IMPORTANT POINT
The letter of comfort in this case could not be accorded the status of settlement agreement to bring it within the meaning of Section 74 of Arbitration and Conciliation Act, 1996 to treat it as an Arbitral award u/s 30 of Act so as to enforce it u/s 36 of the Act.

Headnote:Arbitration and Conciliation Act, 1996-Sections 30, 36, 73, 74 & 76-Respondent agreeing to supply Rock Crushing machines to appellant-Machines not crushing limestones in accordance with respondent s assurances-Memorandum of Conciliation-Modification work to be completed within the time stated-Letter of comfort in pursuance to the agreement in the conciliation proceedings-Petition to execute it as settlement agreement-High Court dismissed the petition-Appeal to Supreme Court-Whether a letter of comfort furnished on the same day of a settlement arrived at during conciliation signed by both the parties and authenticated by the conciliators is enforceable in the same manner as an arbitration award u/s. 74 r/w Sections 30 and 36 of the Arbitration and Conciliation Act, 1996? (No, in this case)-Appeal dismissed.
       Held : From Clause (IX) of the Memorandum of Conciliation Proceedings, it is clear that the respondent has agreed to give a Letter of Comfort in favour of the appellant ensuring (subject to Mysore Cements Ltd., performing their obligations) that the modification work would be completed within the time mentioned therein. It is not stated in the said Memorandum that the Letter of Comfort shall be part and parcel of it; the said Clause only indicates that the respondent agreed to give a letter; there is nothing to show that the said letter gets incorporated in the Memorandum; under the Memorandum, quantum of compensation is not mentioned, so also it does not state what follows in case of default of completion of the modification work; the completion of modification of the work was subject to the appellant performing their obligations; there appears to be dispute in regard to satisfactory completion of the work and as to who committed breach of obligation. (Para 11)
       From the undisputed facts and looking to the records, it is clear that all the requirements of Section 73 are not complied with. (Para 12)
       There is no difficulty in accepting the argument that a Conciliator is a person who is to assist the parties to settle the disputes between them amicably unlike an arbitrator who has an adjudicatory function. But that does not dispense with satisfying the requirements of Section 73 in bringing out a binding Settlement Agreement. 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 terms on the substance of the dispute rendered by an arbitral tribunal under Section 30 of the Act. The submission that when there was substantial compliance with the requirements of Section 73, as in the present case, when the parties have arrived at a Settlement Agreement like the parties before any civil court filing a compromise petition, there should be no impediment to take up execution based on such a compromise or agreement, cannot be accepted. Even a compromise petition signed by both the parties and filed in the court per se cannot be enforced resorting to execution proceedings unless such a compromise petition is accepted by the court and the court puts seal of approval for drawing a decree on the basis of compromise petition. In the present case, looking to the Memorandum of Conciliation Proceedings and Letter of Comfort, it is true that parties have agreed to certain terms, but they cannot be straightaway enforced by taking up execution proceedings. As rightly held by the High Court for the reasons stated in the impugned order on the basis of the Letter of Comfort execution proceedings could not be taken up under Section 36 of the Act. When the facts are disputed as to the satisfaction of the modification work and as to the breach of obligations even in relation to the modification work by either party, the High Court was right in passing the impugned order. It may be again stated here that at the end of Memorandum of Conciliation Proceedings, it is stated that the terms of Conciliation Settlement are agreed to and accepted by both the parties. Conciliators and both the parties also have signed the same but the procedure as indicated and various steps contemplated in Section 73 of the Act were not adhered to. This apart, as already stated above, in this Memorandum neither consequences for not completing the modification work are stated nor any amount of compensation is fixed. In this case virtually Letter of Comfort is sought to be enforced. This Letter of Comfort, in our view, could not be accorded the status of Settlement Agreement to bring it within the meaning of Section 74 of the Act to treat it as an arbitral award under Section 30 of the Act so as to enforce it under Section 36 of the Act. In the present case, the Conciliation proceedings were not terminated but they were only adjourned. Under Section 76 of the Act, the proceedings shall be terminated as per clauses (a) to (d) of the said Section. If there was Settlement Agreement under Section 73, Conciliation Proceedings would have been terminated under Section 76(a) of the Act. This is yet another pointer against the appellant s case. It is also not possible to agree with the submission that this Memorandum of Conciliation and the Letter of Comfort could be treated as interim award in the absence of any Settlement Agreement as already discussed above. It is not every agreement or arrangement between parties to the disputes, arrived at in whatever manner or form, during the pendency of conciliation proceedings that automatically acquires the status of a settlement agreement within the meaning of Section 73 of the Act so as to have the same status and effect as if it is an arbitral award, for being enforced as if it were a decree of the court. It is only that agreement which has been arrived at in conformity with the manner stipulated and form envisaged and got duly authenticated in accordance with Section 73 of the Act, alone can be assigned the status of a settlement agreement, within the meaning of and for effective purposes of the Act, and not otherwise. We find in spite of our careful scrutiny, serious deliberations and analysis of the materials on record, particularly the Memorandum of Conciliation Proceedings and the Letter of Comfort, that either taken individually or even together - they or any one of them can legitimately claim to be entitled to or assigned the status of a settlement agreement within the meaning of Section 73, for purposes of the Act. In our view, they fall short of the essential legal pre-requisites to be satisfied for being assigned any such status, despite our endeavour to view them with a liberal approach in the background of the objects and purposes underlying conciliation, arbitration and alternative mode of settlement of disputes. (Paras 15 & 16)
       We are informed that the arbitration proceedings are pending between the parties. It is open to the appellant to avail such remedies as are available in law on the basis of Memorandum of Conciliation Agreement and Letter of Comfort by approaching competent court or raising any arbitration dispute as is permissible in law. As per Section 77 of the Act, 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 in preserving his rights. For the reasons stated, discussion made and having regard to the facts and circumstances of the case, we do not find any merit in this appeal. Hence, the same is dismissed but with no order as to costs. (Paras 17 & 18)

