Opinion Based BlogCorporate Law

Views Against Mandatory Pre-Litigation Mediation in Commercial Matters


Author: S. Aditya, 2nd Semester LL.M. (Corporate Law) at Hidayatullah National Law University, Raipur.

Introduction to the Pre-litigation Mediation

In the light of the seemingly insurmountable number of cases pending before the Courts in India, as per the data available under the National Judicial Data Grid (NJDG)[1] courts in India along with the Central Government have started encouraging Alternative Dispute Resolution (ADR) methodologies in order to reach mutually acceptable solutions and to lessen the burden of the judiciary. There are various kinds of alternative dispute resolution for instance there is mediation, conciliation, arbitration and lok adalat. There are various differences in all these kinds of alternative dispute resolution methods, where all these methods have their own advantages and disadvantages. A single binding factor which unifies these resolution methodologies is the simple fact that the result reached under any of the above said methods may potentially prevent a long drawn litigation in the courts of law[2].

It is pertinent to understand that all the alternative dispute resolution methods work on the concept of agreement between parties, where the agreement to attend such resolution proceeding is not binding in negotiation and mediation, the attendance becomes mandatory in the cases of arbitration. In arbitration non representation is considered as a deemed waiver and is interpreted against that party[3]. The system of adversarial pronouncements of justice has been in practice since time immemorial, where a judicial authority is empowered to listen to the claims made by the parties in dispute and pronounce the judgement in the light of legal interpretation and evidence presented. It always seems as though one party has won and the other party has lost. But by the end of such a long process of adjudication the relations between the disputing parties is far beyond repairs and acts as an impediment in the future transaction in the commercial world. Ripple effect caused by the adjudicatory system upon the commercial relations brings us to a simple understanding of the fact that in any court case being fought amongst the business partners, in the end it is the system that loses.

It is indeed necessary for the world to move towards dispute resolution from the dispute adjudication system in order to come out with a win-win situation rather than a win-lose situation. It is also pertinent to understand that 90% of the disputes arising in the USA are resolved through out of court settlement rather than legal adjudication by the courts[4], but does a mere legislation of mandatory pre-litigation mediation suffice the need for structural changes required for desired results?

Amendment of the Commercial Courts Act, 2015[5]: Analysis of Parliamentary Intent and Object

In light of the overburdened judiciary and to further the need for speedy resolution of commercial disputes the Parliament enacted the Commercial Court (Amendment) Act, 2018[6]. Where an express provision pertaining to mandatory pre litigation mediation was inserted under Section 12A of the legislation. The parliament in the very first subsection of the provision mentioned the precondition of non-existence of urgent interim relief so that no injustice is caused to the parties under the garb of mandatory alternative dispute resolution. It is very important to understand the bearance of legislative intention of inserting the phrase “urgent interim relief”, it is therefore very important that unnecessary suits filed with redundant application seeking urgent interim relief when there is no “urgency” requirement as contemplated under the language of the provision, the same must be dismissed by applying the literal rule of interpretation[7] and the court must reprimand such clients for their intention to outsmart the legislative mandate.

The government has authorised the legal service authority as the facilitating agency for the mandatory mediations. In the light of the provision a timeline of three months has been fixed for finishing the mediation process from the date of filing and it has also allowed an extension of two more months on demand of both the parties. If there is an agreement which is arrived at by the parties, it has been mandated that such agreement must be signed by the parties involved and the mediator. The agreement has been given an equal status as that of award as defined under Subsection 4 of Section 30 of the Arbitration and Conciliation Act, 1996[8]. The intention of government to foster the utility of alternative dispute resolution can also be collected from the insertion of section 89 in the Code of Civil Procedure, 1908[9] by the Amendment Act, 1999[10] which provides a court with a power to refer the matters to be settled outside of court if it so believes that there is an element of settlement in the case by taking the mutual consent of the disputing parties.

Western nations have already adopted the ADR as a panacea to most of their dispute for instance: In the United States of America it is known that 90% of their civil cases are resolved pre litigation[11] and the English model[12] Alternative Dispute Resolution (ADR) incentivises the positive approach of the disputing parties towards mediation, where if the parties avoid approaching mediation despite it being mandatory the final award when passed by Courts refrains from granting costs taking into account the intentional non-attendance by such parties. In India despite there being various ADR mechanisms we have failed to address the issue of implementation and incentivisation of adoption of ADR. There are certain gaps in the inclusiveness of private mediation Centres in the provision of mandatory mediation provided under Section 12A. This omissions may become the albatross around the neck[13] of the Indian legislature.

Commercial Courts Mandatory Mediations Rules, 2018[14] imposes a burden upon the Legal Service Authority at national, state, district and taluk level to facilitate the mediation. It is pertinent to understand the background of legal services in India. It was introduced by 42nd Constitutional amendment[15] where Article 39A was introduced in the constitution. The aforementioned article makes it the state’s duty to provide access and affordability of justice to all the strata of population, the Lok adalat was also introduced by this legal services act. Prior to the legislation Justice P.N. Bhagwati led bench of Supreme Court, in the case of Hussainara khatoon v State of Bihar[16] had declared that the right to access to affordable justice was an intrinsic part of Article 21. The legal service authority is responsible for the crucial role of facilitating affordable justice, but now has been further overburdened with the role of facilitating mediation which has the potential threat of reducing the desired efficiency. An overall figure of 1,46,358 people have been provided legal aid by the legal services according to the report published in the year 2020[17]. The cause of batting for the weaker and vulnerable section and legislative intent of speedy resolution of commercial matters by the method of mandatory pre litigation mediation are both very important causes and neither should take a back seat at the cost of the other. This balance could be achieved by including the neutral private 3rd party mediator entities into the definition of authorised authority in the provision along with Legal service authority.

