This article is written by Shubhangi Sharma and further updated by Soumyadutta Shyam The article explains about the forms of ADR and their procedure. This article discusses in detail the three main types of Alternative Dispute Resolution Methods, i.e., Arbitration, Conciliation and mediation, and enumerates the differences between the three. This Article also discusses the newly passed Mediation Act, 2023, which governs the process of mediation in India.
Table of Contents
Introduction
Alternative Dispute Resolution are methods of resolving disputes or differences through involvement of a third party whose decision is usually not legally binding on the parties. There are different kinds of Alternative Dispute Resolution (ADR) such as Negotiation, Mediation, Arbitration, Conciliation and others. However, the most popular and accepted methods of Alternative Dispute Resolution are Arbitration, Conciliation and Mediation. One of the main objectives of ADR is to get respite from the costliness, delay and adversarial situations associated with the traditional court system.
The Code of Civil Procedure, 1908, provides options under Section 89 and Order 10 Rule 1-A to 1-C for ADR processes. The Parliament has also enacted The Arbitration and Conciliation Act,1996 and the Mediation Act, 2023 to give legitimacy to alternative methods of dispute resolution in India. These methods are flexible in nature and not afflicted with the stringency of rules of procedures.
Arbitration
Meaning of arbitration
Arbitration is an alternate dispute resolution process, where the parties put forward their dispute to a third party i.e, an arbitrator or a panel of arbitrators who consider the evidence and arguments and then give a decision to the parties. The verdicts in arbitration proceedings are called arbitral awards. They are in general legally enforceable. Arbitration is much faster, flexible and private in comparison to judicial proceedings. It is normally favoured for settlement of commercial or contractual disputes.
Arbitration in India is governed by The Arbitration and Conciliation Act,1996. The number of arbitrators and their appointments are defined in Sections 10 and 11 of the Act. The parties are allowed to ascertain the number of arbitrators. However, such a number must be an odd number and if there is no consensus among the parties about the number of arbitrators then a single arbitrator can be selected. A citizen of any nation can be selected as an arbitrator, unless there is an agreement to the contrary. Thus, a foreigner can be appointed as an arbitrator. The parties are allowed to lay down the process for appointing the arbitrators. If the parties do not concur on the process of appointing the arbitrator and the number agreed is three, then each party will name one arbitrator and the third shall be nominated by the two arbitrators designated by the parties. The third arbitrator designated by the two nominated arbitrators will be the presiding arbitrator. The Supreme Court and High Court can also appoint arbitrators with the help of graded arbitral institutions in case the parties are unsucessful in selecting an arbitrator through the other methods mentioned in Section 11.
Arbitration Agreement
An arbitration agreement is explained under Section 2(a) of the Arbitration Act, 1940, as a written agreement to submit present or future disputes of the parties to arbitration, whether the name of the arbitrator is mentioned in it or not. An arbitration agreement is also called ‘reference’. According to Section 2 of the Arbitration Act, 1996 of the United Kingdom, an arbitration agreement denotes an agreement to put forward to arbitration present or future disputes, whether they are contractual or not. There are some essentials that need to be followed for a legitimate arbitration agreement, such as the agreement must be in a written form incorporating the essential terms of arbitration.The arbitration agreement forms the basis of arbitration, since it is a method of dispute resolution formed upon the consent of both parties. The agreement to present their disputes to arbitration must be mutual and signed by both parties. As per Section 2(b) of the Arbitration and Conciliation Act, 1996, an arbitration agreement stands for an agreement as stated in Section 7.
Section 7(1) of the Arbitration and Conciliation Act, 1996, elucidates that an arbitration agreement is an agreement through which the parties agree to refer to arbitration all or certain disputes that have arisen or may arise in the future among them regarding a legally defined relation, whether contractual or not.
According to Section 7(2), an arbitration agreement can exist as an arbitration clause in a contract or a distinct agreement. Sub-Section (3) says that the agreement must be in written form. Sub-Section (4) further clarifies that an arbitration agreement will be considered to be in written form if it is a document executed by the parties; an exchange of letters, telex or other forms of telecommunication; or an exchange of statements of claim and defence in which the existence of the agreement is claimed by one party but not refused by the other. Now a days, contracts commonly have an arbitration clause or a dispute resolution clause. Sometimes, a full-fledged arbitration agreement is also executed between the parties.
In K. Venkulu v. State of A.P (2004), it has been observed that no private parties, by their agreement or even the Government, can compel a civil court to arbitrate a dispute. Even Section 89 of the CPC does not oblige courts to conduct arbitration. It is not permissible to confer such power on a Court under the agreement between the parties.
There should be mutuality with regard to the initiation of arbitration proceedings. The arbitration agreement or clause must give a bilateral right of reference to both parties, i.e., either party, in the event of a dispute, can refer the matter for arbitration.
Types of arbitration
The following are the main types of arbitration
National Arbitration
National arbitration means an arbitration conducted in the country according to national laws. The term ‘Domestic’ or ‘National’ arbitration is not defined in the Arbitration and Conciliation Act, 1996. But if we carefully peruse through Section 2 sub-sections (2) and (7) of the Act, we will find that ‘Domestic Arbitration’ signifies an arbitration in which the arbitral proceedings are convened in India, and according to Indian law, the cause of action has arisen in India, or in the event that the parties are subject to Indian Jurisdiction.
