India: Exploring The Mechanism Of The Mediation Act, 2023

1. Introduction

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

Mediation is recognized worldwide as an effective and less adversarial method of resolving disputes. India has long encouraged mediation to reduce the overburdening of courts and on September 15, 2023 enacted the Mediation Act, 2023 ("Act"). The Act aims to promote mediation by providing a mechanism for mediation at both an individual and community level, in various sectors (including civil law, commercial law, family law, etc.) and through both offline and online modes. While many provisions are yet to come in force, on October 9, 2023, the Ministry of Law and Justice notified 21 of 65 sections of the Act, relating to title, definitions, establishment of the MCI, rule-making powers, and transitory provisions.

In January 2022, a previous newsletter had covered the Mediation Bill, 2021. As the Act has retained most of the provisions of the Mediation Bill, this newsletter deals with the mediation mechanism under the Act, the benefits of mediation and the challenges ahead.

2. Key Features of Mediation Mechanism

The following is a high-level overview of certain key constituents of the Act.

2.1 Definition of Mediation: Mediation has long existed in India in various forms including court referred mediation, mandatory pre-litigation mediation¹, and conciliation under part III of the Arbitration and Conciliation Act, 1996 ("A&C Act"). This means conciliation under the A&C Act will be redundant and replaced by mediation. The Act defines "mediation" to cover various forms of mediation, including pre-litigation, online, community, conciliation, and a process whereby parties attempt to reach an amicable settlement of their dispute with a third person referred to as mediator who does not have the authority to impose a settlement. Thus, consent decrees under Order XII Rule 6 of the Code of Civil Procedure, 1908² ("CPC") and settlements under section 30 of the A&C Act³ while similar in nature, are not classified as mediation.

2.2 Scope: Once notified, the Act shall apply to all mediation proceedings conducted in India. Nevertheless, parties can choose to conduct the proceedings under the Act outside India, and they shall be considered to be conducted within the relevant territorial jurisdiction for the sake of enforcement, challenge, and registration of the mediated settlement agreement. The Act shall also apply to international mediation i.e., proceedings where one or more parties is either a foreign national or has its principal place of business outside India or habitually resides outside India. Under the Act, mediation can be undertaken in case of all civil and commercial disputes, unless excluded under Schedule I of the Act, which contains 13 broad areas. Disputes which cannot be mediated include (a) those against minors or persons with intellectual disability, (b) prosecution of criminal offences. In case of compoundable offences, courts are empowered to refer disputes for mediation with a caveat that the outcome must be considered by court and not be deemed to be a decree of the court, (c) tax disputes, (d) competition and telecom investigations, inquiry or proceeding before the regulators and appellate tribunal, (e) those affecting third party rights, except matrimonial disputes where child rights are involved. In addition, international mediation and mediation involving a government entity⁴ is restricted to commercial disputes.

2.3 Venue: Mediation must be conducted within the territorial jurisdiction of the court having jurisdiction to decide the dispute, unless both parties agree to do it online or at any other place. Such mediation shall be considered to be conducted within the territorial jurisdiction of the competent court.

2.4 Mediation Council of India ("MCI"): Chapter VII of the Act establishes MCI for promoting and regulating mediation in India. Its multiple functions include (i) establishing and maintaining a register of mediators; (ii) prescribing standards for training, certification, and registration of mediators; (iii) promoting and encouraging the use of mediation in India; (iv) developing and implementing training programs for mediators; (v) publishing and disseminating information on mediation; and (vi) providing a mechanism to renew, cancel, withdraw, and suspend registration of mediators.

2.5 Mediation Agreements: The Act allows parties to mutually agree to resolve disputes by mediation. Like arbitration, a mediation agreement can be a separate agreement, an agreement through exchange of e-mails, or a dispute resolution clause in an agreement. Schedule III of the Act has amended section 28 of the Contract Act which provides contracts in restraint of legal proceedings are void. Now, with the amendment, mediation agreements are carved as an exception. In contrast to section 8 of the A&C Act which prevents a party from agitating a dispute in court before seeking resolution through arbitration, there is no corresponding section in the present Act. Possibly, this was omitted in the spirit of the voluntary nature of mediation, yet a compulsion to mediate could have been a pivotal nudge to make parties sit-down and attempt to amicably resolve the dispute. Parties can always pursue litigation if settlement does not crystallize. Nevertheless, if mediation is provided for contractually and, instead one party seeks recourse to courts, the other party can inform the court of the mediation agreement and request the judge to refer parties to mediation.

