Is Pre-Institution Mediation Mandatory in India?

MEDIATION: AN INTRODUCTION

Mediation is a process that provides parties in dispute with a chance to resolve their differences, disputes and discords through negotiations and discussions. In this process of mediation, the parties sit across the table and discuss the issues prevailing and causing the differences to find out an amicable solution.

The mediation sessions are presided over by a third party who acts as a witness to the discussions and provides guidance to the disputing parties to reach an amicable resolution. This third person is known as Mediator.

• There has been an exorbitant increase in litigation in the last two decades. To alleviate the workload and pressure on the traditional courts, the process of mediation is given preference over litigation. Mediation is a simple, cost-effective and time saving process that allows parties to remain in commercial relationship by finding an amicable solution.
• It is imperative to mention that India was one of the first signatories to the United Nations Convention on “International Settlement Agreements resulting from Mediation” in August 2019. Pursuant to this, the Government of India has tabled the Mediation Bill before the Parliament for consideration.

PRE-INSTITUTION MEDIATION: ITS INCEPTION

After continuous efforts to enact legislative measures, following the recommendations of the Law Commission’s 188th report and 253rd report, the Parliament of India enacted the Commercial Courts Act in the year 2015 for effective disposal of commercial disputes.

• The Commercial Courts Act established specialized commercial courts at the district level and commercial divisions and commercial appellate divisions at the High Court level.
• To strengthen the new commercial dispute resolution system, the Commercial Courts were amended in the year 2018 to increase its jurisdiction and introduce additional reforms.
• With the Amendment Act of 2018, two critical developments took place:
  • The amendment reduced the pecuniary jurisdiction of Commercial Courts from INR 1,00,00,000 to INR 3,00,000 to cover substantially large number of cases under the ambit of the Act. It also aimed to improve the ease of doing business in India and attract foreign investors.
  • This amendment further introduced Section 12A, making it mandatory for a party to prefer and file for mediation before approaching the Commercial Court to file the Suit.

NATURE OF SECTION 12A OF COMMERCIAL COURTS ACT, 2015

Mediation can be initiated in the following ways:

a.    Mediation can be instituted prior to the institution of the Suit, as enumerated in Section 12 A of the Commercial Courts Act.

b.    Mediation can be ordered by the Courts after the institution of the Suit, as specified in Section 89 of the Code of Civil Procedure, 1908.

The main difference between the two is that in the Pre-Institution Mediation, the parties have to comply with the mandate of Pre Litigation Mediation themselves at the Pre-institution stage without formally approaching the Court.

Disputes can be classified in two classes as per Section 12 A of the Commercial Courts Act, 2015:

a.    Matters where no urgent interim relief is required: In such matters, the requirement of Pre Litigation Mediation must be satisfied before preferring the Suit.

b.    Matters where urgent interim relief is required- In such cases the parties are allowed to approach the courts directly without following the mandate of preferring the Pre-institution mediation.

MANDATORY NATURE OF SECTION 12A OF COMMERCIAL COURTS ACT, 2015

• With the introduction of Section 12A in the Commercial Courts Act, 2015, through the Amendment Act
• of 2018, there was a lack of clarity regarding the nature of Section 12A due to discordant judicial opinions and rulings given by various High Courts across the country.
• There was a dichotomy evident in the differing opinions expressed by different High Courts across the country. To resolve this difference in opinions, the Apex Court of the country intervened when it gave its ruling in Patil Automation Private Limited & Ors. vs. Rakheja Engineers Private Limited (2022 SCC Online SC 1028). In this case, the Supreme Court reversed the decision of lower courts after an analysis of the nature of the Commercial Courts Act 2015 and the jurisprudence laid down by different High Courts, to declare that Section 12A of the Commercial Courts Act 2015 is mandatory in nature. The Supreme Court further observed that the design and scope of the Commercial Courts Act, 2015, as amended in 2018 to insert Section 12A, makes it clear that the parliament intended to give it a mandatory flavor and violating the mandate of Section 12A must be visited with the rejection of the Plaint under Order VII Rule 11 of the Code of Civil Procedure, 1908.
• The decision of the Supreme Court has brought about the much required clarity that the parties to the dispute must mandatorily and necessarily exhaust the requirement of Pre-Institution Mediation before preferring the Suit under the Act.

1.    Benefits of Pre- Institution Mediation under Section 12A

Major commercial entities, due to their business acumen, live off their desire to earn more profits. As such, these people always look for ways to resolve things as quickly as possible without disrupting their business. In addition, they are likely to choose any process that allows them to save valuable resources, time and money, especially in litigation cases. This makes them the perfect candidates for mediation, which is a significantly cheaper and quicker alternative for dispute resolution. Successful mediation actually solves disputes and does not simply result in an adjudication.

