This article analyses and critiques the mechanism for mediation introduced by the Mediation Act, 2023 in the context of global standards.

Historically, the Indian judicial system has been plagued with delays. As of 13 February 2024,1 over 44 million civil and criminal case were pending.2 Over time, the law has developed to enable courts to permit, or direct, parties to resolve their disputes through alternative dispute resolution.3 The Legislature also enacted the Legal Services Authorities Act, 1987 and the Arbitration and Conciliation Act, 1996 (A&C Act) to promote alternative dispute resolution, and various statutes now enable mediation, or prescribe mandatory pre-institution mediation.4 However private mediation remained unpopular on account of the lack of statutory recognition.5

On the recommendations of the High Level Committee to Review the Institutionalisation of Arbitration Mechanism in India,6 the 117th report of the Parliamentary Standing Committee on the Mediation Bill, 2021 (Standing Committee Report),7 and the Supreme Court,8 the Government has now institutionalised mediation by enacting the Mediation Act, 2023 (Act).

Key Features of the Act

The Act defines 'mediation' as the process through which parties attempt to amicably settle their disputes with the assistance of a 3rd party mediator,9 and includes pre-litigation mediation,10online mediation,11 community mediation,12 and conciliation.13 While conciliation was previously provisioned for, and governed by, the A&C Act, it is now considered a form of mediation and is governed by the Act.14

Parties must reach a settlement and execute a mediated settlement agreement (MSA) within 120 days of appointing a mediator.15 The MSA will be final and binding in the same manner as a court's decree or judgment, and can be challenged on limited grounds – fraud, corruption, impersonation and, or, the matter not being capable of being resolved through mediation – within 90 days of receiving a copy of the MSA.16

The Act applies to mediations conducted in India:

  1. Where all parties are habitually resident, or incorporated in, India;
  2. Which involve at least 1 foreign party and relate to a commercial dispute ;17
  3. Where the mediation agreement states that any dispute will be resolved as per the Act;
  4. Where the Central or State Government is a party to a commercial dispute;
  5. Which pertain to other disputes as notified by the Central or State Government.

The Act does not extend to mediations conducted outside India or provide for the enforcement of MSAs arising from such proceedings.

The Act proscribes mediation of certain disputes,18 including disputes involving minors and persons of unsound mind, criminal prosecutions, taxation disputes, proceedings before any statutory authority in relation to misconduct by a practitioner, and disputes involving rights of 3rd parties except where the interest of a child in matrimonial matters is concerned. While the mediation of compoundable offences19 is not proscribed, such matters may only be referred to mediation by the courts, and any MSAs resulting from such mediations are not deemed to be enforceable as a decree of the court.20

The Act also enables parties to apply for interim relief while a dispute is under mediation although it does not prescribe the parameters for such relief.21

 

Shortcomings of the Act

International Standards and Enforcement of International MSAs

Broadly, there are 2 international instruments which set out frameworks for legislation pertaining to mediation: (i) the United Nations Convention on International Settlement Agreements resulting from Mediation, 2019 (Singapore Convention)22 which aims to facilitate the enforcement of international MSAs; and (ii) the United Nations Commission on International Trade Law Model Law on International Commercial Mediation and International Settlement Agreements Resulting from Mediation, 2018 (Model Law)23. Although India is a signatory to the Singapore Convention, the Act does not provide for the recognition and enforcement of international MSAs.24

There are 2 issues here. First, MSAs executed pursuant to mediation proceedings outside India are not enforceable under the Act. Second, while the Act permits the mediation of non-commercial disputes in India, Indian mediation proceedings involving foreign parties are only governed by the Act if they pertain to commercial disputes.

