Pre-institution mediation
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This article is written by Prithviraj Dey, pursuing a Certificate Course in Advanced Civil Litigation: Practice, Procedure and Drafting from LawSikho.

Introduction

The concept of Mediation is akin to the Indian civilization since ancient times. In the pre-Colonial era, a third person was often summoned to resolve disputes between parties. This form of dispute resolution was widely accepted by the masses and it exhibited mixed features of both mediation and arbitration. With the advent of complex mercantile and commercial relationships, an informal dispute resolution system yielded to a formal system of delivery of justice. The first law in India to have enunciated mediation is the Industrial Disputes Act, 1947. By virtue of §4 of the Industrial Disputes Act, conciliators are appointed and entrusted with the duty of mediating in and promoting the settlement of Industrial disputes. The Act laid down detailed procedures for conciliation proceedings. 

By the Code of Civil Procedure (Amendment) Act, 1999, §89 of the CPC was amended whereby mediation and judicial settlement were envisaged as modes of settlement of disputes. The amendment in §89 was based on the recommendation given by the Law Commission of India and the Malimath Committee. §89 now makes it obligatory for the court after framing issues to refer to the dispute for settlement either by way of arbitration, conciliation, mediation or judicial settlement. The courts allow further proceedings of the suit only when the parties therein are not successful to settle their dispute through any of the alternative dispute resolution methods.

The need for a legislation espousing expeditious adjudication of commercial disputes was first highlighted by the 188th Report of the Law Commission of India. With the major economic reforms brought about in 1991, the matrix of commercial transactions and consequential disputes of commercial nature has expanded in manifold ways in our country. The Commercial Courts Act, 2015 as a piece of legislation aims:

  • to enforce high-stakes contracts of commercial nature;
  • to herald procedural reforms and to boost and augment a foreign investor’s confidence; 
  • to improve India’s ranking in the Annual Ease of Doing Business Index formulated by the World Bank.

The Act provides for speedier adjudication of commercial disputes of a Specified Value. This Specified Value under §2(1)(i) of the Commercial Courts Act was Rupees One crore which has now been brought down to Rupees Three Lakhs by the Amendment Act of 2018. §2(1)(c) of the Commercial Courts Act is broad and takes within its ambit the following categories of commercial suits: ordinary transactions of merchants, bankers, financiers and traders such as those relating to mercantile documents, including enforcement and interpretation of such documents; export or import of merchandise or services; issues relating to admiralty and maritime law; transactions relating to aircraft, aircraft engines, aircraft equipment and helicopters, including sales, leasing and financing of the same; carriage of goods; construction and infrastructure contracts, including tenders; agreements relating to immovable property used exclusively in trade or commerce; franchising agreements; distribution and licensing agreements; management and consultancy agreements; joint venture agreements; shareholders agreements; subscription and investment agreements pertaining to the services industry including outsourcing services and financial services; mercantile agency and mercantile usage; partnership agreements; technology development agreements; intellectual property rights relating to registered and unregistered trademarks, copyright, patent, design, domain names, geographical indications and semiconductor integrated circuits; agreements for sale of goods or provision of services; exploitation of oil and gas reserves or other natural resources including electromagnetic spectrum; insurance and re-insurance; contracts of agency relating to any of the above; and such other commercial disputes as may be notified by the Central Government.

The Commercial Courts Act, 2015 was amended in 2018 and the legislature introduced §12A providing for mandatory pre-institution mediations in all cases. The exception being that pre-institution would not be mandatory in those cases which contemplate any urgent interim relief. According to §12A(2) the Authorities constituted under the Legal Services Act, 1987 have to conduct the procedures of pre-institution mediation. Sub-section 3 of §12 provides that the process of pre-institution mediation has to be completed within a period of three months, extendable by two months with consent of the parties, from the date of application made by the Plaintiff. The proviso to sub-section 3 lays down that time spent in pre-institution mediation shall not be computed for the purpose of limitation under the Limitation Act, 1963. If the parties to the commercial dispute arrive at a settlement, the same shall be reduced into writing and shall be signed by the parties to the dispute and the mediator. The Settlement arrived at under this provision shall have the same status and the effect as if it is an arbitral award on agreed terms under sub-section (4) of Section 30 of the Arbitration and Conciliation Act, 1996.

Commercial Courts (Pre-Institution Mediation and Settlement) Rules, 2018

This pre-institution mediation is guided by the Commercial Courts (Pre-institution Mediation and Settlement) Rules, 2018.

Initiation of the process of mediation

The process of pre-mediation is initiated under Rule 3(1) wherein a party to a commercial dispute may make an application to the Legal Services Authority in the specified form, either online or by Post or by hand and the requisite fee of Rs. One thousand has to be paid to the authority by way of demand draft or through online means.

Under sub-rule (2) the Legal Services Authority keeps due regard to the territorial and pecuniary jurisdiction and the nature of commercial dispute and a notice is issued to the opposite party in the specified form to appear and thereby give consent to participate in the mediation process. The opposite party has to appear within ten days of the issue of the said notice.