JUDGMENT

Shivaraj V. Patil, J.-Leave granted.

2. The question that arises for consideration in this appeal is whether a Letter of Comfort furnished on the same day of a Settlement arrived at during conciliation signed by both the parties and authenticated by the Conciliators is enforceable in the same manner as an arbitration award under Section 74 read with Sections 30 and 36 of the Arbitration and Conciliation Act, 1996?

3. The appellant-Mysore Cements Limited contracted by its letters dated April 22, 1994 and July 30, 1994 with the respondent-Svedala Barmac Limited, a company based in New Zealand, for the supply and commissioning of two sets of Barmac 9600 DUOPACTOR rock-crushing machines for its cement plant at Damoh vide two separate letters dated July 30, 1994. Mysore Cements also contracted with another subsidiary of Barmac Ltd. for the supply and commissioning of four Vibrating Ripo flo Screens. On failure of machinery to crush limestone in accordance with the respondent s assurances, the appellant served a notice for arbitration on the respondent. However, at the respondent s request subsequently, the appellant agreed to conciliation at New Delhi. As a result, a "Memorandum of Conciliation" dated December 18, 1987 was signed by both the parties and authenticated by the Conciliators. According to the appellant, on the same day, as a part of the same transaction and pursuant to the Clauses 9 and 10 of the said Memorandum to compensate the appellant in case of failure of completion or modification of the work on two lines, a letter was sent to the parties signed by the same Marketing Director, Mr. Ian Rodger, who had signed the `Memorandum of Conciliation . According to the appellant, this Letter of Comfort, having regard to the stipulations and undertakings contained in the Memorandum of Conciliation, formed part of the said Memorandum and that the parties had finally and conclusively determined the amount of compensation to be paid monthly by the respondent to the appellant until the machinery was set right. The appellant approached the High Court for enforcement of the same through execution. A learned single Judge of the High Court dismissed the execution petition holding that the alleged decision of the Conciliators is not a decision within the meaning of Section 74 of the Arbitration and Conciliation Act, 1996 (for short `the Act ) and further assuming it to be a decision of the Conciliators, there was no finding whereby the Conciliators had fixed any compensation to be paid to the appellant in case the work was not completed within the stipulated period. This order of the High Court dated 4th May, 2000 dismissing the execution petition filed by the appellant is under challenge in this appeal.

4. In addition to the facts stated above, it may be useful to refer to a few more dates and events for proper appreciation of the respective contentions. First round of conciliation proceedings were held from December 15, 1997 to December 18, 1997 and the terms of Settlement between the parties were recorded in the Memorandum of Conciliation. The Letter of Comfort of the same date dated 18-12-1997 was issued in favour of the appellant to compensate at the rate of Rs. 20 lacs per month per line in case they failed to rectify line II by April 30, 1998 and line I by August 30, 1998. According to the appellant, respondent could not complete the modification work of line II by April 30, 1998. Another round of conciliation was called at the request of the respondent and some more time was granted to carry out modifications; the respondent admitted that the best results guaranteed could not be demonstrated/achieved on a consistent basis during trial; the respondent was not able to fulfill any of their assurances. The parties met again on 12-13, August, 1998 but could not reach on any consensus and decided to call off the third conciliation proceedings. The appellant issued a legal notice dated 27th August, 1998 to the respondent demand

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Judicial Analysis

SupremeToday

2003 Supreme(SC) 321

IMPORTANT POINTThe letter of comfort in this case could not be accorded the status of settlement agreement to bring it within the meaning of Section 74 of Arbitration and Conciliation Act, 1996 to treat it as an Arbitral award u/s 30 of Act so as to enforce it u/s 36 of the Act.

Cases Referred (1)

Judicial Analysis

IMPORTANT POINT
The letter of comfort in this case could not be accorded the status of settlement agreement to bring it within the meaning of Section 74 of Arbitration and Conciliation Act, 1996 to treat it as an Arbitral award u/s 30 of Act so as to enforce it u/s 36 of the Act.