Holding

The Memorandum of Conciliation and the Letter of Comfort did not satisfy the requirements of Section 73 and therefore could not be treated as a settlement agreement or an arbitral award.

Summary

Mysore Cements Ltd. entered into a contract with Svedala Barmac Ltd. for rock‑crushing machines. After the machines failed, the parties attempted conciliation, signing a Memorandum of Conciliation and a Letter of Comfort on the same day. Mysore Cements sought execution of these documents, claiming they were a settlement agreement enforceable as an arbitral award under the Arbitration and Conciliation Act, 1996. The Delhi High Court dismissed the petition, holding the documents did not constitute a settlement within the meaning of Section 73. On appeal, the Supreme Court examined whether the documents satisfied the statutory requisites of Sections 73 and 74 and whether the conciliation proceedings were properly terminated. The Court held that neither the Memorandum nor the Letter met the essential requirements of Section 73, so they could not be treated as a settlement agreement or an arbitral award, and consequently the execution petition could not be entertained. The appeal was dismissed.

Issues considered

The Memorandum of Conciliation and the Letter of Comfort constitute a settlement agreement under Section 73 of the Arbitration and Conciliation Act, 1996.
Whether such a settlement agreement, if valid, acquires the status of an arbitral award under Section 74 and can be enforced under Section 36.
Whether the conciliation proceedings were terminated in accordance with Section 76, thereby giving effect to any settlement.
Whether the High Court was correct in dismissing the execution petition.
Whether the parties may pursue arbitration or other remedies while conciliation proceedings are pending.

Legislation cited

Arbitration and Conciliation Act, 1996s. 30, s. 36, s. 73, s. 74, s. 76, s. 77

Subjects

ArbitrationConciliationSettlement agreementSection 73Section 74EnforcementExecution proceedingsLetter of ComfortMemorandum of ConciliationAlternative dispute resolution

Judgment

A ·MYSORE CEMENTS LTD.
v.
SVEDALA BARMAC LTD.

MARCH 12, 2003

B [DORAISWAMY RAJU AND SHIVARAJ V. PATIL, JJ.)

Arbitration and Conciliation Act, 1996-Sections 30, 36, 73 and 74-
Agreement between :two contracting parties in dispute-During pendency of
C conciliation proceedings-Facts still disputed-Petition for execution of
'Memorandum of Conciliation' and 'Letter of Comfort'-Plea that the
conciliation proceeding amounted fO settlement agreement and hence
enforceable as arbitral award-High Court dismissed the petition-On appeal,
held: The agreement cannot be accorded status of settlement agreement as it
does not fulfill essential legal pre-requisites ofSection 73 and hence not liable
D to be executed-Every agreement during pendency of conciliation proceeding
does not automatically acquire status of settlement agreement within the
meaning of Section 73 for being enforced as decree of Court:

Appellant-company entered into contract with the respondent-
company for supply and commissioning of rock crushing machines. On
E failure of machines to do the required work, appellant served a notice for
arbitration on the respondent-company. However, at the request of the
respondent, appellant agreed for conciliation. In the first round of
conciliation proceeding 'Memorandum of Conciliation' was signed by both
the parties and authenticated by the conciliators, wherein it was settled
p that the respondent would modify the working of machine within a
stipulated period. The appellant-company was also required to provide
some facilities for the modification work. Respondent-Company also issued
'Letter of Comfort' on the same date providing therein to compensate the
appellant if they failed to complete the modification work within stipulated
time. In another round of conciliation further time was granted for
G modification work. Again the respondent failed to complete the
modification work. Parties met but the concmation proceedings were called
off as they did not reach any consensus.

Appellant issued legal notice demanding refund of the price of the
H machines and its associated equipments alongwith interest @ 24% per
1028
MYSORE CEMENTS LTD. v. SVEDALA BARMAC LTD. J029

annum, damages for the loss incurred due to non-functioning of the A
machines, and for compensation in view of the 'Memorandum of
Conciliation' and 'Letter of Comfort'. Thereafter, he filed execution
petition for enforcement of 'Memorandum of Conciliation' and 'Letter
of Comfort'. High Court dismissed the petition holding that the decisio.n
of conciliators was not a decision within the rneaning of Section 74 of
Arbitration and Conciliation Act, 1996; and that even if the decision is B
assumed to be decision under Section 74, there was no finding whereby.
the Conciliators had fixed any compensation to be paid to the appellant
in case of failure of completion of work within stipulated period.

· Appellant also filed claim before arbitrators on remaining issues not C
covered within the reference of conciliation. However, the issue of
compensation had not been raised in the arbitration proceedings.

In appeal to this Court appellant contended that under Section 74
read with Sections 30 and 36 of the Act, settlement agreements are
enforceable as if they are arbitration awards; that in a sense a conciliation D
settlement is analogous to a compromise agreement or consent order which
is enforced by using the machinery of the court; that ,the settlement
agreement !n the present case satisfied all the requirements of Section 73
of the Act.