According to sub-rule (3) if no response is received from the opposite party then the Legal Services Authority issues a final notice to it as specified in sub-rule (2).

If the notice issued under sub-rule (3) goes unacknowledged or if the opposite party refuses to participate in the mediation process, then under sub-rule (4) the Legal Services Authority treats the mediation process to be a non-starter and it makes a report and endorses the same to the applicant and the opposite party.

If the opposite party, after receiving the notice under sub-rule (2) or (3) seeks further time for his appearance, the Legal Services Authority by virtue of sub-rule (5) may fix an alternate date which has to be within ten days from the date of receiving such request.

If the opposite party fails to appear on the date fixed under sub-rule (5), then sub-rule (6) provides that the Legal Services Authority shall treat the mediation process to be a non-starter and make a report in this behalf and endorses the same to the applicant and the opposite party.

If both parties to the commercial dispute appear before the Legal Services Authority and give consent to participate in the mediation process, then under sub-rule (7) the Legal Services Authority then assigns the commercial dispute to a Mediator and fixes a date for their appearance before the said Mediator.

Sub-rule(8) provides that the Legal Services Authority has to ensure that the process of mediation must be completed within a period of three months from the date of receipt of application for pre-institution mediation. The same sub-rule also provides that this period can be extended for two months with the consent of the applicant and the opposite party.

According to Rule 4 the premises of the Legal Services Authority is the venue for conducting the pre-institution mediation.

Role of the mediator

Rule 5 lays down the role of the mediator, who on receipt of the assignment facilitates the voluntary resolution of the commercial dispute between the parties and assists them in reaching a settlement.

A party to a commercial dispute under Rule 6 has to appear before the Authority or Mediator, as the case may be, either personally or through his duly authorized representative or Counsel.

Procedure of mediation

At the commencement of mediation, the Mediator explains the working of the mediation process to the parties and then Mediator has to fix the date and time of each mediation sitting in consultation with the parties to the commercial dispute. The Mediator has the discretion to hold meetings with the parties jointly or separately during the course of mediation. The applicant or opposite party can share their proposed terms of settlement with the Mediator in separate sittings along with specific instructions as to what part thereof can be shared with the other party. The parties can also exchange the proposed terms of settlement either orally or in writing with each other during mediation sitting.

The Mediator must maintain confidentiality of discussions made in the separate sittings with each party and only those facts which a party permits and instructs can be shared with the other party.

Once both the parties reach a mutually agreed settlement, it must be reduced in writing by the Mediator and the parties and the Mediator must put down their signatures. The Mediator thereafter provides the settlement agreement, in original, to all the parties to a commercial dispute and also forwards a signed copy of the same to the Legal Services Authority. If no settlement is arrived at between the parties within a period of three months or if the Mediator is of the opinion that the settlement is not possible, the Mediator then submits a failure report including the reasons in writing to the Legal Services Authority.

The Legal Services Authority or the Mediator must not retain the hard or soft copies of the documents exchanged between the parties or submitted to the Mediator or notes prepared by the Mediator beyond a period of six months. The only documents that can be retained are the application for mediation, notice issued, the settlement agreement and the failure report.

Rule 8 stipulates that all the parties involved therein must participate in the mediation process in good faith with an intention to settle the dispute.

Confidentiality is of utmost importance and it pervades the entire process. Rule 9 mandates that the Mediator, parties or their authorized representatives or Counsel have to maintain confidentiality about the mediation. Further, the Mediator must not allow stenographic or audio or video recording of the mediation sittings.

According to Rule 10 the District Legal Services Authority must forward the detailed data of all mediation processes to the State Legal Services Authority for maintaining the data and publishing the same on its website on a monthly basis. 

Before the commencement of the mediation, the parties to the dispute must pay a one-time mediation fee to the Legal Services Authority, to be shared equally, as per the quantum of claim. 

Ethical aspects of mediation

Rule 12 makes it imperative for the Mediator to abide by ethical norms during the mediation process. An ethical practice of mediation is central to the dispute resolution process. The mediator must uphold the integrity and fairness of the mediation process. He must ensure that the parties involved therein are fairly informed and that they have an adequate understanding of the procedural aspects of the mediation process. He must make a disclosure of any financial interest or other interest in the subject-matter of the commercial dispute.

He has to communicate with the parties to the commercial dispute within a manner that is characteristic of great propriety. He must be faithful and maintain a relationship of trust. He has to duly conduct the mediation process in accordance with the applicable laws for the time being in force. He must recognise and give effect to the fact that mediation is ultimately based on the principles of self-determination by the parties. The entire process rests significantly upon the ability of parties to reach a voluntary agreement. He must absolutely refrain from promises and must not commit to providing a suitable outcome. He must not meet the parties, their representatives, or their counsels or communicate with them, privately except during the mediation sittings in the premises of the Legal Services Authority. He must not interact with the media or put out any information with regard to the details of the commercial dispute case, which is being mediated by him as maintaining confidentiality is one of the cornerstones of mediation. If the norms of ethics are not followed then it may result in prejudice to the interests of the parties to the commercial dispute.

