Consensual Dispute Resolution

Decoding the Mandatory Mediation rule: An Analysis of Section 12A of the Commercial Courts Act, 2015

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Section 12A was inserted in the Commercial Courts Act 2015 by way of the “The Commercial Courts, Commercial Division and Commercial Appellate Division of High Court (Amendment) Ordinance of 2018.” The main aim of this insertion was to ensure that the remedy of pre-institution mediation is exhausted before the filing of any commercial disputes. This was a conscious step taken so as to hope that it would help India’s ranking in the Ease of doing business index. This report is released and tabulated by the World Bank.
Section 12A(1) of the Act clearly iterates that any suit that would not contemplate any urgent relief under the Act would not be instituted unless the plaintiff exhausts the remedy of pre-institution mediation and settlement in accordance with such manner and procedure as prescribed by rules made by the central government. The ordinance stresses on the importance of creating a climate for the growth of alternative modes of dispute resolution in the country.

Understanding the scope of the section

The section further states that it would be authorizing the already set up authorities under the Legal Services Authorities Act, 1987 to further the aim of pre-institution mediation contemplated under the section. The section also iterates that the process of mediation should be completed within a period of three months from the date of application by the plaintiff, and in situations where both parties provide consent, the same could be extended for a further period of two months.

The main aim behind the formation of the LSA was to ensure that the law is an accessible tool the weaker and marginalized parts of the society. By using the LSA as a forum to further the climate to make pre-institution mediation mandatory is quite problematic. The intention behind the insertion of section 12A is very different from the creation of the LSA. Hence, it would be very imperative for the Act to come up with some sort of mechanism to ensure that the LSA in its efforts to promote mediation does not lose sight of still providing free legal aid, but aims to strike a balance so as to manage both its duties.

In addition, the scheme of the LSA involves approaching the Permanent Lok Adalat system for conciliation and settlement before approaching the court. In the event a settlement is not arrived at, the Permanent Lok Adalat would determine the fate of the dispute by majority. In these circumstances, the independent nature and the essence of mediation would be lost. Hence, it would be extremely important for some direction to elucidate on how the process would be initiated under section 12A as the procedure followed under the Lok Adalat system is very different from the aim of section 12A.

It is also imperative for the law makers to understand that the LSA is already overburdened with a large number of cases with respect to free legal aid, and hence it would impractical to pass the burden on LSA to be responsible to conduct the mandatory step of pre institution mediation. There are a number of institutions that can focus on pre institution mediation in specific and shift the burden from LSA. The Act already recognizes some institutions that focus on mediation and if the same could be recognized under section 12A, it would help expanding the climate for mediation in the country.

This amendment can be said to be similar to the opt out model that is adopted by Italy with respect to civil and commercial cases. Under the Italian system, there is a mandatory imposition on litigants to attend a pre-institution mediation with respect to some category of disputes like partition cases. This is exactly like the Indian model. In addition, countries like United Kingdom, Greece, Turkey, Luxembourg have also opt for this mechanism with respect to certain kinds of disputes.

The results of the same in Italy have been a driving force for other countries to adopt the same within their legal system. Statistics have stated that a rising number of litigants have stuck to the process of mediation before choosing to approach the courts. The country has noted close to 200000 cases where parties have opted to choose mediation to resolve the dispute. Close to 50% of this number of cases, were settled showing a win-win situation. A similar response was witnessed in Turkey where the country notices 30,828 mediations in a span of one month.

Taking example from Italy, it is necessary to understand that Italy reformed its legal system to effectively use mediation to shift the burden of the courts. The well thought out policy and implementation of the opt out in Italy allowed for it to soar up in the Ease of Doing Business Index over the past year. It would be imperative for India to learn from this system, and direct the ordinance to take shape by coming up with a more conclusive plan covering most of the issues the section is likely to offer.

This step is definitely a way forward to help create a more positive culture for alternate modes of dispute resolution. With minimalistic judicial interference, the ordinance aims at speedy and cost effective solutions to legal issues. Post the 129th Law Commission Report, there was a conscious step to allow courts to refer matters to be decided by alternative modes of dispute resolution. Ever since, India has chosen to appreciate and use other modes that speedily dispose of cases. While the ordinance is seen in a positive direction, there are some questions which need to be answered before the section can be implemented. With some clarity on the same, along with some direction on the appointment of the arbitrator, the rules for the procedure involved along with some idea on the fate of the settlement award, the ordinance would in entirety be the platform to not only encourage litigants to try settle disputes in this stage of the case but also shift the burden of excessive litigation that courts across India do face.

[This post was contributed by Mira Mahadevan, a final year student of the B.A. LL.B. (Hons.) programme at Jindal Global Law School.]

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