This article is written by Pooja Arora from ILS Law College, Pune and is modified by Gitika Jain. This is an article which deals with the insertion of pre-institution mediation in commercial disputes.
‘An ounce of mediation is equal to a pound of arbitration and a ton of litigation.’
– Joseph Grynbaum
For the longest time, mediation had not been considered as good as the adversarial method in India. But over time the interest in resolving disputes through mediation is increasing. Earlier India had a basic framework of mediation consisting of statutory mediation and court-ordered mediation. Now, considering the progress of mediation in conflict resolution, it has been made a primary condition for resolving commercial disputes.
The commercial disputes form a significant number of disputes in the courts, pre-institution mediation was introduced by the government to reduce the pendency of suits and ensure quick resolution of commercial disputes. Section 12A of the Commercial Courts Act, 2015 makes pre-institution mediation compulsory for the parties, before filing the suit unless an “urgent” interim relief is preferred. The pre-institution mediation was adopted by India to improve its “ease of doing business” and to improve the economy of the country as a whole. This system is based on the “opt-out” method adopted by many countries in which the litigants cannot approach courts unless they prove that they have attended the initial mediation session. This “opt-out” model was a success in many countries like Turkey and Italy.
Mediation being a cooperative and less contentious way of resolving conflict has helped to make the commercial mediation successful, as it helps smoothen things out between the parties. This has helped with the success of commercial pre-institution mediation as it goes beyond the dispute and transforms the relationship of the parties. Keeping this in mind, the government introduced Section 12A of the Commercial Courts Act, 2015.
Scope and objective of the Commercial Courts Act
The Commercial Courts Act, 2015 (earlier known as The Commercial Courts, Commercial Division and Commercial Appellate Division of High Courts Act, 2015) was introduced with the objective of introducing commercial courts to adjudicate the “commercial disputes” of the high value of Rupees 1 crore as defined under this Act to ensure speedy execution of commercial disputes. It came into effect from 23rd October, 2015. This Act aims at improving ‘ease of doing business’ in India by generating confidence in the parties entering into commercial agreements as per the law.
One of the objectives of this Act is to attract foreign investment by making India an attractive place to do business. The Act aims at reducing the burden of cases on the courts by providing specialized commercial courts. This statue is applicable to the whole of India and to all the commercial disputes as defined under Section 2(c) under the Act. This act lays down the jurisdiction of various commercial district courts, the timeline for the filing of pleadings, and a well-defined structure for resolution of disputes.
Mediation and misinterpretation of Section 12A
Subsection (1) of Section 12A of the Commercial Courts Act, 2015 is often misinterpreted. It is to be noted that Section 12A the Act carves out only “urgent” interim relief and not an interim relief. Many parties use this to avoid the mandatory referred mediation by filing an application of urgent interim relief. Neither the Act nor the bill provides a definition of the word “urgent”. Therefore, it is often left upon the discretion of the judge. The parties often misuse this lacuna of Section 12A to avoid pre-institution mediation or cause a delay. This misinterpretation of Section 12A gives an easy way out for the parties to circumvent the mediation process.
Pre-institution mediation defined
Earlier, mediation was seen only as an alternative dispute resolution mechanism. But recently it is gaining statutory recognition. Mediation was recognized as an effective mechanism to resolve the dispute under the court-annexed mediation under Section 89 of the Civil Procedure Code. It was introduced as a compulsory mechanism under the Commercial Courts Act. It is one of the most important commercial law initiatives where pre-institution mediation is given a very important role.
What was started as an optional mechanism has become a compulsory mechanism under the law. Section 12A of the Commercial Courts Act provides the parties with an alternate mechanism to resolve disputes by negotiating in the presence of a mediator. It is the responsibility of the plaintiff to initiate mediation before filing a suit. In cases of patent infringement, the parties are often referred by the court to mediate to resolve the dispute. But there is no time limit imposed on such mediations. The mediation under section 12(A) bridges this gap by making mediation a time-bound process. The parties also have the liberty to move to the commercial court for adjudication of dispute if they do not agree during the mediation.
Pros and Cons of Section 12A of the Act
The pros of the pre-institution mediation instituted under Section 12A of the Commercial Courts Act are:
- Time and cost-effective: under subsection 3 of Section 12A of the Commercial Courts Act, the mediation process must be completed within the 3 months of the application. This can be further extended for a period of 2 months with the consent of the parties. This saves the time and cost of both the parties as in most proceedings a lot more time and money is exhausted.
- Confidentiality: mediation is a confidential process. Therefore, any information shared during the process of mediation as a way of documents, strategies, or proposals is made public. The mediator, parties, or their representatives maintain confidentiality. This helps in preventing the disclosure of strategies to the company’s opponent.
- Enforceability of the award: according to Section 12A of the Commercial Courts Act, the settlement arrived at by the parties will be given the same status as that of an arbitral award under sub-section (4) of section 30 of the Arbitration and Conciliation Act, 1996, on the basis of agreed terms. This makes the parties have a more serious approach to pre-institution mediation as their settlement would be treated as the final verdict.
