Arbitration agreements allow for a way of resolving conflicts and disputes out of the Court. Arbitration agreements or arbitration clauses in an agreement often offer some procedural steps that you must undertake before the arbitration can formally commence.
These procedural steps may include mutual discussions, mediation, conciliation, etc. which both parties agree to adhere to before the arbitration proceedings are invoked and are known as
pre-arbitral steps.
It is quite common for such procedural steps to be stated in mandatory terms, where the words used include ‘shall’, ‘should’, ‘must’, etc. However, deeming whether pre-arbitral steps are mandatory or directory in nature has been a subject of many judicial decisions, which often conflict with each other.
What are Pre-Arbitral Steps?
Efforts such as mediation, conciliation, and mutual discussions that aim to resolve disputes fall under pre-arbitral steps. These steps are incorporated with the aim of solving disputes right away without having to go through the entire arbitration proceedings, which can generally be quite tedious and tiring.
Incorporating these pre-arbitral steps in an arbitration agreement basically makes the agreement a
multi-tiered dispute resolution clause.
Mutual discussions are usually held between representatives of the disputing parties to identify the issues and efforts made to resolve the issues out of the Court. Generally, no third party is involved in such discussions between the representatives of the two parties.
Mediation is the informal process of resolving disputes by independent and impartial third party, who helps the conflicting parties come up with a common resolution acceptable by both the parties.
Conciliation refers to a form of alternative dispute resolution method in which an expert is elected to resolve a dispute by convincing the parties to agree upon an agreement. A conciliator plays a relevantly more active role in the proceedings as compared to a mediator in mediation proceedings.
Relevant Legal Provisions related to Pre-Arbitral Steps
Section 77 of the Arbitration and Conciliation Act, 1996 (hereafter referred to as ‘Act’) states 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 opinion, such proceedings are necessary for preserving his rights.’
Relevant Judicial Decisions
The High Court of Delhi, in February 2023, held that the prior requirement to be complied with before seeking reference of disputes to arbitration is only directory and not mandatory. The Court noted that that if it is read in a mandatory sense then it could gravely prejudice the rights of the party since the time period undergone in conciliation proceedings before seeking invocation of arbitration is not exempted from limitation.
The Court also relied on Section 77 of the Act to support its reasoning. However, the Court did observe that before starting the arbitration proceedings, the parties should follow the agreed procedure for conciliation as agreed between the parties in a time bound manner and upon failure of the same, resort to arbitration.
Other relevant judgments in this matter are:
- Sarvesh Security Services Pvt. Ltd. vs. Managing Director, DSIIDC [MANU/DE/1225/2018]: The High Court of Delhi was concerned with a case where the dispute resolution clause provided for a joint discussion between the parties and upon failure of the same, arbitration was to be resorted to. The Court, while relying on its earlier decision in Ravindra Kumar Verma vs. BPTP, held that such a clause was only directory in nature.
- Demerara Distilleries Pvt. Ltd. vs. Demerara Distilleries Ltd [MANU/SC/1121/2014]: In this case, the Supreme Court was considering an application filed under Section 11(6) for appointment of arbitrator. Arbitration clause provided for mutual discussion, thereafter mediation and finally arbitration. Respondent objected on the ground that the application was premature since the parties did not complete all the pre-arbitral steps. The Supreme Court was of the opinion that the objection with respect to application being premature did not merit any serious consideration. An arbitrator was then appointed by the Supreme Court.
- Ravindra Kumar Verma vs. BPTP Ltd [MANU/DE/3028/2014]: In this matter, the dispute resolution clause provided for mutual discussion, failing which arbitration was to be undergone. The central issue before the Court was whether the arbitration clause was not capable of being invoked if a prior requirement contained in the arbitration clause is not complied with.
- However, the Rajasthan High Court in the matter of Simpark Infrastructure Pvt Ltd. vs. Jaipur Municipal Corporation [MANU/RH/1010/2012] stated that where the agreed procedure of dispute resolution has been made a condition precedent for invoking the arbitration clause, the same is required to be followed and the application filed for appointment of the arbitrator was held to be premature.
- Visa International Ltd. vs. Continental Resources (USA) Ltd. [MANU/SC/8347/2008]: In this case, the Supreme Court had to consider a matter wherein it was contended that the pre-condition for amicable settlement of the dispute between the parties had not been exhausted and therefore application for appointment of arbitrator was premature. In the facts of the case, the Supreme Court ended up appointing an arbitrator since both the parties had adopted rigid stands and there was no scope of an amicable settlement.
- Nirman Sindia vs. Indal Electromelts Ltd. [MANU/KE/0560/1999]: The High Court of Kerala was faced with a case for appointment of an arbitrator where the dispute resolution clause provided that the dispute be first referred to the engineer. If dissatisfied with his decision, then reference of dispute to adjudicator and finally arbitration if dissatisfied with the decision of adjudicator. The High Court dismissed the application for appointment of the arbitrator on the ground that the same was premature since the prerequisites were not exhausted.
Conclusion
Although most judgements hold pre-arbitral steps to be directory in nature, none of them tries to exhaustively lay down the exact legal position with respect to the nature of these pre-arbitral steps. Thus, you must thoroughly review all documents before signing them to ensure you are familiar with how things will go about in case of arbitration proceedings.
We can address your concerns related to pre-arbitral steps in India. You can get in touch with us by submitting your query below.
Thank you for getting in touch! 
