Exploring The Role Of Mediation in Commercial Disputes

Introduction

The Constitution of India emphasizes the judiciary’s role in ensuring justice for all as it is a basic right of every person. However, with the increasing number of cases, it becomes very challenging for the courts to provide timely justice to the citizens, resulting in limited access to justice. Consequently, in various cases, The Supreme Court has reiterated the importance of alternative methods of dispute resolution in India, in contrast to traditional approaches. According to the Law Commission’s 129th report, all courts were authorized to resort to alternate dispute resolution mechanisms before litigation.

Due to Intellectual property infringement and contract breaches, there has been a surge in commercial disputes in India, putting immense pressure on the judiciary and leading to a huge backlog of cases. In light of this, The Supreme Court in the case of M/S Patil Automation Private Ltd vs Rakheja Engineers Private Ltd and Ors^[1]. interpreted Section 12-A of The Commercial Courts Act, 2015, and mandated the Pre-Instituted mediation in commercial matters before filing a suit in court. This helps parties for timely access to justice and contributes to reducing the judiciary’s case backlog. Mediation is an impartial and neutral dispute resolution mechanism in which parties voluntarily come together and appoint a mediator to help them mutually reconcile their dispute. Although there is no specific law exclusively related to mediation, it is regulated by the National Legal Services Authority Act, of 1987.

This article will discuss the origin of pre-instituted mediation in commercial disputes in India, landmark judgments by Indian courts, existing loopholes, and the way forward for mediation in India.

Genesis of Pre-instituted Mediation in India

The genesis of pre-instituted mediation in India can be traced back to the establishment of Alternate Dispute Resolution(ADR) mechanisms in the country. In 1999, Section 89 of the Civil Procedure Code(CPC) was introduced, along with Rule 1A of Order 10 of the CPC which authorizes courts to refer disputes before arbitration, mediation, conciliation, Lok settlement, and judicial settlement. The Supreme Court further clarified that mediation and law settlement would be regulated by Legal Services Authority Act, 1987, and arbitration and conciliation would be regulated by Arbitration and Concillation Act, 1996. However, it only allows ADR if parties consent to it, thus making it non-mandatory.

To address the increasing number of commercial disputes in India and ensure speedy and effective justice, the legislature introduced the Commercial Courts Act, 2015 based on the recommendation of the 253rd Law Commission of India. The act establishes Commercial courts, Commercial Division and Commercial Appellate Division in High courts. In 2018, the Commercial Courts Act, 2015 was amended to provide improvements including the introduction of Section 12A. This section stipulated that parties must exhaust all other remedies defined in the rules notified by the government (Pre-institution Mediation and Settlement) Rules 2018 before approaching the court. Additionally, the amendment reduced the pecuniary jurisdiction of commercial courts from INR 1,00,000 to INR 3,00,000.

Furthermore, the Mediation Bill, 2021, has been presented before the Parliament to codify the law on mediation. Section 6 of the bill mandates pre-instituted mediation before any formal court proceedings. However, the bill is still under consideration.

Pre- instituted mediation: Judicial trends

In the landmark judgement of M/S Patil Automation Private Ltd vs Rakheja Engineers Private Ltd and Ors^[2]The Supreme Court interpreted section 12A of the Commercial Courts Act, 2018 and upheld its validity. The court section applied the literal rule of interpretation considering the word”shall” in the section to make it a mandatory provision rather than optional. As per the interpretation, the parties are bound to exhaust the remedy of pre-instituted mediation before filing a case in court and any suit that violates section 12A may be rejected under Order VII Rule 11.

In the case of Laxmi Polufab vs. Eden Realty^[3], the Calcutta High Court upheld the provision of mandatory mediation subject to the provisions of Section 12-A as a valid and effective remedy to arbitrate commercial disputes.

The Allahabad High Court in the case of  Awasthi Motors v. Managing Director M/s. Energy Electricals Vehicle and Another^[4] acknowledged the mandatory provision of Section 12-A.

In the case of  Deepak Raheja vs Ganga Taro Vazirani^[5], the division bench of the Bombay High Court overturned the verdict of a single bench, which held the provisions of Section 12-A of the act as procedural and not mandatory. Thus, it observed that if the said provision would be procedural and not mandatory, it would defeat the purpose of the legislature with which the section was inserted. The parties have to compulsory attend the mediation and amicably resolve the disputes before approaching the court. It invoked the doctrine of substantial defense which involves three elements: an attempt to mediate the dispute, failure of that attempt, and due to that failure, parties approach the court.

