This article is written by Arjaa, pursuing a Certificate Course in Introduction to Legal Drafting: Contracts, Petitions, Opinions & Articles from LawSikho.com.
Mediation is one of the modes of alternative dispute resolution by which parties can resolve their disputes. Mediation is a voluntary process through which disputing parties find a mutual and amicable solution to their legal dispute. In India, two legislations deal with mediation mainly, the Code of Civil Procedure, 1908, and the Arbitration and Conciliation Act, 1996. Mediation is essentially negotiation where parties come together to resolve their disputes. It is facilitated by one neutral third party, unlike Arbitration wherein the neutral third party has the decision-making ability. Arbitration is very close to trial proceedings. The neutral party who is known as the mediator does not involve itself in the decision-making process. The mediator is present in the mediation to give suggestions, facilitate the free flow of ideas, provide an unbiased view to the session, etc. The parties are however not bound by any suggestion the mediator has made and can choose to accept or decline the suggestion as per their discretion. The role of the parties is to openly and honestly discuss and negotiate a solution to the dispute. This process takes place behind closed doors in order to maintain the utmost level of confidentiality.
In 2014, the Supreme Court of India in Vikram Bakshi v Ms. Sonia Khosla pointed out the advantages of mediation and also how it can provide a conducive environment for the parties to achieve a win-win situation. Mediation has the significant potential not merely for reducing the burden of arrears, but more fundamentally for bringing about a qualitative change in the focus of the legal system from adjudication to the settlement of disputes. Undoubtedly, mediation has various advantages, but mediation in India is at a very nascent stage in India. As there is no dedicated piece of legislation that governs mediation, there are quite a few gaps in this process. Thus, this article aims to understand the enforceability of mediated settlement agreements. Before we address the issue of enforceability of such agreements, we must dive deeper and understand what is meant by mediated settlement agreements and what is the importance of such agreements.
What are mediated settlement agreements?
A settlement agreement in simple words can be understood as a contract that is reached by the parties which resolve their disputes. Now, as mediation is a process in which the parties voluntarily decide to engage in, a mediated settlement agreement can be reached after mediation by both parties. In other words, in a mediated settlement agreement whatsoever the parties have decided mutually is reduced in writing. It is a document that binds the parties to cohere to the agreed terms and conditions as an outcome of mediation.
In most cases, there is no court intervention required as the settlement agreement is reached by the parties voluntarily and mutually. The agreement is then signed by the parties in the presence of the mediators enabling the mediation and also legal counsels of both parties. Nevertheless, mediation is still considered by most parties in divorce and family law to be a favourable alternative to litigation because it is cost-effective and flexible. Agreements which are entered into in the course of mediation are acceptable and stand the greatest chance of being implemented because the outcome of mediation is not imposed by a third party adjudicator but represents a solution that has been voluntarily agreed to by mutual agreement.
Importance of mediated settlement agreements
Mediated settlement agreements are important because they can turn risks, delays into decisions of the parties. A good settlement agreement can help the parties to remove misunderstandings and conflicts. It also lessens the burden on courts and also reduces legal expenses.
At the end of a successful mediation, one must obtain the basic terms of the agreement in writing before completing the mediation process. Without a signed document, it may be difficult to implement the agreement reached during the mediation process. The process of mediation is confidential, which is one of the best things about the process. If the parties do not sign a document containing at least their main terms, it is difficult to prove the agreement reached during the mediation. The parties must sign a final agreement if they settle because the parties may have second thoughts about their decision after time away from mediation. To remove the possibility a mediated settlement agreement is always encouraged by professionals. Thus, a mediated settlement agreement should be detailed, even-handed, and not conditional, using clear and familiar wording, emphasizing position action, and lastly should also address any pending proceedings for the future.
Legal enforceability of mediated settlement agreements in India
There isn’t any law in India defining ‘mediation’ however there are diverse references to it. Most applicable in the context of commercial mediations are the Code of Civil Procedure 1908, and the Commercial Courts Act 2015. Under Section 89 of the Code of Civil Procedure 1908 which empowers the court to refer disputes for agreement out of courtroom doors, which includes mediation. The problem with Section 89 lies in the fact that it mandates that where it appears to the court that there exists an element of settlement which may be acceptable to the parties, the court shall draft the terms of settlement and after receiving comments of the parties may reformulate the terms of possible settlement after which parties may be referred to arbitration, conciliation, judicial settlement or mediation. In cases of settlements in court-annexed mediations, the settlement is enforced through the courts as the court passes an order or decree in terms of the written settlement.