2.6 Appointment of Mediator: Under section 8(i) of the Act, any person of any nationality can be appointed as a mediator, either by mutual agreement or parties can approach a mediation service provider ("MSP") which will then appoint a mediator. The Act refers to MSP as either

• a body or an organization,
• an authority constituted under the Legal Services Act, 1987,
• a court annexed mediation center⁵,
• any other body as notified, provided any of these are recognized by the MCI for conduct of mediation proceedings under the Act. MCI has not recognized any MSP till the time of writing this newsletter.

While the Act does not require the mediator to have any qualifications, it dictates that a mediator of foreign nationality shall possess such qualification, experience and accreditation as may be specified by the MCI. Possibly, once constituted the MCI will fix this lacuna and provide for uniform accreditation of mediators, domestic or foreign.

2.7 Procedure for Mediation: After a mediator is appointed, they must disclose any conflict of interest. Either party can seek replacement of the mediator after such disclosure. The mediator must begin mediation by expressly informing parties that they can only facilitate decision making and cannot impose any settlement. The proceedings are not bound by CPC or the Evidence Act and parties are free to determine the manner and language. Mediation proceedings are strictly confidential, and any information disclosed cannot be relied upon as evidence in any subsequent court proceedings. The process must be completed within 120 days, though parties can extend for another 60 days through mutual consent. If mediation is not completed within this timeline, the mediator must prepare a non-settlement report for the parties or the MSP. If the parties resolve the dispute and execute a mediated settlement agreement ("MSA") then the mediation is successful. An MSA is a written agreement settling some or all of the disputes. It must be valid under the Contract Act, signed by both parties and duly authenticated by the mediator. During the pendency of proceedings, parties can also execute other agreements settling some of the subject-matter disputes.

2.8 MSA Enforcement: MSA can be challenged on limited grounds of (i) fraud, (ii) corruption, (iii) impersonation, and (iv) subject matter unfit for mediation.⁶ If there is no challenge or if a challenge is unsuccessful, then, section 27 of the Act ensures the MSA is binding and enforceable akin to a judgment or decree. This means where one party fails to comply with the MSA, the non-defaulting party has a right to enforce. In such case, the enforcement will be in line with the applicable provisions of the CPC. This effectively means a round of court proceedings, which we are not detailing here.

3. Additional Features

Aside from the above, the Act also provides for:

3.1 Online Mediation: In light of Covid-19, it is little surprise that the Act intends to enable online mediation as an acceptable and cost-effective process. Section 30 allows parties to opt for online/virtual mediation, which shall be deemed to occur within the jurisdiction of a competent court. The Act also requires online mediation communication mechanisms to ensure confidentiality. In view of the restrictions imposed on audio or video recording of mediation proceedings, it will be interesting to see what rules will be formulated for ensuring confidentiality obligations.

3.2 Community Mediation: Chapter X of the Act provides for community mediation. Any dispute likely to affect peace, harmony and tranquility of residents of any particular locality can be referred for mediation with consent of all parties involved under section 43 of the Act. The parties must apply to the District Magistrate or concerned district legal services authority for referring the dispute to mediation. The authority will notify a panel of three community mediators. While the mechanism is similar to that for ordinary mediation, a settlement under community mediation is not enforceable as a judgment or decree.

4. Conclusion

While India was one of the first countries to sign the Singapore Convention on Mediation,⁷ it has not been incorporated in the present Act. However, there is nothing that prevents parties involved in international MSAs to ensure they rely upon and refer to the Act as part of their conclusive settlement. While the Act is still nascent and not fully notified, it is a first step in the right direction. It is absolutely imperative for individuals and companies to adopt mediation as a tool to resolve disputes. Its ultimate success however, will depend on effective implementation, the quality of trained mediators and mediation advocates, as well as public awareness of the benefits of mediation.

If India has to attain its status as a trillion-dollar economy, and simultaneously ease the backlog of cases in courts, there is absolutely no question that it needs to alter its existing image and move towards a swift resolution process of all kinds of disputes. This should apply to those amongst individuals, companies, domestic or foreign, or any combination thereof. As society continues to evolve, so too must its approach to resolving disputes.

Footnotes

1. Certain statutes, like Commercial Courts Act, 2015 require disputes to be mandatorily referred to mediation before moving the court

2. Consent decree is a judicial decree recording the terms of a written compromise or settlement agreement executed by parties to settle the dispute

3. Section 30 of the A&C Act allows an arbitrator to record a settlement in the form of an arbitral award

4. Mediation involving a government entity can also be conducted for such other disputes that are deemed appropriate and notified by the Central or State Government

5. These are institutes set-up in the court premises. The judge directs parties and their counsel to appear before an empaneled mediator to explore amicable settlement

6. These are covered in Schedule I of the Act and selectively mentioned in Section 2.2 above

7. This is known as the UN Convention on International Settlement Agreements resulting from mediation. It is a uniform framework for recognition and enforcement of international settlement agreements resulting from mediation of commercial disputes

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.