Respondent contended that enforcement of the 'Letter of Comfort' E
in execution proceedings is itot permissible unless there is a conciliation
settlement in terms of and .as required in Section 73 of the Act; that there
was nothing to show that the 'Letter of Comfort' is incorporated in the
settlement agreement; that there was no termination of conciliation
proceedings under Section 76A by the .signing of the settlement agreement
by the parties on the date of agreement; that 'Letter of Comfort' is only
F
an interim arrangement; that wh.ere statute prescribed a procedure for
doing something the same course must be followed and the procedure
prescribed must be adhered to; that since the 'Letter of Comfort' and
'Memorandum of Conciliation' do not meet requirements of Section 73,
they cannot be given status of settlement agreements under Section 74 to G
enforce them as an arbitral award under Section 30 so as to enforct them
for an execution proceedings straightaway.

Dismissing the appeal, the Court

HELD: 1. The materials on record, particufarly'the 'Memorandum H
1030 SUPREME COURT REPORTS [2003] 2 S.C.R.

A of Conciliation Proceedings' and the 'Letter of Comfort', either taken -~
individuaUy or even together - they or any one of them cannot legitimately
claim to be entitled to or assigned the status of a settlement agreement
within the meaning of Section 73, for purposes of Arbitration and
Conciliation Act, 1996. They fall short of the essential legal pre-requisites
B to be satisfied for being ass_igned any such status despite viewing them with
a liberal approach in the background of the objects and purposes
underlying conciliation, arbitration and alternative mode of settlement of
disputes. [1045-H; 1046-A-B('

2. If the Settlement Agreement comes into existence under Section
C 73 satisfying the requirements stated therein, it gets the status and effect
of an arbitral award on agreed terms on the substance of the dispute
rendered by an arbitral tribunal under Section 30 of the Act. In the present
case, looking to the 'Memorandum of Conciliation Proceedings' and
'Letter of Comfort', it is true that parties have agreed to certain terms,
but they cannot be straightaway enforced by taking up execution
D proceedings. On the basis of the 'Letter of Comfort' execution proceedings
could not be taken up under Section 36 of the Act. When the facts are
disputed as to the satisfaction of the modification work and as to the
breach of obligation even in relation to the modification work by either
party, High Court was right in passing the impugned order. At the end of
E 'Memorandum of Conciliation Proceedings', it is stated that the terms of
Conciliation Settlement are agreed to and accepted by both the parties.
Conciliators and both the parties also have signed the same but the
procedure as indicated and various steps contemplated in Section 73 of
the Act were not adhered to. This apart in this Memorandum neither
consequences for not completing the modification work are stated nor any
F amount of compensation is fixed .. The 'Letter of Comfort', could not be
accorded the status of Settlement Agreement to bring it within the meaning
of Section 74 of the Act to treat it as an arbitral award under Section 30
of the Act so as to enforce it under Section 36 of the Act. In the present
case, the Conciliation proceedings were not terminated but they were only
adjourned. Under Section 76 of the Act, the proceedings shall be
-·
G terminated as per clauses (a) to (d) of the said Section. If there was
Settlement Agreement under Section 73, Conciliation Proceedings would
have been terminated under Section 76(a) of the Act.
It 044-C; I 044-E; t 045-E)

3. It also cannot be said that 'Memorandum of Conciliation' and the
H
MYSORE CEMENTS LTD. v SVEDALA BARMAC LTD. [SHIVARAJ V. PATIL, J.] ] 03 J

'Letter of Comfort' could be treated as interim award in the absence of A
any Settlement Agreement. It is not every agreement or arrangement
between parties to the disputes, arrived at in whatever manner or form,
during the pendency of conciliation proceedings that automatically
acquires the status of a settlement agreement within the meaning of Section
73 of the Act so as to have the same status and effect as if it is an arbitral
award, for being enforced as if it were a decree of the court. It is only B
that agreement which has been arrived at in conformity with the manner
stipulated and form envisaged and got duly authenticated in accordance
with Section 73 of the Act, alone can be assigned the status of a settlement
agreement, within the meaning of and for effective purposes of the Act,
and not otherwise. If the statute prescribes a procedure for doing a thing C
in a particular way, it has to be done accordingly. (1045-B-D; 1043-C, D)
Haresh Dayaram Thakur v. State of Maharashtra and Ors., [2000) 6
sec 179, referred to.
4, As the arbitration proceedings are pending between the parties,
it is open to the appellant to avail such remedies as are available in law D
on the basis of 'Memorandum of Conciliation Agreement' and 'Letter of
Comfort' by approaching competent court or raising any arbitration
dispute as is permissible in law. As per Section 77 of the Act, 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 E
the conciliation proceedings except that a party may initiate arbitral or
judicial proceedings where in his opinion such proceedings are necessary
in preserving his rights. (1046-C-E]

CIVIL APPELLATE JURISDICTION: Civil Appeal No. 2321 of2003.
F
From the Judgment and Order dated 4.5.2000 of the Delhi High Court
in E.P. No. 264 of 1998.

