Pre-Litigation Mediation, Empowerment And Enforcement Of Settlements

Shirin Khajuria & Shreya Mathur

11 May 2020 7:27 AM GMT

  • Pre-Litigation Mediation, Empowerment And Enforcement Of Settlements

    Introduction Pre-litigation mediation is arguably the most empowering method of dispute resolution. Mediation, as a mode of Alternate Dispute Resolution (ADR) is a voluntary process, where the parties to a dispute have an opportunity to decide the terms of mutual settlement, with the assistance of a neutral called the 'Mediator'. The Mediator facilitates in identifying issues,...


    Pre-litigation mediation is arguably the most empowering method of dispute resolution. Mediation, as a mode of Alternate Dispute Resolution (ADR) is a voluntary process, where the parties to a dispute have an opportunity to decide the terms of mutual settlement, with the assistance of a neutral called the 'Mediator'. The Mediator facilitates in identifying issues, in reducing misunderstandings, clarifying priorities and exploring areas of compromise, while not imposing any decision on them. The role of a mediator is to listen empathetically, not only with her ears but also with her eyes and heart, to assist the parties find a solution to their disputes. Humans are a bundle of emotions and while dealing with discord, whether in personal or in business relations, can become one sided. As Thomas Crum, author of The Magic of Conflict, has said, "in a conflict, being willing to change allows you to move from a point of view to a viewing point - a higher, more expansive place, from which you can see both sides", to which I will add, and thus resolve strife. A mediator does just that. It empower the parties to quickly close the dispute themselves before it becomes a festering wound.

    Mediation was introduced as a system of ADR along with conciliation, arbitration and lok adalat in 2002 via the insertion of Section 89 of the Code of Civil Procedure, 1908 by way of an amendment, which empowered courts to refer matters for settlement through such methods. Though specific laws already existed for most of these, namely the Arbitration and Conciliation Act, 1996 and the Legal Services Authorities Act, 1987 (for Lok Adalats), there is no specific legislation for Mediation, which is based on judicial precedents

    World over, it is gaining rapid popularity and is being recognised as a preferred, effective and quick method of conflict resolution. The 'Ease of Doing Business' Report, 2019 recognized (and gave points to) the efforts of many countries such as Ireland, Sri Lanka and Singapore for enacting robust legislations that regulate mediation. For e.g. Sudan – for recognizing voluntary conciliation and mediation for resolving commercial disputes; and Italy and Turkey – for introducing financial incentives for parties which successfully complete mediation.

    There are two prevailing models of mediation. When mandated by statute, it is known as an 'opt-out' model, i.e., parties are necessitated to go for mediation initially though they may subsequently, at any stage, 'opt out' of the process and initiate litigation. When it is completely voluntary, it may be called an 'opt-in' model, where party(ies) themselves approach a private mediator or Court-attached Mediation Centres before resorting to litigation, if at all. Mediation which takes place during the pendency of a litigation is usually called 'court-referred' mediation (though it can be resorted to without the intervention of the Court, by the parties themselves), and mediation opted for by parties prior to institution of any legal proceedings is known as 'pre-litigation' or 'pre-institution' mediation. While 'court-referred' mediation is 'opt-in' as parties are required to consent to mediation, 'pre-litigation' can be both 'opt-in'(completely voluntary) and 'opt-out'. In India, while opt-in mediation has become fairly common in the past decade, legislators have been slow to mandate the 'opt-out' model of pre-litigation mediation.

    This article focuses on the emergence of pre-litigation mediation world-over as a powerful tool of conflict resolution, its enforcement mechanisms in courts, and the urgent need for a robust statutory mechanism for mandating mediation.

