This article is written by Sukeerti K G, pursuing a Certificate Course in Advanced Civil Litigation: Practice, Procedure and Drafting from LawSikho.
“An ounce of mediation is worth a pound of arbitration and a ton of litigation!”
Mediation is an effective form of alternative dispute resolution. It is where parties who have a dispute, approach an impartial person who assists them in reaching a settlement. The mediator tries to facilitate voluntary resolution of disputes by the parties, assist them in identifying issues, areas of compromise and clearly state that the parties are at liberty to agree between them or have recourse to other options. It is an informal way of settling the disputes especially in cases where the parties are closely related and would prefer if the dispute remains private. The mediator is selected mutually by the parties or appointed by the court.
Let us understand the fundamental differences between the different modes of recourse available in case of a dispute so arising.
Mediation and litigation – a brief comparison
Mediation is a great opportunity for parties who have a previous relationship within themselves before the dispute arises. The relationship may be based on marriage, family issues or based on contract, though contractual relationships mostly end up in litigation. Another possibility where the people are interested in mediation is because they are less expensive, less arduous and they effectively have a substantial part in dictating the terms and conditions of the settlement. Since the parties agree on terms and conditions it is less likely that the settlement is opposed in a later stage and the dispute is taken to court. The settlement is only agreed if both the parties benefit from the agreement, so parties arrive at a win-win situation. In case the parties are not able to agree upon a settlement agreement they can always have recourse to courts.
Difference between arbitration and mediation
- Arbitration is the process where the parties under a contract agree to settle their disputes through arbitration which is governed by the Arbitration and Conciliation Act, 1996.
- An Arbitrator is an impartial person who may be appointed by the parties themselves or be appointed under the Institute under which the parties agree to resolve their disputes.
- The procedural rules do not govern the proceedings of the Arbitration. They are governed by The Arbitration and Conciliation Act in India.
- The parties can dictate their own set of rules or apply the institutional rules under which they are governed.
- The arbitrator acts similar to a Judge in dealing with the dispute and his award is final and binding upon the parties.
- Arbitral tribunals have a wide range of powers to try all kinds of disputes which specializes in commercial, maritime, and sports.
- The person who is appointed as an arbitrator is usually an expert in the field and thus has a common understanding of the current situation and provides an effective remedy.
- For cases to be referred to arbitration there must exist a clause or agreement which is agreed by both the parties. The parties may decide to settle their disputes through arbitration even after the dispute arises.
- Mediation is governed by the Mediation Rules, 2009.
- A mediator is an impartial person who is appointed either by the parties or by the court.
- The mediator merely helps the parties to arrive at a settlement. The mediator does not impose his opinions on the parties, he acts as a third person and guides the parties to ensue at an agreement benefiting.
Difference between conciliation and mediation
In many countries it is held that mediation and conciliation is the same and interchangeable. But, in India it is not so mainly due to the difference in their meaning and the explanation under Arbitration and Conciliation Act, 1996.
Where the parties to a dispute consent to the negotiation process with the help of a Conciliator, under section 64 of Arbitration and Conciliation Act, 1996 will be applied and the process is termed as Conciliation
The settlement so arrived is deemed to be an executable degree under section 74 of the Act,1996 and the terms are not reiterated by the court as in itself is granted the authority of an order.
If the courts refer the parties to a mediation centre or a neutral third party capable of acting as a mediator then it is mediation. Here the consent of parties is irrelevant.
The settlement if arrived is placed before the court and the court makes order or decree based on the settlement.
Legislation in India governing mediation
Till date, there is no Codified Act passed by the Legislature, but, The High Court, as per the power granted by the Code of Civil Procedure under Section 89(2)(d), Part X has issued the following rules. The rules are framed by Mr. M Jagannadha Rao. This rule framed by the Law Commission is detailed and covers all the necessary aspects of Mediation and Arbitration. The State High Courts may also draft and publish rules and procedures for Mediation. Generally, these rules cover the aspects of:
- Who can be a mediator?
- What kind of cases can the court refer to mediation?
- Role of a Mediator.
- Duties of a mediator.
- The binding effect of parties to a mediation.
- How settlement is made?
- A clause stating that the procedural laws of CPC and Evidence do not apply.
- Confidentiality, disclosure and inadmissibility of information.
- Any statement made, views expressed, proposals, admission of fact, the fact that the party had or had not indicated willingness to accept a proposal.
- No video, audio or stenographic recordings shall be made.
Other important aspects such as duration of mediation, mediators remuneration, ethics to be followed is explained briefly. The rules also specify that the mediation proceedings should be completed within 60 days from the date of the first appearance of parties for mediation and the period may be extended for 30 days.
Code of civil procedure on mediation
Under section 89 of the Act, 1908 governs Settlement of disputes by means of Arbitration, Conciliation, Judicial settlement and Mediation.
