Holding

A settlement agreement in conciliation proceedings is final and binding only when signed by the parties; otherwise, the conciliator's report cannot be treated as a court order.

Summary

The dispute concerned the ownership and possession of a flat allotted by MHADA, claimed by Haresh Dayaram Thakur and his brothers. The Bombay High Court appointed a retired judge as conciliator, who conducted meetings and prepared a settlement proposal but sent the report to the court in a sealed envelope without disclosing its terms to the parties or obtaining their signatures. The appellant objected, but the High Court treated the conciliator's report as a final order and dismissed the writ petition. On appeal, the Supreme Court held that under Sections 73 and 74 of the Arbitration and Conciliation Act, 1996 a settlement agreement becomes binding only when the parties sign it, and the conciliator must follow the statutory procedure. Since the conciliator failed to obtain signatures and kept the terms secret, the High Court's order was ultra vires. Consequently, the Supreme Court set aside the High Court's order and directed the matter to be heard afresh, with each party bearing its own costs.

Issues considered

Whether a settlement agreement prepared in conciliation proceedings is binding without the parties' signatures.
Whether the High Court could treat the conciliator's report as a final order in violation of the Arbitration and Conciliation Act, 1996.
Whether the procedural requirements of Sections 73 and 74 of the Arbitration and Conciliation Act, 1996 were complied with by the conciliator.

Legislation cited

Arbitration and Conciliation Act, 1996s. 30, s. 61, s. 64, s. 65, s. 67, s. 69, s. 70, s. 72, s. 73, s. 74, s. 75, s. 76, s. 77

Subjects

conciliationsettlement agreementArbitration and Conciliation Actlegal sanctityprocedural complianceHigh Court orderarbitral award

Judgment

t

A HARESH DAYARAM THAKUR
v.
STATE OF MAHARASHTRA AND ORS.

MAYS, 2000

B [D.P. MOHAPATRA AND R.P. SETHI, JJ.]

Arbitration and Conciliation Act, I996-Part III-Conciliation pro-
ceedings-When final-Held, successful conciliation pmceeding comes to an
end only when the settlement agreement signed by the parties comes into
C existence-And such agreement has the status and effect of legal sanctity of
an arbitral award.

Pmt Ill-Conciliation Pmceedings-Without following the pmcedure
prescribed under the Act-Whether correct-Held, No-If the statute pre-
scribes a procedure fer doing a thing, a thing has to be done according to that
D procedure.

In a writ petition filed before High Court, conciliator was appointed
with regard to the disputes between the parties. The conciliator, after
holding meetings with the parties and hearing their submissions prepared
settlement agreement, and directly sent his report to the High Court in a
E sealed cover, without disclosing the terms of the settlement to the parties
and without disclosing the terms of the settlement to the parties and
without obtaining their signatures thereon.

The appellant filed an objection to the report of the conciliator. High
Court summarily rejected the objection, confirmed the settlement agree-
F
ment and disposed of the writ petition holding that the report of the
conciliator shall be treated as the order on the writ petition. Hence this
appeal.

Allowing the appeal, this Court .
G
HELD : 1. On a perusal of the Arbitration and Conciliation Act,
1996, the position is manifest that a clear distinction is maintained in
the statute between arbitration proceedings and conciliation procee-
dings. (1146-B]

H 2 A successful conciliation proceeding comes to an end only when the
1140
H.D. THAKUR v. STATE 1141
settlement agreement signed by the parties comes into existence. It is such an A
agreement which has the status and effect of legal sanctity of an arbitral
award under Section 74. It is menifest from the statutory pro:visions that a
conciliator is a person who is to assist the parties to settle the disputes
between them amicably. For this purpose the conciliator is vested with wide
powers to decide the procedure to be followed by him untrammled by the
B
procedural laws like the Code of Qvil Procedure or the Indian Evidence Act,
1872. When the parties are able to resolve the dispute between them by
mutual agreement and it appears to the conciliator that there exists an
element of settlement which may be acceptable to the parties, he is to proceed
in accordance with the procedure laid down in Section 73, formulate the
terms of a settlement and make it over to the parties for their observations, c
and the ultimate step to be taken by a conciliator is to draw up a settlement in
the light of the observations made by the parties to the terms formulated by
him. The settlement takes place only when the parties draw up the settlement
agreement or request the conciliator to prepare the same and affix their
signature to it. Under sub-section (3) of Section 73, the settlement agreement D
signed by the parties is final and binding on the parties and persons claiming
under them. [1149-E; B-D]

