The said dichotomy has re-ignited the debate on whether India is ready for mandatory participation in pre-litigation mediation in commercial matters. It is important to analyze how mediation as a mode of dispute resolution has developed over time in India and how the same has been successful in the Indian paradigm.
‘No need for courts to take consent of litigants to refer disputes for mediation.” Recently, the Hon’ble Karnataka High Court observed that any court exercising power under Section 89 of the Code of Civil Procedure, 1908 (“CPC”) for referring any pending dispute to mediation need not seek parties’ consent for such a reference. Additionally, it emphasized that costs could be imposed on the parties if they are not present before the Mediator. On the other hand, participation in pre-litigation mediation for commercial disputes is not mandatory. The said dichotomy has re-ignited the debate on whether India is ready for mandatory participation in pre-litigation mediation in commercial matters. Before we delve into the same, it is important to analyze how mediation as a mode of dispute resolution has developed over time in India and how the same has been successful in the Indian paradigm.
Alternative Dispute Resolution Mechanisms
Alternative dispute resolution (“ADR”) mechanisms have been implemented in Indian landscape since time immemorial. These modes of dispute resolution are built on party autonomy as the parties decide the course of the resolution mechanism, including, inter alia, reference to such mechanisms, participation etc. ADR mechanisms include arbitration, mediation, conciliation et al. Arbitration is an adversarial mode of dispute resolution before an arbitrator and the award of the arbitrator is enforceable as a decree of the court.
Mediation is a non-adversarial process which is conducted by an impartial and neutral mediator who helps parties in reaching a settlement.
The said process is cost efficient and speedier qua the court based dispute resolution process. Further, it helps parties in maintaining their relations. A mediator plays a significant role in helping parties in reaching a settlement. The role of a mediator overlaps with the role played by a conciliator. However, one of the major differences between the two processes is that unlike a settlement agreement in a mediation, a settlement agreement between the parties in a conciliation is enforceable as a decree under the Arbitration Act. Further, post onset of COVID-19, online dispute resolution is gaining momentum as it provides a time bound and cheaper mode of dispute resolution to parties.
Reference of pending disputes to mediation
Arbitration and Conciliation Act, 1996 (“Arbitration Act”) governs arbitrations and conciliations in India. There is no statute governing mediation in India. CPC was amended in 1999 to reinstate power with courts to refer pending disputes to ADR mechanisms to aid in speedier dispute resolution.
Afcons Infrastructure v. Cherian Varkey Construction Co. Ltd. ((2010) 8 SCC 24) is the landmark judgment wherein the Hon’ble Supreme Court laid down principles governing reference of pending disputes to ADR. It held that parties’ consent is mandatory only for referring their dispute to arbitration or conciliation and not for other modes, including, mediation. Further, it observed that in cases where the parties do not consent to arbitration/conciliation, the concerned court may refer the parties to other modes of ADR and they also have the power to impose costs to ensure participation of parties in the mediation process. Therefore, participation of parties in mediation was ensured.
Statutory provision for settlement of disputes outside the adjudicatory mechanism
Several statutes, including, inter alia, Industrial Disputes Act, 1947, Companies Act, 2013 and Micro, Small and Medium Enterprises Development Act, 2006 etc. provide for settlement of disputes through conciliation. The recently enacted Consumer Protection Act, 2019 provides for reference of admitted cases to mediation for settlement.
An amendment in 2018 in the Commercial Courts Act, 2015 (“CC Act”) provided that “a suit shall not be instituted unless the remedy of pre-litigation mediation is exhausted” and therefore, made filing of pre-litigation mediation mandatory on the part of the plaintiff when no urgent relief was sought. The said amendment was lauded by different stakeholders. However, participation of the opposite party in the mediation is optional as the opposite party can refuse to participate in mediation. The Hon’ble Bombay High Court and Hon’ble Madras High Court have held the said requirement to be procedural and not mandatory. The same aids parties who wish to resolve their disputes inter se, before approaching the courts/legal services authority, which includes referring disputes to a mediation institution and an online dispute resolution platform.