Interpretation of the clause:
- Settlement of disputes outside the Court –
(1) Clause 1 of the section explains:
- If the court finds elements of settlement,
- which may be acceptable to parties,
- the court will form the terms of settlement and
- give them to parties for their observations,
- after receiving the observations from the parties
- the court shall reformulate the terms again and refer the same to
- Arbitration, Conciliation, Judicial settlement (including Lok Adalat) or Mediation (hereinafter referred as ‘ACJM’).
The Code of Civil Procedure was amended in 1999 which came into effect on 1/7/2002. In the original draft of CPC a provision for enabling the dispute to be settled through Arbitration, but, after the enactment of Arbitration Act section 89 stood repealed as the matter was dealt under Arbitration Act, 1940.
However, pursuant to the recommendations of the Malimath Committee and Law Commission of India the section was revived with provisions not only for arbitration but including Conciliation, Mediation and Judicial Settlement through Lok Adalat.
The Amendment made it compulsory for the court to refer the parties to alternative modes of settlement of disputes, if in the opinion of the court, the case has elements of settlement which may be acceptable to the parties. The court can proceed to trial directly if no element of settlement by recording the same in one or two sentences and proceed with trial.
A literal reading of the section would interpret that, the court in a suit filed before it, observes any possible elements of settlement, then it shall formulate the terms of settlement. These terms are given to the parties for consideration. The court after hearing the opinion of the parties on the terms, if it finds that the parties are willing to settle then it may refer the same to the ACJM. This essentially requires the Court to do all the work and defies the purpose of enacting the provision.
The Court must look into the dispute, find if there is any possible elements of settlement, formulate the terms of proposition for settlement, then give it to the parties to see if the terms are agreeable to them and then also inculcate their views and reformulate the terms and then refer to ACJM. The court here has to act in the capacity of a Judge, Mediator, Conciliator and Arbitrator to formulate the terms of settlement. It is a very arduous process and as such the independent mediators would have no role in dispute resolution as all the work is already been done by the referral judge. Moreover, if the efforts of the Judge fail, then the Judge has to go through the entire process of suit once again.
The very purpose of enacting this section is to reduce the burden upon courts and to facilitate alternate dispute mechanisms to settle the disputes. If the court has to do all the groundwork, this would be an extra burden upon the court instead of reducing the burden. This error has been corrected and the golden rule of interpretation is followed. The Court has interpreted in such a way to see to it that the purpose of enacting the legislation is fulfilled. The Judiciary has taken the responsibility to interpret it, keeping in mind the grounds for enacting the clause and the purpose of reviving it. This has been done in the case of Salem Advocate Bar vs Union of India and Afcons Infrastructure Limited v. Cherian Varkey Construction Company Private Limited which is described below.
Afcons Infrastructure Limited v. Cherian Varkey Construction Company Private Limited hereinafter referred to as Afcon rewrote the provision by stating the reasons for the failure of the provision made necessary changes as follows:
The court need not formulate and reformulate the terms of a possible settlement. It is sufficient if the court merely describes the nature of dispute in a sentence or two and can proceed to make settlement.
The definition of the term ‘judicial settlement’ and ‘mediation’ in clauses (c) and (d) of section 89(2) shall have to be interchanged to correct the draftsman’s error.
The court held that for ‘mediation’ the court would refer the dispute to a suitable institution or a person who is capable of conducting mediation and such institution/person shall be deemed to be Lok Adalat and the provisions of the Legal Service Authorities Act, 1987 shall be applied.
Judicial settlement would mean the terms of compromise as the court decides and the rules prescribed would be applied.
The court held that the above changes would be effective till the legislature corrects its mistake by effecting an amendment to the Code. The changes are of utmost prominence, so that section 89 is not rendered meaningless and infructuous. Thus, this case acts as clarifying the ambiguity created by the legislature and various high courts have as a mandate made rules for mediation.
Order X of CPC, 1908
While section 89 is a substantive provision, Order X Rule 1(a),1(b),1(c) is enabling provision for referring a dispute to ADR mechanisms.
Rule 1(A)- This provision states that after recording the admissions and denials the court can refer the parties as specified in Section 89. The court will also fix the date for appearance after consultation with the parties.
Rule 2(B)- The parties are required to appear before the forum or authority if the suit is referred for ADR.
Rule 3(C)- The presiding officer of the forum or authority is satisfied that it would not be in the interest of justice to proceed the matter further, then he shall refer the same to court and proceed with trial.