3. In the present case, no procedure as prescribed under part-III of
the Act has been followed by the conciliator. The conciliator failed take "note
of the provisions of the Act and the clear distinction between an arbitration E
proceeding and a conciliation proceeding. High Court in passing the im-
pugned order failed to notice the apparent illegalities committed by the con-
ciliator in drawing up the so called settlement agreement, keeping it secret
from the parties and sending it to the Court without obtaining their signa-
ture on the same. H the statute prescribes a procedure for doing a thing it F
has to be done according to that procedure. [1149-F-H; 1150-A-B]

CIVIL APPELLATE JURISDICTION : Civil Appeal No. 3247 of 2000.

From the Judgment and Order dated 6.10.99 of the Bombay High Court
in C.A. No. 7117 of 1999.
G
K.T.S. Tulsi, Shri Narain, Sandeep Narain, Ms. Anjali for S. Narain
& Co. (Chirag M. Shroff) for M.N. Shroff, H.L. Tiku, Ashok K. Mahajan
and S. V. Deshpande for the appearing parties.

The Judgment of the Court was delivered by
H
1142 SUPREME COURT REPORTS [2000] 3 S.C.R.
A D.P. MOHAPATRA, J. Leave granted.

Appellant Haresh Dayaram Thakur and respondent No. 3 Pitambar
Dayaram Thakur are brothers. Raj Kumari Pitambar Thakur Respondent No.
4 is wife of respondent no. 3. The dispute raised in the case centres round
the flat bearing No. 16/199 at Ramakrishna Nagar, Khar, (W), Mumbai,
B belonging to the Maharashtra Housing and Area Development Authority,
Mumbai (for short 'MHADA'). The MHADA had granted lease of the said .
flat to one N.H. Krishanan, who transferred his right, title and interest
thereunder to one Manmeet Singh Chadha under an agreement of transfer
dated 7th April, 1986. By the agreement for transfer dated 21.11.1989 the
c right, title and interest of the flat was purchased by the appellant for a
consideration of Rs. 3,45,000. The appellant also became a member of the
society of flat owners of the building called Melody Cooperative Housing
Society of which the flat in question is a part. The appellant had applied to
MHADA for regularisation of allotment of the flat in his name. In December
1992 on a routine inspection of the premises the Estate Manager of MHADA
D
reported that the property was in occupation of the appellant and his family
members including respondent No. 3, though it stood in the name of N.H.
Krishnan, and therefore, they were unauthorised occupants of the flat. On
receipt of the report a proceeding was initiated under section 66(1) of the
Maharashtra Housing and Development Act, 1966 (for short 'the Act'). In
E pursuance of the order dated 23 .4.1997 MHADA evicted all the unauthorised
occupants from the flat and sealed the same. In the said order leave was given
to the present appellant to establish his claim in respect of the property in
light of the deed of transfer dated 21.11.1989 and other documents executed
by the allottee in his favour. Subsequently, after examining ·the relevant
F documents MHADA regularised the allotment of the flat in favour of the
appellant by an order under the Act. '

