Mandatory Pre-Institution Mediation: Commercial Courts

The Commercial Courts (Pre Institution Mediation and Settlement) Rules, 2018 (“the Rules”) have been made under Section 21A(2) read with Section 12A(1) of the Commercial Courts Act, 2015. The Commercial Courts have been set up for faster resolution of “commercial disputes”.  The rules prescribe the manner in which the Pre-institution mediation proceedings as envisaged under newly inserted Chapter IIIA have to take place.

Under Section 12A, no suit shall be instituted before the plaintiff exhausts the remedy of pre-institution mediation, unless it contemplates any urgent interim relief under the Act. The ‘Authorities’ to conduct the pre-institution mediation are to be constituted under the Legal Services Authorities Act,1987. The Authority under the Rules then has to appoint a ‘Mediator’ if both parties agree to undergo the mediation process. The Authorities are required to ensure the completion of the mediation process within a period of three months from the date of application made by the plaintiff. If the parties come to a settlement through the mediation process, then the settlement shall have the same status and effect as if it is an arbitral award on agreed terms under S.30(4) of the Arbitration and Conciliation Act, 1996.

A party to a commercial dispute can appear before the Authority/Mediator, either personally or through duly authorised representative/Counsel. The Rules ensure that utmost confidentiality regarding the mediation process is maintained by the Mediator, and no stenographic/audio/video recording of the mediation sittings are allowed. The Rules also prescribe that both the Authorities and the Mediator shall not retain any hard/soft copies of documents exchanged between parties or submitted to Mediator or any notes prepared by the Mediator beyond 6 months other than application for mediation, notice issued, settlement agreement and failure report.

Further under the Rules, the whole process of pre-institution mediation is made highly organized with the Authority and the Mediator being required to process several forms prescribed for institution of proceedings, issuance of notice to parties, settlement, and reporting of ‘non-starter’ process to parties, and failure report. The Rules also prescribes the time-lines for fixing of dates for hearing. The mediation process, with the consent of both parties may be extended for further two months.

The Rules prescribe for one-time mediation fee shared equally by the parties, which is determined as per the quantum of the claim made by the plaintiff made in the suit.

Comment:

It is a welcome push to enable and expedite alternate dispute resolution through mediation. This model of undergoing a session of mandatory mediation at an initial stage and having the right to opt-out and approach the court for further relief is called the “opt-out” model. Other countries which have introduced this model have experienced considerable success. For example, in Italy this model of mandatory mediation was introduced in 2010, and 50% of the mediations were reported to be successful. However, the success of this opt out model, most importantly depends on the quality of mediation services that are provided to the parties. The need for some sort of regulation was recognized by the Supreme Court in Salem Advocate Bar Association v. Union of India [(2003) 1 SCC 49] recognizing that mediation was majorly an informal proceeding, and that ‘modalities’ for the manner in which proceedings must take place needed to be formulated. Pursuant to this, the Mediation and Conciliation Project Committee was formed. This led to the formulation of the Civil Procedure Alternative Dispute Resolution and Mediation Rules, 2003 which are non-binding in nature. As a result, the success of mediation as an alternative form of dispute resolution has been different for different state’s Legal Service Authorities.

There might be considerable obstacles to remove in implementing the mandatory pre-institution mediation effectively in India. In fact, within a week of the Rules’ introduction the Delhi High Court has issued a notice in petition challenging to the constitutional validity of the introduction of Section 12A of the Commercial Courts Act, 2015. The grievance highlighted by the petitioner is that there is currently no effective mechanism in place for mandatory pre-institution mediation, which has left a large section of aggrieved parties remediless. Upon being directed to the Legal Service Authority (the Authorities under Section 12A), the petitioner was informed that no mechanism had been introduced till date despite the Rules having been notified on July 3rd, 2018.

Thus, there is definitely a lot of ground to cover for an effective implementation of mandatory pre-institution mediation in India. This must come with the understanding that mediation, though being an informal proceeding, the successful conducting of the same requires a certain degree of speciality.

In our previous posts, we have covered various aspects of mediation:

(https://novojuris.com/2017/09/25/mediation-101-it-is-not-who-is-right-or-who-is-wrong-but-arriving-at-solutions/,

https://novojuris.com/2017/09/25/comparative-stack-between-litigation-arbitration-and-mediation/,

https://novojuris.com/2017/09/25/mediation-as-an-alternative-dispute-resolution-method-an-overview/)

and a very interesting discussion with one of JAMS founding partners, Mr. Bruce Edwards who has mediated over 4,500 disputes throughout the US, Canada, and Mexico

(https://novojuris.com/2017/09/25/interview-with-bruce-edwards-jams-founding-partner/).

Authors: Avaneesh Satyang, Associate and Sohini Mandal, Associate Partner

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