Most countries have their own laws for dealing with arbitration within their jurisdiction. For example, arbitration in Canada is ruled by the Commercial Arbitration Act, 1985; in Finland, it is governed by the Arbitration Act of 1992; in the United Kingdom, it is governed by the Arbitration Act, 1996. In the United States of America, the American Arbitration Association (AAA) developed and publicised rules on proper methods of Arbitration for many years. However, the Federal Arbitration Act, 1925 is the main legislation that governs Arbitration at the federal level in the United States.
International Arbitration
In cases of arbitration where one of the parties is a foreign citizen or the subject matter of the dispute is placed outside the country, or the process of arbitration has taken place outside the country, it is called International arbitration. International arbitration has been developed to permit parties from various legal and national backgrounds to solve their disputes in a binding manner.
International arbitration can be of three main types – interstate arbitration, investor-state arbitration and international commercial arbitration. However, international commercial arbitration is the most common form of international arbitration. Section 2(1)(f) of the Act, explains international commercial arbitration as an arbitration concerning differences arising out of legal relationships, whether contractual or not, regarded as commercial under the law in force in India and where at least one of the parties whether an individual, body corporate or a company, is having business or staying overseas and in case of a government, the government of a foreign country.
In international trade and commerce, contracts are necessary in order to avoid disputes. But in trade and commerce, disputes are inevitable. International traders are generally reluctant to settle disputes in a court of law since the judicial process in any country is complicated. In such cases, arbitration is generally considered better than litigation. In international commercial transactions, the parties to the contract are residents of different countries. Differences in law among nations generally lead to uncertainties for the parties as to their rights and obligations, and these differences may hinder international trade and lead to disputes.
International traders often request for the inclusion of an arbitration clause in their contracts. The place of arbitration is often mentioned in the arbitration clause. The arbitration clause needs to provide proper mechanism appropriate to the international character of the transaction and enable the execution of the award in the various jurisdictions concerned.
As far as bringing uniformity in the international law of arbitration is concerned, three instruments are noteworthy – (I) Geneva Convention on the Execution of Foreign Arbitral Awards, 1927 (II) Convention on the Recognition and Enforcement of Foreign Arbitral Awards; New York, 1958 (III) UNCITRAL Model Law on International Commercial Arbitration, 1985
The principal objective of the Convention on the Recognition and Enforcement of Foreign Arbitral Awards; New York, 1958 was that the parties should not discriminate against foreign and non-domestic awards. It also placed an obligation upon the parties to ensure that such awards are acknowledged and are enforced in the same manner as domestic awards.
The UNCITRAL Model Law on International Commercial Arbitration, 1985, was passed to bring consistency to the law of arbitral procedures and address the particular needs of international commercial arbitration.
The Arbitration and Conciliation Act, 1996 provides for the implementation of certain foreign awards in India under the New York Convention and the Geneva Convention.
Formal and Informal Arbitration
When the statutes of the arbitration law are strictly adhered to during the arbitration process, and there is a formal arbitration agreement between the parties, it is formal arbitration. If the arbitration is not exactly in conformation with the arbitration law or there is no formal arbitration agreement, it is called informal arbitration.
Ad hoc Arbitration
Ad hoc arbitration means an arbitration agreed to and organised by the parties themselves lacking the aid of an institution. Ad hoc arbitration can be sought when a disagreement arises between the parties to a business transaction that could not be settled through mediation or conciliation. The proceedings are convened by the arbitrator(s) in conformation to the agreement between the parties. Ad hoc arbitration is less formal than institutional arbitration. Any third party does not administer it, and the parties have to make provisions for the choice of arbitrators, the determination of rules, and applicable laws and procedures. Ad hoc arbitration is generally considered more cheaper, flexible and quicker in comparison to institutional arbitration.
Institutional Arbitration
Institutional arbitrations are administered according to the rules laid down by a designated arbitral organisation. When the parties agree beforehand that in the event of prospective differences resulting among them in the process of conducting trade and commerce, they will present the matter to be settled by a designated arbitral organisation, it is called institutional arbitration. The arbitral institutions have their own published rules that are meant to complement the provisions of the Arbitration and Conciliation Act, 1996. They appoint arbitrators from among the panel of specialists in the concerned profession with the accord of the parties.
According to Section 6 of the Act, for enabling the supervision of arbitral proceedings, the parties may arrange for administrative assistance by a suitable institution or person. Section 2(6) further gives freedom to the parties to ascertain a particular issue, and that includes the right of the parties to authorise any person, including an institution, to determine that issue.
The most important advantage that institutional arbitration provides is that it saves the parties and their lawyers the trouble of going through the cumbersome task of determining the arbitration procedure. The parties and the arbitrators can also solicit help from the institutional experts, in charge of administering international commercial arbitration according to the institutional rules.