When we move to Section 30 of the Arbitration And Conciliation Act, 1996 which encourages settlement of the disputes is only effective when the parties have chosen to settle a dispute after they have initiated arbitration proceedings. In case the parties have opted for private mediation with regards to a mediation clause or otherwise, settlement agreements cannot be treated as arbitral awards. They are just and forced as contracts between parties. This raises various issues because the settlement agreement cannot be enforceable as a decree of the court, but it may form the basis of a civil suit, and then it would dilute the whole purpose of opting for alternate dispute resolution. It can happen even though the parties have settled the matter. As a result, the weak compliance mechanism negates the purpose of mediation, making the whole process ineffective. As a result, in India, private mediation is not preferred.
Throwing light upon certain case laws
In some cases, the parties tried to enforce the settlement agreement in accordance with the law. In Shri Ravi Aggarwal v. Shri Anil Jagota, both the parties agreed to conduct private mediation and requested that the agreement is so reached, be implemented in accordance with Section 30, Section 73, and Section 74 of the Arbitration And Conciliation Act, 1996. The court refused because Part III of the Arbitration And Conciliation Act was only applicable to settlement agreements drawn with mutual consent by duly constituted conciliation proceedings.
Section 74 of the Arbitration And Conciliation Act, 1996 provides that a settlement agreement has the same effect as an arbitral award on agreed terms. The position in the Commercial Courts Act is also the same as a settlement in a pre-institution mediation proceeding under the Act and is given the same status as that of an arbitral award under the Arbitration And Conciliation Act. Such an arbitral award is enforceable as a decree of court as per Section 36 of the Arbitration And Conciliation Act, 1996.
Apart from the Code of Civil Procedure Act 1908 and the Arbitration and Conciliation Act 1996, the Commercial Courts Act also to a certain degree encourages mediated settlement agreements in commercial cases. The Government of India by way of an ordinance amended the Commercial Courts Act 2015. This amendment made pre-institution mediation necessary before a commercial suit is instituted for matters that do not require immediate interim relief. Through this process, any settlement agreement which will be reached shall be reduced into writing and signed by the parties and the mediator. This settlement agreement shall have the same status as an arbitral award on agreed terms.
Essentials of a settlement agreement to be enforceable
The settlement includes the main content of the contract and various other requirements for making the contract effective because the settlement is a special type of contract. The essential elements of a valid contract are proposal, acceptance, review, the legal capacity of the parties, the legality of the subject, etc. The Arbitration and Conciliation Act stipulates that a written settlement agreement must be drafted and signed under Section 73. When the settlement agreement is being signed, the parties must also confirm it. This is final and legally binding on the parties requesting it. It is necessary that the mediator authenticates the settlement agreement and provides a copy of it to the parties. If an agreement or court agreement is reached during the court mediation process, it must be submitted in writing and submitted to the court. It is the authority that approves an order or decree.
Can mediated settlement agreements be challenged?
As per the Arbitration and Conciliation Act and the Commercial Court Act, mediation agreements have the same standing as an arbitral award, and therefore can be challenged under the same reasons as arbitration awards. Fatal factors include fraud, coercion, corruption, political party incompetence, or agreements that violate the basic principles of public order or Indian law. In India, mediators are not required to provide mediation evidence or so-called agreements in litigation or arbitration. This provision helps in maintaining the confidentiality of the whole proceedings.
As the Indian regime separates mediation from arbitration, the law will inevitably bring them to the same level in terms of uniform applicability and acceptance. If mediation is compared with arbitration, mediation can only be used as a viable alternative dispute resolution procedure. Until and unless the government enacts a law on mediation there will remain gaps that will require court’s intervention periodically. Even if the government enacts a law on mediation, India has still a long way to go from realising the true potential of alternative dispute resolution.
Finally, when formulating law on a mediated settlement agreement, the legislature must also ensure that the scope of the challenge is limited to the mediation agreement. Otherwise, even if they are considered to be arbitration awards, they will fail. The Indian government is actively taking steps to facilitate business in India. Improving the ability to resolve disputes is essential to promote business practices, and the signing of the Singapore Mediation Convention guarantees Indian foreign investors’ commitment to alternative international dispute resolution practices.
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