India: Mandatory mediation prescribed prior to filing of commercial suits

Last Updated: 21 August 2018
Article by Naval Sharma and Shriya Luke

The Commercial Courts Act, Commercial Division and Commercial Appellate Division of High Courts (Amendment) Bill, 2018 ('Amendment Act') was passed by the parliament on 10 August 2018. Earlier on 3 May 2018 the government had notified the Commercial Courts Act, Commercial Division and Commercial Appellate Division of High Courts (Amendment) Ordinance, 2018 ('the Ordinance') which has resulted in the Amendment Act. Amongst the other amendments suggested to the Commercial Courts, Commercial Division and Commercial Appellate Division of High Courts Act, 2015 ('Act'), the Amendment Act provides for a mandatory mediation prior to institution of a Commercial Suit. 

§12A of the Ordinance prescribes mandatory mediation before a party can approach a commercial court with a Suit. The exception to this rule is cases wherein urgent interim relief is being sought (such as an injunction). Consequently, §12A introduces a bar to the filing of such Commercial Suits, where urgent interim relief is not sought.

Pursuant to the notification of the Ordinance, the Commercial Courts (Pre-Institution Mediation and Settlement) Rules 2018 ('Rules') were notified by the Central Government on 3 July 2018. The Rules define 'Mediation' to mean a process undertaken by a mediator to resolve, reconcile and settle a commercial dispute between the parties.

The mediation process, under the Rules, can be commenced at the instance of the applicant by making an application to the concerned 'Authority' who will assign a mediator to conduct the mediation process. The time period prescribed for completion of the mediation process is three months from the date of the application for initiating such mediation. The time period may be extended by two months, with the consent of the parties. The settlement arrived during the mediation process will have the same status and effect as that of an arbitral award under sub-section (4) of §30 of the Arbitration and Conciliation Act, 1996.

The Rules further provide that, when a party refuses to participate in the mediation or when no settlement is arrived at between the parties, within the stipulated time period or where the mediator is of the opinion that the settlement is not possible, the mediator is required to submit a failure report to the Authority. The Rules further ensure confidentiality, by directing all parties to the mediation process, including the mediator to maintain confidently in relation to the mediation proceedings.

While the Rules for the mediation process have been laid down, the Authority who will be responsible for conducting the mediation has not been notified yet by the Central Government. As a result, till such time that the Authority is in place, the Rules cannot be effectively implemented.

Mandatory mediation prior to filing of a commercial suit has been prescribed as a measure to promote alternate dispute resolution processes such as mediation and reduce the burden of the Indian courts by ensuring that parties make a genuine attempt to resolve disputes prior to filing proceedings in court.

Historically, mediation in India has seen little or no traction. In 1999, the Civil Procedure Code, 1908 was amended to include §89, which allowed courts to refer disputes for settlement through alternate dispute resolution processes, including mediation. There exists no data on how many disputes were resolved through such a mandatory mediation process, litigants however have always preferred to have their disputes adjudicated before the court rather than submitting to the mediation process.

The new push by the Central Government is a welcome step and is likely to promote mediation, however to ensure its success and instil litigant confidence in the process, strong institutional support, infrastructure and sufficiently trained mediators will be a pre-requisite.

For further information on this topic please contact Tuli & Co 

Tel +91 11 4593 4000, fax +91 11 4593 4001 or email lawyers@tuli.biz

www.tuli.biz

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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Authors
Naval Sharma
Shriya Luke
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