On 19.9.1998 respondent no. 3 filed Writ Petition No. 5072/98 before
the Bombay High Court challenging the order of eviction passed by MHADA
under section 66(1) of the Act against him. It was the case of the respondent
G no. 3(writ petitioner) that he had also contributed a sum of Rs. 1,25,000 for
the purpose of purchase of the flat alongwith his brother, the appellant herein,
though the documents stood in the name of the latter. A Division Bench of
the High Court disposed of tl1e Writ Petition by the order dated 7.10.1998
directing, inter alia that the competent authority of MHADA would re-
H examine the claims of the respondent No. 3 as well as the appellant herein
H.D. THAKUR v. STATE [D.P. MOHAPATRA, J.] 1143
and pass a speaking order in accordance with the law. In compliance with A
the directions of the High Court the competent authority of MHADA passed
the order dated 18.12.1998 rejecting the claim of respondent no. 3 and
confirming the allotment/regularisation of the flat in the name of the appel-
lant.

The respondent Nos. 3 & 4 challenged the order dated 18.12.1998 of B
MHADA by filing a writ petition under Articles 226 ·and 227 of the
Constitution, Writ Petition No. 510/99, asserting their title to the property.
They prayed for a writ of certiorari or any other appropriate writ, direction
or order under Article 226 of the Constitution of India quashing the order
of the Appellate Authority dated 23.4.1997 and the eviction order dated c
18.12.1998; for a writ of Mandamus or any appropriate writ, direction or
order directing MHADA and its Estate Manager and the respondent no. 7 in
the writ petition (appellant herein) to restore to them possession of the flat
No. 16/199 at Ramakrishna Nagar, Khar (JI), Mumbai and for issue of a writ
of mandamus to MHADA to regularise allotment of the said flat in favour
D
of the writ petitioners and for an interim direction restoring possession of the
flat to them after obtaining possession thereof from respondent No. 7 (ap-
pellant herein).In the said writ petition the High Court by the order dated
6.3.1999 appointed a conciliator with regard to the dispute between the
parties. The relevant portion of the order reads thus :
E
"By consent of the Petitioners and Respondent No. 7 hereto, Shri H.
Suresh, Retired Judge of the Bombay High Court, is appointed as
Conciliator with regard to dispute between the Petitioners aPd Re-
spondent No. 7 relating to Flat No. 16/199. Melody Co-operative
Housing Society Ltd., Ramakrishna Nagar, 9th Road, Khar, Mumbai
F
- 400 052 including the issue of title, regularisation/possession and
compensation, if any.

The parties agree and undertake to this Court that the decision
of the Conciliator will be final and binding on both the parties.
·G
Court Receiver, High Court, Bombay is hereby appointed as
Receiver of aforesaid Flat No. 16/199, with a further direction to take
formal possession of the said flat from Respondent No. 7, and appoint
Respondent No. 7 as his agent, on monthly royalty of Rs. 1,000 to
be deposited with the Conciliator, subject to the fmal award. The
Receiver shall not insist for security and shall not display his board H
1144 SUPREME COURT REPORTS [2000] 3 S.C.R.
A at the suit flat.

The learned Conciliator is requested to submit his report/award,
and preferably within six months."

In pursuance of the said order Justice H. Suresh (Retired) held
B meetings on 20.4.99, 5.7.99, 25.7.99, 8.8.99 and on 24.8.99 in presence of
the counsel for the parties. ~-the minutes of the Meeting held on 8.8.99
it was recorded :

"After hearing both the parties, the Conciliator suggested that the
matter could be settled on the petitioner paying an amount as may
c be fixed by the Conciliator, to the Respondent:. the petitioner would
be entitled to the flat in question and would be put in possession. The
parties agreed to the above and requested the Conciliator to settle on
these lines, and the Conciliator to fix all the relevant terms, including
the requirement the petitioner foregoing his claim for the ancestral flat
D i.e. 18/224, R.K. Nagar.