    Empowerment of parties by pre litigation mediation

    'The past is not in my hands, but the future is'. Discord is detrimental to the health of person and businesses alike, and should be resolved at the earliest. Pre-litigation mediation resolves domestic, commercial, consumer, property, minor criminal or other disputes through a neoteric, decentralised, accessible yet efficient system of grievance redressal. It is not the last resort in the judicial or the ADR system but an empowering method of settling conflicts. The parties' greater control over the outcome of mediation results in commercially and practically sound agreements, as opposed to a judgment which is imposed upon them through an adjudicatory mechanism of Courts or Arbitrations. Even matrimonial disputes where the parties may decide to part ways, benefit from mediation, as it assists the parties to separate the problem from the person and focus on the future.

    Where there are multiple dealings between the parties in business or on the domestic front, pre-litigation mediation preserves and may even improve relationships. By using the Restorative Principles of justice, it encourages parties to better understand each other and even though they may not change their views or values, the change in attitude, from finding common ground and looking ahead to the future, rather than the past, results in peace of mind and a win-win situation for all. At worst, parties gain initial information about each other enabling them to take a more informed decision on whether to litigate or not.

    The 'opt-out' model of pre-litigation mediation has been successful in Italy, where parties are allowed to assess the viability of mediation over other methods of dispute resolution by going through one session of mandatory mediation at an initial stage. Parties then have the right to 'opt-out' and approach the court in case they are not satisfied with the mediation process, or go ahead and attempt to reach settlement through mediation itself. Further, parties which settle successfully in pre-institution mediation are not only reimbursed the mediation registration fees, but also given tax credits. This 'carrot' approach (in a carrot & stick scenario) has seen a drop of 30-60% in the filings of certain categories of cases covered for mandatory mediation. Per contra, the UK Court of Appeals in the case of Halsey v. Milton Keynes General NHS Trust, [2004] 1 WLR 3002 has followed the counterpart, 'stick' end of the approach to mediation policy, by holding that the court may strongly encourage parties to engage in ADR, which may include imposition of costs or sanctions on those who unreasonably refuse to mediate.

    Closer home in India, the Legal Services Authorities Act, 1987, introduced to provide 'free and competent legal services to weaker sections of society', also provides for 'pre-litigation conciliation' to eligible persons through Lok Adalats, typically pertaining to labour, family and insurance matters, vide Chapter VI-A, titled 'Pre-Litigation Conciliation', which was added in 2002 and applies to matters covered under the definition of 'public utility service'[1] therein and falling within its pecuniary jurisdiction, which is presently Rs. 1 crore. The purpose being that petty cases that ought not to go in regular courts would be settled in the pre-litigation stage.

    Thus, in India, where pre-litigation mediation had always been a voluntary mechanism, and where parties in conflict may "opt-in" for mediation or conciliation, the "opt-out" model has been recently envisaged and codified through the Commercial Courts Act, 2015 as amended in 2018. It added Section 12A, which stipulates mandatory pre-institution mediation in all cases except where an urgent interim relief is sought from the courts. As per this Section, an application for pre-litigation mediation is to be filed before the State or district-level Legal Services Authority, who issues notice to the other side. If the other side appears, the matter is referred to a mediator on the court's panel; however the parties do not have a choice of choosing a particular mediator or a private mediator or a 'domain specialist'.

    It may be pointed out at this juncture that only certain criminal offences can be settled through mediation, as laid down in Afcons Infrastructure Ltd v. Cherian Varkey Construction Co. (P) Ltd., (2010) 8 SCC 24. These are in effect those disputes which are compoundable, or those arising primarily out of civil dispute and hence, the courts may be inclined to quash the complaint if the main dispute is settled.

    Lately, in these days of 'social distancing', the opt-in method of voluntary, private, and online pre-litigation mediation is emerging in the country, driven by parties' need for a quick, efficient, digital and pocket friendly way of resolving disputes through a neutral but from the comfort of their homes.

