Mandatory or Against the Mandate? Analyzing the Scope of Pre-Institution Mediation in India
By: Hardik Baid and Aman Jha*
It is not only desirable that conflicts or disputes are resolved amicably, but also it is quintessential to also adopt ‘effective’ and ‘appropriate’ methods for resolving such disputes or conflicts. In recent times, litigation has been the most preferred method of dispute resolution. However, in the backdrop of high pendency of cases, increased costs due to a long-drawn process, and other complex requirements in litigation, there is a growing need for an alternative form of dispute resolution to share the burden of burgeoning docket. Mediation has emerged as one such necessary alternative, and is gaining prominence in the legal system. Mediation is essentially a third-party facilitated dispute resolution mechanism wherein the neutral third party, i.e., the mediator is appointed at the behest of the parties at dispute, and facilitates the process for the parties to often arrive at a creative and mutually-beneficial settlement.
Mediation offers multifarious advantages over the traditional and formal structures that encompass litigation. This includes factors such as confidentiality, flexibility of proceedings, holistic engagement between the parties and voluntariness. These factors often lead to an increased acceptability of the outcome and helps maintain a healthy relationship between the parties. Over time, mediation has evolved from its initial contours of ‘Multi-door Courthouse theory’. From being a stand-alone institution that provided parties an informal alternative to resolve disputes, there has gradually been a formal induction of mediation into the legal system, through legislations and judicial developments. Broadly, mediation can be initiated in two ways, first by private mediation wherein the parties voluntarily submit their dispute for mediation and secondly through a court-referred or legislation-mandated mediation, wherein the parties undertake mandatory mediation. Over the past decade, there has been a linear evolution in the legislation and practice of mediation. Concurrent to this evolution, there has been an introduction and rise of mandatory pre-institution mediation. Therefore, it would be of pertinence to briefly analyze the scope and utility of the same.
Mandatory Pre-institution Mediation
Party autonomy and voluntariness are often considered to be among the foundational principles of mediation. Therefore, mandating the mediation process possibly renders the same to be an ‘oxymoron’, contradicting the very spirit of mediation. However, a deeper analysis of the process throws up a three-fold justification for ‘mandatory mediation’: first the unpopularity due to lack of awareness in the public regarding mediation, secondly, the reluctance of the parties to recognize and adopt other options available to them and thirdly, the mandate of mediation is limited to the coercion ‘into’ and not ‘within’ the process of mediation i.e. the parties are mandated to attempt or undertake mediation before opting for litigation, but not necessarily to settle the dispute, which is voluntary.
In jurisdictions across the globe, including India, courts and legislatures have initiated mandatory mediation, wherein the parties are required to engage in mediation before resorting to litigation or other forms of dispute resolution. Such initiatives of ‘mandatory mediation’ can be categorized into two heads: (i) ‘pre-institution mediation’ or compulsory statutory reference of certain matters to mediation that prescribe mediation as a pre-requisite for litigation. Instances for the same can be found under Section 12A of Commercial Courts Act 2015 [“CCA”] or Section 6 of Draft Mediation Bill 2021 (India[a3] [D4] ), and Article 3 of the Labour Courts Act, 2017 (Turkey); and (ii) post-litigation mediation or court referred mediation wherein the courts have discretion to direct the parties to mediation, and if the mediation fails, litigation for this matter shall continue. For instance, Section 89 of the Civil Procedure Code 1908 [“CPC”] (India) and Part 4 of the Code of Civil Procedure 2005 (Australia). While both the heads fall under ‘coercion into’, the ‘pre-institution or pre-litigation mediation’ wherein the parties submit to mediation, independent of court proceedings, forms the focus of the present article.
Mediation in India
Mediation in India is still in its nascent stage, and remains a novel concept for a significant portion of population. Mediation was incorporated in the Indian legal system vide the enactment of Section 89 in CPC in 2002 that paved way for Court-annexed mediation, mandating the court to refer matters to be resolved through Alternative Dispute Resolution [“ADR”], in cases where the court is of the opinion that there exist elements of settlements. Subsequently, there was a visible paradigm shift with the higher judiciary favoring and pushing all suitable matters to be resolved through mediation. A few mediation centres and court-annexed mediation centres have also recognized the recent trend of pre-institution mediation, by setting up of help desks or clinics to resolve certain disputes prior to litigation. Further, there has been an upward trend in inclusion of provisions for reference of disputes to mediation in recent legislations. For instance, Section 37 of the Consumer Protection Act, 2019 provides for the District Commissions to first refer the parties to mediation in cases where there are elements of settlement; and Section 442 of the Companies Act 2013[a5] [D6] which allows the parties to opt for mediation and empowers the NLCT or NCLAT to refer any matter pending before it for mediation to the Mediation and Conciliation Panel maintained by the Central Government.
