CS Professional · Arbitration, Mediation and Conciliation

Introduction to Conciliation and its Importance for MSMEs: formula sheet

Full chapter guide

Key formulas

Conciliator's role: Independent and impartial assistance towards an amicable settlement (s. 67(1)); The conciliator assists. The conciliator does not adjudicate.
Guiding principles: Objectivity, fairness and justice (s. 67(2)); Also consider the parties' rights and obligations, trade usages and previous business practices.
Procedure: Conciliator may conduct proceedings as he considers appropriate (s. 67(3)); Regard to circumstances, wishes of parties and need for speedy settlement.
Settlement proposals: May be made at any stage; need not be in writing or carry reasons (s. 67(4)); Proposals are not binding unless the parties agree.
Communication: Meet or communicate with parties together or separately (s. 69(1)); Place of meeting is set by the conciliator after consulting the parties, unless agreed (s. 69(2)).
Written statements: Brief statement, further statement, additional information (s. 65(1) to (3)); Each party copies its statements to the other party, under s. 65(1) and (2).
Termination: Settlement agreement, conciliator's declaration, joint declaration or one party's declaration (s. 76); Termination takes effect on the date of the agreement or declaration.
Conciliator in other proceedings: Unless parties agree otherwise, conciliator cannot act as arbitrator or as representative or counsel, and cannot be presented as a witness (s. 80); Applies to the dispute that was the subject of the conciliation.
Invitation: Initiating party → written invitation → other party, briefly identifying the subject of the dispute; Section 62(1). The invitation must be in writing and must identify the dispute briefly.
Commencement: Conciliation commences = date the other party accepts the invitation in writing; Section 62(2). Sending the invitation alone does not commence the proceedings.
Rejection: Other party rejects invitation ⇒ no conciliation proceedings; Section 62(3).
Deemed rejection by silence: No reply within 30 days from sending (or the period stated in the invitation) ⇒ initiating party may elect to treat it as rejection, and must inform the other party in writing; Section 62(4). It is the initiating party's option. It does not happen automatically, and the election must be communicated in writing.
Section 76(a): Settlement agreement signed by the parties → terminated on the date of the agreement; Successful conciliation. The settlement is final and binding under Section 73(3).
Section 76(b): Conciliator's written declaration, after consulting the parties, that further efforts are no longer justified → terminated on the date of the declaration; Consultation with the parties is required before the declaration.
Section 76(c): Written declaration of the parties addressed to the conciliator → terminated on the date of the declaration; Joint act of both parties.
Section 76(d): Written declaration of a party to the other party and the conciliator, if appointed → terminated on the date of the declaration; One party can end the process alone.
Section 79(3): Deposits not paid in full by both parties within thirty days → conciliator may suspend, or declare termination in writing, effective on the date of the declaration; The conciliator has discretion. Termination is not automatic.
Section 78 and Section 79(4): On termination: conciliator fixes costs and gives written notice; accounts for deposits and returns any unexpended balance; Costs are borne equally unless the settlement agreement provides otherwise.
Manufacturing classification (section 7(1)(a)): Micro: plant and machinery ≤ ₹25 lakh | Small: > ₹25 lakh to ₹5 crore | Medium: > ₹5 crore to ₹10 crore; Applies to enterprises making goods of an industry in the First Schedule to the IDR Act, 1951. Test is investment in plant and machinery. Limits are those in the Act's text and can be varied by notification.
Service classification (section 7(1)(b)): Micro: equipment ≤ ₹10 lakh | Small: > ₹10 lakh to ₹2 crore | Medium: > ₹2 crore to ₹5 crore; Test is investment in equipment, not plant and machinery.
Exclusions from investment (Explanation 1): Plant and machinery investment excludes cost of pollution control, R&D, industrial safety devices and other notified items; Explanation 1 speaks of plant and machinery only.
Section 18 route: Reference to Council → conciliation (ss. 65–81 of 1996 Act) → if unsuccessful, arbitration by Council or ADR institution; Any party may refer a dispute about an amount due under section 17, notwithstanding any other law.
Time limit and jurisdiction: Decide within 90 days of reference; supplier within Council's jurisdiction, buyer anywhere in India; Sections 18(5) and 18(4).
Memorandum (section 8): Micro or small: at discretion. Medium services: at discretion. Medium manufacturing (First Schedule industry): mandatory filing; Filed with the authority specified by the State Government (micro or small) or Central Government (medium).
Who can refer (s.18(1)): Any party to a dispute + amount due under section 17 → reference to MSEFC; Applies notwithstanding any other law. Either supplier or buyer may refer.
Stage 1: Conciliation (s.18(2)): Council conciliates itself OR refers to an ADR institution/centre; Sections 65 to 81 of the 1996 Act apply; Treated as if initiated under Part III.
Stage 2: Arbitration (s.18(3)): Conciliation fails and terminates → Council arbitrates OR refers to ADR institution/centre; 1996 Act applies as if under s.7(1) agreement; No separate arbitration agreement is required.
Territorial jurisdiction (s.18(4)): Supplier located within Council's jurisdiction + buyer anywhere in India; Jurisdiction is decided by the supplier's location.
Time limit (s.18(5)): Decide within 90 days from the date of making the reference; Runs from the reference, not from the date of the invoice.
Council set-up (ss.20, 21): State Government notifies Council; 3 to 5 members; Director of Industries (or higher officer) is Chairperson; Composition and procedure are prescribed by the State Government.
Equal treatment (s.18, 1996 Act): Parties treated with equality; full opportunity to present case; Applies once the Council arbitrates under the 1996 Act.

