Conciliation, governed by Part III of the Arbitration and Conciliation Act, 1996, is a facilitative process much like mediation: a conciliator helps the parties reach a mutually acceptable settlement but cannot impose a decision. A settlement reached through conciliation, once signed, has the same status and effect as an arbitral award on agreed terms.
Arbitration is adjudicative: the tribunal decides the dispute and issues a binding award regardless of whether the parties agree with the outcome.
The two are sometimes confused because both are formal, statute-backed alternatives to litigation, and Indian law expressly permits combining them, including through Med-Arb style hybrids. The key practical difference for a party choosing between them is simple: conciliation only produces an outcome if both sides ultimately agree; arbitration produces one either way.