Mandatory Pre-institution Mediation in India
Despite courts and the legislature endeavoring to popularize mediation as an effective method of resolving certain kinds of civil and commercial disputes, it has oft times remained a toothless and discretionary remedy. While many countries have seen a proportional growth in pre-litigation mediation by imbibing and fostering the culture of court-referred mediation, in India however only a fraction of civil cases have been referred by court to mediation and conducted by existing institution. Furthermore, the mis-conceptualization of ‘mediation’ in various legislations such as the Companies Act 2013, Industrial Disputes Act 1947 and Legal Services Authorities Act 1987 has blurred the distinction between mediation and from other methods of ADR, such as judicial settlement and conciliation.
A significant development in this context has been the enactment of Section 12A of CCA. The provision stipulates pre-litigation mediation, envisaging an increase in accessibility and acceptability of mediation, building upon the pre-existing mechanism under the Legal Services Authority Act, and expedited resolution of the commercial disputes in the economic interest. The Section was aimed to preventing clogging of the system by non-urgent matters, for which mediation is more appropriate remedy. It provides for mediation as the remedy of first instance. This essentially means that the parties to a commercial dispute, subject to qualifying the threshold under the Act, are mandatorily required to exhaust the remedy of mediation prior to filing a suit except where any urgent interim relief is sought by the parties.
Scope of mandatory pre-institution mediation in India
In the past decade, a significant portion of mediated cases have been based on the ‘opt-in model’ or voluntary private mediation by the parties. However, within the provisions of mandatory pre-institution mediation the Indian legislature has also adopted the ‘opt-out’ model of mediation, as evident from Section 12A. This model allows the parties to opt out of mandatory mediation, at an initial stage, should they be unsatisfied with the progress of the process. The model has been successfully adopted in countries such as Italy facilitating the virtues of self-determination and voluntariness.
The seemingly mandatory pre-institution mediation also provides adequate exemptions to the parties in order to avoid submitting their dispute to mediation. Section 12A allows parties to opt out of mandatory mediation by arguing a case of urgent interim relief, thereby making a necessary segregation for speedier disposal of disputes. However, what constitutes ‘urgent interim relief’ has been subject to judicial discretion and potential misuse by parties in the absence of any indication in the parent Act. The scope of pre-institution mediation contains another dimension in relation to the types of disputes that are subject to it. While the courts have advocated for importing mediation to a wider array of disputes, including those pertaining to criminal matters, in reality mediation has been adopted predominately to resolve matrimonial and family disputes.
Even though pre-institution mediation has been a laudable step, it is yet to realize its full potential. The primary concern over its implementation and subsequent effectiveness arises out of the limited interpretation of the Section12A of CCA, lack of uniformity and the absence of a specialized legislation to govern the mediation process. The conduct of pre-institution mediation proceedings is overly dependent on the State and District Legal Authorities, which is not only short on the number of empaneled mediators but also lacks the requisite expertise and experience to mediate commercial disputes. Another concern posed by the current framework is on the front of uncertainty in the enforceability of the mediated settlement. Moreover, lack of clarity in the enforceability of cross-border settlements, with no statutory framework implementing the Singapore Convention on Mediation is another hurdle to the process.
Presently, pre-institution mediation settlement agreements may be enforceable in the following ways: first, by making an application to the court under Order XXIII Rule 3 of CPC to effect the privately mediated settlement; secondly, on the basis of contract law; and thirdly by statutory recognition of mediation settlement as arbitral award under Section 30(4) of Arbitration and Conciliation Act 1996. While the first two ways render the process cumbersome and burdens the parties with additional costs, the third way has limited application, by excluding private mediations from its purview, as observed by the courts.
The aforementioned inherent challenges in the existing pre-institution mediation coupled with the need to increase public awareness and credibility about mediation have created a longstanding need for the formulation of a single and uniform regulatory framework governing mediation. Catering to the same, the Government has envisaged enacting the Draft Mediation Bill 2021 to promote mediation for resolving of disputes, enforcing mediated settlement agreements and providing for council of mediators.
Draft Mediation Bill, 2021 – a missed opportunity?
Section 6 of the Bill provides for mandatory pre-institution mediation and states that the parties shall undertake pre-litigation mediation to settle the dispute prior to filing any civil or commercial suit. [a7] [D8] The Act places an obligation on the courts and LSAs to constitute a panel of mediators for pre-institution mediation and enlists an extensive list of mediators. This includes mediators registered with the Mediation Council of India established under Section 33, empaneled in court-annexed mediation centres, Legal Services Authorities, or by recognized mediation service providers. Section 28 provides statutory recognition to the mediated settlement agreement, rendering them as being final and binding on the parties and enforceable as a judgement or decree by a court under CPC.
