January 2022
1. Introduction
It is common knowledge that the Indian justice system is largely adversarial. Yet, judicial and quasi-judicial forums continue to grapple with systemic inadequacies and rising case pendency. To resolve this, the government has taken several measures including promotion and development of alternate means of dispute resolution. While arbitration has evolved over the years, the focus has now shifted towards institutionalizing mediated settlements. In fact, for a long time, India has mulled over introducing an all-encompassing law on mediation. Finally, on December 20, 2021, the Mediation Bill, 2021 (“Bill”) was introduced in Rajya Sabha, i.e., the upper house of the Indian Parliament.[1] On the same day, it was sent to the Parliamentary Standing Committee on Law and Justice for further deliberation.[2]
The present draft comprises of 65 clauses and ten schedules. It extensively covers several areas including contours of institutional mediation, establishment of a regulatory body, recognition of entities conducting mediation, role, qualifications and training of mediators, online mediation, community mediation, settlement of cross border disputes through mediation, compulsory pre-litigation mediation and enforcement of mediated settlement agreements. This newsletter aims to analyze only selective key provisions of the Bill concerning institutional mediation, compulsory pre-litigation mediation as well as enforcement and setting aside of mediated settlements and the way forward.
2. Mediation process: Less informal, more institutional
Mediation, unless court-driven, is an informal process where consenting parties come together to resolve their disputes amicably. This process is facilitated by a neutral third-party, i.e., a mediator. Due to the informal nature of proceedings, settlements arrived through mediation are not legally binding, except in cases where parties are referred by courts to mediate their disputes, and, settlement terms, if any, are recorded before the court and adopted by parties as final determination of their rights and liabilities. Where parties mediate without court intervention, they may record their understanding into a settlement agreement and abide by its terms on their own volition. In case of a breach, the aggrieved party can initiate legal proceedings against the other for breach of contract or trust, but cannot enforce the settlement agreement as a decree of court.
Now, the Bill proposes to formalize and institutionalize mediation to promote it as the first step towards dispute resolution. While procedural formality may initially lead to some degree of inflexibility, it is often considered an important tool to structure and consolidate any area of law which has, until then, remained fragmented. To this end, some of the key provisions proposed in the Bill are explained below:
2.1 Application: The Bill is applicable to (a) Indian residents or entities incorporated or having place of business in India; (b) parties who have agreed to subject their disputes to the provisions of the Bill by executing a mediation agreement; and (c) international mediation. Clause 3(f) of the Bill defines international mediation as the mediation related to commercial disputes arising out of legal or contractual relationship governed by applicable Indian laws, where at least one party is (i) a foreign national, or (ii) body corporate, limited liability partnership, or association of individuals having place of business outside India, or (iii) a foreign government. In essence, parties who wish to be governed by the Bill must choose Indian law as the substantive law of the contract.
Additionally, the Bill also applies to commercial disputes where one of the parties is the Central or State government, or its agencies, public bodies, corporations, local bodies, or entities owned or controlled by the appropriate government. However, the scope is limited as matters between private and government bodies which relate to consumer grievances, industrial disputes, etc. are excluded. Nonetheless, the Bill allows the government to notify or refer more kinds of private-public disputes to mediation, if it deems necessary. Further, disputes solely between government entities are not included within the ambit of this Bill. Accordingly, the application of the Bill on government and its agencies is restricted under the current draft.
2.2 Mediation Agreements: As contractual relationships become more sophisticated and nuanced, parties voluntarily factor mediation under the dispute resolution clauses. The Bill envisages a written agreement between parties to be able to submit one or more disputes to mediation. Such agreement can be (a) in the form of a standalone agreement signed by the parties or a mediation clause incorporated in an existing contract, (b) contained in an electronic communication such as e-mails, letters, etc., recognized under the Information Technology Act, 2002, or (c) stated in pleadings of a suit or other legal proceeding in which existence of a mediation agreement is alleged by one party and is not denied by the other party. For instance, a mediation agreement is executed between parties in any of the forms prescribed under (a) and (b) above, and the original agreement is lost. If one party makes an averment regarding the existence of such mediation agreement in its pleadings before a competent court, and this averment is not refuted by the other party, the mediation agreement shall be deemed valid and subsisting under the Bill.