Ideally, international MSAs pertaining to disputes which are capable of being resolved by mediation in India should be enforceable in India. As the Act does not recognise international MSAs, parties seeking to enforce their rights under such agreements may only do so by approaching Indian courts for civil contractual remedies. Failure to extend such recognition will necessarily create difficulties for parties who have executed international MSAs and reduces the flexibility of parties to conduct mediation proceedings outside India. This could stymy the resolution of disputes through mediation, particularly by foreign parties, as statistics show that enforceability of relief is 71% of the criteria in the selection of a dispute resolution mechanism.25

Third-Party Funding

The Act does not deal with third party funding. In India, third-party funding – whether for litigation, arbitration or any other form of dispute resolution – is not expressly prohibited, except in the case of lawyers funding litigation on behalf of their clients.26 In fact, in the past, third-party funding has been permitted in the interest of promoting access to justice.27 Given that the aim of the Legislature appears to be to increase access to, and reliance on, alternative modes of dispute resolution, the Act should, ideally, have created a framework for third-party funding of mediation. There is international precedent for this – Singapore's Civil Law Act, 1909 has, since 2017, permitted third-party funding of mediation.

 

Compoundable Offences

The Act empowers courts to direct parties to undertake mediation to resolve disputes pertaining to compoundable offences. However, the Act does not prescribe guidelines to determine when such an offence may be referred to mediation. This will likely lead to inconsistencies across courts in various states, and the Government should introduce guidelines to streamline the reference of compoundable offences to mediation at the earliest.

Difficulty Enforcing MSAs from Certain Domestic Mediations

While, in general, the Act provides that MSAs arising from mediations conducted in India are enforceable as decrees or judgments of courts, there are some exceptions to this rule – viz. mediation involving compoundable offences and community mediation. These MSAs are, therefore, of limited value as each MSA will need to be adjudicated by the court in order to be enforced.

Interim Reliefs

Although the Act empowers the courts to grant interim reliefs to parties undergoing mediation, it does not specify the nature of the relief available or the parameters for granting the same. This may leave room for misinterpretation and variance in practice. The parameters of, and limitations on, interim relief should be clearly set out to ensure that mediation remains time-bound.

Grounds for Challenge

The Act prescribes an exhaustive list of grounds on which an MSA may be challenged. The list does not include coercion and duress as grounds for challenge. This is concerning since parties may appoint unregistered mediators and, in our view, there may be a greater likelihood of coercion and duress from unregistered and unaccredited mediators. While it is necessary to limit the grounds for challenging an MSA to make the process effective, the permitted grounds should be broad enough so as to not be prejudicial to the parties in the event of an unlawful settlement.28

The Bottom Line

It is possible that the Legislature elected not to incorporate the provisions of the Singapore Convention at this stage as there is inadequate data regarding the implementation of the Singapore Convention in other major economies, and such provisions may be incorporated at a later stage. However, given that India intends to become an international hub for alternative dispute resolution, the Act may have been drafted with the specific intent of discouraging the conduct of mediation proceedings outside India which deal with businesses, assets, or contracts with an Indian nexus.

Given the rise of complex cross-border transactions and the growing popularity of mediation, it is imperative that India formulate a framework for the enforcement of international MSAs. The Legislature could adopt the same approach as that taken for foreign arbitral awards to which the New York Convention applies – i.e. there is a presumption that the award can be enforced unless the party seeking to challenge enforcement can prove certain limited grounds.

In addition to a framework for the enforcement of international MSAs, the Act must prescribe guidelines for the enforcement of MSAs arising from the mediation of compoundable offences and community mediation. Failure to do so may lead to protracted litigation when such MSAs are sought to be enforced, thus defeating the intent behind the Act.

India may also consider expanding the scope of disputes capable of being resolved through mediation to include disputes relating to tortious liabilities, matrimonial and custody disputes, etc., and prescribing more detailed provisions for the grant of interim relief. Lastly, the Singapore Convention and the Act limit international mediation to commercial disputes. By broadening the range of disputes, India can widen the subject matter for mediation, resulting in the resolution of more disputes outside courtrooms.

Footnotes

1 The most recent data available.

2 The National Judicial Data Grid, last updated on 13 February 2024 – available at: https://doj.gov.in/the-national-judicial-data-grid-njdg/ and last accessed on 4 April 2024 at 1145 hours.

3 Section 89 of the Code of Civil Procedure, 1908 was amended to confer such power on the courts.

4 Illustratively, Section 12A of the Commercial Courts Act, 2015 mandates pre-institution mediation prior to the filing of proceedings unless a party requires urgent interim relief.