    Advantages of Pre-litigation Mediation

    The clear advantages of pre-litigation mediation are:

    1. Fast, efficient, time bound process
    2. Avoids lengthy and expensive litigation
    3. Preserves and mends on-going relationships
    4. Protects confidentiality of participants and of subject matter of dispute and discussions or revelations during mediation cannot be used in Court
    5. Voluntary settlement and no judgment is imposed
    6. Party may leave at any stage and option of litigation is always open
    7. Can be conducted in-person or remotely / online, as per convenience of parties
    8. Agreement before Mediator is binding and enforceable in law
    9. Opportunity to assess arguments of opponent and deduce how strong your case is if Mediation fails

    Enforceability of Settlement Agreement arrived through Mediation

    a. Court-Referred Mediation:

    It can be executed as a decree. In Salem Advocate Bar Association v. Union of India, (2005) 6 SCC 344, while analysing the purpose of Section 89 of the Civil Procedure Code 1809 (inserted in 2002 to empower civil courts to refer matters to ADR methods including mediation), it was held that in case of court-referred mediation, once a settlement is signed, it is to be sent back to the referral Court, which, after examining its legality, applies the principles of Order 23 Rule 3 of the CPC and passes a consent decree in terms of the settlement agreement, which is binding upon the parties. In the landmark reference arising out of a cheque return matter u/s 138 NI Act in Dayawati v. Yogesh Kumar Gosain, (2017) 243 DLT 117, regarding mediation in criminal cases, the High Court of Delhi unequivocally held that settlement in a compoundable criminal matter does not tantamount to a decree by a civil court, and thus cannot be executed in a civil court. The breach of such settlement is recoverable akin to a compensation or fine by the Court under sections 431 read with 421 of the CrPC, along with relevant provisions of Contempt of Courts Act, 1971. Settlement is seen as a compromise and upon request of the complainant, the matter is withdrawn as compounded, and the accused acquitted.

    b. Pre-Institution Mediation Under the Legal Services Authorities Act, 1987

    Under Section 22E of this Act, not only is the 'conciliated' settlement of the Permanent Lok Adalat in respect of pre-institution mediation final and binding, but it's also a deemed civil decree, executable in a court having relevant jurisdiction, which cannot be questioned in any original suit or execution proceeding. As per State of Punjab vs. Jalour Singh, (2008) 2 SCC 660, any challenge to such an award based on settlement, can be made only under Article 226 and 227 of the Constitution on very limited grounds.

    c. Pre-Institution Mediation Under the Commercial Courts Act, 2015:

    Section 12A(5) of the said Act provides that the settlement arrived at during a pre-litigation mediation is binding on the parties and shall have the same status and effect as if it is an 'arbitral award' on agreed terms under section 30(4) of the Arbitration and Conciliation Act, 1996.

    d. Private mediation of international commercial disputes, under the Singapore Convention:

    The United Nations Convention on International Settlement Agreements Resulting from Mediation, (hereinafter the "Singapore Convention") was signed by 51 countries including India, the US, China and South Korea on 7 August 2019 in Singapore (the UK, the EU and Australia are yet to sign). This is intended specifically to facilitate the enforcement of settlements arrived at through mediation. It however, applies only to international, commercial disputes and specifically excludes disputes relating to family, inheritance or employment law, or transactions availed for personal, family or household purposes. It ensures direct enforcement of a cross-border settlement agreement by applying to the courts of the Country where the assets are located.

    It is to be noted that though signed, India is yet to ratify the Singapore Convention, after which it will be a strong medium of commercial dispute resolution and ensure the complete enforcement of mediated, cross-border settlement agreements by Indian courts.

    e. Private pre-litigation mediation of any other disputes

    Parties which are not covered by the above provisions may avail the opportunity of pre-litigation mediation by opting for a private mediation, conducted by an independent mediator whether affiliated to a Mediation Centre or otherwise.

    As per Justice Raveendran of the Hon'ble Supreme Court in Afcons (Id.), mediation is synonym of conciliation. Both relate to a negotiated settlement with the assistance of neutral third parties, and are considered to be interchangeable in other jurisdictions.

    Conciliation is covered under Part III of the 1996 Act, and such a settlement agreement, as per Section 74 of this Act, is a deemed 'arbitral award' on agreed terms as if rendered by an Arbitral Tribunal under section 30(4) of the Arbitration and Conciliation Act, 1996. Further, section 35 of this Act provides that the arbitral award shall be final and binding upon the parties while section 36 provides that the 'arbitral award' shall be enforceable as a decree of the Court as under the CPC,, in a competent court.

