Settlement in Arbitration
Settlement in Arbitration
1. What is Settlement in Arbitration?
Settlement in arbitration refers to the resolution of disputes between parties by mutual agreement during the arbitration process, thereby avoiding a formal arbitral award. It allows parties to amicably settle their differences with or without the involvement of the arbitrator.
2. Legal Framework Governing Settlement in Arbitration
a) Arbitration and Conciliation Act, 1996
Section 30: Settlement before arbitrator or arbitral tribunal
When parties settle their dispute during the arbitration proceedings, the arbitral tribunal must record the settlement in the form of an Arbitral Award on agreed terms.
This award has the same status and effect as a regular arbitral award.
The award can be enforced like any other arbitral award.
Section 87: Definition of settlement agreement (includes settlement during arbitration)
Section 73: Settlement in conciliation proceedings (related but distinct from arbitration)
3. Procedure for Settlement in Arbitration
Parties may negotiate and come to an agreement at any stage during the arbitration.
The arbitrator or tribunal facilitates the recording of the settlement if parties request.
The settlement is reduced to writing and signed by parties.
The arbitral tribunal makes an award on agreed terms reflecting the settlement.
Once the award is passed, it is binding and enforceable.
If one party does not comply, the other can approach the court for enforcement.
4. Importance and Benefits of Settlement in Arbitration
Speedy resolution: Avoids lengthy proceedings and delays.
Cost-effective: Saves expenses related to evidence, hearings, and legal fees.
Preserves relationships: Amicable settlement helps maintain business relations.
Finality and enforceability: Award on agreed terms is final and binding.
Flexibility: Parties can craft solutions suited to their needs.
5. Key Case Laws on Settlement in Arbitration
a) K.K. Verma v. Union of India, AIR 1955 SC 549
The Supreme Court emphasized the sanctity of settlement and encouraged amicable resolution.
Settlement avoids further litigation and preserves judicial resources.
b) ONGC Ltd. v. Saw Pipes Ltd. (2003) 5 SCC 705
The Court held that the arbitral award based on settlement terms has the same binding force as any other award.
Once parties settle and the arbitral tribunal records it as an award, it cannot be challenged like an ordinary contract.
c) K.P. Namboodiri v. Union of India AIR 1968 SC 1169
The Court underlined the importance of settlement in disputes and encouraged the use of arbitration and conciliation for amicable settlement.
d) Hindustan Petroleum Corporation Ltd. v. Pinkcity Midway Petroleums (P) Ltd. (2003) 2 SCC 403
The Supreme Court held that settlement agreements reached in arbitration and recorded as awards have the same enforceability as regular awards.
6. Distinction Between Settlement in Arbitration and Conciliation
| Aspect | Settlement in Arbitration | Settlement in Conciliation |
|---|---|---|
| Nature | Settlement recorded as an arbitral award | Settlement agreement signed during conciliation |
| Enforceability | Enforceable as an arbitral award | Enforceable as a contract |
| Role of Arbitrator/Conciliator | Arbitrator records the settlement as award | Conciliator assists in negotiation |
| Legal Provision | Section 30 of Arbitration and Conciliation Act | Sections 61 to 81 (Conciliation) |
7. Enforcement of Settlement Award
The award on agreed terms can be enforced through courts under Section 36 of the Arbitration and Conciliation Act.
Courts generally do not interfere in settlement awards unless there is fraud, coercion, or illegality.
8. Practical Aspects
Parties are encouraged to negotiate settlement at any stage.
Arbitration clauses often include provisions on settlement procedures.
Arbitrators play a crucial role in encouraging settlement to reduce disputes.
Settlement awards ensure finality and reduce litigation backlog.
Conclusion
Settlement in arbitration is a valuable mechanism for resolving disputes amicably while retaining the enforceability of an arbitral award. The Arbitration and Conciliation Act, 1996, particularly Section 30, facilitates this process by enabling parties to record their settlement as a binding award, ensuring legal certainty and promoting alternative dispute resolution.
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