Insights

A forward plunge in the realm of alternate dispute resolution – the Mediation Act, 2023

26 September 2023 26 September 2023

The Mediation Act, 2023 (the “Act”) has recently received the assent of the President of India on 14 September 2023 and notified in the Gazette on 15 September 2023. The Act will come into force upon notification by the Central Government. With this, the legal landscape of Alternate Dispute Resolution is set to see a new wave of color with the introduction of statutory mediation in India governed by a standalone Act.

The introduction of this Act is indeed a welcome step towards promoting speedy resolution and unclogging the Courts/Tribunal burdened with a huge pendency of case (which presently stands at a staggering number of 50 million cases^[1] pending across the Hon’ble Supreme Court, High Courts and various District Courts).

The legislative intent behind the Act is essentially to unburden the judiciary and channelize disputes involving monetary claims for resolution through mediation first. Only when there exists no possibility of settlement is when such dispute may be brought within the purview of judicial intervention.

As on date, India is one of the fastest growing economies in the world, attracting numerous foreign investment opportunities. Considering that India is projected to become the third largest economy in the world in the next few years with its GDP estimated to cross the USD 5 Trillion benchmark, the likelihood of an increase in potential disputes also follows.

Therefore, effective resolution of disputes becomes the backbone of a growing economy – and this Act is a progressive step towards strengthening the same. In this Article, we briefly discuss the salient features of the Act as follows.

The scope of the Act

The Act provides an exhaustive procedure for initiating, conducting and concluding mediation proceedings. The Act further proposes to establish a statutory authority^[2] responsible to regulate and promote dispute resolution through mediation for disputes of civil and commercial nature.

The statement and object of the Act abundantly explains the scope of the statute:

“to promote and facilitate mediation, especially institutional mediation, for resolution of disputes, commercial or otherwise, enforce mediated settlement agreements, provide for a body for registration of mediators, to encourage community mediation and to make online mediation as acceptable and cost-effective process and for matters connected therewith or incidental thereto.”

The Act also consequently proposes to amend the Indian Contract Act 1872; the Code of Civil Procedure 1908; the Legal Services Authorities Act, 1987; the Arbitration and Conciliation Act, 1996; the Micro, Small and Medium Enterprises Development Act, 2006; the Companies Act, 2013; the Commercial Courts Act, 2015 and the Consumer Protection Act, 2019 to incorporate necessary provisions in the statutes in order to align with the mandate of the Act.

Disputes excluded from the purview of the Act

While the Act provides for mediation of disputes having civil and commercial nature, the Act specifically excludes disputes of certain categories^[3] for resolution through mediation. They are:

Criminal offences;
Disputes relation to claims against minors, persons with intellectual disabilities;
Matters in conflict of public policy or opposed to basic notions of morality and justice;
Matters or complaints concerning issues related to registration or misconduct alleged against a person providing professional services;
Disputes involving third party rights, except in case of matrimonial disputes with a child’s interest at stake;
Matters within the purview of land acquisition laws; and
Matters within the scope of National Green Tribunals Act, 2010; the Competition Act, 2002; the Telecom Regulatory Authority of India Act, 1997; Electricity Act, 2003; Securities and Exchange Board of India Act, 1992; the Petroleum and Natural Gas Regulatory Boards Act, 2006

This Schedule previously^[4] included disputes involving allegations of fraud, fabrication of documents, forgery and coercion which are now excluded from the Schedule. The rationale being that many civil disputes having the above elements, may then fall within the exclusions under Schedule I of the Act.

Applicability of the Act

The Act is made applicable^[5] to mediation conducted in India wherein:

all or both parties either reside in India or incorporated in India or have a place of business in India;
to agreements providing for mediation to be governed by the Act; and
international mediation^[6]

The Act prospectively applies to mediation/conciliation which commences after the Act coming into force.^[7]

So far as the Central or State government and/or its instrumentalities are concerned, only commercial disputes can be referred for mediation in terms of the Act, and no other unless specifically notified.

The Act does not define “place of business” and “habitual residence”, concepts that have otherwise been subject to judicial interpretation in the past. This is likely to leave some room for interpretation and it will be relevant to see how the position is clarified by the Courts in times to come.

Mediation Agreement

Mediation in terms of the Act is defined^[8] as a process whether referred to by the expression mediation, pre-litigation mediation, online mediation, community mediation, and any expression with a similar import.