However, the Madras High Court diverged from the views of the Supreme Court. In the case of Shahi Exports Private Ltd vs Gold Star line ltd and ors^[6] held that Section 12-A of the Commercial Courts Act, 2015 is not a mandatory provision. The court stated that  the petitioner cannot be denied access to justice for directly approaching the court without exhausting the remedy of pre-instituted mediation.

Loopholes and possible concerns

The provision of section 12-A of the Commercial Courts Act has bifurcated between commercial suits requiring urgent interim relief and those which do not require non-urgent interim relief. It provides that where no urgent relief is needed, the parties have to compulsorily go through the remedy of pre-instituted mediation. However, if interim relief is sought, the parties can directly approach the court without going through pre-instituted mediation. Consequently, the option of pre-instituted mediation can be surpassed where urgent interim relief is required. The major question that arises is the definition of “urgent” and what comprises urgent and what does not. Neither the Commercial Courts’ Act, 2015, nor the courts have provided clarity on the matter, leaving it open for debate. Since, this is a subjective issue depending on the facts and circumstances of the case, parties can bypass mediation by seeking urgent interim relief.

Another issue that needs to be adjudicated is whether the conduct of the defendant in amicably resolving disputes violates the provision of Section 12-A of the Commercial Courts Act, 2015. The recent case of Bolt Technology, OU Ujoy Technology Private Ltd, and Ors. in the Delhi High Court held that “the conduct of a defendant involving refusal to amicably settle a dispute violates the spirit of Section 12A of the CCA. Therefore, the defendant cannot turn around and object to the institution of a plant on the ground of non-compliance with the provision.”

CONCLUSION AND WAY FORWARD

To maintain trustworthy and healthy business relationships, resolving commercial disputes through the Alternative Dispute Resolution mechanism as opposed to traditional methods, can be an effective way. Mediation, being a confidential and impartial mechanism, facilitates parties to amicably settle their disputes in a timely manner, avoiding the lengthy proceedings. However, while other statutes such as the Companies Act of 2013, the Real Estate Regulatory Authority Act of 2016, and the Consumer Protection Act of 2019 have introduced mediation as an alternative mechanism, it remains voluntary rather than mandatory. The mandatory provision of Section 12-A of The Commercial Courts Act, 2015 forced parties to a dispute to pursue  mediation before approaching the court. However, this may lead parties to view mediation as a procedural obligation rather than a voluntary means of dispute resolution, which defeats the purpose of mediation. Moreover, the parties choice to appoint a mediator has been taken away as mediators are appointed by the authority under National Legal Services Authority Act, 1987. Consequently, parties lack faith in the mediator and may not be able to fully disclose all the relevant information during mediation, leading to the failure of the mediation proceedings.

Although mediation is gradually gaining popularity worldwide, India is still at the nascent stage of adopting mediation and the general public tends to have more faith in the traditional dispute resolution methods over ADRs. Therefore, it is crucial for the courts to establish a mechanism to make mandatory provision of the Section 12-A of The Commercial Courts Act, 2015 trustworthy for the parties rather than engaging in debates about its nature. This may enhance the effectiveness of mediation in India.

By Bhumika Grover
2^nd year, B.A. LL.B (Hons.)
Rajiv Gandhi National University of Law, Punjab

^[1] M/s. Patil Automation Private Limited v Rakheja Engineers Private Limited (2022 LiveLaw (SC) 678

^[2] M/s. Patil Automation Private Limited v Rakheja Engineers Private Limited (2022 LiveLaw (SC) 678.

^[3] Laxmi Polufab vs. Eden Realty, 2021 SCC OnLine Cal 145.

^[4] Awasthi Motors v. Managing Director M/s. Energy, Electrical Vehicles and Another [AIR 2021 Allahabad 143].

^[5] Deepak Raheja vs. Ganga Taro Vazirani, 2021 SCC OnLine Bom 312.

^[6] Shahi Exports Private Ltd vs Goldstar Line Ltd and Ors. (2021) SCC OnLine Mad 16514.