The Mediation Bill, though a step in right direction, fails to address several important issues as would otherwise be expected of a robust and comprehensive framework on mediation. First, the Act falls short of being a uniform law to govern mediation as it excludes court-referred mediation and mediation under Commercial Courts Act, Legal Service Authority Act, Consumer Protection Act and MSMED Act. Such exclusion creates the problem of multiplicity of avenues under various laws and differing procedures. Secondly, while the Bill makes pre-institution mediation mandatory in all civil and commercial cases, it excludes extensive categories of matters, albeit vaguely worded, from the purview of mediation. Thirdly, the Bill increases the time-period provided for completion of the process to 180 days, while also providing for possible extensions. Such an increase in the time period of mediation can potentially lead to inadvertent delays, consequently imposing additional costs upon the parties. Lastly, the Bill while creating the exception of approaching the court in cases of urgent interim relief has not provided for the time-period within which the mediation process should resume. This leaves the room open for parties to simultaneously undertake mandatory mediation and also approach the courts seeking interim relief. Consequently, it may result in parties coming to mediation without a bonafide interest and an inherent unwillingness to settle the dispute through mediation, thereby defeating the objective of pre-institution mediation.
International Best Practices
It would be fair to argue that the scope of pre-institution mediation in India is severely limited and would require systemic improvements to realize its full potential. In this regard, it might be of aid to examine and potentially adopt several aspects of mediation framework and practices that are adopted in Italy and Turkey, having produced overwhelming success of mandatory pre-institution mediation.
The Italian ‘opt-out’ model of mandatory mediation was introduced to reduce the requirement of mandatory mediation to fewer types of claims. Under the model, the parties must participate at the first meeting with the mediator. The meeting is inexpensive, there are material penalties for non-attendance and there is no compulsion to pursue mediation after this initial meeting as either party can decide to stop the mediation immediately, by paying only a nominal fee. This easy-opt out model has resulted in Italy experiencing upwards of 150,000 mediations a year.
In Turkey, there has been an unprecedent increase in number of mediation cases since the introduction of Article 3 of the Labour Courts Act, 2017 titled “Mediation as precondition to file a case”. The Turkish law requires litigants to first attempt to settle the case via mediation. After the success of this model, Turkey plans to extend it to civil and commercial disputes. The Turkish law also imposes training standards for mediators and quality control mechanisms over the mediation process, where scores of international mediation experts have trained mediators.
Thus, introducing a well-balanced mediation regulatory framework providing an easy opt-out model of mandatory mediation is likely to substantially increase the number of both mandatory and voluntary mediations.
Solutions and Way Forward
By conducting a conjunctive analysis of the shortcoming in the Indian framework, and reforms that have proven successful elsewhere, the following recommendations are made to enhance the mandatory pre-institution mediation framework in India. First, there is a need to improve the quality of mediators. Such improvement can be brought about by rejecting the general notion that ‘anyone can mediate in India’. To the contrary, mediation requires unique skill-sets. Therefore, improving the standards of mediation training and setting up a mechanism of quality control for qualifying as mediators must be prioritized. The mediator qualification guidelines, ‘Civil Procedure Alternative Dispute Resolution and Mediation Rules, 2003’,should be adopted, thereby bringing the mediation training programs in line with international standards and best practices. Second, the length of the mediation proceedings as envisaged under the Mediation Bill is seemingly an anathema to the objective of pre-institution mediation i.e., to ensure speedy resolution of disputes. Thus, the timeline of a mediation proceeding should be restricted to a maximum of 90 days, including extensions. Third, appropriate provisions for imposing sanctions, economic or otherwise, should be enacted to ensure that parties do not attend or remain absent from the pre-institution mediation proceedings with malafide intent. On the flip side, to reduce the financial burden on parties, innovative schemes such as that introduced in Kerala Court Fees Act wherein the parties are required to pay a partial upfront fee and the rest to be paid afterwards enabling them to opt for mediation during litigation, should be brought in force. Fourth, the scope of pre-institution mediation must be expanded to include a larger pool of matters for which mediation is an appropriate remedy, instead of limiting it to certain civil and commercial disputes. Fifth, the essence of pre-institution mediation will remain a chimera unless the statutory mandate is aided by mediation awareness exercises. To this extent, awareness about mediation can be increased by introducing mediation in education curriculum, training programs and other modes of publication.
Mandatory pre-institution mediation, when properly implemented and built on the foundation of a robust regulatory framework, would enhance the primary benefits of mediation. This includes speedier and cost-effective resolution, confidentiality and preservation of party-relationship. Pre-institution mediation, if done right, could become the ‘go to’ dispute resolution mechanism in India.
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