Arbitration, Mediation and Conciliation · Introduction to Conciliation and its Importance for MSMEs

Concept and Nature of Conciliation under the 1996 Act

Updated 11 October 2026 · Fact-checked

Conciliation is a voluntary, non-binding process in which an independent and impartial conciliator helps parties reach an amicable settlement of their dispute (Part III, Arbitration and Conciliation Act, 1996). The conciliator may propose settlement terms but cannot impose them. Answer by stating the meaning, features, the conciliator's role and the contrast with arbitration and mediation.

Understand Concept and Nature of Conciliation

A dispute does not always need a winner. Sometimes both sides want to keep trading and only need a neutral person to help them find a middle path. That is the idea behind conciliation. Part III of the Arbitration and Conciliation Act, 1996 (sections 61 to 81) provides a framework for it.

In conciliation, a third person, the conciliator, assists the parties to reach an amicable settlement. Under section 67(1), the conciliator must act in an independent and impartial manner. Under section 67(2), the conciliator is guided by objectivity, fairness and justice. The conciliator considers the rights and obligations of the parties, the usages of the trade concerned and the circumstances of the dispute, including previous business practices between the parties.

The process is flexible. Under section 67(3), the conciliator may conduct the proceedings as he considers appropriate, having regard to the circumstances, the wishes of the parties and the need for a speedy settlement. Under section 69, the conciliator may meet or communicate with the parties together or separately, orally or in writing. Under section 65, the conciliator may ask each party for a brief written statement of the dispute and the points at issue, and for further statements, documents and additional information. Each party must send a copy of its statements to the other party.

The conciliator is more active than a mere go-between. Under section 67(4), the conciliator may, at any stage, make proposals for a settlement. These proposals need not be in writing and need not carry reasons. But they bind no one. The parties are free to accept or reject them. A conciliation ends in one of the ways listed in section 76: a signed settlement agreement, a written declaration by the conciliator that further efforts are not justified, a written declaration by the parties, or a written declaration by one party to the other party and the conciliator.

This makes conciliation different from arbitration, where the tribunal decides and the award binds the parties. It also differs from mediation in the way the 1996 Act frames it: the Act expressly allows the conciliator to make settlement proposals. Conciliation also matters for MSMEs, because section 18 of the MSMED Act, 2006 requires the Facilitation Council to conduct conciliation first, applying sections 65 to 81 of the 1996 Act.

Key rules to remember

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.

How to solve Concept and Nature of Conciliation questions

Use this structure for any question on the nature of conciliation, whether it asks for a definition, features or a comparison.

1Define conciliation in one or two lines: a process where an independent, impartial conciliator helps parties reach an amicable settlement under Part III.
2Cite the key sections: 67 for role and principles, 65 for statements, 69 for communication, 76 for termination, 80 for the bar on other roles.
3List the features the question needs: voluntary, flexible, informal, non-binding proposals, speedy, impartial third party.
4If a comparison is asked, pick clear heads: who decides, whether the outcome binds, formality, role of the third person, and the governing law.
5Apply the facts given. Identify who the parties are, what the conciliator did and whether any step crossed a legal limit.
6Conclude in one sentence that answers the question directly, for example whether the conciliator's act was permitted.

Quickest way: Four-line conciliation answer

When to use it: Use when you have about five minutes for a short note or a comparison question.

Line 1: define conciliation with section 67(1).
Line 2: give three features with section links (flexible procedure s. 67(3), proposals s. 67(4), termination s. 76).
Line 3: state the contrast, for example: arbitrator decides and award binds, conciliator proposes and parties decide.
Line 4: add the MSME link, that section 18 MSMED Act applies sections 65 to 81 to Council conciliation.