The Meeting is now adjourned to 24th Aug., 1999 at 4.30 p.m.
when the Advocates will make all the relevant submissions which will
enable the Conciliator to fix the amount and the other terms of
settlement."
E
In the minutes of the last meeting held on 24.8.1999 the Conciliator
recorded that both the advocates have completed their submissions in respect
of the amount to be paid by the petitioner to the respondent to enable the
Conciliator to fix the amount as noted in the last meeting; that both the
advocates stated that there are no further submissions to be made. In the
F
concluding portion of the minutes of the said meeting it is recorded "accord-
ingly these proceedings come to an ending excepting the Conciliator will
make a report to the High Court incorporating the terms of settlement". The
Conciliator in his report dated 31.8.1999 which was sent to the High Court
stated inter alia, that after taking into account all the submissions made by
G both the parties and after considering all the relevant documents and papers
and pleading he (Conciliator) proposes to settle the dispute in the manner set
out in the report. The proposals in the Conciliator's report included the
stipulation i.e. (1) that on petitioner's (respondents 3 & 4 herein) paying a
sum of Rs. 4,00,000 to respondent no. 7 (appellant herein) he shall vacate
H the flat No. 16/199 and the petitioners shall be put in possession thereof; (2)

... 'f
.. Jr
H.D. THAKUR v. STATE [D.P. MOHAPATRA, J.]
Petitioner No. 1 (Respondent 3 herein) shall forego and relinquish all his
claims in respect of flat No. 18/224 Sunshine Co-operative Housing Society
Ltd. 9th Road, Khar, Mumbai 400 052.; (3) that on the basis of the above
1145
A

settlement, the possession of the said Flat No. 16/199 by the Petitioners be
regularised in their favour by the Maharashtra Housing and Area Develop-
ment Authority (Respondent No. 2) and that in view of the settlement
B
respondent No. 7 (appellant herein) will have no claim whatsoever in respect
of flat No. 16/199 and the writ petitioners (Respondent 3 & 4 herein) will
have no claim whatsoever in respect of flat no. 18/224. The other stipulations
of the settlement set out in the report are not very material for the purpose
of the present case. It is relevant to state here that the so called 'proposal'
by the Conciliator was not signed by the parties, nor were its terms disclosed c
to the parties by the Conciliator. As submitted by Sri Tulsi learned Sr. counsel
appearing for the appellant the report was sent by the Conciliator in a sealed
cover to the High Court directly.

The appellant filed an objection against the report o~ the Conciliator
D
setting out various grounds of challenge. A Division Bench of the High Court
summarily rejected the objections raised against the Conciliator's report.
Referring to the statement in the previous order dated 6.3 .1999 that the parties
agreed to undertake to the Court that the decision of the Conciliator would
be final and binding on both the parties the Division Bench was of the opinion
+ that when the Conciliator has been appointed for taking a decision, with the E
consent of the parties no amount of objections raised in the fonn of appli-
cation can be entertained at all. (emphasis is mine). Division Bench observed
in the order "but in the present case, at the time when conciliator was agreed
to be appointed, clear cut understanding was there between the parties to
given to finality". The conclusion arrived at by the Court as expressed in F
paragraph 4 of the order reads :

"The net result of the matter is that the report filed by the conciliator

- shall be treated as the Order in the Writ Petition and parties' rights
will be governed thereunder. Petition is disposed of accordingly. Civil
Application is disposed of." G

The said order is under challenge in this appeal filed by the respondent

" No. 7 of the writ petition.

The Arbitration and Conciliation Act, 1996, as the name itself suggests,
deals with two types of proceeding: arbitration proceedings and conciliation H
A
1146 SUPREME COURT REPORTS [2000] 3 S.C.R.
proceedings. While provisions relating to arbitration proceedings are con-
tained in part-I in which are included Chapters I to X, the conciliation
proceedings are dealt with in part-III which includes sections 61 to 81. On
~
..
perusal of the provisions of the Act the position is manifest that a clear ,,,
distinction is maintained in the statute between arbitration proceedings and ~

conciliation proceedings.
B
Section 61 which deals with Application and Scope of the provisions,
in part-III provides, inter alia, that save al> othe1wise provided by any law
for the time being in force and unless the parties have otherwise agreed, this
Part shall apply to conciliation of disputes arising out of legal relationship,
c whether contractual or not and to all proceedings relating thereto.

