Settlement Reached in Conciliation Has the Force of an Arbitral Award: Delhi High Court Rejects Plea for Arbitration

Once a Dispute is Resolved in Conciliation, Arbitration Cannot Be Invoked - In a decisive ruling Delhi High Court dismissed a petition filed by M/s ARSS Infrastructure Projects Ltd. seeking the appointment of an arbitral tribunal under Section 11(6) of the Arbitration and Conciliation Act, 1996. The dispute arose from an EPC Agreement between the petitioner and the National Highway and Infrastructure Development Corporation Ltd. (NHIDCL) for the improvement of a highway section in Meghalaya. Justice Manoj Kumar Ohri, while rejecting the plea, observed, “Once a dispute has been resolved through conciliation and a settlement agreement is reached, arbitration cannot be invoked unless the settlement itself is set aside in appropriate proceedings.”

The Court reinforced the binding nature of conciliation agreements, stating that “a settlement agreement reached through conciliation has the same legal standing as an arbitral award under Section 74 of the Arbitration and Conciliation Act.” The decision underscores the finality of dispute resolution through conciliation, preventing parties from reopening settled issues through arbitration.

The petitioner, ARSS Infrastructure Projects Ltd., was awarded a contract for highway improvement under an EPC Agreement dated December 9, 2020. Disputes arose during the execution of the contract, leading NHIDCL to issue a termination notice on May 25, 2023. The agreement provided for a two-stage dispute resolution process under Clause 26.2, where the parties were first required to attempt conciliation before resorting to arbitration.

Following the termination, ARSS invoked the conciliation process, leading to a series of meetings on October 6, 2023, October 19, 2023, and December 27, 2023. A settlement was recorded in the Minutes of Meeting (MoM) on February 13, 2024, and confirmed through a letter dated March 4, 2024. However, ARSS later claimed that the settlement was unfair and that it had signed under financial duress. It contested the amount paid by NHIDCL, arguing that while ₹10.52 crore was released, the company was entitled to ₹176.58 crore.

After NHIDCL refused further conciliation, ARSS invoked arbitration under Clause 26.3, leading to the present petition for the appointment of an arbitral tribunal.

The High Court, while dismissing the petition, reiterated that once a dispute is settled through conciliation, there is no scope for arbitration unless the settlement is first set aside. Justice Manoj Kumar Ohri emphasized, “A settlement agreement arrived at in conciliation shall have the same effect as an arbitral award on agreed terms. If a party wishes to challenge the settlement, it must do so under Section 34, not by seeking arbitration.”

The Court rejected ARSS Infrastructure’s argument that Clause 26.2 had two separate conciliation processes, one requiring the Authority’s Engineer and another allowing direct negotiations between the parties. Dismissing this contention, the Court observed, “Clause 26.2 must be read as a whole. No distinction exists between different parts; the entire clause pertains to conciliation, and the proceedings conducted were valid conciliation meetings.”

The Court noted that even ARSS had referred to the meetings as ‘conciliation meetings’ in its own correspondence, proving that it considered the process as conciliation at the time. Referring to ARSS’s letter dated July 8, 2024, the Court quoted: “To resolve the dispute, conciliation meetings were conducted between NHIDCL and the EPC contractor, and minutes of conciliation meetings were issued on 04.03.2024.”

Given that ARSS had acknowledged the process as conciliation, the Court ruled that it could not now claim otherwise.

On ARSS’s contention that the settlement was signed under financial duress, the Court refused to examine the issue in a Section 11 petition, stating, “If the petitioner wishes to challenge the settlement agreement on grounds of coercion, they must do so under Section 34. This Court cannot examine such claims in a petition under Section 11.”

"No Arbitration When a Settlement Has Been Reached": Court Bars Reopening of Dispute

Reaffirming that arbitration cannot be invoked after a settlement, the Court concluded, “As per Clause 26.3, only those disputes may be referred to arbitration which could not be resolved through conciliation. Since a settlement agreement has been reached under Clause 26.2, arbitration is no longer an option. The petitioner’s only remedy is to challenge the settlement under Section 34.”

With this finding, the petition was dismissed, upholding the finality of the conciliation agreement and preventing the petitioner from reopening the dispute through arbitration.

The Delhi High Court’s ruling is a strong reaffirmation of the binding nature of settlements reached through conciliation, preventing parties from circumventing settled agreements by invoking arbitration. By upholding the sanctity of conciliation agreements, the judgment ensures stability in contractual dispute resolution and prevents unnecessary litigation.

Justice Ohri’s observation, “Once a dispute has been amicably resolved through conciliation, parties must abide by their agreement and cannot seek arbitration as an alternative remedy”, sets a clear precedent that conciliation settlements must be honored unless legally challenged under Section 34.

Date of Decision: 10 March 2025