Quick revision

Conciliation starts with a written invitation that briefly identifies the subject of the dispute (Section 62(1)).
Proceedings commence only when the other party accepts the invitation in writing (Section 62(2)).
If the invitation is rejected, there are no conciliation proceedings (Section 62(3)).
No reply within thirty days, or the period stated in the invitation, may be treated as rejection, and the party must inform the other in writing (Section 62(4)).
Section 76 gives four modes of termination: settlement agreement, conciliator's declaration, joint written declaration, and one party's written declaration.
Under Section 79(3), unpaid deposits after thirty days let the conciliator suspend or terminate in writing.
Section 18(1) of the MSMED Act lets any party to a dispute refer an amount due under section 17 to the Council.
Under Section 18(2), the Council conciliates itself or refers to an ADR institution, and sections 65 to 81 apply.
Under Section 18(3), if conciliation fails, the Council arbitrates or refers the dispute for arbitration.
Section 18(4) gives jurisdiction to the Council of the supplier's location, against a buyer anywhere in India.
Section 18(5): every reference must be decided within ninety days of the reference.
Section 20 provides for State Government establishment of Councils, and under Section 21 the Council has three to five members.

Common mistakes

Saying the conciliator gives a binding decision. Fix: Remember that section 67(4) only allows proposals. Binding force comes only when the parties sign a settlement agreement.
Saying a conciliator must stay passive and cannot suggest terms. Fix: Note that the conciliator may make proposals at any stage under section 67(4). Do not call the role merely a messenger's.
Saying conciliation begins when the invitation is sent. Fix: Write that conciliation commences only when the other party accepts the invitation in writing.
Treating silence after thirty days as automatic rejection. Fix: State that the initiating party may elect to treat silence as rejection and must inform the other party in writing.
Saying conciliation can end only by settlement or by the conciliator's decision. Fix: Remember four modes: (a) settlement, (b) conciliator, (c) both parties, (d) one party.
Treating an oral statement of withdrawal as termination. Fix: Clauses (b), (c) and (d) require a written declaration.
Using plant and machinery limits for a service enterprise. Fix: Link goods to plant and machinery and services to equipment. Write the test first, then the limit.
Treating the lower limit as inclusive, for example calling ₹25 lakh investment small. Fix: Micro includes the upper limit. Small begins only when investment is more than the micro limit.
Saying only the supplier can make the reference. Fix: Quote section 18(1): "any party to a dispute" may refer. The buyer can too.
Going straight to arbitration at the Council. Fix: Conciliation comes first under section 18(2). Arbitration starts only after conciliation is unsuccessful and terminates without settlement under section 18(3).

Exam tips

Write the section number next to each point on the conciliator's role: 67 for role and proposals, 65 for statements, 69 for communication, 76 for termination, 80 for other proceedings.
For comparison questions, use a short point-by-point layout in prose or bullets covering decision-maker, binding effect, formality and consent.
In case questions, first check whether the conciliator's act fits sections 67, 69 or 80, then give a one-line conclusion.
Link to MSMEs when the facts mention a supplier and a buyer: section 18 of the MSMED Act sends the dispute first to conciliation under sections 65 to 81.
Do not invent a statutory definition of conciliation. Describe it using the role and principles stated in section 67.
Quote the sub-section with each point: 62(1) invitation, 62(2) commencement, 62(3) rejection, 62(4) silence.
Underline the words 'in writing' in your answer. Examiners look for them in both the invitation and the acceptance.
In a problem, list the dates in order and say which date triggers which consequence.