In section 64 provision is made that the appointment of conciliators
shall be by agreement of parties or if the parties agree they may request a
suitable institution or a person to appoint a conciliator on their behalf. In ..+
section 65 it is provided, inter alia, that on being appointed the conciliator
D shall request each party to submit to him a brief written statement describing
the general nature of the dispute and the points at issue. Each party shall send
a copy of such statement to the other party.

Section 67 which makes provision regarding role of conciliator pro-
E vides in sub-section (1) that the conciliator shall assist the parties in an -+
independent and impartial manner in their attempt to reach an amicable
settlement of their dispute. In sub-section (2) thereof, it is provided that the
conciliator shall be guided by principles of objectivity, fairness and justice,
. giving consideration to, among other things, the rights and obligations of the
parties, the usages of the trade concerned and the circumstances surrounding
F
the dispute including any previous business practices between the parties. In
sub-section (4) of section 67 it is laid down that the conciliator may, at any
stage of the conciliation proceedings, make proposals for a settlement of the
dispute. Such proposals need not be in writing and need not be accompanied
by a statement of the reasons therefor. Section 69 contains the provision
...
G regarding communication between conciliator and parties whether orally or
in writing and about the place of meetings etc. In section 70 provision is made ,...
regarding disclosure of information. Therein it is provided, inter alia, that
when the conciliator receives factual information concerning the dispute from
a party, he shall disclose the substance of that information to the other party
H in order that the other party may have the opportunity to present any
. H.D. THAKUR v. STATE [D.P. MOHAPATRA, J.] 1147

;. explanation which he considers a~propriate. In the provision to the section A
-..,
it is stated that when a party gives any information to the conciliator subject
to a specific condition that it be kept confidential, the conciliator shall not
disclose that information to the other party. Under section 72 it is laid down
that each party may, on his own initiative or at the invitation of the conciliator,
submit to the conciliator suggestions for the settlement of the dispute.
B
Section 73 in which provision is made regarding settlement agreement
reads as follows :

"73. Settlement agreement- (1) When it appears to the conciliator that
there exist elements of a settlement which may be acceptable to the
parties, he shall foxmulate the terms of a possible settlement and
c
submit them to the parties for their observations. After receiving the
observations of the parties, the conciliator may reformulate the terms
of a possible settlement in the light of such observations.

(2) If the parties reach agreement on a settlement of the dispute, they D
may draw up and sign a written settlement agreement. If requested
by the parties, t11e conciliator may draw up, or assist the parties in
drawing up, the settlement agreement.

(3) When the parties sign the settlement agreement, it shall be final
.+- and binding on the parties and persons claiming under them respec- E
tively.

(4) The conciliator shall authenticate the settlement and furnish a copy
thereof to each of the parties."

Section 74 provides that the settlement agreement shall have the same F
status and effect as if it is an arbitral award on agreed terms on the substance
of the dispute rendered by an arbitral tribunal under section 30.

Section 75 which incorporates in the statute the confidentiality clause
provides that notwithstanding anything contained in any other law for the
G
time being in force, the conciliator and the parties shall keep confidential all
matters relating to the conciliation proceedings. Confidentiality shall extend
4 also to the settlement agreement, except where its disclosure is necessary for
purposes of implementation and enforcement.

Section 76 wherein provision is made regarding termination of concili- H
1148 SUPREME COURT REPORTS [2000) 3 S.C.R.
A ation proceedings is extracted hereunder;. .... ,..,..
'
"76. Tennination of conciliation proceedings - The conciliation
proceedings shall be tenninated -

(a) by the signing of the settlement agreement by the parties on the
B date of the agreement; or

(b) by a written declaration of the conciliator, after consultation with
the parties, to die effect that further efforts at conciliation are no
longer justified, on the date of the declaration; or

c (c) by a written declaration of the parties addressed to the conciliator
to the effect that the conciliation proceedings are terminated, on the
date of the declaration; or

(d) by a written declaration of a party to the other party and the f
conciliator, if appointed, to the effect that the conciliation proceedings
D are terminated, on the date of the declaration.