Some of the famous arbitral institutions are The London Court of International Arbitration, The Chartered Institute of Arbitrators, The National Arbitration Forum and The International Court of Arbitration. In India, the premier arbitral institution is the Indian Council of Arbitration. It has handled the maximum number of national and international arbitration cases in India. Other arbitral institutions in India are the Delhi International Arbitration Centre (DIAC), the Construction Industry Arbitration Council (CIAC), International Centre for Alternative Dispute Resolution (ICADR).
Private and Statutory Arbitration
Private arbitration means arbitration that occurs as a result of a private agreement between two parties. Private arbitration is also described as consensual arbitration as it is conducted by mutual consent and not by force of law.
Statutory Arbitrations are arbitrations administered in conformation with the norms of specific statutes that provide for arbitration in respect of disputes arising out of matters covered by those statutes. Many statutes in India provide for arbitration in respect of disputes arising from matters covered by those statutes.
According to Section 2(4) of the Act, the provisions of the Act will be applicable to all arbitration proceedings under any other enactment for the time being in force, as if the arbitration was in accordance to the arbitration agreement and as if that other statute were an arbitration agreement, excluding the provisions of the Act are contrary to that statute or with any rules thereto. Section 2(5) further states that other than as stipulated by any statute at the time operational or in any agreement effective between India and another country or countries, the provisions of the Act shall apply to all arbitrations and proceedings relating thereto.
General and Specialised Arbitration
When the parties consent to refer to arbitration all or any disputes that have arisen or may arise in future, the agreement is general and not in relation to any specific dispute, it is called general arbitration. A general agreement may relate to a series of agreements under the same contract, and disputes may arise from time to time. Each dispute may be individually referred to the same or different arbitrators or through the same arbitral institution.
Specialised arbitration is arbitration administered under the supervision of an arbitral institution, which might have certain specified norms to meet the specific requirements for conducting arbitration regarding disputes of a distinct nature, such as disputes as to commodities, construction or specific areas of technology.
Contractual Arbitration
The parties generally include an arbitration clause as a crucial part of the contract to present their existing or prospective dispute for arbitration. By virtue of this clause, the parties agree to submit any or all disputes arising out of their legal relationship to arbitration. An arbitration clause of an agreement or contract is a clause contained in and forming part of the main contract for the reference of disputes arising between the parties to arbitration.
An arbitration agreement can also exist in the form of a separate agreement. An arbitration clause forming part of a larger agreement or a separate arbitration agreement is also valid.
Advantages of arbitration
Arbitration has the following advantages:-
1. Arbitration is more flexible than the judicial process.
2. The parties to the dispute select their arbitrator, who may be a specialist on the subject in dispute, whereas a judge may not be. This makes arbitration beneficial in complicated and specialised matters.
3. Arbitration is generally faster compared to litigation, particularly because the pronouncement is binding and not open to appeal. The right of appeal, even if present, is very limited in scope.
4. Arbitration is confidential in nature. This restricts the divulgence of trade secrets and potentially damaging information.
5. It is a cooperative process and not adversarial in nature.
6. Arbitration offers an agreeable outcome. The parties are assisted in coming up with a solution together.
7. The parties are allowed to nominate the arbitrators and the procedure for arbitration. Thus, arbitration offers a certain degree of control to the parties.
8. Arbitration mandates equal treatment of parties. Arbitrators are expected to be impartial and unbiased.
Disadvantages of arbitration
Though arbitration is often preferred over litigation and is often used for dispute resolution, it also suffers from the following disadvantages:-
1. Arbitration may be considered adversarial. It barely does anything to foster a win-win situation or boost relationships. Instead, it often intensifies a dispute, just as a court-based adjudication does.
2. Arbitration curtails the decision-making ability of the parties. Mediation is a better option in this regard.
3. Arbitration is informal and may be potentially unjust. Some observers believe that only the courts, with their carefully regulated procedures, can provide justice.
5. In arbitration, a decision is made final, there is very limited or no scope for appeal.
6. There are generally no specific rules of evidence in arbitration. Arbitrators can use any information that is brought before them.
7. Arbitration lacks transparency, which could be potentially disadvantageous to one party.
Landmark cases on arbitration
In R.V. Solutions Pvt. Ltd. v. Ajay Kumar Dixit & Ors (2019). the Court directed the dispute to arbitration in consonance with Section 8 of the Act. The Court said that indeed the parties who did not sign the agreement have been directed to arbitration in extraordinary cases. The Court elucidated the legal ground that may be enforced to bind a party who has not signed an arbitration agreement, which includes implied consent, third party beneficiaries and other transfer procedures of contractual rights. But, in an instance where the parties claimed that the arbitration agreement is nullified as a consequence of fraud, the court may decline to refer the parties to arbitration. In this case, the Court ruled that just accusations of fraud are inadequate to refuse to refer the parties to arbitration.
In M/S S.B.P & Co. v. M/S Patel Engg.Ltd & Anr.(2006) , the Supreme Court held that Section 11(6) of the Act, vests power not on the Supreme Court or High Court but on the Chief Justice of India or Chief Justice of a High Court. The decision made under this Section can only be contended under Article 226 of the Constitution. The authority vested is just an administrative power and not a judicial power. It was also observed the principle “duty to act fairly” relates here too and the Chief Justice must send notice to the person or persons that will probably be influenced by the decision under Section 11(6) of the Act.
