Pre-Litigation Mediation-A Real 'Setu' For Business

Varun Nischal

23 May 2020 4:02 PM GMT

  • Pre-Litigation Mediation-A Real Setu For Business

    Derived from Sanskrit 'setu' means "to bind, who or what binds or fetters or a bridge". The word should have higher significance for organizations during these challenging times, which are looking to continue their businesses, honour commitments and make every effort to pay salaries - in short keep their business relationships alive and not burn any bridge. There is no doubt that...

    Derived from Sanskrit 'setu' means "to bind, who or what binds or fetters or a bridge". The word should have higher significance for organizations during these challenging times, which are looking to continue their businesses, honour commitments and make every effort to pay salaries - in short keep their business relationships alive and not burn any bridge. There is no doubt that these unprecedented times of COVID-19 and subsequent imposition of countrywide lockdown has caused not only loss of human life but also disruption in contractual relationships. The grim situation faced by individuals and businesses has not escaped judicial attention as well which was reflected in one of the recent orders passed by Hon'ble Single Bench of Delhi High Court stating "We are placed, today, in uncomfortably peculiar circumstances. A pandemic, of the nature which affects the world today, has not visited us during the lifetime of any of us and, hopefully, would not visit us hereinafter either. The devastation, human, economic, social and political, that has resulted as a consequence thereof, is unprecedented" [i].

    The same view resonated with the Hon'ble Division Bench of Delhi High Court in its order dated 24.4.2020.[ii] The lockdown which was also one of the repercussions of the COVID-19 situation, has already led to several disruption in trade and commerce. Even when the lockdown is lifted completely, its aftermath is going to cause long term impact leading to several commercial disputes related to contractual obligations, lease and licenses, manufacturing, employment, procurement etc. If it hasn't started already then in coming days there will be an avalanche of notices and communications invoking 'force majeure' clauses. If left unresolved the ensuing litigation before courts will only add to the overburdened caseload of the courts and inevitably lead to delay in resolutions and escalate costs.

    The silver lining – Mediation

    In India, ADR or the Alternative Dispute Resolution encompasses various modes of settling disputes outside the traditional judicial system. It includes arbitration, negotiation, mediation, conciliation etc. Under arbitration, a decision is given by an arbitrator whereas in mediation resolution is made which is acceptable to both the parties. Though a particular statute does not formally define the term Mediation, but it is generally understood as a process which is structured yet flexible, in which a neutral third party uses specialized communication and negotiation skills to assist the parties in a dispute to reach a mutually acceptable resolution. It is the parties that select the mediator, whose role is to guide the process of negotiation providing a platform, where information is exchanged between the parties, who then decide the outcome acceptable to them i.e. a 'win-win' situation. Safe to say it leads to preserving and continuing the long-term relationship – personal or business without burning any bridges. The importance of mediation, which is a time and cost-efficient alternative method for dispute resolution instead of litigating in courts for years, cannot be overstated. The order of Hon'ble Supreme Court of India referring even the Ayodhya Ram Janambhoomi Dispute to the mediation is a quintessential testimony of its importance and recognition by the Judicial system.[iii]

    Though the term mediation and conciliation are often used interchangeably but the author submits that these processes have particular features that are distinguishable in practice. The concept and use of the term 'conciliation' specifically has got legislative recognition in several statutes like Industrial Disputes Act, 1947, the Arbitration and Conciliation Act, 1996, Legal Services Authorities Act 1987, the Micro, Small and Medium Enterprises Development Act, 2006. However 'mediation' as means of alternate dispute resolution found specific recognition, sans any definition, under the Code of Civil Procedure, 1908, which provides the primary procedural law relating to all general civil disputes in India, as Section 89 along with Order X Rule 1A, 1B and 1C in the First Schedule.[iv] This Section 89 of the Code of Civil Procedure provides for settlement of disputes outside the court and permits the Court to refer the dispute pending before it to arbitration or mediation or conciliation, where it appears that there is a possibility of settlement. It also provides that where a dispute has been referred to the Lok Adalat, the Court shall refer it to the Lok Adalat in accordance with the provisions of Legal Services Authority Act, 1987.[v] The Government has also brough in provisions for referral of consumer disputes under the newly enacted Consumer Protection Act, 2019, however the said Act is yet to come in force. Section 442 of the Indian Companies Act, 2013 also makes provision for settlement of dispute through a ' Mediation and Conciliation Panel'.

