To make India a global destination for business and investment and accordingly, to improve its ease of doing business rankings, the Government of India took note of the observations made by the Law Commission of India[1] and established the Commercial Courts and the Commercial Division and the Commercial Appellate Division in the High Courts for speedy disposal of commercial disputes above a specified value[2]. To take this a step further, in 2018, the Government introduced a provision[3] in the law to make it mandatory for disputing parties in commercial disputes to attempt mediation before filing a claim in court. In furtherance of this provision, the Government introduced rules[4] for pre-institution mediation and settlement but authorised only the District and State Legal Services Authorities[5] to conduct these mediations.
Mediation, in its simplest avatar, is a method to resolve disputes amicably with the help of an expert mediator and without the intervention of courts. This move by the Government was welcomed by stakeholders across the board as it was believed that this would ensure timely resolutions of disputes while retaining business relationships between the parties, a win-win for all – the Government, the overburdened judiciary and the business community.
However, a recent judgment of the Bombay High Court[6] has raised the brows of many from the business and legal fraternity. In the judgment delivered on 16-2-2021, the Court observes that the provision that “compulsorily” requires disputing parties to attempt an amicable settlement via mediation is procedural and there is no absolute prohibition to file a suit before attempting mediation. The reasoning behind such an observation is three-fold:
- The very purpose of putting in place such a mechanism was for speedy disposal of commercial disputes for their early resolution which would in turn create a positive image for the investor world about the independent and responsive Indian legal system. Routinely referring parties to compulsory mediation would run counter to the very purpose for which the law was brought into force. It would have the effect of delaying the proceedings rather than having a quick resolution of the dispute.
- The provision itself contemplates that where any urgent interim relief is applied for, the party seeking relief is not required to exhaust the remedy of mediation before approaching the court. According to the Court, the purpose of the law appears to be that parties should try and resolve their disputes before coming to court. This is for the simple reason that if parties resolve their disputes, they need not approach the court at all. However, when parties have tried to resolve their disputes unsuccessfully, it would be futile to still drive the parties to pre-institution mediation.
- The counterparty must object to non-compliance regarding pre-institution mediation at the earliest opportunity. If not, it would be presumed that he does not want to resolve his dispute through mediation.
One can hardly disagree with the rationale by which the Court has justified the interpretation of mandatory pre-institution mediation as procedural keeping speedy disposal of commercial cases at the helm of its observations. On the contrary, such a mindset can be seen as forward-looking as disputing parties need not routinely approach the already burdened District and State Legal Services Authorities for the purpose of pre-institution mediation, and can rather undergo mediation privately. In fact, world over online mediation through online dispute resolution (ODR) platforms has become the go-to mechanism for parties that want to settle their disputes amicably.
However, there is one observation that is concerning and will face flak by those well-acquainted with the concept of mediation, and this is the Court’s reliance on doctrine of substantial compliance in an attempt to drive its point home. The Court says:
- … Take a case, where through correspondence, the parties have tried to resolve their disputes before approaching the court without any success. Can it then be contended that parties are still to be referred to mediation to resolve their disputes when an attempt has already been made and failed? I think not. To my mind, one has to interpret this provision to see that there is substantial compliance, namely, that an attempt has been made to resolve the disputes amicably which has failed, and therefore, the plaintiff is constrained to approach the court for redressal of his grievances.
On a plain reading, one may wonder what is wrong with this particular observation of the Court, but on a careful reading, one will realise that this greatly undermines the process of mediation and the skills of a mediator. A standard or private attempt at an amicable resolution of a dispute by the parties or their representatives substantially differs from routing a dispute through the process of mediation and seeking an early and amicable resolution with the support of a competent and well-trained mediator.
Virtually every dispute goes through one (if not more) round of informal negotiations before it is escalated to a more serious forum. However, driving a dispute through the tunnel of mediation is wholly different from such informal negotiations and the chances of a successful settlement increases due the involvement of an independent and skilled mediator. This finds support in the fact that less than 5% of cases raised in courts across the US result in a full trial taking place. A substantial factor in that statistic is the successful use of mediation, which is estimated to result in a positive resolution of roughly 80% of cases[7]. A similar success story of mediation in India may not see the light of day if courts come to a conclusion that equates any form of correspondence between parties for amicable settlement with the process of mediation.
A well-balanced view could be such where so long as mediation is conducted through the State machinery or privately, online or in-person with the involvement of an accredited mediator or institution be looked at through the lens of the doctrine of substantial compliance. Perhaps, this could be the ground for challenge of the Bombay High Court judgment before the Supreme Court of India, unless of course, the matter is settled amicably.
*Author is the co-founder of Presolv360 – a legal-tech company that specialises in online dispute resolution. With an academic background in law and finance, he has a decade of experience in understanding law, commerce and conflict resolution.
[1] Report No. 253 on Commercial Division and Commercial Appellate Division of High Courts and Commercial Courts Bill, 2015 (January 2015)
[2] Commercial Courts Act, 2015
[3] Section 12-A, Commercial Courts Act, 2015
[4] Commercial Courts (Pre-Institution Mediation and Settlement) Rules, 2018
[5] Ministry of Law and Justice, Noti No. S.O. 3232(E), dated July 3, 2018
[6] Ganga Taro Vazirani v. Deepak Raheja, 2021 SCC OnLine Bom 195.
[7] <https://www.skuld.com/topics/legal/pi-and-defence/us-vs-uk—a-comparison-of-mediation-processes/#:~:text=Currently%2C%20less%20than%205%25%20of,of%20roughly%2080%25%20of%20cases>.