The Commercial Courts Act, 2015 section 12A mandates that parties in ‘Commercial Disputes’ – which are valued at Rupees 3 Lakhs ($ 4000) or more – attempt to resolve their disputes through pre-institution mediation before initiating proceedings before a commercial court. This mandate does not apply to cases where one of the parties has initiated a dispute to seek interim relief. The mediation is conducted by the ‘Legal Services Authority’ across India.
Mediation procedure in commercial disputes
A party to the dispute submits an application with Form-1 specified in Schedule 1 of the Commercial Courts (Pre-Institution Mediation and Settlement) Rules, 2018 to the Legal Services Authority. Once the Authority has determined the territorial and pecuniary jurisdiction and nature of the dispute to be commercial, it issues a notice to the counterparty to appear and consent to the mediation process. If the counterparty provides its consent, the Authority will proceed with the appointment of a mediator for the dispute. However, if the counterparty refuses to participate in the mediation process or fails to respond, the Authority will inform the party applying for mediation. Hereafter, the initiating party may start proceedings before the commercial court for adjudication of the dispute.
Once the mediator has been appointed, he/she decides the date and time of each mediation session after consulting with both the parties, which may be held jointly or separately. During the mediation process, parties can make proposals for settlement that are confidential unless parties instruct the mediator to disclose their proposal to the opposite party. In case parties can reach a settlement, the terms of the settlement will be put into writing that has the same status as an arbitral award.
The mediation process must be completed within 3 months from the date of the application for mediation. If required, parties can be granted a 2-months extension.
For more, read ‘How does Mediation work?’
Is mediation compulsory in commercial disputes in India?
There is debate about the compulsory nature of resorting to mediation before filing for adjudication of the dispute before a commercial court. A recent judgment passed by the Division Bench of the Bombay High Court examined at length the purposefulness and objective of the Act and in particular Section 12A thereof. This judgment as well as the view adopted by the Calcutta High Court and Allahabad High Court in other judgments reflects a clear pro-mediation approach. However, opposing views adopted by for instance Madras High Court points out the fact that the right to access justice is a constitutional right, and parties cannot be deprived of it for not resorting to mediation.
While the latter cannot be disputed, requiring parties to go for a compulsory mediation does not deny them the right to justice as parties can always approach the court in case the mediation fails. Furthermore, as mentioned before, the legislature has already exempted cases where urgent interim relief is sought.
As the views adopted differ from High Court to High Court, it seems that this issue would finally have to be scrutinized and settled by the Supreme Court of India.
Mediation Rules
The mediator shall be bound by the following conditions.
The Mediator:
- upholds the integrity and fairness of the mediation process.
- ensures that the parties are informed about the procedural aspects of the mediation process.
- discloses any financial or other interest in the subject matter of the commercial dispute to the parties.
- avoids impropriety while communicating with the parties and refrain from promises or guarantees of results.
- recognizes that the mediation is based on the principles of self-determination by the parties and their ability to reach a voluntary agreement.
- does not meet or communicate with the parties or their representatives / counsels privately except during the mediation sittings within the premises of the Authority.
- does not interact with the media or publicize the details of any dispute under mediation or any other allied activity performed by him as a mediator, which may prejudice the interests of the parties to the commercial dispute.