The Act defines ‘Mediation Agreement’ as a separate agreement or merely a clause in an agreement in writing, a document signed by the parties, a communication/exchange, a reference to mediation agreement – so long as it expresses the intent of amicably resolving the dispute.^[9]

Interestingly, the Act has given a wider connotation to settlement through mediation within its aegis, therefore even if standard contracts from the past referring to settlement through “discussions” or “conciliation” are continued to be used by commercial/government entities, the same would qualify to fall within the scope of “mediation” within the meaning of the Act. This is of course subject to parties first consenting to mediate in accordance with the Act.

Pre-litigation Mediation – mandatory or voluntary?

The reference of a dispute for resolution by mediation in terms of the Act, which was proposed as a mandatory requirement in the Mediation Bill, 2021 (the “Bill”), is now being made voluntary.^[10] Therefore parties ‘may’ refer a dispute for resolution by mediation and the same is not a condition precedent before approaching the courts/tribunals.

However, so far as commercial disputes with a claim value equivalent to or over the ‘specified value’ in terms of the Commercial Courts Act, 2015 are concerned – mediation shall be undertaken in terms of Section 12A of the Commercial Courts Act, 2015 and rules made thereunder.

Considering that the Act has specifically done away with the mandatory requirement for reference, it will be interesting to see the extent to which litigants will opt for dispute resolution by mediation.

Notably, in the Bill the parties were also provided with an option to withdraw from mediation after two sessions^[11]. Further, the Bill also proposed provisions allowing parties to approach the Courts/Tribunals to seek interim reliefs during or after the commencement of the mediation proceedings.^[12] However the Act has no such provisions, perhaps owing to reference being made voluntary.

The Act however provides for powers of the courts/tribunals to refer the parties for resolution by mediation, and granting interim reliefs, if required.^[13] Since pre-litigation reference to mediate is not mandatory (except for commercial disputes of specified value or above), the courts/tribunals will assume a greater role in promoting and referring disputes for mediation – where settlement is plausible.

Appointment of Mediator

The Act provides for appointment of a mediator by mutual agreement. This person may be of any nationality, including a foreign national so long as they possess the requisite qualifications^[14]. In the event a consensus cannot be arrived upon, the Act provides for an application to be made to the ‘Mediation Service Provider’^[15] for appointing a Mediator.

Similar to the appointment and disclosure regime applicable to arbitrators under the Arbitration and Conciliation Act, 1996, the Act mandates the appointed Mediator to make necessary disclosures in relation to any conflict of interest or if a justifiable doubt to his neutrality exists^[16]. Parties upon disclosure by the proposed mediator, may waive their right to object^[17] or apply for termination of the proposed mediator’s mandate^[18].

Mediation Proceedings

Mediation proceedings in terms of the Act will be deemed to have commenced on:

the day on which a party receives the notice for exploring settlement of dispute by mediation by another; or
the day the parties mutually agree to appoint a mediator; or
an application is made to the Mediation Service Provider for appointment of a mediator.^[19]

The role of the mediator in the proceedings will be that of a facilitator – assisting the parties to arrive at a solution, explore possible areas of settlement, assisting in identifying issues, etc and by no means acting as an arbitrator/counsel forming views or an opinion on the merits of the dispute.^[20]

As opposed to a period of 180 days extendable to another 180 days proposed in the Bill, the Act makes the proceedings time bound to 120 days commencing from first date fixed for appearance before the mediator. This period is extendable by another 60 days.^[21] The Act also provides that the proceedings can be conducted in any language as agreed between the Parties^[22].

Mediated Settlement Agreement

The Act provides that subject to the outcome of the discussions through the process, the parties are to reduce all or any aspects settled upon, in a formal agreement called the ‘Mediated Settlement Agreement’ (MSA)^[23].

The Act further provides that MSA if executed pursuant to settlement through institutional mediation, the same shall be submitted to the Mediation Service Provider by the mediator. Otherwise, the mediator will authenticate the MSA, sign and provide copies to the parties.^[24]

The Act stipulates registration requirements for MSAs other than the ones arrived upon in courts/tribunal referred mediation or award of Lok Adalat^[25]. As regards registration, the Act clarifies that a party’s right to enforce or challenge a MSA will have no bearing on the registration requirement stipulated in the Act.

