian law that the ADR methods are not rivals. A student asked how arbitration, conciliation and mediation relate to each other can answer from the statute: section 30 lets one proceeding use all three.
Section 30: Settling During an Arbitration, and the Award on Agreed Terms
A practical caution that the section does not spell out. Where the tribunal itself acts as mediator or conciliator and the settlement fails, the objection this chapter opened with returns in full force. Compare sections 80 and 81 of the same Act, in chapter 580, which bar a conciliator from acting as arbitrator in the same dispute and keep what was said in conciliation out of later proceedings. Those sections apply to Part III conciliations, and they show what the drafters thought the risk was. In practice parties who want a mediation during an arbitration often ask somebody other than the tribunal to conduct it.
Section 30(2): what happens when they settle
If, during arbitral proceedings, the parties settle the dispute, the arbitral tribunal shall terminate the proceedings and, if requested by the parties and not objected to by the arbitral tribunal, record the settlement in the form of an arbitral award on agreed terms.
Two limbs, and the difference is important.
Termination is mandatory. If the parties settle, the tribunal shall terminate the proceedings. There is nothing left to decide.
Recording it as an award is not automatic. It happens only if the parties request it and the tribunal does not object.
Why would a tribunal object? Because an award on agreed terms is enforceable as a decree, and a tribunal should not lend that force to terms it can see are unlawful, or that appear to be a device, or that go beyond the dispute referred to it. The Act gives it a veto for that reason.
Section 30(3): the form, and the effect
An arbitral award on agreed terms shall be made in accordance with section 31 and shall state that it is an arbitral award.
Section 30(4): an arbitral award on agreed terms shall have the same status and effect as any other arbitral award on the substance of the dispute.
Sub-section (4) is the payoff and the sentence to quote. A settlement recorded under section 30 is not a mere agreement. It has the same status and effect as an award made after a full contest, which means:
- it is final and binding under section 35;
- it is enforceable as a decree of the court under section 36; and
- it can be set aside only on the section 34 grounds.
Section 31 must still be complied with, so the award on agreed terms must be in writing, signed by the members of the tribunal, and dated, with the place of arbitration stated. But note the exception in section 31(3): an award need not state reasons where it is an award on agreed terms under section 30. That is obvious once seen, since the reason is that the parties agreed.
Section 30: Settling During an Arbitration, and the Award on Agreed Terms
Compared with the other settlement routes in this book
| Where | What makes it binding | |
|---|---|---|
| Award on agreed terms, section 30 | During an arbitration | Same status and effect as any award, section 30(4); enforced under section 36 |
| Lok Adalat award, section 21 of the Legal Services Authorities Act | A Lok Adalat sitting | Deemed a decree of a civil court, no appeal |
| Conciliation settlement agreement, section 74 | A Part III conciliation | Same status and effect as an arbitral award on agreed terms under section 30 |
| Permanent Lok Adalat award, section 22E | Chapter VIA proceedings | Final and binding, deemed a decree |
Look at the third row. Section 74 defines the effect of a conciliation settlement by reference to section 30. So section 30 is not only a provision about arbitration; it is the yardstick the Act uses for settlements generally. Chapter 570 works through section 74.
A worked example
An arbitration over a delayed construction project has run for eight months. After the claimant's evidence, both sides can see roughly where the case is going. At a hearing the presiding arbitrator suggests that this might be a case for settlement.
May he say that? Yes. Section 30(1) makes it not incompatible with the arbitration agreement for the tribunal to encourage settlement.
The parties ask the tribunal to conduct a mediation. It may do so, because section 30(1) permits the use of mediation, conciliation or other procedures with the agreement of the parties. Both sides should think about what happens if it fails, since the tribunal will then decide the case having heard their settlement positions.
They agree on Rs. 2.1 crore payable in four instalments. Under section 30(2) the tribunal shall terminate the proceedings. If the parties request it and the tribunal does not object, it records the settlement as an arbitral award on agreed terms.
What does that award have to contain? It must comply with section 31: in writing, signed, dated, with the place of arbitration stated, and by section 30(3) it must state that it is an arbitral award. Under section 31(3) it need not give reasons.
The respondent pays two instalments and stops. The claimant executes. Under section 30(4) the award has the same status and effect as any other award, so section 36 applies and it is enforced as a decree of the court.
Could the respondent argue it was only a settlement agreement and must be sued upon? No. That is exactly what section 30(4) prevents.
Suppose the settlement had included a term releasing a director from a criminal complaint. The tribunal would be entitled to object under section 30(2), because the settlement would go beyond the dispute referred and would purport to compromise a matter that is not arbitrable at all. Chapter 250 explains why.
Section 30: Settling During an Arbitration, and the Award on Agreed Terms
What beginners get wrong
An arbitrator encouraging settlement is not exceeding his function. Section 30(1) says it is not incompatible with the arbitration agreement.
The tribunal cannot mediate without the parties' agreement. The condition attaches to the use of mediation, conciliation or other procedures.
Recording the settlement as an award is not automatic. The parties must request it and the tribunal must not object.
An award on agreed terms is a real award. Section 30(4): the same status and effect as any other award on the substance.
It does not need reasons. Section 31(3) excepts an award on agreed terms.
Quick revision
- 30(1): encouraging settlement is not incompatible with an arbitration agreement; with the agreement of the parties the tribunal may use mediation, conciliation or other procedures at any time during the proceedings.
- 30(2): on settlement the tribunal shall terminate the proceedings, and if the parties request and the tribunal does not object, record the settlement as an arbitral award on agreed terms.
- 30(3): such an award is made in accordance with section 31 and shall state that it is an arbitral award.
- 30(4): it has the same status and effect as any other arbitral award on the substance of the dispute, so section 35 finality, section 36 enforcement and section 34 challenge all apply.
- Section 31(3) excuses reasons for an award on agreed terms. Section 74 defines the effect of a conciliation settlement by reference to section 30.
Test yourself
1. May an arbitrator try to get the parties to settle? Yes. Section 30(1) provides that it is not incompatible with an arbitration agreement for the tribunal to encourage settlement, and, with the agreement of the parties, to use mediation, conciliation or other procedures at any time during the proceedings.
2. The parties settle. Must the tribunal record the settlement as an award? No. It must terminate the proceedings, but it records the settlement as an arbitral award on agreed terms only if the parties request it and the tribunal does not object.
3. What is the effect of an award on agreed terms? Under section 30(4) it has the same status and effect as any other arbitral award on the substance of the dispute, so it is final and binding under section 35, enforceable as a decree under section 36, and challengeable only under section 34.
4. Must such an award give reasons? No. Section 31(3) requires an award to state the reasons on which it is based unless the parties have agreed that no reasons are to be given or it is an award on agreed terms under section 30.
Section 30: Settling During an Arbitration, and the Award on Agreed Terms
5. Why might a tribunal object to recording a settlement as an award? Because the award carries the force of a decree. A tribunal may properly object where the terms are unlawful, go beyond the dispute referred to it, or purport to compromise a matter that is not arbitrable.
The rest of this subject
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