Business Laws

Making mediation not mandatory is problematic

Chitra Narayan | Updated on February 21, 2021

On talking terms Mediation makes for expeditious dispute resolution Getty Images/iStockphoto   -  Getty Images/iStockphoto

A recent judgement has ruled that provisions for pre-institution mediation before the filing of a suit involving commercial disputes are not mandatory. This judgement sets back a laudable policy initiative for use of mediation to settle commercial disputes.

The Commercial Courts Act, 2015, which identified ‘commercial disputes’ as a class of disputes, established commercial courts and commercial divisions within the civil courts system to adjudicate these disputes. It compressed the procedures in the Civil Procedure Code, 1908, to expedite adjudication of such disputes. In 2018, this law was amended, a Section 12A was added, which required parties filing a suit under this law to first attempt to resolve their disputes through mediation — unless an urgent relief, such as an injunction against the use of a trademark, is required.

The Commercial Courts (Pre-Institution Mediation and Settlement) Rules, 2018, have been notified that set out the process for availing pre-institution mediation through the Legal Services Authorities at the State and district levels in each State.

Mediation (and conciliation) are structured processes in which parties to a dispute discuss their issues with a view to resolving them together. This process is facilitated by a third party, the mediator. The mediator cannot impose a decision on the disputing parties, the decision to settle and terms of settlement are matters for the parties to decide. Several laws provide for use of mediation to resolve commercial disputes — Companies Act, 2013 and the Micro Small and Medium Industries Act, 2006.

The judgement of the Bombay High Court, in Ganga Taro Vazirani Versus Deepak Raheja, passed on February 21, 2021, was concerned with a summary suit for the recovery of money lent by the plaintiff to the defendant. On an objection by the defendant that pre-institution mediation had not been attempted, the court held this was not mandatory under section 12A. The court concluded this requirement was procedural in nature, the substantial compliance of which was sufficient. This requirement could also be waived. The court pitted the recourse to mediation under section 12A as conflicting with the objective of this law of providing speedy resolution, and observed that to mechanically drive the plaintiff to go for mediation under section 12A before allowing him to institute the suit would run counter to the very objective of the law of providing speedy justice. It also observed that pre-institution mediation would be a futile exercise where the case of one party was robust.

The contexts for these observations were on the basis of the strength of the plaintiff’s case for recovery of the money lent, and the objection of non-compliance under section 12A being raised at the end of a series of procedures, when arguments were heard, and not at the very first instance when the defendant had filed its reply. Nevertheless, the observations undermine both the legislative policy and the process of mediation.

No mechanical exercise

The mediation process is the very antithesis of a mechanical exercise. By bringing together parties, and facilitating a conversation, the mediator assists parties in working towards a solution collaboratively, in ways that take account of each other’s interests, and go well beyond the linear proposal and rejection. Discussions facilitated by the mediator help parties to expand ways in which a resolution can be found. In a case such as the strong case of the plaintiff before the court, discussions could take into account a schedule of repayment feasible for the defendant.

In mediated cases, we have seen parties work out alternative commercial arrangements under which obligations undertaken by the defendant would defray the outstanding under the debt. Mediations allow possibilities of a third party assuming some or all the obligations of the defendant. Importantly, parties who do not believe mediation would be of any use come to realise the value of working together to find a solution upon attempting mediation, and embrace the process.

The advantages are many — time, costs, mended relationships, finality, autonomous implementation — none inconsistent with the law’s purpose of expeditious resolution.

The author is an Advocate and a Mediator

Published on February 21, 2021

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