Privileged and Confidential Information

The Act, while protecting the interest of the parties, provide for confidentiality of the proceedings regarding the following matters^[26]:

Acknowledgments, admissions, opinions, apologies, proposals;
Acceptance, willingness to accept proposal;
Documents prepared for reference during mediation proceedings

The Act also prohibits reliance of any evidence/documents as above in any other proceedings pending before any other Court/Tribunal^[27]. The Act further provides that no mediator, administrator or participant can be compelled to disclose any information, documents, discussions in any other proceedings pending before any other Tribunal/Court.^[28]

The exceptions stipulated in the Act where disclosure of confidential information can be made^[29] are:

When there is a potential threat of committing of a punishable offence;
Information in relation to domestic violence or child abuse; and
A statement showcasing an imminent threat to the public health and safety.

Enforcement and Challenge – Mediated Settlement Agreement

The Act provides that once a MSA is executed and authenticated by the mediator, the same becomes final and binding. The Act therefore provides for enforcement of a MSA in terms of the procedure set out in the Code of Civil procedure, 1908.^[30]

Relevantly, the Act provides for certain limited grounds for challenging the MSA, namely - fraud, corruption, impersonation or matters that are not fit for mediation.^[31]

Considering that the Act retains the essence of voluntariness attached to the parties referring to mediation and for arriving upon settlement, it is likely that even if a statutory mandate for challenge is incorporated, indulgence to entertain such challenge will be exercised scarcely, on a very high threshold and strictly limited to the grounds stipulated.

To conclude

While the Act provides for an exhaustive procedure covering all aspects, the proper implementation of the Act will also depend on the rules and regulations that are yet to be notified by the Central Government regarding establishing the statutory authority – the Mediation Council of India. More so, considering that the reference to mediation under the Act is voluntary, it will be relevant to see the initiatives taken by the Mediation Council in order to set up and regulate the ‘Mediation Service Providers’ and encourage litigants to opt for mediation as an effective tool for resolving their disputes, amongst other functions.

It is likely that few of the provisions of the Act are subject to judicial scrutiny, however making the mediated settlement agreement binding and enforceable on parties adds sanctity to the procedure and helps in avoiding possibility of either parties unreasonably resiling from the terms of the settlement.

Holistically from a long-term perspective, the passing of the Mediation Act, 2023 as a standalone legislation for dispute resolution is a forward step towards advancing mediation in India.

[1] https://main.sci.gov.in/statistics, https://njdg.ecourts.gov.in/hcnjdgnew/, https://njdg.ecourts.gov.in/njdgnew/?p=main/pend_dashboard

[2] The Mediation Council of India shall be established by the Central Government in terms of Section 31 of the Act, to perform duties and discharge the functions under the Act.

[3] Section 6 of the Act.

[4] In the Mediation Bill, 2021

[5] Section 2 of the Act.

[6] "international mediation" means mediation undertaken under this Act and relates to a commercial dispute arising out of a legal relationship, contractual or otherwise, under any law for the time being in force in India, and where at least one of the parties, is — (i) an individual who is a national of, or habitually resides in, any country other than India; or (ii) a body corporate including a Limited Liability Partnership of any nature, with its place of business outside India; or (iii) an association or body of individuals whose place of business is outside India; or (iv) the Government of a foreign country

[7] Section 56 of the Act.

[8] Section 3(h) of the Act.

[9] Section 4 of the Act.

[10] Section 5(1) of the Act.

[11] Clause 20(1) of the Bill, 2021.

[12] Clause 8 of the Bill, 2021.

[13] Section 7(2) of the Act.

[14] Section 8 of the Act.

[15] "mediation service provider" includes— (a) a body or an organisation that provides for the conduct of mediation under this Act and the rules and regulations made thereunder and is recognised by the Council; or (b) an Authority constituted under the Legal Services Authorities Act, 1987; or (c) a court-annexed mediation centre; or (d) any other body as may be notified by the Central Government: Provided that the bodies referred to in clauses (b), (c) and (d) shall be deemed to be mediation service providers recognised by the Council.

[16] Section 10 of the Act.

[17] Section 10(3) of the Act.

[18] Section 10(4) of the Act.

[19] Section 14 of the Act.

[20] Section 16 of the Act.

[21] Section 18 of the Act.

[22] Section 15(6) of the Act

[23] Section 19(1) of the Act.

[24] Section 19(3) of the Act.

[25] Section 20 of the Act.

[26] Section 22 of the Act.

[27] Section 22(3) of the Act.