CRITICAL ANALYSIS OF MANDATORY COMMERCIAL MEDIATION IN INDIA
– Bhavesh Tiwari
It is very well said that a justice delayed is justice denied. Moreover, right to speedy trial is a Fundamental Right enshrined under Article 21 of the Indian Constitution, one can move to Hon’ble Supreme Court under Article 32 if he is denied of speedy trial.
But here comes the biggest question i.e., how to achieve our goal of speedy trial? Today, the courts are overburdened with various kinds of cases hence delay in justice is quite obvious. This research paper is basically based on this question with reference to commercial dispute.
In the very beginning, the researcher will discuss the introductory part in which he will start the discussion right from the enactment of Legal Service Authorities Act, 1987. The authorities under this act are National Legal Services Authority, State Legal Services Authority and District Legal Services Authority. But, all these authorities are profoundly burdened with implementing the ambitious objectives of providing free legal aid to those who need it. Extending their reach to commercial mediations is hardly appropriate and suitable. Commercial disputes will require a focus and skill set that is very different from that envisioned under the Legal Service Authorities Act, 1987.
After this, the researcher will be discussing the enactment of The Commercial Courts, Commercial Division and Commercial Appellate Division of High Court Act, 2015, hereby referred as The Commercial Court Act, 2015 and then the amendment in it in the year 2018 which brought sec. 12A in the act which provides the provision for pre-institution mediation and settlement which makes it compulsory for the parties in any commercial dispute as per section 2(1)(c) of the act to take the matter first to a mediator and then, on dissatisfactory result, to the commercial court.
This is happening for the first time in Indian history that a commercial mediation is made mandatory. But this system is not new; other countries like Italy, Lithuania, Luxembourg, United Kingdom, Ireland also have similar provision.
After analysing the whole scenario, the researcher will critically analyse the pre-amendment period and the post-amendment period. After making a slight comparison the researcher will discuss the result of the survey he had done among various people having understanding of law, asking questions relating to the practical aspect of the mandatory commercial mediation in India and will also discuss the suggestions made by them which he has personally taken with the help of Google form. And then he will conclude the research with the findings of the current research focusing on the practicality of the mandatory commercial mediation in India.
Unless otherwise specifically provided, amendment refers to The Commercial Courts, Commercial Division and Commercial Appellate Division of High Courts (Amendment) Act, 2018
Key words: – Mediator, Commercial dispute, Legal Service Authorities, Commercial Courts and Commercial Division.
“Discourage litigation; persuade your neighbour to compromise whenever you can. Point out to them how the normal winner is often a loser in fees, expense, cost and time .”
MEANING OF MEDIATION
The Hon’ble Supreme Court in the case of M/S Afcons Infra. Ltd. & Anr vs M/S Cherian Varkey Constructions Co. Interprets settlement through mediation with reference to the Sec. 89(2)(d) of the Code of Civil Procedure, 1908 as under:-
“Settlement by `mediation’ means the process by which a mediator appointed by parties or by the Court, as the case may be, mediates the dispute between the parties to the suit, and in particular, by facilitating discussion between parties directly or by communicating with each other through the mediator, by assisting parties in identifying issues, reducing misunderstandings, clarifying priorities, exploring areas of compromise, generating options in an attempt to solve the dispute and emphasizing that it is the parties’ own responsibility for making decisions which affect them. ”
LEGAL SERVICE AUTHORITIES ACT, 1987
For the purpose of providing free and competent legal services to the weaker sections of the society to ensure that opportunities for securing justice are not denied to any citizen by reason of economic or other disabilities, and to organize Lok Adalats to secure that the operation of the legal system promotes justice on a basis of equal opportunity and speedy delivery of justice, the Legal Service Authorities Act, 1987 was enacted. There are basically three main authorities under the said act; National Legal Services Authority, State Legal Services Authority and District Legal Services Authority .
But, all these authorities are profoundly burdened with implementing the ambitious objectives of providing free legal aid to those who need it. Extending their reach to commercial mediations is hardly appropriate and suitable. Commercial disputes will require a focus and skill set that is very different from that envisioned under the Legal Service Authorities Act, 1987 .