Rajesh Verma v. Ashwani Kumar Khanna (2016) – In this case it was observed that it is well established that the jurisdiction of the Court under Section 11 of the Act is narrow and restricted to inspecting if there is an arbitration agreement between the parties to the contract and if there is an arbitration agreement, in case dispute has arisen between the parties out of such agreement which may necessitate appointment of an arbitrator to decide such disputes. After it had been established that differences had arisen between the parties in respect of such agreement which contained an arbitration clause for settling such disputes, the court was supposed to have made reference to the arbitrator allowing the parties to come forward to the arbitrator with their claims and counter-claims to permit the arbitrator to decide all such disputes on the basis of the case set up by the parties before him.
M/S Harsha Constructions v. Union of India & Ors. (2015) – In this case the Apex Court said that arbitration emanates from a contract and except when there is a definite contract in writing, a contract in respect of which arbitration shall not be assumed. Section 7(3) of the Act sepecifically says that the contract must be in written form. Therefore, as far as disputes which have been referred to in clause 39 are involved, it was not for the arbitrator to arbitrate on the said disputes as there was a particular clause which made certain disputes ‘excepted’. Plus, when the law particularly makes a stipulation with regard to the formation of a contract in a particular manner, there cannot be any presumption in relation to a contract if the contract is not entered into by the manner suggested under the Act. If an issue which is not arbitrable is submitted to an arbitrator and even if an issue is formulated by the arbitrator in respect of such dispute, there shall not be a assumption or a supposition to the effect that parties agreed to present the issue to the arbitrator. In the present case, the respondent authorities raised an objection regarding the arbitrability of the above mentioned issue in front of the arbitrator and yet the arbitrator gave his decision on the ‘excepted’ dispute. The Court opined that the arbitrator should not have decided on the ‘excepted’ issue.
Conciliation
Conciliation is the adjustment and settlement of a dispute in a friendly, co-operative and harmonising manner. It is a discretionary and non-binding technique of dispute resolution where a unbiased third party assists in settling disputes between the parties. If the parties arrive at settlement sucessfully then, they can execute a settlement agreement endorsed by the conciliator, which shall then become binding.
Part III of the Arbitration and Conciliation Act, 1996 deals with conciliation. The provisions of this chapter applies to all conciliation proceedings of disputes rising from legal relations, irrespective of the fact, they are contractual in nature or not. The process of conciliation starts by one party sending an invitation in writing to another party to conciliate an issue, identifying the substance of the dispute. If the other party agrees then the conciliation process can commence.
Conciliator
The conciliator is an impartial third party who assists in settling the dispute between the parties. The function of a conciliator is to aids the parties in a neutral and unbiased manner to reach an amicable settlement. Section 64 sets out the process for appointment of a conciliator, which lays down that if there is more than one conciliator, then the third conciliator will be the Presiding Conciliator. The parties can also select a single concilator. The parties can also solicit the support of an appropriate institution or person in appointing conciliators.
Procedure of conciliation
The aim of the conciliation process is to arrive at mutually agreeble, fast and inexpensive dispute settlement. Section 62 discusses that the commencement of conciliation will begin when one party sends an invitation in writing to conciliate on the point of contention to the other party. The procedure will commence if the other party accepts the invitation in writing to conciliate. If the other party turns down the invitation or the party who is willing for the conciliation does not get an answer from the other party in the timeline of thirty days, then it will be regarded as rejection of the invitation.
Section 65 states that each party should present a short written statement about the dispute as asked for by the conciliator. The statement has to explain the substance of the issue and the points of issue. Each party should send a copy of their statement to the other party. The conciliator may also call for the parties to present another written statement, which would encapsulate issues of the parties, grounds of settlement, etc. A duplicate of the same statement must be sent to the other party. The conciliator may also ask additional documents whenever he requires them. According to Section 69, the conciliator can arrange meetings for the parties or meet parties together or separately. Parties or conciliators can decide the place of the meeting.
Advantages of conciliation
- The process of conciliation is confidential in nature. The documents, evidence or any other information used during the process should not be disclosed.
- One of the major benefits is that it is an informal process and has a simple and uncomplicated process which the general people can follow.
- The process depends upon the circumstances of the case. It is flexible and the parties can also choose not to participate in the process at any point.
- It facilitates maintenece of amicable relationship between the parties. It is a co-operative process.
- Conciliation is inexpensive compared to judicial procedure. It is a cost-effective and efficient process of resolving differences.
Disadvantages of conciliation
- Conciliation does not posses the same the legal authority that a court proceeding has. The decision of the conciliator is not binding legally.
- The procedure of conciliation is too informal and casual.
- There is no guarantee that the conciliation procedure will conclude successfully. The proceedings may conclude without the parties settling their disputes.