However, statistics have shown that a majority of the cases filed for pre-litigation mediation are not referred to mediation due to refusal by the opposite party to participate in the same.
The consent of parties for participation in mediation was not mandatory in case of reference of pending disputes to mediation and accordingly, parties participated in mediation was ensured. The same ensured that parties explore settlement of disputes with an option to opt out of the process at their discretion. The ‘opt in’, provided under the CC Act, is a missed opportunity as parties do not explore settlement through mediation before filing a case before a court.
Stakeholder’s support for mediation
The government and the judiciary, including the apex court, have been the biggest proponents of resolution of disputes through ADR. Arbitration Act has evolved over the years to reduce court interference due to which such proceedings get entangled in delays. An arbitral award can be challenged on very limited grounds to ensure minimum court interference. Further, the judiciary has been referring the matters to Lok Adalats and other modes of dispute resolution for quicker resolution.
At the India-Singapore Mediation Summit and the inauguration of the International Arbitration and Mediation Centre in Hyderabad, the Chief Justice of India, Hon’ble Justice N. V. Ramana suggested that mediation is the need of the hour. In fact, he has suggested mediation to parties in various significant cases, including Andhra Pradesh-Telangana Krishna river water dispute etc. Further, he has time and again observed that time is ripe for India to make mediation a mandatory first step of dispute resolution process.
That brings an important question for deliberation: Whether mandatory mediation and party autonomy are mutually exclusive. A sequitur to the same is whether mediation can ensure a fair play for parties without any coercion for settlement of disputes, i.e. whether India is ready for mandatory mediation.
ADR is undoubtedly a remarkable and laudable alternative to the court based dispute resolution. While pre-litigation mediation in commercial matters was a welcome step in ensuring time value of money for parties in the process, the quantum of cases which are ultimately referred to mediation is minuscule. To elucidate, around 15% of pre-litigation mediation applications in commercial matters, filed before the Hon’ble Bombay High Court from January, 2020 to June, 2021, were referred to mediation. For the said duration, only about 1.2% of cases filed with the lower courts in Mumbai were referred to mediation and in around 58% of cases filed, the opposite party refused to participate in mediation. In light of such reluctance of parties to participate in pre-litigation mediation, mandatory mediation will aid in ensuring participation in the mediation process. While party autonomy to the extent of participation in such proceedings is taken away, the party retain their autonomy to call off the process if they are not able to reach a settlement of their disputes.
In case mandatory mediation is implemented, the infrastructure for organizing and conducting mediation may need to be revamped. No action has been taken in around 38% of cases filed between January, 2020 and June, 2021 with lower courts in Mumbai for pre-litigation mediation. Collaboration with mediation institutions and online dispute resolution platforms will be helpful as such institutions and platforms maintain a panel of mediators with requisite skills. Accordingly, such a collaboration will ensure timely appointment of mediator in such matters. Moreover, it will significantly aid in improving India’s position in the Enforcing Contracts Indicator, wherein India stood at 163rd position in 2020 vis-à-vis 186th position in 2015. India has significantly improved from 142nd position to 63rd position in Ease of Doing Business Indicator in the said period.
Additionally, mandatory participation in mediation by parties should not be construed as distorting the fair play and forcing the weaker sections in settling the dispute.
The same is fundamental in the Indian paradigm as mediation has the potential to ensure social justice. It was observed by Hon’ble J. Chandrachud, judge at the Supreme Court of India, as well. In this regard, an omnibus law regulating mediation in India will be beneficial for providing requisite checks and balances.
Additionally, mediators may be duty bound to ensure that party autonomy is maintained throughout the process to ensure a fair play. In light of the historical relevance of mediation in the Indian society, while mandatory participation in mediation will be an advantageous step to ensure time value of money in commercial matters, a fine balance needs to be maintained to retain party autonomy.