K.K. Venugopal, Krishnan Venugopal, Sanjiv Jha, Saleem Hasan and
Sanjay Kapur for the Appellant.
G
F.S. Nariman, Anil Malhotra, Ravi Bishoni, Sanjeev Kumar Singh and
Bhargava Desai for the Respondent.

The Judgment of the Court was delivered by

SHIV ARAJ V. PATIL, J. Leave granted. H
1032 SUPREME COURT REPORTS (2003) 2 S.C.R.

A The question that arises for consideration in this appeal is whether a
Letter of Comfort furnished on the same day of a Settlement arrived at during
conciliation signed by both the parties and authenticated by the Conciliators
is enforceable in the same manner as an arbitration award under Section 74
read with Sections 30 and 36 of the Arbitration and Conciliation Act, 1996?

B The appellant-Mysore Cements Limited contracted by its letters dated
April 22, 1994 and July 30, 1994 with the respondent-Svedala Barmac Limited,
a company based in New Zealand, for the supply and commissioning of two
sets of Barmac 9600 DUOPACTOR rock-crushing inachines for its cement
plant at Damoh vide two separate letters dated July 30, 1994. Mysore Cements
C also contracted with another subsidiary of Barmac Ltd. for the supply and
commissioning of four Vibrating Ripo flo Screens. On failure of machinery
to crush limestone in accordance with the respondent's assurances, the
appellant served a notice for arbitration on the respondent. However, at the
respondent's request subsequently, the appellant agreed to conciliation at
New Delhi. As a result, a "Memorandum of Conciliation" dated December
D 18, 1997 was signed by both the parties and authenticated by the Conciliators,
According' to the appellant, on the same day, as a part of the same transaction
and pursuant to the Clauses 9 and 10 of the said Memorandum to compensate
the appellant in case of failure of completion or modification of the work on
two lines, a letter was sent to the parties signed by the same, Marketing
Director, Mr. Ian Rodger, who had signed.the 'Memorandum of Conciliation'.
E According to the appellant, this Letter of Comfort, having regard to the
stipulations and undertakings contained in the Memorandum of Conciliation,
formed part of the said Memorandum and that the parties had finally and
conclusively determined the amount of compensation to be paid monthly by
the respondent to the appellant until the machinery was set right. The appellant
p approached the High Court for enforcement of the same through execution.
A learned single Judge of the High Court dismissed the execution petition
holding that the alleged decision of the conciliators is not a decision within
the meaning of Section 74 of the Arbitration and Conciliation Act, 1996 (for
short 'the Act') and further assuming it to be a decision of the Conciliators,
there was no finding whereby the Conciliators had fixed any compensation
G to be paid to the appellant in case the work was not completed within the
situated period. This order of the High Court dated 4th May, 2000 dismissing
the execution petition filed by the appellant is under challenge in this appeal.
In addition to the facts stated above, it may be useful to refer to a few ·
more dates and events for proper appreciation of the respective contentions.
H First round of conciliation proceedings were held from December 15, 1997
MYSORE CEMENTS LTD. v. SVEDALA BARMAC LTD. [SHIVARAJ V. PATIL, J.] J033

to December 18, 1997 and the terms of Settlement between the parties were A
recorded in the Memorandum of Conciliation. The Letter of Comfort of the
same date dated 18.12.1997 was issued in favour of the appellant to
compensate at the rate of Rs. 20 lacs per month per line in case they failed
to rectify line II by April 30, 1998 and line I by August 30, 1998. According
to the appellant, respondent could not complete the modification work of line B
II by April 30, 1998. Another round of conciliation was called at the request
of the respondent and some more time was granted to carry out modifications;
the respondent admitted that the best results guaranteed could not be
.demonstrated/achieved on a consistent basis during trial; the respondent was
not able to fulfill any of their ~surances. The parties met again on 12-13,
August, 1998 but could not reach on any consensus and decided to call off C
the third conciliation proceedings. The appellant issued a legal notice dated
27th August, 1998 to the respondent demanding refund of the amount of Rs.
937.56 lacs being the price of the Barmac Crushing System and associated
equipment required for it alongwith interest @ 24% per annum and also
damages amounting to Rs. 567 lacs as on August 22, 1998 for the loss
incurred due to non-functioning of Barmac Crushing System. Jn addition, it D
called upon the. respondent to compensate the appellant @ Rs. 40 lacs per
month in view of the Memorandum of Conciliation and Letter of Confort
dated 18.12.1997. Thereafter as already stated above, the appellant filed
Execution Petition No. 264/98 before the High Court of Delhi on 30. I 0.1998
claiming an amount of Rs. 200 lacs from May to September, 1998 and Rs. E
40 lacs per month from October, 1998 onwards alongwith interest, @ 18%
per annum. The. appellant also filed claim before the Arbitrators on remaining
issues not covered within the reference of conciliation. It is stated that the
issue of compensation as contained in the said Memorandum of Conciliation
and the Letter of Comfort has not been raised in the arbitration proceedings.
F
In order to find answer to the question set out above, the two documents
which have material bearing need a closer look. They are extracted below:-

- "(l) MEMORANDUM OF CONCILIATION PROCEEDINGS

. Reg : Disputes and differences between Mysore Cement Ltd. (Units G
Diamond Cement) and Svedala Barmac Ltd.