Case laws related to conciliation
In Jaswant Sugar Mills Ltd., Meerut v. Lakshmi Chand & Ors (1963). the Supreme Court observed that the Conciliation officer is not a Court, and the impugned direction does not amount to a judgment or decree. The Conciliation Officer must act judicially when handling an application, but he is not entrusted with the judicial power of the state. Therefore, he cannot be treated as a “tribunal” within the meaning of Article 136 of the Constitution.
In Haresh Dayaram Thakur v. State of Maharashtra & Ors. (2000) the Supreme Court, while dealing with Sections 73 and 74 of the Arbitration and Conciliation Act, 1996, held that a conciliator helps the parties in settling the differences amongst them amicably. The Conciliator is entrusted with extensive powers to determine the process to be observed by him, unrestricted by law of procedure like the Code of Civil Procedure, 1908 or the Indian Evidence Act, 1872. Where the parties can settle the difference between them by mutual agreement, and it occurs to the Conciliator that there is a component of settlement which may be satisfactory to both parties, he may proceed according to the procedure set forth in Section 73. Thus, a efficacious Conciliation proceeding concludes only at the time the settlement agreement executed by both parties comes into being. This sort of an agreement has the status and legal effect of an arbitral award under Section 74.
In Mysore Cement Ltd. v. Svedala Barmac Ltd. (2003 ), the issue before the Supreme Court was if a letter of comfort presented on the day of the settlement reached during conciliation executed by the parties and endorsed by the conciliators is enforceable in the exact way as an arbitral award under Section 74 read with Sections 30 and 36 of the Act. The Court said that the settlement agreement and letter of comfort did not satisfy the essential requirements of Section 73 for it to be a valid settlement agreement. Therefore, the execution proceeding could not be accepted under Section 36 of the Act. The Court discarded the appeal but allowed the appellant to seek such curative measures as feasible in law on the basis of the memorandum of conciliation agreement and letter of comfort by approaching the appropriate Court or raising any arbitration dispute as authorised by law.
In Gujarat Ambuja Cement Pvt. Ltd & Ors. v. U.B Gadhe & Ors (2005). the petitioner challenged an award passed by the Labour Court. The Court held that there are two separate procedures for conciliation proceedings. First, where the workers give a notice of strike. Rules 76 and 77 provide for the same. Under Rule 76, the Conciliation officer attempts to interview both the employer and the employee and aims to settle the dispute. Rule 11 covers conciliation proceedings not covered by Rules 76 and 77.
Mediation
Meaning of mediation
Mediation is a process of alternative dispute resolution, and it is a voluntary and informal process for the resolution of disputes. The process of mediation is somewhat akin to a negotiation. The mediators enable the parties to listen to one another, mitigate risks and resolve the disputes between them harmoniously. Mediator in this case has the position of a unbiased and independent third party that aids the parties in amicably resolving their dispute. It is a discretionary, co-operative and responsive process.
In Mediation, the parties make decisions. The mediators cannot impose their judgement on the parties, but they can recommended and help the parties to reach a mutually accepted agreement. Mediators may convene joint meetings or can meet with the disputed parties together or separately and can suggest some possible solutions, provide options to compromise or provide suggestions and guidance, but they cannot enforce their views or try to solve the dispute by force. In mediation, both parties are obligated to reach an agreeable outcome. The role of the parties in mediation is not to convince the mediator but suggest a common solution which is acceptable by both parties.
Mediation can be divided into two categories, which are commonly followed in India:
- Court-referred mediation
The court may direct a pending case to a mediator for solution if in their view there is a chance for settlement of the case. The rules relating to referring cases to mediation are provided for in Section 89 of the Civil Procedure Code, 1908. These kinds of mediation are used in matters like divorce or cases that deal with the Negotiable Instrument Act, 1881.
- Private mediation
In this type of mediation, a professional and trained person acts as a Mediator. The general public, government authorities, personnel from the corporate sector or anyone from the court can approach them to settle their dispute through mediation.
Mediation in India
Mediation is one of the old methods of settling disputes between the parties. In ancient and medieval India, panchayats played an important role in mediating disputes at the village and community level. Different types of Mediation among merchants gained recognition during pre-British rule in India. The Mahajans were respected, impartial and wise businessmen who resolved disputes between merchants through mediation.
By 1753, Britishers had established their colonies, and British-style courts had come into existence in India. By 1775, Britishers started ignoring the native ideas of dispute settlement and established courts based on British legal system of that period. But, there were differences between British legal principles, which gave logical and direct decisions on cases and Indian values which promoted the parties to work with their differences and resolve it with some sort of settlement. British courts gradually became recognised for their integrity and for gaining people’s confidence. Commerce, trade, and industry began to expand rapidly in the 21st century, and the British system quickly dispensed justice while maintaining respect and honour.
Section 89 of the CPC which was altered in 1999 as well as in 2002, provided legitimacy to mediation as a way of solving disputes without the help of courts. This provision was very progressive for the time. Prior to the enactment of the Mediation Act, 2023, it gave legal recognition to mediation. Under the supervision of Justice R.C Lahoti (Chief Justice of India from 1st June, 2004 to 31st October, 2005) the Supreme Court set up the Mediation and Conciliation Project Committee on 9th April, 2005 to supervise the proper application of mediation and conciliation in India.