Common mistakes in Concept and Nature of Conciliation

Saying the conciliator gives a binding decision.
Students mix the conciliator with an arbitrator because both are neutral third persons.
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.
Students merge the 1996 Act's conciliation with a purely facilitative idea of mediation.
Fix: Note that the conciliator may make proposals at any stage under section 67(4). Do not call the role merely a messenger's.
Claiming proposals must be written with reasons.
Students assume formal documentation is needed, as in an arbitral award.
Fix: Section 67(4) says proposals need not be in writing and need not state reasons.
Forgetting that the conciliator cannot later act as arbitrator or counsel.
Students think expertise in the dispute makes the conciliator the natural arbitrator.
Fix: Quote section 80: unless the parties agree otherwise, the conciliator cannot act as arbitrator, representative or counsel, and cannot be presented as a witness.
Treating termination as possible only by settlement.
Students think a conciliation ends only when it succeeds.
Fix: List all four modes in section 76, including declarations by the conciliator, by the parties jointly, or by one party.

Worked examples

Example 1

Sharma Components Pvt. Ltd. and Rao Auto Ltd. are in conciliation over unpaid invoices. The conciliator meets each side separately and suggests, orally, that Rao Auto pay in two instalments. Rao Auto objects that the proposal is invalid because it is not written and gives no reasons. Advise.

Show the solution

Provision: section 69(1) allows the conciliator to meet or communicate with the parties together or separately. Section 67(4) allows proposals for settlement at any stage.
Section 67(4) also says the proposals need not be in writing and need not be accompanied by a statement of reasons.
Analysis: the conciliator met the parties separately, which is permitted. The proposal was made orally without reasons, which is also permitted.
The proposal is not binding. Rao Auto may accept or reject it. Binding force would arise only on a signed settlement agreement.

Answer: Rao Auto's objection fails. The oral proposal made after separate meetings is valid under sections 69(1) and 67(4), but Rao Auto is not bound to accept it.

Example 2

Distinguish conciliation from arbitration.

Show the solution

Meaning: in conciliation, an impartial conciliator helps parties reach a settlement. In arbitration, an arbitral tribunal decides the dispute.
Decision: the conciliator only proposes terms (s. 67(4)). The tribunal makes an award.
Binding effect: conciliation proposals bind no one until the parties sign a settlement agreement. An arbitral award binds the parties.
Procedure: the conciliator conducts proceedings as he considers appropriate (s. 67(3)). Arbitration follows the tribunal's procedure under the Act, with equal treatment and a full opportunity to present the case.
Consent: conciliation can be ended by either party by written declaration under section 76(d). Arbitration cannot be abandoned this way and proceeds to an award.
Other roles: under section 80, the conciliator cannot later act as arbitrator in the same dispute unless the parties agree otherwise.

Answer: Conciliation is a consensual, flexible process in which the conciliator proposes and the parties decide. Arbitration is an adjudicative process in which the tribunal decides and the award binds the parties.

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.

Practice questions from Introduction to Conciliation and its Importance for MSMEs

Concept and Nature of Conciliation: frequently asked questions

What is conciliation under the Arbitration and Conciliation Act, 1996?

It is a process under Part III where an independent and impartial conciliator helps parties reach an amicable settlement. The conciliator may make proposals at any stage, but the parties decide whether to accept them. The outcome binds only if the parties sign a settlement agreement.

What is the difference between conciliation and arbitration?

In arbitration, a tribunal decides the dispute and its award binds the parties. In conciliation, the conciliator only assists and proposes terms under section 67(4). A party can also end conciliation by written declaration under section 76.

What is the difference between conciliation and mediation?

Both are consensual and use a neutral third person. The 1996 Act expressly lets the conciliator make settlement proposals, and Part III has its own rules on statements, communication and termination. Mediation is separately governed by the Mediation Act, 2023, so answer by naming the governing Act for each.

Can a conciliator act as an arbitrator in the same dispute?

Not unless the parties agree otherwise. Section 80 also bars the conciliator from acting as a representative or counsel of a party in arbitral or judicial proceedings on that dispute, and from being presented as a witness.