I. Mysore Cements nominated Mr. D.C. Singhania as Conciliator
on its part and Svedala nominated Mr. R. Rajagopalan as
Conciliator on its part without prejudice to the rights, obligations,
contentions and remedies of the two parties in the matter. H
1034 SUPREME COURT REPORTS [2003) 2 S. C.R.

A II. The Conciliators commenced their proceedings on 15th December,
1997 at 2.30 at Hotel Vasant Continental. New Delhi and continued
till 18th December, 1997. The Conciliators feel very glad to record
that both the parties were very co-operative and helpful in reaching
certain common points of agreement between them. As a result
thereof both the parties agreed that Svedala may immediately
B commence work and take steps to modify the Barmac System and
Svedala agreed to compete the modification work of Line II by
30'h April, 1998. Modification work on Line I will be c~mpleted
by 31" August, 1998 by Syedala.

Ill. Soon after the modification work is completed on Line Il by 30th
c April, 1998, trial runs will start immediately. After the success of
the trial run is agreed mutually and provided Line II trials are
completed, no later than 30 days from the co1hpletion of work on
Line Il, work on Line I will also start.
IV. Svedala is quite confident that after the completion of the
D modification work, overall objective of installing the Barmac
System will be achieved. It is agreed by Mysore Cements Ltd.,
that they will extend their full co-operation and support in the
modification work to be done by Svedala.

v. Svedala will take the following steps:-
E
I. Supply the Electric/Hydraulic Cascade Control Device, which
will allow for the control of the cascade and therefore motor
power draw from the control room.

F
2. Supply the Remote Thermal Model read out meter which
will allow the operators to monitor the power draw and with
-
the aid of the Cascade Control Device to avoid motor
overload.

3. Supply the Control Device to integrate the existing feed rate
control and closed circuit load measurement equipment. This
G control device will automatically regulate the new feed rate
to the Bannac Cii·cuit based on the Closed Circuit Tonnage
being fed into the Barmac Crusher.

4. Supply Suitable Belt weigner (Belt Scale).

H 5. Supply of 2x300 KW, 415 Volts motors and motor control
MYSORE CEMENTS LTD. v. SVEDALA BARMAC LTD. [SHIVARAJ V. PATIL, J.] ] 035

equipment to increase capacity of the Barmac Crusher. A
6. Recommend the appropriate screening media to ensure
availability for trial. If this media is not already available,
Svedala to arrange supply.

7. Provide the Engineering in time, for the installation of a B
conveyor discharge device that will be activated by a metal
detector (supplied by Mysore Cements Ltd.) This discharge
device will allow for the removal of the portion of material
on the conveyor that contains the metal, detected by the
metal detector.

8. Supply Supervision of all installation and modification work
c
as described in item 1 to 6 above including the engineering
documentation required for Mysore Cements to carry out
their scope of work.

VI. Mysore Cements Ltd. is required to do the following :- D
I. Provide, install and connect wiring of a suitable size and
specification to connect the devices supplied by Svedala to
the power supply and control room.

2. To ensure continuous and adequate power and material supply
for a full 5-day trial. E

3. Allow full control and access to the Barmac circuit to Svedala
during the period of trial.

4. Provide access to the data required by Svedala to measure
the total specific power requirement as it is at present and as F
the trials proceed.

5. Provide Engineering drawings and data to enable Svedala to
engineer and carry out all the modifications as stipulated
above.
G
6. Carry out the modifications and installation work to complete
the installation at the conveyor metal discharge device as
engineered by Svedala (Refer to item 7 under Svedala' s
responsibilities.)

VII. Any complaint or grievance regarding any kind of non-cooperation H
1036 SUPREME COURT REPORTS (2003) 2 S.C.R.

A by Mysore Cements Ltd. will be brought promptly to the notice
of the Conciliators by Svedala.

VIII. Conciliators can also nominate some independent technical expert
in consultation and acceptable to both parties, to be present at the
site to review the progress and/or at the time of trial runs or
B performance test, if need be. The cost including expenses of such
a technical expert shall be shared equally by Svedala and Mysore
. Cements.

IX. To make Mysore Cements Ltd. comfortable, Svedala has agreed
to give a Letter of Comfort in favour of Mysore Cements Ltd.,
c ensuring (subject to Mysore Cements Ltd. performing their
obligations) that the modification work of Line II will be completed
by April 30, 1998 and Line I by 31" August, 1998.

x. It is further clarified that liabilities undertaken by Svedala to
compensate Mysore Cements Ltd. are subject to Mysore Cements
D performing their part of the work in a timely manner to achieve
the target date of completion. In the unlikely event pf Mysore
Cements not preforming their scope of work, as contained in this
memorandum, in a timely manner, Svedala reserves the right to
perform the same themselves.

E XI. It is again made clear that the conciliation proceedings and
whatever else is said, done and agreed is without prejudice to all
rights of the parties.