The Mediation Act, 2023
The Mediation Act of 2023 was approved by the Rajya Sabha on 1st August 2023 and by the Lok Sabha on 7th August 2023. It received the assent of the President of India on 14th September 2023. The Mediation Act of 2023 became effective from 9th October 2023; however, only certain parts of the Act came into force on that date. The purpose of the Act is to encourage, support and facilitate mediation, especially institutional mediation.
The main features of The Mediation Act, 2023 are as follows:-
1. Definition of Mediation (Section 3(h)) – The Act describes “mediation” as including a process, whether specified by the phrase mediation, pre-litigation mediation, online mediation, community mediation, conciliation or a word of a comparable meaning, where the parties try to reach an harmonious determination of their dispute with the help of a third person called the mediator. The clause further adds that a mediator does not possess the power to force a settlement upon the parties.
2. Mediation Agreement (Section 4) – A mediation agreement has to be transcribed, by and between the parties or any person claiming through them to present to mediation all or particular disputes which have arisen or may arise in future between them. A mediation agreement may exist as a mediation clause in a contract or as a distinct agreement. Under Section 4(3), a mediation agreement shall be considered to be in written form if it is comprised in or recorded as any document signed by the parties, an exchange of communications etc., and electronic form as provided under the Information Technology Act, 2000 or any suit where the existence of a mediation agreement is claimed by one party and not refused by the other.
3. Pre-litigation mediation (Section 5) – This Act also provides an option for pre-litigation mediation in civil and commercial matters. Irrespective of the existence mediation agreement, the parties may, prior to initiating any suit or proceedings of a civil or commercial nature in any court, willingly and with mutual accord take measures to settle the differences by pre-litigation mediation. This provision may help reduce the burden of civil cases on courts in India.
4. Mediated Settlement Agreement (Section 19) – A mediated settlement agreement means an agreement in writing between some or all of the parties resulting from mediation and settling all of the differences among such parties. The mediated settlement agreement must be authenticated by the mediator. The agreement will be signed by the parties once settlement is reached.
5. Confidentiality (Section 22) – This Act recognises the importance of confidentiality in the dispute resolution process, and as such, it places an obligation on the mediator, mediation service provider, the parties and the participants in the mediation to maintain confidentiality regarding certain matters. Matters such as acknowledgements, opinions, proposals, apologies, admissions etc., made during the mediation, acceptance of or inclination to accept proposals made in the mediation, and the documents drawn up for the cause of mediation proceedings should remain confidential. Audio or video recording of mediation proceedings is also restricted under the Act.
6. Enforcement of Mediated Settlement Agreement (Section 27) – A mediated settlement agreement duly executed by the parties and endorsed by the mediator shall be final and binding on the parties. The mediated settlement agreement shall be implemented in conformation with the provisions of the Code of Civil Procedure, 1908, in the same manner like a judgment or decree passed by a Court.
7. Online Mediation (Section 30) – The most progressive feature of the Act, is that it recognises the online dispute resolution process. The Act allows online mediation, including pre-litigation mediation, to be organised at any step of mediation under the Act, with assent provided in writing by the parties. The Act permits the use of electronic form or computer networks but is not limited to an encrypted electronic mail service, secure chat rooms or, conferencing by video or audio mode, etc.
8. Mediation Council of India (Chapter VIII) – One of the notable features of this Act is the institution of the Mediation Council of India (MCI). It shall be a legal authority, having perpetual succession and a common seal. The Council shall perform duties such as promoting domestic and international mediation in India through proper guidelines, developing India as an important centre for domestic and international arbitration, laying down guidelines for continuous education, certification and assessment of mediators by the recognised mediation institutes, laying down standards for professional and ethical conduct of mediators; hold training, workshops and courses in mediation etc.
9. Community Mediation (Section 43) – The Act also provides for Community mediation. Any conflict which may impact the peace, harmony and tranquillity among the inhabitants of any area or neighbourhood may be settled through community mediation with preliminary mutual consent of the parties to the conflict.
Advantages of mediation
Mediation has the following advantages:-
1. The parties to mediation have control over the process in respect of its scope and its result.
2. Mediation is voluntary, and any party can draw out from the procedure at any step of the proceedings.
3. The procedure in mediation is fast, speedy, efficient and economical.
4. Mediation is very flexible and simple. It can be altered to suit the needs of every case.
5. The mediation proceedings are conducted in a cordial and conducive environment. The process promotes effective communication between the parties.
6. The mediation system is confidential and private.
7. Mediation helps to restore a good relationship between the parties.
8. Mediation is considered to be a just process. The mediator is impartial, neutral and independent. They provide support and act as a neutral facilitator.
Disadvantages of mediation
Mediation is considered as a simple, flexible and efficient mode of dispute resolution. However, mediation also suffers from the following disadvantages:-
1. Mediation is often considered informal and casual in nature.
2. In the case of mediation, it can be very tough to ascertain that the settlement is fair to both parties.
3. Mediation may conclude without the parties successfully arriving at a settlement agreement.
4. Though the parties may arrive at settlement agreement, the dispute may not actually conclude. A party may, at a later stage, consider that they are not really satisfied with the settlement agreement and may consider filing a lawsuit.