THE COMMERCIAL COURTS ACT, 2015
The parliament enacted Commercial Courts, Commercial Division and Commercial Appellate Division of High Courts Act, 2015 which got president’s assent on Dec. 31, 2015 and was enforced retrospectively from Oct. 23, 2015. The objective of this act is to provide for the constitution of Commercial Courts, Commercial Division and Commercial Appellate Division in the High Courts for adjudicating commercial disputes of specified value and matters connected therewith or incidental thereto .
COMMERCIAL COURTS, COMMERCIAL DIVISION AND COMMERCIAL APPELLATE DIVISION OF HIGH COURTS (AMENDMENT) ACT, 2018
But the Government introduced an amendment in this act on May 03, 2018. The objective of this amendment was to expand the ambit of Commercial Courts in India. This will ultimately distribute the burden of civil courts which save time. In this way it will also help in improving India’s rank in ‘ease of doing business index’ released by World Bank .
COMMERCIAL COURTS ACT, 2015
Concept of commercial courts
The concept of commercial courts was first introduced by 188th Report on Proposals for Constitution of Hi-Tech Fast-Track under the chairmanship of M. Jagannadha Rao J. on Dec. 15, 2003. The objective of the report as cited by the chairman to the then Union Minister of Law, Justice and Company Affairs, Mr. Arun Jaitley was to recommend the establishment of commercial courts and commercial divisions at the level of High Court having various facilities like video conferencing as are in the commercial courts of New York, Singapore etc. making the process fast.
Some of the basic features which make the understanding of the act more clear are:-
• There were three agencies under this act;
o Commercial Courts,
o Commercial Division of High Courts and
o Commercial Appellate Division of High Courts
• There was no provision for Commercial Appellate Courts
• There was no concept of pre-institution mandatory mediation.
• The amendment also gives the option of summary trial in which the court can give the judgement solely on the basis of written pleadings on any of the following grounds:-
(i) The plaintiff has no real prospect of succeeding on the claim or the defendant has no real prospect of successfully defending the claim, and
(ii) There is no other compelling reason why the claim should not be disposed of before recording of oral evidence.
• This act defined the minimum value of a commercial dispute i.e., pecuniary jurisdiction from a dispute of at least ₹1,00,00,000/-.
• One thing in the act which makes it unique is that it has done amendments in certain provisions of The Code of Civil Procedure, 1908 dealing with the procedure of trial of any suit relating to commercial dispute of a specified value.
• This act provides the commercial court and commercial division’s jurisdiction over domestic as well as international arbitration.
The following points discuss the merits of introducing the act
• Reduction in the pending commercial suits in civil courts.
• Decrease in the burden of the courts by constitution of commercial courts.
• Speedy disposal of commercial disputes in the commercial courts.
The following points discuss the demerits and the loopholes of the act
• The defined pecuniary jurisdiction is so high that the burden of the civil courts will not be affected much.
• As per sec. 13 an appeal from the decree of the commercial court and the commercial division of High Court shall lie to the Commercial appellate division of the High Court.
• Thus it increases the burden of the commercial appellate division of High Court as it has to hear appeal from both the above authorities.
• Hence it lacks an appellate court at the district court level which can hear appeals from the commercial courts .
Changes made by the amendment
The amendment brought too many crucial changes which were missing in the aforesaid act. The main changes made by it are:-
• The name of the act was changed from ‘The Commercial Courts, Commercial Division and Commercial Appellate Division of High Courts Act , 2015’ to only ‘Commercial Courts Act, 2015’
• Minimum Value of dispute i.e., the pecuniary jurisdiction of the commercial courts reduced to ₹3,00,000/-.
• Now the jurisdiction of Commercial division of High Court is changed from ‘ordinary civil jurisdiction of High Court’ to ‘Ordinary Original Civil Jurisdiction.’
• As the pecuniary jurisdiction is increased, the burden will also be increased upon the commercial appellate division of High Court.
• Thus, Commercial Appellate Courts introduced at dist. judge level.
• Now the commercial courts got split in two –
o District Judge Level &
o Below District Judge Level
• Mandatory pre-institution mediation prescribed (§ 12A)
• Government to appoint commercial court judges
• Now the commercial cases of value between ₹3,00,000/- to ₹1,00,00,000/- can also be heard by commercial courts.