    The Way Forward

    The Delhi State Legal Services Authority website shows that from October to December 2019, there were 2,099 applications received for pre-litigation mediation under the opt-out provision of the Commercial Courts Act, but as many as 1,888 were non-starters and only 08 cases were settled. These statistics also show that from January 2019 to February 2020, 2,725 new pre-litigation mediations were recorded for family and IPR disputes in Delhi, of which 952 have been settled. This shows that though pre-litigation mediation has tremendous potential, as seen in other countries, we in India, have been unable to tap it effectively for a variety of reasons.

    Statutory mandating of pre-litigation mediation continues to be absent from most of the recent 'updated' legislations such as the Companies Act, 2013, the Consumer Protection Act, 2019 and other trailblazer codes such as the Insolvency and Bankruptcy Code, 2016 and the Code On Wages, 2019, though the same envisage an elaborate mechanism for court-referred mediation. Further, though Section 32(g) of the RERA, 2016 envisages the state authorities setting up conciliation forums as deemed fit by them, it has only been implemented by the states of Maharashtra, UP and Karnataka till date.

    Even in the statutes which mandate pre-litigation mediation, a glaring absence of punitive measures is felt for parties attempting to evade mandatory pre-litigation mediation, as exist in UK. There is also the absence of 'carrot' for those resolving through pre-litigation mediation as in Italy and Turkey. Moreover, such statutes do not give recognition to external private mediators who have been accredited and are carrying out non-statutory, pre-litigation mediations for a long time, having domain expertise and may be the mediators of choice of parties.

    Recently, the Chief Justice of India, Mr S.A. Bobde, has also emphasised the need for compulsory pre-litigation mediation at the international conference of ICA in February 2020 . In 2018, the Delhi High Court in the case of Union of India vs. Tilak Raj Singh, (2018) 250 DLT 177, had suggested that the Railways formulate a "Litigation Policy" which should include a compulsory pre-litigation mediation to bring about an early settlement in claims of tortuous compensation filed against it.

    Moreover, despite the existence of pre-litigation mediation in India for nearly two decades and its recognition the world over, India, surprisingly, has no specific legislation for the same, even though it has also been amongst the first countries to sign the Singapore Convention for international Mediation in 2019.

    Possibly in view of the decision in the case of M. R. Krishna Murthi Vs. New India Assurance Co. Ltd, 2019 Online SCC 315, where the Supreme Court has highlighted the need for a standalone legislation for mediation, the Supreme Court has set up a Committee of experts in January 2020 to brainstorm and draft legislation exclusively towards standardised mechanisms for mediation, including pre-litigation mediation, and giving statutory approval. Such a legislation is imperative to control the quality of mediators, give credibility and recognition to the process of mediation and remove the ambiguities that exist today.

    With the mediation mechanism growing more robust and significant the world-over and the call for reducing pendency in litigation growing louder, pre-litigation mediation should be the first, default choice for dispute resolution. The legislature needs to incorporate more mandatory 'opt-out' mediation models but with a carrot and/or stick approach which will act as a catalyst for 'opt-in' mediation, bring private mediation into the mainstream as in case of arbitration, and have a standalone mediation legislation, which would provide alternative for dispute resolution to parties which is not only time and cost efficient but also empowering.

    Views Are Personal Only.

    [1] Section 22A of the Legal Services Authorities Act, 1987 –

    (b) "public utility service" means any –

    (i) Transport service for the carriage of passenger or goods by air, road or water; or (ii) postal, telegraph or telephone service; or (iii) The supply of power, light or water to the public by any establishment; or (iv) system of public conservancy or sanitation; or (v) service in hospital or dispensary; or (vi) insurance service , (vii) services of banking and other financial institution, (viii) supply of any kind of fuel to the public by any establishment. (ix) education or educational institutions, or (x) housing and real estate services.

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