XII. Nothing contained in this Memorandum shall amount to any
admission by either party nor the parties assume any additional
F liability other than those stipulated in the contract.

XIII. Now the conciliation proceedings stand adjourned and shall be
resumed as and when need arises in future.

Sd/- Sd/-
G R. Rajagopalan 0.C. Singhania

The terms of the conciliation settlement are agreed to and accepted
by us.

For Svedala Barmac Ltd. For Mysore Cements Ltd."
H
MYSORE CEMENTS LTD. v. SVEDALA BARMAC LTD. [SHIVARAJ V. PATIL,!.) J 037

"2. LETTER OF COMFORT A
December J 8, 1997
Mis. Mysore Cements Ltd.
(Units-Diamond Cements
Diamond 11
Damoh, Narasingarh, M.P.
B
3RD Floor, Tower B-1
Golden Enclave
Airport Road Bangalore-500 107
Dear Sirs,
c
I. Jn pursuance of our agreement in the conciliation proceedings to
.undertake the modification work of Line 11 and - Line I, we
hereby assure you that the modification work of Line II shall be
completed by 30th April, 1998 and on completion of the trial run
of this line, modification work on - Line I shall thereafter also be
commenced and which shall be completed by 31st August, 1998. D
We hereby assure and guarantee that in case the modifications
work of Line 11 is not completed by 30th April, 1998, we shall
compensate you at the rate of Rs. 20 lakhs per month (pro rate
for part of a month) fpr the period of delay.
2. Similarly after the trial run of Line 11, if we fail to complete the E
work of Line I by 3 Jst August, 1998, we shall compensate you
at the same rate for the delayed period.
3. In the event of any arbitration or court proceedings taking pla€e
at any time, between Svedala Barmac and Mysore Cements Ltd.
in regard to the contract for the Barmac System supplied to Mysore F
Cements Ltd. and consequent to which we are required to make
any payment to Mysore Cements Ltd., the amount of
compensation, if any, a!ready paid by us in terms of Paras I and
2 above shall be adjusted/deducted from the payment. If any, to
be made by us consequent to the award of the arbitrators/courts. G
Yours faithfully,
Svedala Barmac Ltd.
Ian Rodger
Marketing Director"
Shri. K.K. Venugopal, the learned Senior Counsel for the appellant H
1038 SUPREME COURT REPORTS (2003] 2 S.C.R.

A made elaborate submissions taking pains to explain the background facts, the
nature, scope, object and purpose of conciliation, arbitration and adjudication
·--
by courts to contend that conciliation is a fundamentally different alternative
dispute; in conciliation, however, apart from consensual selection of the forum,
even the dispute is settled by agreement and not by adjudication. Under
Section 74 read with Sections 30 and 36 of the Act, settlement agreements
B are enforceable as if they are arbitration awards : in a sense, a conciliation
settlement is analogous to a compromise agreement or consent order which
is enforced by using the machinery of the court; remedies in alternative
dispute resolution modes such as arbitration must be more flexible than in
traditional litigation. According to the learned Senior Counsel, in cases such
C ac this, where the aggrieved party has given up its right to go to a binding
forum such as arbitration or a civil suit in order to go in for conciliation
proceedings at the request of the other party, the courts should be extremely
reluctant not to enforce a conciliation settlement agreement at the behest of
the other party. This is especially so where both the parties have shown by
their subsequent conduct that they consider the conciliation settlement
D agreement to be binding and enforceable. It was submitted that to refuse to
enforce the settlement agreement, would amount to rewarding bad faith in
the conciliation process. He urged that in the present case, the conciliation
settlement agreement dated December 18, 1997 entered into by the parties
satisfied all of the requirements of Section 73 of Act. In particular the
E Conciliation Settlement was drafted by the conciliators and the parties during
conciliation proceedings as provided in Section 73 (2) and bears the signature
of the representatives of both parties at the end of the document as required
by Section 73(3) of the Act. It has also been authenticated by the conciliators
at the end of the document as required by Section 73(4) of the Act.
Consequently, the Conciliation Settlement has become final and binding on
F the parties as set out in Section 73(3) of the 1996; Act. He also submitted that
there is no overlap between the current proceedings for execution of the
Conciliation Settlement and the arbitration proceedings separately being
conducted pursuant to the arbitration clause; the two proceedings are distinct
and independent and the Conciliation Settlement cannot be sent to the arbitral
G tribunal. He emphasized that heading of a document cannot determine its
binding nature; in case or a contract, it is well-settled that it is really the
intent of the parti1~s that will govern whether it is to be construed as a binding
aoreement and not the heading of the document. Pursuin 0° his submissions,
" ~
he stated that various clauses of the Conciliation Settlement impose binding
obligations on each of the parties and even the subsequent conduct of the
H paities also shows the binding character of the Conciliation Settlement. In the
MYSORE Ci:MENTS LTD v. SVEDALA BARMAC LTD. ~SHIVARAJ Y. PATIL, .I.] ) 039