• In addition, mediation being a voluntary process driven by party autonomy helps in reducing animosity in business relations. The mediator, who is an expert, assists the parties streamline their discussions and creates an apt environment where all parties freely voice their concerns.
• Furthermore, mediation allows parties to mutually resolve disputes and come up with a mutually agreed solution, which creates a win-win situation and, thus, benefits both parties. In comparison, litigations are always bound to have winners and losers. Mediation allows parties to avoid such a contest and attempt to arrive at a resolution than win the conflict.
• Peaceful resolution of disputes allows parties to collaborate in the future, which is the stark opposite of litigations, which is bound to leave a certain level of hostility and conflict between parties.
• Besides, if parties are able to resolve their disputes quickly through mediation, it will help reduce the backlog and burden on Courts and allow them to pay attention specifically to disputing parties that are not able to resolve through mediation.

The Act aims to avail the above-mentioned benefits and make mediation a time-bound resolution alternative before continuing with the suit. To make this method a more attractive option for disputing parties, the Act grants the resolution agreed up on by the parties involved the same status and effect as an arbitral award under Section 30(4) of the Arbitration and Conciliation Act, 1996.

2.    Is Pre-institution Mediation an Effective Method to Resolve Disputes?

Although introduced with the best intentions, pre-institution mediation suffers from some shortcomings.

• Mediation is a consent-based resolution method that allows parties to voluntarily resolve their conflict under the supervision of a mediator. Forcing parties to go through mediation essentially defeats the purpose of the mediation, which actually relies on voluntary participation of parties.
• In addition, as per Section 12A, it is only mandatory for the party filing the suit to participate in mediation by going to the relevant authority, while the defendant may choose to completely ignore this request for mediation. This somewhat makes it a one-way responsibility, which the parties then simply treat as a steppingstone that they must overcome before they can initiate legal proceedings.
• Furthermore, Section 12A fails to consider the fact that in business transactions, parties usually aim to resolve disputes at the earliest by sending the other party a notice and calling them for discussions before filing any suit. It is only after they fail in resolving the dispute at this stage do they approach the Courts.

Conclusion

It can be argued that the success of Pre-Institution Mediation plays a significant role in achieving the objective of the Commercial Courts Act, 2015. The process of Pre- Institution Mediation holds a pivotal role in reducing the judicial workload and further assist in alleviating the backlog of cases from the traditional courts.

The practice of initiating Pre-Institution Mediation helps in the shift of Indian legal culture from adjudicatory and rebuttal litigation centric to Alternative Dispute Resolution centric (ADR centric) which is cost effective, time saving and easily accessible.

With the Supreme Court judgement in M/s Patil Automation Pvt. Ltd. v. Rakheja Engineers, expressly upholding that the Pre-Institution Mediation process is mandatory and not discretionary, it is time to strengthen the provisions of Pre-Institution Mediation to ensure its success.

When you think about it, there is no fault in the Supreme Court’s ruling as it only aimed to direct parties to attempt pre-litigation mediation in commercial cases before filing a suit before a Commercial Court. However, this resulted in creating two major concerns.

First, the Apex Court works on the understanding that there is a well-planned and efficient system in place to address commercial cases in India. On the contrary, as recognized by the Supreme Court itself, there is a lack of adequate institutional machinery to perform the duties of this role when it is deemed mandatory rather than an optional alternative.

There is a need for proficient mediators, especially now when the pecuniary jurisdiction of the Commercial Courts has been reduced to INR 3 lakhs, leading them to have to attend to more such matters than before. Although there have been efforts to institutionalize the mediation process, there has been significant controversy around it as a result as well.

Secondly, the Supreme Court has heavily relied on the fact of “ease of doing business” as a key aspect to justify its legislative efforts. This happens not only in the case of mediation but also in the context of other judicial developments like the Insolvency and Bankruptcy Code, 2016.

While the Supreme Court used to make direct references to India’s rankings in the World Bank’s “Ease of Doing Business Index,” the reliability would be somewhat misplaced now considering the Index has been discredited and withdrawn by the World Bank.

No matter how long the Supreme Court emphasizes on the mandatory requirement of pre-litigation mediation in India, there will not be any concrete results until a proficient and robust mediation process is put in place. Failing to do this may, in a way, be considered as pushing parties to appear for an inapt mediation process after having been deprived of the choice of initiating a legal proceeding straight away.

In addition, after the Supreme Court’s ruling in the Patil Automation case, disputing parties will now have to overburden the already pressurized mediation centers. This shall lead to the parties not gaining any significant benefit that an alternative resolution method must offer.

There is a need for significant attention to be paid not only to the current mediation structure across the country, but also to the stage and way in which the parties are asked to mediate their disputes. This shall not only help the parties from actually gaining benefits from the mandatory mediation process but also make this process attractive and an effective alternative for dispute resolution.