India: Settlement Agreements Qua Arbitral Awards

Last Updated: 15 September 2017
Article by Raka Chatterjee

Meaning and Scope of Settlement Agreement

A settlement between the disputing parties is a much needed resort in the modern day commercial world. A settlement ensures that the disputes between the parties end in amicable terms leaving each party satisfied. In turn, outside Court settlement procedures like conciliation ensure fewer burdens on the Courts and also lessen the costs of litigation for the parties in dispute. Thus, these settlements have been welcomed by litigants and courts alike. Therefore, the Courts have not hesitated or disputed in giving finality to the terms of a settlement agreement, like an arbitral award, as under the Arbitration and Conciliation Act, 1996.

A settlement agreement is an agreement drawn out by a conciliator, when he sees that there is possibility of amicable compromise between the parties. A conciliator assists the parties to amicably settle the disputes between them.

The conciliator, on the basis of his notings during the conciliation proceedings and also on the basis of the written statements and the documentary evidence of the parties, draws up the terms of settlement agreement. The same is then forwarded to the parties for their comments, if any, and if necessary a reformulated settlement agreement is prepared on the basis of such comments.1

According to Section 73 (3) of the Arbitration and Conciliation Act, 1996, (hereinafter referred to as the Act) the settlement agreement signed by the parties is final and binding on them and the persons claiming under them. It follows, therefore, that a successful conciliation proceeding comes to an end only when the settlement agreement signed by the parties comes into existence. This type of an agreement has the legal sanctity of an arbitral award under Section 74 of the Act.

Interpretation by Judicial Bodies

The Supreme Court in the case of Haresh Dayaram Thakur v. State of Maharashtra2 has held as that the requirement of a conciliator is to assist the parties to settle the disputes amicably. If the conciliator is of an opinion that there exists an element of settlement between the parties then he can draw up an agreement under the provisions of Section 73 of the Act. The settlement reaches finality only when the settlement agreement is signed by both/all the parties in the dispute. Then such settlement agreement can have the legal sanctity of an arbitration award under Section 74 of the Act. The relevant portion of the judgement has been extracted herein:

"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 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 law 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 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 terms 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 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 settlement agreement signed by the parties is final and binding on the parties and persons claiming under them. It 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."

From a bare perusal of the above quoted paragraph, it can be concluded that 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 term, on substance of dispute, rendered by an arbitral tribunal under Section 30 of the Act.

It is to be noted that not every agreement or arrangement between the parties in whatever form of manner acquires the status of a settlement agreement within Section 73 of the Act.

Only the agreement that has been arrived with in conformity with the manner stipulated and form envisaged and has been duly authenticated in accordance with Section 73 can be assigned the status of a settlement agreement within the meaning of the Act.

Furthermore, in the case of Mysore Cements Limited v. Svedela Barmac Ltd3., the Apex Court followed and reiterated its stand as taken by them in Haresh Dayaram Thakur (supra) case, 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. If a settlement agreement comes into existence under Section 73 satisfying the requirements stated therein, it gets the status and effect of an arbitral award rendered by the arbitral tribunal under Section 30 of the Act. It was further held that mere substantial compliance with Section 73 is not sufficient; all the statutory requirements must be complied with.

Recently, a Single Judge Bench of the Delhi High Court, in the case of Anuradha SA Investments LLC & Anr. v Parsvnath Developers Limited & Ors.4, also dealt with concept of a settlement agreement within the ambit/folds of an arbitral award. The Court had the opportunity to deal with the enforcement of a Settlement Agreement as an Award. The respondents had challenged the maintainability of the petition on the ground that the Settlement Agreement is not an agreement under Section 73 of the Act, or as a result of the conciliation proceeding under Part III of the Act. They further contend that they have not received the authenticated copy of the Settlement Agreement and that the said agreement is insufficiently stamped.

The Ld. Single Judge held that the parties themselves had engaged themselves in conciliation proceedings by appointing lawyers to actively negotiate and finalise the settlement agreement. The contents of the Settlement Agreement and the minutes of the meetings of the Respondents themselves are in accordance to Section 73 and the Respondents cannot contradict their own stand. The Court also quite regretfully observed that the Respondent failed to disclose that lawyers appointed by the Respondents had received the authenticated copy of the settlement agreement. The Respondent have also acted on the said agreement, and not only on a technical plea of non-service, they are maliciously trying to evade the terms of the Agreement.

The contention that the Settlement Agreement is not sufficiently stamped in unpersuasive. The Court observed that under "Section 74 a settlement agreement would have the status and effect "as if it is an arbitral award"; thus by legal fiction, a settlement agreement arrived at during the conciliation proceedings and authenticated by the conciliator has been provided the same status and effect as an arbitral award. In other words, the settlement agreement can be enforced as an arbitral award and it is not necessary for a party to institute fresh proceedings for obtaining a decree in terms thereof. However, it does not mean that the settlement agreement ceases to be an agreement voluntarily entered into between the parties and becomes an arbitral award; it merely has the status and effect of an award under the Act. The settlement agreement continues to be an agreement and would require to be stamped as such."

It further held that "it is well settled that a legal fiction cannot be extended beyond the purpose for which it is created. Section 74 of the Act creates a legal fiction to elevate the status and effect of a settlement agreement under Section 73 to an award. The purpose is clearly to enable enforcement of such agreements as an arbitral award without further adjudicatory process. The legal fiction cannot be extended to other statutes."

Thus, in the present case, the Settlement Agreement was held to be maintainable and can be enforced as an arbitral award.


As in seen from the catena of case laws it has been reiterated that a Settlement Agreement can only then be given the colour of an arbitral award, if all the compliances as laid down under Section 73 is followed with. Thus a settlement agreement arrived at between the parties, duly authenticated by the conciliator will have the same effect of an arbitral award on the agreed terms of the substance of dispute, as rendered by a duly constituted arbitral tribunal under Section 30 of the Act.


1. P.C .Markanda, Law Relating to Arbitration and Conciliation: Commentary on the Arbitration and Conciliation Act, 1996, LexisNexis Butterworths Wadhwa, Nagpur, Seventh Edition (2009)

2. (2000) 6 SCC 179

3. (2003) 10 SCC 375

4. 2017 (4) ARBLR 72 (Delhi)

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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