present case, the Letter of Comfort must be treated as integral pa11 of the A
· Conciliation Settlement and binding on the parties. He added that a reference
in an agreement to another document such as Letter of Comfort can result in
the Letter of Comfo11 being incorporated into the agreement as in this case,
Settlement Agreement and Letter of Comfort are executed on the same day
contemporaneously. Jn support of his submissions, he drew our attention to
relevant clauses in the Memorandum of Conciliation and Letter of Comfort. B
He read the preamble of the Act which states that one of the objects of the
UNCITRAL Conciliation Rules embodied in Pa11 III '.()f the Act is to make
"a significant contribution to the establishment of a unified legal framework
for the fair and efficient settlement of disputes arising in International
commercial relations." He submitted that this Court should ensure that the C
intention of the Parliament reinforcing the System of Alternative Dispute
Resolution in India is not frustrated by the hyper-technical approach taken by
the respondent. This Court may see that Part lII does not become redundant
by accepting technical definition as to enforceability raised by the respondent.

Shri F.S. Nariman learned Senior Counsel on behalf of the respondent D
submitted that the impugned order is well-justified and the view taken by the
High Court is a right view. He contended that the thrust of the submissions
in short and substance amount to asking for the enforcement of the Letter of
Comfort in execution proceedings which is not permissible unless there is a
conciliation settlement in terms of and as required to in Section 73 of the Act; E
there is nothing to show that the Letter of Comfort is incorporated in he
Settlement Agreeinents; there was no termination of conciliation proceedings
under Section 76\a) by the signing of the Settlement Agreement by the parties
on the date of Agreement. According to him, Letter of Comfort is only an
interim arrangement and the dispute is pending before the Arbitrators. He
submitted that where a statute prescribes a procedure for doing something, F
the same course must be followed and the procedure presc.ribed must be
adhered to. Since the Letter of Comfort and the Memorandum of Conciliation
do not meet the requirements of Section 73, they cannot be given status of
Settlement Agreement under Section 74 to deem them as an arbitral award
under Section 30 so as to enforce them in execution proceedings straigthaway, G

We have carefully considered the submissions made on behalf of either
side.

The relevant Sections of the Act which are required to be kept in view
while deciding the appeal are extracted below:
H
1040 SUPREME COURT REPORTS (2003] 2 S.C.R.

A "30. Settlement- (!) It is not incompatible with an arbitration
agreement for an arbitral tribunal to encourage settlement of the dispute
of
and, with the agreement the pa11ies, the arbitral tribunal may use
mediation, conciliation or other procedures at any time during the
arbitral proceedings to encourage settlement.

B (2) If, during arbitral proceedings, the parties settle the dispute, the
arbitral tribunal shall terminate the proceedings and, if request~d by
the parties and not objected to by the arbitral tribunal, record the
settlement in the form of an arbitral award on agreed terms.

(3) An arbitral award on agreed terms shall be made in accordance
C with section 31 and shall state that it is an arbitral award.

(4) An arbitral award on agreed tenm shall have the same status and
effect as any other arbitral award on the substance of the dispute.

36. Enforcement- Where the time for making an iipplication to set
D aside the arbitral award under section 34 has expired, or such
application having been made, it has been refused the award shall be
enforced under the Code of Civil Procedure, 1908 (5 of 1908) in the
same manner as if it were a decree of the court.

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

F (2) If the parties reach agreement on a settlement of the dispute, they
may draw up and sign a written settlement agreement. If requested by
the pa11ies, the 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
G and binding on the parties and persons claiming under them
respectively.

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

H 74. Stahts and effect ofsettlement agreement- The settlement agreement
..
MYSORECEMENTS LTD. v. SVEDALA BARMAC LTD. [SHIVARAJ V. PATIL,J.] 1041

shall have the same status and effect as if it is an arbitral award on A
agreed terms on the substance of the dispute rendered by an arbitral
tribunal under section 30.

76. Termination of conciliation proceedings - The conciliation
proceedings shall be terminated-
B
(a) by the signing of the settlement agreement by the parties on the·
· date of the agreement; or

(b) by a written declaration of the conciliator, after consultation with
the parties, to the 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
conciliator, if appointed, to the effect that· the conciliation D
proceedings are terminated, on the date of the declaration."

The High Court dismissed the petition for enforcement by way of
execution under Section 36 of the Act by the impugned order for the reasons
that (I) in the decision of the Conciliators, no finding has been given as to
what will 'happen in the event of the respon.dent not carrying out the E
modification within the period mentioned therein; (2) there was no settlement
agreeinent within the meaning' of Section 74 of the Act;

(3) assuming it to be a decision of the Conciliators under the provisions
. of the Act, there was no finding. that the Conciliators had fixed any
compensation to be paid to the appellant in case the work was not completed F
within the stipulated period; (4) moreover, there was a dispute as to who was
responsible for not completing the work within the period mentioned; and (5)
the Letter of Comfort written by the respondent to the appellant agreeing to
pay compensation in case the work was not completed within the period
mentioned could noi be. enforced under Section 36 of the Act.
G.
From Clause (IX) of the Memorandum of Conciliation Proceedings, it
is clear that the respondent ·has agreed to give a Letter of tomfort in favour
of the appellant ensuring (subject to Mysore Cements Ltd., performing their
obligations) that the modification work would be completed within the time
mentioned therein .. It is not stated in the said Memorandum that the Letter of H
1042 SUPREME COURT REPORTS (2003] 2 S.C.R.