• It will ultimately decrease the burden of civil courts which can now focus on other civil cases.
• It decreased the burden of the Commercial Appellate Division of High Court by making the appeal from commercial court below district court level to the Commercial Appellate Court.
• The main change made by the amendment is the theme on which the present research paper is based on, i.e., mandatory pre-institution mediation in commercial disputes.
• Now it is mandatory for a commercial dispute to go for pre-institutional arbitration except when it is not for urgent interim relief.
• The biggest demerit in mandatory mediation is that if the opposite party do not appear on the due dates or refuses to go for mediation, the process is considered to be non-starter.
• Thus the mandatory nature remains useless if the opposite party do not wants to mediate.
MEDIATION IN COMMERCIAL DISPUTE
Section 2(1)(c) of the Commercial Courts Act, 2015 defines “commercial dispute” as a dispute arising out of––
(i) Transactions of merchants, bankers, financiers and traders;
(ii) Export or import of merchandise or services;
(iii) Issues relating to admiralty and maritime law;
(iv) Transactions relating to aircraft and helicopters, including sale, leasing and financing;
(v) Carriage of goods;
(vi) Construction and infrastructure contracts, including tenders;
(vii) Agreements relating to immovable property used exclusively in trade or commerce;
(viii) Franchising agreements;
(ix) Distribution and licensing agreements;
(x) Management and consultancy agreements;
(xi) Joint venture agreements;
(xii) Shareholders agreements;
(xiii) Subscription and investment agreements pertaining to the service industry;
(xiv) Mercantile agency and mercantile usage;
(xv) Partnership agreements;
(xvi) Technology development agreements;
(xvii) Intellectual property rights;
(xviii) Agreements for sale of goods or provision of services;
(xix) Exploitation of oil and gas reserves or other natural resources including electromagnetic spectrum;
(xx) Insurance and re-insurance;
(xxi) Contracts of agency relating to any of the above; and
(xxii) Such other commercial disputes as may be notified by the Central Government.
PROVISION OF MANDATORY MEDIATION
The amendment in the year 2018 inserted sec. 12A in the act, the provision is as below:-
“(1) A suit, which does not contemplate any urgent interim relief under this Act, shall not be instituted unless the plaintiff exhausts the remedy of pre-institution mediation in accordance with such manner and procedure as may be prescribed by rules made by the Central Government.
(2) The Central Government may, by notification, authorise the Authorities constituted under the Legal Services Authorities Act, 1987 for the purposes of pre-institution mediation.
(3) Notwithstanding anything contained in the Legal Services Authorities Act, 1987 (39 of 1987), the Authority authorised by the Central Government under sub-section (2) shall complete the process of mediation within a period of three months from the date of application made by the plaintiff under sub-section (1):
Provided that the period of mediation may be extended for a further period of two months with the consent of the parties:
Provided further that, the period during which the parties remained occupied with the pre-institution mediation, such period shall not be computed for the purpose of limitation under the Limitation Act, 1963 .
(4) If the parties to the commercial dispute arrive at a settlement, the same shall be reduced into writing and shall be signed by the parties to the dispute and the mediator.
(5) The settlement arrived at under this section shall have the same status and effect as if it is an arbitral award on agreed terms under sub-section (4) of section 30 of the Arbitration and Conciliation Act, 1996 (26 of 1996).]”
Thus, from the above provision the researcher would like to point out the following points:-
• While instituting a commercial dispute, the plaintiff has to first go for a pre-institution mediation.
• But he can by-pass the mediation if the suit contemplates any urgent interim relief.
• The Central Govt. may authorise the authorities under Legal Services Authorities Act, 1987 to conduct pre-institution mediation.
• This mediation is to be completed within three months from the date of application by the plaintiff.
• This period can be extended up to two months if the parties agree to it.
• The time taken in mediation will not be counted for Limitations Act, 1963 .
• The mediation under the said section will be governed by The Commercial Courts (Pre-institution Mediation and Settlement) Rules, 2018.
STAGES IN MEDIATION PROCESS
Initiation of mediation process
• Rule 3 of the Commercial Courts (Pre-institution Mediation and Settlement) Rules, 2018 deals with the initiation of mediation proceeding for commercial dispute.