The requirement of a written mediation agreement can be easily fulfilled by drafting multi-tier dispute resolution clauses where mediation is the first step. This ease of submitting disputes to mediation will attract parties to mediate. As a consequence, the judicial system will benefit significantly as parties will keep out of court, at least for the foreseeable future.
2.3 Mediation Council of India: The Bill envisages establishment of an overarching body called the Mediation Council of India (“MCI”) to perform functions necessary for promotion and development domestic and international mediation in India. Broadly, MCI will (a) recognize mediation service providers and mediation institutes[3], (b) stipulate the manner of grading mediation service providers, (c) lay down guidelines for continuous education, certification and assessment of mediators, (d) provide for registration of mediators, (f) lay down standards for professional and ethical conduct of mediators, mediation service providers and institutes, (g) prescribe framework for registration of mediated settlement agreements[4], (h) maintain an electronic depository of mediated settlement agreements executed in India.
This is a positive step in a creating a robust institutional mediation ecosystem. Continuous education and training will create a pool of competent and qualified mediators. An electronic depository of mediated settlement agreements will support research and development of jurisprudence in this field of law. But it is critical that the principles of confidentiality are not compromised in the process.
2.4 Mediation Service Providers: Clause 3(l) of the Bill defines a mediation service provider as a body or organization recognized by the MCI for conducting mediation. Such service provider will also include Lok Adalats, authorities constituted under the Legal Services Authority Act and court-annexed mediation centres. The first court-annexed mediation centre was inaugurated at the Madras High Court on April 1, 2005. Subsequently various High Courts and District Courts followed suit. Recently, private mediation centres including Indian Institute of Arbitration and Mediation, New Delhi and those in Bangalore Hyderabad and others, have mushroomed. But in the absence of real time data, it is difficult to claim if the existing mediation centres, whether court-driven or private, are running successfully. By providing for recognition to mediation service providers, the Bill assures transparency, accountability and standardization in the functioning of such mediation centres.
2.5 Role of a mediator: A mediator is an individual(s) appointed by parties to settle their disputes through mediation and includes a person registered with MCI. Under the Bill, foreign nationals are allowed to be appointed as mediator(s), only if, they possess prescribed qualification, experience and accreditation. The Bill empowers MCI to make regulations in this regard. Parties have the autonomy to agree upon the number of mediators and appointment procedure. If parties are unable to collectively decide the mediator(s), they can apply to a mediation service provider for such appointment.
The role of a mediator is to facilitate parties to reach amicable settlement of their dispute by identifying key issues, reducing misunderstandings, and creating options for compromise and a win-win situation. Such person must act objectively and in a fair and impartial manner. The Bill mandates mediators to protect the “voluntariness, confidentiality and self-determination” of the parties. Therefore, they can cannot impose any settlement terms upon the parties. In essence, a mediator should act as a facilitator and not an adjudicator that works to steer the disputing parties to an outcome that is in their best interest. Practically, court-appointed mediators are often ex-judges or law officers who may not necessarily have the correct r mindset to view mediation as a mere assistance to aggrieved parties. Going forward, it is important that mediators, irrespective of their affiliation to a mediation service provider, are guided and trained to leave the adjudicatory approach outside the door.
3. Mandatory pre-litigation mediation
Mediation can be initiated prior to and during the course of legal proceedings. Section 89 of the Code of Civil Procedure empowers courts to refer civil matters amenable to out-of-court settlement to different forms of alternate dispute resolution including mediation. The Commercial Courts Act and Consumer Protection Act also provide mediation as a mandatory first step before initiation of litigation. However, some courts have ruled that pre-litigation mediation under Section 12A of the Commercial Courts Act is not mandatory and merely directory in nature because the provision is procedural and does not affect the substantive rights of the parties.