A Comfort shall be part and parcel of it; the said Clause only indicates that the -....
respondent agreed to give a letter: there is nothing to show that the said letter
gets incorporated in the Memorandum: under the Memorandum, quantum of
compensation is not mentioned, so also it does not state what follows in case
of default of completion of the modification work; the completion of
modification of the work was subject to the appellant performing their
B obligations : there appears to be dispute in regard to satisfactory completion
of the work and as to who committed breach of obligation. The. Letter of
Comfort starts with the sentence that in pursuance of the agreement in the
Conciliation Proceedings to undertake the modification work, assurance was
given that the modification work of Line II shall be comp!eted by 30th April
C 1999, and on completion of the trial run, modification work on Line I shall
thereafter also be commenced and which shall be completed by 31st August,
1998. Further assurance was given that in case the modification work was not
completed within the time, compensation at the rate of Rs. 20 lacs for each
line would be given. It is also made clear. that in the event of any arbitration
or court proceedings taking place between the parties and consequent to
D which the respon\!ent is required to make any payment to the appellant, the
amount of compensation, if any, already paid in terms of paras I and 2, shall
be adjusted/deducted from the payment, if any, to be made by them consequent
to the award of the arbitrators/courts. There is also nothing in the Letter of
Comfo1t as to what happens in case of dispute as to the satisfaction of
E modification work or otherwise arose. This Letter of Comfort gives an
assurance for payment of compensation but it is difficult to say that even in
case of dispute as to the satisfactory completion of modification work, still
the compensation amount has to be paid, that too in the absence of any
adjudication by any authority in that regard. This Letter of Comfort in tt:e
beginning itself states that it is pursuant to the agreement in the conciliation
F procee_dings and not that it shall fonn part of the Memorandum of Conciliation.

Section 73 of the Act speaks of Settlement Agreement. Sub-section (I)
says that when it appears to the Conciliator that there exist elements of
settlement which may be acceptable to the parties, he shall formulate the
G terms of a possible settlement and submit them to the parties for their
observatior.. After receiving the observations of the parties, the Conciliator
may reformulate the terms of a possible settlement in the light of such
observations. In the present case, we do not find there any such formulation
and. reformulation by the Conciliator Under sub-section (2), if the parties
reach a settlement agreement of the dispute on the possible terms of settlement
H formulated, they may draw up and sign a written settlement agreement. As
MYSORE CEMENTS LTD. v. SVEDALA BARMAC LTD. [SHIVARAJ V. PATIL, J.] ] 043

per sub-section (3) when the parties sign the Settlement Agreement, it shall A
be final and binding on the parties and persons claiming under them
'respectively. Under sub-section (4), the Conciliator shall authenticate the
Settlement Agreement and furnish a copy thereof to each of the parties. From
the undisputed facts and looking to the records, it is clear that all the
requirements of Section 73 are not complied with.
B
This Court in Haresh Dayaram Thakur v. State of Maharashtra and
Ors.. [2000) 6 SCC 179 while dealing with the provisions of Sections 73 and
74 of the Act, in para 19 of the judgment as expressed thus:-

'' 19. From the statutory provisions noted above the position is manifest
that a conciliator is a person who is to assist the parties to settle the c
·- disputes between them amicably, For this purpose the conciliator is
vested with wide powers to decide the procedure to be followed by
him untrammelled by the procedural Jaw 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 D
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 te1ms 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 E
formulated by him. 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 settlements agreement signed by the parties is final
and binding on the parties and persons claiming under them. It F
follows therefore that a successful conciliation proceeding comes to
an end only when the settlement agreement signed by the parties
comes into existence. It is such an agreement which has the status
and effect of legal sanctity of an arbitral award under Section 74."

It is well-settled that if the statute prescribes a procedure for doing a G
thing in a particular way, it has to be done accordingly. Para 20 of the same
judgment in this regard reads thus:-
'
"20. 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 conciliator. The conciliator appears to have held H
,
'
~
1044 SUPREME COURT REPORTS [2003] 2 S.C.R.

A 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 tlie impugned order shows, the
said settlement has been given a status higher than an arbitral award
B inasmuch as the Court has refused to even entertain any objection
against the said settlement agreement reiterating the position that the
settlement arrived at by the conciliator will be binding on the parties.
The conciliator who is a former judge of the High Court and the
learned judge who passed the impugned order failed to take note of
c the provisions of the Act and the clear distinction between an
arbitration proceeding and a conciliation proceeding. The learned judge
in passing the impugned order failed to notice 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
Cou1t without their signatures on the same. The position is well settled
D and 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."

E There is no difficulty in accepting the argument that a Conciliator is a
person who is to assist the parties to settle the disputes between them amicably
unlike an arbitrator who has an adjudicatory function. But that does not
dispense with satisfying the requirements of Section 73 in bringing out a
binding Settlement Agreement.