• A party to the commercial dispute has to file an application before the appropriate authority as assigned for that matter.
• For making the application the applicant has to fill the form-1 as specified in the schedule-1 of the rules.
• Along with the form, he has to pay fee of ₹1,000/- either by demand draft or through online.
• After this, the authority sends a notice to the opposite party in the form-2 either through post or e-mail.
• If the opposite party do not participate in the mediation process even after the final notice, the authority shall treat the process to be non-starter.
• If both the parties are agree for mediation, the authority then assigns the dispute to a mediator .
Introduction and Opening Statement
• To begin with, the mediator introduces himself by giving information such as his name, areas of specialization if any, and number of years of professional experience.
• Then he furnishes information about his appointment as mediator, the assignment of the case to him for mediation and his experience if any in successfully mediating similar cases in the past.
• Then the mediator declares that he has no connection with either of the parties and he has no interest in the dispute.
• He also assures the confidentiality and shows the hope of resolution of the dispute.
• Thereafter, the mediator requests each party to introduce himself. He may elicit more information about the parties’ and may freely interact with them to put them at ease.
• The mediator will then request the counsel to introduce themselves.
• The mediator will then confirm that the necessary parties are present with authority to negotiate and make settlement decisions
• The mediator will discuss with the parties and their counsel any time constraints or scheduling issues
• If any junior counsel is present, the mediator will elicit information about the senior advocate he is working for and ensure that he is authorized to represent the client .
• The mediator should invite parties to narrate their case, explain perspectives, vent emotions and express feelings without interruption or challenge.
• First, the plaintiff/petitioner should be permitted to explain or state his case in his own words.
• Second, counsel would thereafter present the case and state the legal issues involved in the case.
• Third, defendant/respondent would thereafter explain his case in his own words.
• Fourth, counsel for defendant/respondent would present the case and state the legal issues involved in the case .
• During the separate session each of the parties and his counsel would talk to the mediator in confidence.
• The mediator should begin by re-affirming the confidential nature of the process.
• The separate session provides an opportunity for the mediator to gather more specific information
• The mediator identifies each party’s differential priorities on the different aspects of the dispute (priorities and goals) and the possibility of any trade off is ascertained .
Examination and analysis of the matter
• After this a reality testing is done by the mediator in which a detailed examination of specific elements of a claim, defence, or a perspective.
• The mediator may ask the parties or counsel for their views about the strengths and weaknesses of their case and the other side’s case.
• Now the mediator list out the available option and evaluates them.
• Then the mediator applies the principle of BATNA, WASTNA & MLATNA.
• BATNA refers to Best Alternative to Negotiated Agreement
• WATNA refers to Worst Alternative to Negotiated Agreement
• MLATNA refers to Most Likely Alternative to Negotiated Agreement
• So by the above three principles, the mediator can come to a conclusion .
• Mediator orally confirms the terms of settlement;
• Such terms of settlement are reduced to writing;
• The agreement is signed by all parties to the agreement and the counsel if any representing the parties;
• Mediator also may affix his signature on the signed agreement, certifying that the agreement was signed in his/her presence;
• A copy of the signed agreement is furnished to the parties;
• The original signed agreement sent to the referral Court for passing appropriate order in accordance with the agreement;
• As far as practicable the parties agree upon a date for appearance in court and such date is intimated to the court by the mediator;
• The mediator thanks the parties for their participation in the mediation and, congratulates all parties for reaching a settlement.
• If a settlement between the parties could not be reached, the case would be returned to the referral Court merely reporting “not settled”.
• The report will not assign any reason for non settlement or fix responsibility on any one for the non-settlement.
• The statements made during the mediation will remain confidential and should not be disclosed by any party or advocate or mediator to the Court or to anybody else
ADVANTAGES OF MEDIATION
• Speedy and time bound disposal
• Economical as less cost overall
• Simple and flexible in terms of proceedings
• Informal environment
• Full participation of the parties
• Highly confidential proceedings
• Flexibility of time
• Creative and more suitable solutions
• Refund of court fees if the case is settled by mediation
RESULT OF SURVEY
The researcher made a digital Google form which he forwarded to various people with the help of LinkedIn, G-mail, WhatsApp and other such platforms, which is available @ https://forms.gle/WzDWFweeW9bLM6f57. The specimen of the form is as below:-
Fig. #01, Questionnaire used in the survey.