    Mediate Don't Litigate

    Mediation provides a viable solution to address variety of disputes. While dealing with issues concerning scope of Section 89 Civil Procedure Code the Hon'ble Supreme Court has noted various kinds of disputes in respect of which process of Alternative Dispute Resolution is found to be suitable: -

    "All other suits and cases of civil nature in particular the following categories of cases (whether pending in civil courts or other special tribunals/forums) are normally suitable for ADR processes:

    (i) All cases relating to trade, commerce and contracts, including :- disputes arising out of contracts (including all money claims);• disputes relating to specific performance; • disputes between suppliers and customers; • disputes between bankers and customers; • disputes between developers/builders and customers; • disputes between landlords and tenants/licensor and licensees;• disputes between insurer and insured;

    (ii) All cases arising from strained or soured relationships, including: - disputes relating to matrimonial causes, maintenance, custody of children; • disputes relating to partition/division among family members/coparceners/co-owners; and • disputes relating to partnership among partners.

    (iii) All cases where there is a need for continuation of the pre-existing relationship in spite of the disputes, including: - disputes between neighbours (relating to easementary rights, encroachments, nuisance, etc.); • disputes between employers and employees; • disputes among members of societies/associations/apartment owners' associations;

    (iv) All cases relating to tortious liability, including: - claims for compensation in motor accidents/other accidents; and

    (v) All consumer disputes, including • disputes where a trader/supplier/manufacturer/service provider is keen to maintain his business/professional reputation and credibility or product popularity.

    The above enumeration of "suitable" and "unsuitable" categorisation of cases is not intended to be exhaustive or rigid. They are illustrative, which can be subjected to just exceptions or additions by the court/tribunal exercising its jurisdiction/discretion in referring a dispute/case to an ADR process."[vi]

    The above observation leaves no matter of doubt regarding the potential of mediation to address plethora of cases with varying degree of complexity and under different jurisdiction.

    Mediation process - Private and confidential

    Section 75 of the Arbitration and Conciliation Act, 1996 provides that notwithstanding anything contained in any other law in force in India, the conciliator and the parties shall keep all matters relating to the conciliationproceedings confidential including the settlement agreement except where its disclosure is necessary for implementation and enforcement. In Moti Ram (D) through Lrs. and another vs. Ashok Kumar and another [vii] the Hon'ble Supreme Court observed that mediation proceedings are totally confidential and in case the mediation is unsuccessful, the Mediator should not write anything that was discussed, proposed or done during the mediation proceedings. The observations made were: - "In this connection, we would like to state that mediation proceedings are totally confidential proceedings. This is unlike proceedings in court which are conducted openly in the public gaze. If the mediation succeeds, then the mediator should send the agreement signed by both the parties to the court without mentioning what transpired during the mediation proceedings. If the mediation is unsuccessful, then the mediator should only write one sentence in his report and send it to the court stating that the "mediation has been unsuccessful". Beyond that, the mediator should not write anything which was discussed, proposed or done during the mediation proceedings. This is because in mediation, very often, offers, counter offers and proposals are made by the parties but until and unless the parties reach to an agreement signed by them, it will not amount to any concluded contract. If the happenings in the mediation proceedings are disclosed, it will destroy the confidentiality of the mediation process."

    Hence mediation or conciliation proceedings are strictly private and confidential in India. This is the hallmark of the entire process since confidentiality provides the parties with the comfort factor to address their underlying concerns and help them move from taking conservative stands, reflected in litigation proceedings, to understanding the issues and interests in having a settlement to finally resolve the disputes.

    Mediation before litigation

    One of the major developments in the field of mediation has been the introduction of Chapter IIIA in the Commercial Courts Act 2015 by way of an amendment done in 2018. The 2018 amendment[viii] brough in a new Section 12A according to which it is now mandatory for the party on course to instituting a suit related to a 'commercial dispute'[ix] before a Civil Court, to exhaust the remedy of pre-institution mediation prior to such institution of a suit i.e. Pre-litigation mediation. It provides that such mediated settlements arrived at in this process are enforceable by law. As per the Commercial Courts Act, 2015 the mediated settlement has the same effect as an arbitral award passed on agreed terms under Section 30 of the Arbitration and Conciliation Act, 1996 and hence is enforceable in same manner under Section 36 of the Arbitration and Conciliation Act, 1996.