Cases where mediation is permissible
On a careful perusal of section 89, it can be found that of all disputes in which the court finds elements of settlement, the dispute shall be referred to Arbitration, Conciliation, Mediation and Judicial Settlement. Thus, only the court can refer the dispute to mediation after satisfying the condition and the litigant has no vested right vested in him to get his dispute referred to mediation. The court takes into consideration various facts such as the nature of the dispute, conduct of parties, relationship between parties and most important elements of the settlement. The following categories of cases are normally considered to be not suitable for ADR process having regard to their nature:
(i) Representative suits under Order 1 Rule 8 CPC which involve public interest or interest of numerous persons who are not parties before the court.
(ii) Disputes relating to election to public offices (as contrasted from disputes between two groups trying to get control over the management of societies, clubs, association etc.).
(iii) Cases involving grant of authority by the court after enquiry, as for example, suits for grant of probate or letters of administration.
(iv) Cases involving serious and specific allegations of fraud, fabrication of documents, forgery, impersonation, coercion etc.
(v) Cases requiring protection of courts, as for example, claims against minors, deities and mentally challenged and suits for declaration of title against the government.
(vi) Cases involving prosecution for criminal offences.”
All other suits and cases of civil nature are normally suitable for ADR processes such as:
- Dispute arising out of contract, commercial disputes and cases relating to trade.
- Matrimonial disputes and custody of children.
- Disputes in which parties have continuing relationship (easement rights, encroachment, etc)
- Disputes relating to tortious liability and claims for compensation.
- Consumer disputes.
Commercial disputes and mediation
The legislature in 2015 has enacted an act particularly for adjudicating disputes which are commercial in nature. Commercial dispute means any dispute between two business entities. It relates to transactions between merchants, bankers, traders, financers, etc. Disputes relating to Partnership Agreements, Contracts, Mercantile documents, Intellectual Property Rights, Insurance, etc is also covered under this act. The act has been amended in 2018, which has brought in certain clarity and all disputes valued more that Rs. 3,00,000 is governed by the provisions of the act.
The act has made it mandatory for parties to settle the disputes through mediation unless there is need for serious relief such as an Injunction. Mediation may be conducted by authorities under the Legal Service Authorities Act, 1987. The act also specifies that the mediation should be completed within a period of 3 months, which can be extended for another 2 months.
Procedure under the Commercial Courts Act to initiate mediation:
- Mediation is a condition prerequisite before the suit goes to trial.
- The Plaintiff must file an application under the appropriate authority (State or District level) under Legal Service Authority Act, who is eligible to conduct mediation.
- Once the application is received, a notice is served upon the Opposite Party to appear within ten days and to express his consent to the proceedings.
- The Opposite Party may refuse the Mediation.
- If the Opposite Party fails to appear or refuses, the Authority will treat the process as failed and prepare a report to that effect.
- If the Opposite Party agrees to mediation and appears to the proceedings then the negotiation process starts.
- The parties based on the proceedings may agree to a settlement. This settlement is enforceable as if it is an Arbitral Award under Arbitration and Conciliation Act, 1996.
- In case, the parties are not on agreeing terms, the Mediator makes a report to that effect and a suit can be instituted in the Commercial Court.
Benefits and challenges under the act
The act is beneficial in many ways such as:
- The process is quick and cost effective. The parties can effectively understand the problems of the other, and even continue the commercial nature of their relationship in future.
- The litigants have a say in the agreement, which, effectively they cannot claim in court.
- The process is confidential and if there is some fault on both the sides, then this would be a great opportunity to settle the matter without damaging their brand name and business relations by not suing.
- In case the process fails, the parties are still at an advantage, as they can easily identify where the opposite party stands and predict their next move and prepare for a better case in court.
- The negotiation must happen in good faith and with intentions to settle the dispute so they can reap the benefit of cost and more importantly their valuable time.
- Pertinent to note that even if mediation fails, the parties can file for an interim injunction in court.
- The act does not impose any kind of compulsion to the opposite party to compel to attend the mediation proceedings. The absence of sanction is the only drawback as a person with malafide intention may drag the dispute to court with the intention to delay the dispute.
Effect of reference
Before Institution of Suit:
The parties can mediate with the help of an impartial third person who may be a person of authority or preferably by a person who is experienced in the field of law such as the parties legal advisor. This would be beneficial to most parties and would save the time and cost of the trial and bring in an amicable settlement.
After Institution of Suit and before Framing of Issues:
The apt time frame for referring the dispute to mediation would be after the plaintiff is filed and pleadings are completed (mostly after the defendant has filed the written statement) and before framing of the issues. This is most efficient as the court need not look into matters much and refer the same to the concerned authority by explaining the nature of dispute in one or two sentences. This would be the optimal time frame as, if the referred cases get settled or resolved then the court could save its precious time and get on with other matters in hand.