The cons of the pre-institution mediation instituted under Section 12 A of the Commercial Courts Act are:
- According to Section 12A, the plaintiff has the mandatory obligation to initiate the mediation process. But, according to the Commercial Courts (Pre-Institution Mediation and Settlement) Rules, 2018, the opposing party has the right to refuse to participate in the mediation process. The non-appearance of the opposing party in the mediation session results in a non-starter of the mediation process which leaves the aggrieved party remediless. This defeats the purpose of Section 12A.
- Section 12A carves out an “urgent interim relief” suit from a compulsory pre-institution mediation. However, the Act does not define what constitutes an “urgent” interim relief. This is often misused by the lawyers or the parties to cause a delay or harass the opposing party.
Suggestions: the way forward
Though by inserting Section 12A, India has taken a great step towards adopting pre-institution mediation, there is still a long way to go. It has to be ensured that this mechanism is efficient and the resources are employed rightly to implement it in a successful manner. Necessary amendments and changes must be made to remove ambiguities. A clear definition of “urgent relief” is required as the plea of urgent relief is often misused by the parties to cause delay or harassment to the opposition. Also, the provision for punishment for non-appearance in mediation may be added to ensure that the parties attend mediation. This has been implemented in countries like Italy and Turkey.
The government should also focus on infrastructural development of commercial courts, mediation centres, and mediation training centres. Quality check machinery over the entire mediation procedure should be established and also the standards for training of mediators. Otherwise, the parties may lose their confidence in the credibility of mediators. Also, the Legal Services Authorities should take active measures to spread legal awareness about commercial mediation among the masses.
The consequence of distrust in mediation
Building trust is one of the essential elements of the mediation process. The parties should be able to trust each other and the mediator to ensure a fruitful mediation process. However, if there is distrust in mediation, it may lead to misunderstanding amongst the parties and a settlement may not be reached.
Distrust in mediation also leads to parties becoming more defensive and not sharing the information with each other during mediation or with the mediator in the private session. This does not allow the parties to have an open mind and thus leads to a futile mediation session. As a consequence of this, the parties file frivolous suits seeking “urgent” interim relief to circumvent the pre-institution mediation.
Confidentiality in pre-institution mediation
Commercial Courts (Pre-institution Mediation and Settlement) Rules, 2018 (PIMS) Act as a guideline for maintaining confidentiality in mediation proceedings. Under Rule 12 of PIMS, it is the duty of the mediator to maintain trust and confidentiality in the mediation. Rule 9 states that the parties, mediator, or the council should maintain confidentiality and that no stenographic, audio, or video recording of the mediation is allowed. Rule 7(1)(vi) of the PIMS Rules directs the mediator to maintain confidentiality of information in different party settings. It mandates him to reveal only such information that is permitted to share by the other party.
The pre-institution mediation is a step taken by the government in the right direction, however, the infrastructural implementation is not developed up to the level. The state authorities constituted under The Legal Services Authorities Act (LSA authorities) are authorised to conduct pre-institution mediation. The LSA provides legal aid to the weaker sections and is not appropriate to extend their services to commercial disputes as commercial disputes require skills and experience.
The introduction of Section 12A without the needed infrastructure and resources only proves to be a premature step on the part of India. The mechanism implemented in the pre-institution mediation is very minimal and no standards are set for the qualifications of mediators. Without the accredited mediators, training of the mediators, and a central statute governing such mediation this step of pre-institution mediation would lose its purpose and would not be effective. The absence of sanction for appearing for mediation makes the parties avoid mediation and defeats the objective of Section 12A.
Also, the misinterpretation of the “urgent“ interim relief helps many parties avoid pre-institution mediation. This defeats the objective of the Commercial Courts Act to encourage the parties to resolve disputes through mediation. Though the introduction of compulsory mediation in statutory form has made changes on paper, commercial mediation is still not fully accepted by parties.
Mediation, especially in commercial disputes helps in speedy disposal of disputes. Section 12A provides an alternative means for the parties to resolve their disputes through negotiations and with the help of a mediator. This has brought a shift by making the mediation before filing suit compulsory, however, this has not completely changed the attitude of the parties towards mediation. The parties misuse the “urgent“ interim relief as a way to get out of the compulsory mediation process.
There are many obstacles in implementing the pre-institution mediation effectively in India as it lacks the required infrastructure and environment. The conduct of the mediators should be governed by some quality control mechanisms. The government should recognize the external mediation centers to carry out mediation in the initial stages. This is because even though mediation is considered as an informal way of resolving dispute, it requires a certain level of specialty. Currently, there are no provisions for the mediator’s policies and regulations in India which is an important step for initiating mediation in commercial courts.
Section 12A has brought a change in the commercial dispute and has reduced the burden on courts by making pre-institution mediation resolution compulsory but there is a lot of groundwork that is to be done to ensure its proper implementation.
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