Clause 6 of the Bill seeks to make pre-litigation mediation mandatory for civil and commercial disputes, irrespective of parties entering into a mediation agreement.[5] The objective is two-fold: (a) to reduce burden on courts, and (b) to insist parties to try this process for resolving their disputes. The legislative intent does not appear to compel litigants to reach a settlement or infringe the spirit of voluntariness.[6] Instead, it allows parties to explore an option which ensures confidentiality, is more flexible, cost and time efficient, before taking the conventional route.
4. Mediated settlement agreements: Enforcement and Challenge
Mediation is not a recent phenomenon in India. Yet, parties are reluctant to select it as a preferred mode of dispute resolution. One of the key reasons is that till date, mediated settlements, except those driven through courts, are unenforceable. The Bill aims to resolve this impending issue by making mediated settlement agreements final and binding on the parties. Additionally, such settlement agreements shall be enforceable as a decree of court and can be relied by the parties in other legal proceedings. Enforceability of mediated settlement agreements will reduce dependence on an already overburdened court system and direct parties towards a more cost-effective solution.
A party can challenge the enforcement of a mediated settlement agreement before a competent court within 90 days from the date of receipt of such agreement. This period can be extended by another 90 days if the applicant is able to show sufficient cause. Mediated settlement agreements can be set aside on limited grounds. These are (a) fraud, (b) corruption, (c) impersonation, (d) disputes not fit for mediation. Clearly, the grounds of challenge stated in the current draft are broad, vague and open to judicial interpretation. Indian courts have dealt with cases involving allegations of fraud or corruption in passing arbitral awards. While the jurisprudence at hand is limited, it can be helpful in setting parameters for deciding challenge to mediated settlement agreements on these grounds.
5. Conclusion
India is committed to improving ease of doing business and the Bill is a welcome step in that direction. However, it has several inconsistencies which are likely to be addressed through judicial intervention or legislative amendments. The Bill proposes mandatory mediation before initiating legal proceedings of civil and commercial nature. Mandatory pre-litigation mediation is often construed as contradictory to the fundamental principle of voluntariness inherent in this process. This perspective is slightly misconceived as parties are only pushed towards using a different form of dispute resolution and not coerced into reaching a settlement. Several provisions of the Bill are procedure-driven with the underlying intent to provide structure to the law, but in that process, appear to undermine the informal and simple approach generally associated with mediation. Going forward, we hope that mediation becomes a sustainable solution to rising case pendency and does not transform into pseudo-litigation.
Author
[1] Full text of the Bill can be accessed at https://legalaffairs.gov.in/sites/default/files/mediation-bill-2021.pdf [last accessed on January 23, 2022]
[2] See https://www.thehindu.com/news/national/government-sends-biodiversity-mediation-bills-for-scrutiny/article37998514.ece [last accessed on January 23, 2022]
[3] Clause 3 (k) of Bill defines a mediation institute as a body or organization responsible for training, continuous education and accreditation of mediators.
[4] Mediated settlement agreements arrived at without court intervention shall be registered with the authority established under the Legal Services Authority Act within territorial jurisdiction of the court or tribunal competent to decide the subject matter of the dispute. For instance, if the dispute comes within jurisdiction of Rohini Courts, North-West district, Delhi, settlement agreement, if any, shall be registered with North-West Delhi State Legal Services Authority. Thereafter, such agreements will be deposited with MCI for record keeping.
[5] Pre-litigation mediation for commercial disputes will continue to be governed by the Commercial Courts Act
[6] See https://www.mediate.com/articles/reddy-nanda-mandatory-mediation.cfm [last accessed on January 24, 2022]