After Framing of Issues:
The court may refer to the dispute even after framing of issues but this behaviour is usually frowned upon by the courts as it is used as a means to delay the proceedings. But the section does not bar the parties for settling through mediation even after issues are framed and the dispute stands adjudicated. When the court grants its order/decree and the rights of the parties are crystallized and this may prompt the parties to find a final resolution which is more beneficial and more realistic, not on the basis of law but by expressions of society and human emotions.
Court referred to mediation and institutionalized mediation
Mediation which is through court referrals is generally more common as the parties have a sense of trust that the process is governed and it is much likely to result in an enforceable settlement. The suit filed is referred to mediation if the judge finds elements of settlement. Though it has been made mandatory with the amendment the percentage of cases referred to mediation remains few. The highest number of cases settled in period of 2005-2016 is by Delhi with a settlement percentage of 56.6% of all cases being referred is settled thought only 2.86% of the cases instituted were referred to mediation. Not all cases referred to mediation proceeds and many of them result in not settling the dispute due to non-appearance of the parties, refusal to participate, no elements of settlement, etc.
Mediation is also done by private institutions such as IIAM (Indian Institute of Arbitration and Mediation), CAMP (Centre for Advanced Mediation Practice) and FCDR (Foundation for Comprehensive Dispute Resolution). CAMP has a settlement rate of 80% and above and these institutions offer access to mediation service on a pre-litigation basis. When parties are in need of an expert to deal with the specialised disputes, and an impartial person these institutions come in handy. These settlements can be made enforceable by reiterating the terms of settlement in a contract or a consent award.
Enforceability of the settlement agreement
The fruition of a successful mediation is a settlement agreement. The agreement is made in writing and signed by both the parties. A copy of the agreement is furnished to both the parties and to the court, if it is a court-annexed mediation. The mediator also authenticates the agreement and sends it to court to pass an order or decree based on the terms of the settlement. The law does not make the settlement agreement binding on the parties unless the terms of settlement are incorporated in a consent award of the arbitral tribunal or consent decree. Such settlement is treated in par with an arbitral award, it can be challenged on the same grounds such as an arbitral award such as fraud, void agreement, etc.
If the settlement agreement is not made as a consent award then the parties can challenge the settlement agreement only on the basis of the law of contract. The parties cannot agree on terms which are in violation of any law for the time being in force. Such terms are illegal per se and the laws of individual persons cannot have an overriding effect on laws enacted by the Legislature. The agreement can be challenged in court on grounds of illegality, against public policy, undue influence or an agreement arrived by mistake, fraud, coercion, etc.
The burden of cases upon Judiciary is enormous and it is likely to increase after the court reopens and begins its usual hearing. Open courts cannot be displaced in the near future but as far as mediation is concerned, parties can try mediation and the plethora of cases can be reduced to some extent. Without mediation there is no other effective option, to solve the disputes and at the same time serve justice to parties in need. Mediation is the only form of dispute resolution where the results are tailor made and customized to the parties individual needs and where the rules are bent for the parties comfort and not where the parties should adapt to the rules and procedure of the court and its organs. Therefore, in a stressful time such as this Pandemic, the needs of the parties in a dispute can be better tended to through mediation.
People have evolved to live in a civilized society and have learned to adapt to the rules created as a mass among themselves. Mediation is one of the forms of dispute resolution which has been followed from time immemorial. Conflict is inevitable but choice of resolving it through a laborious process or taking recourse to other quicker, cheaper and most importantly options which bring in more favourable results is definitely a sane thing to do. Ensuring the people to take recourse to mediation is ensuring a way to deliver speedy justice.
Mediation is the only form of dispute resolution where the results are tailor made and customized to the parties individual needs and where the rules are bent for the parties comfort and not where the parties should adapt to the rules and procedure of the court and its organs.
The Legislature must bring in an Act, consolidating the process of mediation. The Chief Justice of India has recently stated that the time is ripe to devise a comprehensive legislation which contains pre-litigation mediation and also a remedy to make the settlement agreements binding upon the parties. The codification would provide a sense of trust and litigants would also consider mediation as an effective dispute resolution mechanism.
 Link to the document – http://chdslsa.gov.in/right_menu/rules_regulationslsa/pdf_files/cpadrm-rules-2003.pdf.
 Law Commission of India, Committee and Chairman. Mr. Jagannadha Rao is also a Former Judge of the Supreme Court.
 2010 (8) SCC 24
 Afcons Infrastructure v. Cherian Varkey Construction Co. Ltd. (2010) 8 SCC 24
 An extensive list is explained under the definition clause of the act, under section 2(c).
 The Commercial Courts, Commercial Division and Commercial Appellate Division of High Courts (Amendment) Ordinance, 2018.
 Before amendment only disputes worth one crore and above comes under the original jurisdiction of the High Court.
 The Commercial Courts Act, 2015.
 The non-appearance of parties after mediation has commenced is a whooping 45.51% which eventually leads to failure in mediation.
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