5 Paragraph 1.7 on page 4 of the One Hundred Seventeenth Report on The Mediation Bill, 2021, Volume I - Department-Related Parliamentary Standing Committee On Personnel, Public Grievances, Law and Justice – available at https://prsindia.org/files/bills_acts/bills_parliament/2021/SC%20Report_Mediation%20bill.pdf and last accessed on 3 April 2024 at 1325 hours.

6 Report of the High Level Committee to Review the Institutionalisation of Arbitration Mechanism in India, 30 July 2017 – available at: https://legalaffairs.gov.in/sites/default/files/Report-HLC.pdf and last accessed on 12 January 2024 at 1256 hours.

7 The Department of Legal Affairs under Ministry of Law and Justice constituted a department-related Parliamentary Standing Committee on Personnel, Public Grievances, Law and Justice which published its report titled "One Hundred Seventeenth Report on the Mediation Bill, 2021, Volume - I", which was presented before the Rajya Sabha on 13 July 2022.

8 M.R. Krishna Murthi v. The New India Assurance Co. Ltd., AIR 2019 SC 5625, paragraph 39(a).

9 While the Act provides for the establishment of the Mediation Council of India to register, recognise, and regulate mediation institutions, and accredit mediators, parties to a dispute are free to appoint any person as a mediator irrespective of whether they are accredited by, or registered with, the Mediation Council of India.

10 Pre-litigation is usually voluntary – irrespective of whether the parties have previously executed a mediation agreement – unless: (i) it is mandated by another statute (such as the Commercial Courts Act, 2015); or (ii) a court or tribunal refers the parties to mediation at any stage of proceedings.

11 i.e. mediation conducted using electronic or computer networks.

12 i.e. a process by which residents or families in a locality settle disputes that may affect peace, harmony, and tranquillity of the entire community. Reference of such disputes to community mediation shall be through relevant authorities notified by the Central Government. Community mediation shall be facilitated by a panel of community mediators, including respected members of the community and mediation experts.

13 This is in consonance with international standards, as has been previously acknowledged in the United Nations Convention on International Settlement Agreements Resulting from Mediation, 2019.

14 The A&C Act has been amended accordingly.

15 The parties may agree extend the period for resolution by 60 days.

16 If there is sufficient cause, the court may extend the period for filing a challenge to 180 days.

17 As defined under the Commercial Courts Act, 2015.

18 First Schedule to the Act.

19 Compoundable offences are provided under Section 320 of the Code of Criminal Procedure, 1973 and include offences that can be settled through mutual agreement between parties. These are usually less serious offences, such as hurt, wrongful restraint, assault, adultery, etc.

20 Second proviso to Section 6(1) of the Act.

21 Section 7(2) of the Act.

22 Dated 12 September 2020, the Singapore Convention applies to: (i) disputes arising from an international commercial transaction; (ii) a written settlement agreement which is an outcome of mediation; and (iii) disputes wherein at least 2 of the parties have their place of business in different jurisdictions. On the other hand, the Singapore Convention does not apply to settlement agreements that are: (i) enforceable as a court judgment or arbitral award (product of judicial or arbitral proceedings); (ii) concluded for personal, family, or household purposes by any of the parties; and (iii) related to family, inheritance, or employment law.

23 Which superseded the United Nations Commission on International Trade Law Model Law on International Commercial Conciliation, 2002

24 This is similar to the position in the UK. Mediation in the UK is not regulated by statute (following Brexit), and despite being a signatory to the Singapore Convention, the UK has elected not to enact such a statute as legislating for mediation would be disproportionate.

25 Singapore International Dispute Resolution Academy's International Dispute Resolution Survey: 2020 Final Report – available at https://sidra.smu.edu.sg/sites/sidra.smu.edu.sg/files/survey/4/index.html and last accessed on 3 March 2024 at 1150 hours.

26 See Bar Council of India v. A.K. Balaji, (2018) 5 SCC 379.

27 Ram Coomar Coondoo v. Chunder Canto Mukherjee, 1876 SCC OnLine PC 19.

28 Paragraph 3.173 on page 49 of the Standing Committee Report, Volume I.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.