Those familiar with Indian legal system would know the kind of time it takes to dispose of cases. According to a recent survey, the pendency of cases across courts in India has only increased in the last decade. More than 30 million cases are pending, the average life of a case in India is 13 years. Litigants pay around ₹ 30,000 crore per year only to attend the court hearing. This is where the need for Alternative Dispute Resolution mechanisms like the mediation arises. Mediation must be a critical part of the solution to the profound problem of arrears of cases in the civil courts. The use of mediation results in better resolution, fosters collaborative problem solving, reduces the burden on the courts, is cost and time effective, and preserves relationships among disputants.

Mediation is used to resolve disputes through a mediator who is a neutral third party. Mediator facilitates the parties in reaching a mutually agreeable resolution, a win-win. Mediation is different from litigation and arbitration in that it doesn’t try facts nor arbitrate disputes by imposing a resolution on the parties [read our blog ‘Mediation as an alternative or an addition to litigation’]. Unlike arbitration, mediation has not been formalized and institutionalized in India. However, this is about to change with the recently proposed Draft Mediation Bill (‘draft bill’). 

In this article, we will focus on the existing framework around mediation and its limitations. To overcome these limitations, the government has proposed the draft bill. However, the draft bill has raised some concerns which need to be addressed immediately.

Existing Legal Framework

Even though India has had a long history of consensual dispute resolution and has in recent years made rapid advances in the court annexed/referred mediation schemes of the Supreme Court, High Courts and Subordinate courts, it still does not have clear-cut legislation on mediation. There are 2 different ways for parties in a dispute to initiate a mediation process in India.

1.     Private mediation: Parties can incorporate mediation (as a dispute resolution method) in the dispute resolution clause in their contract(s). 

2.     Court-referred mediation: under Section 89 of the Code of Civil Procedure 1908 (‘CPC’), mediation as a method of resolving disputes is mentioned as a method to ‘settlement of disputes outside the Court’.

There is a major lacuna in the overall legal framework of mediation. Private mediation does not have a regulatory framework on the enforceability of the settlements reached by the parties. Even tough insertion of Section 89 of the CPC in 2002 (Civil Procedure – Alternative Dispute Resolution and Mediation Rules, 2003) gave impetus to mediation in India, it remains ambiguous or as the Supreme Court of India put it in  Afcons Infrastructure Ltd. v. Cherian Varkey Construction Co. (P) Ltd., it contains drafting errors. There is no clarity on the use and difference between a ‘judicial settlement’ and ‘mediation.’ The provision isn’t clear about how disputes are to be referred for mediation.  

Apart from this, there is an overall lack of uniform rules of procedure governing mediation. Therefore, proceedings take place as per the rules prescribed by each High Court. Here, the court formulates the terms and conditions of settlement which are shared with the parties for their ‘observations’. The court reformulates the terms and conditions after a ‘careful consideration’ after which the case is referred to e.g., mediation. This leaves no space for parties to go through a dedicated process of coming to terms and conditions of a resolution on their own as there is nothing left to be done through mediation. Just having the option to opt for an ADR forum is useless. Moreover, the court does not require parties’ consent to refer the case to a mediator [Read here ‘How does mediation work?’]. All these obscurities are barriers to reaping the full benefits of mediation in India.

Some other statutes such as the Companies Act 2013, Industrial Relations Code 2020, etc., also provide for mediation but the post-litigation scenario in cases under these statutes is governed by the CPC (where the court decides the terms and conditions), and pre-litigation mediation remains unregulated. Also, Section 12A of the Commercial Courts Act 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 [read our blog ‘Is mediation compulsory in commercial disputes in India?’].

Draft Bill 2021 – the good and the not so good

The Draft Bill 2021 makes a successful attempt at filling up the lacuna in the existing legal framework by e.g., establishing the Mediation Council of India, encouraging private, online, and community mediation as an acceptable practice, enforcing a successful outcome of the mediation in the form of ‘mediation settlement agreements,’ etcetera. 

The draft bill also covers the provisions on the enforcement of international mediation settlement agreements since India is a signatory to the Singapore Convention/ United Nations Convention on International Settlement Agreements resulting from Mediation (adopted by the United Nations Commission on International Trade and Law (UNCITRAL) on 20 December 2018. Despite these positive attempts towards integrating Mediation into the Indian legal framework, there are certain provisions that are still open to interpretation:

• What does Section 2(i)(iii) mean with ‘If a party has more than one place of business, the place of business is that which has the closest relationship to the mediation agreement.’ This place of business must be adequately and unambiguously defined to prevent any conflicts over the jurisdiction of courts in case a dispute may arise.
• According to Section 7 mediation shall not be conducted in relation to matters listed under Schedule II of the draft. Schedule II is titled ‘disputes which may not be fit for resolution through mediation.’ The lawmaker must make such provisions more consistent and aligned.
• Schedule II lays down cases that cannot be subjected to mediation. Here, one can learn from the jurisdictions in arbitration cases. For instance, in the Vidya Drolia Judgment, the Supreme Court of India laid down the fourfold test for determining when the subject matter of a dispute in an arbitration agreement is not arbitrable:

“(1) when cause of action and subject matter of the dispute relates to actions in rem, that do not pertain to subordinate rights in personam that arise from rights in rem.

(2) when cause of action and subject matter of the dispute affects third party rights; have erga omnes effect; require centralized adjudication, and mutual adjudication would not be appropriate and enforceable;

(3) when cause of action and subject matter of the dispute relates to inalienable sovereign and public interest functions of the State and hence mutual adjudication would be unenforceable; and 

(4) when the subject-matter of the dispute is expressly or by necessary implication non-arbitrable as per mandatory statute(s).”-      

• Section 6 provides for the process of mandatory pre-litigation mediation. This would mean that parties initiate a mediation procedure, as provided under section 6 of this Act, for settlement of disputes before filing a suit or proceedings of any nature in respect before the Court or Tribunal of competent jurisdiction. This requirement of mandatory pre-litigation mediation is good to give impetus to mediation in India, but India does not have enough mediators and mediation centers. Also, compulsory mediation can put parties off of mediation as it is being imposed by law and it may not be the choice of every party to resolve their dispute through a voluntary process that is supposed to be consensual. Such unwilling parties will resort to Section 26(1) to withdraw from the mediation process after just attending one session, thereby reducing the mandatory mediation to just a procedural formality. Therefore, mandatory mediation should be introduced in different phases, starting with only a small number of cases. A blanket provision on mandatory mediation will be highly counterproductive.