The Arbitration and Conciliation Act, 1996, lays down a clear legal framework regarding conciliation and the binding nature of a settlement agreement arising out of conciliation proceedings. A pivotal question that arises is: when does a settlement agreement acquire the legal sanctity and status of an arbitral award under this Act? The answer lies primarily in the interpretation and application of Section 73 and Section 74 of the Act, supported by judicial pronouncements of the Apex Court.

Legal Sanctity of Settlement Agreements:

According to Section 74 of the Arbitration and Conciliation Act, 1996, a settlement agreement signed by the parties at the conclusion of conciliation proceedings holds the same status and effect as that of an arbitral award. This legal status confers enforceability similar to a decree of a court. However, it is crucial to understand that not every agreement reached during conciliation automatically attains the status of a settlement agreement under the Act. The Supreme Court, in Mysore Cement Ltd. v. Svedala Barmac Ltd., emphasized that only such agreements which are executed in conformity with the prescribed manner under Section 73 and duly authenticated by the Conciliator can be treated as a settlement agreement within the meaning of the Act.

Preconditions for Acquiring the Status of an Arbitral Award:

The Court held that mere discussion or a memorandum prepared during conciliation proceedings does not fulfil the legal criteria for a settlement agreement to be enforceable as an arbitral award. The essential preconditions that must be satisfied include:

• Execution in Accordance with Section 73: The agreement must be arrived at in the manner stipulated under Section 73.
• Authentication by Conciliators: The agreement must be authenticated by the Conciliator(s), as per the legal requirements of Section 73(4).
• Signature of Both Parties: The parties must sign the agreement, which then becomes binding and enforceable.

Unless these conditions are met, a letter of consent or informal understanding—even if signed on the same day—is not sufficient to grant the agreement the status of an arbitral award.

Detailed Provisions under Section 73:

• Section 73(2): The parties may agree to a settlement proposed by the Conciliator and may draw up a written agreement. It is within their discretion to do so, and they may seek the Conciliator's assistance in drafting it.
• Section 73(3): Once the settlement agreement is signed by the parties, it becomes final and binding on them and any person claiming through them.
• Section 73(4): All Conciliators involved must authenticate the agreement and provide copies to the parties. This requirement, although absent in the UNCITRAL Conciliation Rules, is mandatory under the Indian statute.

Judicial Interpretation - Haresh Dayaram Thakur v. State of Maharashtra:
In this case, the Supreme Court reinforced the view that a settlement agreement signed by the parties during conciliation proceedings holds the status of an arbitral award under Section 74 of the Act. However, the Court cautioned that such status can only be claimed if the agreement is signed by the parties. It was impermissible for a Conciliator to hold a meeting and prepare a settlement agreement without party participation and merely send it to the Court.

The Apex Court clarified the role of the Conciliator as a facilitator, not a decision-maker. The Conciliator assists the parties in arriving at an amicable resolution and is empowered to guide the procedure but must stay within the boundaries defined by the Act. The final settlement must reflect mutual agreement, and only upon the parties' signing does it gain legal enforceability.

Conclusion:
A settlement agreement reached during conciliation under the Arbitration and Conciliation Act, 1996, gains the status and enforceability of an arbitral award only when it strictly complies with the procedural and substantive requirements laid down under Section 73. The judicial interpretations reinforce the importance of mutual agreement, due authentication, and formal execution. Such safeguards ensure that the sanctity of the settlement process is upheld, and the final agreement reflects the true intention of the parties involved.

In essence, while conciliation is designed to be a less formal, amicable dispute resolution mechanism, the legal enforceability of outcomes derived from it is governed by stringent compliance with the Act's provisions to prevent misuse and uphold justice.

Written By: Md.Imran Wahab, IPS, IGP, Provisioning, West Bengal
Email: [email protected], Ph no: 9836576565