F If the Settlement Agreement comes into existence under Section 73
satisfying the requirements stated therein, it gets the status and effect of an
arbitral award on agreed terms on the substance of the dispute rendered by
an arbitral tribunal under Section 30 of the Act. The submission that when
there was substantial compliance with the requirements of Section 73, as in
the present case, when the parties have arrived at a Settlement Agreement
- '

G like the pa1ties before any civil court filing a compromise petition, there
should be no impediment to take up execution based on such a compromise
or agreement, cannot be accepted. Even a compromise petition signed by
both the parties and filed in the court per se cannot be enforced restoring to
execution proceedings unless such a compromise petition is accepted by the
H court and the court puts seal of approval for drawing a decree on the basis
·-
MYSORE CEMENTS LTD. v. SVEDALA BARMAC LTD. [SHIVARAJ V. PATIL, J.] 1045

of compromise petition. In the present case, looking to the Memorandum of A
Conciliation Proceedings and Letter of Comfort, it is true that parties have
agreed to certain terms, but they cannot be straightaway enforced by taking
up execution proceedings. As rightly held by the High court for the reasons
stated in the impugned order on the basis of the Letter of Comfort execution
proceedings could not be taken up under Section 36 of the Act. When the B
facts are disputed as to the satisfaction of the modification work and as to the
breach of obligations even in relation to the modification work by either
party, the High Court was right in passing the impugned order. It may be
again stated here that at the end of Memorandum of Conciliation Proceedings,
it is stated that the terms of Conciliation Settlement are agreed to and accepted
by both the parties. Conciliators and both the parties also have signed the C
same but the procedure as indicated and various steps contemplated in Section
73 of the Act were not adhered to. This apart, as already stated above, in this
Memorandum neither consequences for not completing the modification work
are stated nor any amount of compensa!ion is fixed. In this case virtually
Letter of Comfort is sought to be enforced. This Letter of Comfort, in our
view, could not be accorded the status of Settlement Agreement to bring it D
within the meaning of Section 74 of the Act to treat it as an arbitral award
under Section 30 of the Act so as to enforce it under Section 36 of the Act.
In the present case, the Conciliation proceedings were not terminated but
they were only adjourned. Under Section 76 of the Act, the proceedings shall
be tenninated as per clauses (a) to (d) of the said Section. If there was E
Settlement Agreement under Section 73, Conciliation Proceedings would have
been tenninated under Section 76(a) of the Act. This is yet another pointer
against the appellant's case. It is also not possible to agree with the submission
that this Memorandum of Conciliation and the Letter of Comfort could be
treated as interim award in the absence of any Settlement Agreement as
already discussed above. It is not every agreement or arrangement between F
parties to the disputes, arrived at in whatever manner or form, during the
pendency of conciliation proceedings that automatically acquires the status of
a settlement agreement within the meaning of Section 73 of the Act so as to
have the same status and effect as if it is an arbitral award, for being enforced
as if it were a decree of the court. It is only that agreement which has been G
arrived at in conformity with the manner stipulated and form envisaged and
got duly authenticated in accordance with Section 73 of the Act, alone can
be assigned the status of a settlement agreement, within the meaning of and
for effective purposes of the Act, and not otherwise. We find in spite of our
careful scrutiny, serious deliberations and analysis of the materials on record,
pa1iicularly the Memorandum of Conciliation Proceedings and the Letter of H
1046 SUPREME COURT REPORTS [2003) 2 S.C.R.

A Comfort, that either taken individually or even together - they or any one of
them cannot legitimately claim to be entitled to or assigned the status of a
settlement agreement within the meaning of Section 73, for purposes of the
Act. In our view, they fall short of the essential legal pre requisites to be
satisfied· for being assigned any such status, despite our endeavour to view
B them with a liberal approach in the background of the objects and purposes
underlying conciliation, arbitration and alternative mode of settlement of
disputes.

Shri K.K. Venugopal, learned Senior Counsel cited before us various
authorities and decisions including a number of foreign authorities relating to .
C principles of arbitration and conciliation. He took great pains to explain the
purpose and object of the Act as to how the courts should look to advance
the object and purpose of the Act instead of accepting the technical plea.
There may not be dispute on the principles of law contained in the various
decisions cited by him. We do not wish to refer to them as we are deciding
this appeal on first principles looking to the plain language and content of the
D various. provisions of the Act and applying them to the facts of the present
case. We are informed that the arbitration proceedings are pending between
the parties. It is open to the appellant to avail such remedies as are available
in law on the basis of Memorandum of Conciliation Agreement and Letter of
Comfort by approaching competent court or raising any arbitration dispute as
E is permissible in law. As per section 77 of the Act, the parties shall not
initiate, during the conciliation proi:eedings 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 in preserving his rights.

F For the reasons stated, discussion made and having regard to the facts
and circumstances of the case, we do not find any merit in this appeal.
Hence, the same is dismissed but with no order as to costs.

K.K.T. Appeal dismissed.