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The Editorial Column is authored by Arun Raghuram Mahapatra and Jugaad Singh, Junior Editors at the RGNUL Financial and Mercantile Law Review.
1. INTRODUCTION
In the course of any trade or commercial activity, one is bound to run in to several conflicts. The courts and civil litigation have been the mode of dispute resolution for ages. While bringing such a conflict before the court does have its advantages, in today’s day and age, we find that most entities and individuals engaged in commerce are more prone towards amicable, alternative means of dispute resolution which save the parties both time, money and ensure peace of mind. It also allows commercial entities to maintain a good relationship with contracting parties despite commercial disputes. One such process is that of Mediation, which has been a distinct feature of dispute resolution in India, the roots of which can be traced back to introduction of panchayats in our ancient societies. As of March 2022, CJI U.U Lalit said that the Indian judiciary currently faces a backlog of up to 4.70 crore cases, awaiting litigation in courts across India. In order to reduce this burden and take on this daunting task, reference of cases to mediation in hopes of an expedited resolution seems like an extremely viable solution. The addition of Section 89 to the Civil Procedure Code by way of the 1999 amendment act provided recognition to mediation in order to achieve a simple, expeditious and party centric means of dispute resolution. However, recent developments apropos mandatory pre-litigation mediation, which may relieve our overburdened courts, has also led many legal professionals to question the very basics of mediation and the consequences of such legislative actions.
2. RECENT RULINGS & LEGISLATIONS ON MANDATORY PRE-LITIGATION MEDIATION
The focus of mediation has always been on being voluntary and self-determinative. However, with the introduction of Section 12A of the Commercial Courts Amendment Act of 2018, we have observed that a mandatory status has been conferred upon pre-litigation mediation. This would require all parties in a commercial dispute to initiate mediation proceedings for at least 3 months. The operative word in the provision was “shall” which the court in the case of Patil Automation Pvt. Ltd. V. Rakheja Engineers Pvt. Ltd. construed to be mandatory in nature, thus giving the amendment “teeth” to ensure that more cases be resolved through the process of mediation.
The SC has relied upon the judicial precedence established in Sharif-ud-Din v. Abdul Ghani Lonein order to determine whether section 12A is mandatory. It was observed that, if, by virtue of non-compliance with the provision, the object of the law is defeated, then in order to remedy the same, it would be regarded as mandatory.
In order to preserve the objective of the Amendment Act, it was necessary to comply with pre-litigation mediation. Therefore, the Court held that the provision of pre-litigation mediation under Section 12A of the Commercial Courts Amendment Act is mandatory in nature.
Apart from the Commercial Courts Act, even the Consumer Protection Act (Sec. 37), the Companies Act (Sec. 442), and the Civil Procedure Code (Sec. 89) have provisions in relation to mediation, although not mandatory. Lastly, as if to take the pro-mediation stance to the apex, the government has come up with a provision of participating in at least 2 mandatory pre-litigation mediation sessions under the Draft Mediation Bill of 2021 (which will be discussed in greater detail below in the upcoming sections).
3. VOLUNTARY V/S MANDATORY MEDIATION: WHAT IS THE CORRECT WAY FORWARD?
The mandatory mediation framework vis-à-vis the Commercial Courts Act (and Draft Mediation Bill), although does not compel the parties to reach a settlement and only undergo the process of mediation, puts forth certain ‘mandatory’ criteria to be satisfied before instituting court proceedings. This may feel cumbersome to unwilling parties.
While this method has found some success in other nations, many lawyers are not in favour of referring cases to mediation by courts as it may end up being anti-thetical to the idea of alternative dispute resolution as an unwilling party, whose access to the courts is being curtailed or delayed by such provisions, may consider these mediation sessions to be a mere formality or hurdle before commencing with litigation. The plaintiffs seem to hold a similar view. In most cases they consider it to be giving ground to the opposing parties, which may affect their interests, and hence treat such a process with apprehension if not entered into willingly. Mediators have also reported that in many a case, lawyers do not bother with preparing for the mediation due to their perception of mediation as a necessary obstacle, making such an imposed process of no use to either party. The biggest drawback of mandating mediation lies in further delaying the process of dispute resolution, especially in commercial disputes where time is of the essence, and the resulting additional costs.
However, studies have conclusively demonstrated that requiring litigants to make a serious and reasonable initial effort at mediation is the greatest strategy, if not the only one, to considerably increase the number of mediated disputes. For example, in the European Union (EU), it was found in a study that despite the Mediation Directive, mediation was being employed in less than 1% of the total disputes in the EU. The study found the main cause of the same to be the retention of a voluntary approach to mediation in almost all of the EU Members. Similarly, in the United States, although there is no national unified policy on mediation, many courts and federal agencies have adopted mandatory mediation programmes after realising that the purely voluntary route was of little use.
Furthermore, the most important point to be noted is that, countries which have mandated mediation have witnessed encouraging results. For example, retail tenancy disputes in Australia, which are required by law to be mediated before they can be heard, depict a settlement rate of more than 80%. Similarly, in 2015, Italy had a settlement success rate of 44% in the cases which required mandatory mediation. These numbers show that despite mandatory mediation resulting in greater time taken for commercial disputes in certain cases, overall, it eases the judicial backlog due to its high success rate.
Hence, the authors have positive outlook towards the current developments in India vis-à-vis mediation and agree that mandatory mediation is indeed the correct way forward. However, at the same time they do share some reservation on the Draft Mediation Bill as it currently stands, and will critique the same in the next section.