Position prior to the introduction of the act

Prior to the introduction of the Commercial Courts Act, §89 of the Code of Civil Procedure has been instrumental in laying the emphasis for alternative dispute resolution modes. This section was inserted in the Code of Civil Procedure by the Code of Civil Procedure Amendment Act, 1999. The vires of §89 was challenged in the famous case of Salem Bar Association (I) v. Union of India and the Hon’ble Apex Court upheld this provision. §89 has been discussed elaborately by Raveendran, J. in Afcons Infrastructure Ltd. v. Cherian Varkey Construction Company Pvt. Ltd. and it was held that §89 has to be read with Rules 1A to 1C of Order X of the Code of Civil Procedure, 1908. 

Rule 1-A provides that the court is to direct the parties to choose among any of the enumerated five modes of alternative dispute resolution processes. Once the parties exercise this option, the matter is referred for resolution under the mode opted. The rule does not stipulate that the court has to either formulate the terms of settlement or make available such terms of settlement to the parties to reformulate the terms of possible settlement after receiving the observations of the parties. The Hon’ble Apex Court held that the only practical way of reading §89 and Order 10, Rule 1-A is that the court will have recourse to §89 only when the pleadings are complete and the required admission/denials are sought, and this can be done only before the framing of issues. If the court wants to traverse through this trajectory then it has to consider and record the nature of the dispute, inform the parties in dispute about the five options available and take note of their preferences and then refer them to one of the alternative dispute resolution processes. It was also held that reference of all civil disputes for alternative dispute resolution methods is not mandatory because §89 is worded as “where it appears to the court that there exist elements of a settlement”. In this case, it was held that some disputes of commercial were amenable to be referred to any of the five ADR processes. 

On the other hand, it is §12A(1) makes it mandatory for the parties to the commercial dispute to undertake the mediation process before the suit is instituted. The only exception being that matters requiring urgent reliefs would not have to go through the same process. 

The pre-institution mediation under the Act is court-annexed which means that the entire process is carried out under the aegis of the courts, or in this case under the Legal Services Authorities, in respective districts of the states in their respective Mediation Centres. There are several plus points of this. The parties are given an opportunity to participate in the pre-institution mediation process. It generates public acceptance and confidence for the process of integrity and impartiality. The Legal Services Authorities in the states play a key role for resolution of disputes. The sanction and effort of dispensing justice can become well-coordinated and more authentic and smooth acceptance can be expected by the parties in dispute. It would ensure the feeling that mediation is complementary and not competitive with the court system. The statutory requirement of pre-institution mediation should become more expeditious and harmonized. 

The most significant development in the field of international mediation is the completion in 2018 by the United Nations Commission on International Trade Law (UNCITRAL) of the Convention on International Settlement Agreements Resulting from Mediation. Commonly known as the Singapore Convention on Mediation, it came into force on 12th September, 2020. The new convention, similarly to the New York Convention for mediation, will usher in both enforcement and recognition settled agreements reached on account of mediation.  It is intended not only to allow parties to the mediation to have benefits of their solutions, but also to enable increased employment of mediation. India is a signatory to this convention since 7th August, 2020. 

Statistics for the last three months

The statistics insofar as Pre-institution mediation for the last three months from the websites of Maharashtra State Legal Services Authority and the Delhi State Legal Services Authority:

Maharashtra

 

Received

Settled

Non Starter

July

315

1

0

August

117

0

9

September

250

1

15

Delhi

 

Received

Settled

Non Starter

July 

275

0

97

August 

480

375

September

839

1

15

Conclusion

The above data has been taken from the jurisdictions wherein most commercial disputes in our country are instituted. The laudatory purpose of the Commercial Courts Act, 2015 is to provide a speedier and expeditious adjudication of disputes of a high value. While much debate has evolved around the decrease in the ‘Specified Value’ from Rupees one crore to Rupees three lakhs, critics are of the opinion that this defeats the very purpose of the enactment. According to them, the wide definition of commercial disputes takes in its sweep a large category of cases which ultimately will be a burden on the judiciary. The significant highlight of this legislation has been the introduction of compulsory pre-institution mediation and is one of the major procedural reforms in the evolving commercial disputes resolution process. However, the above data of the preceding three months shows quite a grim picture. The number of disputes settled were extremely low and dismal. Delhi in comparison to Maharashtra has had a greater number of non-starter cases. The number of matters received in both the jurisdictions however has followed an upward trend. This data suggests that currently, cases are not getting settled through mediation and are ultimately going to trial. The fact that a higher number of cases are a non-starter in a way, goes on to show the lack of understanding in the parties about the easier recourse of mediation than litigation in courts. The provision of pre-institution mediation has to be given life by improving the infrastructural aspects and pre-institution mediation has to be promoted by making the parties understand its inherent advantages. Pre-institution mediation in our country has to eventually become the most preferred method of dispute resolution in commercial cases like most advanced nations.


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