Section 77 contains the provision that 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 +
E opinion, such proceedings are necessary for preserving his rights.

At this stage it will be convenient to refer to section 30, which is a
provision in Chapter VI dealing with making of arbitration award and
termination of proceedings. Section 30 reads as follows:
F
"30. Settlement: (1) It is not incompatible with an arbitration agree-
ment 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.
G
(2) 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.

H (3) An arbitral award on agreed terms shall be made in accordance
H.D. THAKUR v. STATE [D.P. MOHAPATRA, J.] 1149
with section 31 and shall state that it is an arbitral award. A

(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."

From the statutory provisions noted above the position is manifest that
a coneiliator is a person who is to assist the parties to settle the dispute B
between them amicably. For this purpose the conciliator is vested with wide
powers to decide the procedure to be followed by him untrammeled by the
procedural laws like the Code of Civil Procedure or the Indian Evidence Act,
1872. When the parties are able to resolve the dispute between them by
mutual agreement and it appears to the conciliator that there exists an element c
of settlement which may be acceptable to the parties he is to proceed in
accordance with the procedure laid down in section 73, formulate the terms
of a settlement and make it over to the parties for their observations; and the
ultimate step to be taken by a conciliator is to draw up a settlement in the
light of the observations made by the parties to the terms formulated by him.
D
The settlement takes shape only when the parties draw up the settlement
agreement or request the conciliator to prepare the same and· affix their
signatures to it. Under sub-section (3) of section 73 the settlement agreement
signed by the parties is final and binding on the parties and persons claiming
under them. It follows therefore that a successful conciliation proceeding
comes to an end only when the settlement agreement signed· by the parties E
comes into existence. It is such an agreement which has the status and effect
of legal sanctity of an arbitral award under section 74.

In the case in hand, as appears from the materials on record, no such
procedure as prescribed under part-III of the Act has been followed by the
F
conciliator. The conciliator appears to have held some meetings with the
parties in which there was discussion and thereafter drew up the so called
settlement agreement by himself in secrecy and sent the same to the court
in a sealed cover. Naturally the so called settlement agreement drawn up by
the conciliator does not bear the signatures of the parties. As the impugned
order shows the said settlement has been given a status higher than an arbitral G
award in as much as the court has refused to even entertain any objection
against the said settlement agreement reiterating the position that the settle-
ment arrived at by the conciliator will be binding on the parties. The
co~ciliator who is a former judge of the High Court and the learned Judge
who passed the impugned order failed to take note of the provisions of the H
1150 SUPREME COURT REPORTS [2000] 3 S.C.R.
A Act and the clear distinction between an arbitration proceeding and a con-
ciliation proceeding. The learned judge in passing the impugned order failed
to notic!e the apparent illegalities committed by the conciliator in drawing up
the so called settlement agreement, keeping it secret from the parties and
sending it to the Court without obtaining their signature on the same. The
B position is well settled that if the statute prescribes a procedure for doing a
_ thing, a thing has to be done according to that procedure. Thus the order
passed by the High Court confirming the settlement agreement received from
the conciliator is wholly unsupportable.

Accordingly, the appeal is allowed. The order dated 6.10.1999 passed
C by the High Court of Bombay in Civil Application No. 7117 of 1999 is set
aside. The settlement agreement dated 31.8.1999 filed by Justice H. Suresh
before the High Court is also set aside. The High Court is directed to dispose
of the Writ Petition afresh on merit in accordance with law. Parties to bear
their own costs.
+
D K.K.T. Appeal allowed.