4. MEDIATION BILL 2021 - A HALF-BAKED STEP IN THE RIGHT DIRECTION
In light of the foregoing discussion, the Draft Mediation Bill, 2021 (“Bill”) which was introduced in the Rajya Sabha on December 20, 2021, is definitely a step in the right direction. Some of its defining features are the mandatory requirement for pre-litigation mediation (at least two sessions) in civil or commercial disputes, the establishment of the Mediation Council of India (“Council”), conferring the status judgments/decrees to mediated settlements, community mediation, and other pertinent rules related to the mediation process. However, the Bill is also half-baked at the same due to some inherent issues, which are as follows:-
Unless the parties agree otherwise, the Bill mandates that mediators conducting pre-litigation mediation must be registered with the Council, a recognized mediation service provider, a Legal Services Authority, and empanelled by a court-annexed mediation centre. It is not obvious why it is necessary for such mediators to meet all four conditions. This provision would lead to many practicing mediators needing to go through these bureaucratic processes of empanelment in order to be a valid mediator under the new framework. This would cause a shortage in mediators due to the stringent and unnecessary requirements, further impeding and stalling the mediation environment as a whole without contributing anything to it.
The Bill has limited applicability to international mediation, as although it allows enforceability of international mediation conducted in India, its ambit does not extend to international mediation settlements conducted outside India. Additionally, the Bill recognizes the former type of ‘domestic’ international mediation as a decree of a court, thus precluding the Singapore Convention on Mediation which does not apply to settlements having decree status. As a result, the majority of the perks of cross-border mediation, including worldwide enforceability, cannot be taken advantage of due to the short-sightedness of the Bill.
The Bill does not require the Council to have a practicing mediator. Generally, regulatory bodies for professionals necessarily comprise persons having considerable experience or practicing in the relevant field (see for examples, The Advocates Act, 1961, The Chartered Accountants Act, 1949, etc.). While the Bill requires full-time members to possess knowledge or experience pertaining to mediation or ADR laws, they might not always be practicing mediators with significant industry experience, and hence may be unsuited to carry out tasks like establishing mediators' professional conduct guidelines.
Additionally, the Council will discharge most of its functions by issuing regulations. However, before doing so, the Council requires the assent of the central government and this might result in a conflict of interest as the central government (or institutions, corporations, etc. owned or controlled by it) may also be party to mediations under the Bill.
As per the authors, some suggestions to alleviate the above loopholes and to improve the efficacy of the Bill would be:-
Streamlining and reducing the registration requirements for mediators to a single institution instead of the proposed four institutions. This would in no way affect the efficacy or the object of the provision since even any one of the four registrations should be more than enough to guarantee the credentials of a mediator.
Amending the applicability of the Bill to include the enforceability of the mediations conducted outside India as well and make the Bill more in line and consonance with the Singapore Convention.
Introduction of additional full-time member slots to the Council which must comprise of practicing mediators having the requisite experience in the field.
Guarantee independence to the Council in issuing its guidelines, in similar lines of the National Medical Commission and the Bar Council of India.
Additionally, the Bill could take inspiration from the Italian model to improve its efficacy. Under the Italian law, there is an easier ‘opt-out’ model, wherein the parties can stop the mediation proceedings in the first session itself, a departure from the mandatory 2 sessions under the Bill. Furthermore, the Italian government incentivizes the mediation process by providing tax credits for the first €500 of fees, should the parties continue to proceed further with mediation. Under this system, Italy registers more than 150,000 mediations each year.[1]
Lastly, the Bill could also make use of the restrictive Italian approach to mandatory mediation as starting test case before going on for the current scheme. In Italy, around 8% of commercial and civil proceedings require mandatory mediation while rest still use the voluntary approach. The said 8% of disputes consists of cases relating to property and inheritance matters, family agreements, loans, compensation for medical liability, defamation cases, banking and insurance contracts, and financial contracts.[2] On similar lines, the Bill for the time being could restrict its ambit to the afore-mentioned cases, and check the success of the regime, before proceeding to the blanket coverage as it currently proposes.
5. CONCLUSION
The authors are of the view that sometimes it takes a mandatory process to convince an unwilling adversary about the advantages that can flow from mediation. Even if the parties are reluctant to participate in the process, it should still cause the parties to realistically assess their case at a preliminary stage and could make conditions more suitable for an amicable settlement in the future. While certain professionals harbor their concerns about mandatory mediation, we need to realize that such a process barely infringes upon the “voluntariness” of the process and in no way binds any parties. It only asks of them to give mediation a shot. The success of bringing about such a drastic change in the way disputes in our country are resolved is contingent on the active participation of the legal community. However, the situation is not as favorable as it may appear. As previously mentioned, India lacks a conducive environment to facilitate successful mediation. Spreading knowledge among litigants, legal professionals, academics, and the general public is crucial. In order to ride the wave created by the introduction of the Mediation Bill, India will need access to qualified mediators and attorneys who are prepared to practice mediation. Advocates need to see mediation as a unifying rather than a divisive process. At this juncture, a mental shift toward mediation rather than litigation is crucial, and it will need the concerted efforts of all parties involved.
In order to lessen the load on our court system and boost its efficiency, we should embrace mandatory mediation during the pre-litigation stage with certain caveats as mentioned above. Mandatory mediation has without a doubt changed the game internationally, especially in the United States, Italy, Australia, and New Zealand. This should be a wake-up call for India, giving the country the information, it needs to improve its mediation laws.
Endnotes
[1] De Palo, Giuseppe and Romina Canessa. 2014-2015. “Sleeping - Comatose - Only Mandatory Consideration of Mediation Can Awake Sleeping Beauty in the European Union.” Cardozo Journal of Conflict Resolution 16, no. 3: 713-730. [2] Usluel, Asli E. Gurbuz. 2020. “Mandatory or Voluntary Mediation? Recent Turkish Mediation Legislation and a Comparative Analysis with the EU’s Mediation Framework.” Journal of Dispute Resolution 2020, no. 2 (Spring): 445-466.
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