5. It is unusual for the parties to reveal the complete truth during mediation.
6. Mediation is a discretionary process and people cannot be compelled to participate in mediation proceedings.
7. The result of the mediation may depend upon the skills of the mediator. An unskilled or inexperienced mediator may make the mediation futile and pointless.
Case laws around mediation
In the landmark judgement of Salem Advocates Bar Association v. Union of India (2003), the constitutional validity of the amendments made to the Code of Civil Procedure, 1908 by the Amendment Acts of 1999 and 2002 were challenged. The challenge was rejected by the Supreme Court, but it was observed that modalities for the operation of Section 89 and other provisions introduced by way of amendments to the Code had to be formulated. A Committee led by a former Judge of the Court and Chairman of the Law Commission of India was set up to formulate guidelines for the operation of Section 89 and other provisions introduced by the amendment. The Committee was directed to formulate a model case management formula along with rules and regulations to be observed when resorting to Alternative Dispute Resolution (ADR) mentioned in Section 89. The model rules, with or without notification, could be accepted by the High Courts for implementing Section 89 (2)(d) of the code. This paved the way for the framing of the draft Civil Procedure Alternative Dispute Resolution Rules, 2003 (ADR Rules). This provided detailed guidelines relating to ethics and etiquettes to be followed by the mediator, which paved the way for establishing the Mediation and Conciliation Project Committee by the Supreme Court. The objective of this committee is to advance mediation as another efficacious way of dispute resolution. It was held in this case that the ADR rules made under the Code of Civil Procedure, 1908, could also be used to augment the Rules made under the Family Courts Act,1984.
In Moti Ram (D) Tr. LRS & Anr. v. Ashok Kumar & Anr. (2010), the Supreme Court ruled that mediation proceedings are confidential in nature. A verified settlement agreement or a statement that the mediation proceedings were ineffective should only be submitted to the Court by the mediator.
Perry Kansagra v. Smriti Madan Kansagra (2020) – The question before the Supreme Court in this case was whether the reports submitted by the Mediator and Counsellor were admissible in a child parenting issue and if the High Court was justified in applying the review jurisdiction. The Court ruled that in a situation when the purview of mediation is solving a child parenting issue, a report by the mediator or child counsellor concerning the demeanor of the child would not fall within the limit of confidentiality because no information shared by the couple is being brought on record. The Court further held that the Family Court’s option to involve or not to involve the counsellor is not delegable. The Court observed that the review was an appeal in disguise. The Court allowed the appeal, set aside the judgement passed by the Delhi High Court, and reinstated the earlier judgement.
Differences between arbitration and mediation
| Arbitration | Mediation | |
| Meaning | Arbitration can be regarded as a quasi-judicial process. It is a mode or system of solving disputes among the parties through a unbiased third party called the arbitrator whose decision is binding on the parties. | Mediation is a voluntary and party-centric procedure where the parties to the dispute settle their issues with the help of a neutral third party called the mediator. It is collaborative and non-binding. |
| Procedure | It is a formal procedure like judicial proceedings. | It is an informal process. |
| Third party | Third party is termed as the arbitrator. | The third party is termed as a mediator. |
| Number of third party | One arbitrator is known as the sole arbitrator, and there can be more than one arbitrator. | One mediator. |
| Nature of award | They are binding upon both parties. | They are non-binding in nature. |
| Control over outcome | The outcome of the arbitration depends upon the evidence, documents, etc.; the decision depends upon the arbitrators. | The outcome of the mediation depends upon the parties. |
| Decision | In arbitration the parties put forward their issue or difference before the arbitrator. The arbitrator after hearing both the parties gives their decision i.e, an arbitral award. The arbitral award is legally enforceable and binding upon both the parties. | The Mediator cannot pass any order. A binding settlement is concluded only when the parties arrive at a mutually agreeable solution. |
Difference between mediation and conciliation
| Conciliation | Mediation | |
| Meaning | Conciliation is an alternative dispute resolution method in which an expert is appointed to resolve a dispute by convincing the parties to agree upon an agreement. | Mediation refers to a process of settling disputes by an independent and impartial third party who assists the parties to reach a common outcome. |
| Regulation | The Arbitration and Conciliation Act,1996 | The Mediation Act, 2023 |
| Number of Third party | More than one conciliator. | One mediator. |
| Confidentiality | In Conciliation, confidentiality is ascertained by the relevant legal provisions. | In mediation, confidentiality depends upon trust, and all parties are advised to sign a confidentiality clause for extra measure. |
| Nature of third party | In conciliation, the conciliator plays a more active role. | In mediation, the mediator should be impartial and objective to the parties’ dispute. |
| Third party | In Conciliation, the conciliator plays an active part in evaluating the contentions and providing suggestions on the disagreements between the parties. | In Mediation, the mediator does not give any judgment. |
Difference between arbitration and conciliation
| Arbitration | Conciliation | |
| Meaning | Arbitration is binding in nature. The dispute is presented for adjudication in conformation with the agreement to an arbitral tribunal which passes legally binding awards. | Conciliation denotes a non-binding process in which an unbiased party, the conciliator, helps the parties to a dispute to reach a mutually satisfactory settlement. |
| Enforceability of decision | The arbitral award can be implemented in the same way as a decree passed by a court. | However, a conciliator has no right to enforce his decisions. |
| Nature of process | Arbitration has fixed rules and formal procedures which are governed by law. | It is an informal process and the procedure is flexible. |
| Prior agreement | There should be agreement in existence for refering a conflict to an arbitrator. | No need for a prior agreement. |
| Availability | Available for existing and future disputes. | Available for only existing disputes. |
| Outcome | Arbitral award is final and binding upon parties. | Conciliation may not result in a final or binding settlement of disputes. |
Conclusion
Although, the judicial system is of vital importance to our society, but, alternative dispute resolution systems have no doubt increased access to justice for the common masses. These methods of dispue resolution have made settlement of disputes more simple, economical, flexible and efficient. With increase in cross-border business transactions and growth in trade and commerce the popularity of these methods have increased tremendously. Among all these methods; arbitration, conciliation and mediation are the most popular methods of dispute resolution. While, arbitration provides a mixture of both flexibility and finality; conciliation and mediation are simple, informal and collaborative in nature. The recently enacted statutes like The Arbitration and Conciliation Act, 1996; the Lokpal and Lokayuktas Act, 2013 and the Mediation Act, 2023 have vitalised alternative dispute resolution system in India. They have decreased the burden of case load on the Court system in India to an extent.