Fig. #02, Questionnaire used in the survey.
Fig. #03, Questionnaire used in the survey.
RESULT OF THE SURVEY
Fig. #04, Result of survey.
Fig. #05, Result of survey.
Fig. #06, Result of survey.
POINTS IN FAVOUR OF HYPOTHESIS
Among the respondents, 40% are practicing advocates as they can give a better and practical respond to the implementation of mandatory commercial mediation. Mandatory mediation is suitable in India. To support this view the researcher would like to point out the following points:-
a. There is delay in disposal of a dispute, as supported by 98% of the respondents .
b. The reason behind this delay, in the order of high gravity are:-
i. Low number of judges (as responded by 58% of the respondents)
ii. Red tapism (as responded by 50% of the respondents)
iii. Large number of pending cases (as responded by 36% of the respondents)
iv. Lack of proper legal system(as responded by 2% of the respondents)
v. Judges are not performing to their complete potential (as responded by 2% of the respondents)
c. The researcher would also like to cite the views of some respondents who supported the mandatory mediation which are as below:-
i. Its necessary and very useful
ii. With the increase in entrepreneurs there is increase in commercial disputes, so mandatory mediation can be a good option.
iii. Well this can prove to be a better and quicker alternative
iv. Mediation decreases the numbers of litigations
v. It is a faster process, it is less costly but need to make more effective. Execution of order is tricky and complicated and that really need to make simpler. Thanks
POINTS IN AGAINST OF HYPOTHESIS
Mandatory mediation is not that suitable in India. To support this view the researcher would like to point out the following points:-
a. Among the respondents, 42% polled the effect of mandatory commercial mediation as ‘moderate,’ only 8% polled for ‘very positive.’
b. It shows that mandatory mediation has not given a very positive effect.
c. Moreover, 66% of the respondents has polled that there can be a better alternative of mandatory mediation .
d. There is no independent authority which can ensure that the mediation proceedings are fair in nature.
e. The researcher would also like to cite the views of some respondents who opposed the mandatory commercial mediation which are as below:-
i. In commercial disputes, the parties by themselves try to find a mid way and they approach the court only if they cannot settle it by themselves, thus making them to go for mediation again is wastage of time.
ii. Our firm went for mediation with a trader in Indore, but it was of no use, the end result was same – Non-satisfactory.
a. The Ministry of Law & Justice must ensure that there is an adequate group of experienced and well trained professional mediators who can meet the demand that results from the mandatory mediation.
b. There must be a sanction that the Judges can impose on Parties in case they do not appear for this initial mediation meeting.
c. The Ministry of Law and Justice must recognise outside institutions such as mediation centres run by Bar Associations, Professional Associations, Chambers of Commerce and other recognised bodies to be able to effectively sustain such an initiative.
d. As the main reason behind bringing mandatory commercial mediation is to speed up the disposal of commercial disputes, so there should be a focus on increase in number of commercial courts as this will distribute the burden and thus the proceedings can go on time.
e. There should be an independent authority other than High Court to look after the working of the commercial courts and to whom the courts have to monthly reports.
f. Thus if the above suggestions are applied, the main problems making delay in justice as discussed before will be solved.
From the whole research made and interpretation done, the researcher would like to point out the following points of conclusion which can give the gist of the whole research:-
– Mandatory mediation is a good initiative to speed up the disposal of commercial disputes and also to provide the parties more beneficial and innovative way of settlement.
– In India there is a shortage of judges, large number of cases and red tapism, so bringing a fair way of settlement make the commercial dispute to resolve easily.
– Thus the amendment in Commercial Courts Act, 2015 which brings sec. 12A is a good step towards a better judicial system.
– But it is to be noted as well that mandatory mediation is not the best option as there can be better alternative to it as cited by the survey.
– Thus, it can be very well concluded that mandatory commercial mediation will decrease the workload of the courts and thus ultimately speed up the disposal of commercial disputes and is a suitable option in Indian scenario
– Hence, the hypothesis of the present research is accepted.