The mandatory mediation is supposed to be time bound i.e. must be resolved within 3 months and requires dedicated and focused infrastructure to guarantee the intended objective. Mandatory pre-litigation mediation fails in cases of non starter, where despite the final notice sent under the Rule 3(3) under the provision pertaining to the initiation of mediation process[18] there is an intentional absence of one of the disputing party, this becomes a ground for the matter to go back to court and the intention of avoiding the litigation process is defeated, for instance: In the month of February 2021 in Mumbai there was 361 Non-starter cases which is almost 10% of the total pending application in Mumbai (i.e. 3587)[19]. This approach of the disputing litigants must be transformed so that they approach the mediation with a sincere approach of resolving the dispute amicably. The English model of refrain towards awarding cost of litigation in the background of insincere approach of the parties towards the mandatory mediation may be remodeled to resolve the issue in India.

Silver Lining To The Legislative Structure Of Mediation: Recommendations Towards Better Implementation

There must be an inclusion of neutral third party mediation institutions into the legislative language, because otherwise the private mediation centres after having resolved the dispute would have to get the agreement formalised by approaching the legal service authority which will amount to double charge and additional time. The advantage and selling point of the mediation is the fact that a negotiation and resolution may be facilitated by the non-lawyer people who are technically experienced and trained to resolve the persisting dispute. There must be large scale training and skill development of mediators ranging from industry experts to lawyers in order to better the mediator availability ratio, which shall be a win-win to the parties, courts and the professionals involved.

The utility of mediation and negotiation may be better understood by taking the example of “Nokia-Microsoft Case Study”[20] which is seen as an outcome of a successful negotiation, where Nokia saved itself from bankruptcy and Microsoft acquired a premade mould to enter the mobile production sector. The encouragement provided by the Indian legislature towards a cost effective and time saving method of mediation has to be more inclusive for better engagement of the disputes existing. Speedy resolution of the Commercial disputes would also save the business ties aiding continuous economic engagement and shall foster the acceptability of mediation as a substantial form of dispute resolution.


REFERENCES

  1. Welcome to NJDG – National Judicial Data Grid, https://njdg.ecourts.gov.in/njdgnew/index.php.

  2. A solution for every problem: how to prevent conflict from becoming litigation, ADR Chambers (2019), https://adrchambers.com/news-articles/commentary/a-solution-for-every-problem-how-to-prevent-conflict-from-becoming-litigation/.
  3. Vasanth Rajasekaran, Evasion Of Arbitration Proceedings Amounts To A Deemed Waiver Of Right To Object: Supreme Court – Litigation, Mediation & Arbitration – India Welcome to Mondaq (2020), https://www.mondaq.com/india/court-procedure/927270/evasion-of-arbitration-proceedings-amounts-to-a-deemed-waiver-of-right-to-object-supreme-court.
  4. Five Ways to Keep Disputes Out of Court, Harvard Business Review (2014), https://hbr.org/1990/01/five-ways-to-keep-disputes-out-of-court.
  5. the Commercial Courts Act, 2015, Act No. 4, Parliament of India, (2016)
  6. The Commercial Courts, Commercial Division and Commercial Appellate Division Of High Courts (Amendment) Act, 2018, Act No. 28, Parliament of India, (2018)
  7. Bar & Bench, Mediation and Misinterpretation of Section 12A of Commercial Courts Act Bar and Bench – Indian Legal news, https://www.barandbench.com/news/mediation-section-12a-commercial-courts-act.
  8. the Arbitration and Conciliation Act, 1996, Act No. 26, Parliament of India, (1996)
  9. the Code of Civil Procedure, 1908, Act No. 5, Imperial Parliament, (1908)
  10. the Code of Civil Procedure (Amendment) Act, 1999, Act No. 46, Parliament of India, (1999)
  11. John R. Allison, “Five Ways to Keep Disputes Out of Court”, available at: https://www.google.com/amp/s/hbr.org/amp/1990/01/five-ways-to-keep-disputes-out-of-court
  12. Government of UK, Mediation Information and assessment Meeting, available at: https://www.justice.gov.uk/courts/procedure-rules/family/practice_directions/pd_part_03a
  13. Samuel Taylor Coleridge, The Rime of the Ancient Mariner (text of 1834) Poetry Foundation, https://www.poetryfoundation.org/poems/43997/the-rime-of-the-ancient-mariner-text-of-1834.
  14. Commercial Courts (Pre-Institution Mediation and Settlement) Rules, 2018, Notification No. G.S.R. 606(E)
  15. the Constitution (Forty-second Amendment) Act, 1976, https://legislative.gov.in/constitution-forty-second-amendment-act-1976
  16. Hussainara Khatoon v Home Secretary, State of Bihar, 1979 AIR 1360
  17. Statistical Snapshot 2020, National Legal Services Authority (2021), https://nalsa.gov.in/library/statistical-snapshot/statistical-snapshot-2020.
  18. Supra 14
  19. List of cases received for Pre-Institution Mediation, https://legalservices.maharashtra.gov.in/Site/Upload/Pdf/PIMS_Feb_2021_23032021.pdf.
  20. Narender S.& Harkunwar S., Top International Negotiation Case Studies in Business: The Microsoft-Nokia Deal PON (2019), https://www.pon.harvard.edu/daily/international-negotiation-daily/top-10-international-negotiations-of-2013-the-microsoft-nokia-deal/.

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