    Interestingly one of the most important aspects of Section 12A of the Commercial Courts Act 2015, is that any period during which the parties 'remain occupied' with the pre-institution mediation shall not be computed for the purposes of limitation under the Limitation Act, 1963. In simpler terms, it means that the time limit provided by the Limitation Act for instituting suits related to various commercial disputes will get suspended till the parties are occupied in the mediation process. However, that does not mean that there can be an unending extension as sub section 3 of Section 12A provides for a period of 3 months for mediation process to conclude which can be further extended for a period of two months but only with consent of both the parties. This provision is unique to the Commercial Courts Act relating to commercial disputes only and is aimed to incentivize pre-litigation mediation. Whereas same is not true for settlement process in cases outside the scope of Section 12A. In fact Section 77 of the Arbitration and Conciliation Act, 1996 only prohibits parties from initiating any arbitral or judicial proceedings during the conciliation proceedings in respect of a dispute that is the subject matter of such conciliation proceedings, except that a party may initiate arbitration or judicial proceedings where such proceedings are necessary to preserve its rights. Therefore, there is no provision for suspending of limitation in such conciliation proceedings and the party has to initiate arbitral or judicial proceedings to save their claims from being barred by law of limitation. Although, the importance of mediation in resolving personal or private disputes cannot be disputed even otherwise, but in present uncertain times for many businesses the need for structured approach of resolving commercial disputes by pre-litigation mediation cannot be overstated.

    Thus, it is safe to conclude that litigation should no longer the primary dispute resolution method for organizations. The Hon'ble Supreme Court of India has already impressed upon the government a dire need to enact the Indian Mediation Act.[x] In fact the present scenario provides an opportunity where the legislature must push for and bring in a legislation now and provide much needed single legislative umbrella to not only formally define, recognize and consolidate various aspects of mediation, lay down a structured process and also widen the scope of the benefit of pre-litigation mediation provision to other disputes as well. Given the present situation a need is felt to also bring guidelines and framework for having an online ADR system to provide impetus to overall ADR mechanism. But until then the businesses will do well to at least use the existing mechanism and take the pre-litigation mediation approach for resolving the commercial disputes so that the relationships i.e. the formidable 'Setu' between the businesses do not crumble under the burden of impending litigation. Without doubt this will not only lighten the legal costs but also help parties to look at the future instead of dwelling in the past. The takeaway from the above discussion for any business -small or big- can be summed up in one line borrowed from a renowned mediator:

    "An ounce of mediation is worth a pound of arbitration and a ton of litigation!" — Joseph Grynbaum

    Views Are Personal Only.

    (The author is a lawyer and a trained mediator practicing at the High Court of Delhi. He holds a Master's degree in Law with focus on International ADR from University of Southern California- Gould School of Law, USA.)

    [i] Order Dt. 15.4.2020 O.M.P. (I) (COMM) & I.A. 3697/2020- M/s Halliburton Offshore Services Inc Vs Vedanta Limited & Anr

    [ii] W.P.(C) 2993/2020 - Naresh Kumar Vs Director Of Education & Anr

    [iii] Order dt 8.3.2020 in Civil Appeal No. 10866-67/2010- M. Siddiq (D) Thr Lrs vs Mahant Suresh Das & Ors

    [iv] Inserted by Code of Civil Procedure (Amendments) Act, 1999 w.e.f 1.7.2002. The constitutional validity of Section 89 of the Code has already been upheld by the Hon'ble Supreme Court of India in Salem Advocate Bar Association, Tamil Nadu vs. Union of India; (2003) 1 SCC 49

    [v] Section 89 of the Code of Civil Procedure, 1908

    [vi] See Afcons Infrastructure Limited and another vs. Cherian Varkey Construction Company Private Limited and others; (2010) 8 SCC 24

    [vii] (2011) 1 SCC 466

    [viii] Inserted by Commercial Courts, Commercial Division and Commercial Appellate Division of High Court (Amendment) Ordinance, 2018 dt. 3.5.2018 w.e.f 2018 which was replaced by the Commercial Courts, Commercial Division and Commercial Appellate Division of High Court (Amendment) Act 2018 (28 of 2018) dt. 20.8.2018.

    [ix] See Section 2(c) of the Commercial Courts Act, 2015

    [x] See M.R. Krishna Murthi vs. New India Assurance Co. Ltd. and others; 2019 (4) Scale 362

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