Mediation – Solve your Commercial Disputes
Name of the Author – Ashhab Khan
Institute – NLIU, Bhopal
Introduction.
The growth in the popularity of alternate dispute resolution (“ADR”) throughout the world is evident to all. ADR has found its place in India as well which is visible firstly by the insertion of Section 89[i] into the Code of Civil Procedure, 1908 and further by the enactment of Arbitration and Conciliation Act, 1996[ii](“A&C Act”). Mediation’s popularity as an ADR is evidenced by the fact that it has gradually made its way into dispute resolution clauses of almost all commercial agreements. It has several advantages like it is confidential, time-sensitive, inexpensive, less formal than court proceedings and, most importantly, it has the potential to reduce stress.
India’s increasing popularity in commercial mediation can also be attributed to judicial efforts in this regard. The Hon’ble Supreme Court in Salem Advocates Bar Association, Tamil Nadu v. Union of India[iii] held that a reference to mediation and conciliation is mandatory in court cases. Mediation has since found favor in numerous High Court laws and regulations. One such recent legislation is the Section 12A of the Commercial Courts Act, 2015[iv] (“Act”), whereby parties are obliged to exhaust the pre-institution mediation remedy under the Act before a suit is initiated. The Commercial Courts (Pre-Institution Mediation and Settlement) Rules 2018[v] (“PIMS Rules”) was also established under the Act to provide more instructions on the mechanism.
Section 12A Commercial Courts Act, 2015 & PIMS Rules.
Section 12 A of the Act specifies that before a plaintiff files a suit the remedy of pre-institution mediation must be exhaust, with a limited carve out for suits filed with applications for urgent interim relief. The authority created under the Legal Services Authorities Act, 1987 (“LSA Act”) must conduct such pre-institution mediation. This pre-institution mediation method would have to be in accordance with the rules notified by the Government.
According PIMS Rules under Section 21A read with Section 12A of the Act, the proceedings related to pre-institution mediation is required to be completed within 3 months from the date of filing of application by the plaintiff as provided under Section 12A(3) of the Act. This time period may be extended by two months with the consent of the parties.
In compliance with the PIMS Rules, the whole process of pre-institutional mediation is highly structured with the Authority and the Mediator being required to follow multiple forms specified for the procedure of the proceedings, to send notifications to the parties, to report the ‘non-start’ procedure to the parties and failure report.
Further, a party to a commercial dispute may appear before the Authority or Mediator either, personally or by an authorized representative/Counsel. It is ensured that the Mediator retains the utmost confidentiality throughout the process, and stenographic or audio or video recording of mediation sessions is not allowed as per the PIMS Rules. It also says that no hard or soft copies of documents exchanged between parties or submitted to the Mediator or any notes prepared by the Mediator shall be retained by both the Authorities and the Mediator beyond 6 months other than requests for mediation, notice issued, settlement agreement and failure report.
Section 12A(5) of the Act provides that the resolution reached as a result of mediation shall have the same status and effect as that of an arbitral award rendered under Section 30(4) of the Arbitration and Conciliation Act of 1996. This clause helps the parties take the mediation process seriously by assuring the parties that they arrive at a resolution which would constitute a final verdict.
The Section 12A of the Act as well as the PIMS Rules provide for a confidential mediation process, a speedier resolving of commercial disputes, enforceability of the mediation award, for parties to act in good faith and etc.
The Pros.
- Confidentiality.
The whole mediation process guarantees confidentiality. All the information exchanged between the parties and the mediator in the form of papers, conversations, and ideas would not be available, unlike in Courts where it is expected to be made available as part of disclosure and summonsing. This has been provided under the rule (7)(2), rule (9) and rule (12)(x) of the PIMS Rules. Confidentiality helps the parties to prevent disclosure of crucial information to its competitors. Also in the litigation process parties may engage in activities which can spoil the public image of another party therefore information made public in litigation can serve to harmful for parties which is prevented in mediation.
- Time bound process and Cost effective.
Pre-Institution Mediation initiated under the Act is to be finished within the time period of three months from the date of application filed by the plaintiff as provided under the sub-rule (8) of rule (3) of the PIMS Rules. This can further be extended up to 2 months with the consent of both the parties. This is much faster than the time taken to hear and resolve matters before the Courts, and therefore it is much more preferred in this fast-paced corporate world.
Also, with time mediation also saves money. With the time bound process the cost effectiveness also increases as compared to litigation. There is no statutory stamp duty payable on the claim or on the counterclaim, and there is also no excessive fee payable to the mediator, as opposed to the costs of an arbitrator and counsel. Also, as per rule 11 before the commencement of the mediation, the parties to the commercial dispute shall pay to the Authority a one-time mediation fee which is to be shared equally by both the parties.
- Enforceability and Binding nature.
Section 12A of the Act says that the settlement reached after the mediation will be having the same effect to that of an arbitral award provided under the Section 30(4) of the A&C Act. Hence, it will be having a binding nature and can be challenged on the same grounds as an arbitral award. As per the Section 36 of the A&C Act, an arbitral award is enforceable like a decree of a Court.
- Control over the outcome
In mediation, the parties control the result through self-determination. The process’s versatility encourages the parties to reach a settlement they find acceptable through negotiation and discussion. In the methods like litigation or arbitration, the final outcome is decided by a third party who is not aware with the intricacies and the crux of the dispute. This increases the uncertainty of the outcome of the dispute as well as reducing the chances of a favorable outcome for both the parties.
The Cons.
- LSA Act and Overburdening.
Section 12A(2) of the Act calls for the authorities constituted under the LSA Act, for the purposes of pre-institution mediation. LSA Act provides for free and competent legal authorities for the weaker sections of society. The authorities under the LSA Act i.e. National Legal Service Authority, State Legal Service Authority etc. are already burdened with the task of providing justice through free legal aid. It is not appropriate to extend their scope to commercial mediation as it will overburden them leading to delay in the mediation process defeating the whole purpose of mediation. Further, the requirement of resolving a commercial dispute under the Commercial Courts Act is different in nature to that intended under the LSA Act. Hence, for the purpose of pre-institution mediation the authorities under the LSA Act will not be appropriate.
- Uncertainty due to Rule 3(4).
Where Section 12A makes it mandatory for the plaintiff to initiate mediation, rule 3(4) of the PIMS Rules allows the responding party to refuse to participate in the mediation proceedings. When this happens, the mediation proceeding will be deemed to be as a non-starter. Thus, this rule raises a concern of uncertainty with respect to the mediation process.
Conclusion.
The Section 12A and the PIMS rules were introduced with the intention of promoting a quicker settlement of issues relating to commercial disputes, attracting foreign investment and potentially increasing the ‘ease of doing business’ index. Although, there are certain obstacles like the attitude towards mediation, competency and credential of mediators, etc. the Act and the PIMS Rules have set a strong structure for pre-institutional mediation in India.
[i] § 89, the Code of Civil Procedure, 1908, available at http://legislative.gov.in/sites/default/files/A1908-05.pdf
[ii] The Arbitration and Conciliation Act, 1996, available at http://legislative.gov.in/sites/default/files/A1996-26.pdf
[iii] Salem Advocates Bar Association, Tamil Nadu v. Union of India, (2005) 6 SCC 344
[iv] § 12A, the Commercial Courts Act, 2015, available at https://www.indiacode.nic.in/bitstream/123456789/2156/1/201604.pdf
[v] Commercial Courts (Pre-Institution Mediation and Settlement) Rules 2018, available at http://legalaffairs.gov.in/sites/default/files/PIMS%20RULES.pdf