However, alternative dispute resolution systems do have drawbacks such as there is limited scope for appeal, informality and sometimes disputes are solved through ADR in such cases the parties have to invest time and money on both ADR and Court proceedings. On the other hand, court procedures are lengthy and expensive. Thus, both ADR and Judicial System have their advantages and drawbacks. In conclusion, both the systems supplement and complement each other and are working for the dispensation of justice and resolution of conflicts.
Frequently Asked Questions(FAQs)
Who is arbitrator?
An Arbitrator may be defined as a person to whom the parties submit the matters in dispute and whose function is to consider the law as well as the facts of the matter to settle the dispute between the parties. The arbitrator presides over the arbitration proceedings. There may be a sole arbitrator or a panel of arbitrators in a case.
Is arbitration better than litigation?
Arbitration is more flexible and faster than litigation. The parties have the right to choose their own arbitrator, which is advantageous in complex and technical matters. However, litigation offers the option of appeals and reviews to ensure that justice is served in each and every case. Thus, both arbitration and litigation have their own advantages and shortcomings.
What is Lok Adalat?
The term “Lok Adalat” translates into People’s Court. The purpose of Lok Adalats is to provide justice at a low cost. The Legal Services Authorities Act, 1987 under Chapter VI, deals with the organisation, powers and functions, procedures, etc., of the Lok Adalats. Lok Adalats have been established to promote equal access to justice. The awards passed by Lok Adalats are deemed to be decrees of the civil courts or the orders of any other Court and are binding on all parties to the dispute. No appeal lies against any award. All types of cases can be settled through Lok Adalats except criminal cases, which are not compoundable. Disputes at the Pre-litigation stage can also be settled through Lok Adalats.
Are foreign arbitral awards enforceable in India?
Yes, foreign arbitral awards are enforceable in India. Certain foreign awards made in line with the New York Convention and Geneva Convention are enforceable subject to Sections 46, 48, 55 and 57 of the Arbitration and Conciliation Act, 1996. Chapter II of the Act specifically deals with the enforcement of foreign awards.
What is Mediation?
Mediation is a process of dispute resolution where an impartial and neutral third party called the mediator, aids the parties to a dispute in reaching a mutually agreeable settlement of disputes.
References
1. https://lawtimesjournal.in/types-of-arbitration/
2. Dr. S.R Myneni; Alternate Dispute Resolution; Asia Law House
3. https://www.international-arbitration-attorney.com/arbitration-law-of-world/
4.https://sccarbitrationinstitute.se/sites/default/files/2022-11/the-federal-arbitration-act-usa.pdf
5. https://www.international-arbitration-attorney.com/what-is-international-arbitration/
7. https://www.legalserviceindia.com/article/l64-Ad-Hoc-and-Institutional-Arbitration.html
8. https://www.upcounsel.com/what-are-the-advantages-and-disadvantages-of-arbitration
9.https://burlingtonslegal.com/insight/what-is-arbitration-all-you-need-to-know-about-the-process/
10. https://legodesk.com/blog/dispute-resolution/famous-conciliation-cases-in-india/
11.https://www.barandbench.com/law-firms/view-point/mediation-act-2023-latest-amendments-guide
14. https://www.upcounsel.com/disadvantages-of-mediation
15. https://vittana.org/16-biggest-advantages-and-disadvantages-of-mediation
16.https://www.lexisnexis.co.uk/legal/guidance/arbitration-agreements-definition-purpose-interpretation
18. https://www.lexology.com/library/detail.aspx?g=2f7baf8e-833a-455a-8614-ce8e888cb50b
19. Mediation and Conciliation Project Committee (mcpc.nic.in)
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