Commercial Mediation In India

The popularity of Mediation as an alternate dispute resolution method is evidenced by the fact that mediation has gradually made its way into Dispute Resolution clauses of almost all modern commercial agreements.
India Litigation, Mediation & Arbitration
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The popularity of Mediation as an alternate dispute resolution method is evidenced by the fact that mediation has gradually made its way into Dispute Resolution clauses of almost all modern commercial agreements. This is a welcome development. Mediation allows parties to have an opportunity to speak their minds, hear the other side's positions and adopt a strategy to work towards resolving the dispute. The benefits of Mediation as an alternate dispute resolution method are several: confidential, time-sensitive, inexpensive, less formal than court proceedings and most importantly it has the potential to reduce stress. It is because of these numerous advantages amongst others that Mediation has become mandatory before invoking arbitration clauses and/or initiating a commercial claim in the regular courts.

In India, there are two principal legislations that deal with Mediation- The Code of Civil Procedure, 1908 and Arbitration and Conciliation Act 1996. Mediation in India can be court-mandated or private. The increasing popularity of commercial mediation is India can also be further attributed to judicial efforts in this regard. In Salem Advocates Bar Association, Tamil Nadu vs Union of India (Writ Petition (Civil) Nos. 496 and 570 of 2002), the Supreme Court held that a reference to mediation and conciliation is mandatory for court matters. Since then, Mediation has found favour in various statutes and rules of various High Courts. One such recent legislation is the Commercial Courts Act 2015, whereby it is mandatory for parties to exhaust the remedy of pre-institution mediation under the Act before instituting a suit. The Commercial Courts (Pre-Institution Mediation and Settlement) Rules 2018 (the PIMS Rules) have also been framed by the government under the Act to further provide guidelines on the process.

Advantages and Modes of Mediation

Mediation is preferred mainly for the following five reasons:-

  1. Voluntary: It is a voluntary process for both parties. Pre-litigation mediation in some issues has been made mandatory in recent years, but the process remains voluntary i.e. although the parties may be directed by the courts to attempt resolution of the disputes through Mediation, no one can force any of the party to mediate or settle the matter to one's disadvantage. It is imperative that opposing parties agree to the resolve the dispute without the influence of the mediator. Mediators can only help the parties in dispute to arrive at the right and just settlement that is beneficial for both. Since it is voluntary, any of the parties can leave and withdraw from the mediation at any time without any cost sanctions at any stage.
  2. Communication: The relative informal nature of this process allows parties and/or their representatives to communicate their issues in their preferred method of communication. This could also potentially involve both sides attempting to mediate by way of electronic written submission to a mediator. Communication is usually kept informal, as it is particularly useful for mediators to break deadlocks.
  3. Negotiation: Unlike court litigation and arbitration, parties are free to negotiate the extent of damage, mitigation, ultimate pay out sums and determine their obligations moving forward. In more formal procedures in courts and arbitration, only the rights and liabilities of the parties are determined and acknowledged and an award or a judgment is delivered whereas in Mediation parties can write their own settlement and make the settlement binding by way of contract.
  4. Confidentiality: Confidentiality is paramount. Discussions that transpire in the course of Mediation are not recorded and protected from the court process. Any offer made in the negotiation during Mediation has no bearing on the future record or conduct of both parties. Likewise, the Mediator has no right to disclose the same or appear as witness in future or current court proceedings.
  5. Economic: Mediation is the most economic alternate mode of settlement of disputes. There is no statutory stamp duty that must be paid either on the claim or on the counter claim and also no exorbitant fee to be paid to the mediator, unlike arbitration and counsel costs. That is the reason the mediation has become an alternate dispute resolution forum and is fiercely competing with Arbitration.
  6. Binding: A successful Mediation results into a 'Settlement'. Section 73 of the ACA provides for the drawing up and signing of a written settlement agreement. When the parties sign the settlement agreement, it shall be final and binding on the parties claiming under them respectively. The mediator is required to authenticate the settlement agreement and furnish a copy of the same to each of the parties. In the case of a settlement arrived at in a court-annexed mediation or judicial settlement, the same should be reduced to writing and presented to the court, which will pass an order or decree on the terms thereof. A mediation settlement has the same status as an arbitral award and hence can be challenged on the same grounds as an arbitral award. The vitiating factors are in the nature of fraud, coercion, corruption, incapacity of a party or the settlement being contrary to public policy or a fundamental policy of Indian law. For enforcement, a 'Settlement Agreement' like an arbitral award is enforceable as a decree of court as per section 36 of the Arbitration and Conciliation Act of 1996. In cases of settlements in court-annexed mediations, the settlement is enforced through the courts as the court passes an order or decree in terms of the written settlement.

There are various models and methods that are used by Mediators to approach a dispute in Mediation. Two of the most popular methods that are deployed are 'Facilitative' and 'Evaluative'. In the latter the Mediator takes a more analytical but neutral role and attempts to evaluate the merits and demerits of an arguments using his legal and commercial expertise to arrive at a settlement for the parties. As per the 'Facilitative' method, the Mediator leads both parties to a place where they can, in their own positions, try to see the merits of the other side's arguments and facilitate a resolution of the dispute. Often, both these methods are deployed together at different times within the mediation process.

Way forward

With India signing the United Nations Convention on International Settlement Agreements Resulting from Mediation (Singapore Convention) 2018 it seems that all stakeholders have acknowledged the success of Mediation. There has also been consideration of institutional mediation in India. In February 2020, Chief Justice of India Mr SA Bobde while addressing a gathering at an international conference organised by Indian Council of Arbitration and FICCI emphasised that it is the time to potentially have in place a dedicated institution for mediation.

Mr. K K Sharma SA had advised and acted in several commercial mediations and arbitrations as well as formulating strategies at a pre-litigation stage in complex commercial disputes. The increasing commercial awareness of parties coupled with the fact of the huge backlog in cases at the commercial courts in India has led to a shift in the way Mediation was perceived. There has been a rise in the number of disputes where commercial disputes were resolved through Mediation particularly in the pre-litigation stage. It seems that given the legislative and institutional backing of the judiciary time is now ripe for parties to consider Mediation as an alternative to expensive and often stressful court litigation.

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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